Etihad Airways' all-economy service another move in addressing low yield markets
Etihad Airways this month announced plans to introduce its first "all economy" class aircraft to its fleet in Oct-2010. This carrier will be the only non-LCC in the Middle East operating such a configuration, although the product bears some similarity to to the 'Gulf Traveller' product that CEO, James Hogan, introduced while heading Gulf Air. The purpose is mainly to tap into the high volume but low yielding markets more effectively. This segment is being addressed aggressively by neighbouring flydubai, based in Dubai and, a few kilometres further along the road in the UAE, the highly successful Sharjah-based Air Arabia. Other low cost airlines from outside the UAE are also targeting the UAE markets. Full service airlines around the world have long struggled with the decision whether to adopt a LCC subsidiary or to segment their operation in this way. In each case different considerations apply. Etihad, in treading the middle path, may have got it right in this market.
- Etihad Airways plans to introduce its first "all economy" class aircraft to tap into high volume but low yielding markets more effectively.
- The carrier will operate two A320s with 162 economy-class seats, making it one of the highest-density A320 configurations in the Middle East.
- The all-economy aircraft will initially operate to short-haul destinations with high demand for economy traffic and low demand for premium traffic.
- Etihad plans to expand the all-economy fleet to ten A320 aircraft to launch new short-haul destinations and strengthen its presence in the Middle East-India market.
- The new product aims to offer a more competitive product in key point-to-point markets in Asia, the Middle East, North Africa, and the Indian Subcontinent.
- The move by Etihad indicates a definitive strategy to compete with low-cost carriers in the region, while avoiding brand pollution and maintaining its reputation as a premium airline.
162-seat A320s to be utilised; to be one of the highest-density A320 configurations in the Middle East
Etihad's two A320s will be configured with 162 economy-class seats (with 32-inch pitch), an increase of 42 from the current economy capacity, meaning it will operate one of the highest-density A320 configurations in the region (with only a few seats fewer than LCC, Jazeera's, A320 configuration, five seats fewer than nasair's all-economy configuration, and the same number of seats as Bahrain Air's two-class A320 configuration).
Middle East carriers' A320 seating configurations
Airline |
Base |
Premium |
Economy |
Total seats |
Premium seating % |
---|---|---|---|---|---|
36* |
129 |
165 |
21.8% |
||
26 |
96 |
122 |
21.3% |
||
20 |
116 |
130 |
15.4% |
||
20 |
120 |
140 |
14.3% |
||
0 |
162 |
162 |
0% |
||
16 |
120 |
136 |
11.8% |
||
16 |
120 |
136 |
11.8% |
||
12 |
132 |
144 |
8.3% |
||
16 |
123 |
139 |
11.5% |
||
10 |
135 |
145 |
6.9% |
||
Doha |
12 |
132 |
144 |
8.3% |
|
12 |
150 |
162 |
7.4% |
||
- |
157 |
157 |
0% |
||
nasair |
- |
167 |
167 |
0% |
To operate on high-demand economy/low premium demand traffic routes
The all-economy Etihad aircraft will operate to short-haul destinations which have high demand for economy traffic and low demand for premium traffic. Initially these will be Alexandria, Calicut, Colombo, Damascus, Doha and Thiruvananthapuram.
Plans are in place to expand the all-economy fleet to ten A320 aircraft, with the carrier stating this would enable the carrier to "launch new short haul destinations which have low demand for premium travel and also to existing Etihad destinations". Etihad is currently only the tenth largest carrier operating between the Middle East and India, so this all economy product is likely to form part of the carrier's efforts to build its presence in this market.
