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Richard Dawson focused on aviation industry growth and developing airline computer systems at ARINC's Converge Forum 08.

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Richard Dawson focused on aviation industry growth and developing airline computer systems at ARINC's Converge Forum 08.

The Middle East is redefining the aviation industry. If you look at volumes of traffic, aircraft orders and promotional activities around the world it is fairly obvious this region is becoming a key player in the aviation industry, and it is happening at pace.

Abu Dhabi, Doha and particularly Dubai are serious players in regional and world aviation.

The financial results that Emirates have posted recently are unbelievable. They have achieved an enormous amount in a short space of time. But we could be facing difficult times.

 

We will have the largest airport in the world and there is nothing to compare. It's [going to be] a gateway for several regions.

Look at what is happening in North America; the airlines are posting huge losses, partly because of the fuel prices, and it will be interesting to see what happens across the rest of the industry as a result of those losses.

The prospect of some consolidation is needed in North America. Europe seems to be stronger, but some of the low-cost carriers are suffering because of the rising fuel prices. We are going to go through a fairly bloody patch. Whether that affects this region remains to be seen.

So, from a factual perspective, this area is central to the rest of the world, giving it an advantage. The environment is going through a period of liberalisation and the civil aviation authorities are more active than ever.

These airlines are not working as independent profit units, they are intrinsic parts of the countries in which they exist, so Emirates is part of the Dubai infrastructure and Etihad Airways works with the Abu Dhabi government.

They work hand in glove and this gives airlines an advantage to do deals with other parts of the world and work with governments to drive de-regulation.

Another advantage is with aircraft technology such as A380s, B787s and A350s. These aircraft are fuel efficient, so we can fly for further at a lower cost.

Combine the geographical benefits and aircraft technology advancements and you have a natural hub. We are pulling lots of traffic out of Europe into this region; something like 70% of Etihad's traffic is through Europe, so connectivity becomes a real issue.

The passenger can transit through this hub very effectively and we want to get everything to a two hour connect time. Because of the region's transit capabilities, we don't see Emirates and Qatar Airways as competitors; the volume is not in this part of the world but in other parts, so we are pulling people through this region.

Passenger growth averaged 14% in 2007, which is reflected in our aircraft orders. In 2007, Middle East airlines placed orders worth $50 billion at the Paris Airshow and then another $100 billion at the Dubai Airshow. Half the global aircraft orders were from the Middle East last year.

That's absolutely astronomical. In terms of infrastructure, 10 airports invested $37 billion in increasing capacity, which will result in 380 million passengers by 2012.

In Abu Dhabi we are building a second runway and launching an investment programme, which culminates in a terminal five times the size of T5 at London Heathrow.

People in this region are very smart and not just funding this investment because they have pots of money; they are doing it for a reason.

They want to develop this region as a natural hub and are diversifying from the oil economy into other activities. They are building a future.

We have a capacity increasing three-fold to 20 million by 2011 in Abu Dhabi. Is it sustainable? Our competitors would say not but we think it is and the indicators would prove this to be an accurate prediction.

So, gross domestic product growth in this region is between 5-6%, with India and China experiencing similar growth. People talk a lot about this growth, but in fact this region is growing at a similar rate.
 

In Abu Dhabi we are talking to Boeing and Airbus about the possibility of them building facilities, and also Rolls Royce and GE about building facilities in this region.

They are diversifying into other areas and talking about building cars. Another one of the things high on the agenda is tourism. Emirates' success is from building a tourism industry where it once never existed.

Eight million tourists are expected in Abu Dhabi by 2013 and airlines are fundamental to sustaining this growth.
 

We will have the largest airport in the world and there is nothing to compare. It's [going to be] a gateway for several regions.
 

Our aim is to increase profitability as Emirates has done. One of the other big challenges is the environmental issue. The new B787, A380 and A350 go part way to resolving some of those issues, but unfortunately the media seems to be talking of airlines as major polluters.

I'm not sure this is entirely warranted but the perception holds. The government seems to believe that aviation is a major polluter and it is our responsibility to be as environmentally-friendly as we can.

I used to work in the UK for another airline and we faced all the challenges that North American and European airlines are facing today, which largely has to do with trying to make profit in a tough and competitive environment.

I'm not suggesting it isn't tough and competitive here but it is different to be working in a rapidly growing environment. I enjoy it very much.

Etihad is the national airline of the UAE and Abu Dhabi is the capital and largest of the seven emirates. The airline is a $1.5 billion dollar business with 37 aircraft and 45 destinations, which has been achieved since 2003.

