King of the Skies

Diana Milne

Back in September 2008 Business Management Middle East editor Diana Milne interviewed Etihad Airways CEO James Hogan about his companies plans to double its destinations and fly 25 million passengers by 2020. It's interesting to take a look back at the hopes and the fears of a major airline company before the worst of the economic crisis hit...

“As a relatively new airline and evolving brand, we can make decisions quickly without the burden that the older, more traditional airlines have”
-James Hogan, CEO of Etihad Airways

James Hogan is not a man who believes in doing things by halves. Five years ago Etihad Airways didn't even exist. Today the Abu Dhabi-based airline is a household name that has flown four million passengers to 50 destinations worldwide and has invested billions of dollars in new aircraft this year alone. And under Hogan's leadership it shows no sign of slowing down. In September he revealed to the American media that he planned to double the number of cities Etihad services to 100 and to fly 25million passengers by 2020. These goals will be supported by Etihad's US$43 billion shopping spree at the UK's Farnborough Air Show in July at which it purchased 55 Airbus aircraft and 45 aircraft from Boeing.

Etihad, like so many Middle Eastern companies, has experienced accelerated growth thanks to the region's abundant oil wealth - putting it on a par with more established western airlines, despite only being three years old. And according to Hogan it is precisely Etihad's relative youth that allows it to set such ambitious targets." One of the key advantages Etihad has is that it's not a legacy carrier," says Hogan "As a relatively new airline and evolving brand, we can make decisions quickly without the burden that the older, more traditional airlines have."

But while youth may give Etihad the edge over its more established rivals, it shares with them the threat posed by volatile oil prices.

Surviving the storm

Hogan is bullish on Etihad's prospects of surviving the storm, but admits the airline will have to make cut backs to meet the rising costs. "The high cost of fuel is a challenge and it's not one that is going is to disappear overnight," he says.

"Thankfully we've hedged aggressively and we have a strong focus on keeping costs that are within our influence under control. There are no plans for Etihad to compromise its customer service in order to cut the weight of our aircraft. However, the airline is currently pursuing a number of fuel saving initiatives, which are already realising significant savings on Etihad's aviation bill."

But while he may be looking to cut the costs of Etihad's fuel bills, Hogan has invested heavily in the continuing expansion of the airline - both by purchasing aircraft and by expanding its network of routes. Among the new destinations added to Etihad's network this year alone are Lagos, Melbourne, Chennai, Belarus, Kazakhstan and Moscow. And while that may sound impressive, Hogan says the list is just the tip of the iceberg for Etihad.

"To give you some idea of our intentions, we don't yet fly to places like Japan, Korea, or anywhere in South America. Currently we only serve New York in the USA and that situation will change," he says.

At Farnborough Etihad purchased a total of 205 planes - at a time when most airlines around the world are making cut backs. The growth of the airline is in many ways, concurrent with the growth of the Abu Dhabi as an international tourism and business destination and Hogan says he forecasts strong future demand from visitors to the emirate. This, he says, is why he spent US$43 billion at Farnborough: "The growth of Etihad Airways and Abu Dhabi are inextricably linked. We would not have made an order of this size and magnitude unless we had absolute confidence in the future success of the emirate, both from a tourist and business point of view. Our order reflects our belief in Abu Dhabi's future plans."

Rapidly strengthening business and tourism

Hogan has every reason to be confident. Approximately US$200 billion is to be invested the UAE capital in the next 10 years. Among the attractions set to put Abu Dhabi on the global map are Saadiyat Island which will feature a Ferrari theme park, racetrack, hotels and leisure facilities and Yas Island which will feature the Middle East's very own Guggenheim Museum and Louvre art gallery. Travel to the region is also set to continue to grow at a rate that far oustrips the global average. According to IATA, the Middle East witnessed growth of 18.1% in passenger traffic in 2007, compared to 7.4% growth in global traffic. It predicts growth in the region between now and 2015 to be around 7.1% - the highest of any region in the world compared to a global average of 5.3%. As well as capitalising on these growing numbers Hogan says he plans to continue to target niche travellers to the region. "We tap into many different markets - religious traffic, business, tourists, and people using the Middle East to connect to their final destination.

