consolidation

Oct 12, 2017

Rare comments made by Emirates about an Etihad merger

It's about 14 years since reporters have sought answers about a possible merger between Emirates and Etihad and we have almost enough words about this yesterday as heard in all of them in total

Ben Sandilands — Editor of Plane Talking

Ben Sandilands

Editor of Plane Talking

James Morgan photo of Emirates and Qantas A380s in a Sydney fly-over

Given the rarity of on-the-record comments from Middle East rivals Emirates and its newer, smaller and now embattled rival Etihad, about a possible merger one day, it was astonishing that this report on Reuters yesterday didn’t receive more prominent attention.

Emirates has an invaluable commercial alliance with Qantas, which although much smaller is also notably more profitable that the Dubai based global carrier, disproving the hackneyed old saying that the Australia carrier would never compete with foreign airlines effectively because of the cruel tyranny of being at the end instead of middle of networks of long haul routes.

Etihad, which is based in the nearby but rather different UAE city of Abu Dhabi, owns one fifth of Virgin Australia Holdings, and since the catastrophically ruinous failings of its investments in AirBerlin (which stops its remaining flights on October 28) and Alitalia, is reviewing all of its surviving minority investments and the fundamentals of how it does its airline activities, which include a quarter of Jet Airways in India.

Would a full merger ever make sense? How might it work in real life? Would the Australian consumer and competition authority the ACCC explode like Krakatoa did in 1883 and Mt Agung on Bali recently threatened to and no doubt will one day when it decides to definitively break the dormancy that has lasted since 1964 (after the very major eruptions of 1963.)

At the moment the ACCC, and the boards of Qantas and VAH, have no such proposal to contemplate or comment upon. As Sir Tim Clark, the CEO of Emirates makes plain, this is up to the sovereign families and airline owners in Abu Dhabi and his glitzy city of Dubai to determine, but he did give an interview, and he did mention there were areas of cooperation that offered merit.

If all the ME2 did was jointly apply their powers of persuasion over price, capacity, hot field engine performance guarantees, and other such matters in negotiations for joint orders from Airbus and Boeing, it reasonable to suspect that nothing anti-competitive might result from their respective joint activities with Qantas and Virgin Australia.

Assuming without prejudice, that Etihad continues to be a part of VAH, which may not be making it huge sums of money, but to Virgin’s relief and credit, isn’t losing it vast riches either, the Abu Dhabi carrier probably enjoys the value of code shared and connecting traffic from Australia’s second largest carrier.

Singapore Airlines, which also owns a similar sized chunk of VAH, would probably like Etihad to get less from its Virgin relationship than it does now, but that’s a different story.

If the guidance from Abu Dhabi about the reconstruction of its business model is as pressing as the figures and official commentary suggest, it can be expected to issue reassurances, or something entirely different, about Etihad’s Australian activities in the relatively near future. Which could just ruin or invigorate the end of year holiday season for the ACCC after all.

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