Etihad Airways To Create A Low Cost Carrier

Etihad Airways has been struggling financially, and in 2017 the airline began a five year transformation plan. Last I heard, Etihad hopes to be profitable by 2023(!!!), and in the meantime continues to rack up huge losses. Since 2016, the airline has lost over five billion USD.

Well, it looks like the airline now has a new strategy, which is to go very low cost.

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Etihad & Air Arabia To Form A Low Cost Carrier

FlightGlobal is reporting that Abu Dhabi based Etihad Airways and Sharjah based Air Arabia plan on creating a low cost carrier based in Abu Dhabi. This is intended to leverage the expertise of both airlines — I guess that’s Air Arabia’s expertise in a low cost operation, and Etihad’s expertise in… losing money?

This would be under a joint-venture company, branded “Air Arabia Abu Dhabi.” The intent is for this to complement the operations of Etihad Airways, and serve the growing low cost market in Abu Dhabi.

Air Arabia A320

While Air Arabia is based in Sharjah, the airline has already set up similar joint ventures elsewhere, including Air Arabia Maroc and Air Arabia Egypt, with 10 and three Airbus A320s, respectively.

Etihad Aviation Group CEO Tony Douglas had the following to say:

“Abu Dhabi is a thriving cultural hub with a clear economic vision built on sustainability and diversification. By partnering with Air Arabia and launching Abu Dhabi’s first low-cost carrier, we are serving this long-term vision. We look forward to the launch of the new airline in due course.”

It remains to be seen what the route network for the airline would look like, how many planes they’d have, and when exactly it will launch. Presumably they would use A320s for the operation, featuring just one class of service.

Etihad Airways Already Headed In Low Cost Direction

There are a variety of reasons this move is interesting. One of those reasons is that as Etihad is undergoing their transformation, they’ve unarguably been moving more towards a low cost model than before.

For example, the airline is removing personal televisions from their narrow body planes, they’ve introduced food and drinks for sale, added “basic” fares, and more.

Etihad Airways’ new seats without personal televisions

Now, ultimately they could still probably lower costs a bit by hiring lower paid pilots and flight attendants, squeezing more seats into planes, and not offering any food or drinks.

At the same time, there’s not all that much differentiation here. It seems silly to both form a low cost carrier while also moving your mainline operation to more of a low cost model.

To me this seems somewhat counterproductive:

• This will create brand confusion among Etihad customers, to have a new airline branded as “Air Arabia Abu Dhabi” that’s part of the Etihad family.
• Won’t this low cost carrier put downward pressure on yields, and take away customers from Etihad? Given that Etihad wants to increase yields and load factors, this doesn’t seem very logical.
• All of this doesn’t address the long term concern of trying to have two global hubs just a short drive apart (with Abu Dhabi and Dubai).

Emirates & FlyDubai Also Have A Partnership

In Dubai there’s Emirates and FlyDubai. Historically the airlines didn’t cooperate all that closely, though over time they’re working more closely together, and that’s in everyone’s best interest.

There’s one major difference there, though. Emirates exclusively operates wide bodies (their smallest plane is a 777), while FlyDubai exclusively operates 737s.

The benefit of the cooperation there isn’t just the difference in the cost structure, but also that FlyDubai flies to lots of places that Emirates can’t fly to.

That’s not the case at Etihad — they operate narrow body planes as well, so this isn’t about giving the airline more reach, but rather is about lowering costs.

Bottom Line

It sounds like we’ll soon see a new low cost carrier based in Abu Dhabi, named Air Arabia Abu Dhabi. It will be a joint venture between Etihad and Air Arabia.

I’m not sure the logic of this makes all that much sense, given that Etihad is trying to reduce losses. It seems like this new joint venture will just cannibalize their own business and create confusion, all while having fairly limited upside, given that Etihad is already headed in a low cost direction.

Now of course some will tell me I don’t know what I’m talking about, and that’s probably true. I don’t nearly have the expertise required to lose five billion dollars in a few years, and to invest in only the worst airlines, like airberlin, Alitalia, and Jet Airways.

What do you  make of the Air Arabia Abu Dhabi concept?