Something like the Godfather…
At this very moment, uncertainty looms over Etihad’s potential default on 1.2 billion dollars in bonds. It turns out, rapid expansion and aggressive investment in now defunct Airberlin and endangered Alitalia, has not paid off. In no uncertain terms, Etihad has undergone a fire sale of late. Selling access to their most coveted lounges, stripping away passenger benefits and cutting back on frequencies has been just the tip of the iceberg to their mounting issues. Enter: Qatar Airways, fresh off a blockade from neighbors Emirates and Etihad with a chip on their shoulder. Qatar Airways is poised to drive the dagger further into Etihad’s side, via a unique investment.
Last year Emirates, Etihad and neighbors Saudi Arabia rocked the world announcing a blockade against Qatar. With immediate effect, flights ceased between the nations and airspace for Qatari planes was restricted. This immediately cost Qatar almost all of their short haul operations and required many flights to burn more fuel and lengthen flight times to avoid the newly laid airspace restrictions. In short: this was a move to decapitate Qatar. Qatar now faces an operating loss, due in part to these added near term challenges – but remains very resilient. Gauntlet, laid.
The Surgical Response
Etihad’s investment in both Airberlin and Alitalia were aggressive moves, aimed at diversifying the airlines investments and gaining partial control over lucrative European travel markets. But both airlines have been long plagued by headwind issues. Seeing the growing financial woes of Alitalia and Airberlin, Qatar seized an opportunity to take out two birds with one stone. Take out Alitalia to crush Etihad. When Airberlin became insolvent and non operational, Qatar Airways pounced on an opportunity to worsen Etihad’s deepening financial troubles. Etihad badly needs their Alitalia investment to pan out, and by arming a competitor, Qatar could not only hurt Alitalia, but deliver a stifling blow to Etihad, while picking up European market share.
The KO Attempt
Air Italy is Qatar Airways big swing at Etihad. The debt pile is stacked against Etihad, the cuts are rampant and an Alitalia failure would mean further doom for both airlines. Armed with wide open pockets, Qatar is re launching Air Italy with the goal of creating a five star airline for Italy. Qatar is taking a hands on approach, equipping Air Italy with state of the art planes, revolutionary seats and Qatar Airways exacting food, beverage and service standards. When Alitalia was alone, the Italian government faced little choice but to prop the airline up. But with a new contender in play, anything goes. Anything that hurts Alitalia hurts Etihad – and there’s no airline who would like to see Etihad suffer more than Qatar. They didn’t start this “war”, but they appear poised to finish it.
What do you think of this controversy?