Emirates in Talks to Buy Etihad, Create World’s Largest Airline

Bloomberg is reporting that Emirates is in negotiations to acquire Etihad, forming the world’s largest airline by number of passengers carried.

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. I’ve read much of the changes at Emirates as cleaning up the balance sheet before getting acquired.

The CEO of Emirates teased merger speculation last year. Etihad’s CEO teased it this year. The two airlines have been cooperating more closely. Etihad is lending pilots to Emirates.

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.

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.

No doubt any deal will involve a nod towards continuing to maintain the importance of Abu Dhabi. The new Dubai airport is closer to Abu Dhabi and over time Abu Dhabi certainly becomes a less important hub if this deal happens, no matter what airline leadership says today.

There’s a tremendous history of airlines acquiring competitors just to put them out of business, even if that doesn’t happen here in full. 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. But today’s word certainly bolsters the likelihood of something I’ve been predicting loudly the past two years.

(HT: @ShaulyPaley)

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. To be clear — it would (assuming no route cuts) be the largest airline by passenger miles traveled, not by number of passengers carried. On the latter metric, it would still be far behind the big US airlines.

  2. I haven’t looked at the comparative traffic stats but, obviously, there will be a massive reduction in ASMs if these airlines merge. So I don’t know if they’d remain the world’s largest airline. Regardless, a merger is certainly a good business idea and, indeed, a commercial necessity. My hunch is that “money” will eventually trump “pride” and a deal will get done. As an outsider, it’s impossible to know when that will happen, however. BTW, this is bad for Airbus and Boeing, but inevitable.

  3. It is the Pride over Money. When Dubai market crashed it is Abu Dhabi which had injected the funds in the World Tallest Tower and brought Dubai back to map. So I feel there will be value engineering and plan for revamping to give life to Etihad. The role of AbuDhabi in this region is further demonstrated by the expansion project support for the the Bahrain Airport. I do not think Abu Dhabi Govt will give up so easily as this is well in their appetite.

  4. Good article to read but I see you missed a very important aspect of Abu Dhabi – The Midfield Terminal.
    A US$3Bn airport project which is on track to open in 2019.
    What do you think about this investment?

  5. Im sure there will be some sops handed to Abu Dhabi to make it seem like a merger of equals. Of course, I fully expect that the power will remain with the Emirates team in DXB.

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