Is Etihad Considering Eliminating The Residence?

In 2014 Etihad introduced The Residence, the most exclusive experience available in commercial aviation. The Residence offers a three room suite with butler service on Etihad’s fleet of 10 Airbus A380s.

I reviewed The Residence on a flight between Abu Dhabi and Sydney last year, and boy was it the flight experience of a lifetime. There’s simply nothing else this exclusive in commercial aviation.

Rumors of Etihad eliminating The Residence

I’ve been hearing rumors — both online and from friends in the UAE — about Etihad possibly considering eliminating the The Residence due to a lack of demand.

Sometimes I share rumors that I’m 95% sure are true, but that just haven’t officially been confirmed yet. This isn’t one of those cases. I’m not at all certain this is going to happen. My understanding from friends at Etihad is that this is something that is being discussed, so I don’t think it’s a sure bet yet one way or another.

The reason for this post is that I think it’s an interesting topic to discuss. So please don’t take this rumor as being a sure bet, but rather I just think it’s fun to talk about.

Etihad is in cost cutting mode

Most of you are probably aware that Etihad has been cost cutting significantly lately. The airline had several failed investments and was under pressure from the government to cut costs, and unfortunately their strategy has been to try and cut their way into profitability.

The airline has actually been doing more cost cutting in premium cabins than economy, so in many ways we’ve seen the business class experience watered down a bit over the past couple of years.

Etihad wants to be less exclusive

When The Residence was introduced under former CEO James Hogan, he basically argued that The Residence was worth it even if it didn’t sell much. His argument was that the product created a halo effect.

The Residence got everyone talking about Etihad, and in turn, he expected that would lead to more bookings in other cabins. It was almost like The Residence was being used as a marketing point even for non-premium flyers.

Just last month, Etihad’s head of commercial explained that the Etihad brand had become too “exclusive,” and that they want to become more “inclusive.” Rather than being viewed as a luxury brand, he wants the airline to now be viewed as one that is high quality and offers value.

So it’s an interesting shift for the airline, no doubt, and I imagine we’ll also see them change up their marketing going forward.

What is the real cost of offering The Residence?

The Residence is located in the front of the first class cabin on the A380. Etihad has 10 first class seats (known as “First Class Apartments”), and then they have The Residence at the front left of the cabin.

In a way The Residence is a smart use of space. Much of The Residence is at the very front of the cabin where there aren’t windows, and otherwise wouldn’t be seats. So it’s not like there’s a huge opportunity cost of seats.

This is the same area where airlines typically just have larger lavatories, or perhaps a small lounge area. This is also where Emirates has their impressive shower suites.

So what’s the real cost of Etihad offering The Residence?

  • They could have at least one more first class suite, which could potentially get them more revenue (especially since they’re strict about not upgrading people to The Residence)
  • What most people don’t realize is that the biggest cost associated with The Residence is its weight; it’s my understanding that The Residence is really heavy, so that leads to additional fuel burn and also in some cases adds weight restrictions to the plane (I’m told that this is the reason Etihad couldn’t fly the A380 nonstop from Abu Dhabi to Los Angeles without a serious weight restriction)

Contrary to popular belief, though, there are many areas where The Residence doesn’t really cost extra money:

  • They only cater for The Residence if it’s occupied, so it’s not like they waste money loading food for it every flight
  • While passengers traveling in The Residence get a private butler, in reality these butlers otherwise work first class, so it’s not like they have to hire extra flight attendants to be able to offer this

What could they do instead?

What it comes down to is that Etihad is flying around a really heavy product that’s only very rarely booked. So not only is there an opportunity cost to the space, but there’s a cost to just flying it around empty, given that it weighs a lot (which increases fuel burn).

So with that in mind, if Etihad decided to modify their current business plan with The Residence, there are three directions they could take, in my opinion:

  • They could convert The Residence into a First Class Apartment; this would weigh significantly less, and chances are they’d have an easier time selling an additional First Class Apartment rather than The Residence
  • They could literally just take out the entire interior of The Residence and put a lock on the door; the cost savings from the reduced weight would probably outweigh the revenue they get from it
  • Etihad is very much going for an “a la carte” model nowadays in all cabins, so they could actually try harder to monetize The Residence when it’s empty; keep letting people book it, but otherwise they could let people pay a reasonable premium to upgrade to it as the departure date approaches — for example, they could let two people booked in First Class Apartments instead get The Residence in conjunction with a co-pay, they could just in general let people buy up to it day of departure with the regular first class service for a reasonable charge, etc.

