DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM

SUBJECT

AIR AND SPACE LAW

PROJECT TOPIC

A CRITICAL ANALYSIS OF JET AIRWAYS CASE

FACULTY

P. JOGI NAIDU

DONE BY:

Gongati Venkata Manish Kumar

Roll No. 2018029

Semester-VII

Section-A
Introduction:
Growing cooperation between companies is a major development in industrial organizations. As
businesses draw their boundaries out, they are gradually partnering with peers to improve their
access to services and markets (Grant and Baden-Fuller, 2004). However, in the extreme, the
incorrect collection of peers in that endeavor will contribute to the downfall of the whole
undertaking. A Market Success Advancement (2014) survey showed that 85 percent of
respondents perceive collaborations and alliances to be important to their business, but only 10
percent of respondents feel sure that the right partners could be established. The viability of
equity partnerships in the airline industry utilizing Etihad Airways as the unit of study is
critically discussed in this report.
Etihad Airways (hereinafter Etihad) is an airline corporation funded by the Government of Abu
Dhabi with an AED500 million start-up funding. In an effort to expand its business, the paper
analyses the equity investments produced by the airline business. It analyzes the problems
confronting the new airline from an emerging state (i.e. Etihad from Abu-Dhabi) (both financial
and non-financial) to attempt to expand rapidly by establishing equity partnerships with former
national carriers (e.g., Alitalia) and low-cost carriers (e.g., Air Berlin) from established countries
(e.g., Germany and Italy) but which have encountered difficulties.
As of April 2017, Etihad has been participating in 53 codeshare agreements that enable Etihad
flights to be promoted by its partner airlines and dramatically increase its passenger traffic. In
order to have check-in and booking services at airports it does not serve, Etihad also provides
118 interline connections. However, as explained below, the emphasis of the current paper is not
on codeshare alliances and interline relationships, but on the equity investor alliance network of
Etihad.
Instead of entering an existing global airline alliance such as the Star Alliance or the One World
Alliance, Etihad decided to participate in an equity alliance network by purchasing equity
interests in many airline companies (seven at the time of writing) and investing billions of dollars
in the process, and utilizing code-sharing agreements to sell seats on the airlines acquired in
order to extend its Abu Dhabi— Etihad has major (yet non-controlling) equity investment
interests in Air Berlin (29.21 percent), Alitalia (49 percent), Jet Airways (24 percent), Virgin
Australia (20.94 percent), Air Seychelles (40 percent), Air Serbia (49 percent) and Darwin
Airline (33. 3 percent) as of April 2017. However, not all equity investments have gone
seamlessly and few of the goals have been successful. Etihad was unable to address the Air
Berlin and Alitalia issues, and both applied for bankruptcy in 2017.
Following a deliberate and detailed review of many considerations relevant to Etihad's equity
investments, this case concluded that it is less likely to contribute to profitability to acquire
minority equity interests in distressed carriers as well as second and third-tier airlines based in
mature and extremely efficient markets with strict rules of law. External factors in these sectors,
such as protective steps and aggressive reactions, are getting fiercer post-acquisition, hampering
the performance of equity investments. The case also finds that, coupled with inadequate
oversight, overconfidence on the part of a CEO leads to acquisitions that have struggled.
The goal of this study is to draw lessons from a network of unusual equity partnerships to
educate business managers, researchers, government leaders, students and investors of the
advantages and risks associated with such a strategy. In the current report, the scale of the
company is consequential, i.e. as of April 2017, the Etihad Aviation Community and its equity
partnership members served 72,117 workers spread across eight nations. There are major insights
to be gained from the perspectives of such a large community of airlines as a result.
