Etihad CEO James Hogan is trying to build the best airline in the world. So why the criticism?
You’ve got a virtually bottomless pit of money, and you want to establish an airline. Who would you put in charge? Abu Dhabi, when forming Etihad back in 2003, went for James Hogan, and after an hour spent on the other side of the table, listening to him proudly extolling the virtues of the UAE’s national carrier, so would you. It’s no mean feat, growing an airline to take on the world in the shadow of the planet-straddling goliath that Emirates resembles more and more today, but that is exactly what the softly spoken Hogan is doing, and rather more quickly than the critics give him credit for.
“No airline in the history of aviation has achieved what we have in this period of time: the ramp up of business, the positioning of the global brand, the destinations,” Hogan says flatly. This isn’t conjecture, he explains, it’s fact; the findings of a recently completed independent analysis of Etihad by consultants Booz Allen Hamilton bear him out.
According to Booz, it took rival Emirates just over 18 years to achieve passenger figures of 7.1 million a year, while Qatar Airways got to the same point after 13 years of toil. Etihad, the figures attest, did it in seven. The growth has been explosive, and you don’t need to go as far back as 2003 for instructive comparison. In 2005, Etihad flew 1.5 million passengers to 16 destinations on nine aircraft, with an average load factor of 60 percent. It had 3000 staff. This year, the airline will ferry 7.1 million people to 64 international airports with a fleet of 55 planes. The average load factor on those planes will be 75 percent. And 8000 people will call Hogan “boss”.
If money wasn’t an object when the airline started - and many rivals would have you believe it wasn’t - it isn’t the case now. The Red Crescent Society is the UAE’s major state-backed charity, not Etihad. Hogan knows he must deliver a profit-making airline, and quickly. The UAE’s ruler (rather coyly referred to by Hogan throughout the interview as “the shareholder”) is the de facto owner of Etihad, and its his intention to achieve three objectives: namely, that Etihad is the best, that it supports the emirate’s 2030 grand plan, and that it is profitable. Profitability is going happen, Hogan says. It was going to happen this year, or break even at least, but then the financial crisis came along. Grimacing, he says: “The sad thing about the financial crisis is that we were on track for [break-even] this year. In 2007 and 2008 we hit our numbers. We hit our numbers in the first half of 2009, and then the yields went through the floor. What we have said to the shareholder is we believe that as the market recovers, by the end of next year we can achieve that break-even.”
And from the sound of it, the market is recovering. Barring another crisis, the omens for profitability look good. “There are two components of our business that we track to indicate the way forward. First, cargo, which went through the floor, but is now back at over 2008 levels in tonnage and yields and revenue, and exceeding our business plan,” he says. “In regard to passenger traffic, what we are seeing is all regions of the world - Australia, South East Asia, Middle East, the Americas - are coming back to strong levels. What is weak is Europe and that is probably a reflection of the austerity programmes in Greece, France, Germany and so on.”
However, Hogan believes Europe as a market is “holding on,” and seems optimistic it will pick up soon enough. He has good reason to be optimistic. Even with weak European passenger volumes, loads are tracking at 70-75 percent levels, exactly as had been hoped for. In fact, over the summer this number has moved up to the 78 percent level, getting up to the 80 percent factor. Of course, it is one thing filling the plane and another getting people to pay what they once were prepared to for their seat. Hogan agrees: “The yield factor is the issue because last year the first and business passengers disappeared. Business is coming back, first is coming back, but not as fast.”
Given its relatively recent entry into the market, it is surprising how much Etihad comes in for criticism. Only six months ago, Cathay Pacific CEO Tony Tyler was interviewed on these pages; an opportunity he used to sound off about perceived advantages he believed came with being the official carrier of a country with enormous reserves of oil. To hear him tell it, Etihad and the Gulf carriers were a bunch of arrivistes who might be able to buy awards, but whose service culture lagged a good two decades behind both his airline’s and that of the other established Asian carriers.
“Well that is his view. I think the key indicator is to look at the Skytrax ratings, and you see that Emirates, Qatar and Etihad are all rated in the top ten. We have gone from 52 to number six in three years,” reflects Hogan. “In regard to his comments on the financial structure of Gulf carriers. Well he hasn’t seen our financial structure. He’s making comments about free fuel. Now that is such...” and for a moment he is lost for words.
“These (rumours) are thrown as reasons why we are successful. The reason we are successful is we are new, we are at a crossroad of the world, we have got a great product and the customer is deciding how he wishes to travel. Yes, we have the advantage of no income tax here, but that is the case for all companies in the UAE and most of the Gulf.”