1. Etihad Airways’ rapid ascent frustrates rivals

Etihad Airways’ rapid ascent frustrates rivals

Emerging from the desert like a giant steel squid, Abu Dhabi’s new airport terminal is starting to take shape.

By: | Abu Dhabi | Published: March 4, 2015 12:25 AM

Emerging from the desert like a giant steel squid, Abu Dhabi’s new airport terminal is starting to take shape.

The existing airport has become too small for the ambitions of its main tenant, Etihad Airways, the smallest and fastest growing of the three giant West Asian airlines, whose expansion has sown resentment among the carriers of North America and Europe.

For over a decade, the Persian Gulf airlines have transformed international travel, focusing on an obsession with service and single-hub connections. They now fly to more foreign destinations and have more international seats than US carriers. Now, how Etihad operates — especially how it is financed — has become critical in an increasingly contentious battle with airlines in the US, which accuse Gulf carriers of stealing clients with the help of government support.

A public rift erupted last month, when the CEOs of Delta Air Lines, American Airlines and United Airlines met senior US government officials to argue that flights from the Persian Gulf airlines into the US should be scaled back. The effort represents a rare attack against open skies policies that the US and its airlines have promoted for years.

Etihad is particularly exposed to criticism given how fast it has grown since it was founded in 2004. It now has more than 100 planes and flies to 110 destinations, including São Paulo, Brazil, Johannesburg and New Delhi. By 2017, the $3-billion new airport here will have an annual capacity of 30 million passengers — as much as international traffic at New York’s Kennedy Airport today — mostly driven by Etihad. James Hogan, Etihad’s chief executive, strikes an unapologetic tone: His mandate, he said, is to make money for his shareholder, the government of Abu Dhabi, and be a showcase for its hometown, the capital of the UAE. “Wherever you are in the world, you play to your advantage,” said Hogan, who is Australian. “What are we doing that’s so wrong? We are doing business in a tough environment. We are commercial. We have to be creative. We are giving customers choice.”

Etihad and the other Persian Gulf airlines operate the latest-generation planes, hire younger flight attendants and offer on-board perks, like bars and showers, that other carriers find frivolous. American carriers, Hogan said, had not adapted to a globalised economy and were trying to protect their business, a charge American carriers reject.

The Persian Gulf airlines, they respond, have received more than $38 billion in government subsidies, according to a 55-page dossier they have shared with government officials in recent weeks but have not made public.

Etihad received $17 billion in government subsidies in the past 10 years, they say. This includes $6 billion in interest-free government loans to buy new planes, and $6.5 billion to cover operating losses. “Etihad’s argument fundamentally misunderstands the international consensus on the definition of ‘subsidy,’ ” the report said. “Given the company’s dismal financial performance over the last 10 years, if not for the subsidies, Etihad would have gone out of business.”

Emirates, the biggest and oldest of the three, discloses its financial accounts, uses international auditors and posts regular quarterly profits. Etihad and Qatar Airways have not done this.

Hogan declined to comment on the accusations raised by his rivals, saying he had not studied them carefully. He acknowledged that the airline had the support of its shareholder, but denied any of that amounted to subsidies. Etihad says it has been profitable since 2011. “Like any new airline, there was seed money and there was shareholder equity,” Hogan said.

This is not the first time that rivals or governments have sought to slow the growth of the Persian Gulf airlines. Restrictions against unlimited service from such carriers exist in Canada, Germany, China and South Korea, said Will Horton, an analyst at CAPA Centre for Aviation. But he said the attempt by American carriers to roll back open sky agreements was “unprecedented.”  “If the US carriers can limit growth, that will impact the Gulf carriers.”

  1. No Comments.

Go to Top