Provided that one entity is the subject of this article, the remainder of the paper continues in an
atypical manner. We clarify the techniques for gathering and collecting the details applicable to
the event in Section 2. The case analysis, along with discussions and references to the related
literature as applicable, is discussed in section 3. At this point, it is necessary to address the case
in order to enlighten the reader about the main aspects of the case under review. A literature
review applicable to the case is conducted under Section 4. The situation is further discussed in
Section 5, building from the previous articles, which provides a critical review of the conditions
impacting the performance of the equity partnerships of Etihad.
Case Name:
Case Of Jet Airways (India) Limited And Etihad Airways PJSC*(Combination Regulation)
Forum:
Competition Commission of India (CCI).
Legislative Provisions Referred:
Competition Commission of India Regulations, 2011
1. Regulation 14 –Procedure in regard to the transaction of business relating to combination.1
2. Regulation 16 –Intimation of any change
Parties to the Combination
1. Jet Airways (India) Ltd. (Jet)
2. Etihad Airways PJSC (Etihad)
Facts of the Case
The Government of India (GoI) has liberalized its FDI policy and established a 49% ceiling on
foreign investment in India's civil aviation market. In 2013, the UAE's national carrier, Etihad, a
corporation incorporated in the United Arab Emirates (UAE), proposed to buy 24 percent of Jet,
a listed company incorporated in India. Etihad is solely owned by the Government of Abu Dhabi
and is mainly active in the foreign air passenger services, commercial holiday services and
freight services sector. It is also announced that it owns 29.21 percent of Air Berlin equity; 40
percent of Air Seychelles equity; 10 percent of Virgin Australia equity; and 2.9 percent of Aer
Lingus equity. On similar lines, Jet is primarily engaged in the sector of offering scheduled air
passenger transport services to/from India, along with freight, servicing, repair & overhaul
services and ground handling services, at low cost and full operation.
The plan was accepted by the Indian Security Exchange Board (SEBI), the Foreign Investment
Promotion Board (FIPB) and the Economic Affairs Committee of the Cabinet (ECAB) (CCEA).
Subsequently, the Investment Agreement, the Owners Agreement and the Jet and Etihad
Commercial Partnership Agreement were sent for approval to CCI. As CCI analyzed the
specifics of the effects induced by the agreement on air passenger services and subsequently on
competitiveness in India, this was considered a seminal case in the aviation industry.
Issue Raised and Observation:
CCI had to address only one key problem while assessing the planned mix, whether or not such a
deal between Jet and Etihad had an Appreciable Adverse Impact on Competitiveness (AAEC) in
India. The observation is therefore as follows:
Issue 1:
Whether or not the planned mixture would have AAEC in India?
In the present case, CCI first considered the 'appropriate sector' when analyzing this question,
then if such a proposed combination will have AAEC on the relevant market.
Relevant Market:
In this situation, the applicable sector was defined to be the foreign passenger air travel market,
depending on the point of origin or the point of destination (O&D). Thus, each of these O&Ds
represented a separate route and, thus, each of the different routes constituted another important
sector. The following points have been considered in order to determine the applicable market:
1. There is a replacement for direct and indirect flights between O&D.
2. Indirect rival flights between O&D may be substituted.
3. Substitutable for various groups of travelers, and inflight services made to all levels.
4. Responsive passengers of time and price (Business/Holidays).
5. Etihad is not working with regard to foreign air freight transportation in the domestic (Indian)
aviation market and India's open skies scheme.
CCI therefore assumed that, in the case at hand, the appropriate sector will be linked to:
1. O&D to/from the UAE from or terminating in 9 cities in India.
2. On the conflicting routes of the parties to the combination, O&D from or terminating in India
to/from foreign destinations.
Appreciable Adverse Effect on Competition:
Now that the particular market has been established, CCI has ventured to decide if there will be
any AAEC for certain routes or not. As the roads were regional, CCI emphasized the importance
of trans-boundary rivalry, thus defining AAEC in this proposed mix. It was noted that there were
38 routes to/from India to other destinations where Etihad and Jet operate, and on each of these
routes there was at least one competitor. With the exception of seven destinations, where Jet and
Etihad had a combined share of more than 50%, all destinations had a combined share of less.
