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Abu Dhabi, UAEThursday 21 June 2018

Exclusive: Etihad bullish on future as carrier looks to reposition itself

Peter Baumgartner outlines vision for airline’s strategy and insists no plans to exit any more partnerships despite recent upheaval

Etihad Airways is bullish as it repositions itself to expand its own point-to-point services, refresh its fleet and continue cost-cutting measures to improve performance. Source: Bloomberg
Etihad Airways is bullish as it repositions itself to expand its own point-to-point services, refresh its fleet and continue cost-cutting measures to improve performance. Source: Bloomberg

Etihad Airways, the flag carrier of the United Arab Emirates, is repositioning itself to expand its point-to-point services, rejuvenate its fleet and continue cost-cutting measures to improve performance, its chief executive said.

“Times have been tough – not only for Etihad but for all airlines in the Middle East, due to the low oil price and overcapacity issues to which the industry took a long time to adapt… Then you had all the security situations and terrorism and so on, and it was close to a perfect storm,” Peter Baumgartner said.

“On our side, it was compounded by some different outcomes with our equity partners from what we had planned, leading us to take a ‘reality check’ as we enter the life cycle of where we want to be tomorrow, five years, 10 years from now.”

The chief executive of Etihad Airways said he is confident in the carrier’s prospects of recovery after posting sweeping losses related to the administrations of Alitalia and Air Berlin this summer. There are no plans to exit additional equity partnerships, Mr Baumgartner said.

Etihad acquired a 49 per cent stake in Alitalia in 2014 as part of its global expansion drive, with a view to making the airline profitable again by 2017. But the airline’s passenger numbers continued to fall because of stiff competition from low-cost carriers including Ryanair. The poor performance of Alitalia, alongside other subsidiaries including Germany’s AirBerlin, led Etihad to launch a review late last year of its international investment strategy that was crafted by its former chief James Hogan, who left the airline in July.

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In July, Etihad recorded a US$1.87 billion loss for 2016 after a one-off impairment on aircraft and equity investments in Alitalia and Air Berlin – both now in administration after failing to secure new investment – outweighed record growth in passengers and only a marginal fall in total revenues to $8.36bn last year from $9bn in 2015.

The results followed a difficult year for the airline, which in December announced a widespread restructuring to cope with an “increasingly competitive landscape” in “weakened global economic conditions”, it said at the time.

Etihad expects 2017 will be “another flat year” in terms of capacity growth, but “it is not all doom and gloom”, Mr Baumgartner said. “The losses in the summer do not reflect the operational performance of the airline.”

Over the course of this year, the airline has re-adjusted to suit changing demand and rethought its traffic flows during a restructuring.

Despite disappointments with the two European partner airlines, Mr Baumgartner insisted there are “no plans to step out of any of the existing partnerships at this stage”, citing the codeshare with India’s Jet Airways as a particular success.

“From a shareholder perspective, Alitalia and Air Berlin have not been unimportant, but let’s not forget we have over 50 codeshare partners, many of whose commercial operations benefit Etihad. We have always been a business that has been built on partnerships, so there is life beyond Air Berlin and Alitalia.”

However, the airline intends to increase its focus on its direct services. “Another part of our renewed focus is the point-to-point markets, which is the direct traffic which drives higher yields and maximises the support to the Abu Dhabi economy and tourism strategy as compared to the high price sensitive flow traffic through Abu Dhabi,” Mr Baumgartner said.

There are no plans for new aircraft orders. The Boeing 787 Dreamliner still forms “the backbone of our fleet,” he said.

Cost-cutting measures will continue throughout 2018, Mr Baumgartner added. When asked if further job cuts were likely, he said: “When you evolve a business, the requirements may change and talent shifts and sometimes new jobs are needed in new areas, so it is not always about losses.”

Etihad will not seek a merger with fellow UAE carrier Emirates, Mr Baumgartner said.

“There is a lot of meaningful dialogue that is taking place in the aviation sector – that should have taken place a long time ago – but it is not anywhere near what some media has suggested [in terms of a potential merger between Etihad and Emirates],” he said.