European governments and aviation sector should be more open to foreign investment as the aviation sector is global in nature, rather than regional, says president and CEO of Etihad Airways James Hogan.
Speaking at a European Union conference on air transport competitiveness in Europe, the CEO of Abu Dhabi-based airline says aviation was a global industry generating strong economic and social benefits. He said his airline wanted to engage with Europe for mutual gain.
“Consolidation of airlines is critical to sustainable air services,” says Hogan, adding: “External investment is not a threat. It is an opportunity to strengthen airlines, and to support employment and economic growth.”
Etihad Airways has acquired minority stakes in three European airlines – airberlin (29.2 per cent), Aer Lingus (4.99 per cent) and Air Serbia (49 per cent), and is finalizing the acquisition of a 33.3 per cent stake in the Swiss regional carrier Darwin Airline, which operates as Etihad Regional. Etihad Airways has also announced its intention to acquire a 49 per cent stake in Italy’s Alitalia, subject to regulatory approval.
The CEO says Middle Eastern airlines were coming under increasing scrutiny in Europe, as opponents cited the expansion of Gulf carriers as a major competitive threat.
“All Gulf carriers are not the same,” says Hogan. “We are different sizes, have different hubs and follow different strategies. We are actually vigorous competitors with each other.”
He says Etihad Airways, in particular, had become a major focus of larger competitors who feared and opposed its investment strategy.
“Etihad Airways is wholly-owned by the Government of Abu Dhabi. We received start-up capital, like every airline does, but we receive no state subsidies, no free fuel and no reduced airport charges in the UAE.”
The European airline industry was built upon decades of government ownership and support, and that even after privatization or part-privatization, government bailouts, debt waivers and various forms of subsidies had continued, he says.
He cited examples of direct state aid totaling €14.2 billion ($19.3bn), including an €800 million payment by the German Government to Lufthansa to support a pension fund gap, state aid of €1.1bn for SWISS following the collapse of its predecessor, Swissair, and the Austrian Government’s absorption of €500m of debt accrued by Austrian Airlines. Both airlines are now subsidiaries of Lufthansa.
“Gulf carriers are not the cause of Europe’s aviation challenges,” Hogan says, adding that the industry was already facing serious problems decades before Etihad Airways was established in 2003.
The biggest problems facing the European industry were long-standing issues including congestion from under-investment in airports and airspace management, high operating costs at traditional hub airports, high labor costs and inconsistent and inequitable taxes levied on airlines and passengers.
The rapid and broad growth of low cost airlines has also impacted heavily on legacy airlines, causing a major shift of intra-Europe traffic to budget operators and losses by legacy carriers on short and medium-haul routes.
In 2013, the 10-member carriers of the European Low Fares Airline Association operated 915 aircraft and carried 216 million passengers, or 43 per cent of all scheduled intra-Europe air traffic.
Hogan says consolidation had created three major European airline blocs – the Lufthansa Group, which, in addition to its SWISS and Austrian subsidiaries, owns Germanwings, holds major stakes in Brussels Airlines and SunExpress and a minority share in the US carrier JetBlue; International Aviation Group (IAG), which owns British Airways, Iberia and Vueling; and Air France KLM, which has equity in Alitalia, Transavia, Martinair and foreign carriers including Kenya Airways and the Brazilian airline GOL.
“We understand and respect the fact that European airlines have their own business models, and we understand and work within the rules of Europe,” Hogan says. “We have a different business model to suit our different requirements.
“To grow, we need scale. We cannot match the size of long-established competitors, including other Gulf carriers, so we have developed a strategy of growth through partnership,” he said.
“Our strategy is pro-competitive. We work with all partners for mutual gain, and within competition and ownership rules. Collaborative growth delivers sustainable businesses, and more choice, convenience, consistency, reliability and stability for our customers.”
The investments by Etihad Airways strengthened partner airlines, preserved and created jobs, and maintained air services, delivering benefits to consumers, local and national economies, as well as major suppliers such as Airbus Industrie.
Without Etihad Airways’ stakes, Hogan says there would be a loss of financial investment and synergy benefits for airberlin, Aer Lingus, Air Serbia and Darwin Airline, and loss of a ‘rescue investor’ for Alitalia, costing thousands of jobs and leading to air route closures, flight reductions, higher fares and lost tax revenue for European governments.
Some carriers could even fail, causing much greater social problems. “There are strong economic and social benefits from stable and connected airlines,” concludes Hogan, adding: “Etihad Airways wants to engage with Europe.”