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Editor’s Note: Following our previous CEO interview series in online travel, hospitality, and destinations, as well as our recent CMO series across verticals, we are launching a new series, this time focused on the CEOs of leading airlines outside of the United States.
To better understand the challenges facing airlines in an age of fluctuating oil prices, rapid growth, and changing passenger expectations, our Future of Passenger Experience series will allow leaders in the industry to explain their best practices and insights.
This is the first interview in the series.
When James Hogan joined Etihad Airways in 2006, he took over a small three-year-old Abu Dhabi-based airline with a limited route network and grand ambitions.
In the decade since, he has built Etihad into a major global player, threatening legacy airlines in the United States and Europe. With its Abu Dhabi hub, Etihad leverages its unique location to offer quick connections between the United States and Europe and the Middle East, India and Africa. And the airline has made service a priority, adding unusual touches, such as flying nannies (even in economy class) and onboard chefs. On its Airbus A380s, which fly mainly to London, Sydney and New York, the airline even has a two-room suite called ‘The Residence’ with a private bathroom.
In recent years, Etihad has focused on investing in other airlines, taking equity stakes in Alitalia, Air Berlin, Air Seychelles and India’s Jet Airways, among others. Not all of the investments have paid off yet — Air Berlin has struggled with recent losses – but Hogan argues the relationships with other carriers gives Etihad a broader reach than it would have on its own. Many partner airlines fly into Abu Dhabi, allowing passengers to catch a connecting flight on Etihad. And several of Etihad’s partner carriers share aircraft and negotiate contracts collectively, improving efficiency.
Hogan was promoted in May to oversee all of the Etihad Aviation Group, so he no longer runs day-to-day Etihad Airways operations. But he remains active in charting the airline’s future.
We spoke with Hogan recently in Los Angeles about his plans for the company, asking why it has been so focused on passenger experience. This is the first in a series of airline CEO interviews we plan for the next several months.
Note: This interview has been edited for length and clarity.
Skift: Some of your competitors have have reported business has sagged recently. Is Etihad also concerned?
James Hogan: Obviously. One of the challenges of running any aviation group is that there’s so many factors outside your control. We have the challenges within the Middle East with war. What’s happening in Turkey, from terrorist and internal issues. We have the Brexit in the UK. We’ve had the tragic incidents in France, and in Germany what we are seeing is a slow down in traffic. When that happens, you have to look at how you can redeploy capacity throughout your system. What that means is probably a high level of discounting in the market to stimulate demand.
And with the Olympics on, people are certainly going to bypass South America, unless they’re going to the Olympics. You’re seeing the economic challenges in South America in regard to currency. That means as a business you need to focus on the cost. You have to look very hard at your route network to make sure you’re getting the return that you’re seeking and make decisions accordingly.
Skift: Are any regions performing well?
Hogan: [The] Indian business is still strong. We’ve moved from 2% of the market to 21% of the market, [when accounting for Jet Airways.] India has certainly been giving us the ability to redeploy aircraft as we came out of Iraq, as we came out of Syria, as we pulled from some of the more challenging spots of the world. [Almost] 50 million Indians travel internationally each year.
Our business coming out of Australia and Southeast Asia is strong. In the Americas, load factors are acceptable, but there’s pressure on the yield.
Skift: Would you add more U.S. flights?
Hogan: We’re just about covered in the States. Maybe one more city. That’s it. Our model is to stretch the network with other partners. We can fly to the gateways, and create very strong connectivity.
Skift: U.S. airlines argue that Etihad, Emirates Airline, and Qatar Airways receive unfair subsidies from their national governments. American, United, and Delta have asked the U.S. government to step in and block Gulf carriers from future expansion. How do you respond?
Hogan: That’s an issue between the two governments. I don’t work for the UAE government. I’m the CEO of an airline. Some time ago, I submitted our documents and our response, a very detailed analysis, which was clear that we haven’t damaged U.S. carriers. We’ve generated jobs in America on the back of our operations [and by buying] aircraft [and] engines. We’ve been a good friend of America. We continue to build our network with American Airlines and JetBlue. I’m more focused on getting on with business and building my airline. Let’s see where the government dialogue ends.
Skift: Many of your global competitors are installing premium economy cabins, but so far, Etihad has not. Why?
