Darwin only flies aircraft with 50 seats, less than the number of premium seats that will be on many of the 350-plus widebody aircraft Gulf carriers ordered at the airshow. But the announcement is significant, and three reasons stand out.
First, for Etihad the carrier will "connect the dots" in Europe for itself and partners, linking hubs but also tertiary cities, which have largely been passed over by Gulf carriers. Many of these cities are served by the Lufthansa Group. This gives rise to the second significant impact: on Europe's legacy carriers. Gulf carriers changed their long-haul business while European LCCs decimated short-haul. Regional traffic was always typically a burden, and will come under further pressure following Etihad's announcement. Third is that Darwin Airline will re-brand as "Etihad Regional", and Etihad openly states Darwin is only the first carrier to use this new brand. As the industry still digests Etihad's partnership and equity strategy, Etihad promises to change another component of aviation – and raise the stakes in the liberalisation of the industry, especially by stamping its name on a European carrier.
Etihad Airways will purchase 33.3% of Darwin Airline, to be re-branded as 'Etihad Regional'
Etihad on 17-Nov-2013 announced its intention to acquire 33.3% of Swiss carrier Darwin Airline, founded in 2003. Darwin becomes Etihad's fourth European partner and seventh equity partner after taking stakes in:
- Aer Lingus (3%)
- airberlin (29%)
- Air Serbia (49%, from Jan-2014)
- Air Seychelles (40%)
- Jet Airways (24%, approved)
- Virgin Australia (19.9%)
Etihad did not disclose the purchase amount, but local reports indicate that on 23-Sep-2013 Darwin increased its share capital by CHF2 million (EUR1.6 million) to CHF20 million (EUR16 million), citing a new entry in the Swiss Commercial Register.
Darwin will re-brand as "Etihad Regional" – the first to do so – and carry a hybrid livery based on Etihad's, but with Darwin's Swiss logo as well as having the aircraft record that it is "Operated by Darwin Airline", similar to existing regional carriers operating under another (and larger) carrier's brand. Darwin will continue to focus on secondary markets and will operate under its own F7 designator code. Darwin will use the Etihad Guest loyalty programme, also used by other partners. Former Air Seychelles CFO Shelley Cole, on secondment from Etihad, has been appointed Darwin's CFO. Still subject to regulatory approvals, the rebranding will undoubtedly enhance local brand recognition for the Gulf carrier.
Etihad says Darwin will "align its network to connect passengers from secondary European markets onto the main networks of Etihad Airways and its equity alliance partners". Twenty-one new routes will be launched in 2014, including a few to Berlin and Belgrade, the respective hubs of Etihad's equity alliance partners airberlin and Air Serbia. Darwin will also connect to other parts of airberlin's network via Dusseldorf and Zurich. The combined impact is allowing airberlin, Air Serbia and Etihad "deeper access to Europe for the three larger carriers and significant new international connectivity and feeder traffic for Darwin Airline." There is no mention of Etihad's other European equity partner, Aer Lingus, although so far there are few connecting points between Aer Lingus and Darwin, and the Aer Lingus-Etihad partnership is still growing.
Darwin for its part will also see greater investment (via an enlarged share capital), be able to expand, and benefit from feed from Etihad and partners, as well as from their distribution and marketing power. The investment also ends some speculation about Darwin's future.
Darwin's financial and traffic information is limited, and in Jun-2013 reported strong growth in northern and southern Europe due to expanded partnerships and agreements with other airlines and airports. 1Q2013 traffic increased 88.5% year-on-year to 65,727 passengers. The airline added eight routes compared to 1Q2012 due to codeshare agreements with Belle Air Europe, Alitalia and Czech Airlines, and increased seat capacity by 84% over the previous corresponding period.
The growth in destinations will largely complement instead of replace Darwin's existing network. To fuel the growth, Darwin will acquire new, unspecified aircraft in 2014, the carrier tells CAPA. Two routes will be cancelled: Lugano-Crotone and Geneva-Toulon (Geneva-Toulouse seems to replace this service).
