Etihad was an airline that started when Gulf Air eliminated its Abu Dhabi hub and the ruling Al Nahyan family sought to preserve and grow the capital of the UAE as a center of aviation.

• They offered a high quality product
  
• They ordered planes and launched myriad destinations
  
• But to make it work they needed to push traffic through that hub. Towards that end they started buying stakes in troubled airlines, redirecting traffic from those carriers through Abu Dhabi.

But cash and ambition was never going to be enough to turn around carriers like Alitalia and air berlin. They were basket cases. And the ruling Al Nahyans finally decided to stop lighting money on fire as the price of energy fell. They axed the CEO of their airline who, ironically, they had poached in the first place from Gulf Air.

There’s been a parlor game for years speculating that Etihad and Emirates would merge. Emirates is based in Dubai, just over an hour’s drive away. The two airlines as competitors siphon off both connecting traffic from each other and origin/destination traffic in the UAE. (Etihad established Abu Dhabi as a base for international travel to and from Dubai even by offering premium cabin passengers complimentary car service anywhere in the UAE on both arrival and departure, and free buses for economy passengers.)

As Etihad has restructured itself amidst 10-figure losses the merger speculation has heated up.

• Last year there was a report that Emirates and Etihad were considering merging.
  
• Then in the fall Emirates CEO Tim Clark said he was open to working with Etihad, and offered a non-denial denial about a likely merger.
  
• In January we got an agreement signed by the CEOs of both airlines to collaborate on security information and for Emirates to provide training programs to Etihad.
  
• A couple of weeks ago Etihad’s CEO teased the possibility of a merger.

Now however Emirates Chairman Sheikh Ahmed bin Saeed Al Maktoum says their priority is integration with flyDubai and not doing a deal with Etihad — in fact he says they haven’t even discussed a merger with Etihad.

“Many people have reported there will be a merger,” Sheikh Ahmed said in an interview with Bloomberg Television. “There is no such thing. Not at all. I think when we talk about synergy today, it is between Emirates and FlyDubai.” There have never been talks with Etihad about a merger, he said.

Any deal would mean de-emphasizing Abu Dhabi as an aviation hub. That’s probably what should happen, but it would require the Al Nahyans eating crow. However the new Dubai Al Maktoum International Airport far closer to Abu Dhabi than Dubai International Airport is.

Emirates would benefit from eliminating their competitor an hour away (although that competitor is much-weakened today). Etihad may think their turnaround plan, cutting costs and unprofitable destinations while walking away from hemorrhaging international investments, may preserve Abu Dhabi as a connecting hub but a combined carrier would certainly be stronger.

Such unequivocal statements as it sounds like the Chairman of Emirates, part of the ruling family of Dubai, is making don’t always wind up being true. And of course saying “there is no such thing” does not mean “there will be no such thing” and even if formal merger talks haven’t happened notional discussions could well have occurred and be occurring.