Hogan: This is our observation, but our economy is probably as good as most people’s premium economy. We put a lot of effort into it. What’s important for a traveler in economy is WiFi. We’re one of the few airlines in the world with Wi-Fi. You got your phone. You got your laptop. You’ve got all the plugs and the USB — everything you need is there. It’s pretty compact. Then you’ve got a great offering of in-flight entertainment, including live TV. I actually am boring because I watch CNN most of the time I fly.
So when you think of our offering for the business traveler, you’re guaranteed you’re going to have Wi-Fi, and you’ve got access to your text and emails. If you want to take a call, you can take a call. You’ve got the right space. The actual offering itself is outstanding.
Skift: You’ve invested heavily in the coach passenger experience. But airline executives sometimes joke that travelers choose airlines based on three factors — price, price and price. Can you charge more for a better product? Or does it not work like that?
Hogan: Yes and no. It depends on the flying time. For anything that’s under two or three hours, people are looking at price. That’s what the low cost airlines are taking advantage of. But if someone’s flying from here in America to go to Bangalore or to Pakistan, they want to ensure that it’s a smooth flow — that they can transit and the connectivity is there. We don’t just fly to Bombay and New Delhi. We fly to a whole range of secondary cities out of Abu Dhabi. That’s the distribution that we give people, so instead of being two stops going over Europe, it’s one stop going over Abu Dhabi.
That one stop has a value. Service has a value. Having cabin crew on board that speak 15 different languages means that again, people who are traveling on those routes … will have a level of comfort. If the guest is [happy], there is a retention factor, which means next time they come back they will feel comfortable. Over time, you’re able to get that improvement and [higher] yield.
Skift: You have flying nannies, butlers, and chefs. Why?
You have a food and beverage manager and a chef working in first class. You have a nanny in economy, and then you have the rest of your crew. Now, they’re all trained as cabin crew. They’re trained to do the doors, but we label them differently. We can do that, because we’re a non-legacy airline. We have this butler, [but if The Residence] is empty, he drops back into the cabin and works the cabin.
The food and beverage managers come out of [five-star hotels]. They manage bars and restaurants. They go flying for three or four years, and then they leave. That’s great. Because their attitude is different. We’ve got chefs out of Michelin star restaurants. The quality of the food? It’s fresh. And he runs the galley, so the wastage is much lower than the standard airline.
The nanny, if you got somebody with young kids, she’s going to go to the mum and say, ‘Well, when do you want the bottle? When do you want to feed the kids?’ She’ll do all that. Once she’s done that, she joins the rest of the service. This is what we call innovating instead of just delivering.
Skift: Do you spend more money per passenger than competitors? Or do you think you just prioritize your spending differently?
Hogan: No, we’ve gotten here at a cost. We regularly get organizations looking at our unit costs, looking at our catering cost. We ordered the A380 and spent six years working on the design, and what was as important to me as it is innovation and design was the seat count. We had to get the right number of seats on board the aircraft.
Skift: On your A380s, you have a two-room residence that sells for tens of thousands of dollars per flight. Why did you create it?
Hogan: The Residence is unique. Because it is tiered space, and because of the way it narrows, you can’t do seats here. The stairs come up, and it’s very narrow. Emirates has a toilet and a shower [in this space.]
When we looked at this space, we did focus groups in New York, in London, in Abu Dhabi, in Sydney. [We asked,] ‘Why can’t we do a penthouse?’ It sounded nuts. But this is dead space, and we were talking about [adding a] bar. I don’t believe in bars per se, on an aircraft. People don’t want to hang over the bar. We all don’t want them hanging over the bar. I’d rather be in my seat.
We decided to put in that double bed. We put a little shower in there too, but more important is the double seat. Two people can sit there for takeoff and landing, or one person can sit there. It’s never been done before.
Skift: Do people buy it?
Hogan: Abu Dhabi-London is running around 40 percent sale. It goes down to Sydney, and it comes to New York, and this is incremental space that could have been a shower. No one can get it for free, but you can use points. We have a good take up. We get government officials using it. We get people celebrating anniversaries. For some people, it’s on their bucket list.
Skift: Have you ever calculated what the residence is worth to Etihad’s brand in free media exposure?
Hogan: The halo effect is considerable.