Why Don’t Emirates And Etihad Just Merge Already?

Earlier I wrote about how Etihad announced the details of their restructuring. The airline has been struggling financially for years, and hasn’t really seemed to be profit-motivated based on the way they’ve been spending money.

That’s finally turning around, as the airline is disinvesting in money-losing airlines, cutting costs, cutting routes, and trying to cancel aircraft orders.

Over and over people say “both Emirates and Etihad are government owned, so why don’t they just merge?” It’s a good question and seems reasonable enough, so let’s dig into that a bit deeper.

The airlines are owned by different governments

One common point of confusion is regarding the ownership structure of these airlines. Yes, the United Arab Emirates is a country, and yes the airlines are both government owned, but they’re owned by different governments. The UAE has seven emirates, and each of them has a separate government. I’d view the seven emirates as being more like members of the EU than states of the US, just to draw a comparison.

While the emirates are aligned in some ways, in many ways they also compete with one another. This is especially true with Dubai and Abu Dhabi. While Abu Dhabi has the oil money, Dubai is obviously the most populated and globally recognized. In theory all seven emirates are working towards a common goal, but there’s also quite some competition between Dubai and Abu Dhabi, with pride at stake.

If a merger between Emirates and Etihad happens it would have to be because both airlines and governments get value out of it, or it would need to be out of desperation. But this isn’t simply a case of the same government owning two airlines and finding it to be more efficient to have just one airline.

Emirates has little to gain with an Etihad merger

This brings us to the key problem here. Emirates is by far the most successful of the Gulf carriers. They’re the largest, they’re the most profitable, and they have the most cohesive business plan. They’ve built a global route network that’s in many ways unparalleled. They also have an incredibly streamlined fleet with just 777s and A380s, and they’re strengthening their ties with FlyDubai, which is owned by the same government.

This is a logical tie-up, since FlyDubai operates 737s, which nicely complement Emirates’ fleet.

The problem here is that Emirates has virtually nothing to gain if they were to merge with Etihad. It’s not like Emirates needs the planes, and it’s not like Etihad has access to some unique markets that Emirates can’t get to on their own.

Sure, there might be some Dubai vs. Abu Dhabi loyalty that triggers which airline people choose to fly with, but for all practical purposes Abu Dhabi and Dubai are the same market. They’re just an hour drive apart, and transport between the cities is really easy. My point is that someone can easily fly into Dubai and drive to Abu Dhabi, and vice versa.

So yeah, I’m scratching my head as to what value Emirates would get out of Etihad, short of parking all their planes and taking over their pilots, given their pilot shortage… but that’s something they’re already doing anyway. 😉

What Dubai World Central means for Emirates & Etihad

While Dubai International and Abu Dhabi International are both big airports, there’s also Dubai World Central Airport, which is Dubai’s new mega-airport. Emirates is supposed to eventually move to this airport, though they keep delaying the timeline for that.

Here’s a map showing Dubai International (DXB), Dubai World Central (DWC), and Abu Dhabi (AUH):

As you can see, Dubai World Central is nearly halfway between the two airports. So even though I don’t think Abu Dhabi would like to admit this, the reality is that Dubai World Central is an airport that’s really designed to cater even better to both markets.

It’s already questionable whether Abu Dhabi is a distinct enough market, but that’s brought even more into question with the opening of Dubai World Central.

What a potential merger comes down to

The way I view it, at some point a merger would be in Etihad’s best interest, though possibly not in Emirates’ best interest. This assumes that we’re viewing the governments of Abu Dhabi and Dubai separately, which is currently the way to look at it.

The question is what that will look like in the future. With the UAE’s oil supply eventually running out, they’re increasingly focused on building a sustainable future. They’re going to have a lot more luck with that if they’re working together rather than competing with one another.

However, I would guess that they won’t come to that conclusion until it’s absolutely necessary. For the time being Emirates and Dubai have little to gain by working with Etihad, and Abu Dhabi would probably like to maintain “their” own airline for as long as they can, especially if they can shrink the airline to be more sustainable.

But down the line that may change, especially with an eventual move to Dubai World Central.

What’s your take on this?

Comments

  1. 99% not happening since DWC the new airport is going to be exclusively used by airlines flying in and out of Dubai. While yes it’s a hour drive from Abu Dhabi I don’t see it as a possibility for a potential merger.

