CAPA Live: flyadeal frequency back to 90%; int'l "this year"

We turned three years in Sept-2020 and we were about to reach a 10 million passenger milestone when the crisis hit

"Pre COVID the reason flyadeal came about is the Saudi Group saw a white space for a true low cost airline in the Kingdom. And I would say in the region, in the Middle East there is a little bit of a dearth of the type of low cost models you see so prevalent and having created such significant market penetration in places such as Europe and the Americas and the East Asia and around this region, not as much yet. And so - white space to grow into, coupled with a new vision and strategy for the Kingdom out to 2030, which is very ambitious, aggressive, and certainly needs infrastructure and transportation to keep pace with that. Otherwise, they'll never deliver on the kind of numbers that they would like to achieve by 2030.

"So here we are, flyadeal, we turned three in Sep-2020, so we're still a young airline. We bolted out of the boxes in late 2017, on National Day when we started services and very quickly grew to 11 new Airbus 320ceo aircraft. We've stalled a little bit since then, partly because of a change in [our] sort of narrowbody direction in 2019, which slowed down our ability to take some more aircraft quickly.

"And then in 2020, where we'd hoped to grow quite aggressively in terms of fleet growth and destinations, it didn't eventuate because of the crisis that we're living at the moment. And we're still not really sure when we'll completely get through. So perhaps just to sum up where we've got to be over that three years.

"So today as we stand with 12 aircraft - we took our first neo last year - we're about to reach a 10 million passenger milestone in terms of the number of people we've carried. We still are a domestic operator, but we do have designs on being international sometime this year. So domestic, and we've become in that timeframe the second largest airline domestically, which really for the period we've been around is really quite an amazing feat. And a testament to the market really being ready for a true low cost product and the public taking to it."

We started flying again in May-2020 and we still have onboard restrictions, but there is a robust appetite for domestic travel, including business travel. We are now back to 90% of frequencies from before the crisis

"There's been no playbook for what we've lived through in 2020, and the world has had to innovate and adapt and be really agile considering the dangers being faced in terms of how you... Well, I guess as a humanity, but also as a geography and business as well, we were no more or less immune than anywhere else.

"We went into a complete lockdown in late Mar-2020. It started being internationally locked down. That was I think about the third week of March, and not even a week later we became domestically locked down as well. So all flights into and out of the Kingdom and domestically in the Kingdom and all public transportation ceased effectively overnight, and that lasted for about two and a half months domestically; on the 31-May-2020 we were allowed to come back domestically. But just before I get to that period, I think in that lockdown period, it was quite severe.

"And we had curfews; people couldn't travel more than two kilometres from home base and lots of measures that you saw in many parts of the world. The Kingdom moved quickly and swiftly and quite conservatively in terms of the measures being adopted. And really, I think the tremendous results and low COVID statistics we've had here since last year are a testament to those measures being appropriate, as much as they might've been frustrating from a business point of view and other points of view where people are really avid travellers here, for example, and to be completely locked down to something is quite foreign here locally, so we had to get through that period. Conservatively, domestic flights were re-introduced at the end of May.

We've done remarkably well in a very, very difficult environment, to the point where flyadeal has kept its full staffing through the crisis

"We had COVID measures, we still do on board. In our case as a narrowbody operator we're not allowed to sell the middle seat and on the widebody flights they can't sell a seat next to a seat sold.

"And so there've been onboard restrictions. There's obviously been measures around airports themselves and how you flow in and out through different checkpoints and the like, and the airports were slot constrained. We were only allowed to come back to 20% of the frequency in the beginning and that's progressively ramped up. So it's been a slow introduction, but remarkably, what we've found is a very robust appetite for domestic travel.

"Business came back, religious traffic was still depressed because the main religious sites over on the side of the country we live in were still closed. So initially it was business and interestingly a development of a domestic tourism business, given people couldn't travel internationally. And so fast forward about a year on now we're back to, at least in flyadeal's case, to about 90% of the frequencies we were doing before.

"And since day one, actually through that build-up our flights have been full. The seats we're allowed to sell we fill, and that's not just our experience, but it's the other local airlines experience as well. It's been a very robust domestic market. And in our case we're blessed in that we were just a domestic operator pre the lockdown. We hadn't embarked on an international journey nor have a significant portion of our fleet that was dedicated to international.

