The Lufthansa SIA joint-venture; context, bold rationale, whos who & cards at

play

Singapore Airlines (SIA) and Lufthansa have signed a wide-ranging partnership

agreement that will see the two airline groups operating key routes between
Singapore and Europe on a joint-venture basis, in addition to significantly
expanding codeshare ties and deepening commercial co-operation by revenuesharing/optimization and joint-marketing programs, in order to co-operate in key
markets predominantly in Europe, Southeast Asia and Australia, co-ordinating
schedules to provide customers more convenient connections between route
networks, offering joint fare promotions, aligning corporate programmes to
strengthen the proposition to corporate customers, and exploring enhancements
to existing frequent-flyer programme ties.

The agreement includes SIA subsidiary SilkAir, and Lufthansa subsidiaries

Austrian Airlines and Swiss.
Flights between SIN-FRA/MUC & SIN-ZRH under revenue-pool sharing
programs
SIA-DUS announced by Singapore Airlines (July 2016)
Tentative freight-proposals and agreements under consideration, but
Singapore Airlines Cargo and Lufthansa Cargo have made no mutual
announcements as of yet. For first-class passengers, a partnership
between Singapore Airlines long haul services to Frankfurt and Munich is
service-combined (through inventory/product/service alignments and
agreements) with Lufthansa Private Jet spanning 100 airports across
Europe, Russia, North Africa and niche TATL services.
Future feasibility-consideration of new/current long-haul services (SIN-VIE,
SIN-BRU, capacity/frequency growth, and product diversification, LCC
operations by Scoot, Eurowings and Edelweiss). Mutual JV-airlines spoke
co-mingling for revenue-management can also be observed as the JV
deepens, allowing expansion of LH in the Middle East and the subcontinent
from secondary ports, and allow Singapore Airlines to operate to grow in
the subcontinent and Middle East, while feeding traffic to its start-up
Indian carrier Vistara.
Currently limited JV, subject to growth upon approval of domestic and
international competition/trade/economic-organizations based upon
respective ratified acts and regulations
We are very pleased to have reached agreement for this extensive
partnership, which will bring about significant benefits to consumers
through enhanced connections and more codeshare destinations.
Singapore Airlines has had longstanding ties to Lufthansa, which is an
ideal partner with an excellent network and strong customer focus. This
agreement deepens ties with the wider Lufthansa Group, providing a solid
foundation for numerous commercial co-operation opportunities. This is
yet another example of how partnerships can result in more for our
customers, as we can jointly provide benefits that we would otherwise not
be able to provide on our own, said Singapore Airlines CEO Mr Goh Choon
Phong.

Carsten Spohr, Chairman of the Executive Board and CEO of Deutsche

Lufthansa AG: We can look back already on a long and fruitful partnership
with Singapore Airlines. And were now intensifying this close collaboration
between two world-leading premium air carriers with a new joint venture
that is in the best interests of all our customers, in Europe and in
Southeast Asia. Because by working even closer together, we can both
offer even better connections and even better services. Our intensified
partnership with Singapore Airlines is an excellent addition to our global
joint venture network, and is a cornerstone of our Asia Strategy. And all
these strategic partnerships will help the Lufthansa Group further
consolidate its leading position in all key markets.
Expanded SQ codeshares on LH/LX/OZ services (mostly short haul intraEuropean, limited Latin American, Caribbean and high-yield US
destinations not/limited operated by SQ (solely based on timings)
Expanded LH codeshares on SQ/MI services on directional OR proximate
services from LH/subsidiary operations. Mostly South-East Asia, Australia,
New Zealand (with possible LH codeshares on NZ), and few high-yield
Asian destinations not operated by LH/subsidiaries/partners upon
convenient schedule observance

The rise of the Gulf carriers, and expanding competing European airlines to the
financial hub of Singapore, continues to pressure airlines that were once upon a
time competitors, into aligning businesses beyond multi-airline alliance groups
(in this case Star). And so the Lufthansa and Singapore Airlines groups have been
forced to compromise their previous independence, to pave sustainable
premium/yield generation, succinct operations, and expanse of virtual-airline
catchments tangibly through the JV. 1

Although Lufthansa and SIA account for about 27% of non-stop Western
Europe-Southeast Asia capacity, their share of flown passengers is around
13%. Emirates alone has 12%; adding Etihad and Qatar now has 27% of
the market transiting via the Gulf. But SIA and Lufthansa are the only
airlines operating non-stop service between their respective countries.
The proposed JV will grow the passenger 27% share to 33% (under
conservative figures), while also even further growing the revenue share
thanks to premium placements for both airlines.
Regulatory structures have placed both companies to limited costmanagement capabilities within the mainline, forcing premium-placement
in the marketplace, while creating inherently disharmonized subsidiaries.
This partnership will also enable further diversified products of these
subsidiaries through growth in capacity transfers between Europe and
South East Asia.
New products into the marketplace, with new-delivery aircraft or order
backlog, rebranding, product optimizations and improvements, and cabin
refits for variety of 5th freedom and direct carriers between Europe and
ASEAN.
Oneworld presence improving with British Airways (high capacity A380
and 77W services non-stop to LHR hub), Qantas (with European onward
connections), Qatar Airways and Finnair lifting the bar with the A350s