Darwin operates Lugano-Zurich on an ACMI contract with SWISS, and although a small route, it will be interesting to see if SWISS maintains the service given Etihad's new role, strategically and financially, in Darwin.
Darwin Airline existing routes to be operated in 2014: as of Nov-2013
Etihad Regional's new destinations: only one, Lyon, is an existing Gulf destination
Etihad says the launch of its first branded regional airline by acquiring Darwin Airline is a "step-change in global aviation". It marks Etihad's direct entry into tertiary cities. Etihad has previously entered such markets via codeshare service that was a hallmark of Etihad's extensive partnership formation. The shift from virtual service to branded operations is significant.
The move reflects the large degree of scale Etihad reckons it has achieved in Europe: there are enough points and partners to start looking at synergies amongst them. Or that the Darwin Airline became available and at the right price to start a plan lingering in the background. It could also reflect that Etihad is plateauing in European partnerships (where its penetration is deepest) and needs to look at synergies, although this is being done through an additional partner, albeit where liberalisation is greatest.
Etihad map of partners: 2012
Of the 18 new destinations Etihad Regional will launch, only one sees service from a Gulf carrier: Lyon, with five weekly Emirates flights. Most others do not have intercontinental service and, owing to their small size, are unlikely to in the foreseeable future, meaning this exercise is not about circumnavigating bilateral restrictions but rather serving cities Etihad is unlikely to do with its own metal. (An obvious exception is Rome.)
Etihad will look to funnel long-haul traffic on Etihad Regional while also providing regional connectivity links amongst its partners, allowing Etihad to connect the dots more directly than anything the carriers could do independently, especially since their regional operations are limited whereas Etihad can coordinate Etihad Regional. And with liberalisation in the EU, Swiss-based Darwin Airline, under the Etihad Regional banner, can shuttle between whichever European cities it so chooses.
Etihad in a statement singles out Darwin's new routes to Berlin and Dusseldorf as providing the opportunity for onward traffic to the US (good for airberlin too), although the new routes to Dusseldorf (Cambridge, London City and Berlin) are circuitous in the case of the UK destinations and redundant in the case of Berlin, as airberlin already serves Dusseldorf-Berlin and has US flights from Berlin. But no doubt there are genuine connecting opportunities.
The extent of this coordination among carriers will surely be watched by airlines to see if Etihad has de facto control. It is not just European airlines on the watch: Delta has filed loud objections with the US DoT over Etihad's role in Air Serbia and Air Seychelles, and now Qantas is sounding the alarm about Etihad's support of Virgin Australia. Disruption of the old order is always guaranteed to raise hackles.
There is seemingly no unifying trend amongst the routes in the way they fit into Etihad's network. Rather there are many nuances driven by connecting opportunities at Etihad and partners as well as stimulating point-to-point traffic, a necessary part of an overall revenue driven network strategy.
Competing against Lufthansa is a theme: Poznan and Wroclaw routes are served by Lufthansa from its numerous hubs, and Etihad Regional's service from Berlin offers an alternative hub. Assuming services are launched with Darwin's Saab 2000 turboprops, they provide lower capacity – 50 seats – than airberlin's lowest-capacity aircraft, Q400s with 76 seats, potentially making the routes more sustainable than if airberlin operated them.
The London City-Dusseldorf service will overlap with a British Airways service, offered 17 times weekly whereas the Etihad Regional frequency is unknown. If Etihad is targeting intercontinental traffic from London City, that will entail a connection in Dusseldorf and Abu Dhabi. En route, however, is a flight on a turboprop – short but not known for comfort – and connection in Dusseldorf, not known for its premium facilities. Out of London City there is the option to make a single connection in a continental European hub to arguably more destinations than from Abu Dhabi, let alone the option of flying out of Heathrow (although this a trek to the west for the area around London City).
