Name of the Company: Etihad Airways
Business Sector: Aviation
Operating Geography: Middle East, Global
About the Company: Etihad Airways established in 2003 is the national carrier of United Arab Emirates and one of the largest airlines in the Middle East. Headquartered in Abu Dhabi, UAE it has a modern flet of 124 aircraft and has over 26,000 employees as of 2017.
Revenue: US $9.02 billion– FY ending Dec 2015
SWOT & PESTLE Analysis
|1. Strong and geographically diverse equity partner network |
2. Support from the Emirate of Abu Dhabi
3. Worldwide route network with a young, modern and efficient fleet
4. Worldwide route network with a young, modern and efficient fleet
|1. Operational challenges in subsidiaries - airberlin and with Alitalia
2. Non-disclosure of financials and limited transparency
|1. Strategic technology investments to deliver long term cost benefits|
2. Growth potential in air cargo segment
|1. Formidable competition in Middle East and Europe
2. Accusations by rival airlines in the United States
3. Increase in conflicts and terrorist threats across Middle East
4. Low oil prices increases price competition from rival legacy carriers
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1. Strong Operational Performance: Etihad clocked a strong operational performance in FY15. Its 2105 net profit stood at 103 million US$, up 41% from FY14, while revenue was at US$ 9.02 billion up by 19.5%. Etihad also carried a total of 17.8 million passengers in 2015. Fitch has also assigned Etihad Airways with an ‘A’ rating and a Stable Outlook.
2. Support from the Emirate of Abu Dhabi: Etihad being the flag carrier of UAE enjoys strong support from the government, both in financial and administrative areas. Etihad also had an access to an interest-free $3 billion loan from the Abu Dhabi royal family according to a Reuters report.
3. Strong and geographically diverse equity partner network: Etihad boasts of a strong and geographically diverse equity partner network across the globe. It is the single largest shareholder with 49% stake in the Italian carrier, Alitalia. It also has a 29% stake in AirBerlin, 24% stake in Jet Airways, 20% stake in Virgin Australia which are major carriers in their respective geographies. Etihad further holds 49% stake in Air Serbia, 40% stake in Air Seychelles and 33% stake in Etihad Regional (Swiss regional carrier). Thus combined with its partners Etihad has a global reach and is the seventh largest airline group globally. Further though its equity partners Etihad has been able to identify and develop significant business synergies and cost savings. Etihad further has 188 interline relationships and 54 codeshare agreements with carriers globally.
4. Worldwide route network with a young, modern and efficient fleet: Etihad directly serves more than 120 destination globally and more than 600 destinations through its codeshare partners. It also clocked an high 79.4% network-wide seat load factor in 2015. Etihad also boasts of an young, modern and efficient aircraft fleet which helps in operating and environmental efficiency and helps in delivering best-in-class customer experience. Etihad also has 10 and 14, Airbus A380 and Boeing 787 Dreamliners respectively in its fleet which are the world’s largest and most modern widebody aircrafts.
1. Operational challenges in subsidiaries - airberlin and with Alitalia: Etihad is facing challenges with its two major European subsidiaries - airberlin and Alitalia. Both of these airlines are operating in a tough competitive environment. Alitalia was facing financial woes when Etihad bought 49% stake in 2014. The subsequent restructuring plan proposed by Etihad resulted in lienating Alitalia's workforce and was ultimately rejected. Also without a majority stake in Alitalia and the powerful labor unions at Alitalia who prevented Etihad from making the desired changes, Etihad’s influence was restricted and ultimately Alitalia lost further ground to rivals such as Ryanair and EasyJet. Air Berlin was also operating under losses and has a 1.2-billion-euro debt in its books and will need a major financial and operational restructuring for a turnaround.
2. Non-disclosure of financials and limited transparency: Etihad being a state owned enterprise does not disclose its financial accounts which brings into question its corporate governance practices. The carrier just releases a summary of its annual performance which does not represent a detailed picture of its accounts. Rivals in united States have accused Etihad of receiving financial assistances which violate Open Skies policy. Unless proper and transparent accounting policies and standards are followed, and annual statements disclosed Etihad cannot claim to be a truly transparent organization which follows proper corporate governance practices.
1) Strategic technology investments to deliver long term cost benefits: Etihad has taken a number of technology investment decsions which will increase long term benefits and operating efficiency for the carrier. A 10 year strategic partnership with IBM will help Etihad build a cloud data center in Abu Dhabi. It has also roped in Cognizant Technology Solution for imllementing the next-gen Digital Guest Experience platform. In another major deal involving Accenture, Etihad will undergo a business transformation programme – SYNERGY which will help in simplifying business processes leveraging the use of SAP’s ERP platform applications.
2) Growth potential in air cargo segment: Etihad Cargo is the fastest growing business unit of the Abu Dhabi based carrier and the growth opportunity is immense. UAE is forecasted to have the third largest air cargo market globally by 2018, clocking an estimated 5 million tonnes of freight according to an IATA report, just behind United States and China. Etihad Cargo carried 592,700 tonnes in 2016 posting a relatively flat growth over 2015, but the outlook for 2017 and beyond remains positive. Etihad has also implemented Hermes Cargo Handling System for cargo handling at Abu Dhabi International Airport.
1. Formidable competition in Middle East and Europe: Etihad faces formidable completion in its home region from other rivals like Eimrates and Qatar Airways. Emirates is already an established global leader while Qatar Airways is expanding at a furious pace. Turkish Airline, the other major carrier in the region is also stepping up the competition with coverage of nearly 300 destinations and has the advantage of targeting the Turkish population of 80 million which is a major potential market.
2. Accusations by rival airlines in the United States: Etihad’s rivals in the United States, the big three carriers Delta, United and American Airlines have accused the Abu Dhabi based airline of major benefits and subsidies from the UAE government which results in distorting competition. The total known subisdies which the big three gulf carroers, Emirates, Etihad Airways and Qatar Airways have benifited amount to US$ 50 billion over te last decade, according to a Investigators for the Partnership for Open and Fair Skies report. With the election on President Trump, the gulf based carriers including Etihad might find it increasingly difficult to compete in the US market, as the Trump administration is expected to come out with protectionist policies to support the local carriers.
3. Increase in conflicts and terrorist threats across Middle East and Europe: The conflicts and civil wars in Middle East and North Africa regions have intensified over the last few years. The wars against ISIS in Iraq and Syria has taken a heavy toll on the region. Flights do not fly over certain regions over Syria and Iraq due to terroroist threats. Turkey is also batting instability and suffered an unsuccessful coup d'état in 2016. There are also serious issues between Qatar and rest of the GCC nations which resulted in a blockade on the former. Europe has also recently faced a spate of terror attacks which is impacting the regions tourism. Also in March 2017, United States has come out with tougher visa regulations and banned electronic gadgets from flights originating from Middle East. These measures, threats and concerns have a major impact on travel and tourism consequently affecting Etihad’s business.
4. Low oil prices increases price competition from rival legacy carriers: While fall in oil prices reduces fuel costs for Etihad, but at the same time it has impacted business sentiment across Middle East and other oil producing regions. Businesses have resorted cutting costs and reduced travel impacting demand. Also in time of low oil prices, air fares are also low and thus companies like Etihad are not able to offer steep discounts to ticket prices as they would when the oil prices were high.Etihad Airways SWOT analysis has been conducted and reviewed by senior analysts from Barakaat Consulting.
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