"Coupled with a rapidly strengthening business and tourism market, the Middle East is a recipe for success and Etihad is proud to play an integral part in it," says Hogan.

But Etihad faces hot competition in the aviation market and in order to increase passenger numbers it must invest not just in new aircraft and destinations, but also in strengthening recognition of the Etihad brand globally. Like neighbouring Emirates Airline, sports sponsorship has been a cornerstone of this strategy. Its most high profile sponsorship agreement to date is a three-year sponsorship deal with the Ferrari F1 team, which will see Etihad's logo displayed prominently on the Ferrari cars and on the drivers' uniforms. Etihad is also the official airline of Chelsea Football Club and closer to home it is the title sponsor of the Formula One Abu Dhabi Grand Prix, the official airline of the Abu Dhabi Golf Championship and sponsors the Abu Dhabi Harlequins Rugby Union Football Club.

Investment must also be directed towards ensuring the airline's image is an ethical one - particularly at a time when the spotlight has been turned on airlines in the bid to cut carbon emissions. Hogan is keen to emphasise that the airline is doing all it can to stay green. "We take our commitment to the environment seriously. Etihad operates one of the youngest and most environmentally-efficient fleets in the world. The average age of the fleet is three years meaning lower levels of emissions than older fleets. A key selection criterion in the Farnborough deal was the environmental performance of the aicraft. The new generation aircraft we have ordered from both Boeing and Airbus are amongst the most fuel efficient and will help maintain Etihad's fleet as one of the youngest and greenest in the sky." He goes on to say that the airline is currently developing policies to minimise its impact on the environment in line with Etihad's commitment to sustainability.

Social responsibility

In the area of social responsibility, Hogan says the airline is also keen to create and promote employment for Emirati nationals. Indeed, he says the participation by Emiratis in the airline's success story is one of his proudest achievements to date: "A particular issue which continues to please me is the increasing role that Emiratis are playing in the continued development of our airline. Etihad continues to build its Emiratisation scheme, which, by the end of 2008 will boast more than 100 participants across the cadet pilot, management trainee and technical engineering programmes. With Etihad's incredible growth set to continue, it is crucial that we develop our multi-talented, multi-cultural workforce with strong Emirati representation."

The expanding of Etihad's workforce and the favourable market conditions it enjoys in the Middle East are in sharp contrast to those in the West where crumbing financial markets and a looming recession are set to hit airlines' profit margins hard and will lead to mass redundancies. Earlier this year British Airways CEO Willie Walsh announced redundancies of 1800 and warned that he predicts 30 airlines will go bankrupt before Christmas. "We are in the worst trading environment the industry has ever seen," he said at the time, adding "We have seen 30 or so airlines go bust this year and it would be fair to expect a similar number of casualties worldwide over the next three to four months." The situation has prompted some to predict wealthy Middle East airlines such as Etihad could acquire struggling European airlines. Indeed there was media speculation this year that it was in "firm talks" over a possible US$1 billion merger with UK carrier BMI British Midland.

According to the reports, Etihad had approached Lufthansa, which holds a stake in BMI, and is believed to want to sell its stake for US$357 million. Such a stake would give Etihad the second strongest position at BA's home airport Heathrow. In a statement Etihad admitted it was considering such a move but said it had no definite plans to strike a deal at present, stating it had held "a number of discussions with a variety of carriers around the world", however it had "no firm talks planned with any airline or any proposals in the pipeline with any possible new carrier".

Hogan admits that Etihad is not immune to harm from the economic strife affecting the European and US aviation industries and that his airline must ensure it remains competitive in order to remain in business. "The aviation market remains incredibly competitive. The deteriorating economic situation in Europe and North America is amongst the headwinds that we face going forward. By continuing to focus on the customer experience and by providing the best service both in the air and on the ground, we will continue to achieve the challenging targets we set ourselves."

Deteriorating global economic conditions may lead some to describe Hogan's ambitious target-driven approach as unrealistic. But so far the airline has hit every one of its targets, making it the fastest growing commercial airline in history. And judging by this track record, there's nothing to say Etihad won't keep flying high.