In Gulf Carrier Power Grab, Etihad Is Set on Growth
At a time when Gulf carriers have effectively redrawn the balance of power in the aviation industry, Etihad Airways s showing no signs of slowing down its global expansion. And part of that strategy remains focused on buying minority equity stakes in other airlines, the company's President and CEO, James Hogan, told CNBC's "Access: Middle East."
The flag carrier of the oil-rich Emirate of Abu Dhabi has been splashing the cash, picking up stakes in Air Berlin, Virgin Australia, Air Seychelles and expressing interest in boosting its share in Aer Lingus.
"Equity is one step further. The key issue is how do we continue to improve on top line. I don't intend to manage other airlines," Hogan explained.
Analysts agree the strategy may help the young airline make up for lost time and avoid the difficulties of extra landing rights. There is also no lack of carriers seeking investors, but there's a trade-off.
"Financial commitment. Secondly, it can take quite a bit of management time. Look at the case of Air Berlin," John Strickland, Director at JLS Consulting, pointed out to CNBC.
For Hogan, the financial struggles of Germany's second-biggest airline after Lufthansa re not as alarming.
"We wouldn't go into a deal unless we believe that it makes business sense. And to access the German market was key criteria for us. Over the coming year, you will see Air Berlin continuing to improve," Hogan said.
Eithad Airways, which expects a full-year profit, landed in the record books in 2008 for placing the largest commercial aircraft order in history, totaling some $43 billion for up to 205 aircraft at list prices. The aim is to carry 25 million passengers a year by 2020, a number that would still be far from those of next-door neighbor Emirates Airline today.
"From an airline perspective, it's not how big you are. It's the right shape, right size, right model to meet your commercial aspirations."
Indeed, geopolitical uncertainties aside, the prospects for regional carriers against a backdrop of enviable economic growth and geographic "hub status" are bright. In its revised quarterly outlook, the International Air Transport Association (IATA) showed that Middle East carriers enjoyed the strongest year-on-year traffic growth.
"In addition to growing their long-haul business with increasing market share on routes connecting via the Gulf hubs, they have taken the majority of what little growth there has been in the cargo market this year," Tony Tyler, IATA's Director General and CEO, noted last month.
In pursuit of a hike in oil production to three million barrels per day by the end of this year, Abu Dhabi is also home to several sovereign wealth funds that have bought a plethora of stakes in prominent companies around the world. Although Eithad Airways is an integral part of the long-term plan to diversify the local economy away from precious crude, Hogan said, there is no free ride.
The global push is not only about adding more codeshare partners, or securing additional routes. Like its regional competitors, the Abu Dhabi carrier has been actively raising its global profile through sports sponsorships, ranging from the English Premier League to Formula 1. A ten-year agreement with football club Manchester City for an amount estimated to have been in excess of $450 million even became the center of public debate after allegations the deal violated rules of financial fair play.
"That number has been exaggerated," Hogan responded. "I think what's more important is it's a good investment of our funds. It's a commercial deal."
Regardless of how the team fares on the pitch, Hogan is upbeat about 2013 and believes more global consolidation, be it through partnerships or acquisitions, is inevitable.
"Airline business models are having to change. At the end of the day, the consumer will determine who will be successful. We have to get it right. And quite frankly, that's what I believe the Gulf carriers have been doing."
This week on "Access: Middle East": An exclusive interview with James Hogan, President and CEO of Eithad Airways. Tune in to see what he has to say about doing business in Abu Dhabi, evolving industry business models, and his love for sports.
Yousef Gamal El-Din is CNBC's Middle East Correspondent and contributes to the channel's flagship shows, as well as analysis for CNBC.com.
Stay in touch with him on Twitter @youseftv