Partnership Approach Offers New Model for Airline Competition

The partnership approach adopted by Etihad Airways offers a new model for airline competition, said President and CEO James Hogan, speaking at The Wings Club in New York.

In an industry dominated by legacy airlines, and with such high barriers to entry, no new network carrier could hope to compete effectively in its own, he said. Yet without new competition, consumers around the world would suffer.

Delivering the keynote address at the monthly Wings Club meeting, Mr Hogan said:

“Global air travel is a business with incredibly high barriers to entry – not just in terms of cost, but in market access, infrastructure requirements and the challenge of competing against such entrenched mega-carriers. The highest barrier is network. You can’t build a global network overnight – in fact, you’d need decades, and billions of dollars, to build networks that could compete against the major airline groups. That’s where partnership comes in. From day one, we’ve taken an open partnership approach, working with scores of airlines on codeshare agreements. Then we took that a step further with minority equity investments in strategically important airlines. Together, we have been able to create a new competitive choice for air travellers in key markets around the world. That’s good for consumers, good for tourism and good for trade.”

Mr Hogan said Etihad Airways’ equity investment strategy was a key element of that approach.

“We have a two-pronged approach. From a strategic level, we are looking for the equity partners to bring network connectivity, generate additional revenues and create economies of scale. All our partners are delivering on this level. That has helped to create the seventh largest airline group in the world and is delivering hundreds of millions of dollars to our business. Each partner then has its own business plan, which is the responsibility of their own management and Boards of Directors. Many of these, such as Air Serbia, Air Seychelles, Jet Airways and Virgin Australia, are now delivering on this level too. We are supporting the restructuring of businesses that require it, such as Alitalia and airberlin.”

Mr Hogan said Etihad Airways’ entry into the United States market had also brought major benefits to the country.

“We are a tiny player in the US air travel market, with less than 0.01 per cent of daily international departures. However, we have been able to offer major benefits to the United States. We connect the US, through our hub in Abu Dhabi, with scores of markets which are simply not served by other carriers. That means we are feeding hundreds of thousands of travellers, leisure and business, into the US. Hundreds of thousands of those get fed onto the US carriers. We’ve also been a close business partner with US corporations – most obviously with Boeing and other aerospace suppliers, but we’ve also created major partnerships with Sabre, Honeywell, IBM, Adobe and many others. Our total impact on the US economy is more than US$ 440 million a year.”

Mr Hogan said he believed many of the issues raised about Etihad Airways by the Open Skies campaign stemmed from a lack of understanding of the airline’s business model.

“There are many myths about our business. But the truth is that we run as a commercial organisation, with a shareholder that demands a clear return on its investment. We get no subsidies or state support. We have a well remunerated, highly satisfied workforce. What we have had is the investment required to compete in such a capital-intensive business. That’s a smart investment when you consider the many advantages Abu Dhabi offers as the focus for a global network airline – as long as there is a return. That’s where our unique partnership model comes in.”

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