We have gone through massive expansion; I'm not sure how we have achieved it but we have. We are the largest ever aircraft starter with 24 aircraft at US$8 million. We are in discussions with Airbus and Boeing about further orders of up to 100 aircraft, which will be announced at the Farnborough Airshow.

We carried 4.6 million passengers in 2007 and predict a 30% rise in passenger figures for 2008. It was a great first quarter this year, although fuel prices are starting to affect things so it will be interesting to see the third and fourth quarter results.

There is a misconception with the rest of the world believing we get fuel subsidies - let me tell you categorically, we do not. We hedge our fuel like everyone else, so this year we are 83% hedged and have a small hedging provision next year because we don't know what the fuel prices are going to do. This could slow our growth. Our target is to break even by 2010.

Right now growth looks good; it's in excess of what we planned and good for the region and aviation industry. We are introducing new services this year and have started flying to Beijing. We will fly to Moscow and have rights to fly to a further four Indian cities.

This may mean we receive pressure from low-cost carriers rather than Emirates and Qatar Airways as it's the budget carriers that carry the workers.

So what are the challenges of managing IT in a rapidly growing market? I'm not sure it is any different from managing IT in any other situation. A lot of it is common sense and being flexible in your approach to do the right things at the right time.

But there are little nuances and these are personal to my experience.

I have been with Etihad for 15 months. When I joined the chief executive said ‘I want you to develop an IT strategy and I want you to sort IT out', so that was my brief. I began by looking at how IT was performing, such as what business drivers were present.

I found that the airline had grown so quickly to 2007 that people had gone to what they knew worked. Structure was populated as quickly as possible and people turned to systems they had previously worked with.

The problem with IT is this isn't the right thing to do and we ended up with a very fragmented system.

There was one infrastructure for the whole company, which is expensive and difficult to integrate.

We tried to get control of the IT agenda and stopped people rushing around independently buying all these bits and pieces of equipment.
 

We involved them in developing the IT strategy, which covered business engagement, capabilities and how IT could help them.

When you work in IT you must have a strategy, but other business units don't have this so we spent a lot of time helping them work out what they wanted to do during the next 18 months.

We were growing rapidly and management was trying to manage growth, but getting bogged down in day-to-day stuff.

There was no head room to think about strategies, so it was fundamental that the business understood what it was trying to achieve over the next two years. I would like to think we were instrumental in creating this.

The challenge is keeping this business engagement going and not making it a one-off thing.

We constantly reviewed our strategies every six months and put in governance models. We also have an IT steering group, which determines priorities, and a waiting system around the project portfolio, which assesses contributions to different areas.

This is fairly standard stuff but it gives you control over a rapidly-growing environment, otherwise chaos reigns and it gets more difficult to get control.

We are not constraining growth but controlling and modifying it. You need to be tactical though. We all need to know where we are going and have to make predictions for the next two to three years.

Tactical elements include deploying disposable solutions, so for example we wanted a manpower planning and roster system.

The big guys like Sabre have big solutions, but to do this we have to wait nine to 12 months so we have to find something that meets requirements initially and then throw it away once the big solution arrives.

Short-term investment in a temporary solution is the answer; you just have to get this through to the chief financial officer.

Don't allow temporary solutions to become permanent though. The other challenge is aligning investment with the rest of the company. Integrated operation centres like those at Delta and Air Canada have lots of staff and good equipment, but we probably don't need this for 37 aircraft.

However, when you get to 50 or 60 aircraft we will, so you have to plan for this consistently for the rest of the company.

This is when we select off-the-shelf packages, which results in a loss of innovation but provides for the company. Innovation is developed by us through forging relationships with key suppliers.

It is a key differentiator; just look at Apple with the iPod. We have adopted an outsourcing strategy for commodity services and this keeps strategic services in-house.

Take, for example, applications development. I don't want a team of applications developers within the company. I would much rather buy this service from multiple organisations. I get instant access to skills and technologies.

I would otherwise have to build myself and I don't have time to recruit 150 staff or the management capability, so we use the market. This gives you infinite capacity and you are not constrained by the number of people on the floor.

This gives you an organisation that is at operational readiness and brings third party people in. The problem in this region is outsourcing can be a very immature profession and it is misunderstood, so you have to go out of the region. But this will change over time.

The really big challenges involve serving the needs of the business and not allowing the government to slow it down. Saying 'no' is something you have to be prepared to do and make sure you get it right first time or it will cost in the long run.

Also, make sure the business processes are clear. Etihad employs 109 different nationalities, so you end up with myriad ways of doing things, increasing costs and bureaucracy. Get on top of this and costs will reduce.

Richard Dawson is Etihad Airways' Executive Vice President of IT.

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