Etihad Airways To Create A Low Cost Carrier

Filed Under: Etihad

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.

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?

Comments
  1. Therapist: So what do we do when our financial situation is bad because of a lot of investiments in other airlines?
    Etihad: Cut costs
    Therapist: Yes
    Etihad: By creating a low-cost airline
    Therapist: NO!

  2. There are lots of rumors about etihad merging with emirates…and that christoph mueller is going to join etihad as the advisor

  3. I assume this low cost carrier would take over low yield routes so it wouldn’t put pricing pressure on Etihad

    Just a thought

  4. Any news on AUH midfield terminal?
    Flying via AUH this Christmas and not sure I will have a priority pass lounge in case the terminal is open by then….

  5. Eagerly awaiting Sean M’s take on this.

    People might be looking at this from the wrong angle though. This may not be AUH-instigated as much as a SHJ initiative (as in, benefits Arabia just as much if not more).

    There are actually 4 major aiports (AUH, DWC, DXB, SHJ) in a belt which takes about 1.5 hour by car (approx) from AUH to SHJ (without traffic) + another one (Bateen) which is smaller and located very close to AUH.

    The utilisation rates of these airports are all over the place however. AUH (with Midfield) is multiple times the size it needs to be. DWC is frozen as of now (and while it’s 10 times smaller than the initial masterplan, still has a lot of headroom in its current form). The other two though (DXB and SHJ) are bursting at their seams. SHJ is currently undergoing an expansion and DXB periodically re-arranges the deck chairs to make room.

    Utilising the spare capacity at AUH and DWC and alleviating strain at DXB and SHJ has long been the goal. With SHJ now at capacity, Air Arabia needed to find space (which it absolutely cannot next door at DXB). AUH seems like the logical choice for their secondary hub. Etihad will most likely retreat from low yield short haul routes and cede them to Arabia (and continue to lower their costs on the higher yielding longer strategic routes). Same strategy as Emirates + FlyDubai. Air Arabia is infact looking for planes right now and I wouldn’t be surprised if they simply acquired Etihad’s narrowbody fleet.

    Meanwhile Arabia can use AUH as the new connecting hub and use SHJ more for point to point traffic (for passengers originating or disembarking in Dubai or Sharjah).

    AUH tourism growth is still pretty healthy and hasn’t levelled off as much as in Dubai. If and when Visa on arrival is implemented for India, it will bring a deluge of business to all routes in and out of UAE and is a low hanging fruit they haven’t picked yet. So there is a lot of potential growth in traffic that needs to go somewhere (and absolutely can’t be accomodated in DXB or SHJ). AUH especially has shown strong tourism growth in recent years and Etihad may not be willing or able to bring in lower yielding pax from tier 2 destinations. So it’s strategically important for AUH that someone else can.

    Also, recently Wizz Air announced direct DXB flights starting this month. This opens up Europe daily from as low as 100 USD *Return* from UAE and London from 250 USD return. These aren’t promo fares and is a game changer for the market. As a long thin route operated by a European LCC, it would be interesting to watch if this will be sustainable in the long term when no such route has been in the past (though I suspect it will be a success, even if they double the prices!).

  6. Etihad execs huddled in board room: “Let’s see, how do we top our previous outcomes from our last attempts with Air Berlin, Alitalia, Jet Airways, and a couple others that we already forgot about?”

    Cleaning lady dumping the trash bins: “Hey, my union is looking to expand its membership… you can start a low cost airline that we can help clean the planes!”

    Etihad execs: “Brilliant! What can go wrong?!”

  7. I believe Etihad’s expertise in this venture is in having a lot of under utilized/ unutilized aircraft.

  8. This seems more like Etihad covering their flank. If they don’t create a low cost carrier in Abu Dhabi. Someone else will come in and takeover the market. Therefore this makes sense from a market share point of view more than anything else.

  9. There is a need for a low cost airline to fly from EU to Asia and maybe Ethihad is the airline to do it . They have planes , routes , slots and ”some experience ”.
    I hope they start flying Cyprus/Abu Dhabi/Asia again.

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