Subscribe Free
in Air Transport / Features

Why Etihad turned tail on partnerships

Posted 14 December 2018 · Add Comment

Etihad Airways is looking closer to home for growth as it plots a new course following major problems at some of its equity partner airlines. Alan Dron reports.

Four years ago, at a press conference in Milan at which Etihad had detailed its plans to take a 49% shareholding in Alitalia, I commented to a senior Etihad official that I thought his airline had just taken on a heck of a job in trying to turn around the ailing Italian flag-carrier. “So do I,” he said thoughtfully.
Etihad’s best efforts were in vain. Alitalia collapsed into administration in 2017, while Airberlin, another airline in which Etihad had taken a substantial stake, also declared itself insolvent just three months later.
These problems were among the reasons that Abu Dhabi-based Etihad posted a ‘core loss’ – equivalent to operating loss for its day-to-day airline operations – of $1.52 billion in 2017. This was a 22% improvement on 2016’s restated figure of $1.95 billion, but still a huge loss.
Etihad’s 2017 operating figures, issued in June this year, were notable for an almost complete lack of growth, for which the loss of passenger feeds from Airberlin and Alitalia played a significant role.
The airline carried 18.6 million passengers in 2017 (2016: 18.5 million); capacity measured in available seat kilometres (ASKs) was 115 billion km (2016: 113.9 billion); and load factor dropped fractionally to 78.5% (2016: 78.6%). The fleet shrank marginally to 115 aircraft (2016: 119) and cargo dropped to 552,000 tonnes (2016: 596,000 tonnes)
Despite this, Etihad Group’s new CEO, Tony Douglas, commented: “We made good progress in improving the quality of our revenues, streamlining our cost base, improving our cash-flow and strengthening our balance sheet.
“These are solid first steps in an ongoing journey to transform this business into one that is positioned for financially sustainable growth over the long term. It is crucial that we maintain this momentum.”
The airline has instituted a transformation process to get it back on course and says that the first tangible results from this have appeared. Notably, it said that its passenger yields for the last quarter of 2017 were up 9% versus the same period a year previously and that it was driving down costs.
Douglas was not available for interview for this article, but the airline did go into some detail on its current plans.
Asked if it was moving away, to some extent, from its model of connecting people over its Abu Dhabi hub and whether it saw the emirate increasingly as a destination in its own right, an Etihad spokesman said: “Over the past two years we have focused on a measured growth strategy, with a healthy mix of direct and connecting traffic flows. Our strategy has become even more intertwined with the development of the UAE national economy and the tourism and travel sector of Abu Dhabi. As part of this, we are more focused on flying point-to-point passengers, and making use of our association with Abu Dhabi, which has an increasingly impressive international profile.
“We have many attractions at our doorstep, from Louvre Abu Dhabi to Ferrari World, Yas Marina, the Formula 1 Grand Prix and Warner Brothers World Abu Dhabi – and that’s just to name a few.”
Perhaps significantly, he added: “Our home market of the UAE, and extended home market of the GCC, and Saudi Arabia in particular, are our focus right now, with the emerging markets of India and China, of course, also playing a central role.”
Mark Drusch, vice-president at US consultancy ICF, said he believed that Etihad would continue to be a hubbing airline, but if it was moving more towards a point-to-point approach, that would be a dramatic shift in approach and one that could lead the airline to cutting back its size.
Drusch, a former senior vice-president at Delta Air Lines and Continental Airlines, said: “Even if Abu Dhabi is spending a lot of money building the local tourist destination-type activities, as Dubai has done, that’s not necessarily separate from continuing to operate a hub. The stronger the local market, the stronger your hub is.”
He felt the next problem for Etihad might come from another of its equity partners, India’s Jet Airways, which is also experiencing financial difficulties.
Over the past year, the price of fuel has risen sharply, while Jet Airways’ ticket prices have not. It said in August that it was exploring new sources of funding “as a priority”.
Etihad has a 24% shareholding in Jet and says that its relationship with the Indian carrier – together with those with its other partner airlines, Virgin Australia, Air Serbia and Air Seychelles, remain in place. “We have investments in all of these businesses, and we have a responsibility on behalf of our shareholder that we take full opportunity to develop them.”
Drusch believed, however, that after its costly experiences with Alitalia and Airberlin, Etihad will be reluctant to put in any more money to Jet, or into any of its other partner carriers: “They might try to monetise some of their assets in Jet; for example, they own 25% of its frequent flyer programme.”
Neither did he believe that Etihad would put any more funds into its other partner airlines, although he believed that it might transfer surplus aircraft if they needed new equipment.
Etihad, like most major carriers, is facing challenges from developing trends in the airline business and is keen to change what it offers passengers, both to retain existing travellers and to attract new ones.
“What modern consumers are looking for is changing,” said the company spokesman. “Previously, the promise of being a ‘best-in-class’ airline was linked to a limited definition of best as being tied to the physicality of air travel. This often meant an emphasis on the hard product, rather than the experience, which is subjective to each traveller and their personal needs and wants.
“We have always aimed to cater to various customer segments, but even that has limitations if you can only offer a couple of classes to 18 million passengers.
“Digital merchandising and distribution capabilities are empowering airlines to become more customer-centric by giving the traveller the ability to choose what they want and customise their experience from an unbundled product accordingly. This means we need to also have the right digital infrastructure in terms of merchandising and distribution to be able to support the needs of our customers in the evolving digital space.”
Since his arrival at Etihad in January, Douglas has talked of improving the airline’s ‘commercial sustainability’. The spokesman said that the company was “making solid first steps in an ongoing journey to transform this business into one that is positioned for financially sustainable growth over the long term.”
One potential way of doing this, suggested Drusch, was to look at joining one of the three airline alliances – Oneworld, SkyTeam or Star Alliance. “That’s what’s missing for them. If Emirates aren’t going to do it and the US carriers aren’t going to make a big fuss about the ‘Middle East 3’ any more, Etihad may say ‘It’s time to get on board’ one of them. It wouldn’t have been possible before because of the row between the US carriers and the Middle East 3.”
One intriguing aspect of Etihad’s future may be increasing levels of cooperation with Dubai’s Emirates Airline. Speculation among industry observers on this point has been growing since the two airlines agreed in January to cooperate on security matters.
“It’s fair to say that, as two partners from the United Arab Emirates, we will continue to consider, where appropriate, what are the things that we can do together,” said the Etihad spokesman.
Drusch believed that a closer relationship between the two Arab carriers is possible, but that Etihad – which is considerably smaller than Emirates – would not want to be the minor partner in such a grouping: “If they were going to sit down and agree, it would have to be a massive overall development plan.” That could involve the two carriers taking responsibility for different areas of operations, he suggested.
 

