ch-aviation CEO Thomas Jaeger had a chat with Peter Glade, Commercial Director of Sun Express. Read our exclusive interview to find out about the Turkish carrier’s challenges, how it works with its ‘brothers and sisters’, and what it perceives as its strengths.
Learn about SunExpress on ch-aviation:
Let’s start with a look at the history, Peter. The past two years were quite challenging for SunExpress. In general, how has SunExpress dealt with touristic developments in Turkey so far? And how have your other core markets, for example Egypt, been affected?
If we take a look back to 2015, we had 76% less touristic arrivals in Hurghada, 36% less touristic arrivals in Antalya – those are our two core markets if we’re talking about touristic development. SunExpress has been extremely successful in converting that into only 8% less passengers.
We are extremely flexible as a structure. What we could do is we could move capacity very quickly from the Turkish AOC (air operator certificate) to the German AOC and move into new markets.
And I have to admit that we tried a lot in 2016: some of the bets we won, some of the bets we lost. We’ve burned quite a lot of cash through things that did not work. But we gained market leadership between Germany and Bulgaria within one year, we have gained market leadership in Egypt or even strengthened our market leadership in Egypt and, in the end, we’ve finalized our year with a black zero operationally, which for a company in this market situation is a pretty good result.
So, for 2017, if you look at the capacity for this summer versus summer last year, will there be more capacity cuts in the Turkish market and redeployment elsewhere? Or how do you envisage that it will go this summer?
To the contrary, what we find is that, especially in Egypt and in Turkey, people value highly that we were the one airline that did not cut capacity in 2016. We had minor capacity cuts to Turkey while others cut capacity from 60% to 80%.
Our capacity was quite stable also to Egypt. The only thing that we did, which is difficult to see in the statistics, is we converted some scheduled flights into charter flights, so they might not be in all statistics. But really if you look at the seats that we’ve offered, we hardly cut down capacity.
And what we see now is that, in both our main markets, the situation is getting a lot better, that the people and the tour operators are honoring that we did not move out, that the Egyptian government with whom we are working very closely is honoring that, and especially the people in those countries that have suffered through the crisis, the hoteliers – they know who was still there to bring tourists into their country.
For Turkey especially, and that might sound a bit surprising, we’ve actually deployed 20% more capacity into the Turkish market than in 2016. We significantly raised our capacity not only into Antalya and Izmir, which are our two home markets, but also especially into Anatolia to capture more of the visiting-friends-and-relatives segment. And what we see now with the capacity cuts that our competitors have done is that we can be cautiously optimistic about Turkey this year. For us, at SunExpress, we know especially that we’re in a special situation; we’ve been able to significantly increase our market shares, we’re still operating profitably into the Turkish market, and we believe that we will be able to capitalize on the market share this year.
You just mentioned the visiting-friends-and-relatives traffic. Has the demand for that and the demand for domestic flying in or out of Turkey, Turkey as an origin market, changed at all? Or does it remain relatively stable?
It’s incredible to see. I think we’ve increased our Anatolian offer by 23% and we’ve increased the seat load factor across all flights by 26% compared to the previous year. Visiting-friends-and-relatives is an absolutely stable environment.
We have a community of 3 million Turks, Turkish passport holders living in Germany, plus everybody who now has German passports but still is of Turkish origin, second or third generation. They fly home regardless if there’s trouble or if there’s no trouble, if politicians fight or if politicians are friends – they fly home to their families and to their loved ones. I think SunExpress, with all the commercial obligations that we have, Sun Express also has an obligation to that society – and especially to the German Turkish, the Swiss Turkish, the Austrian Turkish society – to make sure that the communication between those communities doesn’t stop and that people simply can go home and visit their people.
We have seen some other changes in the Turkish leisure market. For example Atlasglobal and Onur Air, that have previously been more or less in the same markets that you have been, have diversified now into Russia, the CIS countries, into the Middle East. Is it something that you have looked at as well to redeploy capacity?
We have actually increased our exposure beyond Antalya and Izmir also to new markets, to the Middle East especially. To Iran, we started flights to Tehran, charter operations into Moscow, Tel Aviv, Beirut… Quite interesting markets.
But we have an asset, which is that we have nearly 2,000 travel agencies in Germany, Austria and Switzerland in the ethnic field. Travel agencies that a salesman of other carriers might not even know that you can buy airline tickets in that shop, that are very loyal customers to us and that serve a very specific need of ethnic travel. Well, I believe that’s a forte that we can play with and that we should play with.
So, would it be correct to say that maybe because of these unique factors that you have in sales and distribution, and because of your unique setup between Germany and Turkey, that you have actually been able to increase your market share and make it more difficult for the other carriers now in times of crisis? Because when they consolidated – tour operators, or the market in general – as they consolidated it was tending more towards SunExpress rather than the lesser known, lesser established Turkish operators in the market.