"So we've done remarkably well in a very, very difficult environment, to the point where flyadeal has kept its full staffing through the crisis, kept everybody employed and kept everybody busy. And we're very fortunate to have been in a market, and an operator of the size, that we've been able to achieve that, so we're pleased. We're looking forward hopefully to some brighter skies ahead this year, but it's still a bit early to tell."

It's a very late booking market generally, with people typically booking within seven days. Jeddah-Riyadh is one of the busiest routes in the world, and that has come back strongly

"We have an unusual a booking pattern here, certainly compared to other parts of the world before coming here; it's a very late booking market that was the case in normal days, remarkably so. So I look at the European airlines and what they generate in sales ahead of a summer season around this time of the year, we could only dream we could sell that far out here, it doesn't happen.

"People typically book in the last seven days and a big chunk of that comes in the last three or four days. So that behaviour has come back and it's not a surprise, it's what we were used to. So it's fine, and that's at least pleasing to say. So in that sense, it's come back in a normal behavioural sense. In terms of where people are travelling to Jeddah-Riyadh is one of the busiest routes in the world travelled. And that's come back very strongly and that's been driven a lot by business size, but also we've had some local events as things have become a little more stable in the latter part of last year and the numbers were way down.

"So we had some events that were moving around a little bit of tourism. I think the routes that have come that are new routes are really tourism driven ones - so again, were the international options for some domestic tourism through some of the holiday periods, the summer holidays last year, the public holiday breaks. There's a significant holiday period at the end of the year here as well, albeit it's sort of winter, so to speak. People were exploring domestic destinations and the demand for those destinations became year round as opposed to a little bit seasonal, which was very pleasing to see."

We do have designs to go international and originally planned for the end of Jan-2021, but we pushed that back to summer. Even in a COVID environment, the world will progressively move towards bubbles

"Our sister company, parent company, has a substantial widebody fleet and you can't really deploy that domestically to a great degree. And that poses obviously far more significant challenges than what we have as purely a narrowbody operator, and obviously a significantly smaller fleet as a young airline as well. So we're blessed in that sense. We do have commitments for aircraft, and we start taking from our direct order book with Airbus neos from April this year, and they're coming relatively aggressively over the next two years and actually into the next five or six years. And we do need to find more flying for them. I think insofar as a chunk of that going into the domestic market, we're not too stressed.

"And I say that because albeit it's a very material breadth of flight dealing in a context of an entire domestic market and a large sister company and another airline here, it's a relatively manageable proportion of that. But we do have designs to go international and they were originally for the end of Jan-2021, we pushed them back to summer. And right now I think there was an announcement in terms of travel plans, international travel plans and restrictions being pushed back a little bit into May. So we will push those plans to May or June-2021, but we see opportunity.

"And I think even in a COVID environment, I think the world will progressively move towards bubbles. We have had some relaxation in terms of international travel into and out of the Kingdom, business [has been allowed to come back in, expatriates living here have been allowed to leave and be able to come back as well.

"And I guess most people are probably not going too far away. And we really see those bubbles being predominantly within the region in the early days. And then depending on the speed of getting past the pandemic and enough people being vaccinated and the like, longer haul we'll be a little bit further away. But having now international operation, we can turn our sights to being relatively within the region and that's a logical place for us to start. So we definitely see with the fleet we have coming this year, we will embark on international during 2021 and it will be relatively close to home to start with."

There will be significant overlap in routes with our sister airline, but because of different customer demographics, we see a role for both of us

"Obviously that parent legacy airline low-cost start-up relationships and examples are plenty around the world, and no one follows exactly the same model. Different models are successful in different environments, so we've had to chart our own course and see what makes sense for our group here.

"Frankly, all the routes we fly today domestically, our sister airline also flies. And we're not finding really any cannibalisation to speak of because we cater to a different market demographic. The sister airline is definitely a premium five-star airline. And we're not trying to be something that's a bit of a both or a hybrid, we've really pitched ourselves at the true low cost end of the market. So turning that attention to international, we will be taking and we have planned a similar approach to look to that.

"So in other words, if it's a route that's really a premium airline route and there's no role for low cost there, we wouldn't go near it. Where it's pure low cost we'll obviously go, and there are places our sister airline does not fly that in the future we will fly to, that will be, if you like, virgin territory for the group.

