Etihad Airways and Air France-KLM announced a major strategic partnership yesterday that will allow the airlines to sell each other's tickets, link frequent-flyer programmes and collaborate on procurement and maintenance.
The deal does not require the airlines to make an equity investment in any of the partner companies.
The deal marks a major change in European airlines' attitude towards Arabian Gulf carriers, according to aviation analysts.
"This obviously marks a new realism. Until now Air France have been resolutely hostile over what they see as their predatory practises," said John Strickland of JLS Consultancy, based in London. "But with this we're seeing a decision to work with the Gulf airlines and not against them."
The agreement will be subject to scrutiny by European Union competition authorities.
Air France-KLM and Air Berlin, in which Etihad Airways holds a 29.21 per cent stake, also announced a mutual code-share agreement allowing customers of each of the two carriers to fly seamlessly on all the routes operated by the other between France and Germany.
"This deal, Etihad Airways' 40th code share, marks a momentous milestone for both airline groups and offers countless opportunities to develop an unrivalled commercial relationship," said James Hogan, the Etihad Airways' president and chief executive.
Collectively, the two airline groups expect to carry more than 85 million passengers this year.
The deal follows an announcement that Qantas and Emirates Airline were setting up a strategic partnership that would see Qantas' Asian hub switch from Singapore to Dubai, and Emirates gain access to the Australian carriers domestic network.
"This deal [Etihad-Air France-KLM] coupled with Qantas-Emirates means the Gulf carriers - previously the bęte noires of the European airline establishment - will establish themselves at the core of the new global world order. It is difficult to imagine a more dramatic shift in the balance of power as is occurring now," said Capa, the Australia-based aviation analyst.
"It is clear that the repercussive effect of this is resounding loudly and every major airline will now be reassessing its role and positioning in the overall system."
Initially, the agreement between Etihad and Air France-KLM will see the Abu Dhabi carrier's EY code placed on several Air France flights from Paris Charles de Gaulle airport and on several KLM flights from Amsterdam.
Air France will initially place its AF code on Etihad Airways flights between Abu Dhabi and the Seychelles, the Maldives, Colombo, Dhaka, Kathmandu and Islamabad. KLM will initially place its KL code on Etihad Airways flights between Abu Dhabi and Sydney, Melbourne, Islamabad, Colombo and Lahore.
The new strategic partners will also work together on the proposed integration of frequent-flyer programmes, including reciprocal "earn-and-burn" privileges for members of the carriers' programmes.
"This deal enables us to further extend our global reach and now gives us a combined network of 321 destinations - the largest of any Middle East carrier," Mr Hogan added.
"Partnerships are delivering a major source of our revenue growth, by extending our network reach and putting our brand directly in front of millions of new customers. This year to date, they are providing 18 per cent of our revenues and will be a major contributor to our sustained profitability growth this year and into the future."
Air France and KLM, which merged in 2004, are going through a major restructuring, and analysts believe the Etihad deal will help them to return to profitability.
"This new partnership between Air France-KLM and Etihad Airways and Air Berlin reflects our group's strategic positioning to ensure the best possible services between Europe and the rest of the world, by developing our network and airline partnerships," said Jean-Cyril Spinetta, the Air France-KLM chief executive.
Air France-KLM recorded a deficit of €895 million (Dh4.25 billion) for the three months ending June 30, more than quadruple the €197m net loss accrued in the same quarter last year.
Air France-KLM has launched a three-year turnaround programme aimed at a 10 per cent reduction in costs, restructuring of its medium-haul operations and a reduction of net debt by €2bn.
It includes cutting more than 5,000 jobs, and analysts believe any losses arising from the deal with Etihad will be borne by the European partners.
The two airlines carried 75.8 million passengers and 1.1 million tonnes of cargo last year on a fleet comprised of 586 aircraft.
Air France-KLM are members of the SkyTeam alliance, which has 18 member airlines.