Interview: Etihad CEO Downplays Rivals' Complaints to Focus on the 'Long Game'
- Dec 08, 2015 7:40 am
To hear Etihad CEO James Hogan tell it, he's got a "business to run, whether it's economic, whether it's political, whether it's pandemic or whether it's war. You've got to tackle those issues and keep focus." On that "local" Open Skies issue in the U.S.? Hogan will deal with it, whatever comes. No big deal.
— Dennis Schaal
James Hogan, the CEO of Etihad Airways, sat in a second-floor board room at an upscale New York hotel last Friday and was impeccably dressed, confident, and incredulous at what he considers to be a "local issue," namely the allegations from Delta, American and United in the name of Open Skies that the Abu Dhabi-based carrier is running roughshod over the three legacy airlines.
Asked whether the three carriers' Open Skies complaint, under review by the U.S. government, has been losing momentum, Hogan tells Skift: "You know, I run a global airline based in Abu Dhabi and we operate in six continents in the world. We've have challenges in every continent. Quite frankly, we've tackled this. We've addressed it properly and thoroughly and I'm more focused on the day-to-day issues at a point in time.
"The [Obama] administration, State, Commerce, and Transport have all said they'll come out with the appropriate guidelines," Hogan says. "When they do, we'll take it from there. We haven't damaged the U.S. airlines, which is what they've said we've done. We provide fantastic connectivity to the USA. We've introduced product that is unique but we're still 0.0006 percent of the seats out of America."
Hogan was in New York to mark the arrival of the A380 and the opening of an Etihad lounge at JFK, part of what he sees as engendering an end-to end hospitality-focused experience that Etihad views as its mission to deliver. Whether Etihad, along with rivals Emirates and Qatar Airways, are unfairly disrupting legacy airlines in the U.S. and Europe is open to debate.
But what's clear is that Etihad's strategy to eschew alliances in favor of its penchant to invest in carriers, including Alitalia, Jet Airways, airberlin, Air Serbia, and Air Seychelles, to expand Etihad's network, create shared services and achieve economies of scale, is indeed ruffling feathers among regulators and rivals.
Hogan adamantly says he'd welcome the first U.S. carrier to fly regularly to Abu Dhabi but he'll have to be satisfied with Etihad's codeshare with American and JetBlue in the interim.
Hogan appears to be taking it all in stride, though, explaining several times that he's got bigger issues to be concerned with in running a global airline than competitors' angst, and that this is "a long game."
Skift discussed these competitive issues with Hogan, and also listened to his views about the ways Etihad is bringing innovation to the passenger experience.
An edited version of the interview follows:
Skift: Could you tell me a little bit more about your decision to open a new lounge at JFK? What prompted that move?
James Hogan: Sure. New York is flagship route. The A380 is operating out of London, New York and Sydney. Next year it goes into Melbourne. It's also coming to Paris and will go to Bombay. We have lounges in America in Washington. We'll build one next year, I'm hoping, in Los Angeles. Two flights a day, an A380 and a 777. There's enough demand. A part of the experience with Etihad is from pickup at home to arrival at the airport, through the lounge, on board the aircraft, and as seamless as it can possibly be.
For frequent travelers we want to ensure that when they walk into that lounge they've already walked into Abu Dhabi. When you actually see it you'll go, "Wow. This is different." It's thread through in the design, the architecture of the Louvre. It's got the hospitality focus. It's got a great view overlooking the airport, especially at night. For a long flight if you want to eat first then get on board and sleep, you can. The dining facilities are important. We find most people would prefer to eat in the lounge, get on board the aircraft and sleep as long as you can. For transit passengers coming in on American or JetBlue it's a facility with showers.
Skift: What a culture change coming from JetBlue and into your lounge, right? As much as I love JetBlue.
Hogan: Have you seen the other lounges?
Skift: No. What are they?
Hogan: They're different. It's part of our service DNA. We don't have lounges all around the world. We have them in certain cities of the world and I think the reaction has been good. The 380 is a great product. We've got the Residence. We've got the apartments. We've got the studios. All the lower deck is economy. It's part of that guest experience.
Skift: Is part of your competition private jet service?
