Etihad chief defends strategy of buying international airlines
James Hogan fights back as group denies plans to take stake in Germany’s Lufthansa
The chief executive of Etihad Airways, James Hogan, has mounted a spirited defence of the Abu Dhabi carrier’s strategy of buying stakes in international airlines, despite “significant challenges” with some struggling airlines in Europe.
Mr Hogan was speaking at the Global Airfinance Conference in Dublin amid growing controversy over the carrier’s less successful investments, which have included stakes in Germany’s Air Berlin and Italy’s Alitalia.
Mr Hogan insisted the investments had had an “immediate impact” on the airline’s revenue side, delivering “hundreds of millions of dollars” in additional revenues and allowing Etihad to fill its connecting flights.
The airline also made it clear after his speech that, despite recent speculation, Etihad was not contemplating taking a stake in Germany’s Lufthansa.
Etihad is one of the three big Gulf carriers, along with Dubai’s Emirates and Qatar Airways, that have transformed long-haul aviation over the past 15 years. While Emirates has pursued scale and Qatar has joined the OneWorld alliance and built a stake in International Airlines Group, Etihad has taken investments in other airlines and used their networks to feed traffic to its long-haul business.
The strategy has suffered particular problems with Alitalia, the struggling Italian flag-carrier, and Air Berlin, Germany’s second-largest airline, both of which have required regular capital injections. Etihad recently participated in a complex series of deals with Lufthansa and Tui Group to lease some of Air Berlin’s aircraft to Lufthansa and to establish a new leisure airline with Tui that was widely seen as a rescue of the airline.
Mr Hogan said Etihad had believed its strategy would give it advantages over international alliances of airlines, such as the Star Alliance, where airlines have no stakes in each other.
“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,” Mr Hogan said.
However, he accepted that the process of allowing the airlines’ managements to reshape them into profitable operations required a “longer-term view”.
“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,” Mr Hogan said, listing a series of its investments.
Those businesses were already delivering a return, he said.
But, the company faced “greater challenges” with Air Berlin and Alitalia.
“Both are operating in very tough competitive environments, and need to address longstanding issues facing their businesses,” he said. “I believe Air Berlin’s strategy is now on track and Alitalia is finalising a business plan to address its issues.”
Etihad was committed to its “equity partner” strategy, Mr Hogan went on, adding that it delivered a “huge amount” to the business.
The company said afterwards that it was not looking at taking a stake in Lufthansa.
Andrew Charlton, an international aviation consultant, said Mr Hogan’s strategy had been controversial because international aviation rules limited the stakes Etihad could buy in airlines.
However, he went on, it was possible that, if Etihad held on long enough, the strategy might “come good”.