Etihad mulls Emirates tie-up rather than become a 'boutique' airline

By Bloomberg News, May 1 2018
Etihad mulls Emirates tie-up rather than become a 'boutique' airline

Etihad Airways intends to remain a major global carrier as it works on re-sizing its global business following record losses, according to new Chief Executive Officer Tony Douglas.

The Persian Gulf company, which has built up a vast inter-continental route network and spent billions of dollars on plane purchases, has no intention of becoming a “boutique” operator and still aspires to being an “airline of choice,” Douglas said Monday in Abu Dhabi, where Etihad is based.

Douglas also held out the prospect of closer cooperation with one-time rival Emirates, touted for a possible merger since Etihad fell on hard times. “I do admire what I observe from our great friends in Dubai,” he said. “We will continue to consider where appropriate the things that we could do together.”

The airline remains a relative “adolescent” in aviation terms, the CEO said, and will “look to learn” from Emirates, the biggest of the three main Gulf carriers and the world leader on long-haul routes.

Emirates President Tim Clark has said antitrust rules give limited room for manoeuvre and that a merger is unlikely, though ultimately a matter for the rulers of Dubai and Abu Dhabi.

The airlines also both have small home markets and compete for the same passengers changing planes on long-haul trips.

Right-sizing Etihad's network

According to one scenario, Etihad could give up on chasing global standing in the mass market and double-down on targeting top-end travel, where it’s one of only 10 five-star airlines worldwide.

Etihad's failed investments in Alitalia and Air Berlin - which both filed for insolvency last year after Etihad pulled the plug on funding – have led to a more “strategic” approach to expansion, according to Douglas, who took over in January.

“That would be the take out, to be very disciplined, very measured,” Douglas said at the 2018 Global Aerospace Summit. “What we have embraced properly is a way to develop growth in a sustainable way. We will choose wisely; we will make sure that detail is well-attended to.”

Etihad poured billions of dollars into struggling airlines around the world under Hogan’s so-called Equity Alliance strategy in a bid to quickly add more customers and propel the company into the global aviation elite.

Etihad has been working on restructuring plans for the best part of a year after posting a US$1.87 billion loss for 2016 that cost previous chief James Hogan his job.

While the carrier is cutting passenger destinations including Perth and Edinburgh, Douglas has so far held off from announcing widely anticipated plans for further fleet and network cuts.

Cost-cutting measures recently implemented have included axing the complimentary chauffeur service for business class and first class passengers; closing the Style & Shave salons at its flagship Abu Dhabi first class and business class lounges; no longer issuing pyjamas in business class; letting economy travellers buy their way into business class and even first class lounges; selling access to its Melbourne lounge VIP room formerly used by guests in the Airbus A380 three-room Residence suite; and tightening the screws on its Etihad Guest frequent flyer scheme.

China Southern Airlines - Sky Pearl Club

30 Sep 2013

Total posts 11

Etihad lacks the business acumen of its rival Emirates and its ambition to be number one Gulf Carrier has taken its toll on its operational cost.

Qantas - Qantas Frequent Flyer

28 Dec 2011

Total posts 93

The Chinese Airlines are coming with better service, good language skills, and great new planes. But worst of all for the middle eastern airlines their fares are often cheaper.

QF

02 Oct 2012

Total posts 40

The Etihad A380 F class product is amazing. I hope that doesn’t change dramatically any time soon

Virgin Australia - Velocity Rewards

14 Mar 2017

Total posts 150

Since they can't afford a new one, I'm sure it will be around for quite some time... probably till after others have renewed it. ;)

Qantas - Qantas Frequent Flyer

25 Sep 2013

Total posts 1237

The soft product has already suffered numerous cuts.

Their cost-cutting really reduced my interest in trying them out, but damn they came up with sexy cabins and uniforms. I'm kind of sad the Equity Alliance strategy didn't work out, because they really helped Air Serbia (flights of Serbian fruit brandies in the lounge! The only thing they could've added is making sure "A Serbian Film" was on the IFE) and if it weren't for certain civic realities about Italy they could've done something really good for Alitalia.


Also, The Residence was fundamentally a good idea, since it monetized space that's very rarely used on A380s.

But they probably were too ambitious, grew too fast, and are now cutting costs.

Qantas - Qantas Frequent Flyer

19 Aug 2011

Total posts 161

Bottomline is that oil prices, despite creeping up a little, have not been high enough to allow for the continued profligacy in cross-subsidising capital investments for the airline. Relatively oil-less Dubai had already bedded in Emirates years in advance and has been ample experience in tweaking capacity and costs. Could see the foolishness of investing in Alitalia miles off, given the history of many being unable to reform labour relations or practices with it. The longer term challenge for Etihad is that while it can ride on the back of a good hard product for a few years, if the soft product erosion continues, it will lose premium customers and find its main business is the cheap mass market economy tourist passengers (many of which have no frequent flyer loyalty, but are price conscious). Commercial logic would suggest a merger with Emirates, but that would mean Abu Dhabi eclipsed permanently by Dubai and I doubt the current ruler of the former would be keen on this. A successor might feel less sentimental about Etihad. It might decide to seek membership of *Alliance or Skyteam, but would either have it?

Qantas - Qantas Frequent Flyer

08 Sep 2012

Total posts 244

Etihad needs to differentiate itself from Emirates rather than be a poor cousin. Joining Star Alliance would immediately give them an edge over EK. And it could signal the airline's rebirth from the Hogan disasters. They have already started code shares with Lufthansa to South America.

Watch this space...

Qantas - Qantas Frequent Flyer

19 Aug 2011

Total posts 161

Given Lufthansa's response to Turkish Airlines joining Star Alliance (which it sponsored, but subsequently obviously thought was proving a threat), I'd suggest the LH Group would think long and hard about supporting what it may see as another competitor to its long haul services to Asia/Africa to Star Alliance. SQ would probably share this view as well.

Zac
Zac

Virgin Australia - Velocity Rewards

23 May 2014

Total posts 128

That last paragraph is a good summary of the cuts that are visible and really tells a story (is it an addition from AusBT to the original Bloomberg article?). The problem that Tony Douglas has is there’s a perception now that Etihad is cutting away all the things that made the experience great. Cutting pyjamas sounds like it’s a small thing right? But it’s what I remembered when booking my last flight to Europe last week, and assumed they must be cutting lots of other stuff (food, wine) and so I booked Qatar instead and that’s $10k Etihad won’t see. I imagine there is a spreadsheet somewhere with all the little things they could cut and it all seems to be making sense, the problem is they are underestimating the overall perception, the revenue impact plus probably underestimating how well informed business travellers are. And unfortunately it will take years and $$s to rebuild that. Not an issue for me personally as I have lots of other options, it’s just sad to see.


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