When airlines are looking towards expansion, especially in an accelerated manner, alarm bells can begin ringing.
Why? Well, because of Etihad Airways. This a global airline with 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? Well, its downfall can be attributed to a host of crucial reasons, all drawing back to the ambition of expanding aggressively to meet market demand and solid itself as a key player.
The Largest Aircraft Order In Company History
Airlines will commit to new planes for many reasons, whether related to addressing increasing demand in key markets, replacing ageing aircraft types, or simply growing their business.
For Etihad Airways during the early to mid-2010s as a company, aggressive expansion was outlined as a key ambition. Etihad believed there was a significant amount of demand it could secure While also building Abu Dhabi to become a crucial port and rival 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, this was also their largest-ever order, consisting of 199 Airbus and Boeing aircraft.
The deal would see the purchase of many new widebody aircraft to boost its operations well into the future. The airline committed to the Boeing 777X series, the Boeing 787 Dreamliner and the Airbus A350 as part of the deal.
It selected the A320neo series with commitments to the A320 and A321neos for its narrowbody operations. It covered almost all areas and, according to many, was quite the statement.
However, this substantial investment in aircraft quickly began hurting the airline. Analysts argued that the airline selected too many aircraft, among other internal issues. As a result, it left the airline in a position where its aircraft on order far exceeded what it required.
Investing In Broken Carriers
While the investment in aircraft is a significant focal point of Etihad Airways’ downfall, there’s ultimately much more to it; investments in airlines are next on the list.
It isn’t abnormal for carriers to invest in airlines around the globe. It makes perfect sense for some companies as they look towards growing their portfolio, establishing relationships and whatnot. However, you must invest in companies with a solid foundation and a future ahead.
At Etihad Airways, whatever the company invested in seemingly became an immediate failure. The notable talking points are investments in Air Berlin and Alitalia. They’re distant names in the aviation industry, highlighting the primary problem. They no longer exist and, at the time of investment, were also struggling.
Etihad essentially established a strategy that saw it invest in carriers with fundamental 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 of this, Etihad Airways would soon begin posting losses and, no, not just minor losses. Figures were in the region of billions for a multi-year period. This total is enough to kill off the regular airline.
These figures were incredibly worrying at the time and, even today can leave many people’s jaws on the floor. For Etihad to survive, such losses were remarkable and what many carriers could only dream of if they found themselves in a similar position.
It’s ultimately why Etihad assumed the title per most as too big to fail. Significant state investment and a major turnaround plan put Etihad on the road to recovery.
The turnaround plan was established to eliminate the many wrongdoings of previous executives and streamline Etihad, putting it in a better position for the future.
Another point to address was the fleet, as thanks to the massive order placed in 2013, it had far too many aircraft not just before its downfall but especially when it was looking to reduce its overall business to emerge more stable.
During the turnaround plan, Etihad scaled back the fleet. Additionally, it cut routes, removed employees and made other critical changes to the business’s operation 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 utilises Abu Dhabi as a hub and is poised for future growth with the continued addition of new aircraft.
However, the warning signs will always remain now for the carrier, and it’s a lesson learnt. Additionally, it can also act as a warning sign for many other companies within the industry.
Accelerated expansion can present many opportunities but will equally come with risks. It’s about understanding risk management and getting it right.