Middle East-India weekly capacity (seats) by carrier: Aug-2010
Carrier |
Number of Seats |
Percentage |
---|---|---|
51,560 |
23.02% |
|
25,521 |
11.39% |
|
23,940 |
10.69% |
|
19,506 |
8.71% |
|
17,543 |
7.83% |
|
16,848 |
7.52% |
|
14,237 |
6.36% |
|
13,134 |
5.86% |
|
12,024 |
5.37% |
|
6,964 |
3.11% |
|
6,538 |
2.92% |
|
4,300 |
1.92% |
|
2,986 |
1.33% |
|
2,268 |
1.01% |
|
1,730 |
0.77% |
|
1,056 |
0.47% |
|
1,050 |
0.47% |
|
616 |
0.28% |
|
592 |
0.26% |
|
573 |
0.26% |
|
540 |
0.24% |
|
450 |
0.20% |
All economy aircraft to enable Etihad to "offer more competitive product": CEO
Announcing the new product, Etihad CEO, James Hogan, commented: "Etihad has grown at a remarkable pace during the past six and a half years. We have built a strong brand and a robust business, and it is the right time to challenge the way we serve our various markets and segments".
He continued: "Our all economy aircraft will allow us to offer a more competitive product in key point-to-point markets in Asia, the Middle East, North Africa and the Indian Subcontinent, while maintaining the high standards of service we have become known for."
The service and product on the new 'all economy' aircraft will remain the same as in the carrier's current narrowbody fleet, with IFE and F&B offerings to remain the same. Etihad currently has 15 A320 aircraft within its fleet and 35 aircraft are on order from Airbus.
Some parallels with Gulf Traveller?
Before joining Etihad, Mr Hogan was CEO of Gulf Air. As part of that carrier's restructuring and turnaround efforts, he founded Gulf Traveller, an all-economy full service subsidiary, on 01-Jun-2003, with services commencing on 15-Jun-2003. The decision was at least initially a commercial success, but was less successful politically.
The Gulf Traveller sub-brand was established out of the realisation that Gulf Air's services to the labour-pools of the Subcontinent boasted impressive loads in the economy cabin, but were woefully undersubscribed in the premium classes.
Describing the model, Mr Hogan, back in 2003, commented: "It's not a no-frills airline. It's just a realisation that more people on these routes prefer to fly economy, and the business and first-class seats generally go empty. So, we decided not to block space and lose revenue. The fares in Gulf Traveller are on a par with the fares in the general economy-class on the route".
He added that the shift in strategy was aimed to help the airline achieve better margins and revenue from the Indian route, adding: "We are starting with a daily flight to Thiruvananthapuram with the Gulf Traveller and one flight on the Mumbai route... The seats are going choc-a-bloc on this class but it being peak time, we cannot gauge the response. Further additions or changes in route patterns will be made after seeing the response in the lean season".
Separately, Mr Hogan has commented: "Gulf Traveller was born out of the belief that a single airline cannot prosper in a multi-segmented market. When we say economy we don't mean budget, as our aim is to offer standard economy services at competitive rates, dictated by market demand." He added that large part of Gulf Traveller's appeal was that it "offers everything traditionally associated with an economy service on a major international carrier" - including F&B, IFE, comfort items (such as blankets and pilots) and comparable seat pitch.
He noted that, "at the end of the day Gulf Traveller provides us with the ability to effectively target brand, provide a tailored service style and to be more price competitive with competitors on the same routes. It utilises infrastructure where it makes economic sense such as maintenance, aircraft and a management team, yet facilitates break away when it is economically viable, such as the incentivisation of contracts.
Gulf Traveller operated to destinations in Bahrain, Bangladesh (Dhaka), India (Mumbai and Thiruvananthapuram), Indonesia (Jakarta), Jordan (Amman), Kenya (Nairobi), Nepal (Kathmandu), Oman (Muscat), Pakistan (Islamabad, Karachi, Lahore and Peshawar), Saudi Arabia (Dammam, Jeddah and Riyadh, Tanzania (Dar es Salaam and Zanzibar) and UAE (Abu Dhabi). The carrier had also signalled plans to expand the service to Europe, although this never eventuated. The economy services were also included in the carrier's loyalty/frequency flyer programme.
