Etihad-Emirates merger on the front burner

BE2C2 Report — Etihad and Emirates airlines, both based in the United Arab Emirates, are bitter rivals, but increasing competition may soon turn them into partners.

The ruling families of the United Arab Emirates, which control the Emirates and Etihad airlines, have held talks about possibly merging them, the Handelsblatt reports citing several sources.

The Gulf carriers are reportedly experiencing turbulent times after years of growth and expansion: both are struggling with falling profits and a changing industry. The possibility of consolidating the two state-owned carriers would not be easy, and require a huge amount of effort, but is clearly not out of the question anymore, the report said.

Etihad has in the past said it is not even considering scenarios that would include a closer association, let alone a merger, with Emirates. The airline said that there are currently no talks between the two companies, while Emirates did not respond to a request for comment by Handelsblatt.

But there is change in the air. The Gulf states have three big airlines: Emirates, Etihad and Qatar Airways. All three have experienced substantial growth since their inception, despite operating in a region with a small number of homegrown passengers. The UAE has a total population of about nine million: the same as London.

This small population had not impacted the airlines for several years. But times are changing. Emirates announced a 75 percent fall in half yearly profits in November. Etihad meanwhile announced at the end of last year that it would evaluate its global strategy as it continues to battle with persistent losses from its stakes in German airline Air Berlin and Italian flag carrier Alitalia.

The Gulf-based airlines are reaching their limits and must change their operations to stay competitive. Lufthansa and Etihad last month agreed to a code-sharing partnership on flights from Frankfurt to Rio de Janeiro and Bogota.

Lufthansa boss Christian Spohr said last month in Abu Dhabi that he expected more rationalization among the Gulf Airlines, but did not specify what he meant.

Etihad and Emirates have a lot of overlap. Their respective hubs in Abu Dhabi and Dubai are only 140 kilometers apart, for example.

“Economically and strategically, a cooperation, or maybe even merger, between Etihad and Emirates would without a doubt make sense,” said Gerald Wissel of Hamburg-based aviation consulting agency Airborne Consulting. “But a lot of national sensitivities would have to be overcome. It’s not a simple topic.”

Meanwhile, the big three U.S. carriers – American, Delta, and United – are battling rapid U.S. expansion by Middle East carriers Emirates, Etihad and Qatar, citing their “subsidized rates” going against the business concept of even playing field, Forbes reports.

“If Emirates can come in and lose significant amounts of money, and the {Dubai} government will make up their losses, it’s not fair competition,” the United Airlines President Scott Kirby said.

“We can compete on a level playing field with any airline in the world, but we can’t compete with subsidized airlines,” Kirby said. “It’s no different than dumping steel or dumping tires. You’re selling below costs.”

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