Etihad's latest moves likely to pay dividends, analysts say

Increasingly looking to boost its business through inorganic growth, Etihad revealed that it will spend $379m to acquire a 24% share in Jet Airways, thus becoming the first carrier to invest in an Indian airline since the country loosened rules on overseas carriers buying into its aviation industry a year ago.

As part of the deal, Etihad will also invest an additional $150m in Jet's frequent flyer programme and spend $70m to buy Jet's three pairs of Heathrow slots through the sale and leaseback agreement announced earlier this year.

The new investment in Jet Airways is just the latest in a series of stakes Etihad has acquired over the past 18 months in carriers such as airberlin (nearly 30%), Air Seychelles (40%), Virgin Australia (8.56%), and Aer Lingus (just under 3%).

Proclaiming that a new hybrid business model is emerging in which minority equity alliances are bridging the gap between full mergers and legacy alliances, Etihad's chief executive James Hogan said the carrier 'will continue to explore opportunities where they make financial and strategic sense'.

Not long after the ink was dry on the Jet Airways deal, Etihad announced that it had signed a commercial cooperation agreement with Air Canada. The agreement between the two carriers will offer customers through-checked bags and reciprocal codeshare services.
The agreement will also allow members of Etihad Guest and Aeroplan programmes to accrue frequent flyer miles on codeshare flights and enable eligible passengers of both airlines to gain reciprocal premium lounge access at Toronto and Abu Dhabi airports.
Paving the way for the deal was the UAE government's recent decision to eliminate the visa fee for Canadian citizens two years after it had boosted the fee to $250 in response to Canada's refusal to give UAE carriers new landing rights.

Industry analyst CAPA Centre for Aviation praised both deals, saying Etihad's "ground breaking" moves have 'jolted the status quo again'. It said the carrier's purchase of a minority stake in Jet Airways 'enormously entrenches Etihad's long term global position'.

And with the USA being India's biggest air market by far, the recent agreement to set up a US Customs and Border Protection pre-clearance facility at Abu Dhabi International Airport could be an enormous incentive for Indian travelers to use the joint services of Etihad/Jet Airways, CAPA noted.

Meanwhile, following an acrimonious aviation policy dispute between Canada and the UAE, the Air Canada codeshare is potentially a 'major breakthrough' for Etihad, with the likelihood that the Montreal-based carrier will want to widen its codeshare agreement to allow greater access to routes in Canada for Etihad/Jet Airways in the future, CAPA said.

Taking a wider look at all of Etihad's recent moves, Saj Ahmad, chief analyst at StrategicAero Research, says the carrier's aggressive expansion strategy has so far proved to be a success on many levels. "Etihad does not appear to be content with growth in isolation, and we've seen from the stunning financial reversal of fortunes at Air Seychelles and Air Berlin that its strategy is paying dividends - and notably in a short time too. It is increasing passenger numbers on its network via Abu Dhabi and getting new market access to further expand its network without hitting regulatory headwinds," he told AMEInfo.com.

As for where Etihad will strike next, Ahmad predicts that carriers in Latin America, Africa and the Pacific Rim are likely on the airline's investment radar. "There are lots of players out there in these regions that are under Etihad's watchful eye and I daresay it will not be very long before we see another big equity infusion at an airline in one of these areas," he said.