LONDON – Emirates and Etihad have both denied a report from Bloomberg regarding a merger between the two sides.
The report came from Bloomberg citing that Emirates was looking to take over the Abu Dhabi-based carrier, in a move that would create the world’s biggest carrier by passenger traffic.
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The reported deal would have seen the Dubai-based carrier acquire the main business of Etihad, which would keep its maintenance arm, but negotiations could yet fall through according to their sources.
Theoretically, if the deal was to go through, it would become more valuable than American Airlines. The airline currently has a market value of $19.2 billion.
The news comes after Etihad’s recent rounds of restructuring, featuring elements such as cutting routes and bringing costs down as much as possible.
Emirates taking over Etihad would prove to be a challenge due to the repeated number of routes from Abu Dhabi and Dubai.
They would have to ultimately restructure the entire route network if the takeover ever does happen in the future.
What would a merger mean for the market?
While the merger is not happening anytime soon, especially as denials from both sides has occurred, it does beg the question of what it would mean for the market, should it go forward.
However, even with this increase in ASKs, there are up to 77 duplicated routes in each carrier’s network.
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Furthermore, the combination would mean that the group would have about 60% of capacity from Australia to Europe, the Middle East and Africa.
Emirates currently has 3.8 million seats on offer, with Etihad coming in at 1.6 million seats. The other 17% of
Overall, this would mean more streamlined benefits to Emirates if they took over that significant chunk of the market from Etihad.
Emirates would be playing a smart political card if they were to take over Etihad.
Oil is always a political issue, not just in the Middle East, but also around the rest of the world.
Abu Dhabi has about 90% of the oil reserves in the UAE, meaning that having the city on Emirates’ side would be very useful.
If the combination was to take place, they would have to keep the Al Nahyan family satisfied in terms of maintaining service levels while building up their core hub in Dubai.
Also, heavy contention in the business world occurs between the two cities, so whether they would be wanting to work together and end the business rivalry is another question.
Jumping on the Growth Bandwagon…
Etihad jumping into this merger would not be a bad idea on the growth front.
Abu Dhabi has no long-term capacity plans in place, meaning that growth after hitting their near-term capacity plan will cease.
Emirates have got Dubai World Central planned well for long-term capacity, offering over 200 million passengers annually when the airport is in full operation.
This also offers a market that Etihad haven’t had much chance to thrive into.
Even if the Abu Dhabi Midfield Terminal is near completion, it is not going to offer the same growth to the likes of Dubai International or World Central.
Dubai’s near-term capacity plan will be touching closer to the 100 million annual passenger target than Abu Dhabi will be for the next few years.
While both sides have expressed extreme denials over this merger happening, it seems that based on the data provided by the likes of Bloomberg and CAPA, it seems that this merger is on the way.
It would not be in either carrier’s best interests to continue with these denials as a merger would boost the UAE further ahead in the industry.
Whilst it would remove an element of the ME3, it would intensify competition against the likes of the US3 overall.