A MAGAZINE FOR AIRLINE EXECUTIVES

20 08 Issue No. 1

T a k i n g

y o u r

airlin e

t o

new

heigh t s

the

pilot

A Conversation with Tim Hoeksema, chairman, president and chief executive officer, Midwest Airlines. pg. 36

Special Section
INSIDE

Airline Mergers and Consolidation

26 44 62

Airlines are scrutinized for affects on the environment

Etihad doubles its revenue from 2006 to 2007

Carriers can become true customercentric businesses

2009 Sabre Inc. All rights reserved.

wearelistening@sabre.com

WORLDS

FASTEST

After declaring bankruptcy in late 2005, Delta Airlines has undergone a complete facelift that it succeeding in new markets and the road to profitability.
By Lynne Clark | Ascend Contributor

44 ascend

profile
tihad Airways, because of its short tenure, may not be one of the most seasoned or mature carriers in the industry, but nonetheless, it is certainly the worlds fastest-growing airline. Founded in July 2003 by Abu Dhabi royal decree as the federal airline of the United Arab Emirates, Etihad Airways has grown faster than any other airline in aviation history. In a few short years, Etihad has evolved from a startup carrier into a major player. Last year, Etihad Airways doubled its revenue from 2006 and enjoyed doubledigit growth in yield. The carrier achieved a record passenger growth of 67 percent, carrying 4.6 million passengers compared to 2.8 million the previous year. Its average seat factor rose by 15 percent, mainly in first class where growth was 43 percent over 2006; and its available seat kilometers increased by 14 percent. In addition, Etihad Airways has dramatically expanded its network. In November 2003, services were launched with a ceremonial flight to Al Ain in the UAE. In the months that followed, almost one new route was added per month. June 2006 marked a milestone for the carrier 30 destinations in 30 months. In 2007 alone, nine new routes were added in Australia, the Indian subcontinent, Singapore and Europe. Beijing is next where Etihad Airways is set to serve the 2008 Olympic Games in August. The airline also boosted its number of weekly flights from 556 to 718. By 2010, the carrier plans to serve 70 international destinations. Aircraft growth has also been impressive. The airlines fleet is among the youngest and most environmentally fit in the industry, with an average age of two-anda-half years. The backbone of the fleet is the Airbus A330-200. Last year, the carrier added 13 new aircraft to its fleet of 24 and is expected to reach 53 aircraft by 2011. To support the expansion, staff is growing at a phenomenal rate with an average of 200 newcomers a month. Etihad Airways has a diverse group of employees from all corners of the globe, representing more than 110 nations. Along with the growth in assets and reach, there has been a steady improvement in service quality. The airline was recently voted airline with best firstclass service in the world by readers of Business Traveler, the U.S. version, which is not surprising given the airlines investment to distinguish its premium product, offering award-winning flat beds (World Travel Awards 2006 and 2007) in both first and business class, in-seat massage facilities, and in-seat dining for up to four people. This year, the airline will unveil a

GROWING

AIRLINE
By Raida Abumaizar | Ascend Contributor

ascend 45

profile
What is behind this success story, and what drives the carriers exceptional growth? To some extent, the answer seems simple. Some aspects of the success story can easily be attributed to the changes the airline has made during the last couple of years: The quality improvements of the onboard product, which has directly contributed to the increase in yield and seat factors in premium classes, The extended reach and improved connectivity due to an expanded network breadth and depth, The expansion of the Etihad Guest loyalty program. In addition, Etihad Airways Chief Executive Officer James Hogan and his executive team have implemented several restructuring initiatives that have played a large role in the evolution and progression of the airline. Hogan was appointed CEO of Etihad Airways in October 2006, bringing more than 25 years of travel industry expertise to the airline. Previously, Hogan assumed the role as Gulf Airs president and CEO where he was responsible for the three-year Project Falcon program, repositioning the business on a commercial platform. Hogan has held a number of other senior operational and commercial positions within the airline industry including vice president of marketing and sales for Hertz; worldwide sales director for the Granada Group; and chief operating officer for bmi. Recently, Hogan visited with Ascend to discuss how he will effectively manage Etihad Airways exceptional growth. Question: How do you feel about capacity growth given the latest announcements by Qatar Airways and Emirates on the acquisition of more wide-body aircraft including the Airbus A380? How sustainable is it to have so many hub-and-spoke carriers in a region, competing for the same east-west and north-south traffic, out of hubs that are relatively small in terms of local traffic, and located 45 minutes from each other? Answer: Etihad Airways welcomes competition and believes there is plenty of room for all the Gulf carriers to compete successfully within the region. In the same way that Malaysia Airlines and Singapore Airlines have managed to co-exist side by side in the Far East, so can Etihad Airways and the likes of Emirates and Qatar Airways in the Gulf. Tourism in the Middle East is still relatively embryonic and will grow enormously during the next 20 years. The massive investment in infrastructure were seeing across the UAE and the rest of the region will help further boost tourism and business. Many of the people who will be serving that growth will be traveling from all points of the globe into the region. What Etihad Airways is doing so well is attracting traffic from the traditional European

