European Airlines Should Restructure to Compete, Etihad CEO Hogan Says

Etihad Airways and other Gulf airlines are enjoying advantages including lower costs compared with European rivals, which must make changes to be competitive, Chief Executive Officer James Hogan said.

“Most European carriers are 50 to 60 years old so they’ve got challenges on restructuring, on their cost base and on their employment practices,” Hogan said in an interview in Abu Dhabi. “We don’t have that. Here at Etihad, we’re seven years old and we started with a clean sheet of paper. That’s the opportunity we have.”

Airlines in the Gulf region also profit from their location and new technology that allow them to fly non-stop to all parts of the world, said Hogan. “We can’t be blamed for that,” he said. Etihad expects to carry 7.3 million passengers this year, up from 6.3 million in 2009, and will increase frequency on existing routes next year, said Hogan, who has been CEO of Abu Dhabi’s flag-carrier since 2006.

Airlines in the Gulf Cooperative Council region such as Etihad, Dubai’s Emirates and Qatar Airways have been criticized by European airlines, which say government subsidies and access to cheap financing have allowed their Gulf competitors to expand rapidly. Emirates overtook Lufthansa last year as the biggest carrier on international flights, following a sixfold increase in traffic since 2000, when it ranked 24th. Emirates posted a more than fourfold rise in first-half profit.

European carriers “are now finding due to their cost base and structure that they can’t compete,” Hogan said. “They should restructure their businesses and not use legislation to force Gulf carriers to slow down.”

Export Credits

U.S. and European airlines are urging governments to limit financing of aircraft exports to avoid giving an advantage to competitors abroad buying from Airbus SAS and Boeing Co.

“If there’s an issue with regard to export credits, that’s a European opportunity that we’ve taken advantage of,” said Hogan. “We would see no problem in that benefit being extended to European carriers.”

The role of export financing has ballooned since the credit crunch reduced banks’ willingness to lend. The share of plane deliveries covered by government guarantees more than doubled to 34 percent in 2009, according to figures from Toulouse, France-based Airbus and Chicago-based Boeing, the world’s two biggest makers of commercial aircraft.

Fleet Expansion

Government-owned Etihad, which started operations in November 2003, currently operates a fleet of 56 aircraft and flies to 66 destinations. At the Farnborough Airshow in 2008, the carrier placed an order for up to 205 aircraft - 100 firm orders, 55 options and 50 purchase rights in a deal worth $20 billion. Over the next 10 years, Etihad plans to take delivery of 106 Boeing and Airbus aircraft.

Etihad, the second-biggest carrier in the United Arab Emirates after Emirates, is using its base to build up a global network, competing with carriers such as Singapore Airlines Ltd., Air-France-KLM Group and Deutsche Lufthansa AG.

“We’ll start to mature as a business and move toward breakeven,” Hogan said. “We’re looking to breakeven at the end of next year. If it hadn’t been for the financial crisis we’d have broken even in 2010.”

To contact the reporter on this story: Zahraa Alkhalisi in Abu Dhabi at zalkhalisi@bloomberg.net Stefania Bianchi in Dubai at sbianchi10@bloomberg.net.

To contact the editor responsible for this story: Edward Evans at Eevans3@bloomberg.net.

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