Tony Douglas has had years of experience at the helm of some of Abu Dhabi's largest companies, but his newest challenge is to turn around the fortunes of national carrier Etihad Airways, and, so far, things appear to be moving in the right direction
"I know you are recording me, so I’ll be guarded,” Tony Douglas says, pointing to the dictaphone on the table in front of us as we sit in a boardroom at Etihad Airways HQ. Meeting up to talk about how he has managed to rein in costs and trim the Abu Dhabi carrier’s losses by more than a third since he was appointed two years ago, he appears in good spirits.
So, when Arabian Business brings up the persistent rumour that the airline is set to merge with bigger Dubai-based rival Emirates airline – the focus of a September 2018 Bloomberg report, which quoted anonymous sources – it certainly stokes his ire.
“I often fall about laughing because when Bloomberg ran that story, quite frankly it was the laziest piece of Thursday afternoon journalism I’ve ever seen. So, the clown who wrote it was probably no more than a clown as anyone could have written the story, quite frankly. But, not surprisingly, as a result of said clown writing said clownesque story, I’ve been asked this question 10,000 times.”
I often fall about laughing because when Bloomberg ran that story, quite frankly it was the laziest piece of Thursday afternoon journalism I’ve ever seen
His frustration is understandable. Despite the fact that the national carrier posted a $1.28bn loss for 2018 – the third consecutive year in the red – the figure is 15.4 percent lower than that reported in 2017 and 34 percent lower than that announced two years ago.
Douglas has managed to trim the losses by reducing total costs by $416m to $6.9bn. Direct operating costs were reduced by $226m, despite ongoing volatility in the oil market, and administration and general expenses declined by $190m, mainly as a result of lower indirect manpower and other administration savings.
“What I would say, the trajectory is what I was teasing out, the 34 percent over the last two years. So, in one way, that gives the sense that we are making the right steps in the right direction.
“We are very open in the knowledge that we still have a lot to do… Did you get lucky, or is this a function of hard graft? If you look at the ratios in there, yields [usually calculated as revenues per passenger kilometres] increased by 4 percent – that is by taking lossmaking routes out – cost has improved by 3 percent and I’m not including a massive increase in fuel.
"I guess it’s a clichéd way of describing it: in the world where little rocket science exists these days, it is back to basics.”
One of the big moves Douglas is proud of during the course of 2018 is brokering a deal with the two giant plane manufacturers – Boeing and Airbus – to cancel dozens of aircraft orders it no longer needs. Bloomberg last month put the value of the orders cancelled at around $22.5bn.
I hope you will see going forward, is an Etihad that is far more agile with what is going on with the market
“That was a massive turning point for us at Etihad. We have released ourselves from 100 aircrafts, which we were hither contractually obligated to accept, but we were not able to consume within our fleet.
“So, after extensive negotiations with Boeing, Airbus, GE and Rolls Royce – the engine providers – we are delighted that during the course of last year we were able to get ourselves out of those commitments and, with the brilliant support of Boeing, Airbus GE and Rolls Royce, in the way in which they have taken a long-term business partner view of the relationship with Etihad.”
One of the reasons the carrier is unlikely to need the fleet size it had previously projected is because it has started to take a much conservative approach to route development and expansion. Last year, a number of unprofitable routes were discontinued, including Tehran, Jaipur, Entebbe, Dallas/Fort Worth, Ho Chi Minh City, Dhaka, Dar es Salaam, Edinburgh and Perth.
“We did that because we are being far more dynamic and disciplined now, in which we look at route profitability and if we don’t believe [a route] is sustainable, we will no longer maintain it for the sake of maintaining it,” Douglas says.
“Equally, there are additional routes where we think there is opportunity that we [can] put more on. There is no rocket science behind it. I have been involved in aviation in one way or another for over 30 years and I guess way back then the networks were probably analysed once a year. I am with the persuasion that it needs to be a daily, weekly kind of thing; the market is so dynamic. Therefore, what you are seeing, and I hope you will see going forward, is an Etihad that is far more agile with what is going on with the market.”
We are making the right steps in the right direction. We are very open in the knowledge that we still have a lot to do
That’s not to say the airline isn’t adding routes or boosting capacity. It added Baku and Barcelona last year and it says that both routes have been “outperforming forecasts”. Frequencies have also been increased on some popular routes, including Toronto, Amman, Rome and the Maldives and larger aircraft have been deployed on Cairo, Casablanca, Jeddah, Rabat, Geneva, Kuala Lumpur, Rome, Paris, Jeddah, Beijing, Nagoya and Seoul Incheon.
“The whole network dynamic is something we review weekly. Therefore, over the course of this year, certain opportunities will present themselves,” Douglas says.
Despite the recent figures released by Etihad showing that the total number of passengers it carried last year dropped to 17.8 million, down from 18.6 million on 2017 and the average seat load factor fell from 78.5 percent in 2017 to 76.4 percent in 2018, the total passenger revenue during the period remained stable at $5bn.
