Etihad on climb power

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By Allan Jacob  www.khaleejtimes.com

ETIHAD Airways CEO James Hogan is quietly confident about the growth trajectory his airline will take in the future. His strategy is to build the network by developing partnerships with other airlines. Etihad has already put in place an ‘enriched business model’ which will take its expansion plans to the next level. Alliances and consolidation of services are being implemented, while digital platforms with a focus on the consumer are the next step forward.

Etihad Airways‘‘The most important person is the customer. So, if I give great customer service, people come back,’’ said Hogan over coffee at a Sydney hotel, overlooking the picturesque skyline on a sunny morning last week.

He’s not unduly worried about the competition and the charges levelled against Gulf carriers by some European airlines. ‘‘I don’t waste too much time complaining about the competition,’’ said the Etihad boss.

The burly Australian CEO is bullish about Abu Dhabi emerging as a major destination for business and leisure travellers with several infrastructure projects gaining steam. It’s defintely a win-win situation for the UAE capital and Etihad.

Excerpts from the conversation:

What is the significance and the opportunities you hope to derive from the tie-up with Virgin Blue?

Abu Dhabi is expanding rapidly with restaurants, malls, and shopping centres. And shopping…. Australians like shopping (laughing). So, whether it is a two-day stopover, or a week’s holiday, it’s a great opportunity as Abu Dhabi is a major transfer hub in the Gulf. That message, I believe, has gone out loud and clear. The other is the strong economic ties between Australia and Abu Dhabi. The improved services are good for cargo. It will foster links between Sydney and other Australian cities with Abu Dhabi.

For us to be able to work with an Australian carrier to compete in the market helps us in improving our seat factor, yield, means of sharing and how we market the route. For Virgin, the inbound opportunity…is huge, where they can actually sell within their system and feed traffic which traditionally go to British Airways and Qantas over London or Frankfurt. We are pretty excited about this.

Will the Virgin Blue partnership lead to a stake in the Australian airline by Etihad?

It’s more important to make the partnership work. We have made a major contribution to Australia with 27 flights a week. They have taken a bold step, the first Australian carrier to fly into the Middle East in 20 years and the first to fly into the UAE. That’s a pretty strong commitment, a first step by both of us. Let’s see what happens in the future.

What do experts and commentators have to say on the new partnership?

Most commentators down here are saying that it is probably the smartest move in Australian aviation in the last 20 years. From a strategic point of view, it is a smart move. Then there is our partnership with Air New Zealand.

Our strategy is to build our network by working with other airlines. One of the things we did going into this year is the enriched business model. In Melbourne last week, we signed an agreement with Armaguard to build a precious goods facility in Abu Dhabi. So when you think of artworks, Louvre, gems, bullion…most of that was coming out of Geneva and other European cities. Now we have Abu Dhabi.

Will the ongoing unrest in the region affect traffic?

Every year, unfortunately, we get volcanoes and snow in the UK and other parts of Europe. Challenges in the Middle East have had an impact on the seat factor, we’ve seen that in traffic. We had the crisis in Cairo, but are certainly bullish going into the first quarter. We are well hedged with regard to fuel with 75% hedged this year. Most established carriers hedge between 70 and 75%. Our hedging strategy has a three-year cycle and we are on our way to meeting our objective which is to break even this year. For next year, we are hedged just under 50%, and 12% in 2013.

What about new routes and the aircraft which will service them?

We are taking delivery of seven new aircraft this year. On routes..it’s a secret. From an operational point of view, I think one of the things the management team has done is to hit our numbers. We have created a brand since 2006. From number 52 on Skytrax to number six last year is good. We’ve got a great product, great service. Etihad is positioned to take advantage of tourism in Abu Dhabi. The mission part for us was hotel rooms and content, and that’s now coming online, coming together. I always talk about Abu Dhabi Inc when talking externally. With these major Abu Dhabi infrastructure projects coming online, our network improving and our 29 code-share partners integrated, the focus on Abu Dhabi will continue.

Are any new initiatives, campaigns going to be announced soon? A consolidated approach to the business….

A couple of initiatives are to be announced in the next few weeks. The guys down the road (referring to Emirates in Dubai) are running a great company and they have done a great job, but they are 26 years in the business. I think people don’t realise we are just seven years old. Obviously, there are areas to diversify. We are planning strong, integrated campaigns in international markets to bring people to Abu Dhabi. We have to make sure we make people get on board the aircraft….at the right price. When we look at areas of distribution, a digital platform is coming online by the end of this month where people can buy content. That means we are going to be more competitive. We are going to have very good content and greater access through the partners online with hyperlinks. It’s about sales….hotels, package, everything….car rentals. That upgraded platform comes online next month.

What about the purchase rights for 105 aircraft in 2008? Have you exercised your options?

We built the business plans on a compound average growth rate of 12.5% and that is reflective of what we saw in the 2030 plan and the tourism plan after 2030, which is part of the foundation of our fleet plan. In life, things change, so now, the first of the 10 A-380s arrives in 2014. We also have 35 Boeing 787s coming: the first one is due in the first quarter of 2014. But because there was a slide, as it was originally coming in 2013, we are bringing three 777s to bridge the gap. On purchase rights, we continue to discuss with both Airbus and Boeing on a rollover. It’s still within the plan. We have not exercised the purchase rights, but have exercised some of the options.

With Boeing, we have pushed back the 787s which are going to come over the next ten years and are bringing forward three 777s, which were already on Boeing’s order book.

When I came to Etihad, one of the problems was getting new aircraft. With this order book, we have greater flexibility.

Will you consider buying the new 747-8 which was unveiled last week?

We already booked 10 A-380s back in 2008. When we did the deal, we analysed the 747-8 against the A-380 and decided to go with Airbus. We’ve made our choice.

On the issue of more landing rights for Gulf carriers in Canada. Do you see a resolution soon?

That’s a federal issue and we hope it will be resolved at the government level. Canada has been a very successful market for us with three flights per week and 80% seat factor.  We would like to go daily to Toronto. We have the capability over the next five years to at least four US cities, one more Canadian city and one in South America.

How do you respond to complaints by some European airlines that export agencies are unfairly subsidising the growth of Middle East carriers like Etihad, Emirates and Qatar Airways?

I think the issue is competition. We are doing nothing different from what Singapore Airlines did back in the 1970s. They created a new airline, different work practices and took advantage of the Kangaroo route to Australia. They were the first to introduce free alcohol on board flights to Australia. They also fanned out to more destinations in Europe. Singapore Airlines built the Singapore Girl on the Kangaroo route. We’re doing nothing different from those carriers. European carriers have a legacy model to deal with and they talk about us being sovereign carriers. That’s muddying the water.

What’s my secret weapon? The carrier that we set up seven years ago. We’re running a great airline and we have to look after people properly (employees and passengers).  We’ve got the flexibilility to work smarter.

I was the COO of British Midland. The legacy model with unions took 50% of my time. All Gulf carriers have a clean sheet of paper to work on. In business, you either evolve, or die. You evolve, you work smarter, you repackage yourself.  I don’t waste too much time complaining about the competion. The most important person is the customer. So, if I give great customer service, people come back.

I don’t spend too much time looking backwards or sideways, I look forward. Europeans (airlines) are spending too much time looking backwards or sideways…in my opinion.

Will your next partnership, something similar to Virgin Blue, be from Europe?

We already have with us a number of European partners. Also from Japan, Korea and China. We are developing strong partnerships.

We are not going to be the size of Emirates, we’re going to peak at half their size. I’m open to partnering with other airlines as a responsible partner.

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