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Case Details

Case Code: BSTR485
Case Length: 19 Pages 
Period: 2003-2015  
Pub Date: --
Teaching Note: Available
Price:Rs.600
Organization : Etihad Airways
Industry : Airlines Industry
Countries : Middle East, Global
Themes: Business Strategy/Strategic Alliances
Case Studies  
Business Strategy
Marketing
Finance
Human Resource Management
IT and Systems
Operations
Economics
Leadership & Entrepreneurship

Growth Through Co-Ventures: Etihad’s Strategy in the Competitive Aviation Industry

 
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EXCERPTS

 

THE ENTRY OF HOGAN

In September 2006, Hogan was brought on board as the President and Chief Executive Officer (CEO) of Etihad. Hogan had 30 years of experience in the airline and tourism industries. In addition, he had a wealth of knowledge about the Middle Eastern market. He had been instrumental in bringing about a turnaround at Gulf Air , where he had worked for four years. Hogan brought about a change in Etihad’s focus and direction. He set about financially restructuring the carrier to make it a purely commercial entity that was no longer dependent on the support provided by the government. In 2007, Hogan formulated a business plan through which he sought to grow the business and achieve scale by introducing processes and systems that were sustainable. James Rigney (Rigney), Executive Vice President Finance of Etihad, who had been brought into the company from Gulf Air by Hogan, went about recapitalizing the company with the help of the Abu Dhabi government. The business plan set out a break even goal for 2010 and profitability goal for 2011...

 

 
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BUILDING PARTNERSHIPS

By the mid-2000s, Emirates , Qatar Airways (Qatar) , and Etihad had begun to be considered the Middle Eastern ‘Big Three’ (MEB3) airline companies. Etihad was the smallest of the MEB3. These airlines followed the hub-and-spoke system, with Middle Eastern cities serving as hubs and destinations being scattered across the world. In the 2000s, they grew rapidly by luring passengers away from legacy airliners around the world on several long-haul sectors...

THE EQUITY ALLIANCE PARTNERS

In 2011, Etihad acquired a 29% stake in a struggling German carrier – Air Berlin – thereby becoming its largest shareholder. The company paid US$ 95 million for its share in Air Berlin, apart from a loan of US$ 255 million to help pay for new aircraft and expand its network. It was Etihad’s first equity investment in another airline and it was granted two seats on Air Berlin’s board...

THE FALLOUT OF THE PARTNERSHIP STRATEGY – THE GOOD AND THE BAD
 

Etihad’s partnership strategy encompassed interline and codeshare agreements, apart from equity alliances. As of 2014, Etihad Airways had 195 interline relationships and 50 codeshare partnerships, apart from equity alliances with eight airlines (See Exhibit III for Codeshare Partnerships of Etihad)...

THE PERFORMANCE OF ETIHAD
 

Airline analysts considered carriers that completed ten years of operation as young. They also observed that most of them would be unprofitable even after a decade of existence, as they struggled to make a good amount of revenue. Moreover, if they had plans to grow at a high rate – and that was usually the norm in the early days – earning revenues was all the more difficult. A high growth strategy meant that an airline needed to add capacity even before it initiated measures to increase its passenger traffic...

OUTLOOK
 

As of 2015, Etihad’s codeshares, interline agreements, and equity alliances gave it a combined passenger and cargo network of nearly 580 destinations, and over 25,200 flights per week. The airline itself served around 111 destinations (passenger and cargo) and had the largest route network of any Middle Eastern carrier (See Exhibit VII for Information on the Growth of Etihad’s Destinations). According to Hogan, Etihad expected to grow organically by increasing the number of destinations it served, acquiring more aircraft, and adding new service facilities to its network...

EXHIBITS
 

Exhibit I: Equity Alliance Partners of Etihad, as of 2014

Exhibit II: Major Global Airline Alliances

Exhibit III: Codeshare Partners of Etihad, as of 2014

Exhibit IV: Growth of Etihad’s Fleet (in Numbers)

Exhibit V: Revenue Growth of Etihad (in billions of US$)

Exhibit VI: Important Awards Won by Etihad in 2014

Exhibit VII: Growth of Etihad’s Destinations (Passenger and Cargo)