Etihad Decreases Air Serbia Stake: Now What?

Filed Under: Air Serbia, Etihad

Etihad Airways’ stake in Air Serbia has just decreased. What does this mean for the future of Air Serbia, and Etihad’s involvement?

Etihad decreases Air Serbia stake to 18%

In 2013, Air Serbia was born in its current form, as the airline was a rebranded version of the former Jat Airways. The airline was a joint venture between Abu Dhabi-based Etihad Airways and the government of Serbia, with the two parties owning 49% and 51% stakes, respectively. This was ultimately part of larger scale cooperation between Serbia and Abu Dhabi.

Not only did Etihad own nearly half of Air Serbia, but the airline also had a contract to manage Air Serbia for a period of five years. Etihad’s involvement in Air Serbia has continued to decrease in recent years, and that trend is continuing.

The government of Serbia has just recapitalized Air Serbia by injecting a total of 100 million EUR into the airline:

  • The government of Serbia’s stake in Air Serbia has increased from 51% to 82%
  • Etihad Airways’ stake in Air Serbia has decreased from 49% to 18%

Air Serbia A330 business class

With the impact coronavirus has had on the airline industry, the airline was in need of recapitalization. Etihad was unwilling to put more money into Air Serbia, so Serbia’s government invested, and took a larger stake in the airline as a result.

As Duncan Naysmith, CEO of Air Serbia, describes this development:

“We are grateful to the Government of the Republic of Serbia for providing support to the national airline to overcome business obstacles caused by the coronavirus pandemic in the most difficult year in the history of passenger air traffic.

In this way, the foundations have been created for further uninterrupted business and that, with fundamental measures to rationalize the company’s operations, which are already well underway, Air Serbia will be able to overcome difficulties, strengthen its position as a leader in the region and continue to provide direct and an indirect contribution to the Serbian economy, primarily transport and tourism.”

Interestingly Naysmith was appointed to the airline by Etihad, but is still in power, despite Etihad no longer managing the airline.

Etihad’s involvement with Air Serbia is decreasing

Etihad’s investments have been a disaster

While it goes without saying that the coronavirus pandemic has had an unprecedented impact on the airline industry, Etihad’s challenges with investing in other airlines goes back much further than that.

I’ll take it a step further — there’s not an airline I can think of that has squandered money investing in other airlines quite the way that Etihad Airways has. The government owned airline lost $5.6 billion in the four years pre-coronavirus, and Etihad’s investments in other airlines have been a large part of the problem:

Etihad’s Jet Airways investment didn’t work out great

The Air Serbia investment was one of the few remaining for Etihad, and that’s now decreasing further.

Etihad’s only other remaining investment is in Air Seychelles, and that airline has a total of two A320s and a handful of turboprops, and that’s it.

What’s left of Etihad’s global alliance

I mean, seriously, how wrong can you get something? If Etihad’s investment strategy were any more wrong, the airline would have accidentally bought a stake in Air Serbia Total Landscaping.

What does this mean for the future of Air Serbia?

From a passenger perspective, Etihad’s investment in Air Serbia was phenomenal. After all, Etihad at least knew how to run a stylish and glamorous airline, even if it wasn’t profitable:

Air Serbia’s business class soft product is excellent

What happens now, though? Etihad no longer manages Air Serbia, and also has a much less significant stake. Air Serbia no longer flies to Abu Dhabi, and Etihad no longer flies to Belgrade. The two airlines are no longer even codesharing.

At this point I can’t imagine Etihad has much interest in Air Serbia anymore. Now, I’m not sure what that will look like — will Etihad actually try to get rid of its stake in Air Serbia, or just be a silent investor? The initial investment in Air Serbia was part of a comprehensive strategy of having global partners, and that whole concept has failed.

That didn’t age well…

At this point there are a lot of questions:

  • Will Air Serbia continue to use Etihad Guest as its loyalty program?
  • Will Air Serbia maintain long haul flights even if Etihad has much more limited involvement?
  • What will happen to Air Serbia’s inflight product?

Government owned Eastern European airlines don’t exactly have a great track record with staying in business, even if Serbia in general is an incredible country. Then again, airlines at least partly owned by the government of Abu Dhabi don’t have a great track record of staying in business either. šŸ˜‰

Bottom line

Etihad’s stake in Air Serbia has decreased from 49% to 18%. This comes after Serbia’s government injected capital into the airline due to the coronavirus pandemic.

While these are no doubt strange times, the reality is that things were headed in this direction even pre-coronavirus. The Etihad Airways Partners concept unraveled within a couple of years of being introduced, and with no service between Belgrade and Abu Dhabi nowadays, it’s questionable what connection the two airlines have anyway.

What do you think this development means for the future of Air Serbia?

Comments
  1. Air Serbia are screwed now I think. It’s a shame, as they became a really good airline when they joined forces with Etihad and started improving the service, which was terrible in the old JAL days.

  2. “Italy owned a stake in Virgin Australia, which entered bankruptcy and is now under new ownership”

    I believe you meant Etihad owned a stake.

