Dubai: Etihad Airways took a 3.96 per cent stake in Virgin Australia almost two years ago on the open market. The move signalled a series of “creep investments”, which took Etihad to eventually hold a 19.9 per cent stake in the Australian carrier.

Today, (Saturday), the Abu Dhabi government-backed airline is waiting on regulatory approval from Australia’s Foreign Investment Review Board (FIRB) to lift its stake past 20 per cent. It has been waiting several months as the FIRB completes its due diligence processes.

Equity stake partnership are not unique for Etihad, it has stakes in six other airlines. But the Virgin Australia partnership is different from the others.

“At the time of Etihad’s investment Virgin did not need Etihad’s financial help. Even now the bigger strategic benefits are to Etihad, not Virgin,” said Will Horton, senior analyst at CAPA — Centre for Aviation.

Like the other partnerships, the Virgin Australia equity stake is about feeding traffic to Etihad. However, the Australia carrier operates just three weekly flights, all out of Sydney, to Abu Dhabi.

“It is fair to say Virgin’s Abu Dhabi service is not a profit driver but rather a token of its relationship with Etihad. At the time the Virgin-Etihad relationship was absolutely important to give Virgin the reach into Europe as well as wider frequent flyer opportunities,” Horton stated.

Etihad and Virgin Australia fly 28 times a week from Australia to Abu Dhabi, which will increase to 35 flights in July when Etihad launches a daily Perth service. The Australia-Abu Dhabi flights connect to more than 15 codeshare destinations in Europe plus destinations in the Middle East and Africa.

But with just the three weekly Virgin Australia flights, the partnership does not feed traffic into Abu Dhabi the way Jet Airways or Air Berlin do.

“Virgin [is] different in that [its] primary focus is on beyond from Etihad destinations in Europe and Australia,” Horton said.

Competition

Through Virgin, Etihad is able to reach a number of Australian destinations that would not be economically viable to operate directly to.

“Australia has been a fast growing market for Etihad since 25 per cent of Australia-Europe traffic has shifted to Middle Eastern carriers in the past few years. Having local feeds provided by Virgin Australia undoubtedly helps it compete with Emirates,” stated Daniel Tsang, Founder and Chief Analyst at Hong Kong-based aviation consultancy Aspire Aviation.

Back when the two airlines first came together under a codeshare agreement in 2010, Virgin Australia announced a three times weekly Brisbane-Abu Dhabi service to start by February 2012, it never materalised.

A Virgin Australia spokesperson confirmed it had “no announcements at this stage” to launch additional services to Abu Dhabi.

Like many of Etihad’s other equity stake partners, Virgin is a loss-making airline declaring an 84 million Australian dollar (Dh285.9 million) loss for the six months leading to December 31.

Virgin’s absence from the group

Etihad President and chief executive, James Hogan, has previously said that with the seven equity partners it is able to negotiate as a group on everything from aircraft orders to IT systems in an effort to trim costs. It also consolidates training programmes.

However, Virgin Australia has yet to opt to any of these joint efforts.

“Virgin can also hold its own weight better than, say, Air Seychelles or Air Serbia [two of the other equity partners]. It has less need for scales,” Horton stated.

But with Virgin’s current financial situation and intentionally small long-haul network, scale orders are not a priority, which, Horton said, means there are limited opportunities for Virgin to subscribe to Etihad’s strategy.

Etihad did not respond to requests to comment for this article.

But in a recent interview with The Australian, Hogan said that the airline is “currently going through a systems proposal, looking at SAP — with all partners except Virgin.”

Partners

Etihad has to balance its own interests in Virgin Australia with two other government-backed airlines, Singapore Airlines and Air New Zealand, which also own minority but significant stakes in the airline.

Analysts warn of their creeping influence, with speculation that the two are looking to push Etihad out.

“Etihad … will have to defend its interest in Virgin as Singapore Airlines and Air New Zealand tighten their grips,” Tsang said.

Horton stated that Virgin Australia and Singapore Airlines partnership is now “of more relevance given its wider reach in Australia and access to Asia.”

Singapore Airlines and Air New Zealand recently proposed their own partnership, which is pending regulatory approval. Etihad has a codeshare agreement with Air New Zealand.

Earlier this year, Virgin Australia chief executive John Borghetti said that its strong relationship with its global airline alliance partners is “critical to the ongoing success of the company.”

In December, the three airlines backed Virgin Australia’s A$350 million (Dh1.19 billion) capital raising and flagged they would increase their stakes when just 25 per cent of retail shareholders took up entitlements. Both Singapore and Air New Zealand have since lifted their stakes.