Jet Airways deal likely to give wing to Etihad to take on Emirates

Etihad’s aggressive acquisition strategy to build a global network has fumbled, except in India, where it has been able to hold on to Jet
It will be the second coming for Etihad Airways in its attempt to control Jet if the grounded airline is handed over by the banks to the Abu Dhabi-based carrier.

But this time around, the West Asian airline will be in the driver’s seat and does not have to contend with promoter Naresh Goyal with whom it had a tumultuous relationship. Goyal has now been ousted from the board with no role in Jet.

In 2013, Etihad bailed Goyal out when he sank into a financial mess by taking a 24 per cent stake in Jet for $397 million. But Goyal, despite numerous attempts by Etihad to get operational control, had to finally call it a day when its top executives resigned.

Yet, for Etihad, India is a key market in its bruising battle for supremacy in West Asia against Emirates, which is far ahead in the race. 

Etihad’s aggressive acquisition strategy to build a global network has fumbled, except in India, where it has been able to hold on to Jet. In other parts of the world, Etihad has been in trouble — it pulled the plug on Alitalia in which it had a 49 per cent stake — putting it into liquidation and it closed down Air Berlin where it had a stake.  

In the Indian-West Asian market, it is Emirates which dominates the market and despite attempts by Etihad, Dubai still remains the largest hub for Indians travelling to the US.

That is reflected in the fact that while Emirates, with 8.4 per share of the international market from India (in the quarter ending December 2018), is far bigger than Etihad, which had a mere 3.2 per cent during the same period. And, even Oman Air surpassed the Abu Dhabi airline in terms of passenger share.  

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What is worse is that the bitter relationship between Goyal and Etihad had seen its market share in India go down from a peak of 5 per cent in the June 2017 quarter to 3.2 per cent in the December quarter of 2018. 

That is because Goyal decided to push a different strategy – he created an alternative hub to Abu Dhabi in Amsterdam and Paris by tying up with KLM-Air France and Delta to bring passengers seamlessly from India to the US.  

Yet control over Jet could change the equations for Etihad. Jet would give it access to over 45 cities from where it can seamlessly bring traffic to Abu Dhabi and beyond. Of course, Emirates has also taken proactive steps by signing a code share with SpiceJet to bring passengers from India to Dubai and beyond.

But if Etihad is able to bring Jet's operations back on track (to the levels of even the December quarter 2018), it could together capture 15 per cent of the international passenger market, overtaking Emirates and even posing a challenge to Air India’s 16.9 per cent share (including Air India Express). Now, that would be a prize worth having.

No doubt there has been another major change in Etihad. It is no longer the cash-rich airline it was when it bought stake in Jet. It has been forced to shut down unprofitable routes, trim fleet orders and close down Air Berlin owing to a $1.28 billion loss last year. And, arch rival Emirates has gone ahead even further in the West Asia airlines sweepstakes.

The question of course is whether Etihad, even if it takes control of Jet, will have the resources to fight for a dominant share in the Indian market, as it now faces competition in the Indian skies from Vistara. Singapore Airlines, the joint venture partner with Tatas (for Vistara), has been eyeing the lucrative India-West Asian market, which constitutes over 50 per cent of all passengers from India.

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