Locked on target
HE IS PORTRAYED BY CRITICS AS THE PUPPET OF MIDDLE EASTERN MASTERS OUT TO DESTROY QANTAS, BUT FEW PEOPLE KNOW WHAT MAKES AUSTRALIAN EXPAT AND ETIHAD CHIEF JAMES HOGAN TICK. HE OPENS UP FOR THE FIRST TIME TO THE DEAL.
James Hogan plonks himself down on a couch in the topfloor Ambassador suite of Melbourne’s Grand Hyatt hotel. It should be a place to relax, to take in the panoramic city views and 100 square metres of lavishly decorated space. But not today.
Instead, Hogan is focused on a single piece of paper. Normally impeccably composed, the chief executive of Etihad Airways even looks a tad anxious. As we exchange pleasantries, he can’t help trying to sneak a peek at my list of questions. He might do dozens of media interviews every year, all executed with his trademark charismatic aplomb, but this one is different.
Today, he’s been invited to talk about himself. He guards his privacy jealously and has studiously avoided situations such as this. However, events in the past few months have changed his mind. He has made the biggest strategic moves of his corporate career, but has also come under attack.
He presides over a carrier that owns 10 per cent of Australia’s second-largest airline, Virgin Australia, and wants more. It is also expanding its presence, with daily services to Brisbane and the opening of a second maintenance facility. The Abu Dhabi-based company has also renewed its naming rights at Docklands stadium in Melbourne for another five years.
In response, Hogan was portrayed by Qantas during backroom briefings in Canberra in July as a plaything of oil sheiks bent on destroying our national airline. Qantas claims it was simply lobbying against Etihad’s investment in Virgin because it was hamstrung in striking similar deals by archaic legislation. But the behindthe-scenes attacks irked Hogan so much that he publicly picked a fight, accusing Qantas of un-Australian behaviour.
Hogan, 55, might have lived overseas for two decades and now spends every second weekend in London, where he has a home and two sons, but he remains well versed in Aussie vernacular, sprinkling the obligatory “mate” into conversation.
Born and bred in working-class Coburg, in Melbourne’s inner north, he has a house in the city, a father there who is still going strong at 92 and a daughter at university in Queensland. He backs the Essendon Bombers (his brother played for the side) and loves a beer. His favourite? “It has to be VB, doesn’t it?” he says.
Is he still affronted at having been demonised in a country he continues to call home? “Not at all. I have had the opportunity to build from scratch an international airline based in the Middle East. What I have taken advantage of is a clean sheet of paper. Any airline executive in my shoes would do exactly the same.”
Yet there is also an intriguing personal element to the EtihadQantas battle. It is no secret that Hogan and Qantas chief Alan Joyce don’t get on. Joyce hinted as much last month in announcing a 10-year partnership with Etihad’s arch rival, the Dubai-based Emirates. Etihad looked at a similar deal with Qantas in 2008, but it was scrapped. Asked why a deal with a Middle Eastern carrier was right now and not earlier, Joyce said with a grin: “Chemistry.”
Those who know Hogan say he has long had an ambition to run Qantas. When the airline considered external candidates to replace then boss Geoff Dixon in 2008, Hogan’s name came up, but was then dropped by Qantas chairman Leigh Clifford. So what would be Hogan’s response after all these years if he were asked to take on the top job at the Flying Kangaroo? “It is an interesting question,” he says after a notable pause. “When they give me a call, I’ll let you know the answer. But they haven’t called to date.” A minute later he adds: “I’ve been out of Australia for 21 years.
I am not sure what I could do back here, quite frankly.” Except for the Qantas job, perhaps? He declines to say more on the subject.
One of his good friends is transport magnate Lindsay Fox, who sees Hogan whenever he visits. Fox calls him a “very positive, straightforward individual” and says they talk by phone at least once a month. Hogan has even asked Fox for advice occasionally. “He’s built a great team around him at Etihad,” Fox says. “He is outcome-driven and that is the key to being a good CEO.”
The billionaire is at a loss to explain the criticism directed at Etihad and Hogan. Competition, he says, is good. However, Fox worries Qantas may have sold the farm in its deal with Emirates. “I think it is a bit of a tragedy, when you consider that Qantas was one of the dominant airlines in the world a few years ago.”
The gleaming glass facade of Etihad’s $US50 million corporate headquarters, up the road from Abu Dhabi International Airport, is a stark contrast to the surrounding desert. It is from here that Hogan oversees 10,000 staff drawn from 120 nationalities. The number of staff will double in the next five years after Etihad, three years ago, signed one of the largest aircraft orders to date, for up to 205 aircraft worth $US43 billion.
