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In September 2018, a sign on the outside of a stadium in Melbourne was removed and discarded. Aside from some footy fans in Victoria, the removal of the Etihad name from the Docklands arena, now called the Marvel Stadium, probably went unnoticed.
But not in an office complex in the United Arab Emirates, the home of airline Etihad. Management there were busy doing everything they could to stem the carrier’s mounting losses. And splashing out up to $8 million a year to have its name in lights overlooking Southern Cross station was no longer sustainable.
Etihad, which for a decade or more looked like it would emerge as one of the world’s largest airlines and still has a 20 per stake in Virgin Australia, is in a world of pain.
Last week, the Abu Dhabi-based carrier announced an annual loss of US$1.28 billion (NZ$1.8b). In the last three years, Etihad has lost an astonishing $US4.8b (NZ$7b).
The airline told news.com.au it was “absolutely committed to Australia”. Despite this, Etihad is shedding routes, including all services to Perth. It’s also axed orders for new planes, and there is now a question mark over its very survival with persistent talk that it could be swallowed up by arch rival Emirates — rumours Etihad denies.
“Few airline companies have been as poorly managed as Etihad,” Brian Sumers, business editor at aviation publication Skift, said last year.
“It is a wonder the carrier is still flying at all.”
BETTER THAN QANTAS
Since 2007, when Etihad’s first Australian flight touched down in Melbourne, it has had a huge impact on travellers on this side of the world.
Australians in their droves have boarded Etihad planes en route to Europe and western Asia.
In 2018, researchers Roy Morgan said Etihad was the fourth placed airline when it came to customer satisfaction — ahead of Qantas but behind Emirates.
Granted, few of us will have sampled the delights of Etihad’s business class bars in the sky or its groundbreaking “Residence” first class product where either the super rich, or super lucky, can luxuriate in a three-room suite.
But that lustre persuaded millions of us to board Etihad — which means “union” in Arabic — even if we were back in cattle class.
At its height in 2015, Etihad flew from Abu Dhabi to Australia more than 35 times a week with just under half the number of available seats of Emirates.
However, a series of disastrous decisions, as well trying to ape the Emirates strategy, were already weighing Etihad down.
Of the big three Middle East carriers, it remains in third place in terms of passengers trailing both Emirates and Qatar.
“In the aviation industry, first mover advantage is very important, and Etihad was slightly late to the party,” said Aviation Economics director of consultancy Tim Coombs.
“They attempted to replicate what was going on down the road (with Emirates). Their starting point was a revenue growth mindset rather than to be profitable,” he told Middle East Eye last year.
WHAT WENT WRONG AT ETIHAD?
Still, for a while, everything seemed to be going swell for Etihad. Then it poured billions into buying big stakes in overseas airlines, some of them utter basket cases.
A few investments made sense. Its 20 per cent stake in Virgin Australia meant passengers from regional cities could seamlessly feed into Etihad flights from Brisbane, Sydney and Melbourne.
But other investments went south quickly. Money lavished on Air Berlin couldn’t prevent the German airline going bankrupt and ultimately closing in 2017. Alitalia, which Etihad took a 49 per cent stake in, splutters on hoovering up cash.
“Etihad believed it could turn around Air Berlin and Alitalia. Air Berlin was up against Lufthansa and low-cost airlines,” Mr Coombs said.
“And it just couldn’t compete because it couldn’t decide whether it wanted to be a full-service airline or a low-cost airline.”
Not that it’s been plain sailing for Etihad’s competitors. Qatar Airways’ business continues to be hit by the Saudi-led blockade that shows no signs of ending and forces its planes to make lengthy detours above international waters.
Even mighty Emirates is facing turbulence, with half-year profits down 86 per cent due to high fuel prices and a slowdown in the UAE economy.
Qantas’ ambition to fly non-stop between the east coast of Australia and Europe won’t help either. That will be a powerful incentive for Australians to fly over, rather than change planes in, the Middle East.
Etihad is two years into a five-year turnaround under new chief executive Tony Douglas. It has axed underperforming routes to secondary cities including Edinburgh, Ho Chi Minh City, Dallas and Perth.
It’s also massively cut back on new planes. An order for up to 62 new Airbus A350s, for instance, has been pared back to just nine aircraft.
It carried almost a million less passengers than in 2017, down to 17.8 million, yet Mr Douglas is bullish about the company’s results. The current US$1.28b loss was a touch less than the previous year, he pointed out.
“We are on track, but we still have an awful lot to do. It’s about going back to basics and hopefully doing those basics well,” he told UAE newspaper The National last week.
Mr Douglas said Etihad would focus less on being a super hub airline, funnelling people through Abu Dhabi, and more on linking the city to destinations most popular with residents and visitors.
The firm’s chief executive has spoken of his admiration for Emirates, which he has called “our great friends in Dubai”.
EMIRATES MERGER?
Rumours abound the two carriers are set to get a lot friendlier and Emirates will take over its struggling neighbour airline. After all, both airlines are based in the same country and owned by emirate governments next door to one another.
An Etihad spokesman told news.com.au: “There is absolutely no truth to rumours of a merger with Emirates.”
Others think it would be a good idea. “An Emirates-Etihad merger makes a lot of sense. Emirates may not be as strong as it once was, but it’s still a well-run global airline that strikes fear into established competitors. Etihad, however, is in rough shape,” said Skift’s Mr Sumers when merger rumours reached fever pitch in September.
And questions remain how feasible a merger even is? Would Emirates look to close down Etihad’s Abu Dhabi hub? Given Etihad is owned by the Abu Dhabi government, would that be allowed to happen? Do Emirates want to be saddled with the custodianship of an ailing rival? Would regulators let two large airlines in the same part of the world come together?
Etihad told news.com.au its 2018 result showed an improvement in “core operating performance” of 15 per cent, 7 per cent higher than forecast.
The spokesman said despite the Perth cutback, Australia was still an important part of its business.
“Etihad Airways has been flying to Australia for 12 years and remains committed to the market. We continue to offer regular schedules to our key gateways through Sydney, Brisbane and Melbourne, as well as beyond, through our codeshare agreement with Virgin Australia,” the spokesman said.
But whatever Etihad does, it needs to do it quickly. The airline can’t survive forever with year-on-year multi-billion losses.
If it doesn’t turn itself around, the Etihad name could find itself being shoehorned off more than just a stadium in Melbourne.
Source: nzherald.co.nz
