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2009 Sabre Inc. All rights reserved. [email protected]
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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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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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
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