Comment from the August 2013 edition of Airline Business
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 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.
Source: Airline Business
