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First Class: Air France vs Etihad, David against Goliath?

Can Air France compete with the Gulf companies and their up front cabins, like Etihad and its mini-apartments on board its A380? John Belotti, columnist and former captain provides his analysis.

Rédigé par Editorial Board translated by Joséphine Foucher le Samedi 14 Juin 2014 - What is your opinion on this new strategy of investing in the luxury with Etihad Airways and its mini apartments in its Airbus A380 and Air France with its new first class seat?

Etihad will launch mini-studios about 12 m2 with a sitting area, a double bed, a private shower and private toilet, called "the residence" - DR
Etihad will launch mini-studios about 12 m2 with a sitting area, a double bed, a private shower and private toilet, called "the residence" - DR
John Belotti: Etihad Airways, the Abu Dhabi Company (UAE) has announced it will put in place in its long-haul (A380 and B787) a quite exceptional luxury product ("premium").

Never seen before! We are talking about mini-studios about 12 m2 with a sitting area, a double bed, a private shower and toilet, called "the residence".

The price of a one-way flight between Abu Dhabi and London - the first line on which the A380 equipped with these studios will be in effect, starting December – will cost U.S. $25,000. - With such a tariff, is the company taking a risk?

JB: Even if demand is low, the company will not have taken any risk because there will be only one unit on board of only ten A380s, moreover, it installed in a space currently unused in the A380 (in one side of the stairs, on the upper deck).

While this initiative will have little impact on the range of products offered to customers,
Etihad took this as a great opportunity to advertise itself as the most luxurious company in the world.

However, the rest of its range will also be attractive: on top of the several mini-studios, the first classes will be equipped with new private areas, called "apartments" of 3.6 m2, containing a seat 77 cm wide and a sofa that converts into a bed of 2.04 meters long and 66 cm wide. All being 74% larger than the current suites.

Icing on the cake: Provision of a shower (but not private).

Let’s not forget to indicate that the business class (called "studios") will be improved to the current level of the first class, with its seat convertible into a bed of 2.04 meters in length and 56 cm wide.

Other icing on the cake: between first class and business class, Etihad will introduce a very cozy bar area, the "lobby," bigger than the one at Emirates. 70 “studio” seats will be offered from the full capacity of 498 seats.

There will be 417 seats in economy class, which will also be improved. - Do you think that this upgrading will be followed by other companies?

JB: It's not impossible, but probably only by companies such as Singapore Airlines and especially Emirates, Qatar Airways, for which the notion of profitability is quite different from that of companies subject to market trends. – What about Air France?

JB: As for Air France, while just four years ago, it reduced the number of seats in the first class – it has responded by unveiling its new first class, emphasizing that its seats will be wider than those of Etihad Airways.

The passenger will have the choice of leaving his suite fully or partially open or closed thanks to the use of two thick curtains. This seat can be transformed into a bed of more than two meters long and 77cm wide.

In total, the area of this result is 2.30 m2. The passenger will have a 24-inch screen. This will be accompanied by a cuisine worthy of the reputation of French gastronomy, with, from Paris, caviar served on the meal trays.

And what is important to note, is the idea that the "prices that will not budge," is unfortunately not very credible if we take into account not only the importance of the initial investment, but also the costs of the services offered.

Since the prices for the seats in "economic class", "Premium Economy" and "business class" have already been announced, all the new products on Air France to equip 44 of the Boeings 777 are now known. - In fact, it is a matter of knowing if this specific luxury market is potentially profitable?

JB: The existence of a clientele able to pay such amounts for luxury services for only a few hours is well known, but is probably insufficient to ensure profitability, for the exception of maybe one or two close relationships.

However, so far, from what we know, the luxury market is a competition between Air France and Ethiad and nobody knows if potential passengers make their choice based on a seat sizes varying in just a few centimeters, or depending on the tariff or simply the brand of the competing companies. - What are the chances of Air France earning a spot in this niche?

JB: While Air France, which was in the red, has just completed a major restructuring plan to respond to competition from low-cost airlines and attract business customers.

It can only hope that the significant investments that have been made will be productive, that is to say, profitable.

Indeed, we know that a company in financial difficulties is vulnerable and can disappear overnight by a takeover bid or a public exchange offer.

And in case of default, then it goes bankrupt. Examples of the demise of Sabena and Swissair are present in our memory.

Note here that this is not the case in the United States, where corporations are protected by the U.S. bankruptcy law. Let’s remember, among others, the case of United Airlines – the second largest airline in the United States - that was not able to repay its debt of one billion U.S. dollars, and was also placed under the protection the bankruptcy law in order to protect creditors and to continue running its flights.

In front of Etihad, Air France is in a much less safe situation.

Indeed, the imposing requirement of financial rigor does not affect Gulf companies whose financial situation is not only very good, but whose possible sources of funding are almost limitless and whose notion of balanced operating accounts is very different from that of competitors.

Although some have concluded that the confrontation between Air France and Etihad Airways to grab the luxury clientele is a battle between David and Goliath, let us hope that Air France will adopt the winning strategy.

It just demonstrated its strategy through the "code-share" agreement signed with Jet Airways (India's third airline company) allowing each company to have a number of seats in the other’s plane, in affect for connecting flights as well.

*Former Captain, our columnist John Belotti is also a court expert and writer. Here is a bibliographic record of his works.
"Les accidents aériens, pour mieux comprendre". Frédéric COUFFY Éditions - 1999.
12, rue de Nazareth 13100 Aix en Provence. Phone : 04 42 26 18 08. Fax : 04 42 26 63 26

"Les Titanics du ciel". FRANCE-EUROPE-EDITIONS - 2001
9, rue Boyer BP 4049 06301 Nice Cedex 4

"Chroniques aéronautiques". VARIO - 2003
1034, rue H.Poincaré 83340 Le Luc en Provence

"Le Transport International de Marchandises". VUIBERT – 3rd edition in 2004.

"Une passion du ciel". NOUVELLES EDITIONS LATINES - 2005
1, rue de Palatine 75006 Paris

"Pour mieux comprendre… Le transport aérien", Editions VARIO. Forword by Gérard FELDZER, 2012

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