King Of The Skies: James Hogan Interview

Etihad Airways, of which James Hogan is president and CEO, grows seemingly by the day. Where once the airline was in danger of being overshadowed by industry goliath Emirates, headquartered only 90 minutes’ drive away in Dubai, Etihad today pursues an aggressive growth strategy that focuses as much on achieving quality as it does fleet size.

Today, it is nearly impossible to pick up a newspaper and not see Etihad’s name writ large, whether it be through the carrier’s numerous high profile sports sponsorships or the signing of ambitious equity partnerships around the planet. A flag carrier for Abu Dhabi wherever it goes, Etihad strives to promote the best of modern Arabian hospitality and culture.

Here Hogan gives an insight into the strategy he hopes will see Etihad continue to grow and prosper.

How big an airline, in terms of fleet size, do you want Etihad to become?

Our current fleet is 83 aircraft, and by the end of 2013 we will have 87. By 2020 we plan to almost double this number, with firm orders for new aircraft including 10 Airbus A380 super jumbos and 41 next-generation Boeing 787-9 Dreamliner aircraft. Both types will enter our fleet from late 2014, and 12 new Airbus A350- 1000 aircraft will arrive from 2017.

In addition to firm orders, we have a large number of options for additional wide bodied and narrow bodied aircraft, and recently announced the purchase of five ultra-long range Boeing 777-200LR aircraft which we are acquiring from Air India and will introduce by mid next year. We are also close to concluding detailed negotiations with both Airbus and Boeing concerning our fleet requirements beyond 2020.

Why are strategic equity partnerships with other carriers so important? Would it not be simpler to join one of the big alliances?

Air transport is a global business but global reach is beyond the capability of any single airline. Meaningful growth can only occur through strategic partnerships.

Etihad Airways is just 10 years old, and as such we are much smaller than many of our competitors, some of which have been flying for almost 90 years.

For us to achieve the scale that our major competitors have, we need to work with like-minded partners in order to achieve either a presence in, or deeper access to, key markets.

In addition to our own organic growth and an ever-increasing range of codeshare partners, we have created the world’s first airline equity alliance, in which we acquire minority stakes in strategically- important carriers, then grow together to meet each other’s needs.

We have equity stakes in Air Berlin, Air Seychelles, Virgin Australia and Aer Lingus, we are awaiting regulatory approval to acquire 24 per cent of India’s Jet Airways and we have reached an agreement to acquire 49 per cent of Serbia’s national airline, Air Serbia, currently trading as Jat Airways.

Commercial partnerships or membership of legacy alliances are good for delivering revenue growth between partner airlines.

Could you describe your plans to fully realise the potential of the Indian market over the coming years, and how exciting is that market?

India is an extraordinary market. The population is 1.2 billion. The country’s middle class is not only growing, but growing more affluent. And the number of Indians travelling by air is increasing rapidly. Last year, around 42 million people travelled by air in India. By 2016, the International Air Transport Association expects this number to more than double.

India is a key market of the future for Etihad Airways – but not just for services to and from the country.

We also want to participate within the Indian market, and under the Government’s Foreign Direct Investment rules it is now possible to do so by investing in the Indian airline industry.

We have chosen to do so through the acquisition of 24 per cent of the Indian carrier Jet Airways. The deal will not only contribute significantly to the Indian economy but offer significant new options for travellers to, from and within India by leveraging the network strengths of both airlines and maximising efficiencies through resource sharing, linked expansion and joint cost containment measures. What we plan is a first for the Indian airline industry.

Do you believe Gulf carriers such as Etihad compete on a level playing field with carriers in the US and Europe? What improvements could be made?

No, there is not a level playing field when competing with airlines based in Europe and the US. The major airlines in these markets have, in most cases, the support of large and long-established domestic operations, providing them with strong traffic feeds, established local brands and infrastructure and significant network offerings.

Etihad Airways is only 10 years old. We do not have access, in our own right, to domestic or regional routes in foreign markets. Instead, we rely on strategic partnerships or minority equity investments in other airlines in order to gain the scale and market access we require to compete effectively.

The challenges that we face include market access constraints, either as a result of restrictive bilateral arrangements or infrastructure limitations, both of which limit our growth.

Have you reviewed or do you plan to review your Dreamliner order in light of problems the aircraft’s manufacturer has encountered?

No. We have firm orders for 41 Boeing 787-9 Dreamliners and options for more, with the first to be delivered to us at the end of 2014. While we are an airline which prides itself on having a young, modern fleet, we are never the first to introduce a new aircraft type. This is our choice. We prefer to wait until new aircraft types have entered service with other carriers, and any technical issues are resolved, before we introduce the same models. In addition to the Dreamliner, we will also introduce the Airbus A380 super jumbo late in 2014 and the Airbus A350-1000 from 2017.

IATA chief Tony Tyler said recently the airline industry makes a paltry $4 profit on each passenger. What measures is Etihad adopting to improve profitability?

There are no standalone initiatives which improve profitability. Our strategy is based on the creation of a new business model for the airline industry, in which revenue growth and cost reduction are both achieved through partnerships with like-minded carriers.

The most significant element of our partnership model is our strategy of minority investments in other airlines, not only to deliver revenue growth through network and sales synergies, but also to jointly reduce costs through resource sharing and other joint activities including coordinated procurement.

For example, we provide training at our Abu Dhabi base for the pilots and cabin crews of a number of partner airlines, and we continue to explore other efficiency and productivity gains through measures ranging from joint sales and marketing activities to common ground handling.

Etihad introduced onboard chefs and flying nannies… what other innovations are being considered? Also, how much cooking can a chef actually do in the air without access to a naked flame?

We’re continually innovating and have some big plans, including for our new Airbus A380 and Boeing 787 aircraft, which will enter service late next year.

We benchmark our premium service not against other airlines but against the best hotels and restaurants in the world. In our first class cabins we have introduced internationally trained chefs –120 at present – while in business class we have employed more than 160 food and beverage managers. As we expand our services, we’ll increase the number of inflight catering experts.

As for the capabilities of our onboard chefs – we have quite an array of cooking equipment including electric skillets which enable our chefs to prepare and cook a wide range of meals, from poached eggs, steak just the way our guests want it cooked, to more unusual requests. We’ve created scones, soufflés, even birthday cakes for guests. We’re always considering new ways to improve our product offering, and right now are considering additional on-board equipment to provide even greater in-flight catering flexibility and even more choice.

What is, in terms of competition, the biggest threat the all-powerful Gulf carriers face today?

For Etihad Airways, the largest competitive challenges come from other Gulf carriers, which are larger and more established than we are. We also face significant competition from a range of major competitors in other key markets, so need to constantly be not only price-competitive but also product-competitive, which explains our commitment to constant innovation.

Another barrier to competition is bilateral constraint, through which access to certain markets is regulated, often to the benefit of national carriers.

Frequently, these measures are taken to protect less-efficient local airlines, when in fact a more liberal approach to market access can deliver strong growth for all participating airlines and much greater benefits for travelers.

How do you like to unwind after a hard day in the office?

When time permits, I unwind by watching sport or reading to keep up with world events, or purely to relax. I’m a big fan of rugby union and cricket, I enjoy the hurling from Ireland – and, of course not forgetting, Australian rules football.