Etihad putting eggs in too many baskets

The state of British Airways before its privatisation is often used as a classic example of a company that had grown in a hopelessly disorganised way. It was said that the company had so many different subsidiaries because they worked on the principle that “since we serve tea on board and tea needs milk, we had better have our own herd of cows.” I am not sure whether they actually had the cows but they did own a huge variety of unnecessary businesses all of which had to be disposed of before and shortly after privatisation.

That story came back to me when I read the news last week that Etihad have just bought 200 hens and 3 beehives so they can produce their own organic eggs and honey for their First Class passengers.

Etihad have been very busy recently with investments. They are now the largest shareholder in Air Berlin, have a 3% share in Aer Lingus, 40% of Air Seychelles and nearly 4% of Virgin Australia. They are said to be keen to increase their holding in Virgin Australia and are also rumoured to be looking at other investment targets.

Etihad lives very much in the shadow of Emirates. Abu Dhabi has much more cash than its flash neighbour, but Dubai got into the airline business first. Many doubted that Etihad would survive its first few years and there are still those who question whether it has a longterm future. Maybe it is understandable that they think they have to be different to succeed. They do not want to join an alliance so building their own alliance through shareholdings might look an attractive option.

The trouble is that not all the investments will provide an adequate return on capital and they will require a huge amount of management time which is bound to create a strain on the main airline.

Of course, the hens and bees are very much a side-issue. Maybe they just thought it would make an amusing Press Release. But they will still need managing and the appropriate entry in the balance sheet. Those eggs could be some of the most expensive their First Class passengers will ever eat.

One of the purposes of Etihad is to fly the flag for Abu Dhabi. This little PR gimmick has actually told the world that food producers in Abu Dhabi are unable to supply the airline with sufficiently high quality food so they have been forced to go it alone. 

That is not quite the message they intended, is it?

 

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