Etihad net loss of $1.87bn due to Alitalia and Airberlin costs despite record passenger numbers

Etihad said it recorded a US$1.87 billion loss in 2016 after a one-off impairment on aircraft and equity investments in partner airlines Alitalia and AirBerlin outweighed growth of passengers to a record.  
The airline said an increase in competition in the airline business globally as well as slowdown in economic growth regionally also weighed on results in addition to losses related to fuel hedging. 
Despite those challenges, however, passengers carried by the airline rose to 18.5 million last year and total revenues fell only marginally to $8.36bn last year from $9bn in 2015.  
"A culmination of factors contributed to the disappointing results for 2016. The board and executive team have been working since last year to address the issues and challenges through a comprehensive strategic review aimed at driving improved performance across the group, which includes a full review of our airline equity partnership strategy," said Mohamed Al Mazrouei, the chairman of Etihad Aviation Group.  
"The record passenger numbers in 2016 affirm Etihad's role as a significant economic enabler for Abu Dhabi, and our airline business continues to support Abu Dhabi's vision to develop tourism, grow commerce and strengthen links to key regional and international markets."
Other industry players have also reported a drop in profitability. Profit at Emirates airline in the financial year ending March 31 fell by 82.5 per cent year-on-year to Dh1.25bn as the airline industry suffered from rising capacity, lower demand because of terrorism fears and a slowdown in oil-based economies. 
Low-cost carrier flydubai also reported a 69 per cent decline in earnings in 2016 because of the challenging operating environment.
The $1.9bn in impairments registered by Etihad included a $1.06bn charge on depreciation of value on aircraft as well as phasing out of certain aircraft types. It also included a loss of $808 million related to charges on assets and financial exposure to Alitalia and Airberlin. 
The Italian carrier was put into administration in May following a €2bn (Dh8.56bn) recapitalisation deal that was vetoed by Alitalia employees. 
Eithad acquired a 49 per cent stake in Alitalia in 2014 as part of its global expansion drive, with a view to making the airline profitable again by 2017. But the airline's passenger numbers continued to fall amid stiff competition from low-cost carriers including Ryanair. 
The Italian government put the airline up for sale in May, in a bid to avert its liquidation.  
The poor performance of Alitalia, alongside other subsidiaries including Germany's AirBerlin, led Etihad to launch a review of its international investment strategy late last year. 
James Hogan, widely seen as the pioneer of that strategy, left the airline this month.   
"Ploughing in endless sums of money was never the answer without real structural change and it's apparent that Etihad wants to take the financial hit now, draw a line in the sand and move on," said Saj Ahmad, the chief analyst at StrategicAero Research in Dubai.  
"Yes, the loss is big – there's no escaping that. But it would have been worse had Etihad not done the write down now." 
Mr Ahmad said, however, that on the flip side that the growth in passenger numbers was encouraging showing the airline was on a firm footing. 
Still, he noted that growing capacity for the industry remains a concern that airlines will have to contend with. 
"We are focused on maintaining the solid performance of our core airline business – operationally and financially – even amid difficult market headwinds. At the same time, we continue to implement changes across the group as part of the comprehensive strategic review, with a focus on improving revenues and reducing costs," said Ray Gammell, the interim group chief executive of Etihad Airways.