I think that SunExpress had an advantage because we have very good links technologically and personally into the tour operators. We understand how tour operators work, we have a good revenue management and dispatch team, who are very well connected to the tour operator business, and that makes it easy for the tour operators to work with us. And that makes it easy for us to get the right passenger mix onto our planes.
Have we made it difficult for other carriers to enter the market? There’s one thing that we didn’t do and that we also won’t in 2017: even though we’ve increased our market share, we have not at the same time increased our pricing structure. So, we’re still going around with exactly the same pricing tables that we had before. Why? Because we really think that for the moment that’s what the people in Turkey need. And that’s really where we believe that we have an obligation towards the people in Turkey to also keep Turkey a competitive destination for tourists.
We’ve seen Turkish Airlines and Pegasus revisit their order books with Boeing to defer orders, to convert some aircraft type orders and so on. You still have 737-800s and 737 MAX 8s that you have on order yourself. Is this something that you’re taking into consideration as well, that you’re trying to defer orders to have less of an obligation to grow? Or is that something that is not out of the question for you now?
I think in the airline business, we have to be extremely flexible and nothing is ever out of the question. However, six new aircraft were delivered this year. We will rather play with the fact of whether we are going to put everything into fleet growth or just into fleet renewal? But that is something that, for the time being, we see that we will be able to fill those six planes.
For the markets developing next year, especially with what we’re seeing in Bulgaria, in the Canary Islands and in Turkey, we are pretty optimistic. And then we’ll see what happens.
When are the first MAX 8 aircraft with you, do you know?
I think it’s 2019.
Okay. Moving on and talking about something completely different, you have built up a significant ACMI wet lease business in the last couple of years, flying for AnadoluJet, for Eurowings last summer, and also for Austrian. How did this idea come up initially to start moving into this field? Is this something that you planned on purpose and that you plan to do more? Or is it just something that happened and opportunistically you just said okay, we’ll take on that deal and we’ll do it?
No, it was a strategic decision of SunExpress to move into that business field. There’s one thing that touristic business, visiting-friends-and-relatives, and domestic flying in Turkey—so all three own-risk business segments that we play in—have in common. And that’s seasonality. You earn cash in summer, you burn cash in winter. That’s a problem everybody has.
The nice thing about wet lease is that it gives you stable margins. The margins are not as high as summer operations to Turkey in July, but they can be very stable in January, and also in February. So, it’s a matter of risk diversification and of seasonality management.
We will have a hybrid business model also in the future with wet lease and with our own operations on both the AOCs that we have. This summer, for example, we will actually decrease the exposure to wet lease towards Eurowings because we will only operate one 737 for them during summer. It’s part of our strategy, it’s part of our business. And we’re open to business basically, not only within the family but also towards third parties.
So you lease in aircraft during the summer and you get more aircraft out in the winter, I guess that’s your main seasonality problem. In the past, I remember you were getting aircraft in from Brazil, from Gol during the summer, which you didn’t do this last summer. So, are you mainly looking at that, at either getting aircraft in for the summer again or getting aircraft out in the winter? Or is that the key problem that you are trying to solve with the wet leases?
That’s right. But unfortunately what you want is not always what the market wants. There is a high demand for ACMI capacity obviously in summer and there’s less demand in winter.
Yes, very bad rates.
But so far in our business model we’ve been successful in securing year-round business that works for us and for our customers. Sometimes it’s seasonal, sometimes it’s not seasonal and that’s reflected in the right rates.
You have a really unique setup with the German AOC, with the Turkish AOC, and with management that is split between Frankfurt and Antalya. Could you explain to our readers how SunExpress works? What is managed from Frankfurt, what is managed from Antalya, and how that setup actually works in real life?
It’s very easy. Anything that needs to be close to the customer happens in Frankfurt. And that’s been like that also before the German AOC had been founded. So, the commercial heart of SunExpress beats in Frankfurt, because that’s right in the middle of the EU market, and that’s where we generate most of our revenue.
My sales team in Turkey is based in Izmir because, after Istanbul, that’s the biggest market. And for the commercial team we also have a presence in Antalya. Obviously for our head office, Antalya is where the leadership sits, where our operational units for the Turkish AOC sit, and then where anything that is required to keep an airline successful—procurement, finance, et cetera—is based. But the commercial heart, again, beats in Frankfurt.
