Al Baker's 'heartfelt apologies', China will be 'a great success' and how the African market "is the size of Ryanair' - more insights from CAPA Airline CEOs in Sydney forum

7 June, 2018

The second day 's agenda of the CAPA - Centre for Aviation Airline CEOs in Sydney forum at the Sofitel Sydney Darling Harbour hotel brought a regional geographical breakdown of the key factors impacting the aviation across the world. But, first the huge elephant in the room had to be approached and that comment from the previous day by Qatar Airways Group CEO Akbar Al Baker.

The Blue Swan Daily was on site and brings you some of the key quotes from the discussion. You can find more in our Live Blog from the event: Live from Sydney - insights from the CAPA CEOs in Sydney forum

Qatar Airways Group CEO Akbar Al Baker

  • He clarified his comments at the IATA AGM and World Air Transport Summit, where he said Qatar Airways "has to be led by a man". Mr Al Baker stated: "No I don't believe that" and added: "The press took it out of context" and "blew it out of proportion". He said "it was just a joke" and he would be "delighted" if a woman came forward to run Qatar Airways. Mr Al Baker also said he would endeavour to increase the number of women on the IATA board of governors, but noted not many women apply to join the board.
  • On… the campaign by American Airlines, Delta Air Lines and United Airlines against Emirates, Etihad Airways and Qatar Airways, stating: "They didn't win", and adding: "We were doing what they wanted us to do anyway". On the motivation of the US carriers, Mr Al Baker said: "They were getting worried about the competition" in the market between the US and the Indian subcontinent. He said competition is "good for the travelling public" and accused the US airlines of waging the campaign to reduce competition, increase airfares and "take the travelling public to the cleaners". Mr Al Baker said recent discussions between the US and Qatar and the UAE "should be the end" of the dispute.
  • He has "full confidence" in the leadership and management of IAG. Mr Al Baker said Qatar Airways does not interfere in the management of IAG and does not intend to secure a seat on the IAG board. He said Qatar Airways' investment in IAG is a strategic long term commitment. Mr Al Baker said Qatar Airways is "only taking equity in winning airlines".
  • There is "huge demand" in China, but not enough airport slots for airlines to meet the demand. He noted Hong Kong is "completely saturated" and said: "We hope that China will release more slots for foreign carriers". Mr Al Baker said India faces similar infrastructure issues, noting air traffic management in the country is not able to release capacity for growth.

IAG CEO Willie Walsh

  • British Airways' Australia operations are very successful and are "working very well for us". He said the change from Boeing 747 to 777-300ER aircraft positively changed the economics of London Heathrow-Singapore-Sydney service. Mr Walsh said the airline would like to expand back to Melbourne "at some stage" but said the carrier is not considering nonstop UK-Australia services.
  • The nature of the partnership between IAG and Qatar Airways is "very clear" and the relationship is "purely commercially driven". Mr Walsh said communication is key to a successful JV or strategic partnership, along with mutual understanding and a "joint vision of where it's going". He said the leasing of Qatar Airways aircraft by British Airways is "a great example" of cooperation and said the relationship "has a lot of value". Mr Walsh contrasted the IAG-Qatar Airways partnership with the former equity partnership between British Airways and Qantas. He said: "The equity created confusion in the relationship", and added: "There was always suspicion about the relationship".
  • British Airways made a strategic decision to reduce transfer traffic between the Indian subcontinent and the US. Mr Walsh said: "The reality is, we didn't want that business", and added: "It was unprofitable". He said the airline now has "the right aircraft" for the Indian market and said both the India and trans Atlantic markets are now more profitable.

Virgin Australia Group Executive Rob Sharp

  • The carrier is investing heavily in the customer experience and digital capabilities as differentiators for the business. Mr Sharp noted that if a business is standing still with its digital capability, then "you're going to be out of the game" as innovation in this area produced benefits for both passengers as well as raising the overall efficiency of the business. Mr Sharp added that airlines "are a volume game" and that technology is needed to manage this efficiently.
  • Its fleet simplification programme is "largely complete". As previously reported by CAPA, Virgin Australia has sold or returned to lessors its Embraer regional jet fleet, reduced ATR operations and identified up to eight ATR aircraft to be removed from fleet. The carrier has also renegotiated a number of Boeing 737 leases on more favourable terms.
  • There is no automatic pass through of higher oil prices into increased fares. Mr Sharp said route pricing is driven by a large number of factors. He also noted that the Australian economy is picking up as are business markets, which is "allowing use to have that price increase" after fares have been relatively flat in the last few years.
  • The company has a "challenging" pool of shareholders, but maintained that the relationship with its partners works. Virgin Australia shareholders include Etihad Airways (21%), Singapore Airlines (20%), Nanshan Group (19.9%), HNA Group (19.8%) and Virgin Group (10%). Mr Sharp said the carrier's shareholders have been "very supportive" and bring knowledge and expertise, as well as codeshare and other relationships. The airline's Chinese partners have been "very important" to the development of Virgin Australia's greater China strategy. Mr Sharp noted that aviation is a global business and "relationships are important" with other international companies.

Kenya Airways group MD & CEO Sebastian Mikosz

  • Africa is a "very small market", "not really well known" and "not yet a mature market". He noted the market for the whole continent is "the size of Ryanair", with less than 100 million passengers p/a, and seven airports account for 88% of traffic. Mr Mikosz described Africa as "a completely different market" from other parts of the world, noting demand for business class products even on short haul 40 minute services. He forecast 274 million additional passengers in Africa in the next 20 years, but said the continent will remain a "pretty small market".
  • On... initiatives towards open skies in Africa: "I personally don't believe it's going to happen", due to the different financial structures of airlines and state ownership of airports.
  • On... the trend among African carriers to establish national carriers: "Every nation wants to have a carrier". Regarding West African countries, he said: "Every one wants to have a hub".

