Etihad lost near $2BN last year due to bad investments and low fuel costs. What will the future hold for the behemoth Gulf carrier?
When it comes to actually flying, Etihad made money. Its losses come primarily in three forms:
- $1.06BN – writing down the value of aircraft
- $808MN – lost value in Air Berlin and Alitalia partnerships
- Undisclosed fuel hedging losses
Why do fuel prices matter? As Gary points, the airline hedged fuel and hedged incorrectly. So much for Delta’s free government fuel theory….
And while the brunt of Etihad’s loss in business travel may be manifested in this year’s numbers rather than from 2016, premium cabin yields were already down 8% over 2015.
The Point: Etihad is not Invincible
U.S. airlines will point to these numbers and claim, “See! See! This is not a viable airline!” At the same time, they will conveniently fail to mention their own years of loss and flings with bankruptcy protection.
Furthermore, U.S. airlines will point to this statement from Etihad’s Chairman Mohamed Mubarak Fadhel Al Mazrouei to argue profits don’t matter–
The record passenger numbers in 2016 affirm Etihad’s role as a significant economic enabler for Abu Dhabi, and our airline business continues to support Abu Dhabi’s vision to develop tourism, grow commerce and strengthen links to key regional and international markets.
But even though U.S. airlines were built with the precisely the same perspective, profits do matter. It is why were are seeing cutbacks on routes, amenities like chauffeur service, lounges, and in-flight offerings.
Unlike Italy’s Alitalia, Etihad does not just have a blank check from the UAE to rack up billions in losses.
Etihad’s reported loss will likely lead to further cutbacks, further evening the playing field between itself and U.S. carriers. My takeaway is this: ultra-proftible U.S. carriers need not worry about Etihad and its “dangerous” expansion into six U.S. cities.