Etihad Airways plans more rapid network and fleet growth but warns it will chalk up another three years of losses and needs another capital infusion.
The Abu Dhabi-based carrier's new management team, which includes chief executive officer James Hogan and executive vice-president finance James Rigney, has completed a new business plan that projects the first break even result in 2010. Etihad launched services in late 2003 and has quickly expanded its network to nearly 40 destinations.
"In the first three years there were trading losses and in the next three years there will be trading losses, which is not unexpected," Rigney says. "The new business plan has the business achieving break even in 2010. What was important to our shareholder is we build a realistic business plan."
Etihad is not disclosing the extent of its losses but says it is on track to generate $1.3 billion in revenues in 2007 and carry over 4 million passengers. In the first quarter of 2007 it generated 712 million dirham ($194 million) in revenues, a 208% increase over the same period last year, despite only a 130% increase in capacity. Yields improved by 19% and load factors surged from 54.5% to 68.3%.
Rigney reveals Etihad is close to completing a recapitalisation with its shareholder, Abu Dhabi's government: "What is required is the right level of capitalisation and the right level of corporate and financial governance of a business of this magnitude. What was required for the first three years was different."
Rigney says that since he and Hogan joined Etihad from Gulf Air in October they have drafted a new manual of authority and put into place stronger and more detailed reporting lines. Better inventory and pricing controls have been implemented and Etihad has begun hedging its fuel costs. "A large part of our business plan is to have a very efficient cost base and to maximise our revenues," Rigney says.
He adds the government has tasked the new management team to carry out a financial restructuring and run the airline purely commercially without any subsidies. "When we came the airline just became three years old. To go from start-up to 24 aircraft in three years is very fast. It was a major operational focus. After three years we move into a new phase. We're a new airline but no longer a start-up."
The carrier's passenger fleet will expand from 21 to 31 aircraft in 2007, giving it the capacity to launch several new routes. Etihad added two destinations in the first quarter and will add another four by the end of this summer. It is looking to add another five by end of 2007, giving it 47 destinations in total.
Etihad is now only committed to acquiring four additional aircraft beyond 2007 - four Airbus A380s which will not be delivered until 2009 and 2010. But Etihad's new business plan includes continued rapid growth and Rigney says it will secure the additional capacity it needs for 2008 and beyond within the next two months. "There will be significant growth in the next five years," promises Rigney.
He adds Etihad is now talking to Airbus and Boeing about additional widebodies and its first narrowbodies, which are needed to further develop its Abu Dhabi hub.
Source: Airline Business