It’s anyone’s guess what they change, if anything, though at the moment it sure doesn’t seem like they’re maximizing revenue with it. As it stands, Etihad already sells access to the lounge usually reserved for The Residence for about $100 (which is quite low), so why not sell day of departure upgrades to The Residence with standard service for something like $1,000? I imagine they’d have takers, and it’s better than nothing.

Bottom line

It’s anyone’s guess if The Residence will stick around as is. There’s one thing for sure — The Residence was literally the most James Hogan concept ever, and under new leadership Etihad is rethinking just about everything.

They don’t want to be viewed as being a luxury brand, they want to sell various aspects of the experience, etc.

I’d be surprised if they keep The Residence business model exactly the same, given how often it’s empty.

What do you guys think — will Etihad eliminate or modify The Residence business model, or is it here to stay?

Comments

  1. I doubt they will sell the additional first class seat enough to recover the cost of a retrofit unless it’s part of a larger plan to retrofit the entire upper deck or something.

    While it is heavy, most J/F seats are incredibly heavy themselves as they have individual motors and such. AA 32T does not really have any takeoff advantages while having 80 fewer seats.

  2. I’m not convinced it’s the weight issue. Whenever I’ve flown Etihad, I’ve never checked in any luggage. I highly doubt every passenger maximized their checked luggage weight either (sure a number do but not all.)

  3. @Joey – the fact that you or someone else doesn’t max out the baggage allowance doesn’t mean that a heavy Residence suite isn’t costing Etihad a lot of money in fuel burn.

  4. Ive never wanted to fly it for revenue or award as Ive heard the bed is hard as a rock
    If they do keep it or even if they don’t they should invest in foam toppers like a number of Int carriers started doing and for that matter hotels

  5. The residence was all about buzz; those thinking that it would sell well at the prices being requested was delusional.

    And one could argue Hogan was a bit delusional and went with a gut feel/hope. I honestly wonder if they did any market research into whether or not such a product would take off (pun not intended). I suspect no meaningful research happened, just as I suspect that investing in so many failing carriers wasn’t properly thought out in terms of costs and risks.

    Sometimes leading from the gut is not a smart idea when facts and data are readily available.

  6. Perhaps add a door between the private hallway which leads to the bathroom and bedroom and lock it when the residence doesn’t sell and then Etihad has another First Appartment (they would only need to modify the ottoman to make it a bed).

  7. I am surprised weight is an issue. If they eliminated it – would not just make its bathroom available to First Class – adding another restroom. Does the bed in the front really weigh that much. The chair area appears about the same as an F suite.

  8. I have flown Apartments on six long haul legs this year and The Residence was unoccupied on all segments. From memory, only one segment was a full load in Apartments, so apart from weight savings by gutting the bedroom I can’t see much of a revenue upside from removing it. Perhaps selected routes have a better load factor in Apartments that would see revenue from the sixth seat. maybe just rework the area so it can be sold as either Apartment or Residence.

  9. If it was AA or United, they’d rip out the Residence and replace it with a dozen slimline economy seats. And to think not that long ago, it was the United States that was known for wastefulness and extravagant consumption.

    That said, I’d like to try it. The only A380 First Class I’ve ever scored is Qantas.

  10. I fly Etihad on routes out of JFK and LHR in First about 10-12 times a year on the A380 and I only recall the Residence being occupied twice over the last several years, while First is usually 80% full or more. Have others noticed it occupied more frequently?

    As Lucky has articulated previously, service offerings in F have declined since its peak, but it is still a good option.

  11. I’d feel self-conscious flying in the Residence as it really is excessive by anyone’s standard.

    First on a major airline if perfectly acceptable

  12. If they’re cutting costs, it’s hard to imagine this wouldn’t be near the top of their list. As others above have stated, the Residence goes out empty most of the time, meaning they’re loosing potential revenue and paying for extra fuel to support its weight factor, a double whammy.

    It’s hard to imagine the market for the Residence. Their apartments are really nice, and cost a whole lot less. The big spenders with the money can probably fly private. Speaking for myself, even if I had that kind of money to burn on the Residence, I’d probably opt for something decadent on the ground, rather than on an A380.

