Exclusive: Etihad’s CFO on restructuring, recovery from Covid crisis

Abu Dhabi-based Etihad Airways recently reported that its operating loss for 2020 doubled to $1.7bn last year, as the Covid-19 crisis rattled the global and regional aviation industry globally.

The timing of the pandemic was particularly difficult for the airline, which was in the midst of its multi-year restructuring programme.

However, Etihad has said it remains confident about continuing to target a complete turnaround by 2023, mainly by focusing on cost efficiencies – it managed to reduce operating costs in 2020 by 39 per cent year-on-year to $3.3bn.

In an exclusive interview, the airline’s CFO Adam Boukadida explains the impact of the pandemic on operations and how the airline has adapted.

Boukadida, who was also given the responsibilities for the procurement and supply chain department, transformation office and the analytics department during a major reshuffle of the airline’s top management in November, reveals when he expects the industry to recover.

Etihad recently reported a loss of $1.7bn in 2020 – how does that match with the forecast you had in mind pre-Covid for 2020?

Going into 2020, we were three years into our transformation programme and surpassing all our targets, so naturally we were very optimistic about keeping our momentum going. In the first three months, despite starting to feel the impact of Covid in Q1, we still recorded a 34 per cent year-on-year improvement in our first quarter results, and even posted our best-ever monthly results for the month of February.

We were on track for a great year, but of course, that changed as the pandemic brought our whole industry to a grinding halt. It would have been a very different story otherwise.

You managed to push down operating costs by 39 per cent – what were your focus areas to bring down expenses?

When the biggest portion of your revenue vanishes, nearly overnight, you need to look at every possible area to contain costs – and that’s what we did at Etihad. With the variable cost reducing naturally, we mainly focused on the fixed cost base by implementing a range of cost containment measures across the whole group which included reviewing and rationalising capital expenditure, renegotiating contracts and agreeing payment holidays with suppliers.

Read: Abu Dhabi’s Etihad reports $1.7bn loss for 2020, passenger traffic down 76%

Following the re-opening of tourism in Abu Dhabi in December, have you seen any improvement in numbers so far this year?

The tourism and health authorities have done a tremendous job in making the capital one of the safest places to visit, and we’ve seen a corresponding improvement in travel numbers since Abu Dhabi reopened in December.

Unfortunately, the emergence of mutated Covid strains caused some of our key markets such as the UK and Saudi Arabia to close their borders earlier this year, which affected the rate of our recovery. However, we remain optimistic.

We’re currently operating around 70 aircraft and are targeting to fly to between 50 and 60 passenger destinations throughout 2021, adjusting the frequencies and capacity to accommodate evolving travel demand.

We have relaunched flights to Moscow and Seychelles in March, and plan to start our new Tel Aviv operation in early April, so things are picking up slowly.

Despite the pandemic-induced crisis, Etihad has said it is continuing to target a complete turnaround by 2023 – what is going to be the main driver for this?

Revenue growth and cost optimisation will be the main drivers of our transformation – even more so than before Covid.

Following our restructuring last year, we are focusing on medium and long-haul routes, with the backbone of our fleet being the efficient Boeing 787 Dreamliner. We’re also exploring additional revenue streams such as our expanded charter flight capabilities.

Travellers will have new post-pandemic expectations when they fly, and we have spared no expense to give them the reassurance and confidence that their safety, health, and wellbeing are top of mind for us. Last month, we became the first airline in the world with 100 per cent of our operating crew vaccinated against Covid-19, and along with our Etihad Wellness hygiene and cleanliness programme, having that sort of product and service differentiator will be key to restarting travel. In addition to that, our cargo operations will also continue to be a major source of our revenues until passenger travel demand comes back to pre-Covid levels.

In October, you issued a $600m transition sukuk linked to carbon reduction targets. Can you explain how it works?

With our transition sukuk, we set out to create a finance structure that would show our commitment to a more sustainable aviation industry and help us to preserve liquidity during the crisis.

It was a first-of-its-kind framework that allowed us to raise $600m, tied to a commitment to continue investing in new generation aircraft to replace older, less fuel-efficient machines, as well as research and development into sustainable aviation fuel.

The deal also includes a commitment to reduce the carbon emissions intensity of our passenger fleet by over 20 per cent by 2025 from the 2017 baseline, which will be measured and reported using the industry standard metric of CO2/RTK – carbon dioxide emissions over revenue ton kilometres. It’s a stretch target, but one that we are fully committed to, as sustainability is critical for our future and the industry’s future.

Read: UAE’s Etihad issues $600m sustainability-linked sukuk

Are you looking at any other financing facility this year?

The pandemic has shown us that we need to think outside the box, and from a finance perspective, we will continue to explore innovative financing deals going forward.

Operationally, have you deployed any fintech solutions this year? Are you looking at the possibility of partnering with or acquiring any fintech players?

During Covid, we used the downtime during reduced operations to really look at, analyse and streamline our internal financial operations – for example, we automated much of our billing cycle and developing planning tools to build rolling forecasts and budgets including scenario modelling more easily.

Automation continues to be a key focus of our transformation plan, as we make processes leaner and more efficient. We already partner with several IT companies including SAP, Microsoft, and IBM, and at the moment do not have any plan to acquire or partner with other companies.

As part of the airline’s restructuring in November, you were also given responsibility for procurement, supply chain and analytics. What are your plans for improving/growing those divisions?

Our procurement and supply chain department plays an essential role in delivering cost-saving strategies across the company, and going forward, we’ll be working closely with key suppliers to explore sustainable options to reduce costs.

On the analytics side, our Enterprise Analytics function supports the broader organisation with data analysis and artificial intelligence tools, and our goal is to create more synergies with other, more traditional finance areas like financial planning and accounting, and corporate treasury.

Looking ahead, with travel remaining restricted, what is your forecast for 2021? When do you hope to start seeing improved figures? And what are your long-term expectations?

As the past year has shown us, you need to expect the unexpected. With that said, we anticipate travel numbers to be depressed for Q2 and Q3 before really picking up for the end of year holiday season.

There is huge, pent-up travel demand waiting to be unlocked, and with a combination of vaccinations being rolled out, countries reaching herd immunity, and new industry-standards such as digital passports being adopted to facilitate travel, which Etihad is currently trialling, we will hopefully see air travel really pick up towards the end of 2021.

Read: UAE’s Etihad to begin trials for IATA Travel Pass on select routes in March – official