Etihad ups stake in Air Berlin as part of European expansion

According to a statement released today by the airlines, Etihad will purchase 31.6 million new shares at the Dec 16 closing price of 2.31 euros a piece, making it the largest shareholder in the German carrier.

The deal will connect the airlines' extensive networks and frequent flyer programmes to offer travellers 239 destinations across 77 countries. Each carrier could each achieve extra revenues of 35m-45m euros in the first year, the airlines said.

CEO James Hogan called the deal one of the most important in Etihad Airways' history. "This new partnership expands our network reach, gives us access to 33 million new passengers, and provides us with a real opportunity for global growth. Through Air Berlin, we gain immediate access to a broad and complementary European market, with outstanding connectivity options for customers of both airlines."

The new funding will be a boost for debt-laden Air Berlin, which last month reported third-quarter net income fell 78% to 30.2 million euros. Earlier this year the carrier announced plans to reduce routes, limit flights to remaining destinations and ground planes in an effort to curb growing losses.

Air Berlin will shift its Middle East operations to Abu Dhabi from Dubai to feed into Etihad's network, the airlines said. The two plan to cooperate on flights, with Etihad offering code-share tickets on 36 of Air Berlin's 171 destinations and Air Berlin selling tickets on 24 of Etihad's destinations.

Saj Ahmad, chief analyst at StrategicAero Research.com, said the deal will enable the Abu-Dhabi based carrier to greatly expand its reach into Europe and beyond. "Etihad's investment in Air Berlin gives the carrier a huge opening into Europe without having to endure the lengthy rigmarole of seeking out new slots and applying for access at busy European airports," he noted. "By leveraging its stake in Air Berlin, not only does Etihad have the capability to rapidly increase its presence in the region, it also has the ability to snare greater volumes of traffic through its Abu Dhabi hub, where Air Berlin will now focus its own GCC operations."

Earlier this year Etihad had been rumoured to be in talks to buy stakes in Ireland's Aer Lingus and British Midland International (BMI) as speculation grew that it planned to use these types of deals to expand its global reach.

"In effect, what this does is that it gives Air Berlin customers a one-stop connection to anywhere in the world using Etihad through the UAE capital and it gives Etihad the ability to further integrate with other members of the oneworld alliance," Ahmad told AMEInfo.com. "While we should be under no illusion that Etihad needs or wants to be in an alliance, it makes good sense for them to work with other oneworld partners and capture more traffic and that will ultimately translate into higher revenues as they work towards profitability.

"The real question now is whether other GCC airlines copy Etihad and seek to grow their European operations by purchasing stakes in other weaker airlines," he added.

In July Eihad reported a 28% rise in revenue to $1.72bn for the first half of 2011, putting it on track to break even this year. Earlier this month the carrier ordered ten Boeing 787-9s in a deal that made it the single largest operator of that version of the Dreamliner.