* required field

Post a comment

Other Stories
Advertisement
Latest News

Home-grown growth

Saudi low-cost carrier, Flyadeal, is so busy coping with a flood of domestic traffic that it has had to postpone the start of international services, says its CEO. Alan Dron reports.

Etihad Aviation Group marks Zayed Humanitarian Day

Etihad Aviation Group has hosted a wide-range of charity and humanitarian activities to mark the Zayed Humanitarian Day, taking place today, May 24.

AL42 upgrade for Ayjet in Turkey

Ayjet Anatolian Stars Flight Training Organsation (ATO) recently asked Alsim for an upgrade of its existing Alsim simulator to the newest EASA standards.

EgyptAir and Ukraine International Airlines codeshare

EgyptAir and Ukraine International Airlines have launched their new codeshare partnership.

Adcom adds to Algerian force

Footage shown on Algerian national TV and posted by the Algerian Ministry of Defence on its official Facebook page has revealed that two Emirati-developed unmanned air vehicles (UAVs) are now in service with the Algerian Air Force. Jon

Daher’s TBM 940 receives EASA certification

Daher has said its new TBM 940 has been certified by the European Union Aviation Safety Agency (EASA), enabling deliveries to begin with this latest very fast turboprop aircraft version.

Luxivair SK2404240719
See us at
DIAC19_BT264161119ACCA19_BT_2404091019