ch-aviation interview: Paul Graham, CEO FlyPelican

FlyPelican, in its current incarnation, has been flying for just over two years, but is already building a strong business on Australia’s east coast. Part of that comes down to the strength of its people, says CEO Paul Graham, who sat down for a chat with ch-aviation journalist Nat Newman. Paul talks about the long pre-history of the airline, its current business model, and the personal commitment needed to build a successful regional carrier.

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ch-aviation interview: Andrew Madar, CEO Cobalt

The Republic of Cyprus has undergone a rapid change in aviation scenery since the demise of state-backed carrier Cyprus Airways in 2015. Since that time, four prospective carriers – Tus Airways, Cobalt, Charlie Airlines (operating under the Cyprus Airways brand), and the nascent Orion Airways – have emerged each of which is vying for a slice of the island’s lucrative summer leisure market.

ch-aviation’s Vice President (News), Ivan Nadalet, visited Larnaca earlier this summer to discuss Cobalt’s business plan, philosophy and operations with its CEO Andrew Madar.

Launched in June 2016, Cobalt is a hybrid carrier that currently operates a dry-leased fleet of two A319-100s and four A320-200s on scheduled passenger flights connecting Larnaca with eighteen destinations in Greece, Lebanon, the United Kingdom, Belgium, France, Israel, Switzerland, Spain, Iran, and Ireland. It also offers ACMI/charter services albeit to a lesser extent.

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ch-aviation interview: Patee Sarasin, Vice Chairman Nok Air

ch-aviation CEO Thomas Jaeger had a chat with Patee Sarasin, Vice Chairman of Nok Air. Read our exclusive interview to find out about how the Thai carrier has overcome a tough few years and its plans to use China on its road to recovery.

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I’ll start with a personal question, if you don’t mind. Obviously, you’re a big musician, as well, in Thailand.

Oh, not that big!

But you’re quite famous for doing that as well. And recently you performed on The Mask Singer, and you were disguised as an eagle. It’s a show where people don’t know who is singing. Why did you pick an eagle? Did you want to show that Nok Air is attacking again after some difficult years?

No, no. It was designed for me already to be the eagle. I guess what happened was the show took one of our drinking bottles from the plane, which has that eagle on it. So they chose that particular mask to be the key element.

But if you look at recently, you were one of the most profitable airlines in the world, and then had some rough years. What would you say was the key factor? Was it that you had some pilot issues? Or was it the CAA downgrade at exactly the wrong time when NokScoot started? Or was it irrational competition coming into the market? What was the key factor?

All three. The competition came in in such a massive way. And then they started a complete price war on the domestic market. They were willing to lose money on it. And therefore what happens with the overcapacity coming into the market, they start dumping prices, so that really hurt us quite a bit. That’s number one.

Number two, yes, with NokScoot unable to fly to Japan and Korea, probably two or three days after we launched, that became the second really big issue.

And then the third part was an inability to expand across the region. That was our plan, to go across South East Asia, but it was hampered by the red flag from ICAO. So that definitely was truly an issue, as well.

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ch-aviation interview: Peter Glade, Commercial Director Sun Express

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.

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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. Read more

ch-aviation interview: Byron Ding, President Lucky Air

ch-aviation CEO Thomas Jaeger caught up with Byron Ding, President of Lucky Air, at the Aviation Festival Asia. Read our exclusive interview to find out about the Chinese airline’s low-cost model, fleet deployment, and regional and international expansion.

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It must be a very exciting time for you right now because you’re about to start long haul operations at Lucky Air?

Now we have the long-haul aircraft and we have become a low-cost carrier, which is a mixed low-cost carrier really, that means we’re not just focused on the traditional LCC model per se. Hence in the future, we can manage some national, international and intercontinental routes to more countries. We can focus on the long haul LCC, how to do this and how to explore this. Our market plan is based on South Asia and East Asia, and some European routes as well. So, since March we have the first widebody aircraft and we will now start with Moscow as the first long haul destination from Kunming. Read more

ch-aviation interview: Juha Järvinen, CCO Finnair

ch-aviation CEO Thomas Jaeger caught up with Juha Järvinen, Chief Commercial Office of Finnair, for a chat about the airline’s growth strategy, expanding in Asia, and European partnerships.

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ch-aviation interview: Krešimir Kučko, CEO Croatia Airlines

Following the break-up of Yugoslavia and the independence of Croatia, 1989-founded cargo operator “Zagal” was rebranded as Croatia Airlines in 1990. It commenced passenger services one year later with a single MD-82 leased from Adria Airways. Due to the still ongoing war, the newborn national carrier had to suspend its operations for a brief period in 1992, but returned with a fleet of three Boeing 737s that soon would be complemented with an ATR42. The fast-growing carrier acquired its first Airbus A320 series aircraft in 1997, and by 1999 all Boeing aircraft were gone. In 2004, the young airline became a regional member of Star Alliance. The ATR42 was eventually retired in 2008 when the Bombardier Q400 was introduced.