The proportion of one of these seven destinations was also more than 50 percent on three routes
and less than 5 percent on the third. Consequently, post-transaction shifts in market share have
not been found to marginally modify the nature of rivalry.
CCI, however, indicated that the calculation would reach beyond the O&D pairs and recognize
the possible network effects of the proposed mixture while considering the network effects. It
has been recognized that the complementarity of Jet and Etihad routes renders the impact of the
network greater. Hubs, improved connectivity to gates, slots and other interfaces to the networks
linking markets. Instead of point-to-point O&D pairs, rivalry between systems has been seen to
improve. Therefore, the high market shares retained in their respective hubs by Jet (India) and
Etihad (Abu Dhabi) do not mean a lack of rivalry.
Abu Dhabi as the exclusive hub:
According to the CCA requirements, Jet was allowed to use Abu Dhabi as its sole hub for
scheduled services to and from Africa, North and South America, and the UAE, and that there
will be some O&Ds where Jet could not exchange codes with other airlines. It was mooted that
such a limitation on code share might contribute to the foreclosure of the business and, in the
absence of other powerful competitors, incite misuse of superiority on such routes. However,
because all such routes had credible competition from eminent aviation companies, who would
limit Jet-market Etihad's strength, competition issues were eliminated by the consolidation of
market share.
Decision as per Majority Ruling:
CCI indicated that the airline partnership is contributing to the enhancement and extension of
facilities, thus causing rivalry in this market. It also postulated that the proposed combination
might pave the way for other similar combinations by other stakeholders, contributing to an
improvement in market competitiveness. The value of the potential equity injection was also
taken into account by CCI, since Jet was experiencing a certain financial crisis, so that
combination would enable Jet to continue to perform successfully in the related Indian and
foreign markets. Therefore, in the light of the above-mentioned rationale and findings, CCI
concluded that it is doubtful that the proposed combination will have AAEC in India and that the
combination was therefore accepted with the warning that the approval was focused on the
information/details offered by the parties and that, in the event of any subsequent changes, new
approval should be obtained. The parties were therefore liable for ensuring that this ex-ante
consent did not result in an ex-post breach of the clause of the Act.
Decision as per Minority Ruling:
The minority decision in the case, which considered that AAEC must operate in the foreign
sector for air passenger travel, was focused on the observation that:
1. The incorporation of frequent flyer participation (FFP) policies would lock consumers down
and therefore build obstacles to entry/expansion, rendering it impossible for competitors/new
entrants to transfer customers of the parties to their network.
2. The method of substitutability with respect to airports, observed by the CCI and claimed by
the parties, is founded on incorrect premises. As air services to the numerous airports in the
India-UAE market, customers, and even airlines themselves, are not regarded as substitutable
items.
3. Competitors have been present on all routes, but it is noted that Jet and Etihad are the only
remaining competitors on the direct route between Delhi and Abu Dhabi; and the proposed
combination would remove the rivalry between Jet and Etihad as they are likely to function
successfully as one airline according to the proposed combination.
4. It is also possible to regard airlines offering one-stop services only as distant rivals who do not
practice or are expected to exert any major competitive restrictions on the parties.
It was thus decided by a minority order that the planned combination is likely to have a major
adverse impact on competitiveness in the foreign air passenger transport sector from and to
India, and it was appropriate to call for an inquiry.
Analysis of the Order:
This case was, as described, the first by CCI, in which the hybrid agreement between two airlines
was investigated. The CCI judgment was focused largely on the observation that there was a fair
degree of rivalry in the specific sector and, thus, it is not possible that AAEC would exist in such
markets. This strategy was claimed to be influenced by the decision made at the time of the
merger between British Airways and Iberia, in which the European Commission found that the
merger did not impact rivalry until there were successful and reliable rivals in the particular
sector.
