EXCLUSIVE: No alliance with Etihad, says Emirates chief

Posted by: Bobcat Wednesday, 28 October 2009 2:47 PM[UAE]

I'm glad that the two airlines are not considering a merger. Mergers have historically not faired well in many industries and it has more often than not resulted in the destruction of shareholder value. A merger of Etihad and Emirates will create an airline of significant size, it can lead to supracompetitive pricing which will not help consumers. It is possible that in the long term the consumer might benefit with from better pricing provided there was more competition in the market. However the small size of the market will prevent other potential entrants hence the chances of the consumer benefitting from such a merger is low. The efficiency gains that will be achieved from such a merger will result in market power for the new entitiy and since revenue is a driver, it can lead to increased pricing. In the end the consumer looses. The usual argument is that synergies exist and they can be capitalised, however how well these synergies are integrated is something that cannot be ascertained. Emirates and Etihad also have very distinct organisational cultures (a fact most often ignored) and that will affect the post merger integration process. Managerial aspirations (from both organisations) will also hinder the integration process. There are other options to mergers which could be considered, such as cross shareholding (eg: Nissan-Renault) which has proven to be successful as it does not have to deal with aspects such as across the board functional integration. While still retaining some of the synegies such as shared R&D spent and CLP programmes. Sectoral competition among common routes is always good in the airline industry as it will ensure that the consumer will get a fair price while both airlines will keep trying to gain more efficiencies, which hopefully will be passed on to the consumer. So in my view let them be independant and flourish.

Posted by: Robert Tuesday, 27 October 2009 10:35 AM[UAE] - UAE

I do think that a merger is inevitable and is probably necessary at the right time. The right time is probably the opening of the new Jebel Ali airport which is well on the way to Abu Dhabi. With 120 million pax a year and 5 runways when fully operational that airport needs to be a full, busy world class hub - say after 2015. Build the high spedd rail links into Dubai and Abu Dhabi - and use the existing airfields for commerical and residential real estate. I cant see 2 major international airlines with hubs only 150kms apart surviving without damaging eachother. And they need to compete with the likes of Qatar and of the LCCs. There are many restrictions in this industry on foreign ownership which is why there are so many alliances. The Americans and Europeans are hurt by high leagcy cost structures and older planes. Too a lesser extent even Cathay and SQ are suffering with some legacy costs - thats what happens as businesses (and airplanes) age. As for Thai - there is a fine example of a government mis-managing an airline. Where are the new threats - the likes of Air Asia X/Air Asia - busy applying the RyanAir model to Asia - minimal service but they will get you from A to B. Fly Dubai could take much of EK's short haul business if it is allowed to do so. Maybe we will see a strong Chinese carrier emerge - but they are still heavily controlled by political aspirations. A merged airline is potentially a world beater - no other nation of this size could sustain two carriers of this size. The efficiencies of management, purchasing, scheduling and operations would be significant. In the end this will be about what is best for the nation - rather than the individual emirates (no pun intended). So while a merger wont happen now - and maybe is five years way - dont discount it for the future. RAS

Posted by: Jinx Uae Tuesday, 27 October 2009 8:56 AM[UAE]

There can be no doubt that Emirates is a success story, and fast becoming a truly Global Brand: Etihad is one of the fastest growing airlines in the world: an alliance would bring awesome opportunities to both parties, without necessarily reducing the need for healthy competition which inevitably leads to better service for customers - and it is customers (along with cargo) that keep these vehicles moving. The majority of european carriers are facing a tough year end (summer travel was down, business travel has been heavily reviewed, the Christmas holiday boom will certainly be a smaller affair this year, we see Unions starting to get involved to 'protect' their members (BA) etc). This in itself presents opportunities to the individual entities, but an Alliance that offered comprehensive coverage from Europe to sub continent, pulling traffic from the U.S as well - complimentary slots allowing flexibility of carrier/route, gets bums on seats and then allows the loyalty machine to spring into action to retain those travellers. It is significantly harder to acquire a new customer than to retain an existing one: with a joint network of routes, offices and airports Emirates Etihad would have an offering into the Corporate world that would be difficult to dislodge once the benefits were experienced, by a mixed audience of travellers (comfort, service), managers (schedules/flexibility), finance (competitive flexible pricing, loyalty schemes with bonus miles etc). Also note these are all revenue benefits - in the long term there is increased sustainability from concentrating on driving revenues up than purely focusing (as many MNC's do) on driving costs down/out of the business; the biggest cost reductions come early on in that cycle, it is hugely difficult to match those one any subsequent round(s) (to appease share holders) and then growth in revenue is expected from a decreased operational base - which is a far bigger (if insurmountable) challenge. There are obvious additional benefits around supplier negotiations and purchasing power (competition rules allowing), however focussing on customer acquisition followed by retention (I recall Emirates Skywards reaction immediately post 09/11 as a strong retentive step) over the next 12 months will increase the percentage of passengers travelling on the combined carrier, keeping new and existing flights full and driving both airport footfall and tourism locally. The smartest businesses are those that break the mould, recruiting new customers now for loyal revenue advantages as economies recover is a smart long term plan.

Posted by: Frank Tuesday, 27 October 2009 8:53 AM[UAE] - UAE

Emirates Airline is a great airline, as well as Etihad. I have travelled with both. These two airlines are among the best. But always big and powerful is not the best. Keep it as it is and run it as efficient as it is now.

Posted by: David Tuesday, 27 October 2009 8:43 AM[UAE]

Etihad will wait for the industry dinasour BA to run itself into the ground - pick up the UK national carrier for pennies and quadruple its size and routes over night. Making EK look like a local airline. It is not like they don't have the money.