Would Emirates-Etihad merger make sense now?
There is no denying that the Big Three airlines of the Middle East, namely Emirates, Etihad and Qatar Airways, changed the way passengers defined onboard luxury. The products they offered are at the top of their class with little-to-none global competition. The three carriers built their networks around international travel, making their respective Abu Dhabi, Dubai and Doha airports into international mega-hubs facilitating travel between the West and East.
But now, with international travel in murky waters due to the coronavirus pandemic, the business model of all three airlines is under threat. While Qatar Airways is also embroiled in a conflict with its neighbors, including the United Arab Emirates, ruling out any mergers with airlines in close proximity, the story of Emirates and Etihad is very different.
The two sides were at the forefront of rumors that would pop up from time to time. In 2017, for example, the President of Emirates Tim Clark stated that there was “value to be had working more closely with them [Etihad –ed. note].”
Whether the two would pursue a merger, Clark answered that he did not “think that will be the case but it is not my call, really,” as it was up to the shareholders of the two airlines to move that train. The two airlines are currently owned by the Dubai and Abu Dhabi governments.
In 2018, the rumor mill picked up again: this time, however, the rumors were squashed by both sides.
As the situation at Etihad Airways deteriorated and the airline slipped into further losses, failing to post a profit since 2016, running losses into the billions. In 2019, the fairly newly appointed chief executive officer of Etihad, Tony Douglas, called new rumors about a possible merger “clownesque” and “lazy”.
Could the current situation change the situation?
Fleet and operations
The two airlines operate two very similar fleets. The backbone and pride of Emirates are two aircraft types: the Airbus A380 and the Boeing 777. Etihad also has the two cockpit types in its fleet but also operates the A320, A330 and the Boeing 787 families. Furthermore, the Abu Dhabi-based carrier anticipates the delivery of new Airbus A350 and Boeing 777X jets and plans to phase out the Airbus A330.
Emirates’ order book looks eerily familiar, as the Dubai-based airline has signed up for the A350 XWB and the 777X. In addition, the company has the Boeing 787 Dreamliner on its books, further aligning the similarity of the two fleets.
They operate, however, with vastly different networks.
Emirates has carefully crafted partnerships with various airlines around the world, including such giants as Qantas or China Southern Airlines (ZNH) , and the low-cost carrier based in Dubai, flydubai. Etihad had a different policy. Under the Etihad Airways Partners name, the airline splashed the cash and invested in highly competitive markets, like Germany (Air Berlin (AB1) ) or Australia (Virgin Australia), or markets where low-cost carriers were shoving full-service carriers aside, namely India and Italy.
This could be the first bump in the road for the two to merge: what would happen to the vastly different partnership strategies? Would Etihad’s management be willing to shove their egos aside and pull the plug on their remaining investments? Or vice-versa, would Emirates be willing to give up their codeshare agreements with airlines that are competing with Etihad’s investments?
Furthermore, both are willfully looking at budget-conscious travelers. Emirates has significantly expanded its partnership with flydubai in early-2019, including a singular loyalty program. On the other hand, Etihad paired up with Air Arabia to establish Air Arabia Abu Dhabi, a low-cost carrier based in Abu Dhabi International Airport (AUH). If the two were to merge, Air Arabia would become a third wheel in the relationship – once again, prompting the question of what to do with Emirates’ partnerships and Etihad’s investments.
While they have become the epitome of luxury, the two airlines are undoubtedly the poster children and in some form marketing tools for Abu Dhabi’s and Dubai’s governments. Emirates’ aircraft could be seen bearing the Dubai Expo 2020 liveries, while Etihad’s jets bear the liveries of the events and clubs that the airline sponsors, including a Visit Abu Dhabi on a now-stored Airbus A330.
The launch of two low-cost carriers in Abu Dhabi, including the aforementioned Air Arabia Abu Dhabi and Wizz Air Abu Dhabi is also aligned with Abu Dhabi’s goal to make the Emirate less reliant on oil and put “a greater focus on knowledge-based industries in the future.” The plan, titled Abu Dhabi Vision 2030 “aims to achieve effective economic transformation of the Emirate's economic base and bring about global integration and enduring benefits to all.”
Yet, Dubai is on the same boat (or aircraft?) under a different name – Dubai Plan 2021. The plan aims to make the Emirate an “international hub for knowledge-based, innovation and sustainable industrial activities,” including creating an investment-friendly environment in Dubai. The plan, nevertheless, highlights that it “aims at supporting Emirates Airlines and Dubai’s longstanding competitiveness in this industry over the long-term, through the localization of manufacturing capabilities in certain aerospace sub-industries.”
The two Emirates clearly have their goals of becoming global economic powerhouses in their own terms, supporting the airlines that they gave birth to. Question is, are the two governments willing to put their egos aside and hide from the rain under one umbrella, under one brand name? Billions were invested into both Emirates and Etihad brand names around the globe, including numerous sponsorships in sports. Would one be willing to give up the work that has been done?
And obviously, the two airlines relied on the strategy to facilitate their international hubs to achieve success. Now, with the coronavirus pandemic ravaging international travel, what benefit would the merger bring? The fact that neither airline has a strong domestic network, neither the UAE has a need for one, unlike for example in the United States, wouldn’t the merger only magnify the currently existing short-term problem for both of the airlines?
A merger between the two seemingly would have to cross a very bumpy and expensive road – which neither of the airlines can afford amidst a cash crunch for carriers around the world, little or small.
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