In fact, Douglas predicts that the airline will move back in growth next year, at least in terms of kilometres travelled.
“I would say, in terms of the first comment about Boeing and Airbus and future orders, now that we have got clarity on that, we would probably expect to return back to growth in 2020, but it will be modest growth…. in seat kilometres,” he says.
Earlier this month, Douglas was in Saudi Arabia to announce that Etihad had struck a deal to expand its codeshare agreement with Saudi Arabian Airlines, better known as Saudia.
“With greater choice now available, more flexibility across both our schedules, and world-leading products and services, together, we now fly approximately 150 guests per day across each other’s networks. Our plan is to grow this number considerably through expansion of the codeshare agreement in the coming months, and to deliver more benefits to our customers,” Douglas said at the time.
He describes the announcement as an “important development” but warns that analysts should not see it as a return to the airline’s old policy of buying equity stakes in international airlines, but a move to realign itself closer to the region.
“I think what we have made quite clear is that we are not going to repeat the previous strategy, described as a quasi-alliance, where sometimes taking quite small shares in other airlines where we don’t have control.
“Regrettably, it is covered as a story with Alitalia and Air Berlin. What we do see is fantastic opportunities to build business partnerships…. The Saudia one makes a lot of sense in terms of regional connectivity and the way our network from [Abu Dhabi] can connect them and vice versa. That for us is a notable point,” he says.
Douglas’ predecessor James Hogan pursued a policy of expanding Eithad’s global reach by buying minority stakes in a number of struggling international airlines. While Etihad’s investments in Germany’s Air Berlin and Italy’s Alitalia couldn’t save the European airlines from going bust, the Abu Dhabi carrier still has stakes in Air Serbia (49 percent), Air Seychelles (40 percent), India’s Jet Airways (24 percent) and Virgin Australia (24.2 percent).
However, while Douglas quickly and clearly responds “no” when asked if he is planning to pull out of the remaining equity partnerships, like almost every aspect of the business at the moment, everything is being evaluated an under the spotlight.
There has been major speculation that Etihad will increase its investment in India’s Jet Airways, but Douglas would not be drawn on that issue at the moment: “That result presentation is just Etihad and not the broader network. It is specific to Etihad. We are doing a separate briefing [on Jet].”
One area he is keen to elaborate on is the carrier’s plans to be more flexible in its proposition and passenger options on board. Etihad in May 2014 unveiled new luxury living spaces for its A380 aircraft, a move designed to outdo Emirates’ launching of shower and bar facilities on its superjumbos. Called The Residence by Etihad, the large cabins include a living room, separate double bedroom and ensuite shower room and use of a personal butler trained by the Savoy Butler Academy in London.
Described as “the world’s most luxurious living space in the air”, the cabins were priced at around $20,000 each way when launched on the London route and Douglas claims that while they have no plans to expand The Residence service, it has remained a popular element with passengers.
“I think in terms of its proposition, people who use it absolutely love it. It is an uber proposition, which is consistent with what the Etihad brand stands for."
Late last year, Etihad launched its ‘Choose Well’ advertising campaign and Douglas says it allows a lot more flexibility for passengers, whether they are sitting in economy or The Residence.
“The logic behind that is we have 496 seats on an A380. Historically, we have got four propositions – Economy, Business, First and The Residence… Where we want to get a lot more dynamic is, you might actually be in Economy and you wish to choose additional leg room, you wish to choose a Business Class meal, you wish to choose extra bag allowance, you wish to choose First Class pyjamas, you wish to choose, because it’s your birthday or it’s your partner’s birthday, a fine bottle of [bubbly]. If that is what you want to choose, by definition, you’ve chosen well as it’s your choice.
“It’s far more individually tailored. The way I would put a simile to it is the difference between a restaurant menu, which is a set menu – you know what you are going to get. You have your Economy, Business or First – to more of a dim sum menu, (i.e.) you’ve got seemingly endless permutations.”
Douglas will be hoping this more flexible approach will help boost the carrier’s passenger numbers and bring the growth he is forecasting for next year. While Etihad is trimming its losses, many analysts believe it will be a few years before it breaks out of the red.
The Fitch Ratings late last year forecast that the losses would continue until at least 2022, citing the “high execution risk” of the state-owned carrier’s turnaround plan. However, the credit ratings company affirmed the airline’s long-term rating at ‘A’ with a stable outlook, given the support provided by the government of Abu Dhabi, Etihad’s owner.
“I’m not interested in Fitch’s analysis or anyone else’s to be quite honest,” Douglas says when asked about the forecasts. “What I would say… we are making the right steps in the right direction. We are very open in the knowledge that we still have a lot to do.”
Douglas certainly has a lot on his plate, and while Bloomberg continues to report on rumours of a takeover by Emirates, it probably best not to mention those if you bump into the Etihad chief any time soon.