As already stated, SEBI, FIPB and CCEA accepted the application and separate approvals were
obtained within the scope of FEMA. Many authorities, like CCI, were interested in the litigation,
looking into several facets of this arrangement. In comparison, this unique case was the case
where, without heading into investigation, the CCI settled on AAEC and focused its decision
solely on the information/details given by the parties. Therefore, re-emphasizing the principle
that if the information available is adequate to shape a judgment for the purpose of deciding the
problem in a joint situation, there is little need for inquiry. The dissenting decision, however,
asserted the need for inquiry in order to grant the proposed combination clearance. It should be
remembered that it was apparent from the judgment that, in the event of any erroneous
knowledge, or in the event of any alteration of the proposed mixture, the parties would be forced
to seek new consent.
Having said that, following its judgment, under Section 43 of the Act4, CCI placed Rs. 1 crore
penalty on Etihad for consummating portions of the arrangement without obtaining its consent.
In February of this year, Etihad bought three Jet Airways Heathrow airport slots for $70 million
and leased them out to the Indian airline in anticipation of the contract. The two parties entered
into an arrangement which was not revealed to CCI, despite the matter being pending for
clearance. The said penalty would, however, have no effect on the previous acceptance of the
CCI Jet-Etihad agreement. In the meanwhile, the Antitrust Appellate Tribunal has accepted a
lawsuit opposing the acceptance of CCI for the aforementioned arrangement.
Etihad’s equity alliance differ from traditional codeshare alliance:
Partner airlines offer fares on each other's flights under a conventional codeshare alliance and
they split the income. From one airline to the next, there is no spending. The egocentric/equity
partnership between Etihad is distinct. Etihad invests in the equity of the partner airlines in order
to allow cross sale and revenue sharing. Etihad offers extra funding in several situations and, in a
few cases, it operates the affiliate carrier.
However, the proof points to its equity interests in broad yet underperforming airlines from
developing European countries, situated in challenging markets and tending to fail under tight
legislation. For starters, prior to Etihad's investment, Alitalia was near to bankruptcy. However,
after Etihad's investment, Alitalia's difficulties continued; Etihad was unable to transform around
Alitalia, and the European airline filed for bankruptcy in 2017.
For an airline, an equity partnership is a feasible option for extending the network. However, its
effective execution relies on many variables, including the form of airlines that Etihad introduces
to the coalition, and this argument argues that Etihad's alliance has not gained from all the
additions. Following the move of Etihad to participate in other airline companies' shares, it was
required to decide on prospective buyers. The airline companies pursuing foreign funding (i.e. in
which Etihad could spend equity capital) in Europe, a region in which Etihad aims to expand its
footprint, were struggling with them, such as Air Berlin and Alitalia. They have become easy
targets for Etihad, considering their financial predicaments. However, their corporate and
financial woes had to be reversed in order for those deals to be successful, and there is no data to
say that such improvements took effect.
Penetrating the low-cost segment:
In addition to acquiring the equity of full-service carriers (such as Jet Airways), the expansion
plan of Etihad often entails entering the market of low-cost commercial airlines (LCC), as
demonstrated by the purchase of Air Berlin. LCCs have internationally redefined short-haul
flights and are now built to counter traditional/network/mainline long-haul carriers (for instance,
Norwegian airline now offers transatlantic routes from various bases across Europe and North
America). As a consequence, there are several mainline carriers who spend in LCCs. The
effectiveness of this approach, though, calls for specific modes of business structure. A analysis
of the literature shows that, as discussed below, there is not one route for mainline carriers to
leverage the LCC.
