Emirates and Etihad Might Merge

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Background

Emirates Airlines was started in 1985 in the United Arab Emirates, and has quickly become one of the world’s fastest growing airlines. It is a subsidiary of the Emirates Group, which is owned by the Government of Dubai. One of the world’s fastest growing airlines, Emirates operated almost 100,000 flights in the first of 2016. With the Dubai airport as its hub, Emirates serves 154 destinations across 81 countries. 

Etihad Airways was started in 2003, also in the United Arab Emirates. It is part of the Etihad Aviation Group, which is owned by the Government of Abu Dhabi. Etihad operated over a 100,000 in 2016, serving 112 destinations. Etihad uses the Abu Dhabi airport as the hub for its flights.

Analysis

Speculation has risen about the potential merger of two UAE airlines, Emirates and Etihad. While both firms have denied any talks about merger, experts believe it is a strong possibility. A merger between the two would result in the creation of the world’s largest airline by passenger traffic, bypassing current leader American Airlines, which has a market value of over $19 billion.

While, both airlines extensively use their hubs for flight connections, the hubs, Abu Dhabi and Dubai, are less than 150 kilometres apart. They serve much of the same market and strongly compete for close to 96 percent of their routes, making them fierce rivals. However, the sheikdoms of Abu Dhabi and Dubai have seen a trend towards consolidation in other industries, like aluminium.

There are multiple hurdles that complicate the merger Any merger would require the rulers of the sheikdoms to come to an agreement. Given that the two airlines serve many of the same routes, the merge would require extensive planning to avoid duplication. While both sheikdoms have been hit by low oil prices, Emirates is in a better financial position while Etihad is still struggling. A merger could burden Emirates with Etihad’s liabilities. However, Etihad is working towards greater profitability by eliminating less efficient routes. This will also address the problem of redundancy with flight routes, if a merger were to happen. 

For consumers, prices are likely to rise due to the decreased capacity but strong competition means that international consumers will not be significantly impacted. However, the consolidation of firms will reduce the choices available to domestic consumers, making it less competitive. Planemakers, Airbus and Boeing, would not find the merger favourable as the new firm’s decreased capacity would reduce demand for aircrafts.

Assessment

Our assessment is that given the magnitude of flight routes and operations that would be affected by a merger, it is unlikely to happen in the near future. We feel that the companies are merely exploring the possibility of a merger at this stage and will need a definitive strategy for being more efficient and profitable once merger is concluded . We also feel that politics will play a larger role in a merger of this kind due to the state ownership of both companies, but since they are within the same country, it remains a plausible option.