Building a strong business model through acquisitions has become the priority over becoming the region's largest airline for Abu Dhabi carrier
By Philip P. Merrell
Etihad's most recent acquisition of Italy's national carrier, Alitalia, has further illustrated its ambition of establishing a global network of partners, in which it will enjoy a central role – as well as profits.
Since joining in 2006, CEO James Hogan has encouraged a full-scale expansion strategy which began with the order of 205 new aircraft in 2008, in spite of the ongoing financial crisis which crippled the region's economy.
However, unlike its regional competitors, such as Emirates and Qatar Airways, who have seemingly invested all efforts into brand-building by expanding flight routes and maximising comfort; boosting its reputation has not been Etihad's primary concern, per se.
In what it has called an 'equity alliance', the Abu Dhabi government-owned airline initiated a strategy in 2011, whereby it would assist reputable, yet ailing carriers in return for shares. Thus far, Etihad has recognised potential hence acquired shares in seven airlines, including airberlin (29.9%), Jet Airways (India) (24%), Air Seychelles (40%) and Virgin Australia (21.24%).
Its most recent acquisition involved a 49% stake in Serbia's ageing national carrier, Jat Airways in January 2014. As part of the deal, Etihad, which pledged ten new aircraft to its partner, also rebranded the company into Air Serbia and gained management rights for the following five years.
The most significant 'equity alliance', however, will come with Etihad's planned takeover of Alitalia, one of Europe's major regional and inter-continental carriers. Hoping to acquire a 49% stake in the Italian carrier, Etihad will have to fork out an initial $763 million, with a further $940 million pledged within four years. While the deal has been agreed in principle, it has been met with internal resistance within Italy as reports claim that Etihad will enforce a job cut of 2,251 staff.
In its attempt to expand globally, however, developing its own service and reputation will be of equal importance, according to CEO James Hogan. Only last week, the airline confirmed six new routes to be established at the beginning of 2015, including daily flights to European capitals Madrid and Edinburgh; reaching a total of 107 worldwide destinations. Furthermore, it has also just announced a strategic partnership with Philippines Airlines, in which the two will expand on their original codeshare agreement by sharing loyalty programmes, airport lounges and marketing strategies.
As far as results go, Etihad claim to be experiencing its best half-year, with a 28% increase in revenue. Moreover, and crucial to Abu Dhabi as a tourist/transit hub, Etihad have experienced a growth in passenger traffic of 22% so far this year, which has resulted in May 2014 being the busiest month ever witnessed at Abu Dhabi airport . Nonetheless, the equity alliance strategy is also a long-term one, as most of the new partners in question were previously experiencing financial hardships which may take years to mend. Air Serbia, for instance, is set to record a profit by the end of the year – for the first time in its 87-year history (under Jat Airways).
Under Hogan, Etihad Airways has initiated a business model which will see it grow to new heights in terms of reputation, as well as profits. Rather than joining one of the global airline alliances, such as SkyTeam or Star Alliance, its backing by the oil-rich Abu Dhabi government has allowed them to practically create its own, in which the Etihad brand and Abu Dhabi in general will be central.
As such, if you were planning to travel to Australia, India or indeed several European hotspots this summer, the chances are that Etihad Airways may have something to do with it, even if its UAE-themed logo is nowhere to be seen.