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Oct 2, 2017

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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