In order to enter the low-cost market, Graham and Vowles (2006) propose creating a subsidiary
that is independent from the sponsoring/parent airline. Pilling (2004) explores three directions in
which a full-service carrier such as Etihad can develop a low-cost airline: I to build an entirely
new market segment; (ii) to expand the existing business unit to cover low-cost airline services;
and (iii) to create interlinkages between the two categories of business services behind the
scenes. The author finds that a policy that distinguishes the low-cost segment from the full-
service parent carrier is less costly and minimizes the possibility of confounding travelers since
the image of brand names and partners is not interlinked, which might otherwise have created
questions about the key commodity becoming blurred and downgraded. However, with
continuous intervention from the parent organization, the distinction is impossible to achieve
(Graham and Vowles, 2006). Morrell (2005), on the other side, claims that the costs involved
with holding several airline firms apart in a partnership mean that the option of expanding the
existing company of the parent to cover the low-cost segment(s) deserves consideration.
Alliances formed to actively reduce expenses and remove redundant programs profit from this
approach. In summary, there is no conclusive approach to the correct form of operational
arrangement that can be implemented in the LCC industry by a mainline full-service carrier.
However, there are drawbacks to implementing two or three market models (for example, both
full-service and LCC models) in one company (Porter, 1996). Conflicting market priorities
between the two models (i.e. full-service versus low-cost) and cultural discrepancies may
contribute to the disappearance of the whole coalition (also see Gillen and Gados, 2008; Graf,
2005). Gilbert and Bower (2002) also recommend that diverging market structures be held apart,
and Graf (2005) calls for greater freedom from the parent airline group to the subsidiaries.
Decision-making theory:
Under the supervision of James Hogan, its CEO until mid-2017, all of the M&A decisions of
Etihad examined in this case have been concluded. It is also necessary to accept hypotheses that
are applicable to decision-making (for example, Gavetti and Levinthal, 2000; Prather and
Middleton, 2006). In the main, market factors appear to direct decision-making (Hogarth and
Reder, 1987; Kameda and Davis, 1990); under classical/traditional theories, there appears to be a
single optimum balance; and managers prefer policies that optimize the utility of customers and
the productivity of the business (Prather and Middleton, 2006).
Nevertheless, theoreticians have, more recently, considered the implications of non-market
factors in competitive decision-making, such as cognitive prejudices, behavioural biases and
resistance to failure, among others (see, for instance, Bloomfield et al., 2000, Daniel and Titman,
1999, and Thaler, 1999). Decision makers are now seen beyond the limits of their reasoning
capacity as well as the limitations of knowledge within which they act. Gavetti and Levinthal
(2000) claim that company executives in decision making utilize cognitive and experiential
searches. As can be seen later in this situation, the political actions of Etihad's CEO can be
clarified by both the classical theories and the behavioral theories.
Factors affecting Etihad’s Equity Alliance Network:
Equity acquisitions versus Greenfield investments:
It is impossible to overcome the problems that troubled airlines encounter. In certain cases,
launching a new airline as a substitution for a failing one will be more cost-effective. This is
demonstrated by the effective investment of Etihad in Air Serbia, the new national airline which
took over from what was left of the Yugoslav airline, Jat. Instead of purchasing old bankrupt
brands, several established carriers have launched new airlines to succeed in the low-cost sector
(for instance, Lufthansa started Eurowings; IAG, which owns British Airways, started the low-
cost carrier Level). The concern, however, is that Etihad is unwilling to develop operations from
scratch within Europe and that only minority interests in European carriers can be acquired.
Etihad therefore faces major legislative obstacles to cost-effectively extending its network in
Europe (in particular, the European Union).
Investments in minority interests:
Acting for a minority and/or non-controlling interest is tough to transform around the fortunes of
a failing major carrier operating in an airline market that is very challenging, as is the case in the
EU, and where the rules of law are tight. When the purchased carrier is still doing well, minority
and non-controlling equity partnerships have a higher probability of success. A non-controlling
interest in an underperforming carrier, however, does not give ample leverage to the acquirer
(Suen (2002) reviews the value of influence in equity alliances) to gain sufficient leverage over
performance. Minority stakes seriously impede the willingness of the lender to remain steadfast
with its conditions and place the acquirer at the hands of strong patrons.
