Etihad CEO to US rivals: 'I don't know what the problem is'

Etihad Airways has grown from tiny upstart to one of the world’s most respected international airlines — all in a little more than a decade.

At the helm of the Abu Dhabi-based carrier for most of that time has been chief executive James Hogan.

During a recent trip to New York, Hogan sat down with Business Insider for an interview to discuss everything from opportunities in China and Africa to the merits of owning equity stakes in carriers all over the world.

And he responded to US rivals, who have accused Etihad, along with its fellow Middle Eastern-airlines Emirates and Qatar, of fuelling their rapid expansion, palatial terminals and massive fleets with as much as $42 billion in government subsidies.

A coalition comprising of American, United and Delta Air Lines have petitioned the US State Department to reevaluate the “Open Skies” agreements between the US and the Gulf States which allow airlines to fly freely between the countries.

The veteran Australian airline executive — whose resume includes executive experience at Gulf Air and British Midland — took the top job at Etihad in September of 2006.

Since then, the carrier has grown its fleet to more than 120 Airbus and Boeing jets while its network as expanded to include 116 destination in 68 countries.

Etihad’s high quality service, lavishly appointed aircraft and explosive growth have earned the airline praise from consumer aviation ratings groups as well as Air Transport World Magazine’s 2016 Airline of Year Award.

Over the past few years, Etihad has spent billions of dollars to take major equity positions in more than half a dozen international airlines around the world including Air Berlin in Germany, Jet Airways in India, Italy’s flag carrier Alitalia and Virgin Australia.

In total, Etihad and its network of equity partner airlines offer a combined fleet of more than 700 aircraft with flights to 580 destinations.

Here are a few takeaways from our interview:

Future Outlook

While 2016 will be a strong year for Etihad growth in Europe will be minimal, he said. According to Hogan, the international airline business is difficult to predict for the same reason it’s difficult to run an international airline:

“There are so many factors outside of your control,” he said. “There’s the economy which affects sales and fuel expenses, pandemics which can shut down a whole region of the world, to war which we have to navigate, to competition.”

With that said, the company has a growth plan for the next five years.

“In our five-year plan, our growth is mainly in China and Africa,” the Etihad CEO said. “We’d like to see more flights into West Africa and the secondary cities in China are considerable.”

However, the company doesn’t see much more expansion into the US.

“In the US, we are pretty much there, we have one maybe two more cities to grow into. That’s it,” Hogan said. “We are happy with where we sit, frankly.”

On why China is important

Although Etihad and its partner airlines already fly into China, Hogan would like to see his company tap into the country’s burgeoning middle class.

“China, within our network group, is very important,” he said. “The market’s opening and people are travelling.”

They are, “well educated with access to information and to destinations, are good consumers with money to spend and want to have good service.”

On whether Etihad will fly between Europe and the US

In 2013, Dubai-based Emirates launched service between Milan, Italy and New York’s JFK International Airport. Don’t expect Etihad to join Emirates in its trans-Atlantic endeavours.

“We invested in Alitalia and they are our partner in Italy, as is Air Berlin is in German,” the CEO said. “We expect them to operate trans-Atlantic.”

In addition, Air Serbia — in which Etihad holds a 49% stake — will operate five non-stop flights per week between Belgrade and New York starting in the summer of 2016.

But that doesn’t mean Emirates won’t have competition on its Milan to NYC route.

“Emirates can only operate out of Milan, and frankly, we’d prefer that route be dominated by Alitalia,” Hogan said.

On Open Skies

When asked about the accusations made by America’s legacy carriers that Etihad’s rise has been fuelled by billions of dollars worth of government subsidies, Hogan replied very matter of factly:

“At the end of the day. We have a shareholder who placed equity in the airline who gave us loans to be repaid. That’s what people do when they invest in the business,” he said.

Etihad was created in 2003 by a royal decree from the Abu Dhabi government. The company’s board of directors is comprised completely of members of the emirate’s ruling family.

“Over the 11 years, we have created value, a great brand, connectivity, we have create value in frequent flier, holiday and cargo businesses. We are seen by others as running a good business, we have a clean sheet of paper. And I think the critics would be doing the same thing I’m doing if they were in my shoes.”

“We’ve done nothing improper. We’ve created a great airline, with great service, created value, and the accounts are audited by one of the top accounting firms in the world,” Hogan said.

“I don’t know what the problem is.”

Etihad First Class ResidenceEtihadEtihad’s 125 sq. ft. first class suite called ‘The Residence.’

Furthermore, the Etihad CEO contends that much of the reason upstart airlines require so much initial capital is due to the size and strength of the major legacy carriers.

“The cost of entry into aviation is due to legacy carriers,” Hogan said. “Legacy carriers dominate key hubs. In Europe, they were gifted infrastructure years ago when they were privatised.”

On the future of the Airbus A380

The Airbus A380 Superjumbo is one of the most impressive and yet controversial airliners to enter service. Etihad currently operates a fleet of five double-decker jets along with another five aircraft on order. Etihad’s Superjumbo fleet is equipped with the airline’s industry leading 125-square-foot “Residence” first class suite complete with living room, bedroom, shower and private butler.

But when asked if Etihad will be ordering any more of the behemoth jets, Hogan’s answer was a firm “No.”

“No we’re done,” Hogan said. “We are taking over 70 Boeing 787s, over 60 Airbus A350s, and we are the launch customer for the next generation Boeing 777. We just believe in two-engine technology — they are much more efficient.”

On defining success in the airline business

The airline business is one that’s fraught with risk. That’s in addition to the complexities of running an operation with tens of thousands of employee spread around the world. So how does Etihad thrive in this environment?

“The most important factor for me is the culture of your company and that you have a culture where people want to win,” Hogan said. “Safety is first, but they also want to win. So what does it mean to win?”

“Winning is about meeting your guests’ expectations for quality service, winning is about improving market share and revenue while becoming more efficient, and how we differentiate ourselves from the competition.”

As a result, the airline boss emphasised the need for a good team of smart people to help manage the complexities while reaffirming the company’s “winning” culture.

“That’s what winning is all about: Safety, service and making money.”

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