Equity investment model "protects and promotes competition", says Etihad Airways Chief
Etihad Airways’ equity investment model has created a new force in global air travel, which protects and promotes competition, said the airline’s President and Chief Executive Officer James Hogan, in a speech in Melbourne today.
Speaking at the City Business Luncheon at Melbourne City FC, Mr Hogan outlined the challenges facing airlines trying to bring new competition to global markets. He said:
“In a world of mega-connectors and mega-alliances, it is impossible to go it alone when trying to compete on the global stage. The regulatory challenges, the daunting cost of entry and the might of the legacy carriers create incredibly high barriers.
“At Etihad Airways, we have had to build everything from scratch, investing in all the infrastructure of a global airline. So in addition to the obvious multi-billion dollar investments in aircraft and engines, that means investment in people, investment in technology, investment in real estate and investment in our brand.
“For Etihad Airways, it also meant investment in partners.
“A network carrier needs global reach if it is to compete effectively and the market is too mature, too dominated by legacy interests, for any new carrier to get that reach on its own.
“We’ve used partnership since day one, in the form of a growing codeshare network, but the equity investments took that approach to a new level.”
Etihad Airways, which has 49 codeshare relationships with carriers across the world, has taken minority equity investments in airlines in strategic markets, including Virgin Australia, Alitalia, Jet Airways, airberlin, Air Serbia and Air Seychelles.
“As with any partnership, these investments only work because both partners see benefits. Etihad Airways has seen a massive impact in extending our network reach and in feeding guests onto our routes. But that feed goes both ways. Virgin Australia, for example, has traditionally received more guests from our network than they feed to us. So we both win – and so does the traveller, who has a real competitive option.
“These relationships go far, far deeper. The ‘skin in the game’ of equity means we seek smarter ways to extend the relationship. That means close network integration, it means joint marketing and distribution, and it means business and cost synergies through Centres of Excellence.
“In each case, these investments have allowed the carriers access to effective capitalisation and financial restructuring. In such a capital intensive industry, that means we can truly be seen as a catalyst for positive change.”
Mr Hogan used Alitalia as an example of this strategy in action, explaining that Etihad Airways’ investment had created a new path to sustainable profitability for the Italian carrier.
“Alitalia was on the verge of collapse in 2014. Our collaboration with all major stakeholders meant we could all invest in a new Alitalia, an airline which would take all the best elements of ‘brand Italy’ and meld them into a commercially-focused airline.
“We are on a three-year journey with Alitalia and it is hitting every milestone. This is a business that is unrecognisable from its predecessor – and one which is offering new competitive choices to travellers to and from Italy.”
He concluded by reiterating the important role that Etihad Airways and its partners have come to play in offering new competitive choices to travellers.
“Our equity investment model has helped to protect and promote competition in global air travel. Some of these carriers would be very different today without our commitment; some would not exist.
“Together, we are creating and developing commercially focused businesses which can compete against the legacy airlines that dominate markets around the world.”
Mr Hogan was speaking to more than 500 guests at the City Business Luncheon, during a trip to help promote Etihad Airways’ growing commitment to Melbourne.
The airline will bring its award-winning Airbus A380 service to Melbourne from 1 June 2016, including The Residence by Etihad, and will also open its new premium lounge at Melbourne airport in May.