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2009 Sabre Inc. All rights reserved. wearelistening@sabre.com

A Conversation with

Tim Hoeksema, chairman,

president and chief

executive officer,Midwest Airlines.pg. 36

T a k i n g y o u r a i r l i n e t o n e w h e i g h t s

I N S I D E

A MAGAZINE FOR AIRLINE EXECUTIVES 2008 Issue No. 1

Airlines are scrutinized for affects

on the environment

Etihad doubles its revenue from

2006 to 2007

Carriers can become true customer-

centric businesses

26

44

62

Special Section

Airline Mergers

and Consolidation

pilotthe

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After declaring bankruptcy in late 2005, Delta Airlines

has undergone a complete facelift that it succeedingin new markets and the road to profitability.

By Lynne Clark | AscendContributor

WORLDSFASTEST

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45

Etihad 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 theUnited Arab Emirates, Etihad Airways has

grown faster than any other airline in avia-

tion 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 double-

digit 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 subconti-

nent, 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 plansto serve 70 international destinations.

Aircraft growth has also been impres-

sive. The airlines fleet is among the young-

est and most environmentally fit in the

industry, with an average age of two-and-

a-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 aver-

age 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 improve-

ment in service quality. The airline was

recently voted airline with best first-

class service in the world by readers of

Business Traveler, the U.S. version, which

is not surprising given the airlines invest-

ment 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

AIRLINE

GROWING

By Raida Abumaizar | AscendContributor

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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 promi-

nently displayed. The airline recently

announced a three-year deal to sponsor the

inaugural FORMULA 1 Abu Dhabi Grand

Prix, which will begin next year.

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 onboardproduct, which has directly contributed to the

increase in yield and seat factors in premium

classes,

The extended reach and improved connectiv-

ity due to an expanded network breadth and

depth,

The expansion of the Etihad Guest loyalty pro-

gram.

In addition, Etihad Airways Chief Executive

Officer James Hogan and his executive team

have implemented several restructuring initia-

tives 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 25years 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, reposi-

tioning 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 mar-

keting and sales for Hertz; worldwide sales direc-

tor 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 announce-

ments by Qatar Airways and Emirates on the

acquisition of more wide-body aircraft includ-

ing 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 managedto 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 infra-

structure 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.

Etihad Growth Has Been Impressive

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.

35

30

25

20

15

105

0

N

umberofaircraft

year

0 1 2 3 4 5 6 7 8 9

Qatar

Emirates

VirginAtlantic

Etihad (year 0 = 2003)

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47

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 businessmodel is more than sustainable, its very robust

indeed.

Q: What are your plans for manag-

ing 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 recordto 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 rev-

enue 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 flyingprogram, 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 sched-

ule. 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 start-

up airline, but an established airline compet-

ing 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.

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.

Growth of Destinations

Numberofdestinations

Winter Summer Winter Summer Winter Summer Winter Summer Winter

2003 2003 2004 2004 2005 2005 2006 2006 2007

Winter Summer

50

45

40

35

30

25

20

15

10

5

0

45

3

11

1617

34

24

37

42

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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 thecustomer experience onboard and move the experi-

ence closer to one akin to a fine dining restaurant.

Q:How do you see the development of

your information technology strategy: partner-

ship 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 custom-ers by giving them greater control over how and

when they interact with the airline and develop-

ments 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 certain-

ty and allowing us to manage seasonal fluctuations.

Fuel costs represent about one-third of Etihad

Airways total costs. The airline is hedged at 60 per-cent 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, eachgovernment and each business has to make deci-

sions it feels are appropriate at that time in its busi-

ness cycle, but I dont see a wave of privatization

sweeping the airline world, whatever the region. a

Raida Abumizar is a Middle East-based

account director forSabre AirlinesSolutions. She can be contacted

at raida.abumaizar@sabre.com.

profile

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.

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.

Growth Of Fleet

Numberofaircraft

2004 2005 2006 2007 2008 2009 2010 2011

Narrow body Wide body Freighter

55

50

45

40

35

30

25

20

15

10

5

0

6

21

10

4

3029

3

3

3

3

3

12

12

12

8

34

38

37

37

40

49

52

53

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profile

Adding Cargo

to the Mix

Etihad 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 inSeptember, 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

a c h i e v e d

growth of

38 per-

c e n t

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 AirCargo Newsand last year achieved:

38 percent revenue growth com-

pared 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 select-

ed Sabre

CargoMaxRevenue Manager.

Revenue Managerwill assist the airline

to achieve improved revenues, specifically

through effective cargo space and yield man-

agement, said Des Vertannes, executive vice

president cargo for Etihad Crystal Cargo. Itwill help us manage our capacity more scien-

tifically, 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