The situation is broadly similar for Cambridge-Dusseldorf. Darwin has launched a number of Cambridge routes but so far has amassed sub-50% load factors; some are close to 30% or worse. It is difficult to get from Cambridge to Heathrow, but Darwin has so far not shown that Cambridge has hopes of working. The Etihad brand and distribution network is large, but time will tell if it is large enough for Cambridge. Not even KLM, which serves more UK destinations than British Airways, serves Cambridge.
Dusseldorf-Berlin stands out as Etihad equity partner airberlin already serves the route, about eight times daily. But with imagination there could be integration, such as having Etihad Regional fly at off-peak hours, although it might be asked why airberlin has not yet shifted any services from the existing A320/737 operation; Lufthansa is also an A320 operation save for two weekly CRJ900 flights.
Of the 21 routes, there is existing service on 11 of them, three from an LCC, easyJet, which may have a good cost base but may also face competitive fares from Etihad Regional. The biggest challenge may be entering on SWISS' hold of the Zurich-Geneva market. Flybaboo, which was bought by Darwin, tried the Zurich-Geneva market but pulled out; but where Etihad is now able to feed traffic to and from its Geneva-Abu Dhabi service, the outcome may well be much more positive.
The new routes from Rome supplement Darwin's existing Rome operation – and could also be useful if Etihad launches a service to Rome and/or forms a closer relationship with Alitalia.
New Darwin Airline/Etihad Regional routes to be launched in 2014: as of Nov-2013
|Departing City||Etihad/Equity Partners at Departing City||Arriving City||Etihad/Equity Partners at Arriving City||Competitors on Route||Other Airlines at Arrival City||Launches|
|Berlin||airberlin (daily to Abu Dhabi)||Poznan||None||None||LOT, Lufthansa, Ryanair, SAS, Wizz||Apr-2014|
|Berlin||airberlin (daily to Abu Dhabi)||Wroclaw||None||None||LOT, Lufthansa, Ryanair, SAS, Wizz||Apr-2014|
airberlin (daily to Abu Dhabi), Etihad (daily to Abu Dhabi)
|Berlin||airberlin (daily to Abu Dhabi)||airberlin, Lufthansa (each about 8x daily)||Numerous||Apr-2014|
|Dusseldorf||airberlin (daily to Abu Dhabi), Etihad (daily to Abu Dhabi)||Cambridge||None||None||None||Apr-2014|
|Dusseldorf||airberlin (daily to Abu Dhabi), Etihad (daily to Abu Dhabi)||London City||None||British Airways (17x weekly)||Air France, Alitalia, Blue Islands, British Airways, CAI Second (Alitalia), Lufthansa, Luxair, Skywork, Swiss||Apr-2014|
|Geneva||Etihad (daily to Abu Dhabi)||Toulouse||None||easyJet (5x weekly)||Numerous||Apr-2014|
|Rome||None (but Etihad codeshares on Alitalia's 4x weekly Rome-Abu Dhabi service)||Tirana||None||None||Air One Smart Carrier, Alitalia, Austrian, Belle Air, British Airways, Jetairfly, Lufthansa, Olympic Air, Pegasus, Turkish Airlines||Apr-2014|
|Rome||None (but Etihad codeshares on Alitalia's 4x weekly Rome-Abu Dhabi service)||Zagreb||None||None||Aeroflot, Air France, Austrian Airlines, British Airways, Croatia Airlines, easyJet, Germanwings, Icar Airlines, Icelandair, Lufthansa, Norwegian, Qatar Airways, TAP Portugal, Turkish Airlines||Apr-2014|
