x Abu Dhabi, UAEMonday 24 July 2017

Etihad to seal 'one or two more deals' before ending expansion policy

James Hogan, chief executive of Etihad Airways, says only two further deals are likely before the carrier stops snapping up minority stakes in foreign airlines.

James Hogan, the president and chief executive of Etihad Airways, says India and China are now the key regions of focus for the aviation industry. Delores Johnson / The National
James Hogan, the president and chief executive of Etihad Airways, says India and China are now the key regions of focus for the aviation industry. Delores Johnson / The National

One of the major keystones in the expansion strategy of Etihad Airways – snapping up minority stakes in foreign airlines – is about to come to an end, according to James Hogan, the carrier's president and chief executive.

Speaking in London while attending the Future of Air Transport Conference, Mr Hogan said only two further deals were likely, before he shelves the policy of equity investments.

Etihad, which has minority stakes in Air Berlin, Virgin Australia, Aer Lingus and Air Seychelles, has bought into local carriers in the belief that it is the best way to gain a foothold in regions where it wishes to expand.

However, Mr Hogan said there was now a danger that further involvement in running other people's airlines might prove a distraction to his management team. "There isn't a shopping list," he said. "Maybe there are one or two more deals we'll do here, but what I can't do is something that bogs my management team down. We don't control those airlines, so we have to be convinced of their strategy."

Over the past nine years, Mr Hogan's development strategy for Etihad, through a mix of code share arrangements – the airline currently has 41 – and minority stakes, has transformed its base at Abu Dhabi International Airport into a leading hub for intercontinental travel.

He explained his approach when it came to deciding whether to invest in other carriers. He would sign only if he could satisfy himself that "I'm not stepping in to just help someone out," he told Bloomberg News. "I'm stepping where it will improve my top line and bottom line and improve theirs too. What is important is we all make money."

India and China are now the "key regions of focus" he said, with Etihad in due diligence with a "couple" of Indian airlines. However he would not be drawn on whether a deal was likely. "Ask me in a couple of weeks," he said.

Shares in India's Jet Airways rose more than 7 per cent in Mumbai early trading yesterday on continued reports that Etihad was in talks to buy a stake.

Reuters reported wide speculation in the Indian press that Jet was looking to sell 24 per cent of the company for 16 billion rupees (Dh1.07bn).

Many potential investors in India's airline industry are concerned over government interference, despite New Delhi opening up the market to foreign investment in September, allowing foreign carriers to buy up 49 per cent of an Indian airline.

In April, Willie Walsh, the chief executive of the British Airways parent International Consolidated Airlines, warned any meddling by the Indian government would, "destroy the market".

However, Mr Hogan said that Etihad was not deterred by the possibility.

"We work in that part of the world and Willie doesn't," he told Bloomberg. "That's our back yard. We wouldn't enter into anything unless the governance was there in the shareholder agreement."

There is no question of Etihad taking a stake in Air France-KLM Group, the biggest European carrier, with which it has agreed to code-share. A cost and revenue sharing alliance that might include Italy's Alitalia, in which the group has a stake, "is on the agenda", said Mr Hogan.

"A relationship with Air France-KLM, Alitalia, combined with Air Berlin and Aer Lingus, that's pretty powerful coming over the Gulf down to South East Asia and Australasia," he added.

He has indicated he will seek to raise Etihad's stake in the former Irish national carrier Aer Lingus if its share price falls. Such a decline is likely if the latest efforts by Ireland's no-frills airline, Ryanair, to buy its rival are blocked by Brussels next year.

Ryanair owns almost 30 per cent of Aer Lingus while Etihad owns just under 3 per cent. The Ryanair chief executive Michael O'Leary has said he will offload his stake in Aer Lingus if the European Union rejects his takeover.

"In an uncertain world, the Middle East is one of the strong pockets for growth in aviation", Mr Hogan told the 200 delegates in his address to the London aviation conference. He added that its success was not only down to capitalising on its strategic geographical location.

"There's an unprecedented focus on service. We are able to work from a new cost control template and there's no 'legacy' airline baggage," he said.

"The connectivity provided by Etihad Airways is key to Abu Dhabi's regional competitiveness [and] the double-digit growth we are seeing is largely supported by the government's vision for the future which is backed by considerable investment in tourism infrastructure"