The all-economy class B767 operation (comprised of six of the aircraft type) began operating out of Abu Dhabi, which was the end destination for most of the airline's foreign worker traffic, in Jun-2003 (although the carrier was briefly relocated between Bahrain and Muscat Airports after Abu Dhabi withdrew from the Gulf Air consortium in 2005. In May-2007, Oman also pulled out of the group, leaving Bahrain as sole owner of Gulf Air. This was one of the major reasons behind the disbandment of the carrier).
The Gulf Air strategy was initially successful, with the carrier reporting profits in each of its first four months of operation. In the first year of operations, the carrier had average load factors "in excess of 70%", averaging 75.8% across its 17-destination network in 2004 (compared to 71.4% at the mainstream, but higher yielding Gulf Air), in a year which saw the carrier return to profit with its best financial performance since 1997. However, Gulf Traveller was phased out in 2007, as part of the carrier's two-year USD825 million 'Get Well' restructuring programme to return the carrier, which by this stage was losing at least USD1 million per day, to profitability.
The notion that Bahrain should be the base for Gulf Air's prestigious, three-class services to the capitals of Europe, while Abu Dhabi would play host to the worker community shuttles to the Subcontinent did not play well in the image-conscious capital of the UAE.
It was partly the case that, as the multinational Gulf Air gradually disintegrated, the Jul-2003 formation of Etihad (which started operations in Nov-2003) was directly linked to this perceived need to project a more select image.
A marketing priority to avoid brand pollution
A key issue for Etihad is that the economy-only service should avoid polluting the mainstream carrier's quality branding, at a time when the carrier is working extremely hard to build and maintain its reputation as a world-leading premium airlines. (One cautionary lesson was delivered to Qantas when, advised not to create a separate LCC brand to compete with newly arrived low cost competition, it sought to segment the market, using single-class B767s on domestic tourist-oriented routes. When this was seen to be confusing premium passengers on those routes, Qantas soon dropped the idea and established its now-highly successful low cost subsidiary, Jetstar).
Another issue with the new product is that, apart from the reduced unit seat cost due to the higher density configuration, Etihad will not be able to extract the same cost efficiencies as competing LCCs in the region, such as Air Arabia and flydubai, with which the carrier will compete. This, in turn, affects the airline's ability to offer the service in a price-competitive fashion.
However, there would be considerable complexities also in operating a subsidiary LCC side by side with a full service carrier. It appears that this consideration may have weighed heavily in the decision making process.
However, the move by Etihad is at least definitive, leaving the likes of Qatar Airways still uncertain of exactly how they will respond to LCC competition in the region. It also implies that Etihad Airways is now less likely to entertain the idea of a fully-fledged LCC subsidiary.
UAE low-cost market can support Etihad: flydubai CEO
In contrast, Dubai's 2008 response to LCC competition was for Emirates Airlines Chairman, Ahmed bin Saeed Al Maktoum, to found flydubai, a self-standing Dubai-based LCC. While not part of the Emirates Group, the LCC has received support from Emirates, with which it operates codeshare services. Flydubai has carried over 1 million passenger since its launch, on almost 8,000 flights, and now operates fleet of nine B737-800NG aircraft to 22 destinations.
flydubai CEO, Ghaith Al Ghaith, has welcomed the new Etihad product, with the CEO, in an interview with Arabian Business, stating the market has enough potential traffic to support the increased competition.
He commented: "There is a tremendous opportunity in this region to grow the low cost market and I believe there is enough potential traffic here for all well run airlines to be successful". He continued: "Increasing competition is good for everyone, especially the consumer. Etihad is a very good airline and is very important to the growth of aviation in this region. We wish them good luck with their new venture and are sure they will be successful".
Other carriers operate economy-only services in Middle East-India and intra-Middle East market
Etihad appears to be leading the way in the all-economy product concept in the region, with the other carriers moving to either reconfigure some aircraft with reduced business-class seats for low-business demand routes or offering economy-only services through a subsidiary, rather than eliminating premium seats from aircraft altogether.
