Etihad flies in to save Seychelles
VICTORIA, THE SEYCHELLES // It is not every day your average global airline executive gets to save a country, but James Hogan, the president and chief executive of Etihad Airways has just managed it. At least that is what James Michel, the president of the Republic of Seychelles, thinks.
On Friday, Mr Hogan announced the details of a five-year deal between Etihad and Air Seychelles worth US$65 million (Dh238.7m) aimed at turning the island's state airline from a loss-maker into a profitable business.
"Many airlines bigger and better established than ours have gone bankrupt and have had either to restructure or to close down," said Mr Michel. "But Etihad took the risk in investing in Air Seychelles as an airline that was making losses and downsizing, with a falling value by the day."
Just what that means to the Seychelles as a country was explained by Joel Morgan, the minister of home affairs and transport. "Air Seychelles plays a pivotal and strategic role in our economy, and in our island life," he said. "It gives us access to the world, and connects our islands. And it brings us the tourists that sustain our economy. So our airline holds an entirely unique place in our economy. In short, we need it to ensure the long-term viability of the Seychelles." That was why, after two years in trouble, Mr Michel turned to Abu Dhabi to help him save the airline. What followed was two months of Etihad management taking apart Air Seychelles' books and coming up with a plan to turn the airline around - and save the country's economy.
"There have always been strong relations between Abu Dhabi and the Seychelles, so when our Government asked us to take a look at Air Seychelles we went in to see if we could turn it around and bring it back to profitability," said Mr Hogan. "When we launched Etihad in 2003, part of our remit was to run an airline that made money, so when we approached this we were prepared to do what was necessary, but we would not do anything that would damage our own commercial interests."
What quickly became apparent, however, was that this was not a rescue mission but a major opportunity for Etihad.
"What we saw was a good airline, but a bad business. What we also saw was that we could make this a great airline and a great business," said Mr Hogan.
Air Seychelles had been flying since 1983, in profit. Then in 2008 the blows started landing - the world economic crisis, then the euro crisis and fuel costs. The airline had to turn to the government for support, but the government had already had to turn to the IMF.
"Air Seychelles was audited several times over the last two years and both international and local auditors have highlighted similar findings; primarily, financial losses due to the rise in fuel costs, high maintenance costs, rate of exchange fluctuations and lower revenue levels compared to previous years," said Mr Michel.
"The government has been helping out Air Seychelles financially during the last two years but could no longer sustain its requirements, as the government had to meet its own fiscal target under the IMF programme," he said. "We urgently needed to find a partner that would give Air Seychelles the economies of scale and synergies of a larger business entity.
"I was determined to keep the airline alive, although many had already pronounced it clinically dead in the financial intensive care unit."
Commenting further on the venture, Mr Hogan said: "Airlines of this size just can't afford the overheads a legacy airline has to carry. But when you take out the non-core costs, it's a different story."
After examining Air Seychelles' books, his team came up with a plan to integrate everything from revenue management and pilot training to sales and marketing.
"We've got 600 people selling Etihad worldwide. Now they're selling Air Seychelles as well," he said. "We have three flights a day out of London, two a day out of Paris and Frankfurt. When you get that level of frequency, through our hub in Abu Dhabi, all connecting to our six flights a week between Abu Dhabi and the Seychelles, you have something to tell the tour operators. Premium passengers look for frequency. "There are other synergies: we will be sending Air Seychelles staff through our training academy in Abu Dhabi, and opening cadetships for Seychellois to train as pilots, engineers and cabin crew. And we will be bringing in graduate management trainees to run the airline in the future.
"It also gets Air Seychelles access to the right aircraft at the right price. Because we are Etihad we are getting a cracking deal on the new A330s we've ordered. It's when you take all that cost out you see the potential."
Mr Hogan believes it is a strategic alliance that has the potential to open up the Indian Ocean basin and, more significant, China, to Etihad.
Air Seychelles is to begin a three-times-a-week service to Beijing next January.
The islands recorded a 422 per cent increase in visitors from China last year, although that takes them to just 705 Chinese visitors. But the Maldives, a tourism competitor, had nearly 200,000 Chinese visitors last year and China is now their number one market.
"We are just on the brink of tapping into this exciting new market if all the tourism stakeholders take up this challenge and make this formidable window of opportunity," Mr Michel said.
The new structure of Air Seychelles will run for five years, with an option to extend a further five years, and will involve Etihad senior management running the airline, while key decisions concerning the company remain in the hands of the Seychelles government via the board of directors.
"Today, we have Etihad management running the company, but in five years, Seychellois staff are expected to take over the complete running of the airline", said Mr Michel. "There are many talented managers at Air Seychelles, and the Etihad team will groom them to take over the key management positions."
Mr Hogan described the posture Etihad would take in the relationship. "We haven't come here to tell people how to do their jobs," he said. "Just to show them how to work smarter."