Etihad Airlines Looks to China and India for Growth

Etihad Airways remains on the lookout for new strategic airline partners, particularly in Asia, as it seeks to maintain the momentum of an expansion that lifted the carrier, based in Abu Dhabi, to its first annual profit ever last year.

“The Asian markets are going to be strategically very important over the next 10 to 15 years,” Etihad’s chief executive, James Hogan, said Thursday. “India and China — these are the markets that people are going to travel from.”

Etihad, which was founded five years ago by the Abu Dhabi government, has expanded aggressively in recent months in a bid to keep pace with its larger Gulf rival, Emirates.

Late last year, it snapped up a 29 percent stake in Air Berlin, the second-largest German airline, in a partnership that Etihad expects will give it access to 35 million new passengers and contribute up to $50 million in revenue in 2012. In January, it acquired a 40 percent stake in Air Seychelles, giving it access to the African island country’s leisure market, which has grown increasingly popular with Chinese travelers.

Mr. Hogan said Etihad was eager to identify “one or two” more strategic investments in other airlines over the coming years that could drive new passenger and cargo traffic to its ever-widening network of 82 destinations. “Those could be in Asia,” he said, though there are no advanced talks under way.

Etihad reported Thursday net profit of $14 million for 2011, slightly better than the break-even target it had set for the year. The airline, which is not publicly traded, did not provide a comparable figure for 2010. Revenue was $4.1 billion, up 36 percent from a year earlier.

Mr. Hogan said that he was encouraged by recent proposals by the Indian government to raise a 26 percent cap on foreign ownership of domestic airlines. Several of India’s financially strapped carriers have signaled their eagerness to tie up with a foreign airline, including Kingfisher, which is owned and run by the flamboyant liquor baron Vijay Mallya.

“Any market that liberalizes their aviation environment is good news,” Mr. Hogan said. But he cautioned that none of the proposed changes had been ratified. India was still burdened with high fuel taxes and other costly regulatory constraints, he said, that made investing there difficult despite the clear potential for growth.

“India will have 70 airports in 10 years,” he said. “But there are a lot of domestic issues with Indian aviation, and that is what has impacted the airlines” there.

Analysts noted that until now, China and India have largely sought to keep foreign airlines at arm’s length, wary of foreign encroachment on their lucrative markets. That reticence could make a tie-up with Etihad a tough sell, some said.

“The Chinese want their own carriers to do what the Gulf carriers have been doing, driving traffic through their own hubs, so that would be difficult to overcome,” said Saj Ahmad, chief analyst at StrategicAero Research in London.

In India, he said, nationalist sentiment still runs high. “If the goal of the government is to get some of these carriers into the black, then I would think that would come at the expense of foreign competitors,” he said. “I can’t really see them allowing the Emiratis to steal a march on them.”

Etihad’s passenger traffic jumped 17 percent last year, to 8.3 million, compared with a global average of 5.9 percent growth. The airline said it was targeting a further 20 percent increase in traffic this year and a comparable increase in revenue.

Mr. Hogan said the airline would publish more detailed financial information in the future, but he said the rapid pace of Etihad’s expansion, including the purchase of dozens of aircraft, made loss figures for previous years “not meaningful.”

Etihad currently owns a fleet of 65 Airbus and Boeing jets, including seven new planes added last year. The carrier has placed firm orders for a further 100 new planes for delivery over the next decade.

Source:
http://www.nytimes.com/2012/02/10/business/global/etihad-airlines-looks-to-china-and-india-for-growth.html