Emirates seeks Etihad takeover to create world's largest airline

By Bloomberg News, September 21 2018

Dubai’s flagship airline Emirates is looking at taking over unprofitable neighbor Etihad, according to four people familiar with the matter, in a move that would create the world’s biggest carrier by passenger traffic.

The talks, which are at a preliminary stage, would see Emirates acquire the main airline business of Abu Dhabi’s Etihad, which would keep its maintenance arm, according to the people, who asked not to be named because the matter is confidential. The negotiations could yet fall through, they said.

Both airlines initially declined to comment, before later denying that any talks were underway.

Any deal would require the blessing of the rulers of the richest sheikhdoms in the United Arab Emirates. For Abu Dhabi, which sits on 6 percent of global oil reserves, it would advance a drive to overhaul state-controlled entities as it adapts to lower crude prices.

The airlines have traditionally been arch rivals, with their hubs competing to attract the same transfer passengers making long-distance trips between Asia and the West.

Emirates President Tim Clark has previously played down speculation that the carriers might combine, saying in June that the question was one for shareholders, while adding that he saw nothing happening in the short-to-medium-term.

Etihad losses continue

Etihad has been shrinking its operations following the failure of a so-called equity alliance strategy that saw it invest in a number of generally ailing foreign operators to help feed more traffic through Abu Dhabi.

One of those, Air Berlin, collapsed last year while another, Italy’s Alitalia, filed for bankruptcy protection, causing the pact to largely unravel.

The Middle Eastern company also saw its own business come under pressure as a slide in the price of oil led to a drop in travel in crude-based economies. That contributed to a US$1.52bn loss in 2017, taking the two-year deficit at the airline unit to almost US$3.5bn. Fitch Ratings last month said it expected Etihad to continue losing money through 2022.

Emirates rebound

Emirates also suffered during the Gulf slump but was quick to recover as the oil price – and local economies – rebounded, with net income jumping by two-thirds to US$1.12bn in the year ended March 31.

At Etihad, group Chief Executive Officer Tony Douglas, who took over in January, has been abandoning weaker routes and paring back the fleet in order to cut costs and boost revenues and cash flow, though he said in June that the measures so far amount only to first steps.

The strategic rethink has also meant reining in Etihad’s ambitions to dominate global traffic, with the main aim now being to drive Abu Dhabi’s tourism sector and foreign commercial links.

Douglas has also been negotiating with Airbus and Boeing after concluding that doubling the fleet is no longer viable, calling into question scores of wide-body jet orders.

Read: Etihad mulls premium economy, fewer new planes, revamped network

Reshaping the Emirates/Etihad networks

Bringing the airlines together would not be easy because of the duplication of routes from their Dubai and Abu Dhabi bases.

Both have sought to exploit the region’s position at a natural global crossroads, but to wring maximum value from the hub model, flights need to be focused at a single location, making transfers easy and more routes viable.

Emirates, which has built the world’s biggest fleet of Airbus A380 superjumbos, supplemented by smaller Boeing 777 wide-bodies, is already far larger than Etihad, yet handing the Abu Dhabi company responsibility for certain markets might jeopardize its own success.

Emirates is already the world’s biggest airline on international routes and ranks fourth overall, according to IATA, behind the top three U.S. carriers.

It’s not clear how much further Etihad’s operations might actually be reduced.

kpkazzie

kpkazzie

Qantas - Qantas Frequent Flyer

01 Apr 2013

Total posts 38

Was anyone else hoping for a more Star Alliance alignment of Etihad ?

MarkivJ

MarkivJ

22 Jan 2018

Total posts 64

Funny how airlines from the Same country have had such opposite trajectories!

sgb

sgb

Emirates Airlines - Skywards

30 Nov 2015

Total posts 745

Surprise, Surprise.

GregXL

GregXL

Qantas - Qantas Frequent Flyer

26 May 2014

Total posts 401

Retention of the VA stake would seem highly unlikely. Perhaps this could precipitate a VA take over by SQ.

StuParr

StuParr

Virgin Australia - Velocity Rewards

01 Mar 2012

Total posts 169

That's what my first reaction was. Ideal time for SQ.

DanV

DanV

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 124

Going by past record that always doesn't guarantee a SQ takeover. They've had plenty of opportunities but they have failed to do so. Most news articles of a "SQ takeover of VA" usually ends up as fizzers.

The fact that SQ are "hands-off" in their investment of VA says it all.

Mjudd

Mjudd

Qantas - Qantas Frequent Flyer

14 Dec 2016

Total posts 41

Will be interesting to see how it changes the VA/Etihad and Qantas/Emirates partnerships.

elchriss0

elchriss0

Virgin Australia - Velocity Rewards

13 Jan 2015

Total posts 581

If it did remove the VA/EY alliance then I guess VA would have to more closely partner with SQ as the primary codeshare into europe

Greensides1

Greensides1

Jetstar Airways - Qantas Frequent Flyer

19 Jan 2018

Total posts 5

This would have an impact for Australia with Etihad still owning around 25% of struggling Virgin Australia. The QF/EK relationship would then be questionable and QF could retreat to traditional European partners.

Strange to think during GFC Dubai needed over 400 million to survive from Abu Dhabi and now the full circle has come with Etihad approaching the gutter.

If it happened boeing and Airbus shares would take a battering as orders shrink with only the questionable Chinese to take up the slack!

Greensides1

Greensides1

Jetstar Airways - Qantas Frequent Flyer

19 Jan 2018

Total posts 5

Maybe it will be time to put QF/SQ into a partnership that could almost own Asia with people like CX.

Nick Sydney 2

Nick Sydney 2

Qantas - Qantas Frequent Flyer

22 Jul 2015

Total posts 223

Now that would be splendid but a pipe dream

Joe

Joe

03 May 2013

Total posts 387

Could see this occurring right from the inception of Etihad...it was all ego wars from the outset. Now its Qatars turn (equally ego driven); lost its Skytrax ranking and in severe financial loss, however, Mr Al Bakr is a stubborn cookie and he has the bank account to justify it. Move over Emirates and Dubai are it for the Arabian Gulf - get used to it.

Bavarian

Bavarian

23 Aug 2012

Total posts 33

Would the "new" DWC instead of DXB be an ideal hub for the joint EY-EK airline? It's roughly in the centre between the two cities, a futuristic monorail magnet whatever high speed train linking to the two city centres?

KRL2018

KRL2018

Air New Zealand - Airpoints

14 Aug 2018

Total posts 5

Goodbye Eithad long term, to many carroers in the same region pushing for premium traffic

Hi Guest, join in the discussion on Emirates seeks Etihad takeover to create world's largest airline