However, of the network carriers operating between the Middle East and India, a number of the carriers, including Air India, GMG Airlines, Jet Airways, Kingfisher Airlines, Mahan Air, Oman Air, Royal Jordanian, Saudi Arabian Airlines and Yemenia, do operate some economy-only services, (based on OAG data for Aug-2010), although they do not have the single-class product concept that Etihad is introducing.
Middle East to India capacity and aircraft configuration by carrier: Aug-2010^
Carrier |
Aircraft |
Seats |
First Class Seats |
Business Class Seats |
Economy Class Seats |
---|---|---|---|---|---|
AIR ARABIA |
16,848 |
0 |
0 |
16,848 |
|
AIR INDIA |
A310 |
3,838 |
0 |
418 |
3,420 |
AIR INDIA |
1,050 |
0 |
0 |
1,050 |
|
AIR INDIA |
A321 |
2,112 |
0 |
0 |
2,112 |
AIR INDIA |
A330-200 |
1,068 |
0 |
0 |
1,068 |
AIR INDIA |
B747-400 |
8,883 |
252 |
546 |
8,085 |
AIR INDIA |
B777-300ER |
2,555 |
154 |
490 |
1,911 |
AIR INDIA EXPRESS |
B737-800 |
25,521 |
0 |
0 |
25,521 |
BAHRAIN AIR |
2,268 |
0 |
168 |
2,100 |
|
EL AL ISRAEL AIRLINES |
B767-200 |
573 |
0 |
72 |
501 |
EMIRATES |
A330-200 |
27,492 |
1,392 |
4,872 |
21,228 |
EMIRATES |
B777-200 |
13,148 |
0 |
1,596 |
11,552 |
EMIRATES |
B777-300ER |
8,372 |
276 |
966 |
7,130 |
EMIRATES |
B777-300 |
2,548 |
84 |
294 |
2,170 |
ETIHAD AIRWAYS |
5,740 |
0 |
820 |
4,920 |
|
ETIHAD AIRWAYS |
A330-200 |
262 |
0 |
22 |
240 |
ETIHAD AIRWAYS |
A340-600 |
584 |
24 |
64 |
496 |
ETIHAD AIRWAYS |
B777-300ER |
378 |
0 |
28 |
350 |
FLYDUBAI |
B737-800 |
540 |
0 |
0 |
540 |
GMG AIRLINES |
450 |
0 |
0 |
450 |
|
GULF AIR |
3,808 |
0 |
448 |
3,360 |
|
GULF AIR |
A321 |
1,190 |
0 |
140 |
1,050 |
GULF AIR |
250 |
0 |
42 |
208 |
|
GULF AIR |
A330-200 |
1,290 |
48 |
144 |
1,098 |
INDIAN AIRLINES |
A319 |
3,045 |
0 |
0 |
3,045 |
INDIAN AIRLINES |
9,570 |
0 |
1,320 |
8,250 |
|
INDIAN AIRLINES |
A321 |
4,928 |
0 |
0 |
4,928 |
IRAN AIR |
B747SP |
592 |
0 |
44 |
548 |
JET AIRWAYS |
B737-800 |
23,940 |
0 |
0 |
23,940 |
KINGFISHER |
A319 |
1,008 |
0 |
0 |
1,008 |
KINGFISHER |
1,072 |
0 |
160 |
912 |
|
KINGFISHER |
A321 |
906 |
0 |
192 |
714 |
KUWAIT AIRWAYS |
A300-600 |
1,392 |
108 |
108 |
1,176 |
KUWAIT AIRWAYS |
A310 |
2,376 |
0 |
288 |
2,088 |
KUWAIT AIRWAYS |
260 |
0 |
40 |
220 |
|
KUWAIT AIRWAYS |
A340 |
272 |
18 |
24 |
230 |
MAHAN AIR |
A300-600 |
260 |
0 |
0 |
260 |
MAHAN AIR |
A310-300 |
1,470 |
0 |
0 |
1,470 |
NAS AIR |
1,050 |
0 |
0 |
1,050 |
|
OMAN AIR |
B737-800 |
8,424 |
0 |
648 |
7,776 |
OMAN AIR |
B737-800 |
3,600 |
0 |
0 |
3,600 |
QATAR AIRWAYS |
A319 |
330 |
0 |
24 |
306 |
QATAR AIRWAYS |
1,872 |
0 |
156 |
1,716 |
|
QATAR AIRWAYS |
A321 |
7,257 |
0 |
492 |
6,765 |
QATAR AIRWAYS |
A330-200 |
2,340 |
0 |
216 |
