Ratings agency gives seal of approval to Etihad’s growth strategy

Fitch maintains ‘A’ rating despite tough operating environment, highlights cost management programme
Ratings agency gives seal of approval to Etihad’s growth strategy
By Ed Attwood
Wed 31 Aug 2016 09:14 AM

Independent ratings agency Fitch has backed Etihad Airways’ rapid growth strategy and financial position, achieved in part by the Abu Dhabi-based carrier’s decision to invest in eight different partner airlines around the world in recent years.

“In addition to achieving a sustainable scale, Etihad reached the breadth and depth of the network in line with that of its more mature peers through eight equity partners and 49 codeshare partners,” Fitch said.

“Etihad fares well compared with European peers based on the geographic diversity of its revenue and RPK [revenue per kilometre] and is favourably positioned relative to Emirates and THY [Turkish Airlines], with a more balanced revenue split by geography and a stronger position on Asian and American destinations”.

The agency said that the carrier’s aggressive cost management programme “should support its future profitability” and highlighted the 4.1 percent reduction in cost per available seat kilometre during 2015.

“We expect Etihad to retain its cost advantage in the short to medium term, which, along with measures on revenue management, should underpin higher margins,” Fitch said.

On Tuesday, Fitch maintained Etihad’s long-term issuer default rating at ‘A’ with a stable outlook. This comes despite the headwinds faced by many airlines in the industry, thanks to what Fitch referred to as “a challenging operating environment”.

“We are pleased that Fitch has again affirmed Etihad Airways' Long Term Issuer Default Rating as A with a Stable Outlook,” the airline said in a statement. This is strong independent recognition of our business strategy and our financial position.”

The ratings agency said that slower capacity growth over the next four years should “help the company sustain its load factors in contrast to Emirates or Turkish Airlines, which posted a significant reduction in their load factors due to their continuing material capacity expansion”.

The agency also highlighted three competitive advantages over Etihad’s rivals in the Gulf, namely pre-clearance for US-bound flights at Abu Dhabi International Airport, shorter connecting times and greater domestic access to markets such as Europe and India, gained through its equity partners.

In late April, Etihad posted a record net profit of $103 million for 2015.

The airline said its partnership strategy had resulted in an additional $1.4 billion in revenues in 2015, a 22 percent rise on the previous year, as well as adding 5 million passengers.

At the time, Etihad said the policy had enabled it to expand connectivity, reduce costs by creating economies of scale, and generate additional revenue.

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