Fixing Etihad – What Should Be Done?

UAE carrier Etihad is one of the airlines in the group known as ME3 or the ‘Middle East Three.” Along with Emirates and Qatar Airways, Etihad connects the world through its major Abu Dhabi hub and fleet of large widebody jets. However, the carrier is falling behind its fellow ME3 members, posting disappointing financials and passenger numbers in recent reporting. So what can be done to improve the airline’s performance? Let’s take a look.

Etihad Airways, Stored Aircraft, Maintenance
Etihad connects significant regions of the world through its hub at Abu Dhabi International Airport. Photo: Etihad Airways

Etihad’s current situation

While Etihad reported a strong start to 2020, before COVID-19, the virus severely impacted its performance. The airline carried 3.5 million passengers in the first six months of 2020, compared to 8.2 million in the first six months of 2019, a reduction of 58%.

Operating loss for this period increased to US$758 million, compared to a loss of US$586 million in the first six months of 2019. This loss was driven by a 38% drop in revenues, which stood at US$1.7 billion in the first six months of 2020, compared to US$2.7 billion in the corresponding period last year.

According to an August press release seen by Simple Flying, the airline only filled 16% of available seats in the 2nd quarter, compared with 74% between January and March. Moreover, 3.43 million passengers were onboard its flights during the first three months of this year. Therefore, the firm was only serving a fraction of its customers during the second quarter.

Etihad A380
The largest aircraft in the Etihad fleet, the Airbus A380, will remain grounded in the face of severely diminished capacity. Photo: Getty Images

Etihad Aviation Group CEO Tony Douglas recognizes the unforeseen catastrophe of the first half of this year but said that he is looking forward to gradually growing again in the coming months:

“Etihad faced a set of enormous and unpredictable challenges in the first six months of the year…While we have revised our outlook for the rest of 2020 based on current realities, we remain optimistic that as international borders re-open, we will increase our flying and carry more guests securely and with greater peace of mind.”

An uphill battle

The carrier certainly has its work cut out for it as it joins other airlines worldwide in suffering through this severe downturn in air travel. Therefore, a large portion of its troubles right now are external and at the mercy of governments to relax travel restrictions. However, in times of crisis, there are better ways to respond than others.

Etihad made a sound decision in removing its fleet of 10 Airbus A380s from its flight schedule indefinitely. The airline grounded the superjumbos in March, and the aircraft have been parked ever since. Unfortunately, these 10 aircraft will continue to eat up Etihad’s cash in the form of maintenance costs. At least these storage expenses are lower than flying the aircraft at low capacity.

Etihad will need to rely on smaller long-range jets like the 787-9 for the time being. Photo: Etihad Airways

Downsizing Etihad’s fleet also means unfortunately downsizing its workforce. In an internal email, Etihad told its cabin crew that it had more staff than it needed, with many of the crew not being rostered on flights. An internal memo said that from September 16th, crew were invited to take between 10 days and six months of unpaid leave.

Between a rock and a hard place

With travel demand as low as it is, airlines have far too much capacity on the market. Collectively, the situation is made worse with multiple carriers competing against each other for the tiny trickle of passenger revenue.

Emirates is a significant rival for Etihad Airways. Photo: Emirates

It’s one thing to compete on direct routes, but competing in the long-distance connecting-hub market is a far more intense game, even in the best of times. The competition is far greater – especially in the region that Etihad finds itself in. To connect Europe and Southeast Asia, the airline has to compete with a long list of full-service airlines like:

  • Emirates
  • Qatar Airways
  • Turkish Airlines
  • British Airways
  • Air France
  • KLM
  • Lufthansa
  • Singapore Airlines
  • and more…

The airline is also facing challenges in the regional market with multiple legacy airlines and low-cost carriers filling the market. While service levels will vary, passengers may be drawn away from Etihad by the prospect of direct flights with more convenient flight times.

Etihad, Boeing 787, Vienna
Etihad’s higher-end offerings have been well-rated but face fierce competition amid decreased demand. Photo: Etihad Airways

A shift in strategy

We’ve already mentioned in previous articles what the airline’s leadership is doing to turn the airline around. CEO Tony Douglas is overseeing a major restructuring that has included cuts in services, with many of the exuberant frills vanishing from the carrier as well as the cancelation of aircraft orders, including for the Airbus A350. The airline also has a new focus on local service and cultural values- but it’s unlikely they’ll ever really make a dent in Qatar or Emirates market share.

One major way to stop financial losses is to stop the practice of investing in other carriers (at least for the next few years). Historically, Etihad’s purchases have included a 29.2% stake in Air Berlin, 49.8% in Niki, 49% in Air Serbia, 40% in Air Seychelles, 49% in Alitalia, 24% in Jet Airways, and 21.8% in Virgin Australia.

Etihad lost big when it invested heavily in Italian carrier Alitalia. Photo: Getty Images

Some of these haven’t been a disaster, but the fact that five of the six airlines listed no longer exist is a sign that Etihad has been placing bad bets (not at all helped by the current crisis).

The carrier currently has an advantage over Emirates in that it operates smaller aircraft and is a little more versatile in its ability to fill up its jets. Therefore, finding the right routes to exploit this aspect fully will be critical.

At the same time, however, it will need to distinguish itself from low-cost airlines popping up across the region, finding the sweet spot in justifying its higher fares without overspending on this elevated level of service.

Wizz Air, Abu Dhabi, Inaugural Flight
Wizz Air Abu Dhabi is likely to draw market share away from Etihad and its codeshare partner Air Arabia. Photo: Wizz Air

Additionally, the airline could establish more mutually beneficial partnerships in Europe, Africa, and Asia to entice airline-loyal customers away from the competition.

Ultimately, projections indicate that the carrier will continue to post losses up until around 2022, but hopefully, these will become smaller over time and eventually turn into a net profit.

What do you think needs to be done to put Etihad Airways on the path to profitability? Let us know your thoughts in the comments.