2,124 |
QATAR AIRWAYS |
A330-300 |
1,525 |
0 |
150 |
1,375 |
QATAR AIRWAYS |
A340-600 |
612 |
16 |
84 |
512 |
QATAR AIRWAYS |
B777-200LR |
301 |
16 |
58 |
227 |
ROYAL JORDANIAN |
A310-300 |
808 |
72 |
0 |
736 |
ROYAL JORDANIAN |
A319 |
248 |
0 |
0 |
248 |
SAUDI ARABIAN |
A330-200 |
2,403 |
0 |
0 |
2,403 |
SAUDI ARABIAN |
B747-300/100/200 |
3,537 |
324 |
342 |
2,871 |
SAUDI ARABIAN |
B777-200 |
1,164 |
0 |
0 |
1,164 |
SAUDI ARABIAN |
B777-300ER |
2,190 |
132 |
420 |
1,638 |
SAUDI ARABIAN |
B777-300 |
3,840 |
0 |
0 |
3,840 |
YEMENIA |
B737-800 |
616 |
48 |
0 |
568 |
A similar story also applies in the intra-Middle East market, with several carriers operating both mixed and single class services.
Intra-Middle East and aircraft configuration by carrier: Aug-2010^
Carrier |
Aircraft |
Seats |
First Class |
Business Class |
Economy |
---|---|---|---|---|---|
ARKIA - ISRAELI AIRLINES |
ATR 72 |
3,672 |
0 |
0 |
3,672 |
ARKIA - ISRAELI AIRLINES |
B757-300 |
3,710 |
0 |
0 |
3,710 |
ARKIA - ISRAELI AIRLINES |
E195 |
1,188 |
0 |
0 |
1,188 |
ATA AIRLINES |
MD-83 |
15,000 |
0 |
0 |
15,000 |
BIMAN BANGLADESH |
DC10-30/40 |
822 |
0 |
90 |
732 |
BMI |
A330-200 |
3,462 |
0 |
288 |
3,174 |
CYPRUS AIRWAYS |
A319 |
504 |
0 |
48 |
456 |
EL AL |
B737-700 |
3,536 |
0 |
544 |
2,992 |
EL AL |
B767-200 |
191 |
0 |
24 |
167 |
ERAM AIRLINES |
B757 |
2,960 |
0 |
0 |
2,960 |
ERAM AIRLINES |
Tu154 |
302 |
0 |
0 |
302 |
FELIX AIRWAYS |
CRJ200 |
3,750 |
0 |
0 |
3,750 |
FELIX AIRWAYS |
CRJ700 |
6,120 |
0 |
0 |
6,120 |
GARUDA INDONESIA |
B747-400 |
2,568 |
0 |
252 |
2,316 |
GERMANIA |
B737 |
488 |
0 |
0 |
488 |
IRAN AIR |
A300-600 |
756 |
0 |
63 |
693 |
IRAN AIR |
A300B2/B4 |
15,500 |
0 |
0 |
15,500 |
IRAN AIR |
6,600 |
0 |
0 |
6,600 |
|
IRAN AIR |
12,300 |
0 |
0 |
12,300 |
|
IRAN AIR |
B727-200 |
7,650 |
0 |
0 |
7,650 |
IRAN AIR |
B747 |
858 |
0 |
44 |
814 |
IRAN AIR |
Fokker 100 |
48,204 |
0 |
0 |
48,204 |
IRAN AIR TOURS |
Tu154 |
38,550 |
0 |
0 |
38,550 |
IRAN ASEMAN AIRLINES |
ATR 72 |
9,570 |
0 |
0 |
9,570 |
IRAN ASEMAN AIRLINES |
B727-200 |
12,324 |
0 |
0 |
12,324 |
IRAN ASEMAN AIRLINES |
Fokker 100 |
52,538 |
0 |
0 |
52,538 |
IRAQI AIRWAYS |
B737 |
5,124 |
0 |
0 |
5,124 |
IRAQI AIRWAYS |
CRJ900 |
430 |
0 |
0 |
430 |
ISRAIR |
2,400 |
0 |
0 |
2,400 |
|
ISRAIR |
ATR42-300/320 |
4,950 |
0 |
0 |
4,950 |
KISH AIR |
MD-82 |
19,680 |
0 |
0 |
19,680 |
KISH AIR |
Fokker 100 |
2,060 |
0 |
0 |
2,060 |
KISH AIR |
Fokker 50 |
1,900 |
0 |
0 |
1,900 |
KISH AIR |
Tu154 |
4,000 |
0 |
0 |
4,000 |
MAHAN AIR |
A300-600 |
11,180 |
0 |
0 |
11,180 |
MAHAN AIR |
7,750 |
0 |
0 |
7,750 |
|
MAHAN AIR |
A310-300 |
47,040 |
0 |
0 |
47,040 |
MAHAN AIR |
BAE146-300 |
3,600 |
0 |
0 |
3,600 |
