KFlyer
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Does EY's Network Really Have The Potential To Bec

Sat Jan 21, 2012 11:51 am

Etihad Airways has been in growth mode since its inception in early this century. Yet the airline's break even targets seems to have been postponed, and it is fair to assume that the airline is yet to turn to the black. While the airline had to face its fair share of its difficulties, as did the rest of the industry - the airline could have taken measures to become profitable despite these, if it has a sustainable model. This is specially a concern considering that EY has recently been less robust about expanding than its two larger regional rivals. Nor does EY's strategy seem to be having any unique strategy rather than isolated cases of shine here and there (Eg: EK focuses on connecting premium points at a lower cost with larger a/c, QR focuses on capturing smaller untapped markets with larger potential using narrowbodies). Where exactly is EY sitting when it comes to their network strategy? Is their plan about avoiding highly competitive cities? Are they making money on routes apart from the possibly profitable ones such as LHR, CGK, BRU, DUB and PVG and the trunk short hauls?
The opinions above are solely my own and do not express those of my employers or clients.
 
fraapproach
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RE: Does EY's Network Really Have The Potential To Bec

Sat Jan 21, 2012 12:31 pm

Hi KFlyer, you are picking the words right out of my mouth! I am likewise clueless about their strategy. I dont see their competitive advantage or unique selling point. Some codesharing here, certainly a good product there (but IFE way behind EKs), but when it comes to the number of destinations and frequency they are way behind EK who have a decent product likewise. Recently they discontinued CPT and cancelled 6out of 20 A 350-1000. I wonder if this is the outcome of a strategy change where the ambitious growth targets were trimmed because EY understands there is no place for a second EK. Community, please share cour wisdom with us!
 
klwright69
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RE: Does EY's Network Really Have The Potential To Bec

Sat Jan 21, 2012 12:32 pm

Of course EY does well to ORD I think since they are the only Persian Gulf airline serving ORD at the moment.

I think EY should have grabbed the bull by the horns and added another US destination in the last several years.

EY certainly has a lot of competition.

I lived in Abu Dhabi for the last two years. Abu Dhabi is looking to be a premiere destination and business center in the world, not just in the middle east. EY is there to help place Abu Dhabi on the map. It serves a higher purpose than just company bottomline.

Abu Dhabi is not a large city. And it is more conservative than Dubai.
 
behramjee
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RE: Does EY's Network Really Have The Potential To Bec

Sat Jan 21, 2012 2:25 pm

Just because a route like CGK and ORD are high volume, it does not mean that an airline makes a "net profit" operating them. Etihad does not make a "net profit" and I repeat again "net profit" on any single long haul route that it flies to including LHR. It may make an operational profit on a few long haul sectors but net profit no way.

And when one means net profit, it refers to profit at Level 3 i.e. variable + direct + indirect fixed costs without the inclusion of network benefit revenue as this is how "net profit" is measured in the industry.

[Edited 2012-01-21 06:39:56]
 
fraapproach
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RE: Does EY's Network Really Have The Potential To Bec

Sat Jan 21, 2012 2:36 pm

Thanks klwright69 !
I forgot that EY also serves to put Abu Dhabis name on the map an to provide connections the city needs in order to grow.
 
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shamrock604
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RE: Does EY's Network Really Have The Potential To Bec

Sat Jan 21, 2012 9:30 pm

Quoting KFlyer (Thread starter):
Where exactly is EY sitting when it comes to their network strategy? Is their plan about avoiding highly competitive cities? Are they making money on routes apart from the possibly profitable ones such as LHR, CGK, BRU, DUB and PVG and the trunk short hauls?

EY have opened some cities that were previously untouched by any MEB3 carrier, or indeed by any Asian carrier - DUB being a case in point, so clearly there has been some effort to exploit hither to unknown markets.

Quoting klwright69 (Reply 2):
Of course EY does well to ORD I think since they are the only Persian Gulf airline serving ORD at the moment.

I think EY should have grabbed the bull by the horns and added another US destination in the last several years.

EY certainly has a lot of competition.

I lived in Abu Dhabi for the last two years. Abu Dhabi is looking to be a premiere destination and business center in the world, not just in the middle east. EY is there to help place Abu Dhabi on the map. It serves a higher purpose than just company bottomline.

Abu Dhabi is not a large city. And it is more conservative than Dubai.

