Etihad Airways achieves record financial returns as global alliances pay off

Etihad’s partners – airlines in which it has an equity stake or codeshare agreement – contributed $1.4 billion to revenue, and added five million passengers to the Etihad network last year.

About 17.6 million passengers flew with Etihad last year, up from 14.8 million in 2014. Courtesy Etihad Airways

Etihad Airways, the Abu Dhabi carrier, achieved record financial returns last year, boosted by its strategy of global alliances with other airlines.

The airline reported its best ever turnover and profit figures, with revenue up nearly 20 per cent to US$9.02 billion and net profit soaring by 40 per cent to $103 million.

Etihad is reporting consolidated financial statements for the first time and figures for 2014 represent the stand-alone airline business.

About 17.6 million passengers flew with Etihad last year, up from 14.8 million in 2014.

Etihad’s partners – airlines in which it has an equity stake or codeshare agreement – contributed $1.4bn to revenue, and added 5 million passengers to the Etihad network last year.

“Our mandate is to build a sustainably profitable airline,” said James Hogan, its president and chief executive.

“A fifth year of net profits, with our best annual financial performance to date, shows that we are delivering against that goal.

“Our profitability clearly demonstrates the success of our business strategy, based on organic growth boosted by our partnerships.

“As well as operating profitability, we are building enterprise value across the airline and its many additional business streams.”

Etihad has strategic minority investments in six international airlines, as well as the European network Etihad Regional. It has codeshare agreements with 49 airlines.

In addition to the direct contribution to revenues and passengers, the partnership strategy also creates business synergies and cost savings.

Mr Hogan said the return on its investment in the seven equity partners was many times more than the money it had spent. “For an investment smaller than the cost of three new aircraft, we have been able to build our global network, attract 5 million new customers and $1.4bn of revenues, and share massive cost synergies. That’s smart business,” he said.

“This is a two-pronged approach. From a strategic level, we are looking for the equity partners to bring network connectivity, generate additional revenues and create economies of scale. All our partners are delivering on this level.

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Global alliances

■ Etihad committed to partnership with airberlin as it delivers $150m in direct revenues in 2015 – read here

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“Each partner then has a profit-and-loss goal, which is the responsibility of its own management and boards of directors. Many of these, such as Air Serbia, Air Seychelles, Jet Airways and Virgin Australia, are now delivering on this level too,” he said.

Aviation industry experts say that last year airlines were facing conflicting gravitational pulls. For many, lower oil prices meant a reduction in fuel costs and an immediate boost to the bottom line.

But worries about global economic growth prospects raised worries about demand for air travel, especially at the premium end.

Etihad’s hedging policy meant fuel savings were less significant than for some competitors.

But the airline continued to experience strong demand with improved load factors. “The growth in passenger volume continued to exceed Etihad Airways’ capacity increase and outperformed regional market growth, which has seen a decline in load factors since mid-2014,” the airline said.

“Revenue passenger kilometres (RPKs), which measure passenger journeys, increased 21.3 per cent to 83.2 billion, while available seat kilometres (ASKs), which represent capacity, grew by 21 per cent to 104.8 billion,” it said.

In total, the airline operated 97,400 flights covering 467 million kilometres. The average network-wide seat load factor was 79.4 per cent for last year, compared with 79.2 per cent in 2014.

Six new destinations were added to Etihad’s global network – Kolkata, Madrid, Hong Kong, Entebbe, Edinburgh and Dar es Salaam – and capacity increased on 16 existing routes with bigger aircraft, more frequency and improved seat occupancy.

The strategy of diversification to become a travel and aviation group also paid off last year. Growth continued in cargo, with freight and mail volumes rising by 4 per cent to 591,000 tonnes. Extra bellyhold capacity and destinations were added last year.

Etihad’s operations in maintenance, repair and overhaul, and ground handling also expanded.

Membership of the guest loyalty programme also grew, adding 70,000 new members each month for a total of 3.75 million cardholders.

In the course of the year, Etihad raised $700m on the international debt markets in what Mr Hogan called “a groundbreaking transaction”. He said the success of the fund raising “highlights the high level of confidence and support from institutional investors for our unique business strategy. It was a vote of confidence not just in Etihad Airways but in our partners too.” The resource will be used to fund future expansion.

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