ANALYSIS: How Etihad's partner strategy is shaping its network

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As if it needed any underlining, the last month has seen Etihad illustrate the breadth of its partnership strategy.

It has agreed a deal with its latest equity partner, Indian carrier Jet Airways; is promising that a codeshare deal is just the start of a new partnership with Serbian operator Jat Airways; and put a Canada-UAE spat behind it to agree plans for a codeshare with Air Canada.

Etihad already has minority equity stakes in Aer Lingus, Air Berlin, Air Seychelles and Virgin Australia and has sealed more than 40 codeshare partnership as it builds its own network of partners outside the traditional lines of the global alliances. Notably this has included deals with partners that appeared lukewarm, or in some cases openly hostile, to the expansion of the Gulf carriers.

Under the deal struck with Jet, Etihad will take a 24% stake in the Indian carrier and details of a wide-ranging partnership will follow shortly.

A new bilateral agreement between India and the UAE will nearly quadruple the number of airline seats available between the two countries. Under the agreement, an additional 36,670 weekly seats will progressively be made available to carriers from both countries over three years.

Etihad has enjoyed huge growth since bursting onto the scene a decade ago - revenues grew 17% last year - but remains some distance behind its Gulf neighbours in terms of size. In 2011 its revenues of $4.1 billion ranked Etihad as the 41st biggest carrier in the world, but these revenues were still less than a quarter those of Emirates.

"Sometimes we forget we are only 10 years old. No airline has achieved what we have achieved in that time," says James Hogan, Etihad chief executive. "We will take 100 aircraft over the next 10 years but still won't be as big as our neighbours."

Hogan believes the power of its Abu Dhabi hub will be key. "Its feeding our flights into Australia, the Indian Ocean, China, secondary cities in Indian cities, Pakistan," he says, notng it has exploited the opportunities to provide connections European carriers do not serve. "We are feeding Vietnam, the Philipinnes, Indonesia; secondary cities in India, Pakistan, Bahgdad, Erbil," he says. "These are markets of huge growth potential."

He adds: "We are encouraging people to fly people into the Abu Dhabi hub. We sit in the middle of the world, we fly to cities the legacy carriers cannot fly to. We are only doing what Singapore Airlines did in the '70s."

Etihad's growth has come not just from flying in its own right, but through new routings from its partner carriers into Abu Dhabi. The airline now has more than 40 codeshares in place and in many instances its new partner either begins or adds frequency to Abu Dhabi services through the tie-up. Kenya Airways, for example, will in June become the latest to begin flights to Abu Dhabi as part of its co-operation with Etihad.

Innovata Flightmaps Analytics data shows that Etihad's own growth has been more than matched by other carriers flying into Abu Dhabi. For the period June 2012 to June 2013, there is growth of almost a fifth in capacity, as measured by ASKs - but Etihad's share of this capacity is more than a percentage point lower, at 78.6%.

Abu Dhabi ASK share by carrier: June 2012 

 abu dhabi share 2012

 

 

 Abu Dhabi ASK share by carrier: June 2012

 abu dhabi share 2013
 Innovata Flightmaps Analytics

Passenger numbers were up 19% at Abu Dhabi airport, in 2012, to reach 14.7 million and have continued to grow nearly a fifth this year as the airport benefits from both Etihad's and its partners' increased traffic flows. Alongside the capacity into Abu Dhabi from its equity partners and the new Kenya Airways flights, both Alitalia and Garuda Indonesia, for example, recently began flights into Abu Dhabi as a result of their co-operation with Etihad.

Abu Dhabi route changes: June 2012 v June 2013 

 abu dhabi route map
Red = new routes, blue = former routes Innovata Flightmaps Analytics

The partnership strategy extends to co-operation among the different carriers touching Etihad's world. South African Airways, for example, in May agreed a preliminary co-operation deal with Etihad shortly after in April agreeing to codeshare with Jet Airways and Air Seychelles. Virgin Australia, meanwhile, is seeking to codeshare with Air Berlin on the former's flights to Abu Dhabi, while Air Berlin began codesharing with Air Seychelles in February.

ETIHAD: 2012 in numbers

  • Revenues $4.8bn
  • Net profit: $42m
  • Passengers: 10.3m
  • Fleet: 75
  • Destinations: 78

ETIHAD REGIONAL SPREAD

AFRICA

  • Equity partner: Air Seychelles
  • Etihad took a 40% stake and management contract at Air Seychelles at the start of 2012, overhauled its operations and revamped its European network to operate through Abu Dhabi. The result is the carrier's first profit for three years.
  • On the African mainland Etihad has just struck a codeshare deal with South African Airways having earlier this year agreed a partnership with Kenya Airways on flights from Nairobi to Abu Dhabi.

AMERICAS

  • In North America the airline has just launched its third US route, to Washington DC, and Hogan has hinted its next might be in California. It has now also forged a co-operation deal with Air Canada, shortly after Canada and the UAE put an end to a lengthy spat over route rights. Etihad will also in June will debut in Latin America when it launches flights to Sao Paulo in Brazil and Hogan has said the airline in talking Brazilian carriers about a possible codeshare.

AUSTRALIA

  • Equity partner: Virgin Australia
  • The evolving Australian carrier became Etihad's first major bilateral partner after a wide-ranging deal in 2010, which saw the former begin services to Abu Dhabi in 2011. In 2012 Etihad took a small stake in Virgin Australia which now stands at a little under 9%.

EUROPE

  • Equity partners: Air Berlin and Aer Lingus
  • Etihad holds a 29% stake in restructuring Air Berlin and has already grouped the two carrier's Boeing 787 orders in its flagship synergies move from its partnership strategy. It also bought into the carrier's TopBonus loyalty programme, helping the German carrier into the black in 2012 at a net level.
  • Etihad holds a small stake in Aer Lingus but has hinted it could build this depending on whether regulators force Ryanair to dispose of its 29% shareholding in the Irish carrier.
  • Serbian carrier Jat Airways is courting Etihad as a possible investor and in recently agreeing a codeshare deal, Hogan said this was just the start of their co-operation.
  • Perhaps its most striking partnership has been the link-up with SkyTeam carrier Air France-KLM, a vocal critic of Gulf carrier expansion in the past, but which has embraced a wide-ranging codeshare with Etihad and Air Berlin.

INDIA

  • Equity partner: Jet Airways
  • Etihad recenlty ended a lengthy courtship with Indian carriers by agreeing a deal to acquire a 24% stake in Jet Airways following the recent easing in foreign ownership rules in India. A wide-ranging codeshare is expected to follow shortly, while a new bilateral agreement paves the way for a quadrupling of capacity between India and the UAE over the next three years.