Complex Made Simple

Etihad scales down to “mid-sized carrier,” bracing itself for prolonged pandemic and new normal

Etihad announced this week that it will be making major organizational changes in order to adopt a new streamlined structure that is leaner, flatter and scaleable, to support organic growth as air travel resumes

While Etihad is among the Middle East's largest and most prominent airlines, it has struggled with regaining profitability for quite a few years The Abu-Dhabi-based airline was making strides in an attempt to make it out of the red, it couldn't have possibly foreseen a blight to the travel industry as massive and widespread as COVID-19 Now, Etihad is forced to restructure

While Etihad is among the Middle East’s largest and most prominent airlines, it has struggled with regaining profitability for quite a few years. The Abu-Dhabi-based airline was making strides in an attempt to make it out of the red, it couldn’t have possibly foreseen a blight to the travel industry as massive and widespread as COVID-19. 

“After our best-ever Q1 performance, none of us could have predicted the challenges that lay ahead in the remainder of this year,” Tony Douglas, Group Chief Executive Officer, Etihad Aviation Group, said.

Back in August, the company had reported a strong first quarter, ending February 2020, the fruits of which were soon derailed by the wider breakout of COVID-19. As for the first fiscal half, Etihad witnessed a reduction of 58% year-on-year in the number of passengers carried, while core operating loss for this period increased to $758 million (H1 2019: $586 million). This was driven by a 38% drop in revenues.

This was partially off-set by a 27% reduction in direct operating costs to $1.9 billion (H1 2019: $2.7 billion), and a 21% reduction in general and administrative expenses to $0.40 billion (H1 2019: $0.50 bn), both driven by management cost containment initiatives and reduced operations. These cost-cutting reforms continue today, with Etihad announcing even bigger changes. 

Etihad downsizes
With the pandemic in full stride with fears of a second wave looking more possible by the second, Etihad has had to make a tough call. The airline announced this week that it will be making major organizational changes in order to adopt a new streamlined structure that is leaner, flatter and scaleable, to support organic growth as air travel resumes.

The restructuring sees the airline continuing its transformation into a mid-sized, full-service carrier concentrating on its fleet of widebody aircraft. 

“As a responsible business, we can no longer continue to incrementally adapt to a marketplace that we believe has changed for the foreseeable future,” the Etihad Aviation Group CEO said. “That is why we are taking definitive and decisive action to adjust our business and position ourselves proudly as a mid-sized carrier. The first stage of this is an operational model change that will see us restructure our senior leadership team and our organization to allow us to continue delivering on our mandate, ensuring long-term sustainability, and contributing to the growth and prominence of Abu Dhabi.”

This latest move sees four notable departures from Etihad’s senior management team. Among the roles scrapped are Chief Commercial Officer, Senior Vice President Sales & Distribution, Chief Transformation Officer, and Chief Risk & Compliance Officer. 

Read: Dubai Airports CEO talks COVID-19 policy dissonance, DXB figures, and Dubai-London travel corridor

Etihad is still pursuing profitability

Saj Ahmad, Chief Analyst at StrategicAero Research, had this to say about the announcement:

“In short, Etihad is downsizing. And it has almost no choice but to do so – not because survival is at stake, but because its path to being profitable is at risk.

“Whether this is in pursuit of axing costs or whether to become more agile in this new post-pandemic era, what is clear is that the prior expansionist desires of Etihad have been locked away – particularly as the airline is keen to get back to profitability.

“That goal may well be a number of years away – and despite [this week’s] upbeat vaccine news, the reality is that producing vaccines on a global scale will take a year or more – and by the time the globe is inoculated, it will take maybe a further year for a degree of normality to ensue. So, in the meantime, right-sizing itself for the smaller expected number of passengers is a prudent, if a long time coming move on Etihad’s part.”

Read: The Boeing 737 MAX is finally safe to fly again, according to Europe’s top aviation regulator