Etihad to Close Jet Airways Deal in Coming Days

Etihad Airways expects to have completed its equity partnership agreement in India’s Jet Airways within the next week.  This is one of a number of news reports brought to us this morning from Lucy Siebert, acting editor of our sister publication Routes News from the CAPA Australian Pacific Aviation Summit in Sydney, Australia.

Speaking at the event, Etihad’s President and Chief Executive Officer, James Hogan said he expects the deal to be signed “within the next six to seven days”.  Hogan said he was travelling to India later in the week to conclude negotiations and stressed that more access to the India market was vital for the Gulf carrier.

“India is very important.  After the Jet deal we will have access to 26 secondary airports hubbed across from Abu Dhabi.  The intention is to see Jet’s US flying hub over Abu Dhabi.  We will look at major cost synergy programmes and remember this is the first foreign direct investment in the country,” he explained. 

Etihad and Jet are already working closely in partnership and it has emerged that the United Arab Emirates (UAE) national carrier will utilise a third Jet Airbus A330-200 on its own network with a further five of the type being placed with Kuwait Airways.

According to Hogan, Etihad will not enter into an airline alliance and will instead focus on leveraging joint purchasing with its equity partners.  He confirmed The UAE carrier and its partners had embarked on a joint negotiation with aircraft suppliers, and was extending this to all suppliers and services.

“We are happy to be non-aligned. We won’t join an alliance. We are happy to have partnerships,” he said.  “It is written into the contracts that any airline in which we hold a minimum three per cent will be involved in negotiations.  In the past Boeing and Airbus would never have done that.  We can also move aircraft between us or into a leasing company. It stretches to product, research and development – there are a range of benefits that alliances simply haven’t been able to achieve,” he said.

Hogan added that all training for Boeing 787s will be moved to Abu Dhabi, while some other administrative and accounting functions will be moved to India.  He added airberlin, Etihad and Jet will have the same interiors on their 787 aircraft.  “It is all about tackling scale and the unit cost issue.  All our partners made a profit last year.  It is about a network that delivers and taking out cost,” said.

An outspoken critic of airline alliances, Hogan added Etihad’s extensive codeshare portfolio would continue to grow and it planned to work ever closer with codeshare partners.  “You will see us coming closer together with SkyTeam members Air France-KLM but we have no intention to join [the alliance]. We also have a strong relationship with American Airlines in the US,” he added.

Hogan’s comments come just a week after Etihad bought 49 per cent of JAT Airways and relaunched the national carrier as Air Serbia and he said that airline’s strategy going forward will be closely mirrored on the one applied to Air Seychelles, which sees its services hubbing into Abu Dhabi and Etihad taking passengers onwards throughout the network.  Etihad owns 40 per cent of Air Seychelles, which last year delivered a US$1 million profit last year, a major turnaround for the Indian Ocean carrier.

Asia-Pacific low-cost revolution to continue

Asia-Pacific is only at the start of the low-cost carrier revolution and the likes of Indonesian carrier Lion Air will have a huge impact on the market by 2020.  This is according to Peter Harbison, executive chairman of CAPA, who was speaking today at the Australian Pacific Aviation Summit in Sydney.

Harbison pointed out that 10 years ago there were no low-cost carriers operating outside of Australia in the Asian region.  Today there are 44 no-frills airlines in the region, with six new ones being launched in 2012 alone.

While the low-cost revolution is taking place all over the region, primarily it is focused on the southern areas, he said.  “The real action is taking place in South East Asia; North East Asia is a long way behind in its thinking,” said Harbison.

Unlike other parts of the world where low-cost long-haul has proved a challenging model, it is one that works in Asia-Pacific, Harbison argued.  “By the end of 2013 AirAsia X will be the fourth largest foreign airline in Australia,” he said to illustrate this.

He added that low-cost subsidiaries are also proving successful:  “Low-cost carrier subsidiaries do work in Asia.  When you look at Jetstar when setting it up the processes that were applied were much more sophisticated,” he said.

The rise and rise of this type of carrier means flag carriers are stagnating in the market, said Harbison. The network carriers are also suffering from more traffic going through the Gulf airports, as they offer a better overall product.  Increasingly, low-cost carriers are absorbing more short-haul traffic, as has been seen in the US and Europe. 

“By 2020 the market will be so different you won’t recognise it.  More low-cost carriers will enter markets and I would be surprised if we don’t see Lion in the Australian market.  In addition, virtual airlines [the likes of the Etihad-Virgin Australia partnership] will proliferate,” he said.

Weakening Australian dollar hits returns

The softening Australian economy is resulting in revenue losses of about AUD30 million per week for the country’s top 10 foreign airlines, according to the head of CAPA.  Harbison noted that the Australian dollar had weakened by 15 per cent in “just a few months”.

While this could have a positive impact on inbound tourism to Australia, Harbison warned it creates a challenging environment for airlines.  “There has been a 10 per cent drop in net revenue in four months and the airlines can’t increase fares in this softening market,” he said.

This could result in airlines evaluating their planned capacity or even reducing capacity selectively, which would have a negative effect on inbound traffic, he warned.

Indonesia key to Asean Open Skies

An Asian aviation expert has warned the impact of the Asean Open Skies initiative will be limited unless Indonesia is included in the scheme.  Dr Alan Khee-Jin Tan, professor of Aviation Law at the National University of Singapore, who is also an Asean expert, said he is “taking a very critical view [of Asean Open Skies].”  Governments across the region are aiming to have the new Asean Open Skies scheme a reality by 2015.

Khee-Jin Tan said he was viewing the scheme skeptically as one of the largest economies and markets in the region – Indonesia – has not accepted the agreements.  “Indonesia is staying out as they are concerned that lots of traffic will be bled away through sixth freedom rights.  Indonesian carriers are lobbying their government aggressively to stay out.”

He added that he believed the Asean Open Skies project does not go far enough as it stops at fifth freedom rights and argued that true Open Skies is required in order for Asean carriers to truly serve the fast-growing markets in the region.  “You’ve got to have seventh freedom rights – and that is not even on the negotiating table,” he said. 

Australia urged to promote travel, tourism and aviation under G20 presidency

Australia should use its 2014 G20 presidency to put travel and tourism in the global spotlight, the head of the World Travel & Tourism Council (WTTC) has said.  David Scowsill, president and chief executive of the global travel and tourism organisation urged the Australian aviation and tourism industry at the CAPA Australian Pacific Aviation Summit to put pressure on the government to prioritise travel, tourism and aviation.  Australia will vote for a new federal government in September this year, and it will lead the G20 during 2014.

Scowsill used his keynote address to criticise the current government, as well as former Australian governments, for not prioritising travel and tourism, or understanding the industry’s economic impact. He said this was affecting the industry’s future prospects and contributing to slowing growth rates.

He argued that during the hosting of next year’s G20 Summit, Australia should invite all the tourism ministers from the G20 to a special summit, where the impact of travel and tourism would be highlighted.  According to Scowsill tourism contributes ten per cent to Australian GDP, equivalent to AUD147 billion, and supports 12 per cent of jobs in the country, adding that the growing Chinese inbound market continues to boost these figures.