currently from DOH-SIN, DOH-FRA and DOH-MUC, and soon into service for
HEL-SIN respectively. Cathay Pacific also fight for market presence in SIN.
Skyteam presence inherently strong and rapidly growing catchments
within the ASEAN and Europe. China Eastern and China Southern continue
to expand mainland China destination counts, while increasing capacity to
PVG, PEK, and CAN, while also announcing and growing European long
haul routes and services with growing fleets. Air France and KLM also
operate to Singapore, with very high O/D oriented presence to much of the
ASEAN regions and China. Garuda Indonesia and China Airlines also play
pivotal roles in capacity transfer to Europe in competition of Star carriers.
Strong partnership structure consolidates traffic to stream.
Turkish Airlines, Ethiopian, Thai Airways and Air India largely, and willing to
retain as uncooperative to LH and SQ to shuttle and contribute to JV
operations between the ASEAN and Europe despite large presence in Asia,
and even larger presence in Europe.

The new agreements announced between SIA and Lufthansa should provide
additional weaponry in the two Star Alliance members' competition with the Gulf
carriers on routes between Western Europe and Southeast Asia. It should also
strengthen Lufthansa's access to Australia. The Gulf airlines' extensive networks
of secondary cities in both Europe and South East Asia still mean that
Lufthansa/SIA will often be trying to combat their rivals' one-stop services with a
two stop proposition, but their deeper cooperation will give them better access to
markets and customers and an enhanced ability to use schedule and price to
enhance their position. Moreover, Lufthansa/SIA will also be better placed on the
main trunk routes between the regions. Gulf carriers serve more European points
than SIA, and more Southeast Asian points than Lufthansa. The proposed JV
between SIA and Lufthansa does not solve all their problems on between EuropeSoutheast Asia. To reach its potential the JV will need two elements of :

1) Wider geographic scope through opening inventories, accessibility and

codeshares (despite both LH and SQ culturally reluctant to interact
amongst themselves (let alone other Star and non-Star partners)
2) Cultural alignment, scope and joint placement between Lufthansa and
SIA. The assets, route networks and anything physical can be aligned, but
a mismatch between managements can be a deciding factor for growth.

There is an undeniable trend from this JV and other strategic moves from both
Lufthansa and SIA: long haul low cost operations (Eurowings/Scoot), greater
group integration (Silkair outreach, and Vistara flow-traffic uptake) and a focus
on partnerships, to name a few. The trend is that Lufthansa and SIA are also
demonstrating a greater willingness to take on competition beyond the product,
and price (where few airlines successful, and a bitter example of Malaysia
Airlines, Thai Airways and other ambitious airlines next door) thanks to capital
accessibility, inventory, outreach, corporate accounts pooling and capability to
be flexible over paper changes in internal management.

Concerns associated to this is as follows:

How this joint-venture will demand for bitterness and consolidation of

partnerships with other carriers. One significant example may be Turkish,
which play a huge role for Singapore in allowing codeshares on services
unable to be operated by its own metal in Europe, North Africa, regional
Africa and South America, while also in return feeding traffic from IST
onwards to Australia/NZ via SIN. On the other hand, TK aligns much of its
operations with LH on African services for TATL ops (give and take
respectively). How the relationships develop through analysis of
inventories will certainly be interesting.
Likewise, it will be interesting how this plays out in negotiations for jointventure operations between Lufthansa and Air China. Maybe SQ can have
its place in the negotiations (although very wishful thinking!).
With the order of the 280T MTOW A350-900ULR by SQ for direct North
American services, this joint venture is sure to not impact the airlines
relationship with Star Partners United (and possibly neither Air Canada), in
favour of LH. As previously stated, the focus on LH is simply between
Europe, SE Asia and respective geographically proximate regions.
Product placement capability. Despite opportunities of LCC operations, it is
quite far-fetched and unreasonable at this point in time, leaving just the
full service carriers. This can be concerning as it limits the mutualbeneficiary carriers to price and product discriminate amid high-premium
operations and high costs (despite both carriers having to feat robust
premium-economy products on-board). Similar to Virgin Australias Airpass
program to allow leisure-traffic fare restrictions inventory requirements to
transfer onto partners, a development of a product with all the restriction
requirements and cost-cutting capability needs to be in place to ensure
greater outreach.
Aligning respective cultures to contracts, business accounts and thirdparty sales-contracts. LHs in-house sales bypassing major GDS and
online service providers in stark contrast of SQ, requires lots of giving and
taking alone in the revenue sharing programs currently in place.
Altering aircraft routings (layover, turnaround and aircraft-utilization),
aircraft types (fleet turnover) and crew rosters (cross airline crew pooling,
type ratings) to facilitate highest demand/catchment/product-value
outreach, and operational robustness (especially time-sensitive high-yield
inelastic premium passengers).
LHs SIN-CGK operations and SQs MUC-MAN & SIN-DME-IAH services.
Protectionist Singaporean and German authorities which may block
expansion of JV and capacity exchange (similar to Air Berlins affairs with
major equity-partner Etihad Airways

This announcement has surely been an interesting but anticipated response to

the competitive atmosphere (especially in rise of 5 th freedom airlines and
stronger liberalization in todays ever changing skies). This is surely in line with
industry trends of mass consolidation and partnerships for scale development,
operational streamlining and mutual benefits. All in all; WATCH THIS SPACE!