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Legacy pacts no more useful
5 April 2013
Legacy airline alliances have outlived their usefulness, according to James Hogan, president and chief executive officer of Etihad Airways, the national airline of the UAE.
Hogan delivered a keynote speech at the International Aviation Club in Washington, DC.
He said Etihad Airways’ unique business model — which is a combination of organic growth, codeshares and minority equity investments — was proving very effective in building passenger numbers, revenue and profit for all its partners.
“The traditional airline alliances have evolved into slow-to-respond, bureaucratic organisations which struggle to deliver added value to their member airlines, many of which are no longer compatible with each other,” he said.
“If we look at the consolidation currently occurring throughout the airline industry, we are also seeing more fragmentation within the alliances. This is going to continue as members seek ways to operate profitably in a very competitive environment with high fuel costs and generally slower global economic growth.”
“This month we will report our strongest-ever first-quarter results. Our codeshare and equity partners have made a major contribution to that financial success,” Hogan said.
Etihad Airways owns 29 per cent of airberlin, 40 per cent of Air Seychelles, nine per cent of Virgin Australia and just under three per cent of Aer Lingus. It has 42 codeshare relationships around the world.
The airline posted a profit of $42 million in 2012 and saw two of its equity partners — airberlin and Air Seychelles — return to profitability, meaning that all five airlines are now in the black.
Hogan said that Etihad Airways’ equity alliance of minority shareholdings, enabled the airline to enter markets within local foreign investment limits and, therefore, without the complexities, approvals or expense attached to mergers or larger investments.
“It is easier, faster and far more cost-effective to grow through one-on-one partnerships with established, respected carriers than it is to rely totally on our own resources, and to start from scratch in every market we serve,” he said.
“We have hand-picked like-minded partners with whom we can work collaboratively to build revenue across a broader network and reduce operating costs.”
“We focus on our partners’ profitability as much as our own, because we are not dealing with competing interests. When the five CEOs sit down to make decisions, we have a shared commitment to make things happen,” he said.
Hogan said that because Etihad Airways had skin in the game, it could go so much further than legacy alliances in thinking innovatively and building relationships that delivered ongoing value.
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