  2. I’m struggling to see why they would merge? They both fly to more or less the same places and aren’t really that different in the grand scheme of things. If anything, Etihad would just close down (which I can’t see happening) and Emirates would expand a little to fill the void.

  3. “I’d view the seven emirates as being more like members of the EU than states of the US, just to draw a comparison.”

    Surely you mean it other way. The UAE is a federation of seven states, as is the US. The EU is not a federation.

  4. How much of Etihad’s problems are related to investing in all those other airlines? It seems that, even if healthy, it’d be hard to compete with Emirates.

  5. Plot twist:

    James Hogan will be appointed as a new CEO after the merger of two airlines. It must be fun!!!!

  6. Just to clarify, the population of Abu Dhabi is greater than the population of Dubai as of reported 2017 census data.

  7. There is no competition. Abu Dhabi’s economy represents 2/3 of the whole UAE economy. They hold 95% of all oil and gas deposits in the UAE. They have the 2nd largest sovereign wealth fund in the world (4 times larger than Dubai’s). It’s like saying Macau is more important than Hong Kong because it’s more glitzy. Open a book guy.

  8. I cannot understand why Dubai Airport is now so disorganised. When flying into Dubai you never know if you will be parked away from the main terminal, in which case you sit in a bus for 20/25 minutes to actually get to the terminal or not. I have flown through Dubai several times in the past 2 years and it is a total nightmare. Especially if you have a connection within 2.5 hours. 25 minutes in a bus, and if you land on an A380 there are a lot of people getting off that plane and into buses, then through security (this does NOT HAPPEN at other airports when you are in transit, e.g. Singapore). Then to take a train to the next terminal find your gate etc., etc. One of the reasons we are going to stop flying Emirates and start flying Singapore Air again, or possibly Qantas through Singapore.

  9. In a couple of years they will eventually run out of money and all the gulf carrier fanboys are going to cry

  10. There is one thing Etihad brings to the table, and that’s the pre-clearance facility they have at AUH.

    What could happen if they merged is that they could each compliment each others service to AUH and DXB together. Not to mention the A320’s Etihad has that Emirates could use in a lot of markets.

    I would very highly doubt both airlines would ditch their respective hub airports that they’ve pumped billions into, and move to Dubai World Central. Certainly it could be a secondary hub, but I think Etihad leaving AUH and Emirates leaving DXB is wishful thinking.

  11. Indeed at this point a merger doesn’t seem very likely or make much sense to EK. If Etihad gets back on track and concentrates on just itself i see it being sustainable and achieving gradual growth without the strain of its poor investments. They should have learned from Emirates that ended the partnership with SriLankan Airlines that only brought them headaches/losses and decided to do it on their own.

    @_ar
    In this case, the governance of the Emiratis is rather similar to the EU since they are very much individually ruled though ofcourse they have some common grounds.

    @Abe
    Emirates doesn’t need the A320s as they are getting closer and closer with their little sibling Fly Dubai that operates the B737 with a dedicated Business class cabin that access very thin routes that can’t be sustained using a B777.

  12. @Abe
    Oh, and it’s Eithad/Abu Dhabi that are footing the big bill for the Pre-Clearance facility. If EK ever wanted this, they would have done it ages ago. Why add more costs? Let the passengers deal with customs on their own once they arrive in the US.

  13. Don’t some bilaterals, like the UAE-Canada one, still get restricted to the individual emirates, resulting in EK and EY each splitting the rights? Merging would solve this.

  14. In reality, the ‘merger’ will be more a merger/rationalisation between FlyDubai and Etihad. They are complementary. FlyDubai needs to grow (aircraft, destinations etc), Etihad is conveniently down the road. Everyone talks about the Etihad Emirates merger where Emirates has no need for Etihad. FlyDubai on the other hand…..

  15. Abe – A320s aren’t in short supply, Emirates could just buy them if it wanted them – a merger would be way overboard.

    It would be like you marrying someone to get their car – just buy your own!

  16. The merger WILL happen! Not IF, but when 😉

    EK has a lot to gain. It knocks out needless competition in its own backyard. Very surprised you would state it has little to gain. The Etihad capacity still exists, and EK can take/nurture and funnel that traffic.

    DWC is ideal being half way between both cities, just build a MAGLEV and its fine.

