Podcast: Green Ambitions: Etihad CEO Tony Douglas Outlines Sustainability Efforts
Listen in as Etihad CEO Tony Douglas sits down with Aviation Week's Karen Walker to discuss a range of topics, including how the airline is striving to become more sustainable.
Hello, everyone. Thank you so much for joining us today for Window Seat, our Aviation Week Network Air Transport Podcast. I'm Air Transport World and Group Air Transport Editor-in-Chief, Karen Walker, and I am so happy to welcome you onboard. I have a very special guest joining us today, Etihad Airways Group CEO Tony Douglas. Tony, welcome. It's absolutely great to see you and thank you so much for joining us. I am so delighted that we're actually able to meet in person. Some signs of normal in the industry, finally. On that sort of normalization, can we start off by hearing from you, at Etihad, what you're seeing, both traffic and financials?
Karen, thank you very much for giving me the opportunity to catch up with you in person. I think that probably plays to what we've seen in a return to traffic demand. Last year, for example, 2021, for us was, again, two halves. The first half of the year, still heavily dominated with travel restrictions that were a constant moving target. And the second half of the year, [inaudible 00:01:19] from September onwards, there was a significant reduction of transport restrictions. And what we saw after that was an incredible increase in demand. People characterize it as [inaudible 00:01:33]. That kind of blatant desire to get back to traveling to see family, loved ones, exploring this incredible Earth that God has given to us, and things that we all probably used to take for granted.
Q4 in particular of last year, we have very strong growth [inaudible 00:01:50]. I think our year-end numbers reflected that in terms of a significant turnaround [inaudible 00:01:54] and did free cashflow from operations level. And thanks to God, Q1 has been extremely strong for us. It's probably the most profitable quarter in the history of the company. And that's driven by a number of factors. First of all, the demand continues to grow. Second of all, [inaudible 00:02:16] the tickets, price and, of course, cargo has made an incredible contribution throughout the pandemic to most airlines but us in particular.
All of those things together, I think there's a lot more optimism in place now. But I don't think anybody would be naïve enough to [inaudible 00:02:35] the many other challenges that are out there in terms of conflicts. Likely, there's another spike in the pandemic, or we see fuel prices being where they are right now. And we've all managed to be able to navigate through them. And I don't see this as being anything other than a relatively short-term blip in the great scheme of things. A two or three year challenge that has had traumatic effects within commercial aviation. But more hopefully, we'll all see an end in sight now.
You raised an interesting point there, actually. As severe and awful as the pandemic has been, what often seems to be the case is that it's the airlines that don't adapt that take longest to come out, if they can. The interesting thing with Etihad, of course, is that you were already well into a restructuring before the pandemic hit. Do you feel that that really helped, ultimately, in terms of your ability to adapt?
I think in our case, it clearly did. We created our own crisis back in 2016. And in '17, we had to go through a complete restructure, change of operating model. What I would describe as open heart surgery with a balance sheet. It was a five year program on track before the pandemic. And then, of course, when that hit, we had one or two choices. In simple terms, the old cliché of never wasting a good crisis or being consumed by it. And of course, we went [inaudible 00:04:01] in business speak. But I think we were benefiting from having the momentum for the transformation of a number of years into execution. The pandemic was [inaudible 00:04:15] what we could speed up.
So many difficult decisions that we had to make were getting to the size of the organization, which sadly affects the scale of the Etihad family. Accelerating decisions like parking of our 10 A380s. And what was always part of the transformation was reducing the number of fleet, at times. What you'll see with Etihad, today, is a two horse stable in terms of the incredible 787 Dreamliner. We've got the third largest fleet in the world of those, at the moment. They performed very well through the pandemic taking cargo, because of the fuel burn performance of the aircraft. And of course, last week, we were delighted to put our first 50-1000 into service. And that will be the second horse in our stable. When we started, we had an extensive range of different aircraft and complexity. And the cost of operation that comes with that was something that we were engineering ourselves out of. And back to the point of the pandemic, we used that almost as a resource to accelerate our way through it.