"But at the same time, we also see a significant overlap in routes that the sister airline has flown historically internationally and will go back to. But again, because of the different market demographics and the customer demographics that we see a role for both of us in those markets. So there'll be a significant degree of overlap both internationally in the future, as well as domestically."

We have A320neo future deliveries which will facilitate growth and they are more fuel efficient, which translates to lower fares for the customer

"We were blessed to kick off the airline with brand new -ceos. So our oldest ceo is not even four years old, and then the youngest is around two. So a little bit early to exit them from the fleet; they are great aircraft and they've been doing really, really well for us. And really with the growth profile we have planned for the airline, we actually need them. If we went for a one for one replacement at this stage for a really small airline it would keep us really small. And we do need to get some more economies of scale in the business; it's always been the plan, the market is there both domestically and internationally.

"And I know the issue will be another tough year for us, but hopefully we'll be looking certainly from a domestic and a shortfall international, I think to a better 2022 ahead of us. But those future deliveries will facilitate that growth that we still seek. I think our original plans, pre COVID and pre change in narrowbody order we would have been perhaps a 30 aircraft airline today, instead of 12 already. So we've got a lot to make up for and make up for it as quickly as the market is coming back. So they'll fly alongside each other and the ceos will probably exit our fleet roundabout 2025, 2026 somewhere there.

"So obviously from a performance point of view, one of the most significant differences is the fuel cost and having our first Neo in the fleet, we're seeing even in really short haul sectors which Saudi domestic is that that aircraft really has very material fuel efficiency relative to the ceo. So that's a positive from the business point of view.

"Lower costs translates to lower airfares for the customer, so there is something in it for them as well. From a product on board point of view, because obviously with configurations, you can do different things, still playing down that DNA of being a true low cost airline. We're all about maximising the density on board. Our ceos were one of the few that were delivered in 186 seats. So we've gone for that Space-Flex galley, we have that extra row we always have had, that same one 186 seat count will carry through to the -neos."

The interior of the new aircraft will be different to what we're flying right now, new seat concept, new not number of seats, but a new look and feel inside which will be the long-term flyadeal brand

"But being our own order book we've, for the first time, been able to sit down and look at the interior of the cabinets and say, what do we do want to do with seating? What do we want to do that's really a flyadeal personality as opposed to aircraft that have come from the lease markets and a bit traditional. And there's been some interesting developments in terms of interiors over the last couple of years.

"So I don't want to say too much yet because we'll do that closer to the first delivery of the aircraft, but the interior of the aircraft will be different to what we're flying right now, new seat concept, new not number of seats but a new look and feel inside which will be the long-term flyadeal brand. And we're really excited about that actually it really brings some significant comfort innovations, particularly in the area of the seating we've selected for the new aircraft. So looking forward to see ing the first of those aircraft in April this year.

"I think [in] the sort of short medium term we will be staying a little bit closer to home on the international front. But we've mapped out a mid long-term view market potentials for starting with the 320neo to be honest with you, and then looking at the 21 and the 21LR and a 21XLR preliminarily. And there are markets out there, which I think that size aircraft makes sense for. I think if you start getting five, six, seven hours out it's a thick market, you'll struggle to compete with a widebody, but there are thin markets out there, which I think from a Saudi Arabia point of view and the Middle East, GCC point of view, are relevant and could be interesting.

"I'll give a little bit of way to say that the vast majority of those we can deal with are either the A320 or A321 or A321LR, given geography. The extra range the XLR offers, I think depending on where you sit geographically in the world and the missions you need to fly, I can see why it's a fantastic aircraft for some airlines. At this point for us we're not sure whether it's marginal or whether an LR would be good enough, given where we sit, and how far away we would like to go from Saudi Arabia from the bases we have here."

Con Korfiatis, CEO of flyadeal, speaking at CAPA Live, 10-Feb-2021

We've always said we're a digital first airline and to be as touchless as we can. We had to close the call centres, but we have built the mobile app and we're looking at onboard mobile technology

"Some of our launch business model has played into this quite well, just fortunately, not through good planning because no one could have foreseen what came last year, but we've always said we're a digital first airline. So we launched in the market purely digital marketing, purely digital acquisition, a robust internet booking engine, a robust mobile booking platform and really trying to be as touchless as we can. More than 60% of our bookings come through the mobile app, people can download their mobile boarding pass and use that at the airports and scan. And we don't see them at the check-in desks unless they've got a bag they want to drop off. And a big proportion of our customers do that; they go straight to the aircraft, we don't see them in the check-in area."