Exactly. Abu Dhabi inc is not so concerned about profits at EY at this time - it is a tool to enhance the Emirate. So long as it is not losing shed loads of money and is at least approaching break even, I would imagine this is sufficient for the moment. But, like every airline, it will eventually be forced to earn it's keep and turn a profit.
 
willd
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RE: Does EY's Network Really Have The Potential To Bec

Sat Jan 21, 2012 11:57 pm

Quoting klwright69 (Reply 2):
I lived in Abu Dhabi for the last two years. Abu Dhabi is looking to be a premiere destination and business center in the world, not just in the middle east. EY is there to help place Abu Dhabi on the map. It serves a higher purpose than just company bottomline.

Abu Dhabi is not a large city. And it is more conservative than Dubai.

Hit the nail on the head! The powers that be in Abu Dhabi are not, at the moment, concerned with profit, why would you be when you have so much money?! It is all about getting Abu Dhabi on the map. EY is used as a tool to grow the emirate and it is extending the word of the Emirate by "sponsoring" Manchester City FC/The City of Manchester Stadium/Melbourne Stadium/the Manchester City FC Campus/Ferrari.

In much the same way the ownership of Manchester City FC has been used for this purpose, as has been the F1 race in Abu Dhabi, as has been their sponsorship (indirectly) of Ferrari in F1 and so on. It is all about boosting Abu Dhabi's world profile. Everything that is associated with Abu Dhabi is done so to increase the worlds knowledge of the Emirate. So it doesnt really matter EY makes no money at the moment, what matters is that they have a world class airline that raises the Emirate profile and increases business etc in Abu Dhabi. EY is just one of the vehicles being used to ensure success.
 
SurfandSnow
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RE: Does EY's Network Really Have The Potential To Bec

Sun Jan 22, 2012 1:51 am

Quoting KFlyer (Thread starter):
Etihad Airways has been in growth mode since its inception in early this century.

Actually, EY's growth has slowed drastically in recent years. They aren't still adding 5-10 new destinations per year like EK and QR are! In fact, the only things on the horizon for them are the termination of service to CPT and the addition of PVG, then NBO. A net gain of one destination. Compare that to EK, which will soon be starting HRE, LUN, DFW, SEA, and SGN between now and summer, and QR, which starts GYD, TBS, KGL, ZAG, and PER in the same timeframe.

Quoting KFlyer (Thread starter):
Yet the airline's break even targets seems to have been postponed, and it is fair to assume that the airline is yet to turn to the black.

It is widely known that EY has never been profitable. I remember an interesting article that was published in the Chicago Tribune comparing EY's legendary service with the less stellar offerings of UA and AA. The author probed officials from the latter asking them why they lagged so far behind a new competitor in terms of amenities and service. The response? Simply a laugh or a shrug - we will never be like EY. We seek profits and offer acceptable levels of service, they lose money on all the unnecessary bells and whistles.

Then again, EY was conceptualized in the early 2000s, when Abu Dhabi decided to pull out of GF and start its own airline. With the shock of 9/11 behind, the global economy booming until 2007/8, and Abu Dhabi rolling in the dough thanks to high oil prices, the entire EY business model was probably based upon high growth level projections that never materialized once the financial crisis/recession ensued. They now face the reality of much lower growth prospects than originally anticipated - no doubt throwing them off the initial intended track of realizing profits by now.

Quoting KFlyer (Thread starter):
While the airline had to face its fair share of its difficulties, as did the rest of the industry - the airline could have taken measures to become profitable despite these, if it has a sustainable model.

I'd say the unsustainable model was their unchecked growth during the mid-2000s. In spite of the tremendous costs of ULH operations and heavy competition they were bent on flying nonstop to the U.S. and Australia. They have since taken a step back and realized that they need only expand if and when appropriate, not just for the sake of getting their name in every major city of the world. Seeing that they are only pursuing the rapidly growing medium-haul markets of PVG and NBO right now, rather than bleeding money on new prestige routes like GRU, LAX, etc. shows me that they their model is becoming more sustainable. Their orderbook consists primarily of the A320, perfect for expansion into regional markets that may simply be too small for EK to service with its smallest aircraft (A332), and the 787/A350 - smaller widebodies (at least compared to EK's aircraft of choice, the 77W and A380) that don't offer unnecessary capacity but can reach distant markets (U.S., South America, Australia, South Africa, Japan, etc.) just fine.

Quoting KFlyer (Thread starter):
This is specially a concern considering that EY has recently been less robust about expanding than its two larger regional rivals.