On the A350s, that's an interesting aircraft, wouldn't you say that those two aircraft are both very fuel efficient? A great aircraft to have at any time but more so going forward. Will you be taking 12 A350s? Am I correct on that?
We bought 12 [inaudible 00:05:39], the 350-1000 with eight options. It would be 20 in total. And we're actually currently in the process of actually converting two of the eight. We're going from 12 to 14. And we were just so excited, last week, by putting the first one to Paris, for three reasons. It was clearly the milestone date of deployment. The second reason is, we've now revealed our new business class product, our new Economy Space product, and our new economy product. And for those of you who, perhaps, get the opportunity to go online and look at them, I hope you share our view that this is a significant step up from our public offering which we believe is already very good. This next generation, we were so proud with what was presented there. And the third reason, why last week was such a milestone, is the aircraft was liveried as the Sustainable 50.
And if I could, perhaps, take a moment to explain the significance of that. We liveried it when it was the 50th anniversary of the formation of the United Arab Emirates. Of course, it will say 350, it's significant to the commitment that we made alongside the aviation industry to be net zero by 2050. This aircraft, therefore, is not the Etihad Sustainable 50. It's simply the Sustainable 50 in the same way as the Greenliner which is a 787 flying testbed. It's not the Etihad Greenliner. It's simply the Greenliner. The Greenliner officially now has [inaudible 00:07:12]. They are the two poster children of our sustainability experimentation. And we deployed them on commercial operations or deliberately where we can bring ideas, be they large, be they small, into an environment where they can be properly tested in terms of how they contribute to the overall net zero challenge.
And with the Greenliner, we've made some massive steps in the right direction. I think we've shown a particularly bright light on the many challenges that are out there that require a far bigger level of collaboration between governments, policy setters, regulators, and the factories, airlines, but also the choices the traveling public make. Back to the Sustainable 50, over the next couple years, you'll see that aircraft being deployed in the same way. Hopefully, it will be as much of a leader in the thought space as the Greenliner has been today.
It's a very visible thing when you make your two flagship aircraft, as the 787 and the A350, the sustainability aspect as well as the actual ongoing work that those aircraft are contributing. I still wonder, and you see for all the industry is doing, it's not necessarily clear to the passengers or, more important, maybe, to corporations, all that the industry is doing on carbon reduction. I think that's an interesting aspect that you're bringing to the sustainability side to really make it visible and show that your money's where the mouth is, your mouth is where the money is.
Well, I think it can't not be, in the sense that unless the industry's going to surrender the ambition by 2050. It has to, now, stand out for what we committed to and what we've all signed up to. The physics of flight [inaudible 00:09:06] being able to crack this easily any time soon. The technology is being experimented by all manner at the manufacturers. Many of the big leaps forward will take half a generation to work their way through. These two aircraft are about really drawing a broader attention to how we can also bring lots of small things to contribute with the big things to make a changing.
If I may use what I believe to be a really important example, which was actually the Greenliner. In October of last year, we did a sustainability flight between London Heathrow and Abu Dhabi International. And it actually achieved a 72% reduction in the carbon footprint from our equivalent flight back in 2019. Now, immediately, many people would probably conclude, well, my goodness me, this must be easy then if we can get 72% in one giant leap. And of course, sadly, nothing could be further from the truth. There were four big elements that contributed to the 72%.