NAS AIR |
11,100 |
0 |
0 |
11,100 |
|
NAS AIR - |
E190 |
11,662 |
0 |
0 |
11,662 |
OMAN AIR |
ATR42/ATR72 |
644 |
0 |
0 |
644 |
OMAN AIR |
B737-700 |
912 |
0 |
96 |
816 |
OMAN AIR |
B737-900 |
15,688 |
0 |
0 |
15,688 |
ROYAL JORDANIAN |
E175 |
1,716 |
0 |
0 |
1,716 |
ROYAL JORDANIAN |
E195 |
665 |
77 |
0 |
588 |
B737-300 |
7,400 |
0 |
0 |
7,400 |
|
SAUDI ARABIAN AIRLINES |
50,400 |
0 |
0 |
50,400 |
|
SAUDI ARABIAN AIRLINES |
A330-200 |
1,869 |
0 |
0 |
1,869 |
SAUDI ARABIAN AIRLINES |
A330-300 |
10,184 |
0 |
0 |
10,184 |
SAUDI ARABIAN AIRLINES |
B747-300/100/200 |
17,685 |
1,620 |
1,710 |
14,355 |
SAUDI ARABIAN AIRLINES |
B747-400 |
2,430 |
0 |
0 |
2,430 |
SAUDI ARABIAN AIRLINES |
B747-400 |
3,580 |
360 |
320 |
2,900 |
SAUDI ARABIAN AIRLINES |
B757-200 |
16,554 |
0 |
1,860 |
14,694 |
SAUDI ARABIAN AIRLINES |
B777-200LR |
14,749 |
784 |
2,842 |
11,123 |
SAUDI ARABIAN AIRLINES |
B777-200 |
13,386 |
0 |
0 |
13,386 |
SAUDI ARABIAN AIRLINES |
B777-300ER |
17,520 |
1,056 |
3,360 |
13,104 |
SAUDI ARABIAN AIRLINES |
B777-300 |
12,672 |
0 |
0 |
12,672 |
SAUDI ARABIAN AIRLINES |
10,248 |
1,260 |
1,302 |
7,686 |
|
SAUDI ARABIAN AIRLINES |
MD-90 |
70,785 |
10,530 |
0 |
60,255 |
SAUDI ARABIAN AIRLINES |
E 170 |
41,184 |
3,744 |
0 |
37,440 |
SUDAN AIRWAYS |
1,100 |
104 |
0 |
996 |
|
SYRIAN ARAB AIRLINES |
2,280 |
0 |
120 |
2,160 |
|
SYRIAN ARAB AIRLINES |
ATR42/ATR72 |
2,254 |
0 |
0 |
2,254 |
SYRIAN ARAB AIRLINES |
B737-300 |
816 |
0 |
0 |
816 |
SYRIAN ARAB AIRLINES |
B767-200 |
1,260 |
0 |
0 |
1,260 |
SYRIAN ARAB AIRLINES |
Tu134 |
432 |
0 |
0 |
432 |
SYRIAN ARAB AIRLINES |
Yak-40 |
840 |
0 |
0 |
840 |
TABAN AIR |
1,870 |
0 |
0 |
1,870 |
|
TABAN AIR |
Tu154 |
2,869 |
0 |
0 |
2,869 |
YEMENIA YEMEN AIRWAYS |
A310 |
935 |
60 |
0 |
875 |
YEMENIA YEMEN AIRWAYS |
B737-800 |
7,854 |
612 |
0 |
7,242 |
YEMENIA YEMEN AIRWAYS |
CRJ700 |
210 |
0 |
0 |
210 |
Other carriers acting similarly: Air Austral to introduce single-class A380; bmi relaunches single-class short haul product in UK/Ireland
Out of the Middle East/SAARC region, there have been some recent examples of airlines moving away from business-seat configurations to the use of all-economy productions.
For example, Reunion-based Air Austral last year announced plans to become the world's first airline with an all-economy class A380 configuration, of 840 seats (the A380 is certified to handle 853 passengers).
Meanwhile, in the UK, bmi in Jan-2010 announced the relaunch of its short-haul product across all UK and Ireland services to/from London Heathrow Airport, removing the Business class cabin from the services.