|Zurich||Etihad (daily to Abu Dhabi from 01-Jun-2014)||Leipzig||airberlin (European points)||None||airberlin, Austrian Airlines, British Airways, Condor, Darwin, Germanwings, Lufthansa, Ryanair, SunExpress, Turkish Airlines||Apr-2014|
|Geneva||Etihad (daily to Abu Dhabi)||Belgrade||Air Serbia, Etihad (daily to Abu Dhabi)||Swiss (3x weekly, seasonal)||Adria, Aeroflot, Air Serbia, Alitalia, Austrian Airlines, Belavia, easyJet, Etihad, flydubai, Germanwings, LOT, Lufthansa, Montenegro, Norwegian Air Shuttle, Olympic, Pegasus, Swiss, Tarom, Turkish Airlines, Wizz||May-2014|
|Zurich||Etihad (daily to Abu Dhabi from 01-Jun-2014)||Geneva||Etihad||Swiss (8x daily)||Numerous||May-2014|
|Zurich||Etihad (daily to Abu Dhabi from 01-Jun-2014)||Florence||airberlin||Swiss (3x daily)||Air Dolomiti, Air France, airberlin, Alitalia, Austrian Airlines, Belle Air, HOP!, KLM, Lufthansa, Swiss, Volotea, Vueling||May-2014|
|Zurich||Etihad (daily to Abu Dhabi from 01-Jun-2014)||Turin||None||None||Air France, Air One Smart Carrier, Alitalia, Blu-Express, British Airways, Brussels Airlines, Iberia, Lufthansa, Meridiana, Royal Air Maroc, Ryanair, Tarom, Transavia, Turkish Airlines, Volotea, Vueling||May-2014|
|Geneva||Etihad (daily to Abu Dhabi)||Bordeaux||Aer Lingus||easyJet (10x weekly)||Aer Lingus, Air Algerie, Air France, British Airways, Chalair, Eastern Airways, easyJet, HOP!, Iberia, Jetairfly, KLM, Royal Air Maroc, Ryanair, TAP Portugal, Tunisair, Volotea, Vueling||Jun-2014|
|Geneva||Etihad (daily to Abu Dhabi)||Marseille||None||Twin Jet (5x weekly)||Numerous||Jun-2014|
|Geneva||Etihad (daily to Abu Dhabi)||Nantes||None||easyJet (10x weekly)||Air France, easyJet, Flybe, HOP!, Iberia, Jetairfly, Royal Air Maroc, Ryanair, Transavia, Tunisair, Volotea, Vueling, XL Airways||Jun-2014|
|Geneva||Etihad (daily to Abu Dhabi)||Verona||None||None||Air Dolomiti, Air France, Air Moldova, Air One Smart Carrier, Alitalia, Belle Air, Belle Air Europe, British Airways, easyJet, Meridiana, S7, Volotea, Wizz||Jun-2014|
|Zurich||Etihad (daily to Abu Dhabi from 01-Jun-2014)||Linz||None||None||Austrian, Lufthansa, NIKI, Ryanair, SunExpress||Jun-2014|
|Zurich||Etihad (daily to Abu Dhabi from 01-Jun-2014)||Graz||airberlin||InterSky (18x weekly)||airberlin, Austrian Airlines, InterSky, Lufthansa, NIKI, SunExpress||Jun-2014|
|Zurich||Etihad (daily to Abu Dhabi from 01-Jun-2014)||Verona||None||None||Air Dolomiti, Air France, Air Moldova, Air One Smart Carrier, Alitalia, Belle Air, Belle Air Europe, British Airways, easyJet, Meridiana, S7, Volotea, Wizz||Jun-2014|
|Zurich||Etihad (daily to Abu Dhabi from 01-Jun-2014)||Lyon||Aer Lingus||Swiss (4x daily)||Numerous, including Emirates (5x weekly to Dubai)||Jun-2014|
Darwin will serve six of Etihad's European destinations: Amsterdam, Belgrade, Düsseldorf, Geneva, Paris, and from Jun-2014 Zurich. In conjunction with its announcement of acquiring Darwin Airline, Etihad announced daily three-class A330-300 service between Abu Dhabi and Zurich from Jun-2014. It supplements Etihad's other Swiss destination, Geneva.
