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Rising Yields Presage Airline’s Recovery, Says Etihad Chief Executive

DUBAI — Etihad Airways is seeing a gradual improvement in profit margins in both its passenger and cargo business, giving its chief executive reason to believe the carrier is emerging from the aviation industry’s worst tailspin in decades.

Etihad’s passenger and cargo yields tumbled early this year amid a collapse in demand for air travel. Yields on premium-class ticket sales came under especially severe pressure.

Now, they’re rising, with advance ticket sales for the months of December, January and February all higher than they were this time in 2008, Etihad Chief Executive Officer James Hogan told Khaleej Times.

“That gives us confidence,” he said. “I just need to see consistency in that trend.”

As a result of global economic woes, Abu Dhabi-based Etihad has pushed back by one year its target for breaking even. The airline, which began operating six years ago, now expects to start earning a profit in 2011 instead of 2010 as it had forecast earlier.

Hogan acknowledged that a prolonged or double-dip recession could further delay this break-even date. “Business has to start moving again. Economies have to crank,” he said in an interview this week on the sidelines of the Dubai Airshow.

A widening of the swine-flu pandemic ahead of the Hajj later this month also could cause problems for the airline.

However, Hogan believes that Etihad’s success in achieving incrementally higher yields is a sign that his company might have endured the worst of the downturn.

He described the yield improvements he has seen this year in terms of “cents” and “half a cent,” using colloquial terms for single percentage points and half of a percentage point. Airlines express their yields in percentages.

Hogan, a native of Australia, took over at Etihad in 2006 after serving in a similar role at Gulf Air.

“Our costs are pretty well in shape,” he told a news conference on Monday. “The challenge has been the yield.”

Etihad’s revenues have suffered from weaker demand; air traffic in the UAE alone plunged by 30-40 per cent during the summer compared to the same season in 2008.

So, the carrier is squeezing its expenses. It’s haggling with airports, for example, to try to get a better deal on the user fees it pays them, Hogan said.

One of Etihad’s advantages is that it isn’t burdened with a heavily unionised and high-cost labor force like some legacy carriers, he said.

Another plus for the airline is geography. India, with its millions of expatriates living in the Gulf and its deep commercial ties to this region, plans to build 30 new airports. “That market represents a huge opportunity on our doorstep.”

In Europe, he said, “We’re seeing the market is there if you have a strong product. We believe we have a strong product.” Abu Dhabi itself is generating more business, with its development of tourism and healthcare facilities.

And because new routes take about three years “to mature,” Hogan said, some of the airline’s newest destinations need more time before they can become profitable.

Etihad now flies to 58 cities and plans to serve 100 by the year 2020. It plans next to add Sri Lanka and Japan — Nagoya and Tokyo’s Narita airport — to its sprawling network.

“We’re the fastest-growing airline in commercial aviation history,” Hogan claimed. “No other carrier has achieved what we have in such a short time.”

Etihad operates a fleet of 49 aircraft. In July of last year, it ordered 205 additional jetliners, including options and purchase rights.

Hogan denied a suggestion that last year’s $20 billion order might have been overly ambitious, given the decay in worldwide demand for air travel that followed.

“It was a great deal…,” he said in defense of the enormous purchase. “It gives us the (delivery) schedule we need to grow this business but to have measured growth.”

Among the planes that Etihad ordered last year are 35 Boeing 787 Dreamliners, a fuel-efficient model built largely of lighter, carbon-fibre composites that has suffered a series of production delays. Hogan said that he was ”pretty comfortable” that Etihad would receive its first 787 on time in 2014.

The carrier would not be announcing purchases of any aircraft at this week’s Dubai Airshow, Hogan said.

“We’re not aiming to be the biggest airline. We’re aiming to be the best.”

bruce@khaleejtimes.com