Etihad Decides on Strategic U-turn

Sometimes, rumors are confirmed quite rapidly. In a report titled “Etihad & Emirates – One Family in the Future?” published in our 11 June edition, we indicated the possibility of the two carriers to join forces.
That’s not the case yet but the idea of cooperating closely is now on the table.

A new love story?
It was Etihad’s CEO Tony Douglas who made the first public move, by letting Emirates know in an interview that Etihad is open to engage in closer cooperation with its Dubai-based peer. He cautiously added that it is for the owners to decide whether the two airlines should in any way join forces. Douglas is quoted in the weekly magazine Arabian Business: “Where there is opportunity in a non-competing way to get mutual advantage, frankly why wouldn’t you? For us it would probably be looking to learn, as simple as that.”
Should ties get closer, a mighty carrier would emerge, dominating passenger and freight flows not only in the Middle East but in many markets.
However, it always takes two to tango! This assumes that Gulf rulers overcome their pride and deep-routed fears of losing face by openly supporting this project. That’s maybe one of the biggest stumbling blocks that need to be overcome.

Struggling to get out of the red
Interestingly enough, Mr Douglas has more arrows in his quiver than just the love greetings sent to Emirates. Simultaneously to this tentative flirt, Etihad’s CEO tabled a strategic U-turn, abandoning the network vision and the former super-hub concept, aimed at transferring travelers and cargo shipments flying between Europe, Asia, Africa and America at Abu Dhabi International and concentrate on point-to-point line-haul traffic instead. This strategic realignment is a deep cut in the carrier’s former network concept. It comes amidst mounting financial woes amounting to accumulated losses in the region of US$3.5 billion.
A huge leakage which was initially caused by former EY boss James Hogan and his failed alliance approach. Under Hogan’s tenure, billions were poured into a bottomless pit, by forming an equity alliance with ailing carriers such as Alitalia, Air Berlin, Etihad Regional and a handful of other local airlines. A costly and devastating strategy, critics had warned at a very early stage but had not been listened to.

Concentrating on point-to-point ops
The new traffic concept tabled now by Mr Douglas focusses primarily on serving the economic and transport needs of Etihad’s home market Abu Dhabi and the surrounding Gulf region. As such, it represents a sharp break with the airline’s former dogma to grow best and profitable by feeding global travelers and cargo via Abu Dhabi hub into Etihad’s intercontinental network.
Consequently, negotiations with Airbus and Boeing have started to find solutions to step out of pending orders amounting to 175 wide-body aircraft, 98 signed with Airbus and 77 with Boeing. According to Douglas, his airline’s forthcoming point-to-point approach is basically doable with the existing fleet of 110 passenger and cargo aircraft.

Seven new pillars to bring success
At the end of the last week Etihad made it known that in the future there will be seven main organizational pillars which are aimed at bringing the carrier back into black figures.
These are Operations, Commercial, Support Services, Maintenance, Repair & Overhaul (MRO), Finance, Personnel and Transformation. This scheme will replace the old Holding structure and due to the re-shuffling of top staff, two management tiers will cease to exist. Mr Douglas will also take over direct responsibility for the airline as Peter Baumgartner who has been with the carrier for 13 years, steps down and will act as internal consultant for Etihad.
A long road ahead!

Waiving the white flag
Exiting prestigious but loss-making routes, such as San Francisco or Edinburgh, among others, is also part of the strategic readjustment as are massive job cuts.
Looking at the overall package presented by EY CEO Tony Douglas it becomes obvious that Etihad abandons its strategy to compete with its Gulf rivals by prioritizing growth no matter the costs. Instead, the carrier leaves trodden paths, thus waiving the white flag, to concentrate its key activities on its home market. Much likely before long in combination with neighbor Emirates Airlines. 

Heiner Siegmund