New Chief Executive for Etihad Airways Means New Opportunities
The naming of a new boss at Etihad Airways presents the Gulf carrier with an opportunity to rethink its aggressive expansion strategy after the failure of minority-owned Alitalia underlined the big barriers to global growth.
Ray Gammell was appointed interim chief executive last week, days after Alitalia sought bankruptcy protection with $3.3 billion of debt. He replaces veteran boss James Hogan.
Hogan’s strategy was to buy up minority stakes in myriad airlines but the struggles of that strategy, most recently with Alitalia, are emblematic of a quandary peculiar to the industry.
The path to growth for airlines often lies in gaining access to rivals’ routes. Yet in the European Union, which mainly operates as one nation in aviation, foreigners cannot majority-own an airline. At Alitalia, the lack of full control meant that Etihad could not deal effectively with labour problems.
Since 2011, Abu Dhabi state-owned Etihad has spent billions of dollars buying minority stakes from Europe to Australia.
Etihad’s strategy has allowed it to cut costs by pooling items like airplane procurement, while offering a larger network; it says it brings together 600 destinations and over 700 aircraft.
Hogan’s “approach to partnerships did not pan out, but a few of his principles are still valid”, said Will Horton, senior analyst at Australian aviation consultancy Capa.
Etihad’s efforts to grow through minority stakes have at times been compared to Swissair’s “Hunter” strategy of the 1990s.
Hogan has always rejected the comparison, saying Etihad was doing things differently to Swissair and had demonstrated it could control costs. Etihad and its fellow Gulf airlines have demonstrated spectacular growth and have chosen different strategies to sidestep the regulatory dilemma governing foreign ownership and pursue global expansion.
Qatar Airways, like many other carriers, has entered one of three global alliances. These give some access to other carriers’ traffic rights without breaking ownership rules, but allow only limited control over route-planning and costs.
Dubai’s Emirates, by contrast, mainly operates alone – an approach that gives it control of over its network and costs but also means it carries all the risk.
When Hogan rescued Alitalia in 2014 after months of negotiations, he had been encouraged by two reformist prime ministers, Enrico Letta and his successor Matteo Renzi. Letta flew to Abu Dhabi to help clinch the deal. Yet Italian industry leaders say Etihad underestimated the country’s tangled politics and chronic labour strife.
Other investments such as Air Serbia and Air Seychelles have been more successful. There, Etihad was given hands-on management control and benefited from close diplomatic ties.