Last year, the state-owned airline carried 1,85 million passengers. It has a fleet of four Airbus A319s, two Airbus A320s and six Bombardier Q400s with an average age of 12.7 years deployed on flights to 35 destinations. ch-aviation´s Max Oldorf had the opportunity to chat with Krešimir Kučko, CEO at Croatia Airlines, about the company´s operations and future plans.

Krešimir Kučko: We are considering the Bombardier CRJ, Superjet SSJ100 and Embraer E-Jet.

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ch-aviation interview: Edgardo Badiali, CEO Libyan Wings

Founded in 2014, privately-owned Libyan Wings has eked out a niche for itself in one of the world’s most unstable countries – Libya. Using a pair of A319s, it has developed a small, but sustainable, international route network serving Tunisia and Turkey with plans to expand to other North African states. ch-aviation’s Thomas Jaeger recently sat down with Libyan Wings CEO Edgardo Badiali at the Aviation Festival in London to discuss the airline’s past, present, and future operational plans as well as the peculiarities of the Libyan market.

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Despite the recent political détente, Libya has yet to return to economic and social stability. In fact, an Afriqiyah A330 was recently shot at while taxiing in Tripoli Mitiga. Given the poor state of national security, how do you keep your daily operations going?

I think that the global perception of security at Mitiga airport is actually worse than what it really is. Having said that, we are very much aware of this issue and, on top of Mitiga airport’s security with whom we work hand-in-hand, we have our own security department and people, so we are able to keep an eye on things.

Operationally speaking, and to be quite frank, we are doing far better than I would have expected for a startup operating in such a difficult environment. Our reliability is very high with a dispatch rate of over 99%. One of the main reasons for the success we have seen in these first eight months of service is our very high on-time performance, which is much appreciated in the market.

There were delays in the launch of operations initially. How have you dealt with suppliers, insurers, and even lessors given the country and the conditions you operate in?

Yes, there was a delay and it was quite painful to endure given the investment we had put in. We had the people and the aircraft in place but we could not launch given the events of 2014 [Ed note: the resumption of Libya’s internecine conflict]. In light of the prevailing situation, we decided it would be best to keep the aircraft, despite not using them from a commercial point of view. It cost us quite a lot of money but we eventually managed to launch in late 2015.

One of the major issues we had to resolve was insurance. We needed 100% coverage on the London market which, despite prolonged difficulties, we were finally able to get to the full satisfaction of our lessor.

The second major issue involved certification. To gain our AOC from the Libyan authorities, we had to undertake a proving flight with passengers but we could not bring the aircraft to Tripoli because of the situation there. So we had to resolve all of that in Istanbul, where Libyan Civil Aviation Authority personnel joined us on our proving flight to Antalya. We were awarded our AOC shortly after.

The third major issue was to make sure that we had access to an EASA-compliant line maintenance facility. While we had already signed a contract with Lufthansa Technik, the security situation prevented them from sending their personnel to Libya at that time. Eventually we were able to secure a contract with an EASA Part 145-compliant MRO organization in Italy which has a base at Tripoli Mitiga and which does excellent work for us.

So, those were, in a nutshell, the major issues we had to overcome before we were eventually able to launch commercial services in October 2015. We started initially with a single A319 before adding a second of the type in January 2016.

Libyan Wings Airbus A319 – Copyright: Libyan Wings

What about the allocation of traffic rights?

That was the next challenge; the allocation of traffic rights, slots etc. We currently focus on the Tunisian market, which we serve with twenty-four flights per week, twenty-one to Tunis and three to Sfax, and Istanbul which we serve 4x weekly. Sometimes we add more if and when we are able to get additional slots. This, in fact, would be very beneficial because our flights are basically always full.

We have also done some Umrah flights to Jeddah and Medina in Saudi Arabia.

Right now we are in talks with Morocco and Egypt about opening up flights there. With Morocco, from a civil aviation/traffic rights point of view etc., everything is ready. We’re just waiting for the Moroccan authorities to open up their airspace to Libyan carriers, following which we would be able to serve Casablanca in very short time and eventually other destinations like Marrakech. With Egypt, we are in talks to start flights to Alexandria, but again it is a matter of the Libyan and Egyptian governments reaching an agreement.

How do you plan your network given the frequent air embargoes Tunisia, Egypt, and Morocco impose on Libya?

You have to be flexible and adapt very quickly. At one point, we had to shift our Tunisian flights from Tunis to Sfax before moving to Monastir and eventually back to Tunis.

Libyan Wings Economy Class – Copyright: Libyan Wings

How is it competing with Afriqiyah and Libyan Airlines; two carriers that are essentially government-owned? Does government tend to favour them in terms of traffic right allocations at the expense of privately-owned carriers such as yours?