  13. I say offer the Residence as upgradeable from the Apartments. Let passengers bid for it depending on duration of the flight but have the minimum bid set at maybe $500-$800. I’d certainly bid on it if the flight was 8+ hours. And would gladly pay close to $1000 if the flight was a substantial block of time.

  14. I hope they wont, as they spend too much effort (nicole kidman etc etc) to promote it. I love Etihad.

  15. @dwondermeant they should invest in foam toppers for the entire plane! The bed is so hard even in the Apartments since it’s the ottoman and that little cracker mattress pad the FA installs for you when they make up the bed doesn’t help. “The Residence” is a total waste. I’ve never seen it occupied. I don’t know why it hasn’t been gone already if they’re selling off it’s lounge space.

    It’s a shame how bad EY has gone way downhill. They use to be on the same field as EK, and now they’re headed towards the league of Kuwait Airways and Saudia.

    I hate the Apartments. You either can have a slight recline in that seat that barely goes back, or you have to lay flat on that hard ottoman bed.

    I’ll take the old Etihad F anytime over the Apartments. EY operates that one 777 a week (Tuesday I think) from Abu Dhabi-JFK, and awards on it are wide open and you usually have the entire cabin to yourself since everyone wants to fly on the A380. It’s like the Residence when you have an entire 777 F cabin to yourself.

    The Apartments and everything on that A380 are wayyyy over rated in my opinion and they should take out the Residence. They obviously did no marketing on it before installing it since it has no demand whatsoever.

  16. Making it upgradeable is an option, but to only charge $1000 for it, I doubt that leads to much profit if at all, unless they overbook First to ensure someone occupies the upsold First Seat. Otherwise they may as well run it empty!

  17. The most logical thing to do with it would make money off it by offering a way to upgrade to it by bidding. It’s just sitting there on so many flights unused so why not at least pimp it out for some income instead of it just sitting there constantly empty?

    Why they haven’t offered a bidding option already I don’t understand. They do it for the lounge for it, so why not? Why not for the product on board too so they can at least make some money off of it? Having it sit by idly on 90% of flights is not helping them.

    What really makes me wonder is what kind of marketing research went into this idea in the first place to have it?

  18. There are too many posers acting rich. All those are showing up in the residence. The truly rich are flying in their own charter flights.

    Not surprising.

  19. Problem is the F load factors aren’t high enough to justify more seats… a lounge might be a good idea, would be much less expensive to retrofit (fixed seating, no screens…)

  20. I’ve flown First class apartments 3 times in JFK, SYD, LHR route, all of which had Residence occupied! Do id like to see the number how often it’s occupied.

  21. I like the idea of emptying the room and then locking the door. Maybe keep it on one or two planes and the rest will have locked doors. No one will know and they can still offer it on certain routes.

    I doubt they would do that but it seems like a good idea from a cost standpoint.

  22. The Residence and The Apartments went hand in hand with their new marketing campaign way back when and it elevated the EY brand to the same status at EK. It got the world’s attention, well, at least all the bloggers!! Anyway, it also got me to fly them as part of my bucket list and I certainly enjoyed the Apartment and all that it had going for it. That being said, I still like F class on AF the best.

  23. I have flown The Residence twice as a revenue passenger. LHR / AUH and AUH / JFK. The bed was very comfortable, service was spectacular.

  24. #This will NEVER happen (and a post like this is better suited for VFTW) but…

    Rename the Residence the Mile High Club Suite (okay, well something more discreet than that), which stays empty/unoccupied during takeoffs and landings. Offer MHCS to pairs of adult passengers for $1,000 per 100-minute time slot once the A380 has reached cruising altitude. Include the same meal/chef and wine service selections (as offered in the Residence). Allow 20 minutes between reservations for the MHCS to be “refreshed”. I’m guessing there would be takers for this “unique” experience.

    SMH-worthy idea, I know, but from a purely commercial standpoint…

  25. 1. Ditto W: Perhaps add a door between the private hallway which leads to the bathroom and bedroom and lock it when the residence doesn’t sell and then Etihad has another First Appartment (they would only need to modify the ottoman to make it a bed).

    2. They were fools not to originally configure as W suggests.

    3. Limit the Residence to paid tickets only – no mileage awards. Sorry Lucky.

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