Why Etihad Airways Lost Billions Of Dollars

When airlines look to expand, especially at an accelerated pace, alarm bells can start ringing.

Why? Well, because of Etihad Airways. This global airline has a significant footprint, fleet, and route network. However, it hasn’t all been smooth sailing since launch, and during the 2010s, the company experienced some of its darkest days.

Why though? Its downfall can be attributed to several key reasons, all tied to the ambition to expand aggressively to meet market demand and establish itself as a key player.

The Largest Aircraft Order In Company History

Airlines commit to new planes for many reasons, whether to meet rising demand in key markets, replace ageing aircraft types, or grow their business.

For Etihad Airways in the early to mid-2010s, aggressive expansion was a key ambition. Etihad believed it could secure significant demand while also building Abu Dhabi into a crucial hub and rivaling existing Middle Eastern carriers.

As part of these ambitions, Etihad Airways committed to the next era of its fleet with a large aircraft order. At the time, it was also its largest-ever order, totaling 199 Airbus and Boeing aircraft.

The deal would add many new widebody aircraft to support operations well into the future. The airline committed to the Boeing 777X series, the Boeing 787 Dreamliner, and the Airbus A350.

It selected the A320neo series, committing to the A320 and A321neos for its narrowbody operations. It covered almost every area and, according to many, made a strong statement.

However, this substantial investment quickly began to hurt the airline. Analysts argued that the airline selected too many aircraft, among other internal issues. As a result, the airline ended up with far more aircraft on order than it needed.

Investing In Broken Carriers

While aircraft investment is a major factor in Etihad Airways’ downfall, it’s not the whole story; airline investments come next.

It isn’t abnormal for carriers to invest in airlines around the globe. It makes perfect sense for some companies as they look to grow their portfolio, build relationships, and so on. However, you must invest in companies with a solid foundation and a future ahead.

At Etihad Airways, whatever the company invested in seemed to fail immediately. Notable examples include investments in Air Berlin and Alitalia. These distant names in the aviation industry highlight the core problem. They no longer exist and, at the time of investment, were also struggling.

Etihad essentially adopted a strategy of investing in carriers with a sound structure or a positive outlook. Alitalia had witnessed a turbulent period long before Etihad chose to invest, making it an odd strategic decision.

The Losses Begin Piling On

After all this, Etihad Airways soon began posting losses, and not just minor ones. Figures were in the billions over a multi-year period. This total is enough to kill off the regular airline.

These figures were incredibly worrying at the time and can still leave many people’s jaws on the floor today. For Etihad to survive, such losses were remarkable and what many carriers could only dream of if they found themselves in a similar position.

That’s why Etihad ultimately earned the title of too big to fail. Significant state investment and a major turnaround plan put Etihad on the road to recovery.

The turnaround plan aimed to eliminate the mistakes of previous executives and streamline Etihad, putting it in a better position for the future.

Another issue was the fleet: thanks to the massive order placed in 2013, it had far too many aircraft, not just before its downfall, but especially as it tried to reduce its overall business to become more stable.

During the turnaround plan, Etihad scaled back the fleet. It also cut routes, removed employees, and made other critical operational changes to limit expenses.

Looking At Etihad One Decade Later

Now, as 2023 comes to a close, the airline is in a much more stable position and looks to be a mainstay in the industry once more. It uses Abu Dhabi as a hub and is poised for future growth as it continues to add new aircraft.

However, the warning signs will always remain for the carrier, and it’s a lesson learnt. It can also serve as a warning sign for many other companies in the industry.

Accelerated expansion can create many opportunities but also brings risks. It’s about understanding risk management and getting it right.