new etihad boss to rethink strategy after alitalia dream fails
Last Updated : GMT 06:49:16
Arab Today, arab today
Arab Today, arab today
Last Updated : GMT 06:49:16
Arab Today, arab today

New Etihad boss to rethink strategy after Alitalia dream fails

Arab Today, arab today

Arab Today, arab today New Etihad boss to rethink strategy after Alitalia dream fails

Emirati man takes a selfie in front of a new Etihad Airways A380
Dubai/Milan/Paris - Arab Today

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 CEO this 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 EU, 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 labor problems.
Since 2011, Abu Dhabi’s state-owned Etihad has spent billions of dollars buying minority stakes from Europe to Australia as it races to catch up with regional rivals Emirates and Qatar Airways.
Alitalia was Etihad’s eighth and most high-profile bet. But the €560 million ($609 million) investment lies in tatters, placing Hogan’s wider strategy under the microscope after staff overwhelmingly rejected its latest restructuring plans. Now the future of Etihad’s other leading investment, in Air Berlin, is also in doubt as the Gulf carrier pursues a strategy review that began last year. Like Alitalia, the German carrier has made big losses and it said two weeks ago it was seeking a new partner, which could include a new investor.
An Etihad spokesman said its review was ongoing but declined to comment on how its strategy might change or the impact of Alitalia’s failure on its global plans.
But a senior source at the Gulf carrier said lessons would be learned from the Italian investment and they would play a role in shaping future strategy.
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, a senior analyst at Australian aviation consultancy CAPA.
Etihad’s efforts to grow through minority stakes have at times been compared to Swissair’s failed “Hunter” strategy of the 1990s. Swissair’s buying binge, often acquiring stakes in ailing airlines, contributed to huge losses which eventually saw it grounded in 2001 and sold to Germany’s Lufthansa in 2005.
Hogan has always rejected the comparison, saying Etihad was doing things differently to Swissair and had demonstrated it could control costs. Etihad and its rivals have demonstrated spectacular growth but are increasingly pressured by a slowing Gulf economy due to relatively low oil prices. They 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. The Middle East’s largest airline reported a drop in annual profit on Thursday for the first time in five years.
As the youngest of the three major Middle Eastern carriers, 14-year-old Etihad has looked to catch up and followed a third path of buying into other airlines to expand its reach.
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.
“When Etihad arrived in 2014, we thought this time it would finally work, that this was it,” said Alitalia pilot Stefano Di Cesare of the Fit-Cisl union. Yet, Italian industry leaders say Etihad underestimated the country’s tangled politics and chronic labor strife.
Italian executives, officials and unions said in interviews with Reuters that alienating Alitalia’s workforce was among a series of missteps that ended Etihad’s Italian dream. Many also say Etihad underestimated the blistering growth of low-cost carriers Ryanair and easyJet. Without a majority stake, Etihad’s influence was limited despite being the largest single investor on 49 percent. And despite the lure of Italy’s important tourism market, it was forced to watch Alitalia’s efficient rivals mop up the benefits.
“There is no doubt that the idea to manage the company from Abu Dhabi was a very serious mistake,” Italian Industry Minister Carlo Calenda told Parliament last week.
The Etihad spokesman said Alitalia had been in financial trouble for decades and that its investment was welcomed wholeheartedly in Italy. Etihad believed the new restructuring plan developed by Alitalia’s management would have addressed its problems, he added.
In Germany too, Etihad had seen Air Berlin, its first investment in 2011, as the door to unrestricted access in a market where it has limited traffic rights with its own planes. But that airline has seen losses widen to a record €782 million in 2016. For now, Etihad continues to provide funding. Air Berlin says Etihad has granted another loan facility of €350 million and a letter of support for at least 18 months. But industry sources say Etihad could exit Air Berlin by seeking a deal with German flag carrier Lufthansa, with which Etihad is keen to work.
Lufthansa CEO Carsten Spohr said on Friday he had held talks with Abu Dhabi about the future of Air Berlin, but that it was up to the emirate to resolve Air Berlin’s €1.2 billion debt problem, which also prevents Lufthansa buying it.
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.
Even as the carrier picks up the pieces of its European adventure, Etihad faces its own restructuring that sources close to the company say has seen near-daily redundancies.
This may also weigh on the strategic decision facing Gammell, as he takes up his interim post this week, followed in coming months by a permanent successor to Hogan.

Source: Arab News

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new etihad boss to rethink strategy after alitalia dream fails new etihad boss to rethink strategy after alitalia dream fails

 



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