For many expat staff, Etihad is their life. They have moved their families to work at one of the world’s fastest-growing airlines. It would be a tough environment for any chief executive. When Hogan started as boss in 2006, he was told two things – be patient and have respect.
“We are very hard-nosed on our business objectives. But when dealing with people of different nationalities – English often isn’t their first language; there are different behaviours, upbringings – one has to be patient and show respect, but get the job done.
“It is about being visible and having a culture of fairness. I walk the campus regularly, to see people, to talk to people. I probably find out more in my three times a week walkabout than I do in management meetings. It is very important to be engaged.”
Hogan says Etihad is a meritocracy – “It doesn’t matter where you come from; if you are good, you are good” – and that he encourages people to express their views. “We are endeavouring to create an open culture, especially given we have people from backgrounds where maybe you don’t say what you think. But I am finding that the under-35-year-olds are keen to express their views, keen to see we live the vision. I am proud that when I walk around people will come up to me. They call me James, we shake hands.”
Yet it’s hard to believe some staff don’t find the chief executive’s head office slightly intimidating. It’s huge, with model planes, flags and a full- sized boardroom table. Visitors report that the private bathroom is something to behold.
Some in the industry believe Hogan is too hard on his people, with the executives closest to him in particular required to be totally dedicated to the cause. But he makes no apologies. “When I joined the airline, in the very first meeting, I said to the small management team that we were going to be the world’s best airline. They all looked at me like I was from another planet. But we laid out a very clear road map.”
He acknowledges he is tough, but is quick to add: “I am fair. I expect people to meet their standards, to deliver on their KPIs. I expect leaders to treat people with respect and lead. But if a tough decision has to be made, it will be made.
“I run a global airline. My key focus in doing that is safety, to ensure the standards and processes are such that operationally there is no possibility of error. We have our standards in service, which I expect to be maintained. Then we have our standards in commercial and financial and network, which I also expect to be achieved – and exceeded.”
Does he ever lose his temper? Another pause. “There are times when I lose my temper. When I lose it, it is more out of frustration with myself. I am not going to go out and blast the workforce because that isn’t going to work in any business. It will be more about me being annoyed that we may have missed an opportunity, or not delivered to the level the customers expect. That is me losing my temper with myself in a small group.”
He agrees that with such a wide cross- section of cultures in a very hierarchical society, he cannot afford to blow his stack out on the floor. “But I am a competitor. I work in many markets of the world. I run a business that can be impacted by all sorts of things – war, pandemics, etc. I drive hard.”
His greatest weakness: “Probably wanting to be there faster than we can get there. So it is back to that drive. Sometimes you have to make sure the rest of the company is moving with you. If you get too far ahead, you lose focus.”
So what happens when people don’t meet his high standards? Hogan is now warming to the chat. He leans forward. His response is instant and unqualified. “We have been very clear right from Day 1 that no matter where you come from, whether it be Australia, the Middle East, India, Europe or wherever, if you don’t achieve, you leave. At the end of the year with our appraisal system ... the top 10 per cent get that added bonus. With the bottom 5 to 10 per cent, if it is their second time in that bucket, then we will phase them out of the company. That’s a given within the business.
“I have a saying: If people see the train coming, it is a lot easier to get on board with dignity and respect ... I’m a stickler for people seeing the train.’’
But surely that is harder to follow in the Middle East, with all its cultural complexities? “No, not at all,’’ he replies defiantly.
One aviation industry veteran believes Hogan has been the right man for the job, having had to push hard to build the business from scratch over the past six years. “But he wouldn’t get away with it in Australia,” he adds.
Another observer puts it bluntly: “The Middle Eastern carriers should not kid themselves about where they have come from. They have the backing of the richest governments on the planet, no union issues to deal with and a clear mandate.”
In its submission to the Australian Competition & Consumer
Commission about the Emirates deal, Qantas stated the labour costs of its Middle Eastern partner as $US47,000 per employee in 2009-10, whereas the figure at Qantas was $US92,000. Emirates and Etihad also receive support in the form of favourable tax regimes and government-funded infrastructure.
But Hogan feels no need to apologise for working within the parameters set by his masters. “That is the reality. If Alan [Joyce] and Qantas had been setting up a business in the past eight years, they would have set it up like I set it up. But people wouldn’t come and work for me unless I paid them properly and gave them options to improve their careers. And don’t forget [they move] their families to the Middle East. Our social costs are far greater because of housing, education and medical. It is a workforce that wants to do well, wants to win and wants the company to make money.”