Not really. In terms of traffic rights, we fly to Tunisia with which Libya has an open sky agreement. Turkey has granted us additional traffic rights while with Morocco, it’s basically an open sky agreement as well.

But the status-quo could change overnight if, hypothetically-speaking, Europe were to reopen its skies to Libyan carriers. Then national-carrier status would play a significant role because in many of the bilateral air service agreements Libya has with European countries, only one airline is designated – not so much capacity constraints but a mono-designation. Take for example Malta. Malta is reserved for Libyan Airlines. Afriqiyah could not fly to Malta even before Libya was “blacklisted” by the European Union.

So that could become an issue. On what the future holds? Well it will depend on the future Libyan government. If it is intent on opening up the country to foreign investment, then it may have to embrace an Open Skies agreement with Europe in much the same way as Morocco has done and what Tunisia is currently considering doing.

Is there a reason why you only operate international flights? Or does the security situation prevent you from doing so?

We don’t fly domestically because basically the only real internal route – between Tripoli (in the west) and Benghazi (in the east) – is not feasible given the factional split we currently have in Libya. Now there are other destinations in Libya we could fly to but they would require a full fleet analysis, something that just isn’t feasible right now. So while Libya settles down, we prefer to concentrate on the routes we serve. But, in the event the situation improves, we may look into domestic flights at some point in the future.

Libyan Wings Business Class – Copyright: Libyan Wings

You mention that you have seen strong demand for your flights. Can you expand on that?

Our two aircraft are well utilized, so we are now looking to get a third and a fourth. To give you an idea, in the last couple of months we have consistently registered load factors of over 90%. Even our business class has seen very high demand. In light of this, we are now looking at sourcing an A321. This aircraft would be ideal for us given the demand we anticipate on routes to high-density markets such as Egypt. While we intend to retain the A319 for certain routes, we’re now looking at larger types because of overwhelming market response.

Let’s talk about the MOU Libyan Wings signed with Airbus for three A350-900s and four A320neo in November 2013. Is it still around?

Yes, it is still around. We have been in touch with Airbus and we should finalize discussions around the first or second quarter of 2017. Nothing has been finalized as yet. For our part, we may consider converting the A350s into more A320neo which would make better commercial sense at present. But this will be a matter for our upcoming discussions with Airbus.

Libyan Wings Business Class meal – Copyright: Libyan Wings

What’s your current market segmentation like? What is the breakdown of your market and given recent events, has it changed?

Most of our customers are Libyan and a substantial proportion are businessmen. Both Turkey and Tunisia see a lot of business-related traffic. For its part, aside from Libyan-owned businesses, Tunisia is also popular because of people seeking visas. You’ll recall that a number of embassies in Libya closed following the outbreak of war leaving people with no alternative but to travel to Tunis to try and apply for visas at embassies there. We also see a lot of medical-related traffic heading to Turkey and Tunisia – people seeking treatment, surgeries etc. that you cannot find in Libya.

So we see a bit of everything but the greatest percentage of passengers is business-related.

Do you think the Libyan market, as it presents itself right now, can sustain the number of operators it has? You have Afriqiyah, Libyan Airlines, Buraq, Air Libya, etc. all vying for what appears to be a relatively small market.

It depends on how Libya develops. At the moment, the environment is very difficult because of the limited number of destinations Libyan carriers can serve. But as things improve and new markets eventually emerge, so new opportunities will present themselves. However, the downside to that is that with new markets come new competitors and here I’m not only talking about Libyan carriers, but foreign carriers coming back into our market.

However, despite those possible negatives, the return of foreign airlines would also be an indication that Libya, as a destination, is becoming increasingly attractive to outsiders seeking new investment opportunities – in reconstruction among other areas. And demand has been enormous in the past. An example is the period after the 2011 revolution through to the end of 2013 when the situation started to deteriorate again. During that brief period, the explosion in traffic numbers was incredible.

Overall, insofar as competition is concerned, I am not worried. Our actual focus is to be able to progress into the second phase of operations. We were a startup, but we now have a very good product, we have high reliability, and we have built a very good brand in the market with excellent brand recognition. Now we have to figure out how to profit from this “niche” by improving our organizational processes, further innovate our product and services, develop systems in place as well as focus on training for our people. Last but not least, we have started to work towards IOSA certification which is something we want to achieve as soon as possible.

Libyan Wings HQ in Tripoli – Copyright: Libyan Wings

Are you pursuing any interline agreements that would grant you access to Europe?

We are currently looking into this and plan to start talks with airlines in target countries in this regard. We will see what the outcome is. We know already today that we have a good number of self-connecting customers at the destinations we fly to so there is strong potential.

Do you have any expectations as to when the European Union might lift operational restrictions against Libya?

