CEO Interview: Etihad - Staying Focused
The good outweighs the bad in the air transport industry's future, says James Hogan, President and CEO of Etihad Airways.
Passenger numbers grew 30% in the first six months of 2012 compared with the previous year. Can you continue growing at such an extraordinary rate?
We’re proud of the fact that since we started operations in November 2003, we have become one of the fastest growing airlines in the history of commercial aviation. We will continue to have ambitious growth plans moving forward, but will do so in a planned, measured and commercially sustainable manner.
We have a great deal to look forward to. Next year, we will launch flights to Washington DC, (March, 2013), Sao Paulo, (June, 2013) and Ho Chi Minh City, (October, 2013). And for the remainder of the decade, we will have in excess of 90 aircraft delivered, including 10 Airbus A380s. In 2013 alone we will take delivery of 14 aircraft.
Our goal is to be a profitable, sustainable business growing in line with Abu Dhabi. By 2020, we plan to be a major global business, with potentially 25 million passengers per year, 27,000 employees and up to 100 destinations.
Where are the bottlenecks to growth?
The Middle East region has spent $100 billion on airport projects and has some of the most business-friendly governments in the world. Investment on the ground needs to be matched with investment in air traffic management, but we feel that the United Arab Emirates is making strong progress in both areas.
There are, of course, the challenging economic conditions that remain across the globe—lower growth and stagnating passenger and cargo traffic in European markets.
But people sometimes forget the geography of the Gulf. There is a huge opportunity in India and there are many other emerging markets within a relatively short flying time. The Arab Spring has also helped to unlock the potential within the Middle East. On top of this, we have very strong traffic out of Australia and Asia into Europe, and the markets in China and Latin America are growing too. In terms of our global network, the positives certainly outweigh the negatives.
Still, it’s very important to manage our outgoings. Fuel is our largest variable cost with prices tracking 34% higher than 2011. We have had a hedging program in place since 2007. As part of our three-year rolling program, we are hedged up to 80% for the first 12 months, and 50% and 25% for the subsequent years.
Yields, particularly in Premium classes, remain a major challenge. The upside here is that I don’t have a legacy overlay to tackle— Etihad Airways started from scratch and so our operating unit cost is very low.
How about the manufacturers? Are you confident they will keep to delivery schedules?
The manufacturers keep us informed regularly about the development of aircraft to be delivered. We remain confident that the agreed delivery schedules will be met and that the flexibility built into our record-breaking aircraft orders in 2008 means we’ll have the right capacity at the right time.
Will you be able to find enough skilled personnel to handle your growth strategy?
More than 10,000 people work for Etihad Airways, with new, high-caliber joiners arriving every month to support our rapid expansion. They join one of the most cosmopolitan workforces in the world, comprising more than 120 different nations. We are a non-legacy, global brand, and people want to work here.
Active recruitment of employees will continue to be a focus to support the growth of Etihad Airways and our business objectives. We are presently recruiting staff to meet the 2013 aircraft delivery schedule, which makes provision for 14 aircraft.
And, as the national airline of the United Arab Emirates, we encourage and actively promote the recruitment and career development of UAE nationals within this workforce, with three key initiatives in place – the airline’s cadet pilot, graduate management development and technical engineer training programs. Emirati nationals presently comprise 21% of the workforce.
We have a continuous focus on building aviation-specific capability through training programs, working with local and international universities and other institutions. The Etihad Training Academy, which is now accredited by IATA, delivered almost 1,300 classroom-based courses to 12,700 participants in 2011. The adoption of our new online learning system was also very successful, with a 500% increase in web-based learning courses, providing an effective training solution for a global and mobile workforce.
Aviation has always been an attractive employment option for young people, despite the fact it has evolved considerably in the last few decades. Speaking for airlines in the Middle East, which form part of an emerging aviation hub, we are able to provide very competitive remuneration packages and a wide range of benefits including accommodation, sport and recreational facilities, education assistance for children, and discounted air travel and cargo, as well as access to medical care and insurance.
How important is cargo to your future strategy?
Cargo is a key element of our current and future growth strategy. At the moment, cargo generates roughly 20% of Etihad Airways’ total company revenue and we see that continuing to grow. While our freighter network has the ability to develop in its own right, we’re also conscious to link freighter capacity to the belly space in our growing number of passenger aircraft.
Over the next two years, we’ll take delivery of four new freighters: two Airbus A330-200Fs and two Boeing 777-200LRFs.
