Etihad chief tells 800 travel executives of 'battle of the hubs', which will be won by those who can adapt to the travel industry's great changes.
Gulf well placed for new world flight path, Abu Dhabi summit told
Major new airports and business innovations have Arabian Gulf airlines well placed for a "battle of the hubs" as the global sector undergoes great changes, industry leaders have been told.
Air travel is being redefined as markets evolve, traditional markets decline and new ways of doing business are introduced, James Hogan, chief executive of Etihad Airways, told the World Travel and Tourism Council Global Summit in Abu Dhabi yesterday.
"Airlines across the world need to adapt to this new world, and identify and tap into growth markets," Mr Hogan, also Etihad's president, told more than 800 senior travel executives.
The next generation of airlines will need "the vision and willingness to be different", to cut costs, improve productivity and find affordable ways of gaining access to new markets, he said.
The "legacy airlines", trapped by uncompetitive practices, are unlikely to grow unless they radically changed the way in which they did business.
The Middle East is one of the fastest-growing aviation regions in the world, with major new airports at Abu Dhabi, Dubai and Doha.
This was possible because the governments of the UAE and Qatar understood the importance of aviation to their national economies, said Tony Tyler, chief executive of the International Air Transport Association.
"The approach of the Gulf states in this has allowed Qatar, Etihad and Emirates to build very successful business models," Mr Tyler said. "They are now reaping the benefits and have become a force for good in the air transport world."
Willie Walsh, chief executive of IAG, the holding company that owns British Airways and Iberia, agreed.
IAG's airlines have been bleeding market share to the Arabian Gulf carriers on routes from Europe to Africa and the Far East.
"The Gulf carriers are not achieving this because they are being given cheap fuel or financial assistance," Mr Walsh said. "What they have are governments that recognise the vital importance of their industry and have created a landscape that is entirely favourable to their growth.
"That is totally unlike the landscape we have in Europe, where we have governments who have beset their airlines with regulation and commercial restriction, and a tax regime that treats them as convenient cash cows."
On top of the challenges of economic instability and uncertainty over fuel prices and supply, Mr Hogan said the rapid growth of air travel in markets such as India, Africa and the Middle East meant airlines would need to reshape their networks to accommodate changing traffic.
The traditional model of alliances such as oneworld or the Star Alliance was out of date, he said.
Etihad created a new model, based on organic growth, codeshare partnerships and buying minority stakes in airlines serving markets it wanted to enter. It has 42 codeshare agreements and minority stakes in Air Berlin, Air Seychelles, Virgin Australia and Aer Lingus.
The model also enabled the airline to enter markets within local foreign-investment limits, sparing it the complexities, approvals and expense attached to mergers or larger investments.
"It is easier, faster and far more cost effective to grow through one-on-one partnerships with established, respected carriers than it is to rely totally on our own resources, and to start from scratch in every market we serve," said Mr Hogan.
"We have hand-picked like-minded partners with whom we can work collaboratively to build revenue across a broader network and reduce operating costs.
"We focus on our partners' profitability as much as our own, because we are not dealing with competing interests. When the five of us sit down to make decisions, we have a shared commitment to make things happen."
Mr Hogan said the arrangement meant Etihad could go so much further than legacy alliances in thinking innovatively. Working together they could pool back-office jobs, training and even bargain down the price of new airliners.
"Our model ensures commitment and obligation from both airlines and streamlines our entry into new markets, affordably and within foreign investment limits," he said.
"The strategy helps us avoid the drawn-out process which applies for mergers and larger investments, and enables our continued expansion via established and respected global brands."