No. There are basically two issues that must be resolved. One is accepting the Libyan Civil Aviation Authority (LCAA) as a regulatory body and that will take time. I have heard rumours that either the Italian or the British government will give support in this process, most likely the Italian civil aviation authority (ENAC), which will basically ensure that Libya’s regulatory oversights are in line with EASA-defined standards. To their credit, the LCAA has already made a lot of progress in terms of the alignment of its internal procedures, with more positive developments expected in the coming weeks and months.

The other issue is related to security. This pertains to whether bilateral partner countries will want to allow the resumption of flights to and from Libya.

To what extent have you deviated from your original business plan?

Oh, quite a bit. As I mentioned earlier, we need to be flexible. We fly where we can, and not, unfortunately, where we want to. So for us, we have to seize all and any opportunities as and when they present themselves. We know that any plan can be affected by external factors which are beyond our control.

Where we have not deviated from our original business plan is in our commitment to high safety standards, high product and service quality, and high reliability and punctuality.

Even though you have said long-term plans have little relevance in your market, where do you see Libyan Wings in the future?

One objective is to develop Tripoli into an intercontinental hub. Bear in mind that from Tripoli, an A320 can reach as far south as Nigeria and as far north as Oslo, Norway. So basically, we can cover nearly the whole of West and Central Africa and most of Central, Northern, and Southern Europe. There is also the possibility of developing an Asian network which, again, will depend on the country. Libya has been home to a number of expatriates from the Philippines, Bangladesh, Pakistan etc. in the past and this is likely to occur again if things improve. And last but not least – this was also one of our long-term goals – to serve the United States where there is a very big Libyan community and from where a lot of investment could come from in the future.

The other objective is to explore the cargo market. The limiting factor is that you really only have inbound loads with very little outbound. Even now, there is big demand for freighter capacity and we expect that to soar if and when the economy picks up.

Thank you very much

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ch-aviation interview: Tewolde Gebremariam, CEO Ethiopian Airlines

Ethiopian Airlines is Africa’s largest carrier by Available Seat Kilometers (ASKs) ahead of its Star Alliance partners South African Airways and EgyptAir. Unlike its two alliance partners, it has also been consistently profitable for years constantly growing its hub in Addis Ababa providing more connectivity from Africa to the world. Ahead of the delivery of the carrier’s first AerCap financed A350-900 from Airbus’ factory in Toulouse, ch-aviation’s Thomas Jaeger had a quick chat with Ethiopian Airlines’ chief executive Tewolde Gebremariam discussing the carrier’s plans for the A350s joining the fleet, the unique challenges of the African operating environment, expansion plans for additional African hubs and Ethiopian Airlines’ long term planning approach.

Learn about Ethiopian Airlines on ch-avation:

Just like Japan Airlines, Ethiopian has been a very loyal Boeing customer for many years. But now Airbus has managed to lure you to their side with the A350. What brought about this change?

Well, it’s not a change per se, it’s an evolution. When we were small, it did not make sense to diversify. In fact, not only diversify manufacturer, but also to diversify within the same manufacturer.

The number of fleet types should be kept as low as possible because it creates more complexity, and that increases the cost of operations. So, according to our calculations, when we crossed fifty airplanes, and assuming that each type has its own economies of scale, whether the 737, 787 or 777, we would then be free to study any airplane for the missions that we have. Because usually you study the airplane for the mission, but at the same time you also decrease complexity. So when we decided to order the 787 back in 2005, and knowing the mission purpose of the 787 and its size, we realized we also needed an airplane larger than the 787, a modern next generation airplane. It was then we decided to go for the A350. As I mentioned earlier each type has to generate its own economies of scale and that we can realize with the twenty A350s we have on order.

So what are your plans and hopes for the A350? Where do you want to deploy it first?

The A350, in terms of capacity and range, is going to cover most of our longhaul routes to China, the US and of course Europe. In terms of capacity, it is bigger than our B777-200(LR), which is a niche mission airplane. And despite the altitude problem in Addis Ababa (the current airport is 2,400 meters Above Sea Level which presents operational challenges for all aircraft), the A350 performs well there just like the B777. The Airbus is therefore going to replace the B777-200(LR) on some routes given its slightly higher capacity. In our configuration the A350 seats 343 passengers, which is greater than the B777-200(LR) but smaller than the B777-300(ER) which seats about 400.

Ethiopian Airlines Airbus A350-900 – Copyright: Airbus

You have just mentioned the Hot & High conditions at Addis Ababa Bole International Airport. Now, the Ethiopian government is in the process of selecting a site for a new gateway for the capital’s airport. Will the A350, and eventually an A350-900ULR in combination with or without the new airport, make your fuel stops on the way to the United States redundant, or will you have to make them regardless?

That’s a very good point that you have raised. Unfortunately, we have not studied the A350-900ULR or the A350-1000, but even then I don’t think with them in our fleet, I don’t think we could escape our technical stopovers. The B777-200(LR) is the longest range commercial airplane in the world at the moment, but even it cannot make North America without stopping. What we may consider, is looking at how many seats we would have to leave empty in order to make, say Addis Ababa to Washington, D.C. non-stop. But definitely, the next generation airplanes are performing well. So going forward, the plan will likely be a combination of us moving to a new airport which is slightly lower, about 1,900 meters Above Sea Level, and of course new generation airplanes. Maybe a B777-8X can do it.