    The new AUH airport/terminal, hmmmm, thats an issue, unless you utilize it as a co-terminal with the Maglev going between both airports, would be pretty cool for transfers.

    With open minds and a HUGE leap of faith, it could work very very well!!

  17. the real question is why on earth is there a second Dubai world central whatever airport being built? DXB is already great…waste of money

  18. Gosh, if they do merge, please let Etihad do the interior design. I flew the hot new EK F running GVA-DXB not too long ago, and to me it felt artificial. Odd as it might sound, I prefer traditional F like AF & JL all the way. But if I had to choose between EK & EF solely for the hard product, rest assured I won’t favour EK.

  19. Ben, stick with points and miles. Internal politics of other nations is not your forte, otherwise you would understand why the two airlines will not be merging anytime soon, if ever.

  20. Merger will only happen if Abu Dhabi gets 50% of Emirates, DWC will be opened (paid for by Abu Dhabi) and a (highish speed) railway line built from Abu Dhabi via DWC and Jumeirah to Dubai.

  21. This reminds me of the NYC market where it has three airports: LGA, EWR, and JFK. Both EWR and JFK can handle longhaul international flights and is probably 1.5 hrs apart by car.
    I think the only way this can work is if EK *acquires* EY. It would create a monopoly but perhaps EK can then raise their prices?

  22. I don’t think it makes any sense for Emirates to merge with Etihad. They essentially do everything that Etihad does with more poise and efficiency. With DWC, the reason for Etihad’s existence will be even more questionable.

    The reality is that Emirates itself is struggling with a bit over capacity and certainly does not need more. Their own business model (while more robust then Etihad) is somewhat murky given the advent of Long haul Low cost airlines and more efficient airliners that are enabling airlines in the Far- East to fly Long haul and ultra long haul flights with more efficiency. Take a look at the rapid turnaround of Qantas’s international business and their drastic turn from Dubai. Or for that matter SIA’s resurgence- with scoot and a bevy or fuel efficient airliners they are able to compete far more effectively with ME carriers then they ever could. On TOP of it, they have Vistara in India which is due to fly Long haul routes to Europe and the US from India which could pressure Emirates’s largest source market. While Emirates still has a lot going for them- an expansive network, scale, brand and a capable management, the last thing it needs right now is to take on another liability.The only way I can see a merger happening is out of some kind of fraternal obligation between its rulers but it would certainly not make any sense for Emirates from a commercial perspective.

    As far as Abu Dhabi goes, it simply isn’t a large enough O&D market. Considering it’s proximity to Dubai I don’t see Abu Dhabi supporting an airline with 118 aircrafts (mostly wide bodies).

    In terms of their synergies for global airlines, I am also perplexed on how they can add value. In terms of Star- Both LH and LX have well developed networks in Asia and moreover star alliance has SIA, Thai and Turkish that can offer far more regional connectivity in Asia, Middle East and North Africa.

    Qatar’s influence in one world will instantly quell any possibility of Etihad even being entertained. Skyteam may have been a better fit however the recent partnership between Delta, KLM, AF and Jet Airways has them covered in India which would have been Etihad’s main value add. Adding to the roadblock is Delta who isn’t exactly chummy with Etihad and although they don’t have any heavy weight airlines in se Asia they are fairly well covered between the networks of AF, KLM and their regional partners Vietnam airlines and Garuda.

  23. I’d like to see Etihad try be much smaller and reach for the most premium experience an airline can offer in the current civil aviation system. Keep the A380s! Or recreate the Residence on smaller aircraft (yep I went there!). Give F back their chauffeurs.

    Air travel is at a stage where you can’t avoid the hassle and (no offense) the riff raff, and the rush hours…there’s still this much distance and this many hoops to jump through from the kerb to the lounge. J and F experiences on many airlines are slowly eroding. Being government-owned, EY is in a position to attempt something better at AUH, even if not always possible at an outstation.

    EY previously threw money around to fashion itself into the failed Swissair and The Qualiflyer Group (they got asked this once and had to vehemently deny, no we’re not like Swissair! lmao). Now it’s time to ask what kind of excess and luxury would now be meaningful for Abu Dhabi to bankroll, create something that can stand on its own alongside EK and DWC, or even within EK (not like LX and OS under LH).

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