After four painful years of deep cost-cutting and restructuring at Etihad Airways, CEO Tony Douglas finally has something to brag about. During a visit to New York this week to mark the launch of extended service from the airline’s home base of Abu Dhabi to New York and Chicago with next-generation A350-1000 widebodies that She started flying this spring, the talkative Englishman says her planes were 94% full in August as the release of a pent-up desire to travel produced a ‘fire hydrant’ of leisure bookings .
Etihad says it posted record core operating profit for its first half of nearly $296 million, breaking a $7.8 billion streak of reported losses dating back to 2016. Douglas says the rest of the year is looking good and that he’s not worried about a slowdown in pandemic “revenge tourism” anytime soon. “China is going to reopen at some point,” Douglas said. Forbes. “It will detonate this kind of fire hydrant with a turbocharger behind it.”
Whether the airline is ready to stand on its own after tens of billions of dollars in support from its state-owner, the emirate of Abu Dhabi, is another question.
With the mixed blessing of having already embarked on an overhaul before the pandemic forced virtually all airlines to do so, Etihad, which launched in 2003, has retreated sharply from the original ambitions of the Abu Dhabi government. to create a leading airline similar to the United Arab Emirates. the neighboring Emirates of Dubai. Etihad has grown from 29,000 employees in 2017 to 8,500 today, offloading airport support businesses to an Abu Dhabi sovereign wealth fund, and grown from a disparate lineup of 122 aircraft to 71 aircraft in active service, with two types – the fuel-efficient Boeing 787 and Airbus A350-1000 – forming the backbone of the fleet.
Douglas, who took over as CEO in 2018, canceled or threatened to withdraw much of two massive orders placed with Boeing and Airbus in 2013 for 143 jetliners that had a then-record total value of $67 billion. He also backed out of loss-making partnerships with airlines around the world and disastrous equity investments that led to billions in losses with the bankruptcy of carriers such as Air Berlin and India’s Jet Airways.
What remains is what Douglas describes as a lighter mid-size airline that can opportunistically move its small fleet quickly to meet seasonal demand, and that has pulled itself out of the trap of serving marquee destinations that were not profitable for her for much of the year, such as San Francisco, Dallas and Edinburgh. This summer, Etihad launched a temporary service from Abu Dhabi to holiday hotspots like the Greek islands of Mykonos and Santorini; Malaga, Spain; and Zanzibar.
“The network will drive the fleet rather than the fleet driving the network,” he says.
Etihad still shares the natural advantage that Emirates and Qatar have derived from a hub location to connect travelers from Asia to Europe and North America – their Persian Gulf hubs are less than eight hours away flight of two-thirds of the world’s population. Their competitiveness has strengthened since March, with US and European airlines barred from Russian airspace on many of the most efficient routes to Asia, including the Indian subcontinent. Gulf airlines continue to fly in Russian skies.
That’s probably part of the reason United Airlines is set to unveil a partnership with Emirates next week in which they’ll sell seats on each other’s flights, an arrangement known as codeshare, giving customers two the ability to reach more remote locations. . Meanwhile, American Airlines and Qatar Airways extended their codeshare agreement in June to 16 more countries.
The Emirates-UAE tie-up “could generate huge revenue for both, opening up new traffic flows and new markets for both carriers,” said Linus Bauer, an aviation consultant based in Dubai. Forbes by email.
As Delta Air Lines is the only major US carrier without a Gulf partner, Douglas said Etihad would be willing to partner with the Atlanta-based airline. It already shares flights with JetBlue and American. “We’re not going back to a quasi-alliance, we’ve tried and failed,” Douglas says, but “we’d love to talk to Delta.”
Delta did not respond to a request for comment.
The tie-ups come after American, United and Delta spent years trying to convince the US government to take action on subsidies from oil-rich Gulf states for Emirates, Qatar and Etihad which they say are falling apart. amounted to $52 billion from 2004 to 2018, giving airlines an unfair advantage on the routes they operate to the United States – which the Gulf carriers have denied.
Etihad alone received $17.5 billion in government funding from 2004 to 2014, according to a report by US carriers and unions based on an analysis of its financial statements. Etihad reported small net profits from 2011 to 2015, but the report said that was thanks to regular injections of government funds that allowed the airline to cover operating losses.
Until 2019, Abu Dhabi’s total investment in Etihad was around $22 billion, the airline disclosed to potential investors as part of a bond offering, according to Bloomberg.
It is unclear to what extent additional government support during the pandemic has supported Etihad’s restructuring efforts and contributed to its first-half core operating profit, but in 2021 Fitch Ratings said its confidence that Abu Dhabi would continue to pump money into the airline was the main driver. in a decision to maintain its “A” debt rating. “This has been demonstrated during the current pandemic, with the state providing tangible support to prevent Etihad’s transformation plan from being derailed,” Fitch analysts wrote.
An Etihad spokesperson declined to discuss the extent of state funding, but said that in 2021 the carrier received government reimbursement for operational Covid-related expenses such as testing and PPE that “was a fraction of what other airlines had received”.
Nevertheless, the airline appears to have made substantial progress towards financial viability. Bauer says its drastic reductions and more fuel-efficient fleet, combined with lean management and better use of data, have generated productivity gains and cost savings.
“It is clearly visible that the transformation effort that has been going on for years is beginning to yield better results, however, the airline cannot rest on its laurels yet,” he notes.