Hogan: Yeah. We've actually signed a deal with Chapman Freeborn to actually broker the Residence but you're right. Five years ago or six years ago now, when we knew that the 787 and A380 were coming down at the same time, we felt that was the right time to change livery, to change the uniforms, to change the product. We spent all that time, five years, on focus groups in New York, in London. We called them the "big talks." In London, Sydney, Abu Dhabi to really understand in each of the segments what the guest was looking for. What came out of the focus groups in the premium product, the top end, was they wanted more of that personal space, privacy and innovation in service. That's what we delivered. I talked Tony Tyler, who is the IATA CEO, through the residence in Abu Dhabi, the mock. He couldn't believe it. He was told by other airline CEOs, "Oh, just a waste of space. And use all this. It doesn't make sense." Then he actually saw how we've used that real estate very effectively. That front narrow part, where we put the double bed in, we can't put anything else there. We've actually used the space very wisely.
Skift: You couldn't have used it otherwise?
Hogan: Yeah. We've got one shower in there. One of our competitors has a shower on each side. What we saw with the utilization was the shower was really low. People don't really want to have a shower. Having one shower was enough for everybody else quite frankly. It was just about privacy and service. In the Residence you have a butler, the apartments and even I can't travel the Residence unless I pay. No one gets it for nothing. I flew on the apartment, which is a flat bed, and that's a great experience too. You're on your own. You can read. If you want the bed made up usually you have to get out while they can make up the bed. They can make up the bed. What the focus groups told us, the big talks, this is what we want. In the business cabin they said something similar. They want a comfortable bed but they want their own space. We did that ying yang design. We got the seat count right but the angles mean the person on the other side can't see you and so we've got the angles and we've got the shading right, and the seat count. The uptake, out of London, it's packed. We've got three a day out of London to Abu Dhabi.
Skift: The Residence also is full? How often does it go empty?
Hogan: Well, look, we have had eight bookings in New York in the last week. We have out of London. We get two or three bookings a week out of London and two or three bookings coming up out of Sydney.
Skift: This is not something that's filled on every flight?
Hogan: We didn't expect it to be full every flight. You can upgrade with cash. You can upgrade with points if you want to take advantage of it. We had one of the Formula 1 drivers come back on the A380 and he realized the Residence was on board. He paid cash to upgrade.
Skift: Right. You must be doing a great marketing job because I told my 19 year old son I was coming here to interview you and he said "Oh yeah, that's the airline with the double beds inside and the shower and that whole thing."
Hogan: You're right. The halo effect has been extraordinary on social media, on this product, which has enabled us to promote everything else. It's been fantastic. We don't have the spend of our competitors but people know about the Residence.
Skift: Despite the hassles from Delta, United, and American you've launched the A380 service to the U.S. and Dreamliner service to Washington D.C. I guess you're not trying to stay under the radar? I say that jokingly.
Hogan: Yeah. We fly to New York, Chicago, Washington Dulles and Dallas/Fort Worth three times a week, Los Angeles and San Francisco. We responded to the docket. We've been very full and transparent over this argument.
Skift: When you say you've responded to the docket you mean you've submitted the paperwork? Have you had recent meetings with the U.S. government?
Hogan: We closed it down. We submitted everything and we've just gone on with business. We continue to work with American Airlines. We continue to work with JetBlue.
Skift: JetBlue has been a supporter all along, right?
Hogan: Look, I think this is a local issue. It will be resolved. It will not impact what we do. In the next three to four years we may come to one or two more American cities.
Skift: Do you get the feeling the heat has been let out of this or that it doesn't seem to be as strident an issue as it was maybe a year ago? What's your take on that?
Hogan: You know, I run a global airline based in Abu Dhabi and we operate in six continents in the world. We've have challenges in every continent. Quite frankly, we've tackled this. We've addressed it properly and thoroughly and I'm more focused on the day-to-day issues at a point in time. The administration, State, Commerce, and Transport have all said they'll come out with the appropriate guidelines. When they do, we'll take it from there. We haven't damaged the U.S. airlines, which is what they've said we've done. We provide fantastic connectivity to the USA. We've introduced product that is unique but we're still 0.0006 percent of the seats out of America. Give me a break.
Skift: It's a big market.
Hogan: That's a huge market. I don't think we're going to disrupt them too much. Simultaneously we're pumping a lot of business inbound into the American and JetBlue network. We do give access over Abu Dhabi to a whole range of Bangladeshi, Pakistan, Sri Lankan, Indian cities where you don't see a U.S. flag carrier. For the consumer it's all about connectivity.
Skift: Do you see anything changing from your competitors? Is there any sign that they want to start flying to some of those markets?
Hogan: We'd love to have an American carrier fly to Abu Dhabi tomorrow but airline executives put their aircraft where they believe they're going to make the best return. At the moment the transatlantic flights for the American carriers, the strength of the U.S. carriers, they're doing quite well. We've been very clear. We'd be keen to see a U.S. carrier come into Abu Dhabi. In effect, though, you have it because we codeshare with JetBlue and American Airlines. All of their flights out of Abu Dhabi have the AA or JetBlue codeshare.
