Etihad Airways is the 2016 ATW Airline of the Year
Etihad is a young airline, but one that has grown rapidly to become a world-class, global player. Talk about the company’s strategic thinking as you formed this airline and worked out how to create a niche from a market base where another airline was dominant?
I think what people forget is that our fiercest competitors are in our own back yard. They are two strong airlines, Emirates [Airline] and Qatar [Airways]. So when we established this airline, being the youngest of the three, it wasn’t about replicating their strategy. We were very clear with the mandate that it was about safety, which is the best thing for us. Also, it was about making an economic contribution to the UAE in terms of jobs and spending. And it was about supporting the aviation aerospace sector, which is a key area of UAE development and employment. And we had to make money.
From an aviation point of view, the Gulf is truly a crossroads. Within three hours flying time you have the Gulf, the Middle East and the Indian subcontinent. That’s a strong market regarding passenger flows.
When you think back to where we were in 2008 and then in 2013, talking about our strategy and where we wanted to be by 2018, it was always about having a four-bank structure in Abu Dhabi with the opening of the new terminal.
And now we have the right fleet mix to take advantage of the short-haul, mid-haul and ultra-long-haul markets. What fundamentally drove that fleet purchase was connectivity.
Partnerships, especially your equity partnerships with other airlines, are an Etihad signature. How did this develop?
When we started, we met with all the global alliances. We met with oneworld, Star and SkyTeam. We actually went a long way in talks with Lufthansa about working with them. And we entered into codeshares initially with them and then with others because that gave us the ability to stretch our network on the back of our organic growth. In our macro-network plan, we were only going to operate into major cities and not into secondary or tertiary cities.
Codeshare then became an important pillar. We’ve got 49 codeshare partners today and that’s given us huge network stretch worldwide.
But then we sat down and saw that there were key places in the world where there were not open skies, they were bilaterally constrained, but there were important passenger flows. So our first important relationship was with Virgin Australia and that gave us Melbourne and Sydney. It was important to have that domestic market. At that stage we had a relationship with Qantas, but it was very narrow. We wanted to have a broader relationship, but at that point in time they thought it was better to focus on Asia and China and they were not prepared to give us the depth we needed in the Australian market. Nor were they interested in flying into our hub and using Abu Dhabi. So we invested in Virgin Australia and that gave us the ability to achieve immunity within the market. Most important, it gave us access to 45 cities in Australia and New Zealand and we now fly to Perth, Brisbane, double-daily into Melbourne and Sydney with A380 service, and that connectivity with Virgin has worked. Quite frankly, we don’t need to expand into the Australian marketplace, nor do we have any intention to.
So what happened in Europe, where you have an equity partnership with airberlin, now the second largest carrier in Germany?
We actually shook hands twice with our friends at Lufthansa, but it was overruled at the board level. And that’s fair enough. But Germany is a very important market, so that’s why we started looking at airberlin. Airberlin carries over 30 million passengers and when we invested, our number one market was the UK and now our number one market is Germany. So entering the German market was very important because while we flew into Frankfurt and Munich, at that time the bilaterals did not allow us to go into Berlin, Dusseldorf and other cities. The airberlin investment gave us a number of things—it meant we could go and talk to companies together. On the leisure side, they are a very strong tourist side. In the cruise market, for example, we have been very successful linking with the port of Abu Dhabi.
On the cost side, we’ve signed a deal with IBM. That’s actually a deal that applies to all our equity partners with the exception of Virgin Australia.
Germany has been good for us. Where the challenge has been is where we have invested in airberlin, as much has been taken out in airport taxes at Dusseldorf. If the airport tax wasn’t there, airberlin would be profitable today.
Among your most recent equity deals—and some would say the most bold—is the taking of a 49% stake in Alitalia. What was the attraction?
We were approached by the Italian government and were asked to invest in Alitalia. So we looked at the network from a macro level and it was unconstrained. We could see it could work. The problem was that for many years there had been a lack of investment, changes in owners, there was no clear direction and there were new entrants. This made it very tough. So in the conditions of the deal, we wanted to make sure that Alitalia had the ingredients to win. Italy is another major market. In the north of Italy, we saw huge traffic flows coming down between north Italy and Germany and they were dominated by Lufthansa Group and low-cost carriers.
But on an unconstrained level, we said this airline can work. So among the deal criteria we set was that the debt was written off, and the social law was changed so that we could make people redundant.
There’s a three-year turnaround plan and we reached the end of year one [in December]. Top line—we’ve changed our position on revenue out of Italy, Alitalia has moved to Sabre and is also part of the IBM deal. We are starting to tackle unit costs, we’re integrating the networks, and we have a big focus on cost synergy. What you will see in April is 90%-100% of the Alitalia fleet having new interiors. By April, they will be ready to fight back and we have no doubt—Italy is a great market and Alitalia is an iconic brand.
There have been lots of questions about whether Alitalia will stay in SkyTeam?
We don’t mind that they are part of SkyTeam and the Air France-KLM joint venture, just as we don’t mind that airberlin is part of oneworld. But it is important that Alitalia is treated fairly.
Another important market, of course, is India and you have equity partnerships with Air Seychelles and Jet Airways.
Before the Jet deal we had 2% of the market; now we are at 21%, which is a huge change. That airbridge between Abu Dhabi and India is huge. There are 13 cities we are connecting today with Jet and it continues to grow. Jet has just had two consecutive quarters of record profit. Yet you don’t see US airlines in that market.
With the Seychelles, it’s a great high-yield market out of Europe.
How would you sum up the advantages of the Etihad equity partnership strategy?
The equity strategy has enabled us to build a virtual global network and to complement our own investment. We are Sabre’s largest account. Etihad has about 150 aircraft, but today, with the equity partners, we operate about 700 aircraft. So when we talk to Boeing or Airbus, that’s a more meaningful discussion. As an airline group, we’ve been able to create value as a family, so to speak. It also goes to technology and innovation; we share, where appropriate, how to use technology. It’s a power that lets us come together and work smarter.
How would you describe your leadership style?
I’ve been in multi-national roles for a long time. You have to be able to take the people with you and to do that, there has to be a belief in the vision of the business. I have always been very clear on our vision and values. Our internal communications are very strong; I talk to all our staff on a quarterly basis. We have a major conference each year where we reward performance. We have a strong score card culture; if you are in the bottom 3%, you leave the company, with respect. We are demanding, but we have a just culture and we are open. What we represent is best-in-class.