The carrier has introduced a new single Economy cabin with enhanced services for customers travelling on Flexible Economy fares, such as guaranteed seating, use of lounges and complimentary food and beverages. The new product was rolled out on 27-Jan-2010.
But there is no one-size-fits-all solution. A continuing evolution, with important ramifications
There is no definitive or universal road map for determining the most appropriate response to adopt when confronted by low cost competition, the direction instead being highly dependent on local circumstances.
Many US airlines (and British Airways) experimented with LCC subsidiaries and failed for one reason or another - mostly their inability to deal effectively with the threat of cannibalisation, either giving them too much freedom or, more often, not segregating them sufficiently from the parent.
Most major European airlines for example are seriously constrained in their freedom of action by threat of union action and have sought simply to reduce costs at the mainline carrier, while basically maintaining standard configurations, or merely reducing - rather than removing - premium seating. As Qantas found with its pre-LCC segmentation attempts, even if premium numbers are low on any route, they can be very vociferous and losing them is a high risk option.
However, long term failure to achieve cost levels close to their competition must mean that this strategy is time-limited. SAS for example has talked openly of a 25% margin in costs between its own operations and its local LCC competition. Some other major airlines are still absorbing even bigger differentials than that. So long as there is some prospect of generating compensatory higher yields through their network pricing, it may be possible to absorb such handicaps. But it does not suggest a stable equilibrium, so that considerable evolutionary change is still occurring. There may still be dinosaurs abroad.
Asia Pacific flag carriers meanwhile, amid the fastest growing markets in the world, mostly either have or are moving quickly to establish, subsidiary LCCs in one form or another. They have long since learned that they are otherwise uncompetitive in short haul point to point markets and that, unless they engage actively in low cost operations, will both cede traffic to their competition and miss out on the remarkable growth upside that presents itself.
So it is in between these large bodies of differing behaviour that Etihad manoeuvres to achieve the best of both worlds. On the balance, it would appear that the decision to adopt a segmentation approach with its new single class operation is the right one in this case. However, at the slightest whiff of brand pollution, management will be sure to be reviewing the situation.