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Etihad Airways in Decline? Growth Grinds to a Halt, Pressures Mount and Still No New CEO

Etihad Airways in Decline? Growth Grinds to a Halt, Pressures Mount and Still No New CEO

Growth and progress at Etihad Airwas struggle - cabin crew recruitent could be delayed indefinitely

A shrinking global network, failing investments, mounting debts and still no new CEO announced.  Things couldn’t be looking worse for Etihad Airways at the moment.  After a decade of phenomenal growth, what do the next 12 months have in store?

Etihad Airways used to describe itself as one of the fastest growing airlines in history.  Things couldn’t be looking more different now.  The Abu Dhabi-based airline was only founded in 2006 as the national airline of the United Arab Emirates.  Within just two years Etihad was flying to 59 destinations with a fleet 42 aircraft.

The speed with which Etihad managed to expand was unprecedented.  Just ten years after its first flight, Etihad had a global network of 86 destinations.  Just one year later, and it was flying to 100 destinations.  The business plan was similar to that of Emirates and Qatar Airways.  Build a mega hub in its geographically advantageous home to ferry passengers between East and West.

A Shrinking Global Network

But the momentum hasn’t lasted.  From a peak of 116 destinations served in 2015, the airline’s network has shrunk 4% to 112 global points.  Unlike its rivals, Emirates and Qatar Airways, Etihad has no plans to expand its network anytime soon.

The news is just as bad for employees.  At the turn of the decade, the airline went on a hiring spree as its workforce quickly swelled.  But between 2015-2016 that expansion slowed to a trickle.  In February, Etihad had around 27,000 workers but redundancies in some departments have already been announced.  The employee count is expected to contract throughout 2017.

Just two years ago it seemed like such an exciting time for Etihad.  The ‘Flying Reimagined‘ campaign was officially unveiled to a rapturous response.  Etihad had caught the people’s imagination with its luxurious ‘Residence’, amped up First Class suites and industry-leading Business Class seats.

A new design for its aircraft livery and designer uniforms for Cabin Crew really showed just how dynamic and forward thinking Etihad had become.

The new Etihad Airways uniform and livery - part of its Flying Reimagined campaign
The new Etihad Airways Cabin Crew uniform. Photo Credit: Etihad Airways

Cabin Crew Taking Unpaid Leave

But nowadays, senior executives are too busy reassessing than reimagining anything.  In February, Cabin Crew recruitment came to a grinding halt.  Prior arranged events were hastily cancelled as the true extent of the company’s financial position became clear.

The situation is now so bad that sources have told us serving Flight Attendants have been ordered to take unpaid leave.  The measures will start in June but are likely to continue for several months (the same is true at the Dubai-based Emirates).

The reasons for Etihad’s woes are numerous.  Just like Emirates and Qatar Airways, they’ve suffered from falling oil prices, increased low-cost competition, the U.S. Electronics Ban, a strong U.S. dollar and waning demand caused by international terrorism.

Alitalia has Cost Etihad Too Much

If all this wasn’t headache inducing enough, add Etihad’s failed investments into the mix and you’ve got a deadly combination.  The primary concern, of course, is Alitalia, in which Etihad owns a 49% stake.

Etihad had hoped Alitalia would make a profit in 2017 but that plan went out the window last year.  Then, executives hoped to save the Italian flag carrier in an ambitious €2 billion financing deal that would require a restructuring of the airline.

Alitalia needed to reduce costs by €1 billion by 2019, lose 2,000 employees and cut wages.  But Alitalia’s staff ignored their own unions to vote down the plan.  It’s left the carrier in a perilous position.  Rome has thrown a €400 million bridging loan into Alitalia’s coffers but there’s little appetite for a full bailout.

Etihad Airways Group CEO, James Hogan, said of the failed rescue bid: “We deeply regret the Alitalia staff vote outcome, which means that all parties will lose:  Alitalia’s employees, its customers and its shareholders, and ultimately also Italy, for which Alitalia is an ambassador all over the world.”