And how free are you yourselves in making network decisions or things like that? To some extent what SunExpress Deutschland does is similar to what Eurowings does. If you—I’ll just make up some weird example that is totally unrealistic—but if you were to decide that you are now going to start flying from Erfurt to Fuerteventura, I guess no one really cares. But if you decided you were going to start a route that is overlapping with what Eurowings already does, can you do that yourself? Or do you have to actually coordinate what fits into your strategy and what fits into the Eurowings bucket and what fits into the Lufthansa bucket?
We’re working very closely with our friends in Cologne, and with our friends in Istanbul and Ankara for that matter too, because the same goes for the domestic market in Turkey with AnadoluJet. I would say it’s a bit like in a family between brothers and sisters. Some things you want to compete on just because it’s nice to compete and you want to tickle them a little bit and want to see how they react. At the moment when competition would turn out to be truly harmful for the family, that is when we would come together and say, “Come on guys, does that really make sense?”
At this point in time, and I’ve only been in the company for one year so that’s what I can look at, we’ve never had such a situation. Because what we really have is very close contact, a very good understanding of what the others plan to do and where they want to go. And good business rationale for things that we do or that we don’t do. So, considering Switzerland, just as an example, it would be stupid if we didn’t work with Edelweiss on a joint Turkish strategy out of Switzerland.
Okay. So, if you look at the Turkish domestic market I just mentioned, it’s a coordination between AnadoluJet and SunExpress, more or less, that SunExpress does Izmir, and AnadoluJet does Istanbul and Ankara. That’s how you’ve divided it up. And if you look at AnadoluJet as a sister and SunExpress Turkey as a brother, what differentiates the two from a business model perspective, from a network planning perspective?
SunExpress has always defined itself as a leisure carrier with a leisure focus. We have the visiting-friends-and-relatives focus as well, but also those people are usually going on holidays. AnadoluJet is a low-cost point-to-point operator for Turkey and out of this understanding is the DNA of the two companies. There is not even a big necessity to come together regularly and do joint route planning within this whatsoever. But it quite naturally falls into place.
So now after not much has happened for a while, there is quite a bit of movement again in the German leisure markets. Sundair and Azur have plans to start this summer, Azur have had their first flights. How do you think that they’ll impact the operations that you have? And will you be impacted by them coming in, offering lower rates than everyone else has in the market? Like Hamburg International used to do in the past, or Aero Lloyd, or everyone that was kind of playing the price breaker for TUI and Thomas Cook?
Number one, we welcome Sundair and Azur into the market and we wish them all the best for their business models. Number two, I think SunExpress has some unique assets that are hard to beat. Number one is our cost structure, because we don’t claim to have a cost structure that is close to an easyJet, we actually do have it. So, from a pricing perspective there’s a lot that we can do.
The second asset that we have is our flexibility, being able to react extremely fast to market developments and to the things that we want to do. To give you an example: between the launch of SunExpress Holidays and the first idea of, “Hey, why don’t we do a SunExpress Holidays?” we had four weeks. Not quite, but nevertheless.
So SunExpress is extremely fast, extremely flexible, and has a very good cost base to work on. And we have an extremely good relationship with the tour operators—not only on a personal level where we have a team dedicated to tour operator relationship management—as in really understanding what are the needs of the tour operators, when do they need more seats, less seats, at what price they can sell, etc.
But also, from the technical perspective where we have the interfaces that people need on all sales channels, to be able to produce the right journeys or the right packages on the right channel for the right moment. That’s something that I believe competitors in the market, in that mix, it would be difficult to beat.
So, you’re not afraid either of whatever will happen with Air Berlin/Niki/TUI, or Germania and Condor joining forces? This obviously shows that there’s a certain need to consolidate in the market in Germany.
Commercially speaking I think we have the right setup to deal also with those. And in the examples that you’ve mentioned I think our cost bases will be a big asset that will help us to support bringing value to the biggest customers that we have, which are the tour operators. But do I think consolidation is necessary? Yes, I do!
If you look ahead to let’s say 2020, what do you think will change from your setup today to where you’re going to be in a couple of years? You mentioned before that, overnight, Bulgaria has become a key market for you. So, do you see yourselves diversifying even more to make sure that you have fewer risks in your portfolio, as you had it before when you were hit by the challenges that we spoke about at the beginning? Or what is your commercial strategy to make sure that in 2020 you cannot be hit again like you were hit in 2016?
There’s a few things that we believe, that I’m sure of, that will also be the case in 2020. We will still be committed to Turkish tourism, we will still be standing there no matter what, if there’s crisis, no crisis, for the Aegean region, for the Turkish Riviera and we will be the number one support for Turkish tourism in that area.
Number two, I’m still just as convinced that we will be similarly supporting the Egyptian market and we’ll play an important role there in supporting Egyptian tourism and we’ll have the leadership in that market too, also in 2020.
Thank you very much for speaking with ch-aviation.