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Antonoaldo Neves, Etihad Aviation Group

«For now the 777X doesn’t play any role in our five year plan»

Etihad CEO Antonoaldo Neves talks in an interview about competition in the Gulf, the order for Boeing 777Xs, joining an alliance and the cabin and destinations of the Airbus A321 LR.

For many years Etihad has restructured, resized, stabilized. Now you’ve started growing again and are reverting to act as a network carrier. What’s the reasoning behind the new strategy?
Antonoaldo Neves: The mandate we have from the shareholders is very simple. We need to be financially viable and sustainable in the long term. Size doesn’t matter. It’s about financial sustainability and delivering an extraordinary customer experience. So in October 2022, I took a look at the business plan for the next five years. And that business plan was betting on cargo. At the time, cargo yields were much higher. If they stayed high, not at the same level, but high, I could have managed to have an airline with about 80 long-haul and some short-haul aircraft. That’s it. So I told the shareholders, we need to revisit that since the market conditions may change.

So the board agreed?

Yes. We invested a lot of time trying to understand the local dynamics. And after that we said: Instead of trying to connect ultra-long haul to ultra-long haul and competing head to head with the other two big gulf carriers we could bet on India, the Middle East, Pakistan and Southeast Asia. These regions are going to grow a lot. But catering to them requires a different kind of network. We need to have a dominant presence in those markets and compete on a great product, great quality and frequency. We need to go double daily to Europe, to the East coast of the US and to Southeast Asia. And we need to have at least four flights per day to most of the destinations within four hours flight time. That is how we can double the size of the airline in terms of fleet and triple the size of the airline in terms of passengers, and at the same time expand margins. And so we adjusted the strategy in this way.

But as you mentioned, there’s lots of competition in the region …
Yes and no. We are the only airline in the region that has four flights a day to a number of destinations in the region. Today it’s more convenient for you to fly for instance from Riyadh to Madrid via Abu Dhabi than via Dubai. There is competition, but they usually have one flight a day or they have flights with longer connecting times.

And why is that?

Because their fleet is not suitable for that. For you to compete on frequency, you have to have smaller aircraft as well fully integrated to your network and revenue managemnt.

You mentioned Saudi Arabia. They’re setting up a second national carrier with Riyadh Air and are talking about launching even a third one. Are you afraid of these new competitors, after all, Saudi Arabia is a very important market for Etihad.
It is. But if you want to be in this industry, you have to like to compete. I don’t have any problem with competition. It is good for us. It raises the bar. The UAE is a market of 120 million passengers a year. One day is going to be 200 million. So there’s room for several airlines. You can make money if there is a market and the region is growing five percent per year. And the market is going to grow.

So you don’t think there’s a need for consolidation in the Gulf region?
Mergers can create a lot of value. But they need to have a rationale behind it. They need to create value for the shareholders and the consumers. If you think about consolidation in our industry you need to look at the network. I only believe in consolidation on the revenue side, not on the cost side. That’s where the money is and that’s where the value creation is. So merging airlines is very good for strengthening hubs. And I don’t see today, significant revenue synergies in the Middle east to support consolidation. I just don’t see it.

Etihad now has 89 aircraft and you serve over 70 destinations. Where will you stand in five, ten years?
I can tell you the five year plan. We can go to about 150 or 160 aircraft and around 110 destinations – so we can add 40 destinations more.

And more frequencies …
A lot more frequencies. That’s really important. We’re going to be adding frequencies and destinations at the same time. But we will choose our battles. If I compete everywhere, I’m going to lose everywhere.

You have ordered 25 Boeing 777X.
No, I haven’t.

But the order book of Boeing says so.
The contracts we have were all restructured. So today I don’t have any firm commitment for the 777X. I have the option to buy those planes, but I also have the option to buy more 787s. We have a great relationship with Boeing. But as for now the 777X doesn’t play any role in our five year plan.

But you will need some ultra long range aircraft, right?
Yes, we need a ultra long range plane. The Airbus A380s and the older Boeing 777 will leave the fleet at some point. We need a replacement for those aircraft. It could be the A350-1000 or it could be the 777X.

Are you also suffering from late arrivals of aircraft?
We all are. Right. This is a major problem for the industry. But we were lucky. We were one of the few airlines in the world that was receiving lots of planes during the pandemic. We got rid of the old planes and got new Boeing 787s. Today we have the youngest fleet on the wide body side in the region. So on the wide body side, we are fine and face only delays of around six months.

