To tap into India's booming international air traffic, Jet Airways and Air France-KLM has announced "enhanced cooperation agreement" to increase the number of flights to Europe, especially Paris and Amsterdam, and expand further connectivity to the United States. The partnership between the two could, however, hurt the business prospects of major Gulf career Etihad Airlines, which owns 24 per cent stake in Jet Airways, but the pact would help Jet Airlines expand its footprints.
The agreement signed in Mumbai on Wednesday also includes Delta Air Lines, with which Air France KLM has an existing partnership. Many international airlines are tying up on international routes in face of increasing completion, and to reduce expanse. Jet Airways was eying to increase footprints in Europe for long. In September, Jet's Chief Financial Officer Amit Agarwal said that there was "continued weakness in the Gulf market both on the demand as well as yield. And flights into Amsterdam and Paris are a brighter spot."
However, Jet Chairman Naresh Goyal said the current partnership would not be affected due to the partnership with Air France-KLM, and that Jet's "great relationship with Etihad" would continue. Under its previous CEO, James Hogan, Etihad had invested in Jet Airways as part of an aggressive strategy of growing its Abu Dhabi hub by taking stakes in other airlines that would funnel traffic to the United Arab Emirates.
Etihad was not immediately available for comment. CAPA Centre for Aviation senior analyst Will Horton said the Air France KLM partnership was a "textbook example" of the downside of Etihad having only a minority investment in Jet. "Under the new/expanded deal, Jet Airways will do more flying on its own compared to the Etihad deal. That boosts revenue," he said. "Jet's widebody fleet will also be better utilised - that's also good for Jet."
This is the first major announcement by Jet, the second largest domestic airline by revenue, after it relocated its European hub to Amsterdam from Brussels in March 2016. The agreement, which primarily deepens their already existing codeshare partnership signed in 2014, will further boost connectivity between India and Europe as well as between Europe and North America through a similar pact between the three networks and Delta Air Lines of the US.
Whether the new partnership could lead to investment in Jet from the European airlines group, Goyal quipped, "one does not know what happens in future." Significantly, Goyal had earlier categorically ruled out selling stake to another airline/investor or Etihad exiting from the joint venture. "We've no plans to sell stake to another investor. Also, our partner Etihad has no intention to exit Jet," Goyal had said on September 11.
The new route pact apart, the existing tie-up between the AF-KLM and Delta will help connect India to a Trans-Atlantic network with hubs in Amsterdam and Paris. As part of the agreement, Jet passengers will be able to book a single ticket for a trip to the US and Europe, and fly Delta, Air France-KLM or Virgin Atlantic. Flights will be "metal neutral," which means revenue will be shared regardless of whose aircraft is deployed.
Unlike interline or codeshare agreements, a joint venture follows the principle of metal neutrality in which revenue/profit is shared on a pre-determined basis on select routes and it does not matter which airline flies a passenger. The partnership is expecting an incremental revenue to the tune of $1 billion, Goyal said, without offering a timeline for achieving this. He also said his airline has applied for securing a slot in the Delhi airport to launch a fourth flight to London, which will help it cater to the US traffic through Virgin Atlantic. Goyal said he will speak to the group chairmen of AF-KLM and Delta to explore the possibility of deepening this cooperation through joint purchase of fuel and closer tie-ups in engineering and maintenance all of which will be revenue accretive.
According to AF-KLM, as many as 1.2 million are expected to fly between India and the Netherlands via the Amsterdam and Paris hubs of the two carriers in 2017, which will get a further leg-up with this tripartite partnership. With this partnership, number of passengers is expected to surge 40 per cent to 1.7 million next year, the group said.
"Air France-KLM and Jet are launching the first cooperation agreement of its kind on the India-European market, one of the markets at the heart of our strategy for the coming years. "Jet, AF-KLM, and Delta will thus connect India to the vast Trans-Atlantic network via the Paris-Charles de Gaulle and Amsterdam-Schiphol hubs," Jean-Marc Janaillac, chairman and chief executive, Air France-KLM said. Air France-KLM and its partners Delta and Alitalia operate the largest Trans-Atlantic joint-venture with over 270 daily flights.
Janaillac said of the over 12,00,000 customers who have flown between India and Europe through the AF-KLM-Jet networks, half of them travelled to North America, underlining the growth potential of the partnership. For the 2017-18 winter season, AF-KLM-Jet combine will operate 64 weekly flights between the Paris-Charles de Gaulle and Amsterdam-Schiphol hubs and New Delhi, Mumbai, Bengaluru and Chennai. From Charles de Gaulle, Air France and Jet will operate 33 weekly frequencies to Bengaluru, New Delhi and Mumbai and Chennai during the same season and from Amsterdam- Schiphol, Jet and KLM will operate 31 weekly flights to New Delhi, Mumbai and Bengaluru.
With agency inputs