Talking about challenges, you are the biggest international operator in Sub-Saharan Africa by far. But there are some carriers, such as your Star Alliance partner Turkish Airlines, that are looking to break into this market as well. Is that a significant challenge for you or are they aiming for a different  niche than the one you are currently focused on?

It is a challenge, you are right, Turkish has a big network in Africa. It is not the only challenge, but it could become the main one quite soon. From a more general perspective, Emirates is also a big competitor in Africa, as is Qatar Airways, Etihad, and Air France-KLM. So competition has always been there, and it will continue to be so in the future. Of course its face is going to change. But we are the pioneer airline in Africa, 70 years in service, and we believe that we know the African customer better than anyone else.

In the last few years, you’ve helped establish regional Africa carriers ASKY (in West Africa) and Malawian Airlines (in Southern Africa) as opposed to investing in existing operators. But we understand you are planning to do so, or have already done so, with an equity investment in RwandAir. Can you elaborate on this deal?

No we are still discussing. We have commercial and technical cooperation agreements in place, and we oversee their total care maintenance for them. While we are discussing upgrading that cooperation to a more strategic partnership, we have not yet defined the format of partnership.

But there are also other initiatives in the region. We are also in talks with Congo Airways, a new initiative by the DRC government. Uganda is also planning to restart their national carrier, same in Zambia and Zimbabwe. We are talking with all of them because we look at it from a homegrown, indigenous African airline’s point of view. The market share today between African airlines and non-African airlines, or foreign airlines, is highly skewed in the latter’s favour at 80/20. We believe that it should be, at the very least, 50/50. It used to be 60/40 maybe thirty years ago but now at present, it has tilted to 80/20.

Overall, local African carriers’ market share across the continent is declining but we want to reverse that. We want to help Africa’s airlines grow in the African market.

Ethiopian Airlines Boeing 737-800 in Zurich – Copyright: Tis Meyer – planepics.org

How do you hope to achieve that? By using a similar model to the one you applied at ASKY and Malawian where you can provide the services and economies of scale that they would otherwise not obtain?

Right. That’s how we are trying to convince most of them, because the airline business is 1) highly capital intensive, and 2) highly skilled-labor intensive. But even with a combination of the two and access to economies of scale, you still need minimum critical volume to run a viable airline.

And you have reached some of that critical mass now in Lomé and after the flights to Brazil, you have now started your first long haul route to the US from there. Are you planning to eventually build up Lomé to a level where it can sustain its own connections to Europe. I remember right, at one point, you had a Beirut flight for sale, but that did not work out. Do you think you Lomé and ASKY have the critical mass now to expand?

Yes, that is the plan because we are looking at expanding the regional network there in order to support intercontinental flights to Brazil, New York (and more US gateways), and eventually Europe.

Is that a general template for your regional hubs? That Lomé and Lilongwe will each have their own longhaul flights?

As competition intensifies, we may start thinking about direct flights from these points. That will put us a step ahead of the competition in the market. So the customer may get a direct flight from Lomé, from Malawi, and maybe even a direct longhaul flight from the DRC or Rwanda.

One of your bigger markets is Nigeria, where Ethiopian will shortly become the second largest carrier there because Emirates is curtailing its capacity there. How worried are you about the scarcity of foreign currency  turning Nigeria into an African version of Venezuela from an airline perspective?

We are all highly concerned. Even IATA is concerned. But Nigeria is very big market for us; we fly to four cities there – Lagos, Abuja, Kano, Enugu. Nobody else flies to Enugu except us so we have to find a way to manage the current crisis. While some airlines are scaling back, for us it is too big a market to neglect. We have huge challenges there, but you have to find a way to address that. So we will continue to fly to Nigeria.

Ethiopian Airlines Boeing B767-300ER – Copyright: Tis Meyer – planepics.org

Turning to East Africa. The situation there has obviously changed quite a bit with Kenya Airways in financial trouble and scaling down. In Tanzania, you have Precision Air and Fastjet neither of which are doing very well. Taking all of this into consideration, do you think that you’re going to be able to profit from the void left in the East African market, and have you seen any significant increase in traffic volumes in Kenya and Tanzania as a result of the aforementioned carriers’ troubles?

First I should state that East Africa is in better shape than the rest of Africa, considering the low commodity prices, especially oil. East African countries are not dependent on oil or mineral exports, so because of that they are in better shape right now; the region has great potential. Coming back to low cost carriers, I have always maintained my position, even five years before Fastjet started. I could be wrong but I don’t see how that model could work in Africa because of the challenges there. I mean, the low cost model is very successful in the US, Europe, and now in Asia, and it will be also successful in Africa, eventually. But now is not the right time because you have a number of challenges to contend with: Fuel prices are still very high, higher than the rest of the world, airport charges are very high, there are no secondary airports etc.

