Etihad’s re-positioning as a mid-sized carrier signals a broader shift towards low-cost carriers by Abu Dhabi. The transition - which began with the launch of Air Arabia Abu Dhabi and Wizz Air Arabia Abu Dhabi earlier this year - will gain further momentum as Etihad takes on smaller footprint operationally.
“Looking at the ongoing destruction inside of the [global airline] sector, with prolonged delays in recovery, the need for restructuring is clear,” said Cyril Widdershoven, founder of Verocy, a consultancy. “The dream of most GCC carriers and airports to be the leading ones worldwide is being hit hard, especially because EU-Asia business travel and tourism are out.”
On Sunday, Etihad announced organizational changes aimed at transforming the company into a “mid-size, full-service” carrier with a “leaner, flatter and scale-able” structure. To those closely watching UAE’s aviation industry, Etihad’s announcement was not unexpected.
“Etihad had already become smaller the last couple of years prior to the pandemic - even before that they were smaller compared to Emirates,” said Brendan Sobie, an aviation analyst.
While several airlines are restructuring and streamlining their operations to deal with the impact of the COVID-19 pandemic, in Etihad’s case the changes will be “more permanent,” said Sobie.
“Even before COVID-19, Etihad could roughly be considered mid-size when compared to the giants in the region,” he said. “I think with COVID and now with this announcement Etihad's evolution will accelerate.”
But there’s a bigger picture to be seen here. A smaller Etihad will also create space for Abu Dhabi’s two brand new carriers.
“It's also about the evolution of the Abu Dhabi hub to focus more on LCCs (low-cost carriers),” said Sobie. “This also already started before COVID-19 with the Air Arabia and Wizz Air announcements and will now accelerate as Etihad becomes even smaller.”
Air Arabia Abu Dhabi, the joint venture between Etihad and Sharjah’s Air Arabia, has already begun flying to Nepal and Bangladesh. From next week, the airline will operate bi-weekly flights between Abu Dhabi and Muscat.
As a result of these changes, Dubai might emerge an even stronger global aviation hub with Emirates and flydubai. “There will still be some network traffic for Abu Dhabi post-COVID-19, including potential transfer traffic between Etihad and the new LCCs, but it will be more niche and regional,” said Sobie.
Etihad was just a quarter away from completing a decisive turnaround - but that was when COVID-19 upended all the progress made up to that point. “After our best-ever Q1 performance, none of us could have predicted the challenges that lay ahead in the remainder of this year,” said Tony Douglas, Group CEO, Etihad Aviation Group, in a statement on Sunday.
The airline reported operating losses of $758 million in the first six months of 2020 with revenues hit due to the closure of international borders, and the suspension of flights to halt the spread of the virus.
Prior to the pandemic, Etihad operated flights to over 120 passenger and cargo destinations with a fleet of 102 aircraft. Although the airline has slowly re-built its network to more than 50 destinations, it is still uncertain whether Etihad’s A380 jumbo jets will ever take to the skies again.
“As a responsible business, we can no longer continue to incrementally adapt to a marketplace that we believe has changed for the foreseeable future,” the CEO added. “That is why we are taking definitive and decisive action to adjust our business and position ourselves proudly as a mid-sized carrier.
“The first stage of this is an operational model change that will see us restructure our senior leadership team and our organization to allow us to continue delivering on our mandate, ensuring long-term sustainability, and contributing to the growth and prominence of Abu Dhabi,” he added.
Etihad’s move may also be explained by the gloomy airline industry outlook in the near-term. The International Air Transport Association (IATA) recently lowered its 2020 passenger traffic forecast for the Middle East to reflect a “weaker-than-expected” recovery.
Passenger numbers in the region are expected to reach only 30 per cent of 2019 levels, down from the 45 per cent that was predicted in July. “Restoring air connectivity is vital to restart Africa and the Middle East economies,” said Muhammad Ali Albakri, Regional Vice-President at IATA.
“We really need to push, everybody to work together to make sure that we restart the industry.”