Etihad to brighten Virgin’s blues?

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By Andrew Heasley  www.smh.com.au

When flight VA29 releases the chocks and accelerates down Sydney tarmac for lift off to Abu Dhabi at 4.05pm, it’ll consummate the marriage — indeed carriage — of convenience between two aspiring airlines, Virgin Blue and Etihad Airways.

Etihad AirwaysThe tie up will see 27 flights a week between Australia and the capital of the United Arab Emirates, Abu Dhabi, with Virgin Blue’s international brand V Australia today starting the first of its three weekly Boeing 777 flights from Sydney.

Regulators have allowed Etihad and Virgin Blue to engage in a strong alliance, including joint scheduling and pricing, a full codeshare, reciprocal technical support, staff exchange, shared ground handling and allow passengers to earn and burn points on either airlines with reciprocal lounge access rights.

For Etihad, it gets an important feeder airline to its network with the prospect lots of ex-pat Australian passengers working in the Middle East.

Virgin Blue gets access to an entensive international network — to Europe, the Middle East, India, to North America — it could not afford to build itself.

“Had we gone out and decided to fly those routes on our own with an equivalent amount of capacity [to the joint venture] we would have had to buy, depending on the aircraft size, between 30 and 50 aircraft — that’s a massive capital expenditure program,” said Virgin Blue chief executive John Borghetti, estimating such a cost at $10 billion.

Together the airlines can start to fill the other gap they both face: corporate flyer accounts.

“Importantly [there’s] the frequent flyer proposition that these carriers provide that we wouldn’t otherwise have access to,” Mr Borghetti said.

Virgin Blue, via its virtual network with Etihad, Virgin Atlantic, Air New Zealand and other codeshare partners, was now able to offer 150 destinations worldwide. If the proposed tie-up with Delta Airlines is approved by regulators, that network will jump to nearly 400 international destinations.

Mr Borghetti revealed yesterday that even before VA29 fuels up for its maiden Abu Dhabi flight, already 18,000 people had booked on the joint service.

The dalliance between Etihad and Virgin Blue began miles from home, during an overseas conference last June.

Then, the bosses of Virgin Blue and Etihad — Mr Borghetti and James Hogan respectively — committed the airlines to a short courtship with a view to the airlines signing the registry 30 days later.

Like many a fresh coupling, it broke up existing relationships: between Etihad and Qantas, and Virgin and Emirates.

The irony in this is that Etihad and Qantas’ relationship was forged when Mr Borghetti was the Flying Kangaroo’s commercial director.

As Mr Hogan tells it, he received word during the International Air Transport Association conference in Berlin last June that Qantas wasn’t interested in developing a deeper alliance.

“After John moved on … Qantas management decided they didn’t want to pursue a full codeshare/frequent flyer partnership. When that became obvious to me, I spoke with John at about the same time that it was announced he was the new chief executive officer for Virgin Group Australia,” he said.

It helped that the two airline chiefs are both Melburnians, having both been in and around Australian aviation for decades.

“Unbeknown to me, John was considering ways to stretch his own network.

“We met in Singapore [in July] and agreed within 30 days we would enter into this new partnership – a full network partnership on all destinations on our respective operations worldwide, and earn and burn on each others’ metal and, with ACCC approval, to price and target the corporate market.

“In August, we signed the deal.”

For Qantas, it had other plans, involving its no-frills sibling Jetstar, which, with the delivery of new long-range Boeing 787 Dreamliners at the end of next year, could see it fly one-stop to southern Europe (Rome, Athens, perhaps Paris and Barcelona), re-opening routes that its big brother Qantas abandoned because it was losing money.

Etihad’s chief executive James Hogan says Qantas’ reluctance to develop deeper ties was due in part to their British Airways alliance.

“They [Qantas] wanted a limited partnership with us, I wanted a fully integrated partnership, and that’s why I moved on,” Mr Hogan said.

Mr Hogan — who began at Ansett in 1975 and moved up through airlines, car rental companies and hotels — took the helm at Etihad in September 2006, after leading another Arabian airline, Gulf Air, for four years.

When he walked in, Etihad was a fledgling carrier, having started up just three years earlier.

It suffered from limited brand awareness, had no scale of operations, a small mixed fleet unsuited to network connectivity, had limited alliance partners and was immature in aviation finance markets, Hogan admits.

Five years later, Mr Hogan has added 35 aircraft to create a total fleet of 54 planes flying to 66 destinations (up from 33).

Mr Hogan says the seven-year-old airline has a non-unionised but well-paid workforce now numbering 8000, with planes in the fleet averaging just 3.5 years old.

What remains is a hunger for prosperity — to be simply, as Mr Hogan puts it “to be the best airline in the world”.

And for Etihad, geography and technological advances are now playing to the airline’s advantage.

Back in the 1960s, the Kangaroo route to London was just that — a long series of short hops — from Sydney, to Darwin, Singapore, Calcutta, Karachi, Bahrain and via Marseille — because of limited airliner flying range.

By the 1980s, that had become a stop in the South-East Asian hubs of Hong Kong, Bangkok and Singapore — but that’s still a long way from multitudinous European destinations.

Now with extended range aircraft, for Etihad and V Australia customers it’s one stop to Europe via the Middle East, with many destinations in southern and northern Europe, Russia and the Ukraine and north Africa within four hours’ flight.

The Middle East has become a “natural hub” Mr Hogan says.

And while Etihad faces competition from the colossus of Emirates (and its Dubai hub) and an equally ambitious Qatar (and its Doha hub, the city that beat Australia to host the 2022 World Cup soccer contest), Mr Hogan thinks the airline and its Abu Dhabi home base is on track.

The city has a plan for 2030 — an ambitious vision that has seen it positioning itself as the “Paris” of the Middle East, rather than the glitzy “Vegas” of its northern rival, Dubai.

It’s attracting outposts of the Sorbonne University, the Guggenheim museum, the Louvre and New York University as it seeks to become internationalised and service the needs of expat families.

There’s the no-small matter that the airline is yet to turn a profit, But Mr Hogan says it’s on track to break even by the end of the year.

Mr Hogan cites a Booz & Company analysis (based partly on “data interpolation”, or sophisticated estimates) that found by passengers carried, Etihad has done in seven years what it took Qatar Airways to do in 13 years, and Emirates 18 years.

And Mr Hogan describes the “myths” that have been levelled at the airline: that it gets government subsidies, free fuel, low airport and landing charges, cheap labour and pays no tax.

Not true, Mr Hogan says. Yes, at start-up the airline was capitalised by the UAE government “just like legacy flag carriers before us” but enjoys no sovereign guarantees, pays market rates for fuel, get no cut rates at its home airport, pays “generous” salary packages to attract the right staff and pays tax in 43 overseas countries where the airline flies.

Mr Hogan says Qantas, which took a swing at Middle East carriers and in part blamed them for the losses on its international service, should just get on with it.

“We’re here, and they could be here too,” he said.

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