Etihad’s investments in airlines around the world have gone horribly wrong. The collapse of Jet Airways is just the latest example. What did Etihad do wrong?
It took a certain hubris to invest in troubled airlines in the belief that a bit of money and influence would turn them around. Hopes for a meaningful restructuring of well-established airlines with entrenched and powerful labor unions were unlikely from the start.
Let’s review Etihad’s airline investment portfolio:
- Air Berlin – 29.2%
- Air Serbia – 49%
- Air Seychelles – 40%
- Alitalia- 49%
- Jet Airways – 24%
- Niki – 49%
- Virgin Australia – 21.8%
Air Berlin? Ended in disaster. Alitalia? Total disaster. Jet Airways? Now defunct. Niki? Gone. And while Air Serbia, Air Seychelles, and Virgin Australia have performed somewhat better, it does not start to make up for the massive losses racked up by the other under-performing carriers.
Etihad’s first problem was that it was late to the game. When Etihad began, Emirates and Qatar Airways were already established. Etihad embarked upon a two-tiered growth strategy. First, it would rapidly expand, focusing on revenue growth over profit. Second, it would invest in troubled airlines in order to open doors and ultimately exert more influence in regions around the world.
And on its face, that’s not a bad strategy (and hardly a unique one). But it does appear that Etihad, led by former CEO James Hogan, believed it could transform the culture at airlines like Alitalia and JET. Instead, these carriers simply saw Etihad as an ATM. Labor unions proved resilient and meaningful change was resisted. Etihad should not have been surprised that workers did not want Etihad-like working conditions or efficiency-standards forced upon them.
Etihad’s ultimate mistake was a failure to understand the airlines it invested in.
One of my favorite cliches is “better to have tried and failed than never to have tried at all.” And while that quote rings true in some contexts, it certainly does not here. If Etihad could do it over again, you can bet it would have embarked upon a very different strategy.
The image above was the plan — Etihad carefully leading airlines like the FA is leading horses. Instead, Etihad could not control the horses. If you’ve ever ridden a horse, you know that if a horse feels you are not in control, it will quickly take control. Thus, the picture above becomes a metaphor for the promise of Etihad and the nightmare of Etihad.
Half of these airlines are leasing Etihad assets (planes, slots, etc) and are most likely paying pretty well for those. It’s hard to imagine Etihad continuing to invest in airlines like this without seeing some sort of benefit from these leases.
Union issues may have played a part in Jet’s demise (I don’t know enough to say one way or another), but it’s more complicated than that. The Indian aviation market has simply been oversaturated for way too long. Even after Jet’s demise, you can fly one-way from MAA to DEL, basically the equivalent of flying DFW to DEN, for ~$65 each way. Some of that is due to the fact that many still prefer long-distance trains to flying, so you’re often competing with those fares. Then add in the fact that the government refuses to let AI die or downsize like it should. And then in comes Vistara, who I hear have been eating Jet for lunch in the full-service market. It’s actually a wonder they hung on this long.
Old interpretation of picture: Etihad carefully leading airlines like the FA is leading horses.
New interpretation of picture: Etihad’s future mode of transport.
Spilling the tea