CEOs are increasingly examining partnerships to help them expand their company’s reach, whether it be into new technical or geographic frontiers. But the experiences of outgoing Etihad CEO James Hogan perhaps shows that it’s possible to have too many balls in the air at once.
The Middle East’s number two carrier, Etihad Airways, announced this morning that it had appointed Ray Gammell as its interim CEO as it continues to search for a replacement for Hogan. The search is at an advanced stage and an announcement could come within a few weeks, the airline said.
Whoever permanently replaces the Australian will have a tough job on their hands: Alitalia, in which Etihad holds a 49% stake, filed for bankruptcy this month.
“59% of U.S. CEOs ARE planning to initiate a strategic alliance in the next 12 months, UP from 15% a year earlier.”
Over his more than 10 years at the helm, Hogan is credited with transforming Etihad into a globally significant airline boasting a fleet of 123 planes flying to 90 international locations. He also oversaw minority equity investments in a string of carriers, including, in addition to Alitalia, Air Berlin, Virgin Australia, India’s Jet Airways, Air Serbia and Air Seychelles.
CEOs more broadly are addressing pressure to grow in offshore markets, or new industry sectors, by pursuing partnerships that may not hold the same amount of risk of full-blown M&A. According to a survey last year by PwC, 59% of U.S. chief executives indicated they were planning to initiate a strategic alliance in the next 12 months, rising from 15% a year earlier.
Even partial investments, however, come with risks attached. The biggest: taking less risk means assuming less control.
Hogan’s investments were designed to give his often underperforming targets a boost by offering their customers access to a more extensive global network, while driving more traffic to Etihad’s hub in Abu Dhabi.
The strategy indeed helped boost passenger volumes, and, in some cases, profits. But it has also left the airline exposed to the vagaries of its partners’ home markets, with limited management control. Alitalia, for example, has now filed for bankruptcy twice in the past decade after coming up against the country’s powerful union movement.
Air Berlin is also considering a restructure as, like Alitalia, it struggles to compete with European budget carriers, such as Ryanair, EasyJet, Eurowings and Norwegian Airlines.
Shares in Virgin Australia, meanwhile, have been stuck in the doldrums as it tangles with dominant national carrier Qantas and a mining and energy sector downturn crimps demand for flights to remote locations.
Gammell will “continue to advance the strategic review that was initiated by the board in 2016 to reposition the business for continued development in what we anticipate being a prolonged period of challenges for global aviation,” Etihad Chairman Mohamed Mubarak Al Mazrouei said. Back in February, he said: “We must ensure that the airline is the right size and the right shape.”
Gammell is currently Etihad’s chief people and performance officer. CFO James Rigney is also standing down and will be replaced by Ricky Thirion.