Growth Through Co-Ventures: Etihad's Strategy in the Competitive Aviation Industry
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Case Code: BSTR485 Case Length: 19 Pages Period: 2003-2015 Pub Date: - Teaching Note: Available |
Price: Rs.600 Organization: Etihad Airways Industry: Airlines Industry Countries: Middle East, Global Themes: Business Strategy, Strategic Alliances |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
The Entry of Hogan
In September 2006, Hogan was brought on board as the President and Chief Executive Officer (CEO) of Etihad. Hogan had 30 years of experience in the airline and tourism industries. In addition, he had a wealth of knowledge about the Middle Eastern market. He had been instrumental in bringing about a turnaround at Gulf Air, where he had worked for four years. Hogan brought about a change in Etihad’s focus and direction. He set about financially restructuring the carrier to make it a purely commercial entity that was no longer dependent on the support provided by the government. In 2007, Hogan formulated...
Building Partnerships
By the mid-2000s, Emirates, Qatar Airways (Qatar), and Etihad had begun to be considered the Middle Eastern 'Big Three' (MEB3) airline companies. Etihad was the smallest of the MEB3. These airlines followed the hub-and-spoke system, with Middle Eastern cities serving as hubs and destinations being scattered across the world. In the 2000s, they grew rapidly by luring passengers away from legacy airliners around the world on several long-haul sectors. The key factor that spurred the growth of the MEB3 was their main hubs being at the crossroads of Europe, Africa, Asia, and Australia. Other factors that led to the rising stranglehold of the MEB3 on the global aviation industry included the oil-rich Gulf economies that provided a mountain of funds; easy availability of an inexpensive workforce;....
The Equity Alliance Partners
In 2011, Etihad acquired a 29% stake in a struggling German carrier – Air Berlin – thereby becoming its largest shareholder. The company paid US$ 95 million for its share in Air Berlin, apart from a loan of US$ 255 million to help pay for new aircraft and expand its network. It was Etihad's first equity investment in another airline and it was granted two seats on Air Berlin's board. At that time, Air Berlin had suffered four consecutive years of losses and was in the midst of a cost reduction initiative in order to return to profits. For the first nine months of 2011, Air Berlin had made an operating loss of €123.7 million....
The Fallout of the Partnership Strategy - The Good and the Bad
Etihad's partnership strategy encompassed interline and codeshare agreements, apart from equity alliances. As of 2014, Etihad Airways had 195 interline relationships and 50 codeshare partnerships, apart from equity alliances with eight airlines. The strategy turned out to be a stupendous success, with Etihad managing to build a large network within a short period of time. It gained access to domestic markets in Europe, the US, Canada, Australia, and Japan, which it would not have been able to otherwise. As of 2015, Etihad reached more than 600 destinations with the help of its partners, making it the Middle Eastern carrier with the largest route network. Etihad believed that its strategy also helped it to beat the competition, especially its significantly older and larger Gulf Cooperation Council (GCC) competitors...
The Performance of Etihad
Airline analysts considered carriers that completed ten years of operation as young. They also observed that most of them would be unprofitable even after a decade of existence, as they struggled to make a good amount of revenue. Moreover, if they had plans to grow at a high rate – and that was usually the norm in the early days – earning revenues was all the more difficult. A high growth strategy meant that an airline needed to add capacity even before it initiated measures to increase its passenger traffic....
Outlook
As of 2015, Etihad’s codeshares, interline agreements, and equity alliances gave it a combined passenger and cargo network of nearly 580 destinations, and over 25,200 flights per week. The airline itself served around 111 destinations (passenger and cargo) and had the largest route network of any Middle Eastern carrier. According to Hogan, Etihad expected to grow organically by increasing the number of destinations it served, acquiring more aircraft, and adding new service facilities to its network. Anticipating a rise in demand, Etihad continued to add to its capacity by acquiring new aircraft, even going to the extent of leasing some aircraft. As of 2015, it had more than 200 aircraft orders, in addition to options and purchase rights for 66 aircraft.....
Exhibits
Exhibit I: Equity Alliance Partners of Etihad, as of 2014
Exhibit II: Major Global Airline Alliances
Exhibit III: Codeshare Partners of Etihad, as of 2014
Exhibit IV: Growth of Etihad’s Fleet (in Numbers)
Exhibit V: Revenue Growth of Etihad (in billions of US$)
Exhibit VI: Important Awards Won by Etihad in 2014
Exhibit VII: Growth of Etihad’s Destinations (Passenger and Cargo)
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