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May 9, 2017

An Etihad 787-9 Dreamliner

The devastating failure of several key planks of Etihad’s global airline grouping strategy was kicked into prominence yesterday when it announced immediate short term replacements for its president and chief executive James Hogan and chief financial officer James Rigney.

Their departure in the second half of this year had been announced in the New Year.  However this latest announcement says that a replacement for Mr Hogan is imminent, yet also placed an emphasis on installing an immediate temporary replacement that had not been evident in the Abu Dhabi based airline group’s previous statements.

This is what Etihad said:

The Etihad Aviation Group Board of Directors today appointed Ray Gammell as interim Group CEO, and confirmed that James Hogan, current President and Group CEO, will leave the company on 1 July 2017. 
 
Consistent with the company’s leadership transition plan, Gammell will assume full management responsibilities from today. Gammell is Etihad Aviation Group’s current Chief People & Performance Officer and has been a member of the Executive Leadership since joining the business in 2009, where he has led the creation of a performance culture across the group.
 
A parallel handover will occur as Ricky Thirion assumes full responsibilities of the Group CFO, James Rigney, who will also leave the company on 1 July 2017. Thirion joined Etihad Airways in 2007 and is the current SVP Group Treasurer.
 
H.E. Mohamed Mubarak Fadhel Al Mazrouei, Chairman of the Board of the Etihad Aviation Group, commented: “Ray and Ricky are experienced leaders and have the complete confidence of the Board. Ray will now take full management responsibility for the Etihad Aviation Group, ensure a coordinated group approach, and continue to advance the strategic review that was initiated by the Board in 2016 to reposition the business for continued development in what we anticipate being a prolonged period of challenges for global aviation.”
 
“We have strengthened our group leadership with recent appointments and are now in the advanced stages of recruitment for a new Group CEO. The Board has been very pleased with the calibre of candidates, and we expect to make an announcement in the next few weeks.”

So far, media coverage has been comparatively muted. Let’s deselect the ‘mute’ button. Part of the ambition for the Etihad Group was a 49 percent stake in Italian flag carrier Alitalia, and more than 29 percent in Germany’s now shrinking second airline brand AirBerlin.

Both are in dire straits. Alitalia is very close to collapsing after its employees rejected Etihad supported restructuring plans and will on current guidance lose more than €600 million this year. It blew a reported €180 million in lines of credit that were activated in December.

AirBerlin lost €781.9 million in its most recent full financial year, preceded by a loss of €446.6 million the previous year. Etihad had already approved of deals by which AirBerlin’s arch rival Lufthansa was chartering dozens of its aircraft.

The Abu Dhabi carrier, which has positioned itself as a future rival to Dubai based Emirates, or Doha based Qatar Airways, has enjoyed some modest success in its investments in other airlines, although a happy pay day from its more than one fifth equity in Virgin Australia Holdings appears elusive.

The ambitious, and sovereign backed Abu Dhabi carrier offers more seats to the UK and EU from Australian cities in its own equipment than Qantas. It has been a potent contributor to the growth of inbound tourism, and won a reputation for offering very high service standards. It is an important employer of Australian expatriates including James Hogan and James Rigney.

Etihad hasn’t engaged in any speculation as to whether or not the global business model advanced for the group will be drastically overhauled under new management.

It doesn’t need to. The current, and visionary and indeed exciting model, is broken. Arguably broken by two of the airlines that had the most to gain from its success.

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6 comments

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6 thoughts on “Etihad’s global strategy crisis becomes more visible

  1. LongTimeObserver

    That shop-worn, McKinsey ‘Hunter Strategy ‘ PowerPoint deck claims another one…

  2. chris turnbull

    Note for US carriers : sovereign backing does not necessarily mean benign .

  3. Jacob HSR

    Maybe innovate.

    Air Asia offers fully flat bed seats (but they slope and are not parallel to the floor).

    Hammocks should seriously be considered on A380.

    How about a low cost carrier where the fully flat bed seats do not slope.

    And:

    Once I land in a foreign nation, for a 2 week holiday, I am happy for my luggage to arrive 2 days after I do. Because domestic low cost airlines do not allow much/any luggage, how about the airline collecting my 20 kg of luggage at AMS airport and then transporting it by road to my hotel room – 1 or 2 days after I have landed.

  4. Dan Dair

    Etihad have what seems like a good business model.?
    I perceive the problem with it is that they are imagining that the other established airlines around the world which they’re ‘controlling’ will have staff who are as compliant as Etihads in-house staff.
    That’s not to denigrate Etihad staff, but if you work directly for the company, you know exactly what they expect of you.? The other airlines which Etihad have attempted to ‘manage’ have their own structures, methodology & culture.
    Clearly Alitalia is a failing company in a crisis situation, but whatever it is about Etihads’ approach to dealing with Alitalias’ staff & management, they have singularly failed to convince them that Etihad is their ‘white-knight’.

    No airline is too important to fail.
    If the Italian government can’t justify continuing to spend stupid amounts of money supporting their national airline, Alitalia will cease trading. That’s bad news for the Italian staff & for Italian prestige, but there are plenty of other Italian & EU airlines which will be happy to take-on whatever profitable routes can be had from the shambles of such a large failure.

    If or perhaps when Alitalia does go-under, Etihad will know enough about that business to be first upon the scene to ‘cherry-pick’ all the aircraft, staff & routes it wants.?
    Those who keep their jobs under Etihad, will probably be very, very secure with their new employers. Those who don’t may well struggle in the battle for the considerably fewer Italian-based aircrew positions which will remain.?

    1. Ben Sandilands

      Pete,
      Very good analysis, as always, by Leeham News. Plane Talking has been similarly ‘strong’ on the issue of laptop bans and battery safety and I think it’s regrettable that the general media doesn’t twig to the dangers.