Skift: There's no wrinkle in the American Airlines codeshare? It's business as usual?
Hogan: I think (American Airlines CEO) Doug (Parker) has been very clear. Doug said it's a political issue which they as an industry are tackling but then he's got a commercial relationship with us and we continue with the commercial relationship. Same in Europe. The European Transport Commission will put out their White Paper and this is in Europe. On one hand, I've got the French government and German government pushing hard but I've got a codeshare with Air France. That's what I'm saying. I deal with this. I've got a business to run, whether it's economic, whether it's political, whether it's pandemic or whether it's war. You've got to tackle those issues and keep focus.
Skift: This is just one of the issues.
Hogan: Indeed.
Skift: Another one is Germany, which is giving you problems about your codeshare with Airberlin?
Hogan: Which is quite strange. You can see Delta, Air France, United, Lufthansa, where it's a cozy partnership, pincer movement. At the end of the day, you have a large southbound market from Europe. On the one hand, we get tackled for wanting greater access to the market. I've gone, "No, no, no, no, no. I'm happy with the access I have." Our German airline, which is majority German owned, has our code on their metal flying into Abu Dhabi and India, the Middle East and Australasia. You don't want me to get greater access. That's fine. I'm happy with what I have. You saying this German airline that we've kept in business can't have it either. I've never come across that before.
Skift: What is it?
Hogan: It's competitive. Competitive pressure.
Skift: How are you going to respond? Don't you have a deadline?
Hogan: We are working through it. If you look at our Airberlin investment, which is 10,000 German jobs, for seven seasons it was approved. I met the former Minister of Transport. There was no problem. When we in fact invested, it was very clear that this was a key reason why we did invest. The investment was approved and it's an investment agreement between the UAE and Germany. We're very focused. We're arguing our case. We're pragmatic. This is good for Germany. It's good for German business. We hope common sense prevails.
Skift: How do all these issues impact your partner strategy in general? Are you looking at it any differently than you have in the recent past?
Hogan: This is a long game. If you look at our partners, our investments, our strategy is three-pronged. Organic. Etihad in our own right to six continents. We'll peak at 150 aircraft. We're still the smallest of the three Gulf carriers. We're comfortable with that. Codeshare. Forty-nine codeshare partners to stretch the network. Connectivity is fundamental especially in a digital age. If you look at the investments, Virgin Australia is profitable, doing well. Air Seychelles is profitable, doing well. Air Serbia is profitable, doing well. Jet Airways has given us huge access to India; the outbound market of 40 million complements our service. We've created a strong air bridge between India and Abu Dhabi. In the last two quarters, the operating profit on track. Alitalia is at the end of the first year of an industrial plan. A key part of our network strategy is to integrate with the Airberlin network, especially in the north of Italy.
If you just step back and go, "OK, you've got Etihad Alitalia going east." We're happy for them [Alitalia] to be in SkyTeam and do whatever they do. Airberlin and OneWorld coming east. Air France KLM which fly over Abu Dhabi and codeshare with us and then my own operation as of late. That's a huge amount of traffic coming down. From a macro view, from the network I'm looking at passenger flows. That's working.
Structurally, we continue to work on how we get economies of scales collectively. As a group we operate 700 aircraft. That means you can take Air Serbia with 10 A320s that we're able to get the price of A320s at our price, which they would never have gotten as a standalone airline. They've just announced that they're going to operate from June from Belgrade to New York. They could not have even introduced that because they're taking an aircraft from the family. They have to introduce a whole fleet management group. Alitalia is doing the pilot training. We'll do the cabin-service training. So they're able to operate a virtual service using the infrastructure of the other airlines.
In technology. Sabre now provides service for all of the airlines. We're Sabre's largest customer. I've just completed a major deal with IBM SAP for common systems. Over a period of time we'll have common analytics. Sabre is for reservation systems. IBM and SAP is management systems, support systems, and processors as we move forward. They all complement each other.
As Sabre's largest customer, obviously from an R&D perspective, we can put huge pressure on where they focus in regard to their development and implementation. Frequent flyer and lifestyle is a common program. This is a long game, not a short game.
Tags: ceo interviews, etihad, gulf carriers, open skies, passenger experience
Photo Credit: James Hogan, CEO of Etihad, speaking at Cipriani in New York City December 3 at an Etihad event to celebrate the arrival of the A380 to JFK. Etihad
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