How an Etihad-Emirates merger would impact air cargo

How an Etihad-Emirates merger would impact air cargo
Published: 25 September 2018 - 6:25 a.m.
By: Logistics Middle East Staff

There have been unsubstantiated rumours of a planned merger between Emirates and Etihad for several years, but they broke into the mainstream news cycle this week when Bloomberg reported that talks were underway, quoting four anonymous sources.

Both airlines responded unusually swiftly, issuing a firm denial of such reports. “There is no truth to this rumour,” Emirates said in its statement.

But that hasn’t stopped the logistics industry in the region from speculating on what a merger or close partnership between the airlines would mean, particularly for air cargo.

“The most obvious result of a merger between Emirates and Etihad is that it would create the world’s largest cargo carrier in pure freight traffic terms,” says Alexander Pieri, editor of Aviation Business Middle East. “Emirates SkyCargo is the second largest cargo carrier behind FedEx.”

According to IATA World Air Transport Statistics for last year, FedEx carried 16.8bn freight tonne kms (FTK).

“It’s unlikely that the combined entity would be able to hold that top spot for long though,” says Shayan Shakeel, Arabian Business’ resident aviation expert. “The express and e-commerce markets that FedEx specialises in continue to grow at a much faster rate than the general cargo segment.”

However, both Emirates and Etihad have recently rolled out specialised air cargo solutions for specific industry verticals. Emirates SkyCargo, for example, recently secured a deal with Alibaba’s logistics arm, Cainiao to help transport its international shipments and grow the Chinese online retail e-commerce giant’s global logistics infrastructure.

When the UAE’s first freezone specifically for e-commerce operators, Dubai CommerCity, was announced, Emirates SkyCargo was the first air cargo operator to sign an MoU to work with Dubai CommerCity to develop new solutions for the global e-commerce sector.

“Every day Emirates SkyCargo transports a large volume of e-commerce shipments as part of our mail or general cargo offerings. We are progressing to the next step where we cooperate more closely with e-retailers with the ultimate aim of getting products to customers even more quickly and cost effectively,” said Nabil Sultan, Emirates’ divisional vice president, cargo.

A merger between the airlines could ignite a tonnage war with the sector’s other top operators, such as FedEx. The express logistics giant ordered 12 Boeing 767Fs and 12 B777Fs in June, adding to a further 47 B767Fs and five B777Fs already on order.

“Additional freighter capacity for Emirates and Etihad is likely to be in the form of bellyhold,” says Pieri.

Emirates has eight B777-300ERs and 150 B777Xs on order, according to Boeing. This is in addition to 58 A380s, while Etihad is waiting on a single B777 freighter, 25 B777Xs and 30 B787-10s, as well as 62 A350s and 26 A321s still to be delivered.

“There’s a difference between a firm order and an option for additional aircraft,” says Shakeel. “Just because an order has been placed, it doesn’t mean the aircraft will actually be paid for and delivered.”

According to Arabian Business, Etihad is in negotiations to cancel some of its orders as part of its turnaround strategy.

According to Pieri, the merger airlines would benefit the wider logistics industry in the region, creating an air cargo giant with improved buying power and a wider global network to attract customers.

“This is of growing importance to international shippers and forwarders looking for regional and global transport solutions,” he says. “But there would most definitely be some rationalisation of services and capacity, which would help boost load factors and therefore rates.”

“The greatest challenge would be consolidating operations from the two airline’s cargo hubs in Dubai and Abu Dhabi,” adds Pieri. “From a business, cargo and passenger perspective it would seem sensible to focus all flights on a single hub but this could be difficult to accomplish.”

“There would need to be some rationalisation of services to make the merger airline economically feasible,” says Shakeel. “But this is something Etihad is looking at anyway as part of its turnaround.”

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