Going back to your question, I don’t see a vacuum in East Africa. We have traditionally been very strong there, it’s our region, and while competition is there, it is probably on a different scale and scope. Kenya Airways, for all its woes, is still strong there and their restructuring program is working well for them. Overall, I believe there is enough market share for all of us, these countries and their markets are really growing, and they have better macro-economic stability, peace and better governance. There is also a lot of investment in infrastructure, Chinese investment mainly. So I think connectivity is going to grow, not as much between the countries there, but more with the rest of the world.

We are not heavily exposed to the inter-city/intra-Africa market, so I think I don’t see any unique opportunity or challenges emerging. But we will have to continue positioning ourselves, and we have to adapt our services to meet growing demand. The B737 is very well suited to the region, we believe, and even though there may be some markets there where there is a little bit of overcapacity, we are doing just fine.

Let’s talk about the domestic Ethiopian market- For the first time since the sector was liberalized, you are now facing competition. We see you’ve managed to get two of your Fokker 50s flying again with one of your competitors. Do you see it as a crisis or as an opportunity? If more carriers start flying domestically it might increase traffic volumes and provide you some revenue streams as well?

I don’t know. For the time being, we haven’t seen any real competition. The domestic market will grow by 39% this year, so it’s a growth market, and we are adequately catering to it with Bombardier’s Q400. But there are significant challenges for new entrants because the domestic market is a not profitable one owing to the very low fares charged; the average price is less than US$100. But for us, the domestic market has always been cross-subsidized by our international network.

Ethiopian Airlines Boeing B767-300ER – Copyright: Tis Meyer – planepics.org

Ethiopian invests a lot in training its management team and by encouraging young talent to rise through the ranks. What can other African airlines and companies learn from you given the way you have managed to build such a sustainable succession plan for so many years?

I think one can see it in many ways, but the way I see it is the first priority is a long-term plan. As I told you before, aviation is a highly capital intensive business which requires a very highly qualified skill and labor base. So if these are the foundation for success in the industry, then a long-term plan is critical to a sustainable operation. You cannot run this business quarter to quarter; you cannot run this business with an annual plan. You need to think in terms of much longer timeframes.

Of course this is also a very volatile, unpredictable, and complex business so plans need to be flexible and changed very frequently. But even then, in the midst of a very complex and ambiguous business environment, you still need to have an eye on where you are going. In fact, we have a 15-year plan – Vision 2025 – in place which helps us remain clear on where we are heading as an airline.

In our case, we want to generate US$10 billion in revenue by 2025, operate 150 airplanes, fly to more than 120 international destinations, and carry 22 million passengers. Once you have the objective, you should then figure out how to get there. We have overarching strategies that are very clear. We are a cost-leader airline, meaning we use a cost-leadership model, as opposed to a low cost carrier business model. We operate a full service, global standard business model, where we aim to realize the lowest possible unit cost in the industry which then enables us to freely compete in the market.

Our strategy also hinges on us being a four-star airline with five-star service with multiple hubs.

So we have four pillars, the first is the fleet, and the second is human resource development, the third is infrastructure, and the fourth is systems. We have already discussed the importance of the fleet. But human resource development is another ball game altogether. If you are located in Europe or America, you can always go to the market and hire the right staff on the market. But in our region, those skilled professionals are not always available on the market. The little that we have in the continent is continuously migrating to the developed world, in particular to the Gulf. So we have to rely on our own training, that’s why today we have the largest aviation academy on the continent which provides us with fully trained pilots, technicians, cabin crew, sales and marketing teams as well as customer service staff.

And then the infrastructural aspect. In total our aviation group has a total of seven distinct business units. If you are an airline in Europe, you don’t have to worry about cargo terminals, catering facilities, or training. MRO you can outsource. In our case, we are a fully self-sufficient airline. We have the largest cargo terminal now on the continent, and we are in the process of building a new facility capable of handling 600,000 tonnes per annum. That is just the first phase, the second phase will allow us to handle an additional 600,000 tonnes per annum, giving us a total handling capacity of, 1.2 million tonnes per annum. This is equivalent to the cargo terminals at Amsterdam Schiphol, Singapore Changi or Hong Kong. On the MRO side, we have five maintenance hangars, as well as engine and component shops while our catering unit will soon inaugurate the largest catering facility in Africa, which can produce 80’000 meals a day.

The overall strategy here is that while this infrastructure is there primarily for Ethiopian’s needs, it is also there to generate additional revenue by selling services to 3rd parties as well.

And then you have Systems bringing the infrastructure, catering, MRO, human resources etc together. By systems, I mean the policies, procedures and processes, global standard practices, and global standard information and communications technology we have in place to ensure everything is properly coordinated and overseen. Today the airline is fully automated, back office and front office. In the next fiscal year, we are aiming to make it completely paperless.

