After acquiring many airlines for a decade and creating an airline alliance, Abu Dhabi national carrier Etihad is on the verge of revising its strategy concerning its money-losing acquisitions… Decisions on the group future will soon be announced as Etihad CEO is leaving the company. – Feature report by LUC CITRINO.

For the past 15 years, Etihad Airways has seen unbroken growth in its fleet, destinations and passenger numbers, becoming the third largest carrier in the Gulf Area with Emirates Airlines and Qatar Airways. Over the past decade, the airline has grown from 4.6 million passengers to 18.5 million in 2016. At the same time, its network jumped from 44 destinations to 112 destinations last year.

With oil prices under pressure, financial credentials of Abu Dhabi have been under pressure. At the end of January, the Chairman of Etihad Supervisory Board announced that the airline CEO, James Hogan, would leave the carrier within three months. Mr Hogan was the main instigator of Etihad’s expansion through acquisitions of other airlines. Between 2011 and 2016, Etihad took shares in seven other carriers, the latest being India’s Jet Airways of which Abu Dhabi owns 24%. The biggest investment so far was Alitalia, of which Etihad has a 49% shareholding. With another share of 29% in airberlin, Germany’s second largest carrier as well as participations in Air Serbia and Etihad Regional (Ex Darwin Airlines in Switzerland) Etihad was drawing a strategy of becoming an important European player with many carriers feeding its main hub in Abu Dhabi.

While Air Serbia and Etihad Regional are now making profits, airberlin and Alitalia have continued to lose money, becoming a drag on Abu Dhabi’s financial resources. It is estimated now that all the investments into its airline equity partnerships have already cost Etihad some €2.5bn. Abu Dhabi now wants to stop the bleeding. CEO Mr Hogan acknowledges that “we have faced greater challenges with airberlin and with Alitalia. Both are operating in very tough competitive environments, and need to address long standing issues facing their businesses”. He then admitted that adjustments have to be made: “We must ensure that the airline is the right size and the right shape. We must progress and adjust our airline equity partnerships”, he was recently quoted as saying.

Etihad is probably looking at a new strong partnership with German carrier Lufthansa, a step which would also help giving a better future to Italy’s national carrier Alitalia and Germany’s second largest carrier airberlin.

etihad_investmants_2016The departure of Mr Hogan will certainly translate into a restructuring. The recent limited partnership with Lufthansa on a few routes fed rumours about a deeper relationship between the German airline and the Gulf carrier. Lufthansa already came to the rescue of ailing airberlin, taking in lease some 30 aircraft A320 for its own hybrid subsidiary Eurowings. Experts now talk about a possible financial participation of both airlines into each other and a large code-share agreement. This could then help to secure airberlin’s future by adjusting the airline’s network into a new broad Etihad-Lufthansa partnership. It could also help consolidate the activity of Etihad Regional by bringing feeder flights to Swiss, a subsidiary of Lufthansa. There have also been rumours about Lufthansa stepping into the capital of Alitalia and creating a new partnership.

For Etihad, the burden of its equities would be then shared with other carriers. And a Lufthansa solution could also help strengthening Etihad’s own hub in Abu Dhabi which over the past year suffered a decline in the number of flights from its partners.

According to data provided by CAPA (Centre of Asia Pacific Aviation), Abu Dhabi airport remains in the shadow of Dubai, only one hour and a half away by highway. After reaching a peak in 2015 with some 38,000 seats per week by Etihad and its partners at Abu Dhabi, total weekly seats this year will only reach 29,000 seats this summer. From 26 daily flights in 2015, including Etihad equity and code partners, the number is down to 21.

Eithad would then rely more on its own services to feed its hub. While its partners have decreased their presence, Etihad has stepped up frequencies, taking over some of the routes served previously by its partners such as Düsseldorf – Abu Dhabi and Venice – Abu Dhabi. In summer 2017, Etihad is further boosting frequencies or adding capacities to destinations such as Dublin, Düsseldorf, Madrid or Male. A strong Etihad/Lufthansa partnership would then help developing the right hub strategy to create an air bridge between Europe, the Middle East and Asia/Pacific.

The partnership should rapidly be sealed especially as the Emirate expects the grand opening of its Midfield Terminal at Abu Dhabi Airport by this coming December. Dubbed as the largest single terminal in the Emirates, the new structure will handle 30 million passengers a year. Last year, the airport accommodated 24.48 million passengers, up by 5% over 2015.