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Etihad’s global strategy crisis becomes more visible

Crikey, 9 May 2017
The devastating failure of several key planks of Etihad’s global airline grouping strategy was kicked into prominence yesterday when it announced immediate short term replacements for its president and chief executive James Hogan and chief financial officer James Rigney.

Their departure in the second half of this year had been announced in the New Year. However this latest announcement says that a replacement for Mr Hogan is imminent, yet also placed an emphasis on installing an immediate temporary replacement that had not been evident in the Abu Dhabi based airline group’s previous statements.

So far, media coverage has been comparatively muted. Let’s deselect the ‘mute’ button. Part of the ambition for the Etihad Group was a 49 percent stake in Italian flag carrier Alitalia, and more than 29 percent in Germany’s now shrinking second airline brand AirBerlin.

Both are in dire straits. Alitalia is very close to collapsing after its employees rejected Etihad supported restructuring plans and will on current guidance lose more than €600 million this year. It blew a reported €180 million in lines of credit that were activated in December.

AirBerlin lost €781.9 million in its most recent full financial year, preceded by a loss of €446.6 million the previous year. Etihad had already approved of deals by which AirBerlin’s arch rival Lufthansa was chartering dozens of its aircraft.

The Abu Dhabi carrier, which has positioned itself as a future rival to Dubai based Emirates, or Doha based Qatar Airways, has enjoyed some modest success in its investments in other airlines, although a happy pay day from its more than one fifth equity in Virgin Australia Holdings appears elusive.

The ambitious, and sovereign backed Abu Dhabi carrier offers more seats to the UK and EU from Australian cities in its own equipment than Qantas. It has been a potent contributor to the growth of inbound tourism, and won a reputation for offering very high service standards. It is an important employer of Australian expatriates including James Hogan and James Rigney.

Etihad hasn’t engaged in any speculation as to whether or not the global business model advanced for the group will be drastically overhauled under new management.

It doesn’t need to. The current, and visionary and indeed exciting model, is broken. Arguably broken by two of the airlines that had the most to gain from its success.

Etihad’s global strategy crisis becomes more visible