By Claire Ferris-Lay
The veteran Australian now faces his biggest ever challenge: turning the UAE national carrier Etihad Airways into profit by 2011.
SARS, wars, tsunamis, 9/11 -James Hogan has seen it all. But the veteran CEO now faces his toughest challenge yet: flying Etihad Airways into profit by 2011. Can he do it?
If Steven Spielberg were to film a modern-day version of Catch Me If you Can, he could do no worse than make Etihad's headquarters his set. With gleaming new surfaces and smart looking crew it is one of the few places that manages to recreate the glamour of the airline industry from days of old. There is certainly no hint of an impending strike or bad weather to wreck havoc with passengers' travel plans.
Like his shining new HQ, James Hogan, the CEO of the airline since October 2006, is on top form, optimistically looking forward to the year ahead. "We're bullish. It will be a tough year so like any business we'll have to focus on our costs but we're also growing," he says.
It's true that Hogan, along with a very small handful of Gulf airline CEOs, have had less to worry about than most other airline bosses. Executives in the west have been battling the worst global traffic declines since the Second World War but Gulf carriers have managed to buck the global trend, gaining new customers from Europe and Asia as they offer competitive prices and more convenient routes.
In December, regional airlines posted a 19.2 percent increase in passenger traffic compared to the previous year, according to the International Air Transport Association (IATA). The figures are a stark contrast from the rest of the industry, with the IATA director general and CEO, Giovanni Bisignani recently announcing that "2009 goes into the history books as the worst year the industry has ever seen."
In spite of the effects of the economic downturn, Hogan - a veteran of the industry having previously run Bahrain-based Gulf Air and the British airline, bmi - continued to grow the Abu Dhabi-based carrier. He managed to successfully expand its fleet by 11 aircraft and launch eight new routes - Melbourne, Asana, Istanbul, Athens, Larnaca, Chicago, Cape Town and Hyderabad - to grow its overall capacity by 18 percent.
Despite industry warnings of another tough year ahead, Hogan remains upbeat. "Aviation is a very cyclical business, if you look at the last 20 years, whether it be SARS, the war, tsunami, 9/11 - after every crisis - the industry is pretty resilient... I'm bullish about the opportunity of moving forward," he says.
But that's not to say Etihad didn't suffer at all. A combination of the impact of the downturn coupled with the spread of H1N1 meant pushing back the airline's profitability target by one year. Does he think the new date, 2011, is achievable? "If the yield comes in 2010 and 2011, I'm comfortable we can achieve that. Our costs are under control, the brand continues to improve. So, yes."
Traffic from the UAE, Gulf carriers' largest market, also declined by 45 percent. "[The] Middle East also had the problem that the local market didn't travel because of the pandemic last year [and] the global financial crisis. The UAE as a market was down 45 percent, now traditionally for the Gulf carriers the UAE is our highest yielding market so we had a double hit on the value of the ticket."
In a bid to boost regional traffic, the airline increased its advertising in European and Asian markets. The move paid off. According to IATA figures, passenger traffic for Etihad and Emirates Airline combined increased by 11.2 percent.
Much of this traffic, Hogan explains, came from new secondary routes the carrier launched to rival more established airlines who cannot compete with Etihad's new one-stop or direct routes, and new airplanes. "We see out of markets like Brussels, Dublin, Milan, those secondary airports, good traffic flows because people traditionally would have had to go over one of the European hubs to come east," he says.
"We only started flying to Chicago in October and we are now operating at 70 percent full. This is partly because of our code share with American Airlines, it's also partly because the American [and] Arab-American market don't have to travel over London, Frankfurt or Paris [going instead] straight into Abu Dhabi," he adds.He is also hoping a return to more responsible prices will boost further passenger figures this year. "What we see as an industry is the need to see more responsible pricing as we move forward worldwide."
In 2009, the carrier - still only six years old - placed orders for 205 planes but this didn't stop it continuing to expand further amid the downturn.
At the Paris Air Show in May, it ordered 469 engines and confirmed orders for 239 engines. This was followed by additional deals with engine makers GE, Rolls Royce and Alliance in June. This time the order included 100 firm orders and the purchase rights for 105 aircraft, all of which are expected to be delivered in 2011-2020.
This year, the airline will add an additional three new Airbus aircraft to its fleet. It is also patiently awaiting the arrival of the 35 Boeing 787 Dreamliners it has on order. Delivery of the new plane, which Hogan describes as "a revolution in aircraft design", has been delayed five times due to technical glitches.
Frustrated at the delays fellow-Gulf carrier CEO, Akbar Al Baker of Qatar Airways, issued an ultimatum to the plane maker, threatening to cancel his orders if there were any further delays. "I am not playing with words... I want my aircraft earlier," he told the BBC's Hardtalk, adding: "We gave them ultimatum to accept the conditions because they have been continuously delaying the delivery."
If Hogan is as irritated at the delays as Al Baker, he hides it well. "We are confident now that the aircraft is flying. We work very closely with the manufacturer and I am confident from what we have been told about the date, we will see an airplane in 2014," he continues. "If you look at the history of aviation every new aircraft that comes out has issues. The A380 had its wiring issue so we're very confident that the Dreamliner... is going to be a great aircraft."
This year, the Etihad boss has two major tasks on his hands; growing the brand's awareness in new markets and boosting business class traffic, a segmentation which is currently 20 percent lower globally than traffic levels posted in early 2008. Hogan adds that Etihad is already starting to see some signs of improvement on the long haul flights to America and Australia.
"The 14-hour flights [are] very strong because if you are going to fly that length of time you are going to want a bed and one thing we do for such a new product is guarantee a bed on all of our wide bodied aircraft - some airlines can't offer that."
It will also add an additional two routes in Japan (Nagoya and Narita) and also plans to reinstate its route to Sri Lanka, a hub it pulled out of two and a half years ago.
Abu Dhabi's presence on the global map is also helping to improve passenger traffic. Testament to this is the spike in online ticket sales during the capital's first Grand Prix in November. "What is good is that Abu Dhabi with the Grand Prix; we are seeing more conferences to Abu Dhabi. We're seeing more businesses being established in Abu Dhabi so as Abu Dhabi grows that also helps Etihad; we help each other," he explains.
Whether this turns Etihad into profit during 2011 will also dictate Hogan's legacy.
After noting the comments above by Mr Hogan himself following the tenure at Gul Air, is there any key lessons that were learnt there so as not to repeat the mistakes, if any, that were made to stimulate the still in progress nose dive? And following the interview, today 25 July 2010 on cnn, which markets promise better growth into the future particularly on the new Cape Town direct route i.e. the west or the east? And looking at africa in general do you foresee any likelihood for growth. I would very much like to hear from you.