Etihad confident partner strategy can help group weather challenging year ahead for aviation

Etihad Airways' group chief executive James Hogan says: 'We are committed to our equity partner strategy – it delivers a huge amount to our business. Some of those airlines need to react to the market pressures they face and we are supportive of that process, too.'

James Hogan, the chief executive of Etihad, says Etihad’s investments in airlines in key markets were made with three goals in mind: access, synergies and a chance for those carriers to reshape themselves. Delores Johnson / The National
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Etihad Airways underscored on Wednesday the effect of its investments in other airlines, saying that the strategy had paid off and that its commitment to struggling partners was unwavering despite current market pressures.

“Our investments had an immediate impact on the revenue side, delivering hundreds of millions of dollars in additional revenues and allowing us to fill our onward connecting flights,” James Hogan, the chief executive of Etihad Aviation Group, said at an industry event in Dublin.

“We are committed to our equity partner strategy – it delivers a huge amount to our business. Some of those airlines need to react to the market pressures they face and we are supportive of that process too.”

Mr Hogan said that last year 5.5 million guests connected on to the Etihad Airways network from partners airberlin, Alitalia, Jet Airways, Virgin Australia, Air Serbia, Air Seychelles and European carrier Etihad Regional.

Long-term investments in India’s Jet, Air Serbia, Air Seychelles, Virgin Australia and Etihad Regional were already paying dividends, but those in airberlin and Alitalia were yet to bear fruit.

“We have faced greater challenges with airberlin and with Alitalia,” he said. “Both are operating in very tough, competitive environments and need to address long-standing issues facing their businesses.”

“I believe airberlin’s strategy is now on track, and Alitalia is finalising a business plan to address its issues.”

The airline business closer to home is facing its own challenges. Figures released by the industry body, the International Air Transport Association (Iata), in December showed that capacity among Middle Eastern carriers increased by 10 per cent in October compared with the same month a year earlier.

At the same time, passenger demand growth fell to 7 per cent, its slowest pace in 18 months, as low oil prices and an economic slowdown in the region dampened demand for air travel. This meant that average load factors, a measure of how efficiently airlines can fill seats and generate revenue, fell by 2 percentage points to 70.1 per cent, their lowest level for October since 2006.

Analysts say overcapacity, price pressures, exchange volatility, security threats and poli­tical uncertainties are likely to be affecting all airlines in the Middle East.

That has already been reflected in a slew of job cuts. Etihad said in December it was cutting jobs as the aviation sector responds to a global economic slowdown. It did not say how many jobs would be lost but that the restructuring would result in a measured reduction of headcount in some parts of the business.

The slowdown, however, has prompted Etihad to boost its international network, rather than scale it down. It signed an agreement in December with Germany’s Lufthansa to code-share on some flights, a prelude to a much closer relationship between the two national carriers.

Etihad currently has code-share deals with 51 airlines around the world, but the deal with Lufthansa is potentially the biggest and most significant. Codesharing allows airlines to effectively share flights by offering passengers of one carrier the ability to book a flight directly on another airline.

Etihad also confirmed a “wet lease” deal between Lufthansa and airberlin, under which two Lufthansa airlines, Eurowings and Austrian Airlines, take over full operation and maintenance of 38 aircraft formerly flown by airberlin.

That deal has already been announced as part of a wide-ranging restructuring of the loss-making airberlin.

“Our approach has helped us grow from a US$300 million a year airline to a diversified aviation group which delivers revenues of more than $26 billion,” Mr Hogan said.

“That evolution has not happened by accident. As we face the challenges of the year ahead, the group can feel confident it is positioned strongly to build on those foundations.”

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