Opinion: No place like home for Etihad Airways

After years of troubled quasi-alliances abroad, Etihad Airways is looking for new solutions on its home turf
Opinion: No place like home for Etihad Airways
Efficiency Etihad managed to reduce its direct operating costs by $226m in 2018 despite volatility in fuel price
By Bernd Debusmann Jr
Fri 22 Mar 2019 01:00 AM

There is no place like home. For some, home is a place to rest with one’s family after a long day of hard work or a physically and mentally draining trip abroad. For Etihad, however, home may mean a return to the black after years of fiscal woes and poorly performing ventures in far-flung markets.

In retrospect, Etihad’s policy of buying equity stakes in foreign airlines was ill advised, at best. Italy’s Alitalia – in which Etihad had a 49 percent stake – went into administration in April 2017. Similarly, Etihad’s partnership with Air Berlin resulted in the German airline going bust, a misfortune that has been followed by an ugly legal battle between the two in the High Court of London.

The airline still has investments in Air Serbia, Air Seychelles and Virgin Australia, with no plans to pull out of them. On the other hand, one suspects that it may eventually jettison its interests in India’s troubled Jet Airways.

“Etihad has already been badly burned,” Saj Ahmad, chief analyst at StrategicAero Research told us. “The last thing it needs is a cash drain from another dying airline.”

The last few years have certainly been difficult for Etihad. But in these difficulties, there is an opportunity for other companies to learn a lesson

With this in mind, Etihad seems to be setting its sights closer to home. Recently, the airline announced a deal to expand an existing codeshare agreement with Saudia, as well as a new codeshare partnership with Bahrain’s Gulf Air.

As CEO Tony Douglas tells us in this week’s cover story, these moves make business sense for the airline as it works on keeping a lid on costs and trimming losses. They tap into an ever-present demand for connectivity that Etihad and Abu Dhabi can provide.

“We are not going to repeat the previous strategy, described as a quasi-alliance where sometimes taking quite small shares in other airlines where we don’t have control,” Douglas says. “What we do see is fantastic opportunities to build business partnerships.”

This new strategy can serve as a lesson for companies far beyond the airline industry. Without a doubt, a strategy of acquisitions thousands of miles away can work for some. DP World, which has its tentacles spread as far as South America and equatorial Africa, immediately comes to mind.

For others, this strategy may not necessarily work at all. Etihad’s foray into Jet Airways, for example, was conceived as a way to capitalise on India’s tremendous passenger volume. A glance at India’s struggling, loss-making airlines, however, suggests that the low yield market was not worth the trouble.

Already, things are looking up for Etihad. The airline has managed to reduce costs by $416m, while general expenses fell $190m.

It is the first time I have ever read the word ‘clownesque’ in the pages of Arabian Business

A number of unprofitable routes have been scrapped, high performing new ones were added, and increasing passenger options may bring a boost in passenger numbers. It may still be a few years until Etihad is back in the black, but as Douglas tells us, things look to be headed in the right direction.

Reading the interview with Douglas, it is hard to miss that he loathes talk of a potential merger with Emirates. It is certainly the first time I have ever read the word ‘clownesque’ in the pages of Arabian Business.

Yet, it is not outside the realm of possibility that its new “closer to home” strategy and – perhaps – future profitability may make that option a reality. As one analyst colourfully told me, Emirates “won’t touch Etihad with a 200 foot bargepole while the airline is losing money”. When that is no longer the case, anything is possible.

The last few years have certainly been difficult for Etihad. But in these difficulties, there is an opportunity for other companies to learn a lesson: the solutions to your problems may be much closer than you think.

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