Delay in UAE airline: the drag but not headwind


Based in Abu Dhabi, Etihad Airways, the UAE’s national carrier, had been waiting for a fleet of new wide-bodied long-haul jets in order to boost the airlines’ expanding global network. Last year, new three class Airbus jets and two new three-class Airbus A-340-600 were added to cope with the demand in the busy season of summer.

However, there were delays in the delivery of new Airbus and Boeing models and orders affecting Eithad’s summer business, after the airline’s chairman Sheikh Ahmad bin Saif al Nahyan said there will be more aircraft deliveries to expand the routes from the Middle East, Europe and Asia.

James Hogan, CEO of Etihad, however, said that in looking at the network planned up for 2030, the airline went above the production line. “The narrow-bodied A-320s [what is available now] and the A-380s that come out in 2012 for us are on track; we’ll take the Boeing 787s in 2013 and the A-350s in 2017. We have built our plan around the availability of the aircrafts and we’ve split the order between the two manufacturers for us to negotiate a good deal,” he said.

Fuel efficiency was a decision factor for the model the airline bought. Incidentally, falling oil prices after crude oil, light sweet tipped the scale at $137.00 per barrel last July bode well for the industry and Etihad.

Hogan was satisfied to see fuel prices go down. “Any airline would be happy to see a reversal of the oil price depending on what the hedging position is. Airlines such as ours have fuel covering 32 percent to 40 percent of our cost base. We’re still watching how the trends are moving forward and certainly how the barrel cost of oil in the $90 + range will put us on the hedging cycle. We were fortunate that we were well-hedged in 2007 and 2008, and is partly hedged for 2009. But we will see what happens in the coming weeks,” he said.

But no matter how the market and oil prices pan out, Etihad proved the industry has always seen tough business. There are external shocks the industry is prepared to face – whether it is fuel or war. “The key is in seeing the consistency in the price between $80 and $100 and more importantly, with the ability of the airline’s hedge moving forward.

We will work hard to address our cost base, our financial well-being, our brand, our future fleet plans and our service both in the air and on ground,” said Hogan.

It’s no secret that the United Arab Emirates is facing serious labor issues – the lack of skilled labor and management due to the speed of economic boom. Will labor cost be the bigger issue for Etihad, rather than energy, in a region that has more oil than people to run the state?

The five-year-old airline, a much younger airline compared to Dubai’s Emirates Airline, has its challenges with sourcing pilots, technically-skilled staff and service employees while trying to build itself into a global airline.

“Being a new airline, however, we have seen pilots who are keen to work in Abu Dhabi or within the Middle East. They are happy to join our airline flying to 50 cities within 2010 and we’ll fly to 100 cities worldwide. We’re the bridge between Europe, Southeast Asia and Australasia. There’s a strong interest from staff to live in Abu Dhabi,” said Hogan, not explaining the fact that expatriates may not be able to afford to live in Abu Dhabi due to the high cost of living; unless an international employment contract has been worked out, it is difficult to live in the capital due to inflation and real estate premiums.

Other challenges for Hogan in the years ahead appear to be the bilateral relationships Etihad would have to enter into, dealing with governments as markets evolve, and refining efficiency as the airline grows, while seeking acquisitions and mergers. “We may have to partner ourselves with others; but unlike European and American airlines seeking business efficiency, we will seek partnership in getting more talent, more people, more skills and opening new routes and destinations worldwide.”

Running a successful airline is not just about buying planes and flying to new cities, according to Hogan. Etihad’s development plan for the next years and the summer flight program will continue to develop the airline’s business on hard commercial principles.