But the main connections between Darwin and Etihad will occur in Germany and Switzerland: Berlin and Dusseldorf as well as Geneva and Zurich. The geography is favourable, whereas Paris – where Etihad has two daily flights compared to one at the other cities – is circuitous for continental destinations, and is at the centre of the mighty network of Air France, with whom Etihad is gradually building a relationship after years of antagonism. Best not to stir that nest. Germany and Switzerland, however, are the heart of the Lufthansa Group's empire. It is a group that has been even more concerned about Gulf intrusion. Its response, aside from working to keep the enemy out, has been to enhance its partnership with Turkish Airlines, almost - but not quite - a Gulf carrier itself.
Of the 18 new cities Darwin is launching to under the Etihad Regional banner, Lufthansa will be in all except four: Cambridge, Bordeaux, Nantes and Verona. Austrian and SWISS serve many of the cities, while Europe's other main carriers (and competitors for long-haul traffic) feature a few times in the list, including British Airways, Turkish Airlines and emerging sixth freedom carrier Aeroflot.
With Darwin launching the routes partially for Etihad group connectivity, it will be able to price local services competitively. Although Darwin's frequency on the routes has not been announced, its presence will likely significantly impact smaller operators.
InterSky operates between Zurich and Graz while Twin Jet operates between Geneva and Nantes, a route Darwin will enter. Darwin's presence will not put the carriers out of business, but nor will Darwin be welcomed.
Etihad was very specific in saying that Darwin will be the first carrier to use the Etihad Regional branding, implying this is not special and the start of a new brand.
Sponsoring football clubs, placing a giant model outside Heathrow's entrance, branding a cable car in London – these are name-stamping activities European airlines have tolerated, but placing a foreign name on a local airline could bring Etihad in to new territory. Darwin Airline arguably had little of a brand even in its home markets whereas Etihad is known across Europe. While re-branding Darwin as Etihad Regional raises its profile, it also stimulates greater attention from competitors.
Europe has dealt with brands crossing borders, but this has mainly been amongst LCCs where regulations are in place and even encourage this growth. But a foreign, non-EU brand flying in the EU is bound to raise ire, despite the fact that the real issue is not about name but about those ragged old bilateral concepts, ownership and control.
It may raise issues similar to those the Virgin Group fought in the US with Virgin America. Meanwhile, in Asia there are now some murmurings about whether the pan-Asian LCCs have over-stepped the mark by extending their brand across different operating regimes, all part of breaking down the old protectionist regulatory regime. Lufthansa is surely the most upset and likely to be the most vocal. Air France might have been too, but it is now a (cautious) partner with Etihad, although many of Etihad Regional's destinations are close to Air France's backyard.
The voice of small communities may ultimately overpower Europe's mighty legacies. Cambridge Airport for one was quick to issue a statement about the growth Etihad Regional will bring. It will take some time to see the competitive impact on incumbents and their hubs. Profit from Etihad Regional and Darwin Airline may be a poor measure since the revenue share between connecting itineraries could theoretically be split in a multitude of ways.
The logic is in place for Etihad Regional, but the market will ultimately vote. There is certainly no lack of further regional operations available for a takeover, but large or liberalised markets are few.
There is also a large opportunity for scale to be brought to regional operators, but this becomes challenging the smaller and more local the operation becomes. airberlin and Etihad may seek maintenance synergies for their 787s, which by their nature fly to numerous destinations and potential maintenance locations.
But a regional carrier in Europe and a hypothetical future one on another continent will be more challenged to achieve such a cost-saving measure. The benefits may be higher the closer the regional operations are, assuming there is not too much overlap. And joint purchasing is still an option as new regionals are added to the team.
Yet complete integration cannot be the outcome for Etihad while existing regulatory constraints apply.
In these relationships and investments there are pushes and pulls, with the ultimate rationale being that as long as the airlines are close enough, the sum is greater than the parts. There is much room for further efficiency and scale in aviation. The Gulf carrier is seeking to coordinate that – and to benefit from it. Etihad's move is almost certainly the logical way forward for the industry to evolve. But there are still many sceptics about the theory of evolution in aviation.
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