Hogan: 'I’m not taking on Emirates… our fight is elsewhere'
James Hogan is very relaxed about the prospect of Emirates crossing the $1 billion (Dh3.67bn) net profit mark by March 2008, something that was leaked earlier this week.
“They’ve done a good job. Dubai and Emirates’ success is good for all of us in the Gulf. Well done,” he says.
The ex-Gulf Air chief executive is faced with a fiercely competitive and over-crowded Middle East airline industry, and a possible global economic downturn in 2008. The previously troubled Etihad Airways must also break-even by 2010, as he agreed with his board.
But the Australian-born is not out to pick a fight with his neighbour Emirates, or “the guys down the road” as he calls it, but to use the success to shine a light on the region.
“I’m not competing against Emirates. I’m competing against the airlines over Asia and over Europe. So for me the more traffic that Gulf carriers can switch over the Gulf hubs is good for us all,” he says with confidence.
Hogan’s 25 years’ travel industry experience has instead taught him to roll with the punches that hit the airline businesses.
When asked how he prepares for a downturn, he says: “That’s the risk that any good management team has to tackle. I’ve been through SARS, tsunami, war, fuel hikes and new competition, so you adapt. You’ve got to be flexible enough as a management team to adapt. That means you’ve got to have good people, and while they’re accountable, they got to be empowered. I think we’ve got those people at Etihad.”
He joined the airline in October 2006 after working his magic at Gulf Air, where he was responsible for the Project Falcon programme, repositioning the business on a commercial platform.
He is faced with Emirates predicting an earning increase of 18.5 per cent by March 2008 from this year’s $844m (Dh3.09bn).
How the two major airlines can co-exist in this tightening market space is something Hogan must negotiate.
“Only five per cent of the world’s tourism comes from the Middle East and that will grow enormously over the next 20 years.
The infrastructure will help generate tourism, secondary homes and people will invest in business. So for me, yes, there is room for two.”
He believes the money being pumped into Abu Dhabi to bolster its status as an economic hub is a key driver for this.
And in the same way as Malaysian and Singapore Airlines exist side-by-side, he says Dubai and Abu Dhabi can.
“If you consider over the next six years there’s 170 billion euros (Dh731bn) being invested in Abu Dhabi, and the people that are going to service that growth are going to be travelling from Europe, Australasia or India and are going to locate here, you start to generate huge activity just within that local economy.
“And when you look at the aspirations for Abu Dhabi, whether it’s Guggenheim, the F1 or the Louvre or major art or hotel developments, we’re very confident because this means Abu Dhabi will become a destination in its own right, similar to what’s happened down the road. People will have a destination to stay before you go on to Sydney or somewhere else,” he says.
Etihad Airways is moving to a purpose-built terminal at Abu Dhabi airport in April. The airline recently appointed Etihad’s airport manager in Sydney, Ryan McKeag, as the head of the new terminal.
Etihad is slowly turning its gaze to take on global giants outside the UAE in the hope of persuading vital long-haul passengers to at least pass through Abu Dhabi.
“I’m looking at taking business out of Europe, the Middle East, Australasia and Asia. I’m looking at the people that are travelling over the Asian and European hubs. I’m hubbing over Abu Dhabi, Emirates is hubbing over Dubai. Of course they’re a competitor but our major competitors are the other hubs. We want to encourage travellers to fly non-stop into Abu Dhabi.
“We want people to see the Gulf hubs as crossroads to the world, maybe they will try one of us next time as opposed to the European and Asian carriers,” he adds.
In executing this bold strategy, Hogan seems very measured and in no rush.
He has, for example, not been taken in by the superjumbo fever that has seen major airlines pressurised to buy A380s to stay competitive. Etihad pushed back orders of four A380s until 2013.
“It’s not that we don’t need them now, it’s making sure we could manage the growth in number of seats in the market. We’re still a growing airline, we’ve got good seat numbers with the current fleet. Airbus 380s at this stage would be a huge jump, and what we didn’t want to do over the next three years is penalise the business by jumping too early: running before we can walk.”
He also denies he is in a rush to meet a rumoured two-year deadline to turnaround Eithad, something he says never existed.
“I have not been given a deadline by the board. We presented a business plan that we discussed with the board and agreed with them. So it wasn’t a deadline.
He says it is Etihad’s aim to break-even by 2010, adding: “We believe that’s an acceptable period. Fuel has been a challenge this year, but at this stage we’re comfortable in achieving that. We work with the board as a partnership.”
Looking forward to 2008, Hogan faces two major challenges, one from escalating crude prices and the other from the environment. Both are issues dominating agendas of governments across the Middle East. Oil is something that will dominate Hogan’s projections as he heads for his 2010 turnaround.
“The cost of crude oil worries every airline CEO because it’s a big chunk of our costs. We’re hedged in 2007, and will in this stage in 2008 to 60 per cent to 65 per cent, in 2009 at 20 per cent. I think that with any consumer, with raw materials that see an increase or shortage of supply, that’s passed onto the end-user. I think that’s an acceptable cost. People understand the cost of fuel when they fill up their car. And they understand that it will be passed on. We monitor it daily and follow the leading carriers in the world. These days of business people understand that.”
Virgin boss Richard Branson recently announced flamboyant measures to tackle the deepening problem of global warming, including towing aircrafts to runways and pioneering the use of biofuel.
Hogan has no gimmics up his sleeve, but says he is focused on fuel efficiency, something that his young fleet of aircraft can help with.
“Our average aircraft engine is two-and-a-half-years old. Like cars, they are fuel-efficient. But as we look at our fleet going forward, one of the things we do look for is more fuel efficient aircraft, whether it be the composite or the weight of the aircraft.”
Hogan’s confidence in the increasingly powerful Abu Dhabi hub that Etihad Airways operates from is fuelling his plans for expansion. With the airline down the road, the fierce domestic competition that it brings, and escalating fuel costs, Hogan seems very calm and collected if not to say run of his feet.
A conference Hogan hosted with staff recently reveals a lot about his ambitions for Etihad. “We’ve just had an internal conference and the whole focus was about becoming the best airline in the world. Not the biggest, the best. In service, quality and can-do for our customer.”
From this it is clear why Emirates’s success doesn’t pressure him as a much as it might. They are a competitor, but not directly.
James Hogan CEO, Etihad Airways
Hogan was appointed CEO of Etihad Airways in October 2006, bringing more than 25 years of travel industry expertise to the airline.
He joined the Abu Dhabi carrier from Gulf Air, where he oversaw the Project Falcon programme, repositioning it on a commercial platform.
Prior to joining Gulf Air in 2002, Hogan was CEO of the Tesna consortium, created with the aim of acquiring Ansett Airlines.
He has also held a number of senior operational and commercial positions within the airline industry including Vice-President, Marketing & Sales of Europe, Middle East and Africa at Hertz, Worldwide Sales Director at the Granada Group and Chief Operating Officer at bmi British Midland. Hogan is also a non-executive director at Gallaher.
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