By Tim Hepher and Alexander Cornwell
DUBAI (Reuters) - Emirates [EMIRA.UL] and flydubai have laid the groundwork for the next phase of Dubai's aviation project with orders for $40 billion of jets that will narrow a gap between regional and global networks connecting travelers from Sarajevo to Sydney.
The two government-of-Dubai-owned airlines have largely pursued separate strategies until recently being steered towards closer commercial ties by their sole shareholder.
"I would say the first step that we took is paying off. As of the first week we could see the progress and how positive it is," Emirates and flydubai chairman Sheikh Ahmed bin Saeed al-Maktoum told Reuters in an interview.
"I expect that this will grow and give the opportunity for both airlines to benefit from each others' connections."
Emirates and flydubai said in July they would forge closer commercial ties and that both would benefit from a combined fleet of 380 jets flying to as many as 240 destinations by 2022. [nL8N1K8117]
This week, the Middle East's largest airline and its medium-haul cousin announced Dubai Airshow deals for over 200 jets,
giving each carrier the capacity to pursue its own growth over the next decade but also potentially bridging a size gap between their fleets.
Emirates placed a preliminary order for 40 Boeing (NYSE:BA) 787-10s, designed to carry 280-230 passengers, and flydubai signed up for 175 more Boeing 737 MAX including over 50 of a new 200-seat-plus model. [nL8N1NI07Z] [nL8N1NL4JY]
"When people said Emirates don't have small aircraft, now they have smaller aircraft, and ... flydubai have the big aircraft too," Sheikh Ahmed said of their co-operation pact.
The 787s will be the smallest jets in Emirates' all wide-body long-haul fleet, currently split between the Boeing 777 mini-jumbo and the Airbus A380, the world's largest airliner.The new order extends a spectrum of options as Emirates aims to adjust capacity to each route and to take advantage of its commercial power as one of the world's major super-connectors.
That could build on July's initial agreement to add dozens of code shares and start joint network planning.
However, Sheikh Ahmed stressed the airlines would remain independently managed even as they develop parallel strategies.
Asked if they could merge under the same group, he told Reuters, "No, no, no, we will always keep them at arm's length."
How far the relationship will go has not been laid out publicly, but may include swapping routes to maximize profit.
"We will always do what is best for Dubai, and best for both airlines," flydubai Chief Executive Ghaith al-Ghaith told Reuters separately.
BRAND CONVERGENCE
The growing alliance is the latest development in Dubai's aviation project which began more than 30 years ago, linking east-to-west passenger traffic through what is now the world's busiest airport for international passengers.
Less clear is to what extent the identities of the two airlines - with Emirates' brand built on luxury and frills that include onboard showers in the A380, and flydubai's reputation built on discount tickets - will converge.
Emirates unveiled new economy-class seats on Sunday that feature a blue color scheme similar to flydubai's. Management said it was a coincidence.
"I don't think passengers care so much about what is outside (the aircraft); it is inside where you show your brand," Sheikh Ahmed said.
Flydubai has pivoted from the low-cost airline it launched as eight years ago, and at the Dubai Airshow showed off its own new cabins which have fully lie-flat business class seats.
"It is closer now to the product of Emirates," Sheikh Ahmed said.
Emirates insists its flagship remains the A380, despite uncertainty over the superjumbo's future following the collapse of a deal to buy more of the double-decker jets this week. It usually carries about 500 people but is certified for up to 868.
Asked if flydubai could eventually make use of the A380, whose early models are due to start leaving the Emirates fleet from 2022, Sheikh Ahmed said, "Why not? If it can be done, (if) we have the aircraft and they can be used, yes."