Has Etihad been very shrewd?

The announcement that Etihad had picked up a 24% share in India’s Jet Airways was generally seen as a coup for Etihad. Jet is probably the best of India’s airlines and the only one capable of being a credible international partner. The Indian government also agreed to an increase in the bilateral agreement which allows seats between India and Abu Dhabi to increase from 13,300 a year to 50,000 in the next three years.

India’s laws regarding foreign ownership of companies are hugely complicated. As part of the deal, and a way of ensuring their sway over Jet amounts to rather more than the stated 24%, Etihad have also purchased Jet’s Heathrow slots and leased them back to the airline. They have also taken a majority stake in the airline’s frequent flyer programme.

They did something rather similar with Air Berlin last year. When the German airline was running out of cash again, they generously bought a majority stake in their frequent flyer programme. Many people thought this was just a way of circumventing EU rules on overseas ownership and ignored Etihad’s comments that they were serious about building a worldwide loyalty programme based around their airline and its partners.

The Gulf airlines like to talk about the profit they make – or are close to making – but making a longterm profit in the airline industry is incredibly hard. On the other hand, the loyalty card business is booming and hugely profitable. Qantas was memorably described as a profitable loyalty scheme with an unprofitable airline attached and there are many other airlines where the same applies.

India is surely ripe for a massive growth in the general consumer loyalty business. AirBerlin’s loyalty scheme is already fairly strong and capable of much more. Add in a few more countries and some investment (a pittance compared with the cost of running an airline) and you could suddenly have a very powerful worldwide loyalty scheme.

Etihad have surely accepted that they will never beat their neighbours, Emirates, in the airline business but they might have the last laugh. Owning the world’s largest consumer loyalty programme is a much more attractive proposition than owning the world’s largest international airline.

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