Joint Ventures have been an efficient tool to leverage revenues on specific routes for quite some time now. The benefits of establishing a Joint Venture (JV) with a partner airline are diverse; Singapore Airlines and Lufthansa seem to be willing to further leverage this strategy to increase their revenues in Asia.
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Singapore Airlines and Lufthansa have applied to the Malaysian Aviation Commission (MAVCOM) to further extend their JV, thus significantly expanding their network in Europe.
The application submitted by the two airlines relates to cooperation in schedule coordination, capacity management, pricing, sales marketing, frequent flyer programs, and revenue sharing. MAVCOM had previously accepted a 3-years JV in September 2019 related to scheduled air services between the two airlines’ home markets, i.e., Asia (Singapore, Australia, Indonesia, Malaysia) and Europe (Austria, Belgium, Germany, Switzerland).
As for now, the two airlines aim at adding 35 more cities to Lufthansa’s home market in Europe, including cities in the UK, France, Italy, Spain, and Portugal.
The two carriers sustaining the JV would not lead to any significant reduction in competition, given the presence of strong competitive forces linked to competing airlines (such as Gulf airlines) and the low barriers to entry and expansion on the routes covered by the proposed JV.
What do airlines need to establish a JV?
Airlines applying for a JV first need to discuss the topic of metal neutrality, i.e., the fact that it doesn’t matter which airline is actually flying a route between two countries. Indeed, both carriers will share the revenue on that particular route. In the above-mentioned JV case, metal neutrality means that it doesn’t matter if a passenger is flying Lufthansa or Singapore Airlines between Frankfurt and Singapore; the revenue on this route will be equally shared between SIA and LH.
Moreover, the airlines involved in JV have to cooperate in developing a harmonized network, one which enables the carriers to optimise their capacity, measured in Available Seat Kilometers (ASKs). More flights mean more people will likely fly with either one of the airlines’ members of the JV.
When in a JV, airlines will also work together to optimise revenue management and pricing of the tickets to attract the largest amount of passengers, who should pay the right amount of money, depending on their purpose of the flight and willingness to pay.
Lastly, the product and services offered by the two airlines must be aligned for the customers to be satisfied with whichever airline they are flying. To put it another way, a JV between a premium carrier and a low-cost carrier would never work.
What do you think of SIA and LH’s strategy to foster their JV in the Europe-Asia market? Let us know in the comment below!