    Honestly, their investment strategy was a disaster. They had a huge potential when they launched back in 2003. They have a diverse fleet ranging from A320s to 787s to A380s (atleast for now) unlike Emirates. They have a wonderful soft product across all the class and amazing J class hard product on their 787s. Nothing’s lost yet, Etihad is on a right path now. By moving on to become a smaller airline and then expanding and broadening their network (say by 2035), they’ll be in a pretty good position. And there’s absolutely no way they are going to cease operations as Etihad is Abu Dhabi’s gemstone and UAE’s national carrier. So, Etihad is still going to last for a while, perhaps they will turn into a smaller airline like Oman Air or Gulf Air.

  3. Air Serbia will survive as a government owned airline, as did JAT before. Actually, JAT was quite a solid airline, nothing fancy, but ok.

    I do think there is a market, certainly to central Europe (Germany, Austria, Switzerland), given the large diaspora living there and the strong economic ties. Not so sure about the US. Their flight to JFK currently only operates twice weekly, but I think they reduced the frequency every January, even before Covid. However, the timing does not permit any connections, so perhaps thereā€™s room for improvement.

  4. Air Serbia’s JFK route worked through COVID because one could fly to BEG and bypass EU restrictions on US-Europe travel. This airline doesn’t have a solid future (and neither does Etihad, for that matter). My prediction is Etihad will merge into Qatar or Emirates eventually and Air Serbia will join one of the 3 global alliances but TATL services will end.

  5. The next future situation for Air Serbia will be uncleare. First , as it looks like soon or later Etihad will leave from being ” partners” , secondly Air Serbia very soon might face ” State aid” punishment lie with European Reg, as Serbia is part of ECAA Agreement. Which mean Serbia it self has agreed not to use subsidary to Airline against untytrust frame legislation.

  6. The government of Serbia buying a larger stake in Air Serbia diluting Etihad’s stake would mean Etihad would get basically nothing in return for the decrease in the ownership stake.

    Saying that, probably a blessing in disguise for Etihad IMO. It was a legacy of the James Hogan era, who was BFF’s with ex-Virgin Aus CEO John Borghetti and both were known to have.. well you know what I mean.

  7. Didnā€™t anyone at Ethiad remember that the same disastrous strategy is what helped to kill Swissair? I do miss Qualiflyer though, that was a solid program.

  8. @shoeguy, yes bypassing was the case in certain periods and under certain circumstances. However, Turkey proved more useful, because of the more plentiful connections and also because Turkey has spent less time on the quarantine lists of other (third) countries than Serbia. So I doubt this was a major source of income, Iā€™m afraid.

  9. @shoeguy, Etihad will never merge into Qatar. Middle Eastern politics would never allow that to occur. The Saudis would be furious.

  10. “If Etihadā€™s investment strategy were any more wrong, the airline would have accidentally bought a stake in Air Serbia Total Landscaping.”

    I am sure Air Serbia Total Landscaping would have been a better investment.

  11. The Etihad investment list isnā€™t complete.

    For fairness they did have one quasi successful investment: in 2012 they invested in Aer Lingus and built a 4.99% stake before IAG acquired it in 2014 making a good return for Etihad. Until IAG came along, Etihad were planning to increase their stake and use Dublin as a transatlantic connection hub.

    However there is another missing investment which was not so good. In late 2013 Etihad acquired a 33% stake in a small Swiss regional airline called Darwin Air and rebranded it Etihad Regional. The strategy was for it to connect passengers from small regional airports across Europe to Etihad flights in bigger cities. Regional competitors fought the move and the strategy failed. In 2017 Darwin was sold to Adria (presumably at a big loss) before Darwin fully collapsed a few months later.

  12. @Karl: the funny thing is that Peter Baumgartner, one of Etihadā€˜s former CEOā€™s, was in the middle of the Swissair disaster too

  13. Methinks QR will at least start a codeshare partnership with Air Serbia. Ex-Yugoslavia is a huge market for QR and they were flying to BEG almost 2x daily even without a JU partnership. I think this could help both parties.

  14. Firstly, I nowadays don’t believe Etihad Airways made bad calls. I now wonder whether if the publicity about the equity investment created unrealistic expectations amongst the public about the airlines’ service. For example, it’s obvious that Singapore Airlines is ā€œworkingā€ on Air India now. A lot of the work required on Air India, is writing off debt, which will take years. And while that was taking place, Air India was in no position to invest in product and service upgrades while restructuring was still in progress. I definitely believe had SQ made an announcement about it, they and Vistara wouldn’t be as well received.

    Air Serbia needs to see the writing on the wall. They, Montenegro Airlines, Adria Airways, Croatia Airlines, could’ve struck up a regional network which while not a big airline, would have survived if they fed into Alitalia. The above all tried to feed into Lufthansa group especially at Vienna, and they either had their soul sucked out of it or they were suffocated. A pity Belgrade is not as accessible to Asia being blocked and all or else I think there was an opportunity to create a XiamenAir hub in Belgrade. Imagine, an Islamic Europe version of Amsterdam.

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