A380 paint shop

MIAMI — The announcement, when it came, was something of a shock.  The new Group Chief Executive of Etihad Aviation Group will not be an airline professional.

The decision on who would get the top post had been awaited with interest by the industry, partly because of the importance of the airline itself and partly because of the challenges it currently faces.

Just three years ago, a new incumbent behind the top desk in Abu Dhabi would have faced the pleasant problem of deciding to which regions of the world the fast-growing Arab carrier should expand to next; today, the difficulties facing the airline are much more substantial.

Admittedly, three years ago, equity partner company airberlin was already losing substantial sums of money, but there was hope that both it and new partner airline Alitalia could be turned around.

READ MORE: Analysis: Air Berlin Was Always a Lost Cause

Today, airberlin and Alitalia are effectively bust (parts of Italy’s national airline may emerge from the current ‘special administration’ process relatively intact) and the policy of building up a portfolio of equity partners lies in ruins.

Sure, some such as Air Serbia and Air Seychelles remain intact, are modestly profitable and continue to provide a certain amount of passenger traffic flow into Etihad’s Abu Dhabi hub. But those are small carriers.

India’s Jet Airways—another of Etihad’s partners—is substantially larger and may well continue to supply Etihad with an ‘in’ to one of the world’s fastest-growing national markets.

European Remains, What Next?

But, as this is written, several airlines (notably Lufthansa and EasyJet) are fighting over the remains of airberlin, which became insolvent after Etihad refused to continue to bankroll it. Likewise, the plug was pulled on Alitalia after the Italian carrier’s trade unions refused to back reforms that would have unlocked a new tranche of investment.

READ MORE: EasyJet Purchases Air Berlin’s Tegel Operations for €40 million | Seven Bids for Bankrupt Alitalia, New Routes, New Boeing 777-300(ER)

Just weeks after Hogan’s formal July 1st departure, Etihad also ditched its investment in Switzerland’s Darwin Airline, which had operated for the past three years as Etihad Regional. This was sold off to a Luxembourg-based private equity fund that also controls Slovenia’s small national airline, Adria Airways.

Photo: Markus Eigenheer

So, the landscape facing the new Group CEO is very different from what it had been until recently. In July, the airline unveiled a massive $1.87 million net loss for 2016, compared to a net profit of $103 million for the previous year.

More than $800 million of 2016’s loss was put down to “certain assets and financial exposures to equity partners, mainly related to Alitalia and airberlin.”

READ MORE: Alitalia Launches Johannesburg, Nairobi Despite Bankruptcy Proceedings

The New CEO

Enter Tony Douglas, who will take up the role in January 2018.

But who exactly is he? Perhaps remarkably, Hogan’s successor is not primarily an airline CEO, although he does have experience in the airline industry through two previous airport roles.

His current job is with the UK’s defense ministry, where he is in charge of procuring and supporting all equipment for the UK’s armed forces. His previous roles have included being CEO of London-Heathrow and, significantly, CEO of Abu Dhabi Airports Company.

The comments of Mohamed Mubarak Fadhel Al Mazrouei Al Mazrouei, Etihad Aviation Group’s chairman, adds to suspicions that Etihad has gone for the comfort factor of somebody it knows, and who is familiar with the ways of doing business in the Gulf, rather than an out-and-out airline specialist.

“We are delighted to have Tony return to Abu Dhabi to lead Etihad,” said Al Mazrouei. “He has guided the transformation of large organizations in the UAE and the UK, and he understands the UAE and the region.

“He is also deeply knowledgeable about commercial aviation and keenly familiar with Etihad’s challenges and opportunities in a rapidly changing industry,” he said.

Transformation is a must

The comment on guiding the transformation of companies is significant as Etihad has made no secret that it is embarking on a root-and-branch review of its future direction, now that Hogan’s equity partnership route has turned into a cul-de-sac.

On taking up the job, Douglas commented that Etihad, although successful, “must continue to adapt and evolve”, both on its own and with industry partners. Just what type of partners it might be interested in creating remains to be seen.

“He understands the city, the people who run the airline, the airport, and the civil aviation authority,” said Saj Ahmad, chief analyst at StrategicAero research. “The fundamental challenge he has is to get the airline back into the black.”

Ahmad believes a return will be achieved quickly, but that Douglas has to look to creating organic growth, rather than seeking to utilize external equity partners.

An Etihad LCC in sight?

One of the largest challenges he faces, he believes, is the newly-linked Emirates and its low-cost sister company, flydubai.

And, when the two carriers move in the early 2020s from Dubai International Airport to the giant new Al Maktoum International – on the doorstep of Etihad’s home emirate, Abu Dhabi – Etihad will have a real fight on its hand for passengers.

Flydubai (JBX) B3C Flight Takeoff

One way in which Etihad can fight back, says Ahmad, is to create its own low-cost carrier, a move that he believes will happen sooner rather than later.

Etihad is already talking about Douglas taking charge of ‘a range of strategic initiatives to position Etihad for sustained success’ in an aviation marketplace that is increasingly competitive.

READ MORE: Dubai Air Show: FlyDubai Goes Full-Flat Upfront, New Uniforms

One market that Ahmad believes Etihad and Douglas should be examining closely is the US. Emirates currently operates to many more points in the US than Etihad and has the advantage of onward connections via its partner JetBlue.

It would make sense, says Ahmad, for Etihad to strike up a similar relationship with an airline such as Southwest, Alaska Airways or Canada’s WestJet.

Etihad will also be able to take advantage, he says, of its incoming new equipment, the Airbus A350-900 and the Boeing 787-10, which will bring new economies to long-haul routes.

READ MORE: Dubai Air Show: FlyDubai Scores Order for 225 Boeing 737 MAX Aircraft Worth $27 Billion

Whichever route Douglas takes, he has plenty of options, believes Ahmad. He makes the point that some 2.7 billion people live within four or five hours’ flying time of the Gulf and that anything up to 200 city pairs remain unserved. Plenty of potentials for Etihad to dig itself out of its present difficulties.