Etihad Airways starts South American hub with São Paulo route
Sooner or later, Etihad Airways was always going to start flying to South America. And now it is.
Three times a week since June 1, and daily by the end of the year, non-stop between Abu Dhabi and the Brazilian mega-city of São Paulo.
Its been a bit of a sentimental journey for the national airline of the UAE - 10 years ago, its first two aircraft, and their crews, were leased from the Brazilian airline Tam.
But sentiment played no part in the decision to launch this major route, instead it was two years of number-crunching, analysis and negotiation by a dedicated strategy team out in Khalifa City, whose unblinking eye is never off the changing global economic tides.
"We have a 10-year plan, detailing year by year what we intend to do with the network," says Kevin Knight, who leads Etihad's strategy team. "New destinations, increasing frequencies, etc. We update that every year. We look at how economies are performing around the world, independent traffic data, distribution systems - that is how many tickets are being sold and by whom. When you make a reservation, that's recorded, and companies sell that data to whoever is interested.
"And when we look at new markets, it's not just between Abu Dhabi and wherever but between any number of points in our network and any number of other points anywhere in the world; wherever the business might take us. We look at connecting traffic … where it's coming from and where it wants to go," he says.
"We take as much information in terms of economic activity and we use that to come up with a traffic forecast; one that shows our best estimate of what our share could be of that market. And then we look at our own fleet capability and we come up with a proposal of what we could provide, within our network plan.
"We do the same for fares, and that way we come up with what the revenue will be. And then we do the same all over again for cargo. We know what our own costs are so we can come up with a pretty accurate profit and loss forecast," Mr Knight says.
"But we always expect to make a profit on everything we undertake in the end."
In 2011 a decision was made to look at South America. Exactly where was obvious from the figures coming out of Brazil. After all, the country's name provided the first initial to an acronym that was getting the whole post-crash world excited - the "Bric" countries, along with Russia, India and China - the rising emerging market economies that were going to help pull the global economy back out of the doldrums.
And a look at the map told you how important the Arabian Gulf region could be to their rise, situated as it is in the middle of any trade route from South America to the East.
Mr Knight's team went to work. What they came up with looked like this: when they began researching, in 2011, Brazil ranked as the 17th largest UAE trade partner with trade volumes of US$3 billion a year. But all the figures indicated that was going to change. A lot.
According to the Arab-Brazilian Chamber of Commerce, Brazil trade volumes with the Arab world as a whole had grown by 28 per cent in 2011, to reach $25bn. That figure was forecast to grow by a further 10 to 15 per cent last year, with 60 per cent of the trade driven by Brazilian exports. Today, Brazil has become the UAE's fourth-largest trading partner, valued at $2.8bn a year, and the UAE is Brazil's fourth-largest trade partner in the Arab world.
"Two years ago, our network was heavily committed in to Europe to the Gulf and beyond, to Australasia, and South East Asia. But we're watching the world change," says Mr Knight.
"We're now developing into China and Africa, and now we are looking at feeding traffic from those destinations into South America.
"We have a planning staff and they have all the tools. The information we gather is input into models to forecast every last eventuality from traffic levels, fare structures and even what the competition might do."
And São Paulo was the answer they came up with, he says.
The process of moving from a decision to enter a market to the first flight varies considerably from market to market. The final "go" is always dependent on approvals. Like every other airline, everywhere Etihad flies, it has to negotiate agreements on flight frequencies, times, landing slots, the number of seats it offers. A lot of that is done between the Government of the UAE and the country to where Etihad wants to fly.
Some countries, or groups of countries such as the European Union, offer liberal regimes, some virtually "open skies" policies where there are no restrictions on frequency, or seats, but most agreements come with restrictions of some kind or another. And sometimes negotiations can break down altogether.
In the past year Etihad and the UAE Government have been involved in protracted negotiations to expand into India, and with Ethiopia, the negotiations have been suspended.
But what Mr Knight's team delivered led James Hogan, the president and chief executive of Etihad, to announce last year São Paulo would be the first destination in South America, and this month he spent several days in the city selling his airline, and Abu Dhabi.
"Our services to São Paulo provide the first direct air link between the commercial centres of São Paulo and Abu Dhabi, which support the growing economic, tourism and trade relations between Brazil and the UAE," he told a packed press conference of Brazilian journalists.
The connection possibilities were spelled out: a link for the Japanese population in São Paulo, the largest Japanese community outside Japan, to Nagoya and Tokyo; the Arab community in São Paulo, predominantly of Syrian and Lebanese descent, who can now fly to the UAE, the Gulf and the Levant. And most importantly, for the Brazilian business traveller, connections to the heart of their fellow Bric nations.
The Etihad bandwagon culminated in a reception in downtown Sao Paulo attended by the Brazilian business elite, government ministers and a senator. Among them was João de Mendonça Lima Neto, the Brazilian ambassador to the UAE.
"The Brazilian government welcomes this initiative," he said. "The UAE is a vibrant, rapidly diversifying economy, offering a wealth of opportunities for trade and investment that cannot be overlooked by Brazilian businessmen," he said.
His diplomatic counterpart, Sultan Rashed Al Kaitoob, the UAE ambassador to Brazil, was there too.
"These direct flights will create new opportunities for government, trade and tourism between both countries to develop and flourish," Mr Al Kaitoob said.
"Brazil is one of the fastest growing economies of the world and offers a wide array of opportunities for trade and investment.
"Bilateral trade between the two countries is today valued at $2.85bn.Both governments hope to increase this to $10bn within five years," he said.
Updated: June 24, 2013 04:00 AM