I think this achievement has been made possible thanks to longterm planning and to skilled, experienced leadership. That’s why most of us in the leadership team today grew up with the airline. Personally, I have been with the airline for 31 years which more or less mirrors that of my colleagues. So we know the business, we know the environment. We have overcome a lot of challenges in the past which gives us a tried, tested and true leadership team.

And I think this is the message that other African carriers, or even other African companies should learn.

Ethiopian Airlines Training Center – Copyright: Ethiopian Airlines

Thank you very much.

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ch-aviation interview: Martin Isler, VP and COO Luxair

Luxair is the national carrier of Luxembourg, a wealthy country in the heart of Europe that is known for its international financial market and as well as for being one of four cities hosting European Union institutions alongside Brussels, Frankfurt and Strasbourg.
For many years, the carrier has focussed on operating with small capacity and high fares but has been forced to adapt its strategy due to changes in the European airline market. ch-aviation´s Thomas Jaeger had a quick chat with Martin Isler about ongoing changes and challenges. Isler, who is Swiss like Jaeger, is Luxair’s Executive Vice President Airline and Accountable Manager at Luxair.

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Many independent regional carriers have vanished in recent years while Luxair is still around. How have you managed to survive while others have not?

Though it may be a regional carrier in terms of structure, Luxair is closer to a traditional flag carrier. We operate in a very particular niche market – Luxembourg which despite being small, is actually a quite wealthy country. To add to that, parts of Germany, France and Belgium also fall within the confines of its direct catchment area.

As a more traditional airline, our development philosophy is therefore more conservative with our focus primarily on generating enough capital reserves – with success.

Furthermore, Luxair is not only an airline but a platform as well. Aside from the mainline carrier, we also have an in-house tour operator. In addition, a large majority of our employees are also involved in the cargo handling sector at Luxembourg-Findel, one of the world’s most important cargo hubs.

Two Bombardier Q400 and one Embraer 145 on the ramp at dawn – Copyright: Luxair

As a traditional carrier, Luxair has significant cost overheads. How can a relatively small airline sustain such high costs?

Cost overheads are definitely one of our more critical problem areas. They are quite high, especially those related to flight operations. But they aren’t only a legacy issue, but also a result of legal requirements. While we currently operate seventeen aircraft, if you look at the size of our administration, we should easily be able to handle fifty. Unfortunately, it is impossible to reduce our existing costs due to the aforementioned legal obligations.

As a result of all of this, we have had to focus on growth. A few years back, we relied heavily on flying a few monopoly routes with very high yields. But today, we have revised that strategy and are now focussed on providing cheaper fares albeit with greater capacity.

This shift was brought on, in part, by the arrival of Low Cost Carriers here in Luxembourg. A good example is our London City route. We used to fly there three times daily with an Embraer 135 before we took delivery of our first three Q400s as replacements.

Given the Q400’s greater capacity, it would then have made sense to reduce the route’s daily frequency to just two daily flights. But instead, we added a fourth daily frequency. Within a year, the Q400‘s load factor had surpassed that of the ERJ-135 and today, we now fly on the route seven times a day. Similar developments have occurred on other routes.

In comparison to the budget airlines, we still have the advantage of being able to add more frequencies as and when demand dictates. So while our yields have decreased by a total of 12% over the past four years, our passenger numbers have grown 14% year-on-year.

Lufthansa has recently become a competitor after previously being a very close partner and shareholder. What impact has this had on your business?

Following Lufthansa’s decision to terminate its cooperation agreement with us, we were forced to close our Frankfurt route as 95% of all travellers there were connecting passengers. Regarding our Munich service, we were actually in competition [with Lufthansa] before as we had both plied the route. The only difference there is that now, that competition has become a lot more intense.

In the greater scheme of things, it has always been our strategy to partner with as many carriers as possible. We are always open to cooperate with anyone willing to cooperate with us. This has been, and will continue to be, our ethos.

So while we have lost Lufthansa as a partner, we still have many others like Air France, Austrian, LOT and hopefully, SAS before long. In fact, we’ve noticed that our passenger flow dynamics have changed in the months that followed the end of our relationship with Lufthansa. For instance, we now have many more customers that choose to fly with us to Paris CDG and from there, onward with Air France.

Boeing B737-800 taking off – Copyright: Luxair

How do you plan your schedule? Is drawing connecting traffic via your Luxembourg hub a priority?

Basically, we are a point-to-point carrier and that is how we build our schedule for most routes. Some destinations we serve are interesting in terms of onward connections and there we obviously try to time our flights to ensure smooth as well as competitive transfer options.

But the number of passengers connecting in Luxembourg is almost non-existent. If there are any, it is usually just by random chance. That said, we currently have no plans to turn Luxembourg into any kind of transfer hub.