In the case of Air Berlin, even without the successful management of the airline's affiliate, Etihad
was not in a role to transform the airline around. "As Douglas McNeill, an aviation expert at
Charles Stanley's stockbrokers, explained: "The danger is that you could wind up with a series of
minority shares, and you have none if you don't have influence. It is a controversial solution (De
Launey, 2013).
Brand confusion:
Branding is quintessential in the aviation business, as in many other sectors. For example,
Lufthansa and British Airways have introduced new products to compete in the low-cost sector
in order to retain their current brands that represent their full-service status.
Customers prefer to steer away from airline firms that are failing. In that sense, considering their
financial predicaments, the brands of Air Berlin and Alitalia were greatly damaged. This is
illustrated in the following comment made in March 2017 by Cramer Ball, Alitalia CEO: "In the
first phase, we re-built our brand and invested heavily in staff training and technology so that we
can now move forward and make wide-ranging changes." It is impossible to claim that the Air
Berlin and Alitalia brands forced the partnership to die. The truth, though, is that both companies
have become permanently synonymous with troubled airlines, and both brands are in insolvency
proceedings as of 2017, as the events that transpired revealed.
In comparison, Air Berlin's low-cost offerings are in contrast with Etihad's premium on
convenience, luxury cabins, and other fancy products. Similarly, for high-end travel providers,
Alitalia and several of the investors of Etihad's equity collaborations are not established. In order
to compensate for its poor margins from shuttling economy travelers, Etihad still depends on the
high rates of first-class business-class passengers, a model that is not as aggressively sought by
the other airlines in its equity partner network. Consequently, the corporate strategies of Etihad
and the carriers in its equity investor network are deficient in uniformity.
Equity alliances versus non-equity alliances:
Equity partnerships are more risky than foreign alliances in which carriers do not have much
leverage in each other. An alliance without equity contributions is, from an operating point of
view, a tool for "market share gain without balance sheet pain" (Holloway, 1997). The creditor is
vulnerable to the losses of the acquisition airlines in an equity partnership. Press accounts say
that the overall financial liability of Etihad to the two struggling Alitalia and Air Berlin airlines is
more than $4.5 billion (Zhang, 2017).
The strength of foreign aviation laws and rivals ensures that it is more challenging for airline
firms to expand by equity partnerships. The legislation is less tough on airline partnerships that
do not require the acquisition of shares. For eg, while Lufthansa firmly opposed the equity
investment of Etihad in competitor Air Berlin, Lufthansa entered into a codeshare agreement
with Etihad in 2017 to service Germany, Brazil and Colombia at the same time (Kerr, 2017). In
non-equity partnerships, however, the power of strategic challenges is reduced.
Degree of interdependence:
Interdependence is a matter of the degree to which two parties control each other and if the result
is a/symmetrical," according to Suen (2002: 356)." Bissessur and Alamdari (1998) mention the
following two significant factors in their research on the factors impacting the organizational
performance of strategic airline alliances: the compatibility between the network of partners and
the frequency of service between their hubs. Large amounts of passenger traffic emanate from
these airlines that would reach the Middle East and vice versa, applying these principles, and in
the case of Air Seychelles, Virgin Australia, and Jet Airways. It makes operational sense to them
to collaborate with Etihad and, thus, dependency flows on both sides. On the other side, there are
a few locations served by Air Berlin and Alitalia that need passengers to link through the Middle
East. Around the same moment, Etihad will not be providing Air Berlin and Alitalia with
passenger traffic. Accordingly, the complementarity between the European carriers' activities and
Etihad tends to be negligible and there is a lack of reciprocity and interdependence between
them.
Alliance management experience:
The management expertise of the Partnership is a valuable resource in creating and handling
alliances (Simonin, 1997; Teng and Das, 2008); while in a brief amount of time and at a young
age in its life cycle, Etihad had participated in so many equity alliances. In order to grow its
experience and knowledge with certain partnerships in the first place, Etihad would have gained
from concentrating on a few equity alliances with untroubled carriers. "As Warren (2012)
suggested, "when you embark on anything on such a broad scale that neither you nor anybody
else has done before, you should at least hope to try the procedure first on a small scale, then
learn and scale up, rather than only betting on its activity on the farm.
