Etihad Takes ‘Hard-Nosed’ Approach to Growth

 - October 14, 2013, 1:10 PM
Revenue from Etihad’s cargo operations grew by 39 percent in the third quarter. (Photo: Airbus)

Billing itself as the fastest-growing airline in the history of commercial aviation, Etihad Airways keeps doing everything in its power to maintain momentum. Last week it announced the June 1 launch of nonstop flights to Los Angeles from Abu Dhabi, supported by the purchase of five Boeing 777-200LRs from Air India. By the end of the year, Etihad plans to expand its fleet to 87 airplanes, including the five Air India jets and 14 new widebodies delivered by Boeing and Airbus.

Appearing in Los Angeles last Monday to promote the new service, Etihad president and CEO James Hogan insisted the government of the United Arab Emirates created the airline “on a hard-nosed business model” and not as a government-subsidized national airline

“The brief that they gave me was clear: the airline had to be safe, which you’d expect from any airline chief executive,” said Hogan. “It certainly had to be best in class.” Operating alongside the far larger Emirates Airline headquartered in Dubai, Etihad doesn’t need to become the world’s biggest airline, explained Hogan, but rather a vehicle for helping Abu Dhabi grow and provide jobs and become a destination for world travelers.

Etihad operates like a publicly listed company, and submits to regular financial audits by KPMG, which itself undergoes audits by the Abu Dhabi Accountability Authority. “They audit KPMG to make sure that KPMG [has] audited us properly,” Hogan said. “They’re focused on good governance.”

The move into Los Angeles offers new connections for multicultural travelers who want to fly throughout the Middle East and Indian subcontinent. The addition of Los Angeles will expand Etihad’s U.S. operations, which now encompass services to New York City, Chicago and Washington, D.C., by 33 percent. “We always wanted to come here; it’s a vibrant market,” said Hogan.

During the third quarter of this year, Etihad saw passengers served climb to more than 3 million and total revenue increase 11 percent, to $1.4 billion from $1.3 billion, in last year’s third quarter. Of total revenue, $1.03 billion (up 10 percent) came from passenger operations and $244 million from cargo (up 39 percent).

One of the keys to Etihad’s growth lies in its partnerships. Between code shares and airlines in which Etihad holds equity, revenue in the third quarter climbed 36 percent, to $247 million, compared with the same period last year. Partnership activities include the pending purchase of 24 percent of India’s Jet Airways, which, while still under regulatory review, would represent “the first offshore investment in an Indian airline under the country’s Foreign Direct Investment legislation,” according to Etihad.

Meanwhile, Etihad manages Air Serbia, Serbia’s national airline, under a five-year agreement signed with the Serbian government. It also holds a 40-percent stake in Air Seychelles, a 29.21-percent stake in Air Berlin, a 19.9-percent share of Virgin Australia and 3 percent of Aer Lingus. All of its equity alliances give Etihad a stronger hand in negotiating better prices with vendors and aircraft manufacturers.

“We fly into each others’ cities,” Hogan explained, “and we open up markets together. As an airline [together] we have 500 aircraft. And we source as one, now.”

That means with the purchase of 66 Boeing 787-9s, of which 15 will go to Air Berlin, the partners could negotiate for the same GE engines and plan a pilot training center in Abu Dhabi. “Come together, and we all win,” said Hogan.

In a move to strengthen its partnership with AirBerlin and “enhance” its presence in the German domestic market, Etihad recently unveiled a new European headquarters in Berlin. The new office houses both Etihad’s European and German sales and marketing teams and includes joint Etihad-Air Berlin reservation and ticketing counters.