Etihad ‘rescuing’ Europe’s ailing airlines

File - In this Sunday, May 4, 2014 photo, an Etihad Airways plane prepares to land in Abu Dhabi Airport, United Arab Emirates. Fast-growing Gulf carrier Etihad Airways says it and Alitalia have reached a deal in principle for the United Arab Emirates-based airline to buy a 49 percent stake in the struggling Italian airline. (AP Photo/Kamran Jebreili)

Etihad Airways PJSC said the five European carriers in which it has invested or is seeking stakes would face thousands of job cuts and possible collapse without its involvement, hitting back at critics of its holdings.

Etihad is poised to become a “rescue investor” in Italy’s Alitalia SpA, while Air Berlin PLC., Aer Lingus Group PLC., Air Serbia and Darwin Airline would all face route closures and higher fares at best without the Abu Dhabi-based carrier’s support, CEO James Hogan said.

“External investment is not a threat,” he said at a European Union conference on air transport competitiveness in Vienna. “It is an opportunity to strengthen airlines, and to support employment and economic growth. Consolidation of airlines is critical to sustainable air services.”

Gulf carriers aren’t all alike, having competing hubs and strategies, he said, referring to Dubai-based Emirates, which has eschewed investments, and Qatar Airways Ltd., the only one of the three to join a global alliance. Nor has Etihad had state aid beyond start-up capital, whereas European operators have received 14.2 billion euros ($19 billion), the CEO said.

The rapid expansion of Middle Eastern airlines has threatened the status of established European carriers in the competition for lucrative long-haul transfer traffic, with the Gulf big three building fleets of wide-body planes to tap the potential of hubs located on natural international crossroads.

“Gulf carriers are not the cause of Europe’s aviation challenges,” Hogan said, adding that the industry faced serious issues decades before Etihad was established in 2003.

Pressures on Europe’s top carriers include high labor and airport costs, under-investment in hubs and airspace management and inequitable taxes on airlines and passengers, together with the impact of low-cost rivals on short-haul routes, he said.

European airlines are already highly consolidated, Hogan added, with Germany’s Deutsche Lufthansa AG owning Swiss and Austrian subsidiaries and stakes in Belgian and U.S. operators, International Consolidated Airlines Group SA formed from three units in the U.K. and Spain and Air France-KLM Group holding equity in Alitalia, Kenya Airways Ltd. and Brazil’s Gol Linhas Aereas Inteligentes SA.

“We need scale,” he said. “We cannot match the size of long-established competitors, including other Gulf carriers, so we have developed a strategy of growth through partnership.”

Hogan singled out Lufthansa as having received 800 million euros from the German government to support a pension funding gap, aid of 1.1 billion euros to Swiss after the collapse of its predecessor and the Austrian government’s absorption of 500 million euros of debt accrued by Austrian Airlines.

Lufthansa CEO Carsten Spohr, who took over on May 1, has cited competing with Gulf airlines as his biggest challenge, saying in April that while the company “can handle” discount operators such as Ryanair Holdings PLC. that are on a level playing field, “with the Gulf carriers it’s different.”

Christoph Franz, Spohr’s predecessor as CEO, also complained that the likes of Emirates directly serve the Gulf’s strategic goals and that Europe should be more forceful.

Lufthansa last month blamed a Middle-Eastern capacity splurge for a drop in prices which it said would clip full-year earnings, causing the stock to drop the most since the 9/11 terror attacks.

Etihad plans to take a 49 percent stake in unprofitable Alitalia, it said last week. The carrier’s funding for Air Berlin via a convertible bond that would break ownership limits should it be exercised is being scrutinized by regulators.

A version of this article appeared in the print edition of The Daily Star on July 05, 2014, on page 4.




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