Etihad has been cutting costs and slashing routes after a $1.5 billion loss last year and a $2 billion loss the year before. They’ve been expected to walk away from some aircraft orders and investors have been nervous about their bonds.
Since Etihad’s attempt at building its own alliance has fallen apart, Star Alliance will no longer forbid member airlines from codesharing with the Abu Dhabi-based carrier and they’re looking for codeshare partners. (It’s unclear how significant this rule has actually been considering that Etihad has already been codesharing with Aegean, ANA, Air Canada, Asiana, Brussels Airlines, Lufthansa, SAS, SWISS, TAP Air Portugal, and Turkish.)
It makes little sense to have two global aviation hub airports a mere 72 miles from each other. This depresses yields on non-stop flights between the UAE and Europe, and it depresses connecting fares between North American and Europe on the one hand and India and Pakistan on the other.
Dubai is the more attractive hub, and Emirates the stronger carrier. In fact London – Dubai is one of the most lucrative business markets in the world. Etihad has bribed customers for years with complimentary car service anywhere in the UAE for business class passengers, and even provided free bus service for economy passengers.
The new Dubai World Central airport makes a combination far more palatable, as I’ve been pointing out for several years. It’s situated in between the current Abu Dhabi and Dubai airports.
One Mile at a Time asks, “Why Don’t Emirates And Etihad Just Merge Already?”
So why is it taking so long, if it makes so much sense?
Lucky points out that Etihad doesn’t add much to Emirates at this point. They bring planes, including aircraft types Emirates doesn’t need — Emirates has a simply fleet of Boeing 777s and Airbus A380s and they’re working increasingly closely with flyDubai and its 737s.
I wouldn’t read too much into delays here in doing a deal. Businesses often need to clean up their balance sheet before getting acquired in order to become more attractive to an acquirer. It’s plausible that there have been these very merger discussions, and Etihad is going to downsize its order book and close some stations before Emirates will go through with the deal. Better to be able to blame it on the last guy,.
The reason for Emirates to do the deal is to take out competition. They certainly see lower yields with with Etihad carrying passengers over AUH to India, Pakistan, etc. And they see lower yields on routes like UAE-Europe non-stop.
Before Etihad launched Gulf Air had an Abu Dhabi hub. Gulf Air had been owned by Qatar, Bahrain, Abu Dhabi, and Oman. Qatar pulled out in 2002. Gulf Air dropped its Abu Dhabi hub and Etihad was launched a dozen years ago, Gulf Air CEO James Hogan became Etihad’s CEO.
The Al Nahyan family wanted their emirate to be a world center, but got tired of the massive losses James Hogan’s strategy of buying troubled carriers, redirecting their traffic through Abu Dhabi, and ‘turning them around’ entailed. Giving up an Abu Dhabi global aviation hub is a hard pill to swallow even if Dubai World Central makes complete sense for a unified operation.
There’s a tremendous history of airlines acquiring competitors just to put them out of business. Perhaps my favorite was Southwest’s acquisition of Muse Air. Muse was also known as ‘Revenge Air’. Southwest’s founding President wasn’t Herb Kelleher. It was Lamar Muse, who was President from 1971 – 1978 when he was pushed out. His son started an airline two years later and it competed head to head with Southwest, which acquired the carrier five years later to stop the bleeding on both sides.
Ultimately the question is whether there’s too much pride on the line, and whether Etihad remains enough of a drag on Emirates’ operations that they’ll want to buy.