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RISKY BUSINESS? Etihad Airways’ push into Europe

RISKY BUSINESS? Etihad Airways’ push into Europe

Etihad is taking a more sanguine approach. When asked if it was worried about Air Berlin's debt pile, the carrier said in an email that the deal has "has highly attractive prospects".

January 6, 2012 8:51 by



“The Air Berlin deal is very much a one-off. I don’t think there are other options available in case the Gulf carriers are looking at similar routes for growth,” said Peter Morris, chief economist at British aviation consultancy Ascend.

He said the Gulf carriers are still faced with the question of how they can attract sufficient traffic for their growth.

“Emirates would see this move as something containable. But Etihad’s growth is more of a threat to Qatar Airways,” he added.

Doha-based Qatar Airways is stuck between the well-established Emirates and the new-kid-on-the-block Etihad, in a heated battle for the No. 2 spot in the Gulf.

The Etihad-Air Berlin deal takes to the next level the race between the three major Gulf carriers to grab traffic in Europe. The three are rapidly boosting route networks globally, on the strength of the Gulf’s strategic location between East and West and helpful home governments.

By contrast, most European airlines face a bumpy flight path because of the euro zone debt crisis, which has raised fears of a recession in Europe. Shares in European airlines dropped about 12 percent last year and assets have become cheaper, making them more attractive for Gulf carriers inclined to go on the prowl.

Last May, Qatar Airways bought a 35-percent stake in Luxembourg-based freight carrier Cargolux Airlines International . Etihad is the first Gulf airline to have bought a large stake in a European passenger airline, and its chief executive has said it will continue to look at new investment opportunities.

NO FREE RIDE

But Etihad will be challenged by the Air Berlin deal as the German airline struggles with its finances, analysts say.

“It’s a useful deal for Etihad…but it won’t be a free ride,” said Strickland. “Airlines have bought stakes before only to realize the mess they got into later. With Etihad now being a significant shareholder, it may be drawn into the problems of Air Berlin.”

Others were not so charitable about Etihad’s move on Air Berlin, which last had a full-year profit in 2007 and has been cutting routes and delaying plane orders in an attempt to become profitable in 2012.

“We view this as an irrational move by a very well-funded business, seeking to expand its footprint globally,” Royal Bank of Scotland analysts wrote in a Dec. 20 research note.



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