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The Middle East has traditionally shown reluctance towards airline alliances. However, times are changing. The aviation industry is pushing liberalisation, privatisation and the low-cost sector, which is placing more pressure on governments to adopt accessible operating environments.

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By  Colin Baker Published  November 21, 2006

|~||~||~|The Middle East has traditionally shown reluctance towards airline alliances. However, times are changing. The aviation industry is pushing liberalisation, privatisation and the low-cost sector, which is placing more pressure on governments to adopt accessible operating environments. The Middle East can probably be considered a latecomer to the world of airline alliances. The whole concept is based on sympathetic governments encouraging code sharing and general cooperation, whereas countries in the Middle East have traditionally maintained tight control over their aviation activities. However, times are changing. The aviation industry is pushing liberalisation, privatisation and the low-cost sector, which means governments are facing increasing pressure to accept change and adopt accessible operating environments. The likes of Morocco, Jordan, Lebanon and the UAE are heading towards more liberalised bilateral agreements with the European Union. Whilst these agreements are not directly related to liberalising the Middle East aviation industry, they clearly demonstrate how governments and airlines are rethinking the way they interact with the rest of the world. As a result, many carriers in the region now accept that alliance membership will be part of their future strategy. Royal Jordanian, for instance, broke the mould last year, opting to join the Oneworld alliance. The airline was attracted by the alliance’s flexibility – with a focus on bilateral relationships, compared to the centralised approach of the Star Alliance. In return, Oneworld values the foothold offered by Royal Jordanian into a region generally considered difficult to penetrate. “If we wish to cooperate with carriers outside of Oneworld, then it’s not a problem for them,” says Samer Majali, chief executive at Royal Jordanian. “That’s one of the reasons we chose Oneworld. It’s a liberal alliance and allows carriers to remain independent.” The Star Alliance is also keeping pace with market developments. In early August, it revealed that Turkish Airlines was joining its largest global grouping. The Istanbul-based carrier previously considered the SkyTeam alliance, before eventually committing to Star Alliance. Turkish Airlines has actively expanded its fleet and network on the back of Turkey’s strong economy and fast-growing tourism industry. “We have become one of the biggest carriers in the region. The Turkish Airlines fleet has grown to 98 aircraft and we’ve opened 24 new routes in the past year, which means we are growing in the eyes of industry alliances,” says the airline’s chief executive Candan Karlitekin. “We have a good market share in Eastern Europe, the Balkans, North Africa, Middle Asia and the Middle East. We aim to give good connections from Istanbul to these routes.” Despite losing Turkish Airlines, the SkyTeam alliance is still an attractive option for the aviation industry. It recently signed Middle East Airlines (MEA) as part of the second tier associate member programme. The Beirut-based carrier is expected to formalise its membership early next year. Associate members of SkyTeam adhere to key alliance customer programmes, including frequent flyer reciprocity, lounge access and code-sharing agreements. However, associate members have relatively little input into the alliance’s decision-making process. Air France KLM will serve as MEA’s sponsor during the initial membership stages, with completion expected within the first half of next year. “We are pleased that MEA, with an established presence in the Middle East and Arabic world, is interested in affiliating itself with SkyTeam,” says Jean-Cyril Spinetta, chairman and chief executive of Air France KLM. “The alliance looks forward to working with the airline and providing passengers with additional opportunities in this high growth market.” If SkyTeam wanted a larger presence in the Middle East, Gulf Air could be a suitable choice. The carrier has focused on a turnaround programme under its recently departed chief executive James Hogan, including attempts to resolve well-known shareholder issues. It has also expressed an interest in airline alliances, holding high-level meetings with all three major alliances in recent years. Since Oneworld and Star have already selected their regional partners, SkyTeam seems an obvious possibility. Gulf Air already has codeshare agreements with MEA, which could mean a smooth entry into SkyTeam, although the airline also had codeshare links with Oneworld’s American Airlines. Meanwhile, Star is the preferred