Further Discussion and Concluding Remarks:
There is no claim in the present study against equity partnerships between airlines. Alliances
between airline firms can be dated back to 1919 (Li, 2000), which will continue to take effect as
new ones to supplement old ones that will vanish afterwards. Indeed, analysis by Morrish and
Hamilton (2002) indicates that such partnerships do not inherently contribute to surpluses of
manufacturers, manipulation of customers or monopoly profits; nor do they kill the airlines
concerned systematically. Morrish and Hamilton (2002) find, analyzing evidence over 15 years,
that airline partnerships contribute to improved load factors and declines in costs, and reap
income for the carriers. Not all of them, though, prosper and when fresh ones materialize, several
established alliances break. Therefore, it is necessary to know in what conditions different types
of alliances work, and a subset of these scenarios in equity alliances have been analyzed in this
article. As Li (2000) notes, while in the world there are over 500 such partnerships, it is their
expanded diversity that counts, rather than their numbers. The study indicates that it is wise to
avoid distressed airlines while entering developed, highly-regulated and competitive markets.
The performance of equity partnerships of the kind conducted by Qatar is the strongest indication
of this. As with Etihad, but on a smaller scale, Qatar still pursues equity partnerships. In
comparison to Etihad, however, Qatar relies on financially stronger allies (particularly when the
target is in a developed country with strong rules of law and high competition). For eg, it owns a
20 percent interest in British Airways' owner, International Consolidated Airlines Group (IAG).
The CEO of Qatar has announced that the airline only accepts investments that do not exhaust
the capital of the airline (Carvalho and Bryan, 2017). The message from the performance of
Qatar is that it is more profitable to have equity partnerships with strong airlines in mature and
efficient markets with strong regulation. On the other side, the performance of Etihad with its
equity investments in Air Seychelles, Air Serbia and Jet Airways shows that equity partnerships
with troubled airlines may be lucrative in less established and non-competitive markets with
weak laws, which is in line with Jory and Ngo (2014).
Although European air liberalization policies mean that they are open to partial ownership of
their airline businesses, many airlines are still operating aggressively in that room under the
leadership of Ryanair and EasyJet, and it is difficult for later entrants to gain market share from
them. The rate of failure between LCCs is very high. Europe is a sector that is comparatively
developed and rapidly saturated, unlike Asia and Latin America. Opportunities for Gulf airlines
to take advantage of the LCC sector in Europe are now substantially reduced.
An study of the conditions that underlie long-lasting alliances is carried out by Li (2000). The
author discusses the following factors: shared promotion, coordination of planes, joint services
for frequent flyers, sharing of resources at airports, and ground assistance. We remember that
whilst these variables are essential in a partnership, their potential to achieve performance
depends heavily on the financial stability of the airlines invested in them. The challenge of
estimating the financial health of the sampled airlines of Li, which is outside the reach of this
report, restricts the generalizability of the results of the author (particularly at struggling investee
airlines like Air Berlin and Alitalia). We claim this because in the alliances of Etihad with Air
Berlin and Alitalia, several of the variables found by Li are still present, and yet the alliances
collapsed.
Conclusion:
I conclude with a summary of the remaining guidelines for airline equity partnerships in this text.
Airlines will discourage financially troubled firms. For a lack of foresight, a vulnerability that
represents a lack of expertise in handling certain partnerships and/or overconfidence in top
management, they will not approach an equity partnership, and all of these variables need to be
addressed a priori. The investor airline will expect the hostilities of international governments
and rivals, which in the airline business appear to assume monumental dimensions. Last but not
least, the partnership will be complemented by complementarity between the investor firms and
the investor airlines.