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Dubai-based Emirates airline and Abu Dhabi’s Etihad Airways cooperating to promote tourism in the UAE is likely to reignite speculation that the two UAE airlines are heading towards a merger.
On 4 May, the airlines announced that they had signed a memorandum of understanding (MoU) to expand an interline agreement to offer travellers more itinerary options when visiting the UAE.
Customers will be able to purchase a single ticket to fly into either Dubai or Abu Dhabi, with a return departing from the other airport. In the initial stages of the expanded interline, each carrier will focus on attracting visitors to the UAE from select points in Europe and China.
It is not the first time that they have agreed to work together. In January 2018, Emirates Group Security and Etihad Aviation Group (EAG) signed an MoU to enhance aviation security by sharing information and intelligence within and outside the UAE.
Eight months later, in September 2018, it was reported that Emirates was in talks to take over Etihad. Both airlines subsequently denied that any discussions were taking place.
While it is likely that the airlines will respond if there are similar reports in 2023, the market dynamics have changed since 2018. Back then, the rationale behind any merger was to save costs. The regional economy was struggling in a low oil price environment, and the overwhelming trend for governments and business was streamlining their operations.
Today the market is very different. While cost pressures are always a consideration, other factors have emerged. First is the financial legacy of the Covid-19 pandemic, which disrupted aviation for most of 2020 and 2021. In 2020, Dubai took an unprecedented step and injected equity into Emirates. Then in November 2021, Emirates chairman Sheikh Ahmed bin Saeed al-Maktoum said in a TV interview that the airline could be listed.
Another major change is competition. Led by Dubai, the UAE has been the region’s leading aviation hub for several decades, and for the first time, that position could be seriously challenged.
Over the past six months, Saudi Arabia has announced plans for a large-scale expansion of Riyadh airport, launched a new airline Riyadh Air, and is planning another new airline operating out of Neom known as Neom Airlines.
The Saudi moves come at a time when Dubai appears to be outgrowing Dubai International airport, and Abu Dhabi is preparing to open the Midfield Terminal Complex at Abu Dhabi International airport.
The UAE could respond to the Saudi challenge by uniting its efforts. In the past, it has been suggested that a merged Emirates and Etihad could use a dual hub model with Dubai International airport and Abu Dhabi International airport.
That decision would be a blow to the construction industry, which still has hopes pinned on Dubai proceeding with the expansion of Al-Maktoum International airport – the world’s largest airport project. The impact might not be entirely negative as it could mean different opportunities, such as a high-speed rail connecting the two airports.
Even if the rising challenge from Saudi Arabia does not result in consolidation, it will certainly mean that the UAE will have to upgrade its aviation offering to stay ahead of the competition.
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