Emirates in FlyDubai Tie-Up as Oil Puts Brakes on Gulf Airlines

(Bloomberg) -- The Persian Gulf is experiencing the first stirrings of airline consolidation as Dubai responds to economic headwinds by forging closer links between long-haul giant Emirates and low-cost sister company FlyDubai.

The carriers, controlled by the same government owner, will form a partnership allowing them to feed passengers onto each other’s flights and featuring network collaboration and coordinated scheduling at their Dubai International Airport base, according to a statement Monday.

Dubai has been looking at placing the airlines under a single structure for several months as the low price of crude clips growth in oil-based Gulf economies. The move means FlyDubai’s regional flights will help fill Emirates jets, while the discount operator gets access to a global network of 157 destinations. New city pairs are set to be opened up and duplicated routes eliminated, while frequent-flyer programs may be aligned.

The plan, to be rolled out from the fourth quarter, will unite complementary models and unlock “immense value,” said Sheikh Ahmed bin Saeed Al Maktoum, chairman and chief executive officer of Emirates Group and chairman of FlyDubai. The airlines will continue to be managed independently, he said.

Still, the state-brokered tie-up will present operational challenges. Emirates has a fleet of 259 Airbus SE A380 and Boeing Co. 777 wide-body jets that serve major cities worldwide via three daily waves of departures that allow people to switch easily between flights. FlyDubai, by contrast, deploys 95 Boeing 737-800 narrow-bodies on point-to-point operations with no advertised transfers.

Melding the networks is something the Dubai government has been pushing for, Emirates President Tim Clark said at the Paris Air Show in June. At the same time, the larger carrier would benefit from the freeing up of take off and landing slots at crowded Dubai International following delays in moving to the new Al Maktoum hub. It could also give Emirates access to FlyDubai’s 737s as an alternative to setting up its own short-haul operation.

Emirates suffered a 70 percent drop in profit in the year ended March 31 as local economies slowed, terrorist attacks hurt demand for travel and the company faced U.S.-imposed travel restrictions. Clark has also expressed concern about the threat from discount long-haul rivals in Asia and Europe.

To contact the reporter on this story: Deena Kamel Yousef in Dubai, UAE at dhussein1@bloomberg.net.

To contact the editors responsible for this story: Chris Reiter at creiter2@bloomberg.net, Christopher Jasper