An on the narrowbody side?
One of the first things I did when I arrived in December 2022 was calling the CEO of Airbus and I told him that we are going to confirm all orders. Those aircraft will arrive later than planned, but we can manage that. Also we redepoloyed in record time all our previously parked Airbus A320 and they are flying again now. And we have secured leases for six brand new Airbus A321s from Bamboo Airways. They’re going to be flying in June or July. We take a very flexible approach here and our execution capability is outstanding.

How long will your A380s keep flying?
For as long as they can. They will be flying at least until 2032. But the question I asked my team is – how much longer are they able to fly? I need to see the numbers first in order to be able to decide on that. And of course it all depends on the market conditions. The good thing is, Etihad has a very strong balance sheet. 65 percent of our planes are owned. So if the market conditions change and deteriorate, we can alwyas park planes wihtout incurring leasing costs.

You will also get some Airbus A321 LR. On which routes will you be using them?
We’re going to get ten A321 LRs next year. Our plan was to get those planes by June. They’re going to be a little bit late. We still have to decide to which destinations we will use these planes. The strategic intent for them is frequency and thinner markets. If I went to Copenhagen twice a day with a widebody aircraft, I would lose a lot of money. But it will eventually work if I can deploy an A321 LR to Copenhagen. Or I can fly seven days a week to Nice with that plane. But I cannot send a Boeing 777 seven days a week to Nice.

What will the cabin of your LRs look like?
We will have 144 economy class seats and 14 lie flat business class seats and two seats in the front of the cabin which offer even more comfort.

You have lots of open orders – for Airbus A350s and Boeing 787s. Is this enough for your needs?

For the five year plan that goes up to 2030, we’re good. But beyond that, we will need more planes. The oldest Boeing 787 are going to be over twenty years old then. So we will need to consider replacing them. But I don’t like to announce orders. I’m not in that business. My business is selling tickets.

Will you also need more narrowbodies because you want to grow on the long haul?
We’re gonna go to about 150 and 160 planes. Around 80 to 100 will be widebodies. So around 80 to 60 will be narrowbodies. But to have more flexibility, we are going to have 30 to 40 LRs. So we take a very flexible approach on the narrowbodies. But yes, we will eventually need more.

Will Air Arabia Abu Dhabi play a part also?
They are already playing a relevant role. We learn a lot from them.

But how do you differentiate Etihad and Air Arabia Abu Dhabi?
It’s different from market to market. Where we need the premium service, we use Etihad, in other places we use Air Arabia Abu Dhabi. I mean, as I told you, we’re gonna have these 16 life flat business class in the 321 LRs and also in other 321s Neo.

In your network there’s still many blank spots, like Western Africa, Central Africa, South America, or the west coast of the North America. Are you gonna change that?
Slowly, very slowly. We have to be very selective in the ultra long haul business. Because if you fly to LA, you need to deploy two planes. With two planes, we can go double daily to other places like Madrid, Barcelona and Lisbon. So ultra long haul in the short term, is not high on our priority list. In two, three, four years, when we have strengthened the network, I may add ultra long haul flights.

What about German speaking countries? Etihad operates flights to Frankfurt, Munich, Vienna, Zurich year round and Dusseldorf on a seasonal basis. Any plans to expand there?
I’m a big believer in frequency, I hate to fly three times a week to a certain destination. I like consistency. So I like to fly everywhere throughout the year at least daily. The A321 LR helps with this.

Qatar has concluded the open skies contract with the European Union? Is that something the UAE should do also?
Open skies discussions are a matter of the government. It goes beyond the interest of the airline. But to be honest: We do have space in our bilateral agrement with Portugal and we want to add more flights to Lisbon. Is it useful? There are almost no slots in proper time in Lisbon. So I think discussing that on a broader level is very complicated. I think there are markets that would benefit from additional capacity to the UAE and vice versa.

Etihad now has 32 codeshare partners, but you’re not in an alliance. Is that something that could bring value to Etihad?
Airlines that choose to concentrate their efforts in a selected markets benefit a lot from alliances. Etihad’s planes are full, our load factor is 86 percent. The accession to an alliance may happen, it also may not happen. It’s not critical for us. It’s not in my top three priorities. My number one priority is safety. My number two priority is making sure that we have the pilots and planes for our network. And my number three priority is making sure that our people are extremely happy so that the customers are happy.

Etihad doesn’t offer a premium economy. Is that something you might change?
Because of the profile of our customers and the nature of our network we currently do not have a need for it.

Will all your new planes have a first class cabin?
We haven’t decided that yet. But first class is an important product for Etihad.

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