Etihad eats up competition

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BANGKOK, 8 March 2012: Etihad Airways is talking with Bangkok Airways to pursue opportunities to expand cooperation with possible partnerships as the cash-rich airline continues its aggressive growth strategy.

On Tuesday, Etihad Airways CEO, James Hogan met with Bangkok Airways’ founder, Prasert Prasatthong-osoth, to discuss further cooperation.

“..Obviously, we want to understand his network development, type of aircraft, airport ownership and as our partnership has been successful,  we can look for ways to work closer and move forward.. Also he is involved in medical services, we can see what we can do on medical tourism to Thailand,” said Mr Hogan.

Etihad Airways CEO James Hogan

Usually when Mr Hogan mentions partnership it involves cash injections that will further the airline’s ambitions to be a global leader in aviation. It has already bought into other airlines with Air Berlin the latest in a move to gain more traffic rights in Europe.

The relationship with Bangkok Airways is far less complicated. It has code-share agreements on routes to Samui, Phuket, Chiang Mai, Singapore, Luang Prabang and Yangon and partners in frequent flyer programmes.

Mr Hogan makes no secret of his ambitions for the airline. Partnerships are a strategy to extend reach to the corners where the airline cannot reach itself.

Etihad also has code-share agreements with Vietnam Airlines  on the Bangkok-Hanoi and Bangkok-Ho Chi Minh City route. It has 35 code-share partnership presently.

In late December 2011, Etihad becomes the biggest shareholder in Air Berlin increasing its 2.99% share to 29.2% through the purchase of US$95 million in new shares and providing US$255 million in loans to finance new jet purchases.

From 25 March, Air Berlin will operate a daily flight from Phuket through Abu Dhabi, rather than direct from Germany, all part of a plan to turn Abu Dhabi in to the leisure and business gateway hub to Asia.

Air Berlin’s leisure passengers will have to make a stop in Abu Dhabi. They will also have to board connect with an Etihad aircraft to fly to Bangkok from all of Air Berlin points in Germany, a move that will not sit well with Air Berlin’s traditional market— loyal customers who will want nonstop flights to Thailand on a European airline rather than one from the Middle East.  Using an immediate point in the Middle East may also be a concern for security conscious customers.

Etihad plays down these concerns claiming passengers now have a daily option and more tourists from the Middle East will be able to join the flight to Phuket.

Air Berlin passengers will be able to board any of  Etihad’s three daily flights to Bangkok out of Abu Dhabi, effective 15 April, when Etihad increases services to Bangkok to three daily. The services  to Bangkok will be co-designated.

Etihad positions this change as a benefit for passengers, but it could backfire on Air Berlin that relies on leisure travellers who have a long history with the company that started with  LTU and Condor charters.

Thailand loses nonstop flights from Berlin and Dusseldorf to Bangkok. Phuket gains a link to Abu Dhabi that could top-up business in the low season months, May to October.

Air Berlin’s summer schedule starting 25 March shows it will fly three daily services to Abu Dhabi — two daily from Berlin and one from Dusseldorf. Then from 15 April, Etihad will increase its services to Dusseldorf to daily, resulting in four daily flights from Germany to the UAE through the Air Berlin/Etihad partnership.

Etihad used Air Berlin to gain a backdoor entrance to Europe as pressure builds to contain the expansion of Middle East airlines in the EU. The policy is not official, but is all part of a polarisation of interests.

Through an equity stake, Etihad gained access to Air Berlin’s European network where it has been facing considerable opposition to its plans to expand, as Europe tightens policy.

It is a response to what aviation officials call “cut throat” practices adopted by Middle East carriers that have  jeopardised the financial viability of European airlines. They are losing to competition from Middle East airlines that can cut fares to the bone, mainly due to cheaper running costs such as subsidised airport fees at their home-bases and lower fuel costs.

As for Etihad’s benefit, Mr Hogan said access to Europe through Air Berlin would yield around US$50 million to the airline this year.

Recently, Etihad also acquired a 40% stake in Air Seychelles to expand its network in Africa and Indian Ocean islands.

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