The UAE’s national airline, Etihad Airways, is planning an expansion policy aiming to prepare it to compete in the increasingly chalenging regional aviation environment.
Etihad – which is backed by one of Abu Dhabi’s sovereign wealth funds – was founded in 2003. It has amassed a fleet of more than 65 aircraft, with 100 more on order, including many wide-body, long-haul planes. Etihad has recently become the owner of strategic holdings in other regional and global carriers to boost passenger growth figures via code sharing, while trying to expand its own operations.
In December 2011, Etihad acquired a major stake in German carrier Air Berlin and in this way it lifted its existing holding in the airline from just under 3% to 29.2%. The airline gave $95m for the purchase of more shares in the sixth-largest passenger line of Europe. In May Etihad bought 3% of the shares in Irish carrier Aer Lingus, and in January the airline acquired 40% of Air Seychelles.
In early June, the airline gave some $40m to take a 4.99% slice of Virgin Australia, giving it a direct stake in one of its busiest markets. The CEO of Etihad, James Hogan, said that the airline is planning to develop its stake in Virgin Australia even more with some suggestions it would like to boost its holding to 10% or above. However, in order achieve that, it would need to win the approval of Australia’s Foreign Investment Review Board. The Australian market is expected to become a very strong market for Middle Easter airlines.
Although the airline is increasing its presence in Australia, its plans do not include more flights into that country at this point. Etihad is already popular on the continent with 11 services into Sydney, seven into Melbourne and three into Brisbane. Etihad is also looking forward to make the Brisbane route daily, as well as fly into Perth, but that this would happen in the medium to long term. Instead, the airline has turned into a priority its plans to expand into the South American and African markets.
Etihad’s direct buying into the Australian market has not been approved by everyone, because the move is causing concerns for the future of local major carrier Qantas, which has been posting major losses and losing customers to Virgin and other international carriers over the past few years. Etihad has made it clear it is not seeking to take over Virgin Australia. Officials have ruled out a play for the shares of the airline’s two other major shareholders, Virgin Group, which owns 26% stake, or Air New Zealand, which holds 20%.
The aspirations of Etihad to be a major player on the world stage make the airline’s name crop up whenever another carrier comes on the market. On June 7, Etihad had to release a statement that, despite reports circulating in the Dutch media, it was not negotiating to acquire a stake in Europe’s largest airline group – Air France-KLM.
Nevertheless, the possibility of a tie-up between the two carriers has not been completely out of the question since an Air France-KLM official later said that the Franco-Dutch airline was looking for a commercial partnership with Etihad, but not a capital deal.
Etihad, just like all other carriers, has to put up with growing costs and the tension put on the sector by the economic slump in Europe and elsewhere. Nevertheless, the carrier was able to post gross revenue of just under $1bn for the first quarter of 2012, with officials positive it will exceed $5bn for 2012, marking profitability for the second year running.
Etihad also has to deal with serious competition. Qatar Airways and Emirates Airlines, and others, are putting money heavily in new aircraft and planning to break into new long-haul and regional markets. Additionally, there are many low-cost airlines emerging in the Middle East and beyond.
However, with an ever increasing route network of more than 80 destinations, Etihad has better chances than many to deal with any difficulties the sector may experience in the short to medium term. The airline has given itself access to solid revenue streams by strengthening its position into new markets, thus helping it to be better placed for a long-term future in the industry.