Key to Etihad Airways record-breaking first quarter in terms of passengers carried has been the performance of its premium cabins. The carriers business-class cabin attained an average seat factor of 65 percent.

new product in its premium cabins as well as launch its flagship premium lounge in Abu Dhabi airport with personalized dining and state-of-the-art electronic facilities. Sports sponsorship plays a big part of the airlines marketing and public relations strategy. It has partnerships with Chelsea

Football Club, Harlequins Rugby Football Club and Abu Dhabi Golf Championship where Etihad Airways branding is prominently displayed. The airline recently announced a three-year deal to sponsor the inaugural FORMULA 1 Abu Dhabi Grand Prix, which will begin next year.

Etihad Growth Has Been Impressive

35 30 Number of aircraft 25 20 15 10 5 0
0 1 2 3 4 5 6 7
Virgin Atlantic Etihad (year 0 = 2003) Qatar Emirates

year
Etihad Airways is the fastest-growing wide-body airline in aviation history. Last year, the Abu Dhabi-based carrier added 13 new aircraft to its fleet, bringing the total to 37, with plans of reaching 53 by 2011.

46 ascend

profile
and Asian hubs. The more traffic carriers from the Gulf region can switch over to the Gulf hubs the better for all of us. With modern-day aircraft technology, ultra-long-range aircraft are able to fly non-stop to all four corners of the world, so the mix of technology and geography means our business model is more than sustainable, its very robust indeed. Q: What are your plans for managing the growth path youve set for Etihad Airways? Do you think youll get the traffic rights and slots to support the expanded network? A: Negotiating traffic rights and slots is a complex business and one that involves a number of different stakeholders. We have a strong and committed government affairs team that works closely with relevant parties to ensure our voice is heard. There are never any concrete guarantees in this business, but our track record to date launching 45 destinations in just four years is testament to our efforts. Q: Youve had phenomenal success at the start of last year: doubling the revenue from 2006, double-digit growth in yield and load factor improvements. What are your plans to maintain the upward growth pattern? A: Etihad Airways growth in 2008 and beyond will be based upon ensuring we have the right fleet, the right network strategy and, most important of all, the right customer service. Much of Etihad Airways growth to date has been based upon adding breadth to our flying program, launching an incredible 45 destinations in four years. Moving forward, we will continue to seek opportunities for further expansion such as China and India but growth will also be achieved by adding more depth to the schedule. By introducing additional frequencies on key routes, like we did with our last winter schedule, we can substantially improve the connections we are able to offer our customers. Q: Etihad Airways is no longer a startup airline, but an established airline competing with the major Middle East airlines. How do you plan to differentiate your product to address the competitive pressures? A: One of the key advantages Etihad Airways has is that were not a legacy carrier. As a relatively new airline and brand, we can make decisions quickly without the burden that the older, more traditional airlines have. Moving away from a formulaic, one-size-fits-all approach, Etihad Airways is shifting the focus from a large airline processing many indistinct individuals to a focused one that is based around the individual. 2008 will see us progressively introduce a new style of service, focused on the individual, including innovative dining options, redesigned

Under the leadership of James Hogan, Etihad Airways continues to make enhancements, such as onboard quality improvements, extended reach and connectivity, and expansion of its frequent flyer program, to heighten its customers travel experience.