Utilizing freighters to cargo-specific destinations, but linking them to the passenger core network, maximizes the use of passenger belly space and dedicated freighter space. That means our strategy will continue to focus on cargo-specific destinations, but in a way that feeds and de-feeds passenger destinations.
What is the rationale behind taking a financial interest in other airlines?
Etihad Airways has pursued an effective strategy of forming alliances with carriers around the world to enhance its network and marketing reach.
Our three-pillar approach to achieve growth and sustainable financial performance is based on organic growth, code-share partnerships, and equity investment.
By building on the success of the organic growth achieved in our first seven years of operation, our code-shares and equity acquisitions are intended to give us the scale to compete on a global playing field. It also gives us the added advantage of cost savings achieved through synergies and economies of scale. Between Etihad Airways and airberlin, we have 56 Boeing 787s on order, with 15 of those destined for airberlin. Their aircraft will have the same business class cabin as Etihad Airways so there is some commonality in product.
The equity acquisition strategy is also designed to create a global footprint, extending our network and reaching new customer segments. Through Virgin Australia, we have opened up the Australian market. And through airberlin we have access to the largest outbound market in Europe.
You’ve extended the Etihad Airways loyalty program to cover Air Seychelles as well. Are you in effect creating your own airline alliance?
Our objective is not to create our own airline alliance but to partner with like-minded airlines who share the same vision. Each airline still has its own bottom line and its own strategy. More than anything else, we look for an airline with a strong management team with a strong vision. We’re certainly not looking to take on somebody else’s problems.
Our partnership strategy offers a new model of global airline development. It’s important to be the right size and shape to serve the global market. We have 36 code shares to stretch our market for the customer and we will continue to look for opportunities that deliver commercial benefits to Etihad Airways.
What role will self-service technology play in your strategy? Is take-up as fast in the Middle East as it has been elsewhere?
One of the biggest advantages that Etihad Airways has in building its business is the clean sheet of paper, with no legacy systems. Our self-service technology is an example of the initiatives allowing our customers greater freedom and flexibility in how they interact with the airline in the customer process. It also provides the airline with the means to lower costs and to capture ancillary revenue opportunities.
The Middle East is adopting new technologies very quickly, but it still has some way to go before it catches up to more mature markets. It’s important to note, however, that our customer base is not just the Middle East —it is truly global.
You have heavy sponsorship commitments. Tell us about your marketing strategy and your branding.
Over the years, the Etihad Airways brand identity has changed so that it drives and supports the company business plan.
It differentiates the airline from its competition and has evolved from the previous identity to position Etihad Airways as a leading global player. The visual identity has evolved too, in terms of logo, color palette and livery. The design also reflects the inspirational essence of the brand experience.
The primary objective for marketing is to support and drive revenue to achieve our commercial goal of being a sustainable, profitable airline.
International sports sponsorship plays a central role in our global marketing strategy. We are proud to support a range of sporting and cultural events in the United Arab Emirates and worldwide. These sponsorships are consistent with the airline’s values of hospitality, team spirit, and helping bring Abu Dhabi to the world and the world to Abu Dhabi.
Since launching, we have signed several major sponsorships in mainstream sporting events, as well as a number of tactical deals with country or region-specific sports. Major international sponsorship deals include Manchester City Football Club, Etihad Stadium, Harlequins Rugby Football Club and the All-Ireland Hurling Championships. Etihad Airways is the title sponsor of the Formula One Etihad Airways Abu Dhabi Grand Prix. We don’t differentiate our brand according to region though—every customer expects good service and that’s what we focus on.
What role do you see for social media? Is a channel to sell through or do you think it should be focused on customer service?
Social media provides both servicing and selling channels. Beyond that social media also allows us to engage in value-added dialogues with our customers to understand trends and requirements and also to manage issues more proactively. We can respond quickly to the market.
Social media also serves as an excellent promotional channel where the task of selling is combined with infotainment to promote products and services in an engaging way.
Our Facebook page was launched in the first quarter of 2011 and has more than 200,000 fans, which is a very pleasing result. We have also established a Twitter account and have more than 22,000 followers across four channels. Our YouTube posts have had close to six million views.
We see these new social media platforms as an important way for us to connect with our guests on a personal level and build emotional loyalty with our customers as they become advocates and fans.
Social media is an increasingly important part of our overall digital strategy and communications mix and we will continue to look at innovative ways to use our social media platforms. They will be a big part of our strategy as we move forward.
For more information, visit www.etihadairways.com