SriLankan Airlines CEO Suren Ratwatte

  • Colombo is going through an "interesting" construction boom, heavily supported by China companies, investment and labour. Mr Ratwatte noted that there are "thousands of Chinese construction workers in Sri Lanka".
  • Sri Lanka, the size of Tasmania, is "surrounded by giants", such as China and India. He also discussed his lack of clarity over the importance of China-Sri Lanka flows, stating "the only logical flow from China via Sri Lanka would be to Africa".
  • Traffic throws through to China are "fascinating" and "healthy". He noted that 90% of total traffic between China and Sri Lanka is inbound traffic of China origin, and 90% of that is leisure, with very little business traffic. He further reiterated that there is "very limited business traffic between my current hub and China". He stated SriLankan Airlines has a small part of this traffic, while Rupert [Hogg, Cathay Pacific CEO] "eats my lunch" on Sri Lanka-China traffic flows.
  • on the new Mattala Rajapaksa International Airport, noting that "nobody flies there" and it can be best described as a "white elephant", with the airport having a "very small" catchment area. Mr Ratwatte also noted that the "airport currently seems to be taken over by the AAI, exactly what I don't know", further reiterated that it "evidently seems to be the plan" for AAI to invest in the airport. He added that, in terms of some of the large China supported infrastructure projects in Sri Lanka: "Who the infrastructure was supposed to cater to, I really don't know". He however said that it has an ultimate "positive impact" for Sri Lanka, who is "not paying the financial price" for recent infrastructure projects financed by international capital.

Cathay Pacific CEO Rupert Hogg

  • Hong Kong has always been a "super connecting hub", initially with a maritime focus and, through CathayPacific, via air, in terms of passenger and cargo transportation. Mr Hogg noted that logistics, finance and tourism the biggest contributors to the economy and reliant on global connectivity.
  • Premium economy has been a "very good product for us". He added: "We haven't seen trading down to premium economy in the market". On the market for the product, Mr Hogg said the carrier is seeing that SMEs are using premium economy. He is also seeing demand from the "silver hair market", and in general, the trend is for people "trading up" rather than down.
  • The premium economy product "does best for us in markets" where the local airlines offer it and where it is a well known product, as passengers are aware and interested in the product. He said the carrier "made a conscious decision when we launched this product to really make it different in a physical since, in terms of pitch, product and service that you get relative to economy". He also noted that the carrier "learned a lot from Qantas" with their premium economy product.
  • Business class improvements have meant that demand for first class has "become more specialised and more focused". He said first class is for the "elite market", adding that there is still a market for this product, which is deployed "selectively by route".

LOT Polish Airlines president & CEO Rafał Milczarski

  • The potential changes in the process of slot allocation are not addressing the root issue of a lack of infrastructure. Airspace capacity also requires urgent increase or restructuring and must be aligned with airport infrastructure development.
  • On… EU carriers access to China: "Europe is a single, open market. Basically any European carrier can fly anywhere [within the EU], whereas China is more restricted". Mr Milczarski added: "If Europe shows openness to China, China should show openness to Europe".
  • On… China's Belt and Road Initiative (BRI): "For BRI to be successful it has to be multilateral and not necessarily bilateral". Mr Milczarski added: "If it's [BRI] really something to have a systemic change for world trade, it has to be multilateral".
  • The success of China's Belt and Road Initiative (BRI) European trade ambitions depends on the cooperation of China, Kazakhstan, Russia, Poland and Belorussia. Mr Milczarski added: "Europe is obviously a very significant market" and said BRI's success depends on multilateral agreements.
  • The freight opportunities of China's Belt and Road Initiative will be a "phenomenal game changer" for EU-China trade. Mr Milczarski added the development of rail infrastructure to support 10km long double decker trains, radio controlled and with a locomotive every kilometre, will effectively create faster and more efficient shipping lanes on land. Mr Milczarski is also a cofounder of Baltic Rail, one of the first private rail freight providers in Poland.

airBaltic chairman of the board & CEO, Martin Gauss

  • The carrier reached a decision to work towards the formation of a uniform fleet based on the Bombardier CS300 aircraft by 2020. Advantages will include operational simplicity, interchangeable pilots, same spare parts, longer range and higher dispatch reliability. The carrier's fleet currently includes eight CS300s. Mr Gauss stated the carrier is receiving positive feedback from passengers on the CS300 aircraft experience.
  • The Bombardier CS300 aircraft will provide 22% less fuel burn compared to the current Boeing 737 fleet. Mr Gauss stated the aircraft is a hedge for the future, where fuel accounts for 20% of operating expenses and fuel prices are unstable.
  • The deployment of a Bombardier CS300 aircraft on Riga-Brussels service reduced operating cost per seat by 57%. The aircraft increases sellable seats from 76 for a Q400 to 145. The carrier serves more than 70 destinations with Bombardier CS300 aircraft, including new markets such as Abu Dhabi, Almaty and Tenerife and new destinations such as Lisbon, Malaga and Bordeaux.
  • The carrier's Bombardier CS300 fleet will increase to 14 aircraft in 2018, 22 in 2019 and 50 aircraft upon conversion to an all C series fleet (80 aircraft with the inclusion of options).

Gulf Air CEO Krešimir Kučko

  • The airline aims to develop Bahrain International Airport as the fastest connecting airport in the region. The airport is developing its network to build a sustainable base for ultra long haul operations.