Etihad are Set to Lose Big

The likely result will see Alitalia being sold to the highest bidder.  Lufthansa was said to be in contention as a buyer but the German mega-airline has already ruled that idea out.  Etihad, who have pumped so much money into Alitalia, are set to lose big.

Then there’s Air Berlin, the German low-cost carrier in which Etihad owns a 30% stake.  Last year, Air Berlin racked up a €667 million loss.  The latest results from the airline show losses have widened 50% in the first quarter to €272 million.

Remaining upbeat, Hogan said of Air Berlin’s results: “We are seeing the first structural changes that are necessary to create a sustainable future for Air Berlin.”

Etihad Has No One at the Helm

Yet Hogan is to step down as the head of Etihad this summer.  His departure was announced in February following rumours that Abu Dhabi was unhappy with his performance.  Hogan had devised the ‘Reimagined’ campaign but also led the failed Etihad Airways Partners investment scheme.

James Hogan, Etihad Airways’ President and Chief Executive Officer; His Excellency Sheikh Sultan bin Tahnoon Al Nahyan, Chairman of the Transport Department and member of the Executive Council, Abu Dhabi; and His Excellency Major General Mohammed Khalfan Al Romaithi, Deputy Commander-in-Chief of Abu Dhabi Police and member of the Executive Council; at the Etihad Airways Innovation Centre in Abu Dhabi.
James Hogan, Etihad Airways’ President and Chief Executive Officer. Photo Credit: Etihad Airways

With just months before Hogan’s departure, no one has yet been found to replace him.  There has been talk that Christophe Muller, formerly of Malaysia Airlines and currently at Emirates will take the position – But Etihad remains tight-lipped.   Just last week the airline confirmed that the search for a new CEO was ongoing.

The news came at the same time the carrier was announcing a new CEO for its Etihad Airways Partners division.  Robin Kamark will take over from Bruno Matheu (who’s only been at the airline since May 2016) at a critical time.  However, Kamark isn’t set to start until October.

The huge amount of work that faces the newly appointed management team will be staggering.  Expect expansion plans to be put on ice as the airline grapples with its problems and works out a new strategy.

But the Fleet Continues to Grow.  Right?

The expansion was to be fuelled with multi-billion dollar aircraft deliveries.  Etihad has one of the youngest aircraft fleets in the world with an average age of just five years.  The fleet size stands at 122 aircraft but many more are planned.

From Boeing, the carrier has 84 new aircraft still to be delivered.  These include the latest generation 777-X, the 787-9 and the stretched 787-10 aircraft (though Boeing refuses to comment on when these orders will be filled).

Over at Airbus, the European aircraft manufacturer still has one A380 super-jumbo to deliver and 62 of the next generation A350 aircraft are on order.  For short and medium range flights, Etihad has also ordered 10 A320neo and 26 A321neo aircraft.

In the short term, we can expect Etihad to continue taking delivery of the popular 787-9 aircraft.  Although these will likely be used to replace Etihad’s ageing A330 and A340 fleet.  There’s even talk that some orders could be deferred or even cancelled.

The Bottom Line

We expect the remainder of 2017 to be a year of consolidation for Etihad.  A slew of new senior executives needs time to settle in and get to grips with the carriers biggest problems.  They’ll also want to assess the fallout from Alitalia’s and Air Berlin’s woes.

In the meantime, Etihad will be flying as normal.  Abu Dhabi has plenty of cash to keep the airline afloat but they don’t want to throw good money after bad.  Once investors have renewed confidence in the carrier’s strategy we’ll likely see expansion and growth return.

For Cabin Crew recruitment we are still to see any good news.  With unpaid leave on the cards, it’s a sure sign that Etihad is running with too many Crew.  Natural attrition and the possibility of new aircraft deliveries might mean there could be movement at the end of the year.

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