Tuesday, January 24, 2017

Etihad CEO James Hogan to Step Down as Abu Dhabi Reviews Airline Strategy: State-owned airline is under growing pressure

The Wall Street Journal
Updated Jan. 24, 2017 3:41 a.m. ET

Abu Dhabi said it would review the strategy of Etihad Aviation Group and announced the departure of its architect, Chief Executive James Hogan, in the latest sign a prolonged slump in oil prices has exposed the rapidly expanding state-owned Middle East carriers to belt tightening. ​

Mr. Hogan, who led Etihad Airways for over a decade before last year establishing the aviation group that also manages investment in other carriers, will leave the company in the second half of this year. Chief Financial Officer James Rigney also will depart this year. A global search for their replacements has already begun, the company said Tuesday.

“We must progress and adjust our airline equity partnerships,” Etihad Aviation Group Chairman Mohamed Mubarak Fadhel Al Mazrouei said, even as he signaled to stick with the principals of the plan. The size and structure of the company would be reviewed and belt tightening measures considered, he said.

The move is the latest example of the oil-rich Persian Gulf states tightening the leash on their vast holdings amid the energy price slump that began in mid-2014. Abu Dhabi has been conducting a review of its main state entities in a bid to cut costs, reduce inefficiencies and create larger local and international champions. The state recently merged two of its sovereign-wealth funds and is also combining two of its banks.

Etihad Airways is one of a trio of rapidly expanding Middle East airlines that include more established Emirates Airline and Qatar Airways. They have invested heavily in new Airbus SE and Boeing Co. planes to funnel traffic through their hubs. European and U.S. carriers have accused the airlines of unfairly benefiting from state subsidies, a charge they all have denied.

Mr. Hogan invested in a series of other airlines to help drive traffic and catch up with older Mideast rivals. Those investments include minority stakes in Alitalia, Air Berlin PLC and India’s Jet Airways.

The investments have helped drive traffic to the Abu Dhabi hub, but have come at a cost. Air Berlin, Germany’s second-largest airline, has required repeated capital injections but continued to lose money. Mr. Hogan, as late as last week defended the strategy: “We are committed to our equity partner strategy.”

“We are regularly approached by airlines that want to become part of this model,” he said in Dublin.

Etihad Airways late last year also announced job cuts. The airline had deferred some planes deliveries amid growing pressure on ticket prices. The Mideast carriers have been hit by softening demand for their premium seats from the drop in oil prices in the second half of 2014.

Rival Emirates also is slowing expansion. It last year agreed with Airbus and engine-maker Rolls-Royce Holdings PLC to delay delivery of some A380 superjumbos. Emirates President Tim Clark last month also said he is holding off on placing an order for further Airbus or Boeing jetliners because of market weakness. The airline has begun charging for seat assignments for some buying its cheapest tickets and plans to introduce premium economy seats to boost sales in response to falling ticket prices.

Original article can be found here:  http://www.wsj.com

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