Legacy airline alliance have outlived their usefulness and become a drag on innovation, Etihad CEO James Hogan has argued in a strongly-worded defence of his airline’s ‘equity partnership’ strategy.
“The traditional airline alliances have evolved into slow-to-respond, bureaucratic organisations which struggle to deliver added value to their member airlines, many of which are no longer compatible with each other,” Hogan said during a speech at the International Aviation Club in Washington DC.
Like rival Gulf carriers, Abu Dhabi-based Etihad has shied away from traditional alliances, instead building an ad hoc network of some 42 codeshare partnerships. It operates an extensive relationship with Virgin Australia, in which Etihad owns a 9 per cent stake.
Dubai-based Emirates had also steered clear of formal alliances until inking its landmark deal with Qantas, which took effect this month. Qantas and Emirates have described their tie-up as a new breed of alliance that goes well beyond the traditional, multi-airline arrangements at which Mr. Hogan’s comments were aimed. Unlike Etihad’s approach, however, the Qantas-Emirates deal does not include an equity component.
In addition to its stake in Virgin Australia, Etihad owns a 29 per cent share of airberlin, 40 per cent of Air Seychelles and three pre cent of Aer Lingus. By taking a minority stake, Etihad is able to enter markets without the complexity of a merger or larger investment while taking on the impetus to innovate and build partnerships of real value, Mr. Hogan said.
“We focus on our partners’ profitability as much as our own, because we are not dealing with competing interests. When the five CEOs sit down to make decisions, we have a shared commitment to make things happen,” he said.
Hogan said Etihad expects to release the strongest first quarter financial results in its history later this month. The airline posted a $42 million profit in 2012 — it’s first ever.
While Etihad has in the past expressed interest in broadening the scope of its equity partnerships scheme, Mr. Hogan said he expects to see the continued break-down of legacy alliances in the coming years.
“If we look at the consolidation currently occurring throughout the airline industry, we are also seeing more fragmentation within the alliances,” Hogan said. “This is going to continue as members seek ways to operate profitably in a very competitive environment with high fuel costs and generally slower global economic growth.”
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