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Oct 2, 2017

What will Etihad do to Virgin Australia with new managers?

Etihad has chosen who will lead it, but where that will be is the question

Ben Sandilands — Editor of Plane Talking

Ben Sandilands

Editor of Plane Talking

New Abu Dhabi Midfield terminal being built for a failed strategy?

Will the crushing collapse of the Etihad business model give the airline game more or less stability in this part of the Asia-Pacific playground?

In the last week the Abu Dhabi carrier has announced the leadership team that has to ‘salvage’ the disastrous choices made under the ‘Equity Alliance Strategy’ pursued with massive financial backing by its sovereign owners under its architect James Hogan.

Whether the strategy had merits that were obliterated by the ruinously run Alitalia and AirBerlin investments, or a total failure of due diligence, is up for debate.

But one of the peculiarities of the Etihad one fifth stake in Virgin Australia was that it was made in a strong brand in which Abu Dhabi avoided any investment that would grow Australia’s second largest airline group into a better financed and equipped entity.

Similar hands off decisions were made by Singapore Airlines and Richard Branson’s private family company in relation to the Virgin Australia Group, prior to the departure of the Air New Zealand interest in Virgin and the arrival of two PRC investors in the HNA and Nanshan entities.

Branson and Singapore Airlines supported VAH, but with minimal risk. In the case of Etihad, it could be argued there was an inverse relationship between the opportunities to grow Virgin Australia and broker a deal with the other parties that would deliver essential influences over its future directions.

But the same argument could also be made concerning Singapore Airlines. None of VAH’s stakeholders seemed ready to take out the others.

Will the rebuilding of Etihad now change this? It seems likely there will be a change in relation to Virgin Australia, but by sale, or offer, for exit or growth, is a reasonable question.

The simmering instability in Etihad comes as Doha based rival Qatar Airways is put under pressure by unresolved political differences between Qatar and Abu Dhabi and Dubai, with the ruling family of Dubai owning the Middle East behemoth Emirates, and its combined fleet of 230 or so A380s and 777s.

There are two givens in the current situation. Etihad enjoys a potent marketing alliance with Virgin Australia, as does Singapore Airlines, and more recently China based HNA Group. And Emirates has an evolving but exceptionally successful marketing relationship with Qantas.

If Etihad nevertheless retreats from its equity and influence in Virgin Australia, the local Middle Eastern contest in this country will be that of Emirates backed by Qantas versus Qatar. While Qatar Airways is a very powerful and ambitious airline brand, it doesn’t have an answer to the local strength of Emirates with Qantas.

That is where the renewed Qantas interest in having a potent base in Singapore gives it a strong footing not just in Asia, but in the Middle East, where Emirates provides it with massive connectivity across its Dubai hub.

There is little scope for the foreseeable future for China based airline partnerships with Qantas or Virgin Australia to address demand for connections to Europe and the UK or throughout the rest of Asia.

Qantas has secured its Asia and Middle East airline connections and opportunities, no matter who becomes the strategically dominant partner in Virgin Australia. It is fair to say that Virgin Australia would benefit from a resolution of Etihad’s intentions or ambitions in this country.

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9 comments

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9 thoughts on “What will Etihad do to Virgin Australia with new managers?

  1. StickShaker

    A bit off topic but using the above photo as a guide these people certainly know how to build an airport. If only that foresight could have been applied to Badgerys Creek years ago (on a slightly smaller scale).

  2. George Glass

    Germans have some great words.Schadenfreude is one of the best……
    Good riddance.

    1. Mark Skinner

      Yes. I imagine Emirates are rubbing their hans (pun intended) in glee.

  3. Jacob HSR

    Would Etihad be able to establish a domestic airline in AU that lands at AVV and possibly get BWU airport to extend the runway to accommodate Bombardier aircraft?

    LCY handles 4.5 million passengers per year using a 1.5 km runway! Are we sure that BWU would not get even 1 million passengers per year? CBR handles 3 million per year. ACT has a population of 400,000.

    1. ghostwhowalksnz

      Cairns has a regional pop of 160K yet its airport has up to 4 mill pass. Newcastle city has 300K pop but negligible airport traffic.
      That method of working out possible passengers leaves out the obvious

      1. Jacob HSR

        NTL has over 1.25 million passengers per year. I think that is not negligible.

        NTL traffic is growing at 6.6% per year.

        LCY opened in 1987. I do wonder how busy it was in 1990 or even 1995.

      2. Tom the first and best

        Newcastle is less than an hour from Sydney and is nowhere near the tourist destination that Cairns is. Cairns is over 2 hours from Brisbane, a major tourist destination, has far wider and longer rage of international destinations than Newcastle ever had (it currently has not international flights) and has several relatively nearby cities that can feed it passengers for international flights.

    2. Tom the first and best

      Unless Etihad starts flying international services into Avalon, it is unlikely to want to serve Avalon with a domestic airline as any international airline running an Australian domestic arm is likely to want to use it to feed its international services. The intermediate international hub airlines (such as Etihad) also tend to try and serve as many domestic destinations as possible, rather than run feeder domestic routes as that adds changes of plane.

      London City is closer to inner-city London than Heathrow. Bankstown is further out than Kingsford-Smith (which is in more of London City type location). This means that Bankstown is less likely to work as a small upper end of the market airport than London City. Sydney also has a smaller business population than London and many of Australia`s business and pleasure destinations are further away from Sydney than the range of the planes that can land at a London City sized airport. The case for a second Sydney Airport is that of a Gatwick/Luton/Stansted/Southend overflow, lower cost flights and no curfew and Kingsford-Smith heads a bit in the direction of a full sized London City.

      Canberra is a small city federal capital in a large nation with a relatively weak long-distance rail system. This means it has lots of domestic capital related demand for flights and also a higher income demographic more able to holiday at flying distance.

  4. Jacob HSR

    “Qatar Airways will back Meridiana to be Italy’s top airline, supplying it with wide and narrow bodied jets to help expand its network, the Middle East carrier’s chief executive said on Saturday.”

    reuters. com/article/us-qatar-airways-meridiana/qatar-airways-expects-meridiana-to-be-italys-real-national-carrier-idUSKCN1C50NT

    “Qatar Airways announced on Thursday it had acquired a 49 percent stake in Meridiana’s new parent AQA Holding, with previous sole owner Alisarda retaining 51 percent.”

    “Italy’s number one airline Alitalia filed for administration in May after management was unable to reach an agreement with employees over its latest bailout plan. Minority owner Etihad Airways, a Middle East rival of Qatar Airways, subsequently said it would no longer financially support the Italian carrier.”

    lol. I heard that Mr al Baker is a smart guy and had a big hand in designing the new Hamad International Airport and that it is very good. Anyone been there?

    “Qatar Airways has previously expressed interest in Morocco’s Royal Air Maroc, and al-Baker said it would soon apply to launch a domestic airline in India”

    I am not sure if QR needs to partner with a domestic airline in AUS given that QR already flies daily to PER, ADL, MEL, SYD, AKL.