An Emirates/Etihad Merger Makes All Too Much Sense… So It May Not Happen

It’s all rumor at this point, but .  This has been the subject of whispers for years, and that’s probably because it makes a great deal of sense.  The problem is, there’s ego and politics involved.  And when that happens, all bets are off.

It sounds like the structure of the deal being discussed would have Emirates take over Etihad’s airline business.  (The other parts of Etihad’s business would remain separate.)  This would make Emirates the biggest airline in the world based on capacity.

While the details of how the airlines would combine and what a route network would look like are certainly not public, it’s not hard to imagine how this should work.

In one corner, you have Emirates, the prize of Dubai.  Emirates is a profitable airline.  Regardless of arguments about subsidy, Emirates is a sustainable business in a thriving global business center, Dubai.

In the other corner, you have Etihad, the sickly prince of Abu Dhabi.  Etihad had a little brother complex for years.  Dubai had Emirates, and Abu Dhabi wanted something similar.  Etihad was born in 2003.  But Etihad pursued ill-advised strategies.  It grew too fast, and most notably, it created an equity alliance where it took large stakes in failing airlines.

Reading the list of Etihad’s investments is confusing, at best.  The airline squandered millions on Alitalia, airberlin, and Darwin in Europe.  Those investments are now worthless.  It poured money into Air Serbia and Air Seychelles, small airlines that are still struggling to find their place.  And then there’s Jet and Virgin Australia, two airlines with a future, but ones that have gone through serious financial issues.

For Etihad as a business, this didn’t make sense at all.  But for Etihad as an arm of the Abu Dhabi government, this was an admittedly-poor way to try to pump more traffic into the hub to give Etihad growth.  That’s what the state wanted, and that’s what the state got.

Emirates hits road blocks every now and then as the economy turns down, but that happens to any airline.  Etihad has faced far bigger problems, so it has had to make big changes.  Once oil prices went down and state priorities shifted, the questionable investment strategy was cast aside.  Etihad has shut down growth and has shed routes that are more unprofitable than others.  It has talked about cutting back on aircraft orders, and prospects seem bleak if the goal is to create a commercially-viable airline.  That’s not to say it would disappear but rather that it’s going to need government money for a very, very long time.

With that backdrop, wouldn’t a merger just drag down Emirates?  As long as the government of Abu Dhabi lets Emirates run it like a true business, then that won’t be a problem.  Emirates could pull a lot of capacity out of Abu Dhabi which reduces pressure on Emirates globally.  Then it can start working on optimizing the joint business.

To me, the key here is Al Maktoum International Airport (DWC), part of Dubai World Central.  DWC is the giant airport being developed between Dubai and Abu Dhabi.  Emirates had planned on moving its operation there , but there seems to be a focus on  for now.  But DXB is hemmed in and its growth potential is limited.  DWC has no such constraints.

Today, the drive from DWC into Dubai is about 40 minutes while the trip to Abu Dhabi is an hour and a quarter.  That’s less convenient than the existing airports in both cities, and it’s one reason why DWC has failed to take off.  But this is the UAE.  It shouldn’t take much to get high-speed rail, hyperloops, flying cars, rocket ships, Star Trek beaming technology, or something else to whisk people from each city to DWC. 

The idea of consolidating Abu Dhabi and Dubai into a single mega-hub is enticing.  A merger would create a single, massive, profitable airline that would be a global powerhouse.  So… why shouldn’t it happen?  Ego and politics, of course.

Forget about the issue of Abu Dhabi technically losing its airline headquarters.  Just think about the airport itself.  DWC is in Dubai.  Will Abu Dhabi be ok with that?  Sure, they’re both technically part of the United Arab Emirates, but that is a lot different than, say, being a state in the US.  Each Emirate has its own absolute monarch, and there is a lot of pride involved here.  Just because something makes sense from a business standpoint doesn’t mean that it’ll happen.  There’s always the possibility of keeping a dual-hub system, but that seems like a bad plan.  Then again, as mentioned, whatever the countries want, they’ll get.  There’s a lot more at play here.

On the other hand, having a monarch means that they can do some crazy things.  Could they agree to shut down both Abu Dhabi’s airport and DXB and force a move to DWC?  Sure.  Could they build all kinds of infrastructure to make DWC a convenient option for everyone?  Absolutely.  They just have to want to make it happen, and that’s the biggest hurdle of all.

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