Etihad Airlines, one of the largest carriers in the Gulf region, has lost $3.4 billion in the last two years. And among the casualties of the airline’s inevitable retrenchment may well be the bottom lines of both Boeing and Airbus, as the airline is threatening to cancel existing orders for new jets.
Etihad Airways is the second-largest carrier in the United Arab Emirates (behind Emirates Air) but it has always had big ambitions. Abu Dhabi-based Etihad has built a fleet of 115 planes, including ten Airbus A380 superjumbos, since its 2003 founding. In 2017 Etihad flew 18.6 million passengers to 100 destinations around the world.
What has been elusive, however, is profit, while red ink has flowed freely. Last month Etihad announced its 2017 results, ‘highlighted’ by a $1.52 billion loss. This was actually an improvement from 2016, when Etihad lost $1.95 billion, supposedly because the low price of oil hit travel in the oil-dependent Gulf countries. Another financial problem for Etihad was their investment in six other airlines (the ‘equity alliance strategy’), particularly Alitalia and air berlin. The investment and partnership arrangement with Alitalia and airberlin each ended in insolvency. While Alitalia continues to operate, Air Berlin went out of business in October, 2017. Etihad still holds stakes in four other airlines.
All of this is too much for Etihad CEO Tony Douglas, who appears to be scaling back Etihad’s global ambitions. Etihad has announced the dread pair of “R words” (retrenchment and re-organization). Etihad Aviation Group will split itself into 7 business divisions as part of the company’s “organizational reviews and restructuring” to “reduce costs and improve productivity and revenue.”
Job cuts of between 1000 and 3000 of Etihad’s approximately 20,000 employees have been announced, including both cabin crew and ground staff. At the same time, Etihad has been cutting what it calls ‘marginal’ routes and retiring some aircraft without replacing them. Although Etihad’s ten A380s are popular on long-haul routes, the A380’s high fuel consumption and cost of operation may make them vulnerable as well, particularly as the airline has been operating at a load factor of just 78.5 percent. The world average is 81.5%.
Etihad CEO Douglas says the airline will focus on serving its home turf of Abu Dhabi, rather than on carrying passengers from continent to continent like bigger rival Emirates. These flights to various countries through Dubai Airport (its 88 million passenger count in 2017 was the largest in the world) and Abu Dhabi has resulted in the ire of US carriers, who say the Gulf airlines have been heavily subsidized by their governments. In 2015, Forbes.com reported that Etihad’s paper profit of $103 million did not reflect almost $1.7 billion in cash and interest-free loans received from the government of Abu Dhabi.
Etihad’s troubles may create a ripple effect on the aircraft manufacturer duopoly of Airbus and Boeing. Etihad CEO Douglas said that the company is in negotiations with Airbus and Boeing to potentially cancel dozens of wide-body aircraft orders after deciding that doubling the size of Etihad’s fleet no longer makes sense.
In addition to the 115 aircraft it already operates, Etihad has another 98 orders with Airbus and 77 with Boeing. These include Boeing 777 and 787 long-range craft and Airbus’ competitive A350-900 and A350-1000.
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