Buy Long to Fly Long: Etihad’s Big Move

Executives in Rome announced a major plan today to allow one of the fastest-growing and financially sound airlines in the industry to take on a massive share of leadership and operations in one nation’s struggling flag carrier.  Etihad will take on a 49% share of the Italian carrier Alitalia moving forward, allowing both airlines to ultimately reap the benefits of the other’s successes or lack thereof.

Benefits surely flow both ways from this €560 million transaction.  Changes will immediately be felt at both companies as they can experience a larger and more cohesive route network.  As seen within the United States during recent mergers, economic stability is much easier to encounter when a combined network reaches across a strong presence in nearly every continent of the globe.  Cooperation of the long-haul network perfected by Emirates and the short-haul European network of Alitalia truly seems like nothing but a win-win.

Alitalia will see the cash-on-hand available at Etihad infuse the aging carrier with new technology and equipment.  In a world where airlines seem to constantly compete to show off who owns the newest toys, having a little money to spruce up an old fleet cannot do anything but good for the national carrier of Italy.

Europeans with trust in the Alitalia brand will also prove to be immensely profitable for Emirates.  The Abu Dhabi-based airline, founded less than 11 years ago, can tap into a shaken European market, where travelers are looking more than ever for a trusted brand on which they can fly.  The same can be said for those Emirati travelers who may encounter trepidation flying a carrier other than their country’s own.  Brand loyalty is strong, so tapping into two exclusive brand networks sounds like a recipe for financial success.

Alliances allow for cohesion among route networks, but co-ownership or large share-holding relationships provide even more leverage for the airlines to eliminate redundancies and increase exclusive routes.  The trans-continental and oceanic flights flown on Alitalia’s aging (read: less-efficient) equipment can be scaled back and replaced with either new equipment or a route operated by Emirates, given Emirates’s pre-existing extensive global network.

The only bells that begin to alarm stem from the consideration of the national airline of the United Arab Emirates owning almost half of the national airline of Italy.  Both are publicly subsidized carriers and are run under tight government regulation, so how will the monetary transaction across two continents play out in the long-term?  Whose government will truly be tasked with running the airline?  Legally, the responsibility belongs to the Italians, but the Emiratis clearly plan to foot more than a few bills in the near future.

Rome definitely was not built in a day, but can leadership from across the globe help to resurrect Rome’s airline in less than a few thousand years?

 

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