Etihad signs Virgin Blue to put focus on Australia

Etihad Airways hopes to boost its Australian traffic by almost 25 per cent next year following a new code-share alliance with Virgin Blue.

Etihad Airways hopes to boost its Australian traffic by almost 25 per cent next year following a new code-share alliance with Virgin Blue, the airline based in Brisbane and owned by Sir Richard Branson's Virgin Group. The commercial relationship will come into effect from October when the two airlines offer a joint network of more than 100 destinations. In addition, Virgin Blue's international arm, V Australia, will launch direct services to Abu Dhabi next February.

With the deal, Etihad has enlisted the co-operation of a growing and ambitious airline in Virgin Blue. The arrangement is likely also to mark the end of the Abu Dhabi airline's existing code-share deal with Qantas, which was created in March last year. Etihad currently carries 450,000 passengers to and from Australia each year and hopes to raise that to as many as 550,000 passengers as a result of the Virgin Blue alliance, said James Hogan, the chief executive of Etihad.

In particular, Mr Hogan said he hoped a joint Etihad-Virgin Blue offering would win over high-value corporate accounts from international companies whose employees fly frequently, often in first and business class. Although Virgin Blue has been known as a budget airline, it offers premium cabins and is increasingly targeting business travellers since the arrival of its new chief executive John Borghetti in May. In addition to the Etihad code-share, Mr Borghetti also recently announced his airline would end flights to New Zealand and South Africa and replace its service to Thailand with its sister airline Pacific Blue.

"With our combined route network, we will provide all-important access from Australia to both the US and Europe, which improves our suitability for both business and leisure travel and puts us right in the race for major corporate travel accounts," Mr Hogan said. "Everybody wins from this partnership," said Mr Borghetti. "We expect the strategic alliance to have significant revenue and profit upside for both carriers. Importantly, each business will immediately gain from reciprocal traffic flow."

Code share alliances are ways for airlines to offer customers more destinations without actually committing new aircraft to these routes. In this case, Etihad flies to Brisbane, Melbourne and Sydney from Abu Dhabi but will able to let customers book flights to about 30 other cities in Australia via Virgin Blue. It will also enable Etihad to serve Virgin Blue customers travelling to the Middle East and Europe across Etihad's network of 65 destinations.

With the deal, Etihad is expected to wind down its current code-share alliance with Qantas. Company officials described the switch as arising because Qantas was unwilling to concede to key requests, such as fully integrating the two airlines' frequent flier programmes - something Virgin Blue has agreed to. In addition, Qantas will soon become a competitor to Etihad as it is expected to fly to select Middle East destinations, including Beirut and Cairo, as well as Athens, within 18 months.

The Centre for Asia Pacific Aviation, based in Sydney, noted the potential for Etihad to team up with a local Australian carrier and called the deal "one of the more dramatic announcements in a never-peaceful Australian aviation market". "The bottom line of the promise for this joint venture is that Virgin Blue gains access to a wide array of European points, as well as potentially, African and Indian subcontinent routes and beyond," it said in a report. "It is likely that the two will seek a similar arrangement to Qantas-British Airways's joint services agreement, which effectively allows the airlines to operate as one on the 'kangaroo route' to London."

Etihad, which was founded in 2003, has sought to quickly build its international network and catch up with other Gulf carriers including Emirates Airline, the largest international airline by capacity. Emirates, which began flying to Australia 14 years ago, now has 70 flights a week to destinations including Sydney, Melbourne and Perth - an increase from 49 flights a week three years ago. Etihad, which opened services there in 2007, flies 21 times a week, including 11 flights to Sydney, seven to Melbourne and three to Brisbane. It has been allowed to add another seven flights a week from next year, bringing the total to 28.

Perth is a potential fourth Australian destination for Etihad and it is expected to increase its frequencies into Australia as it receives new aircraft deliveries and is granted further air rights under bilateral agreements.