choice of Egypt Air, although no formal talks have apparently taken place. The carrier has met with members of Lufthansa and hopes to become an airline alliance member within the next year or two. It has already opted to upgrade its IT systems, moving over to the Amadeus reservations product by the end of 2006. Amadeus is the main global distribution system provider for Star members and has developed a common IT platform for the alliance, which Lufthansa and United Airlines are expected to implement shortly. Egypt Air believes its connections to major African cities should help attract the alliance. However, Star already has a strong African presence through South African Airways. Indeed, with 18 full members and three associate members, together with three full members expected to join shortly, Star is hardly short of partners. A second alliance option for Egypt Air could be rival Oneworld, followed by SkyTeam. Even the smaller start-ups, such as RAK Airways, which commences operations in January 2007 from Ras Al Khaimah, view alliances as the way forward. “Alliances provide crucial interline feed,” explains RAK chief executive Jack Romero. Although it will be three or four years before the carrier is in a position to join an alliance, Romero believes the airline will eventually offer a mini-hub, with connections to parts of the world not fully served by the three alliances. However, since Oneworld, Star and SkyTeam will probably have partners in the region by the end of the decade, Romero acknowledges the uncertainty about alliances signing further partners in the same area. At the same time, he believes the scenario is workable, as long as there is minimal network overlap. With several regional carriers expressing interest in airlines, the whole industry still remains undivided over the benefits of membership. Indeed, two of the Middle East’s largest carriers are less enthusiastic. Emirates Airlines has successfully connected the world’s major cities through Dubai, which means the need for interline partners is narrow. With a similar strategy, Etihad is also likely to remain outside the alliance system. Qatar Airways considers alliance membership a long-term possibility, although it has not placed any urgency over the matter. Akbar Al-Baker, chairman of the airline, gives the impression all three major alliances are interested in Qatar Airways. Speculation suggests the carrier may choose Star Alliance at some point, because of the codesharing deal between Qatar Airways and United Airlines, adding to existing codeshare agreements with Lufthansa, BMI and All Nippon Airways. Al-Baker has always stated a decision on alliance membership could be years away. With the carrier becoming more competitive against the major European and Asian carriers on the Europe-Asia sectors, it may share the same issues with alliances as Emirates and Etihad. With other Middle Eastern carriers clearly moving towards the alliances, some have even come together to set up an arrangement known as Arabesk, which has been largely driven by the Arab Air Carriers Organisation (AACO). Six Middle East airlines have signed up to this loose alliance by adopting an agreement detailing the way in which the carriers will cooperate with each other. Aimed at increasing efficiency, partner carriers within the alliance have already begun engaging in early cooperative efforts such as codesharing. These six member carriers - Gulf Air, Middle East Airlines, Egypt Air, Royal Jordanian Airlines, Yemenia and Saudi Arabian Airlines – have agreed on crucial issues, such as membership criteria, governance, commercial activity, operations, financial obligations and dispute resolution. “The cooperation is already yielding benefits for the individual carriers and is demonstrating that this is a good path for the future, providing value-added service to travellers through better market coverage,” says Abdul Wahab Teffaha, AACO secretary general. A seventh airline, Tunisair, is set to join this alliance at a later date. Oman Air, a potential eighth carrier, withdrew from the partnership towards the end of last year, after concluding that, given its small fleet and current high frequency operation, it would probably not benefit from membership. Some commentators have implied that Arabesk may only have a limited scope when compared to the global coverage offered by the major alliances. Essentially, the alliance can be viewed as a grouping of the smaller players in the region in the face of heightened competition from the dominant carriers, including the increasingly powerful low-cost sector. As RAK Airways’ Romero concludes, most carriers in the region face a crucial decision. “The aviation industry is changing and alliances will play an important role in the future. Airlines will either go down the low cost route or join an alliance. It will be interesting to see how the situation develops,” he says. ||**||

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