First of all, the equivalent flight in 2019 of ours was actually an A380. Obviously, an older generation aircraft, heavier, obviously, all of the engines, avionics, and so on and so forth than the 787. The second thing is, we operated with 38% sustainable aviation fuel (SAF). And people probably think, my goodness me, calculated with precision. The truth is, no, we wanted 50%. We simply couldn't get access to 50%. And even if we could, we cannot afford it. Because it's between 3-5x more than A-1 jet fuel. The third thing was optimum flight plan. We're working with Eurocontrol, air traffic control in Abu Dhabi. The most direct route and a continuous descent. That took 40 minutes out of the flight plan resulting in six tons of CO2 being reduced. Again, unfortunate that can't be repeated any time soon, because of the complexities of reorganizing global airspace. And the fourth part of it was working with a really innovative tech company in looking at modeling barometric pressure, at air temperature, and weather patterns to model slight deviations in flight plans or altitudes to be able to reduce condensation trails. So while they look beautiful on the cold, bright, blue sky, of course, it's CO2.
All of those four things together, 72% which is good news. The bad news is, the sustainable aviation fuel, the SAF, is not repeatable any time soon. And the direct flight planning. We've used the Greenliner in that context to draw attention to the fact that policy setters, governments, and regulators have a got a big part to play in all of this as well. And I think it's part of creating a dialogue, and appreciation, and understanding of how we align from A-Z as opposed to, understandably, singling out just the airlines alone and say, you've got to fix this problem single handedly. I'd suggest you probably can't. Or collectively, mankind's ingenuity definitely will.
It's about, again, that cross industry, all stakeholders, and governments, etc. But it's also, I think what you illustrated there was, it's not just one thing. It's not just SAF. It's a multiple set of things. But you raise an interesting thing about how you couldn't repeat that SAF thing because of the availability of SAF. You wanted to be at 50%. What, in your opinion, is going to most significantly accelerate both the affordability and availability of SAF?
I'm optimistic in one sense. However, I'll characterize this that we've got the classic chicken and egg situation now. There's not enough supply, because there's not enough demand. And there's not enough demand, because there's not enough supply. We're trying to break that cycle. It's about, first of all, being able to prove that sustainable aviation fuel makes a big contribution to the way forward. And low carbon fuels [inaudible 00:13:21]. And they do. Seeing, probably, the biggest step that we can all make in the right direction. We currently hold the [inaudible 00:13:30] world record for the longest flight, 14 hours with sustainable aviation fuel. But as I said before, we can't get it. And even if we could, we can't afford it. And there's no infrastructure in place in the mains to be able to deploy it to the aircraft.
That said, we've probably all seen in the media, there are lots of initiatives going on to slowly try to move the dial on this. And an example I've gone back to, when I mentioned conscious choices that the traveling public can make, is one where we introduced what we believe to be the world's first green loyalty program. Corporate side of that green loyalty program is called Conscious Choices. And the proposition's actually very straight forward. And it's as follows, as a corporate now, if you travel on the sorts of sectors that Etihad provides through our network, through the loyalty program, if you sign in, you have a number of options. You can either select an environmental surcharge. And if you elect to go on a ticket price with an environmental surcharge, it might be $20, $40, $60, $100, what have you, you can then donate it into our sustainable aviation fuel. Good news.
You choose you want to put it into forestation, the official forestation program, you can do that, or into the Abu Dhabi Mangroves Forest which they are very efficient with consuming CO2. Equally, Etihad guest miles that you accrue, you can then donate them, in the same way, into SAF, into forestation, into mangroves. The SAF one in particular, of course, is very, very good news. You then get the carbon offset certificate, the corporate then gets the benefit of saying that they were conscious in how they chose to let their employees travel. And I guess what we're trying to do here is, [inaudible 00:15:19] help corporates when we can imagine their results presentations, presenting great numbers, but people asking about the CSR. Well, they may have saved one dollar to fly somewhat cheaper or now the conscious choice to do it this way. And they've got a carbon offset equivalent to it. Even connecting that to bringing more investment in sustainable aviation fuel, it won't crack it in its own right. But it's one of a number of things, again, to try to build momentum in breaking that cycle of the chicken and the egg.
