I Don’t Understand Etihad’s Lounge Cost Cutting Strategy

The Gulf carriers are under immense financial pressure from their respective governments (unlike what Delta would like to have you believe, these airlines won’t always have money), and that’s starting to show in terms of the experience they offer. Don’t get me wrong, they’re still largely better than their competition, but like other airlines, they think cost cutting is the key to profits (or at least reduced losses).

Anyway, this post is specific to Etihad’s US lounge strategy, which I don’t really get. Etihad operates three of their own lounges in the US, in Los Angeles, New York, and Washington Dulles. I’ve reviewed their lounges in New York and Los Angeles, and Tuesday night flew from Washington to Abu Dhabi on Etihad, so will have a review of that lounge soon.

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Etihad Lounge New York

Operating an airline lounge is outrageously expensive. Now, I can get why they’d have a lounge in New York, where they’ll soon have two A380 flights a day, plus the Air Serbia flight, which uses the lounge. However, Etihad flies one daily 787 to Washington Dulles, and one daily 777 to Los Angeles.

It’s one thing if they contracted the lounge out to a bunch of other airlines, in which case they could potentially even make a profit running the lounge, as many airlines do. But that’s not what they do. Instead the Etihad Lounge Washington Dulles is open for roughly three hours per day, from around 6:30PM until 9:30PM. It’s only used by Etihad and Royal Air Maroc passengers (it’s a bit odd that they contract it out to Royal Air Maroc, but whatever).

Can you imagine the rent they pay, how much it costs to staff the place, etc.? When they break down the cost, I can’t imagine what the per passenger cost is, especially when you consider the airline could otherwise probably pay $20-25 per passenger to instead send them to another lounge.

The Etihad Lounge Washington Dulles is gorgeous, and is quite large when you consider that Etihad has only one daily 787.

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Etihad Lounge Washington Dulles

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Etihad Lounge Washington Dulles

You can even board the plane directly through the lounge, which is a nice feature.

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Etihad 787 at Washington Dulles Airport

However, Etihad seems to be in cost cutting mode when it comes to the lounge soft product. When I last visited the Etihad Lounge New York, they had innovative city-themed cocktails and an a la carte dining option, which is pretty tough to beat as a business class passenger.

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Cocktails at Etihad Lounge New York

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A la carte dining at Etihad Lounge New York

However, the Etihad Lounge Washington Dulles apparently recently cut their menu. I’ve heard that similar cuts are happening at other lounges. Now there’s only a buffet, and it’s not even a big buffet.

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Etihad Lounge Washington Dulles food spread

There’s a small selection of fresh fruit, cheese, salad, hummus, etc.

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Etihad Lounge Washington Dulles food spread

And then there are three hot “plates,” each of which has two different options. Frankly they didn’t look especially appetizing.

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Etihad Lounge Washington Dulles food spread

To me this just seems penny wise and dollar foolish. I assume their per passenger cost for operating their own lounge is a multiple of what it would cost them to send passengers to a contract lounge. Clearly they believe that a differentiated ground experience drastically changes the experience, or else they wouldn’t invest so much.

But then they cut costs in the area that makes the experience special, by cutting their a la carte dining, and having what I’d consider at best to be a very mediocre food spread.

It’s an odd way to do business, if you ask me…

Comments

  1. It’s the prestige factor of having their own space in the US capital for their nonstop to the UAE capital

  2. One explanation could be that they’re locked into long-term contracts for the space that they can’t easily cancel. So the only way to save money is to cut service. Be interesting to see if these lounges remain in the next 12 months or so, and as you suggest, they instead contract out.

  3. I hope they will separate biz and first class sections in the lounge, and keep providing a la carte dining for first pax.

  4. They probably have better data on how many customers took advantage of the dining options than we do. Honestly, it’s difficult for me to understand sometimes if a lot of these exclusive lounge and first class offerings are profitable. We know the first class offerings generally aren’t as airlines keep cutting them. Maybe extravagant lounge amenities are next.

    The lounge itself is likely just a nice space to show off to people traveling to and from Washington for government related business.