EY's expansion has fallen to a level much closer to the global norm. That isn't necessarily a bad thing, as it appears their finances are now better than ever before. EK has long been a profitable enterprise, so their expansion can be justified. QR has apparently been profitable for the past few years and will soon disclose full financial figures in conjunction with an upcoming IPO. However, this article* sums up QR nicely: "the carrier’s Government backers have put national promotion objectives above profitable short-term financial results". The CEO himself admits: "you should put the airline business in the context of a bigger picture. Even if your company may not be able to make profits, the country can immensely benefit from it." QR is viewed not as a for-profit investment but a loss-leader (a product or service that is sold below the cost of producing it in order to attract more customers to other associated products for purchase) tool that brings more tourism and business to Qatar. I am sure that QR will play a big role in the 2022 World Cup effort and will benefit tremendously from it. EY serves a very similar purpose for the city and emirate of Abu Dhabi, which is eager to emerge from the shadow of Dubai as a world-class business hub and leisure destination in its own right.

*http://indiaaviation.aero/news/airlineCarrier/view/114/Qatar+AirwaysProfile

Quoting KFlyer (Thread starter):
Nor does EY's strategy seem to be having any unique strategy rather than isolated cases of shine here and there (Eg: EK focuses on connecting premium points at a lower cost with larger a/c, QR focuses on capturing smaller untapped markets with larger potential using narrowbodies).

Nonsense. EK, EY, and QR all have the exact same backing (petrodollar state funds) to fuel their growth, the same purpose (to promote their respective home city/nation), and the same vision (basically, to serve every major city on the planet).

EK does not just connect "premium" points at all. They only recently added the likes of CPH and GVA to their network, while they have served far less premium markets like MNL, SAH, and TRV for years now. EK does utilize larger aircraft than EY and QR, but Dubai also has much greater O&D than Abu Dhabi and Doha/Qatar. All three carriers deploy aircraft that are far larger than necessary - even with all the connecting traffic, many of the intra-Gulf flights like DXB-DOH are often empty!

QR has done a great job lately going into the small markets of Scandinavia, Southeastern Europe, the CIS, etc. before its peers. But have you forgotten that EY was the first of the three to go into BGW, DUB, ORD, YYZ, MSQ, and others? As much as QR has been innovative it has followed in EK's footsteps (GRU springs to mind). As much as EY has followed the path of EK and QR (as only can be expected of an airline that was established years after the other two), it has led the way in other markets.

Quoting KFlyer (Thread starter):
Where exactly is EY sitting when it comes to their network strategy? Is their plan about avoiding highly competitive cities?

LOL, they are adding NBO and PVG - plenty of competition in both markets. EY is much like VX - it is a new entrant with a stellar product, and cannot fear competition but welcome it as pax defect from traditional choices to their superior offering.

Quoting KFlyer (Thread starter):
Are they making money on routes apart from the possibly profitable ones such as LHR, CGK, BRU, DUB and PVG and the trunk short hauls?

Like the other Gulf carriers, EY probably loses money on the highly competitive long haul routes (JFK, SYD, etc.) and does very well to the bilaterally restricted regional markets like Egypt, Saudi Arabia, Pakistan, India, and Bangladesh. The likes of CGK might also do pretty well, but I doubt BRU and DUB make much money. Lots of competition between Western Europe and the Middle East/points beyond.
Flying in the middle seat of coach is much better than not flying at all!
 
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shamrock604
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RE: Does EY's Network Really Have The Potential To Bec

Sun Jan 22, 2012 2:12 am

Quoting SurfandSnow (Reply 7):
but I doubt BRU and DUB make much money. Lots of competition between Western Europe and the Middle East/points beyond.

EY have constantly said that DUB is one of their best performing routes. Their loads have been stellar since the very start, and they have had the DUB market pretty much to themselves until EK arrived here last week...
 
Viscount724
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RE: Does EY's Network Really Have The Potential To Bec

Sun Jan 22, 2012 10:00 pm

Quoting SurfandSnow (Reply 7):
Quoting KFlyer (Thread starter):
Nor does EY's strategy seem to be having any unique strategy rather than isolated cases of shine here and there (Eg: EK focuses on connecting premium points at a lower cost with larger a/c, QR focuses on capturing smaller untapped markets with larger potential using narrowbodies).

Nonsense. EK, EY, and QR all have the exact same backing (petrodollar state funds) to fuel their growth, the same purpose (to promote their respective home city/nation), and the same vision (basically, to serve every major city on the planet).

The big difference is that DXB has little oil so EK has to operate profitably. EY has few such concerns. AUH, with a population of less than 1 million, currently produces about 2.7 million barrels of oil a day.
http://www.adnoc.ae/

At the current price for that type of oil (about $110 a barrel), that's over $100 billion a year ($300 million a day). I really doubt whether EY ever becomes profitable is a top priority. In my opinion it's just a plaything for them. (Similar comments for QR.)

[Edited 2012-01-22 14:03:46]

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