Etihad growth strategy gets top billing as credit rating holds firm

Etihad Airways, the Abu Dhabi carrier, has achieved “operational scale” much faster than its Arabian Gulf or European competitors thanks to its strategy of partnering with other airlines via equity stakes and code-shares, according to Fitch Ratings. The airline’s progress will allow it to withstand “fierce competition” from rivals in what Fitch says will be […]

Etihad Airways, the Abu Dhabi carrier, has achieved “operational scale” much faster than its Arabian Gulf or European competitors thanks to its strategy of partnering with other airlines via equity stakes and code-shares, according to Fitch Ratings.

The airline’s progress will allow it to withstand “fierce competition” from rivals in what Fitch says will be a “challenging environment” in the aviation industry over the next four years as a result of an economic slowdown from low oil prices and terrorism fears in the Middle East region.

The credit ratings agency confirmed Etihad’s long-term issuer default rating – a key measure of its creditworthiness and financial health – at “A”, with a stable outlook.

The positive credit rating is good news for the airline as competitive and economic pressures increase in the global industry. Several big western airlines have recently warned that they face lower profits as a result of economic uncertainty and overcapacity in the international business.

A statement from Etihad in response to the rating report said: “This is strong independent recognition of our business strategy and our financial position.”

Fitch said that Etihad’s financial strength was underlined by its strategic links with the government of Abu Dhabi, “underpinning the airline’s vital role in tourism development and in supporting Abu Dhabi’s brand internationally.

The airline is also integral to the implementation of the emirate’s Vision 2030, which aims to develop non-oil related sectors of the economy.

“We expect substantial moderation in Etihad’s capacity growth over 2016-2020 due to slowing traffic growth as a result of economic slowdown from low oil prices in the Middle East and terrorism threats,” Fitch said.

“This [slower capacity growth] should help the company sustain its load factors in contrast to Emirates or Turkish Airlines, which posted a significant reduction in their load factors due to their continuing material capacity expansion,” it added.

Pressure on yields in the global industry would continue due to low oil prices, slower traffic growth, capacity growth outstripping demand for Middle Eastern carriers, and focus on transfer traffic, which generates lower yields, Fitch said.

Fuel costs are the biggest item of operating costs but falling prices would not show through in earnest before next year, when the effect of previous fuel hedges wanes, the ratings agency added.

fkane@thenational.ae

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Source: Business

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