  5. @Tom – there’s no separation in the lounge – it’s basically one big room. No separation from biz and first. Nice space though.
    @Lucky – they use to also contract the lounge out to Saudia. Not sure if they do anymore

  6. Ben, your comment regarding the JFK lounge with city-themed cocktails and a la carte dining being, “pretty tough to beat as a business class passenger” sums it up quite well. Etihad and the other ME3 carriers are in the process of learning a pretty difficult lesson; money doesn’t grow on trees. Going so far “over the top” in lounges, on-board showers, the Residence, etc. vis-a-vis the competition simply isn’t driving the revenue premium necessary to sustain such luxuries over the long run. We’ve already seen huge price reductions for the Residence, and I wouldn’t be the least bit surprised to see that product disappear in the not too distant future. It was good while it lasted, but this is only the tip of the iceberg as to what’s to come.

    As with any airline, Etihad’s customers will continue to fly the airline when it offers a schedule that meets the customer’s needs at a price the customer is willing to pay. Everything else is secondary.

  7. 1. They probably are locked into a contract of some sort, so are going to keep using the space regardless. They might be breaking even on it now where if they cancelled a contract they’d lose quite a bit of money in termination. Plus they have always touted the DC connection with connecting the nations capital with their hub (it was also one of their first 787 routes).
    2. Saudia also uses the IAD EY lounge from what I remember. I don’t know if that’s still the case but it was the last time I was there a year or so ago.
    3. Not like they’re competing with an exquisite dine on demand lounge situation at IAD.

  8. I was in the Etihad lounge last Friday and thought it was awful. If I had more time I would have headed over to the Turkish lounge to use priority pass, and that’s not a good sign for the EY business experience.

  9. To lease that large space which looks easily to be 3000 sqft. Is just assonine to only open it for 3 hours per day. They completely miscalculated the luxury market.

  10. I visited the lounge at Dulles in 2013 and I have to say it was a beautiful space, but it seemed like it was barely used. They even had an upstairs “VIP area” that was cordoned off, and I asked the lounge attendant what it was for, and she said they use it “when needed”. At that time when they were running an A345 to AUH and the lounge was super empty. If I recall correctly, F was nearly full on my flight and J was also pretty full. Maybe they negotiated a good deal with the airport operator or something (afterall the terminal at IAD is huge). I would say that Etihad’s cost cutting is similar to what we saw here in the US when airlines cut food in lounges to the bare minimum (hot dogs at United Clubs, for example).

  11. It costs a lot more than $20-$25 per passenger for lounge agreements (particularly when you want one of a decent standard), but yes it’s a very wasteful way of running a lounge.

  12. Damn — I’m going to miss a la carte dining in JFK, if that’s the case. It really *does* differentiate their product and I was just thinking of my next Etihad F flight (miles) and convincing my business partner to travel to India in Etihad J with me (paid). This takes that option off the table, as the Etihad in-flight J experience is not differentiated enough from other carriers.

  13. Seems like they should find an airline with good demand from 2:00PM until 6:30PM (or from 9:30pm to midnight) and try to sublease it to them between those hours. Then staff could work a good 8 hour shift.

  14. Can confirm that the speciality cocktails have disappeared too from the MEL lounge (SYD too I understand), although MEL lounge still has a very limited cooked to order menu (soup, satay sticks, pate, salmon, beef burger but served on toast). Was not particularly high quality, and a definite step down from where it used to be.

  15. Given that. It other lounges at Dulles offer little more than packaged cheese and crackers, perhaps Etihad’s strategy there is “Why bother? The competition isn’t.” And even then having actual food, however limited, puts them far beyond the likes of United. But yes, that as an awfully large space in airport with a dearth of accessible lounges. Most of the foreign carrier lounges at Dulles, like BA And KLM/AF, operate only a few hours of day. Seems like it would behoove them to extend hours as joint operations, including Priority Pass. Or to anyone holding a premium cabin ticket, regardless of airline, attracting customers barred from the dumpy United lounges.

  16. They probably don’t want other airlines enjoying the same facilities as they do. They want their lounge to be exclusive to their passengers only

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