Growth of Destinations
50 45 40 35 30
Number of destinations

45 42 37 34

25 20 16 15 11 10 5 0 3

24

17

Winter 2003

Summer 2003

Winter 2004

Summer 2004

Winter 2005

Summer 2005

Winter 2006 Winter

Summer 2006

Winter 2007 Summer

In March, Etihad Airways expanded its network yet again with four flights a week from its Abu Dhabi home base to Beijing, China, which represents the carriers first destination into the Chinese market.

ascend 47

profile
menus and new crockery. One of the highlights of 2008 will be the introduction of a new food and beverage manager position onboard our aircraft, something that will help set Etihad Airways apart from other carriers. Each of the new managers will possess an in-depth knowledge of our new menu and involvement in its design. This will enhance the customer experience onboard and move the experience closer to one akin to a fine dining restaurant. Q: How do you see the development of your information technology strategy: partnership with providers, outsourcing, integration, etc.? A: Information technology is fundamental to everything we do. It plays a major part in supporting and driving the growth of Etihad Airways, both in terms of revenue growth and cost control as well as how we serve our customers and provide capability for our own people. Information technology is the biggest enabler in our business and makes life easier for our customers by giving them greater control over how and when they interact with the airline and developments such as online check-in and the ability to pre-print a boarding pass are helping to meet the ever-increasing demand for self service. Q: What are your plans for managing rising fuel costs? A: Rising fuel costs are a challenge for all airlines and remain a significant proportion of Etihad Airways total costs. However, were comfortable with a hedging policy that is giving us greater certainty and allowing us to manage seasonal fluctuations. Fuel costs represent about one-third of Etihad Airways total costs. The airline is hedged at 60 percent to 65 percent in 2008 and 20 percent in 2009. Without a hedging program in place, Etihad Airways costs would be far higher, so being prudent and forward thinking is extremely beneficial to the company. Apart from hedging, Etihad Airways has a fuel surcharge that rises or falls, dependent on the cost of buying aviation fuel, which is something that most airlines around the world have in place. Q: What are your views on the wave of privatization that is sweeping the airline world? How do you think this will impact Etihad Airways? A: Business is business. Each country, each government and each business has to make decisions it feels are appropriate at that time in its business cycle, but I dont see a wave of privatization sweeping the airline world, whatever the region. a
2007 2008 2009 2010 2011

In 2007, Etihad Airways added 13 Airbus A330-200 aircraft to its fleet of 24. Within the next three years, the airline expects to expand even more, bringing its total to 53 planes.

Growth Of Fleet
55 50 45 40 35
Number of aircraft

49
3 12

52
3 12

53
3 12

40 37
3 4 3 8 34 29 38 37

30 25 20 15 10 5 0
6 21

30

10

2004

2005

2006

Narrow body

Wide body

Freighter

Etihad Airways began with the largest-ever start-up fleet order of 29 aircraft with a total value of US$8 billion. It is now building a balanced fleet of wide- and narrow-body aircraft, enabling it to serve short- and long-haul destinations.

Raida Abumizar is a Middle East-based account director for Sabre Airlines Solutions. She can be contacted at raida.abumaizar@sabre.com.

48 ascend

profile

Adding Cargo to the Mix

E
tihad Crystal Cargo, which began service in September 2004, serves 50 destinations, of which seven are cargo-only routes. The cargo division operates two Airbus A300-600RF and a McDonnell Douglas MD-11F freighter, which joined the fleet in September, increasing freighter capacity by 30 percent. Etihad Crystal Cargo continues to out-perform its competitors in the Middle East and global markets. Last year, it achieved growth of 38 percent compared to global increases of 4.5 percent and Middle East increases of 9.7 percent. Its cargo terminal has been enhanced to enable the cargo division to handle more than 270,000 tons of freight a year. Etihad Crystal Cargo was voted 2007 Cargo Airline of the Year by readers of Air Cargo News and last year achieved: 38 percent revenue growth compared to the previous year, 34 percent tonnage growth, 43 percent increase in shipments, jumping from 152,000 in 2006 to 218,000 last year. To support its impressive growth in the cargo business, Etihad Airways recently selected Sabre CargoMax Revenue Manager. Revenue Manager will assist the airline to achieve improved revenues, specifically through effective cargo space and yield management, said Des Vertannes, executive vice president cargo for Etihad Crystal Cargo. It will help us manage our capacity more scientifically, enabling us to minimize wastage of our most precious asset, the cargo space on our flights. Additionally, it will enable us to improve our processes and better align our organizational structure to serving our customers. a

ascend 49