Abid Ali

Launched 15 years ago and backed by Abu Dhabi, the UAE's richest emirate, Etihad Airways plotted a course to take stakes in airlines around the globe to rapidly build a network to match regional rivals, Dubai-based Emirates and Qatar Airways.

The plan imploded when two of its investments, Air Berlin and Alitalia, collapsed in 2017. The airline took an $808m write down, essentially admitting that investments were not worth the money they spent on them.

Over the last two years, Etihad has racked up losses of more than $3.5bn - $1.52bn for 2017 and $1.95bn in 2016. Last week Etihad drew a line in the sand, announcing new management appointments, structure and strategy.

James Hogan, Etihad’s former chief executive and president, and the architect of the airline's original strategy, left the company in 2017. Three rounds of job losses have seen more than 4,000 employees also depart in the last 18 months, according to an executive who spoke to Middle East Eye on condition of anonymity.

But for the 23,000 employees left behind, more jobs are under threat with senior managers, executives and the lower ranks still waiting to learn their fate.

Etihad did not respond to requests for comment from MEE, but Tony Douglas, chief executive of the Etihad group, told Reuters last week that the restructuring of the airline was expected to lead to further redundancies among senior and mid-level managers.

Etihad 'late to the party'

“In the aviation industry, first mover advantage is very important and Etihad was slightly late to the party,” Tim Coombs, director of Aviation Economics, told MEE.

“They attempted to replicate what was going on down the road [in Dubai, where Emirates is based]. Their starting point was a revenue growth mindset rather than to be profitable.”

It’s a mindset familiar to many startups, in particular in the modern digital economy where billions are raised and spent acquiring customers. But Etihad decided to invest in existing airlines that were already in trouble.

“Etihad believed it could turn around Air Berlin and Alitalia. Air Berlin was up against Lufthansa and low-cost airlines, EasyJet and Wizz,” 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.

“Etihad came and thought they could sort out their financial problems, restructure the airlines. Alitalia thought: 'Here comes a government-funded airline to pump in more and more money'.

“The staff thought things could go on as before and there would be no cut in pay and improvement in productivity. The reality was Etihad was defeated by a well-organised unionised labour force.”

Now, the global ambition appears to have gone.

Etihad is discarding routes, resizing to be little more than a middling airline serving Abu Dhabi rather than global citizens. It also faces fierce competition and a backlash from airlines in Europe, as well as opposition in the US to the generous state support that the main Middle Eastern airlines receive.

Plans to take a delivery of 98 planes from Boeing and Airbus are to be scrapped, leaving it with a sizeable fleet of 110 passenger jets.

'How do you compete with Dubai?'

“It’s hard to understand what Etihad plans to do," Coombs said. "The population of Abu Dhabi isn’t large. If you give up the hub and spoke model to serve your local market, you do need a sizeable market to provide direct point-to-point connections.

“The trouble with secondary hubs is that they don’t have the same kind of connections and services as the big hubs. How do you compete with Dubai?”

If Etihad’s strategy is unclear to industry observers, then it appears that company employees are also confused about the way forward.

The Etihad executive told MEE that the company was working on various proposals six months before Hogan left the airline. Those proposals were shelved.

In the shakeup, the well-respected executive Peter Baumgartner has been sidelined from managing the airline business, with the recently hired Douglas taking on that responsibility.

But it’s the appointment of UAE national Mohammed al-Bulooki as the chief operating officer which gives an indication of who will run the airline in the future. Al-Bulooki is seen as the next chief executive of Etihad, the executive told MEE.

It’s all part of the country’s “Emiratisation” programme of educating, training and promoting nationals into high-ranking positions.

Etihad's troubles come with its regional rivals also concerned about possible turbulence ahead.

Emirates, the largest airline in the Middle East which made a $1.1bn profit in the financial year ending March, is slowing the pace of its expansion. And Qatar Airways’ chief executive Akbar al-Baker has warned the company may need a state bailout because of the impact of the Saudi-led blockade on Qatar.

For the whole article CLICK HERE

Source: Middle East Eye