ANALYSIS: Are Etihad’s ‘equity alliances’ redefining the industry?

It seems that not a month goes by without Etihad Airways adding a new partner to its mushrooming alliance grouping.

And an increasing number of these associations are much more than just codeshares, with the Abu Dhabi carrier now holding, or in the process of securing, shareholdings in six airlines. During the past few years, Etihad has built an impressive partnership constellation spanning the globe. At last count, it comprised 45 codeshare partners serving a virtual network of more than 350 destinations.

The airline, which has been profitable for the last two of its 10-year existence, kicked off its “equity alliance” strategy almost two years ago when it sailed to the rescue of loss-making Air Berlin by purchasing a 29% stake. At first, that deal raised a few eyebrows. But as further minority stakes were acquired in other airlines, the thinking behind the strategy became apparent.

Next up was Air Seychelles, in which Etihad took a 40% stake after Abu Dhabi was approached to help out. Etihad has subsequently taken smaller stakes in Virgin Australia and Aer Lingus, and is finalising deals with Serbia’s Jat Airways and India’s Jet Airways. The latter is headed by the inimitable Naresh Goyal. However, it is a strategy that certainly divides opinions. It was deemed a winning one by our esteemed panel of judges for this year’s Airline Strategy Awards. The panel, which comprises respected former airline chief executives, academics and analysts, named CEO James Hogan as the winner of the Executive Leadership category.

But others are not convinced. Some observers think that, backed by the wealth of Abu Dhabi, Etihad has gathered a hodgepodge of disparate airlines through some opportunistic equity deals in a mad dash to achieve scale, as its local rivals surge ahead organically. And Etihad’s limited financial transparency does little to help sway the sceptics. They also point out that history shows such strategies usually end in tears: “A lot of these equity bets are likely to go south on them,” says one doubter.

Hogan does not deny that the strategy was designed to provide a fast-track to growth. And he is also quick to dismiss comparisons with previous failed attempts to build brand constellations. “This isn’t the old Swissair model of acquiring brands. This is about how do we use this scale to improve the bottom line,” he says.

As outlined elsewhere, the Airline Strategy Awards judges felt that Etihad’s tactics were “shaking up the industry”.

One judge said that Etihad’s codeshares and bilaterals are undermining the global alliances: “It is putting out a marker for a different kind of airline industry where it’s less important which global alliance you’re in, and more important what deal you’ve made with individual members.”

Hogan is clear in his view that the sun is setting on the global-alliance era. He believes they have been “fractured” by the growing trend for tie-ups outside the groupings.

And Etihad is in the ­vanguard of that drive, riding roughshod over the three groupings as it casts its own alliance net wide. As one judge put it: “The airline is pioneering in that it’s going back to where we were 25 years ago – it’s breaking the mould of the alliances.”

But the refreshing thing for supporters and doubters alike is that circumstances dictate Etihad is having to do something different to Emirates and Qatar Airways. “It’s 18 years behind Emirates and has to apply a different strategy to gain market access,” said a judge. “And James Hogan has the advantage of being able to invest and cement the relationships.”

That Etihad has a strategy was never in doubt. And it is one that not only differs from its peers but is also bold, innovative and mould-breaking. Whether it will ultimately be successful will be hotly debated for some time to come. But with the might of Abu Dhabi behind it, failure is an unlikely option.

Comment from the August 2013 edition of Airline Business

Aer Lingus long haul expansion including new services to San Francisco and Toronto

Aer Lingus today announced significant expansion to its transatlantic route offering for 2014. In addition to its existing services to Boston, Chicago, New York and Orlando, the airline will commence year round direct service between Dublin and San Francisco from April, 2014 with five services per week being operated by Airbus A330 wide-body aircraft

Aer Lingus will also commence direct year-round service to Canada from April 2014. A daily direct Boeing B757 service between Dublin and Toronto will operate during the summer season, with up to four weekly services operating during the winter. Two Boeing B757 aircraft will be based in Shannon and will be used to deliver increased frequency on existing services to Boston and New York. Year-round connections from Shannon to the east-coast will be introduced. This expansion will directly support more than 200 new jobs.

In addition to direct access to San Francisco, Aer Lingus customers travelling from a number of UK and European cities via Dublin, will benefit from a wide choice of onwards connections to sixteen popular cities on the West Coast and beyond including Seattle, Los Angeles, Las Vegas and San Diego. The new San Francisco route also represents a business opportunity for Aer Lingus Cargo.

Aer Lingus customers travelling from over twenty UK and European cities via Dublin to Toronto, will also have the option to connect to eight key cities within Canada including Vancouver, Montreal and Calgary.

This growth plan will bring the Aer Lingus long haul schedule to 10 daily transatlantic services, connecting Ireland and Europe with cities throughout North America.

Christoph Mueller, Chief Executive, Aer Lingus, said: “Our transatlantic business goes from strength to strength. This expansion is extremely positive news for Aer Lingus and for the broader economy in terms of business, tourism and employment. Our transatlantic capacity will increase by 24% in 2014, following on from the 13% additional capacity in our 2013 transatlantic schedule. Our operation of the San Francisco route will strengthen Ireland’s ties with Silicon Valley and encourage Ireland’s development as a technology hub for Europe. San Francisco’s Silicon Valley is home to many of the world’s largest technology companies and several of these companies have European headquarters in Dublin.”

He continued: “Toronto is the sixth biggest North American market out of Ireland. In addition to being a great tourist destination, the city is home to a large Irish community and we look forward to welcoming them on board. We are confident that the increased number of flights from Shannon to New York and Boston will bring additional tourists to the Western region.

Commenting on the announcement, Leo Varadkar TD, Minister for Transport, Tourism and Sport, said: “This announcement of new services by Aer Lingus is fantastic news. This Government has always sought to improve air access to key tourism and business markets, such as the US and Canada. Canada is the world’s 11th largest economy and California is reckoned to be the world’s 12th largest. I know that the business and tourism sectors are delighted with this news. More than 40% of Ireland’s total foreign direct investment comes from Silicon Valley alone. The return of the direct air service to the US west coast is particularly important and I’m very happy to see the route being filled by an Irish airline.”

To support the operation of the new routes, Aer Lingus will wet lease three Boeing 757 aircraft from ASL Aviation Group. The aircraft will be configured with an economy and business class cabin. Business travellers will continue to enjoy the same great level of service; with gourmet meals, sleeper seats and an extensive in-flight entertainment selection.