By Courtney Trenwith
Airline chief James Hogan says emerging markets are reshaping world's airline industry
The global air travel map is being redrawn as emerging markets reshape the airline industry and new cities evolve as international hubs, according to Etihad Airways president and CEO James Hogan.
Airlines would need to dramatically change their business models if they wanted to survive in the new era of air travel, in which traditional markets were declining and regions such as India, Africa and the Middle East were experiencing rapid growth, Hogan said.
Speaking at the World Travel and Tourism Council global summit in Abu Dhabi on Wednesday, Hogan said airlines needed to redesign their networks to accommodate the changing traffic flows.
According to the International Air Transport Association (IATA), emerging markets represented the strongest growth in international passenger demand in 2012.
The Middle East was the fastest growing region, accounting for 15.4 percent of total demand growth, followed by Latin America (8.4 percent) and Africa (7.5 percent).
The IATA also found airlines and airports were not keeping pace with growing demand, with a near record international load factor of 78.9 percent recorded last year.
The Middle East passenger expansion came from increased capacity of 12.5 percent, with the region’s carriers significantly increasing network destinations and flight frequency, according to IATA.
Dubai International Airport has taken over Hong Kong as the second busiest airport in the world for passenger traffic, according to Airports Council International.
It is also the fastest growing airport globally, as measured by annual seat capacity growth, according to aviation intelligence company OAG.
Hogan said major new hubs in the Middle East were developing to support rapid economic growth in the Gulf region and to connect both new and traditional markets.
Dubai-based Emirates’ recent alliance with Australian flagship carrier Qantas epitomises the changing air travel landscape. Qantas will now stop-over in Dubai rather than Singapore during all of its European flights.
Hogan said the next generation of airlines would need “the vision and willingness to be different”, in order to cut costs, improve productivity and find affordable ways of accessing new markets.
“Airlines across the world need to adapt to ‘the new world’ and identify and tap into growth markets,” he said.
“The industry must source and train staff for this new growth, as well as explore cost-effective growth opportunities.”
Hogan said Etihad Airways had created a new three-pillared business model, based on organic growth, code-share partnerships and minority equity investments in other carriers.
This strategy was underpinned by development of Abu Dhabi as a new global air transport hub, connecting the networks of partner airlines.
He said the airline’s 42 code-share agreements had significantly helped boost its financial results, with code-share and equity partner revenue in Q1 of 2013 up 34 percent to $182m and partner contributions representing 20 percent of the total.
“Our equity investment proposition ensures commitment and obligation from both airlines and streamlines our entry into new markets, affordably and within foreign investment limits,” he said.
“This strategy helps us avoid the drawn-out process which applies for mergers and larger investments, and enables our continued expansion via established and respected global brands, while delivering reciprocal benefits to our partners, including access to our growing network and significant savings through activities including resource sharing and joint purchasing.”
Hogan said Etihad Airways strategy was to target growth markets and build “a new ‘Silk Road’” that connected markets via Abu Dhabi as a hub.