What you're doing is really making it clear how they can be involved and giving them choices. They're more likely, perhaps, with options to say, well, yeah, actually, I'm comfortable with that. If they want, for example, to go for what they see is their local home option, they can do that. It's an interesting one. With the A350, of course, I believe you've got a lot of intent for the freighter version of that. Can you talk a little bit about, more generally, cargo? Do you see that being the big upswing that we've seen in that? Is that going to continue?
Well, I think for many and certainly for Etihad, cargo was the savior during the COVID pandemic. And 787, as I mentioned before, the backbone of our fleet, while it's not the biggest belly hold out there, in terms of fuel efficient, it's one of the most efficient belly holds. We already have five 777F freighters. We even took seats out of 777s and made many freighters. We're maxed out to the best of our ability.
There is an abnormal market rate out there at the moment, as everybody's well aware of. Pre-pandemic, the market was actually at a pretty low level. Now, it's at an all time high. Hopefully, that continues going forward. Back to the importance of us committing to 350 freighter. It's the world's first ever airframe which is a freighter which is a composite [inaudible 00:17:22] kind of airframe. Therefore, a lot lighter and a lot more efficient and powered by next generation engines, XWB, by Rolls-Royce, with mobile control systems. The way I would describe this is, if you go and find radar at the moment and clip onto all the flight freighters that are operational, you'll still see lots of 747-400s, MD-11, 767s.
And the analogy that I would use is, for me, they are like a 1980s Ford F-150 pickup truck, i.e., they're beautiful to look at with a nice old gurgling V8 engine. But we all know that the F-150 from 1980 is bad for the planet. And that's the old 747. That's the old 767. That's the old MD-11. What we've gone for is Tesla. We've gone for an aircraft that is significantly more fuel efficient. It's got incredible range and load bearing characteristics. And therefore, in selecting the Tesla analogy, going forward, we think that's not only from a commercial performance point of view, in which that's that, we also think from an environmental sustainability point of view, it's enormously better. But I for one wouldn't be surprised if punitive regulation should now ever start to come to fore, it's more likely to start at the cargo end of the range. And were it to do so based upon emissions, I'd much rather have a fleet of Teslas than 1980s F-150 pickup trucks, if that makes sense.
First of all, I love the analogy, the Tesla analogy. That's beautiful. And again, I think you make a really good point that it's such an obvious sitting target. And as you say, with the importance of that now both to the global economy, and of e-commerce and cargo, and to airlines. That's an interesting one. I'd like to ask you one last thing if I can which is on the partnership with Air Arabia there. Can you just talk a little bit about what you want to achieve in that?
We've been very close to Air Arabia for a long time. And I think it's fair to conclude they are the standout business model of knowing how to operate a low cost proposition in a very efficient way. And we have huge respect for them, historically. Strategically, and it was probably back in about 2019, it was actually at the Abu Dhabi Grand Prix, would you believe, that we concluded that we could explore the venture of establishing Air Arabia Abu Dhabi. And we proudly own 51% of that [inaudible 00:19:54]. Air Arabia own the 49%. And it was designed to not only give extended reach to our short haul network but also to provide a far more efficient model for [inaudible 00:20:09]. This got off to a great start. [inaudible 00:20:12] and then it just started.
But last year, we had a full trading year. And we're very proud, collectively, because within the broader Gulf region, it's the first AFC, to the best of our knowledge, that went fully profitable yearlong. And I think that's a testimony to the ability of Air Arabia to know how to run a very tight ship indeed. And we see great opportunity of that model going forward. We're very excited by it. And it's off to a great start.
It's a very smart operation that's very smartly led. That's definitely true. Tony, it's been great to talk with you. And like I say, it's so nice to sit down with you in person. Thank you so much. And a big thank you also to our listeners. I hope you'll join us again next week. Make sure you don't miss us by subscribing to the Window Seat podcast on Apple Podcasts or wherever you listen to them. Until then, I hope your next flight will be smooth traveling. This is Karen Walker disembarking from Window Seat.