LOT and Flybe are new carriers to Luxembourg. Low-cost carriers are also adding many new flights. Where do you think that sudden interest in the Luxembourg market has sprung from?

Over the past couple of years, the Luxembourg market has experienced a significant growth spurt that has continued to this day. This has resulted in Findel becoming one of the fastest growing airports in Europe. There are several factors at play here. One of them is obviously that we have changed our strategy towards lower fares and higher capacity. With the resultant growth in demand, other carriers have been curious to see what the market is like and have thus launched their own respective services here. So it seems that unlike now, in the past, the Luxembourg market was completely misunderstood and therefore underexploited.

You also operate scheduled services within Germany and last year, you ran charter flights from France to various leisure destinations. Are you planning to expand abroad?

Well it is very important to distinguish between scheduled services and leisure charters here.

Our scheduled division works on offering the best possible connections out of Luxembourg. Currently, we fly domestically in Germany from Saarbrücken to Hamburg but Saarbrücken is actually only a brief stop on our flights from Luxembourg to Hamburg. We previously also did this with flights to Munich and Berlin but have since dropped it on both routes. It has nothing to do with strategy and it is not growing, as you can see. It was just an opportunity we took advantage of.

Luxair Tours, our tour operator, is a completely different ball game. They have their own product and actually exclusively plan their operations around our four B737-800s and two B737-700s. We also use the -700s from time to time on our mainline flights to Madrid or Portugal.

So almost six aircraft at your disposal means having a lot of capacity on your hands and that means that on occasion, Luxair Tours charters out the aircraft like they did in France last year. This summer, there won’t be any really noteworthy business in France.

An airline having such a large tour operator arm like you is something rather unique in Europe…

Luxair Tours primarily focuses on traditional package tourism and has no overlaps with our scheduled business.

But the B737s present us with difficulties. As I explained earlier, they are actually a kind of separate fleet but there are some routes where they make sense for us, like Madrid. It has, for a long time, been difficult to deploy the B737 on scheduled flights as Luxair Tours manages them and our scheduled operations do not have high demand for them. But there are some Luxair Tour flights where the number of flight-only (rather than as part of a package) tickets sold outnumber those including package deals. In situations like these, we have to be prudent about how to proceed in the future.

But there is one thing that is very important for us; Luxair is an airline that offers a very high quality of service, even on leisure flights. For the LuxairTours destinations, we serve hot meals, alcohol and so on and local customers love that aspect of our product. In fact, many make it a point of flying with us when heading off on their holidays.

So we have made it a priority to retain that quality of product and appeal to customers as in the long run, it secures their return business as well as profits.

Boeing B737-700 parked on ramp in the morning – Copyright: Luxair

Your B737 fleet suffers from seasonality problems in particular. How do you deal with that?

It’s a problem, of course. The B737 fleet makes a lot of money for eight to ten weeks in summer, but for the rest of the year it is a zero-sum game or worse yet, a loss. To try circumvent this problem, we use the winter months to undertake major maintenance and so on but obviously there is still the issue of having a lot of surplus capacity.

You are one of the very few remaining airlines operating regional jets with 50 seats. Has it become a more pleasant ordeal now that fuel prices have come down?

Fortunately for us, we’re only going to keep our Embraer ERJ-145s around until October. They are from an era that has long gone and it is not only fuel prices that have killed them off. It also has low capacity and very high costs per seat. In our network, it actually made some sense to use them on flights to Geneva; a route with high yields but little demand. They were also well suited for some longer routes where the slower speed of the Q400 proved problematic.

But it wasn’t only heavy overheads that gave us problems with the ERJ-145, it was also yield management. It is nearly impossible to generate sufficient returns in such a harsh and competitive environment. You can only sell some promo seats but that’s about it, you need seats sold at high fares after that.

Besides all of the above, the aircraft also no longer fits into our daily business plans anymore. The two ERJ-145s average sixteen years of age and will soon require major engine and landing gear overhauls as well as a structural inspection. Given those added costly expenses, it simply makes no sense to keep them in service.

So while the final ERJ-145 flight was actually planned for May, the writing off of one of our Q400s forced us to delay that date to October.

Bombardier Q400 LX-LGF – Copyright: Luxair

Can we expect any further changes to your fleet in the near future?

Yes, you can. Our fleet will soon consist of ten Q400s, two B737-700s and four B737-800s. We are planning to take delivery of several new regional jets with a capacity above the Q400’s between 2018 and 2020. They are going to not only increase our capacity, but also replace some of our older Q400s and the two B737-700s from 2020 onwards.

Back in 2012 we began looking into newer and larger regional jets as possible replacements for the Embraer aircraft but could not find any suitable options. Either the aircraft offered were too expensive or outdated. With so many new regional jets on the market right now, it now should be easy to find a good one. But they have just come too late to replace the ERJ145 so taking the additional Q400s as an interim solution turned out to be the best option for us going forward.

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