In 2008, CEO magazine named Hogan chief executive of the year and in 2010 awarded him its Visionary of the Year title, not just for Etihad’s operational performance, but for work behind the scenes on customer service, staff conditions, housing and training. And there is one thing even Hogan’s critics agree on: He knows airlines and he knows product and customer service.
Etihad took a 30 per cent stake in embattled German carrier Air Berlin last year and Hogan sits on the airline’s board. It has also built a stake of almost 3 per cent in Dublin-based Aer Lingus and a 40 per cent holding in Air Seychelles. Air Berlin’s chief, Hartmut Mehdorn, has nothing but praise for his new partner’s industry expertise. “We like to have a professional on our board,” he says. “Especially in difficult days, you need airline knowledge and airline professionalism. It helps you talk about things that have to be done and to set up your company the right way.”
Hogan describes himself as “fortunate” to have attended Melbourne’s prestigious Ivanhoe Grammar School and as a teenager he worked at a trampoline/volleyball centre to make a dollar. He started his business career in 1975 at Ansett Airlines, before deciding to try his luck abroad and subsequently held senior positions with British Midland International (BMI), Hertz, Forte Hotels and Gulf Air, before landing at Etihad.
He says it was his father, Reg, whom he still talks to often, who gave him the inspiration to take on the world. “The great thing about my father is that one of the values I learnt as a kid was respect. As a kid growing up, the ability to play sport, to be fair-minded, to compete – all that came from my father. He was in the navy for a big part of his life. He taught me there are barriers. He said: ‘Take the opportunities that are presented to you.’ That is probably why I left Australia 21 years ago.”
At Hertz in the 1980s, Hogan met John Borghetti, then general manager at Qantas Holidays and today the chief executive of Virgin Australia. As alliance partners, they talk at least once a week. “James is someone who always does what he says he is going to do,” Borghetti says. “A handshake is as good as a contract. He is no-nonsense. All our discussions are always honest and frank.”
One part of Hogan’s career that receives little attention is the time he returned to Australia in 2001, after two years as BMI’s chief operating officer, to oversee the Tesna consortium led by billionaires Lindsay Fox and Solomon Lew to acquire Ansett Australia from administration. “Solly and I selected him to be the CEO and he did a very good job to get the airline up and running,” Fox says of the period between Hogan’s appointment as the chief executive and the collapse of the Tesna bid. In late February 2002, Fox and Lew walked away from the deal and the Ansett brand was consigned to history. Hogan quietly slipped out of Melbourne, but he soon found a new job, with Gulf Air in the Middle East.
In his most extensive comments to date on that period, Hogan is frank. “At the end of the day, it is the shareholders’ prerogative to complete a deal. And the deal was not completed. Solomon Lew and Lindsay Fox are both successful businessmen. I still have a good relationship with them. At the end of the day, you have to move forward.
“I think it was hard for everyone, including the staff. Everyone involved wanted to complete the transaction. I had started at Ansett. I would have liked to have seen the deal completed.”
He still lauds Ansett’s culture and its people. “I am fortunate that quite a few of those people work with me at Etihad today. And I have tried to take some of that culture into Etihad. Maybe in a little way that legacy and spirit of Ansett is within Etihad.”
But Etihad is a far cry from Tesna. Hogan might drive himself to work in Abu Dhabi, but the trappings of wealth in the political and corporate worlds of the Middle East are extreme. Former Leighton chief Wal King once called it “Disneyland”.
“I don’t think we are treated like kings,” Hogan says. “We are treated like businessmen. With any government entity, whether it is here or in Singapore, you are there to run a business. That is my job. As a state, Abu Dhabi is a wealthy state, and whether it’s this company or one of the banks, all the entities are expected to make a return. And for the executives who run those entities, the focus on results [and] governance is just as strong as at any European group I have worked for. If I were in a listed company, I would expect to be on a similar package.”
One critic claims Hogan’s ego is “so big you can’t step over it”. Hogan smiles. The critics can say what they want, but the results speak for themselves. “I have been out of Australia 21 years, so people [here] don’t know me very well. At the end of the day, I have a board that sets my objectives. In the past five years, we haven’t missed the numbers. That’s what I’m paid to do.”
EMIRATES’ LABOUR COSTS WERE $US47,000 PER EMPLOYEE IN 2009-10, WHEREAS THE FIGURE FOR QANTAS WAS $US92,000.