- Etihad group policy ‘will work in long term’
- Alitalia presenting challenges
Etihad Aviation Group’s partnership strategy has been a core element of the growth of the business, the airline’s CEO James Hogan said in a speech in Dublin.
He said that Etihad faced challenges with Air Berlin and especially with Alitalia which needs to change its long standing business model.
Delivering a keynote at the 19th Annual Global Airfinance Conference in Dublin, Mr Hogan said the strategy, which resulted in 5.5m passengers connecting onto the Etihad Airways network from codeshares and partners in 2016, had delivered revenue and synergy benefits.
“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. Those benefits have been replicated in all our minority investments – in airberlin, Alitalia, Jet Airways, Virgin Australia, Air Serbia, Air Seychelles and Etihad Regional.
“We also believed our minority investments would unlock an additional advantage that the global alliances were simply unable to use. Because we had ’skin in the game’, we could work on joint procurement and other business synergies which would save us – and our partners – hundreds of millions of dollars. Again, we have seen similar benefits from each of our investments, with those synergies being shared by all the partners.”
Mr Hogan said the third goal of the equity investments, to allow the management of these airlines to reshape their businesses into sustainable profitable operations, required a longer term view.
“Of course, their business strategies remained in the hands of the local management in each case. We are pleased to support management, and to advise where requested, but the plans and implementation are in their hands. In this third area, we have had some strong results but we also face some significant challenges. Jet Airways, Air Serbia, Air Seychelles, Virgin Australia and Etihad Regional have all used our capital investments to help structure their businesses into more efficient and profitable operations. In those cases, our long term investments are already delivering a return.
“However, 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. I believe airberlin’s strategy is now on track and Alitalia is finalising a business plan to address its issues. 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. That approach has helped Etihad grow from a $300m a year airline, to a diversified aviation group which delivers revenues of more than $26bn. Etihad Airways sits at the heart of that business, of course, but is now only one element of a model which includes significant other businesses and investments. That evolution has not happened by accident. Etihad Aviation Group is now a solid, diversified business with strength in depth – and with the scale to shape its destiny in the future.”
