New Etihad boss to rethink strategy after Alitalia dream fails

DUBAI/ MILAN/ PARIS: The naming of a new boss at Etihad Airways presents the Gulf carrier with an opportunity to rethink its aggressive expansion strategy after the failure of minority-owned Alitalia underlined the big barriers to global growth.

Ray Gammell was appointed interim CEO this week, days after Alitalia sought bankruptcy protection with US$3.3 billion of debt. He replaces veteran boss James Hogan.

Hogan’s strategy was to buy up minority stakes in myriad airlines but the struggles of that strategy, most recently with Alitalia, are emblematic of a quandary peculiar to the industry.

The path to growth for airlines often lies in gaining access to rivals’ routes.

Yet in the European Union, which mainly operates as one nation in aviation, foreigners cannot majority-own an airline.

At Alitalia, the lack of full control meant that Etihad could not deal effectively with labour problems.

Since 2011, Abu Dhabi stateowned Etihad has spent billions of dollars buying minority stakes from Europe to Australia as it races to catch up with regional rivals Emirates and Qatar Airways.

Alitalia was Etihad’s eighth and most high-profile bet. But the 560-million-euro (US$609 million) investment lies in tatters, placing Hogan’s wider strategy under the microscope, after staff overwhelmingly rejected its latest restructuring plans.

Now the future of Etihad’s other leading investment, in Air Berlin, is also in doubt as the Gulf carrier pursues a strategy review that began last year.

Like Alitalia, the German carrier has made big losses and it said two weeks ago it was seeking a new partner, which could include a new investor.

An Etihad spokesman said its review was ongoing but declined to comment on how its strategy might change or the impact of Alitalia’s failure on its global plans.

But a senior source at the Gulf carrier said lessons would be learned from the Italian investment and they would play a role in shaping future strategy.

Etihad’s strategy has allowed it to cut costs by pooling items like airplane procurement, while offering a larger network; it says it brings together 600 destinations and over 700 aircraft.

Hogan’s “approach to partnerships did not pan out, but a few of his principles are still valid”, said Will Horton, senior analyst at Australian aviation consultancy CAPA. — Reuters