"We've had that kind of technology that we've played on, and we've led that way. We've moved technology, particularly through the lockdown last year. We've innovated in other ways, in terms of the customer front technology around how we deal with the call centre, a lot of self-serve options being available. We had to close the call centre, so we thought - how do we keep some semblance of that going to the extent that we're servicing our customer needs? And we did that through building them the mobile app.

"Our customer engagement centres we call it, because actually it's multipurpose, it does quite a few things, not just a call centre. Our staff can work from home permanently, and we've put all of that technology in place. I think onboard the aircraft for a period of time, we've removed on-board catering; we're looking to reintroduce that.

"We're looking at some technology where we sell through a mobile platform on board as well, so it becomes cashless. People aren't picking up magazines and brochures to read through any more, that'll all be digitally, so we're moving down that track. You spoke about COVID measures - perhaps just a little bit to touch on that as well, outside of not selling the middle seat, the aircraft is completely sterilized on each turn, actually after every sector, not just at the end of the day. And our crews we've got them appropriately PPE'd in masks and glasses and gowns and the like, and all of that stuff available for our customers on board as well.

"I think I see some more developments coming in the era of the airports, the airports here are finally being upgraded, we've got a beautiful new terminal in Jeddah. Most of the world doesn't know about it because it wasn't open for that long before we went into COVID, but in time people will get to know it."

There's more being invested in the airport infrastructure around the Kingdom, with some big new terminals in the pipeline. The airport operators are actively engaged with us to ask what is it that we need

"And there's more being invested in the infrastructure, the airport infrastructure around the Kingdom and some big new terminals in the pipeline as well in different parts of the country. And that's really exciting, and I know because we're engaged with the airport authorities around just how much they want technology to be a driver through the whole airport experience. So we're coming from a little while back, but we're going to be applying some catch up pretty quickly, but we aren't seeing the fruits of all of that yet, but it is coming soon.

"Historically, without a full DNA low cost airline in the Kingdom, the airports have never really looked at themselves and said what does a true low cost airport terminal look like? Or a section of the airport or the model? Until the new Jeddah airport terminal opened, for example, we never even had aerobridges; it was bus gates to everybody, regardless of what style of airline you're flying. So that's changed dramatically, obviously.

"The airports that are existing haven't really been designed with this model in mind, as I say, being a new model it's unlike Europe and others that have had them for 20 and 30 and 40 years, and you have had airport development in that timeframe for it to start to evolve.

"But the positive for us is the airports, the regulator, and all the airport operators in the Kingdom are very actively engaged with us to say, what is it that you need? And we do have improvements and changes and additions in mind on new terminals coming along. What do you need for your business model and how many aircraft do you see it having?

"And we're planning all of this jointly. One of the really nice things I've seen come out of the Vision 2030 programme for the Kingdom is a strong one, the whole aviation ecosystem together to think as a family unit. And therefore everyone is equally motivated and energised by how does the whole thing come together, because it's about team Saudi Arabia selling itself to the world.

"And if we're disjointed and people come and have the wrong experience, that's not the impression we want people to have when we're looking at that side of visitation numbers we want to ultimately drive to. And we want to deliver and will deliver best in class, and a seamless experience in terms of the different models and the different airlines and the different terminals and the like. So it's all ahead of us. There's a lot of work to do, but that's part of the excitement of being here."

COVID has taught us a profound care for customers, in ways we never thought we'd have to think about our customers before. It's driven agility and accelerated automation

"Let me try and do it in a little bit of a nutshell. A more profound care for customers, than perhaps more in ways we never thought we'd have to think about our customers before, that's one of the most telling. I think the same applies in terms of a profound care and duty of care for our people, our staff, who have gone out there and been at the frontline and provided a required service to keep the world going in the economy. I think certainly agility. We've always said this airline... I remember a former CEO I worked for at one of the major global airlines years ago had a term he used to like to use, which he called the constant shock syndrome. And that's been a factor in aviation ever since there's been an industry, I guess we've taken it to a whole new level during 2020.

"So it's driven the agility to a level we've never had before to improvise. It's certainly accelerated automation. And I see that now, we're not going to step away from that as an industry around the world. There were parts of the world that were pretty [much] on that front anyway, others a little bit less though.

"But it's forced all of us in the whole industry, I think, to get very much on the front foot of automation. And whatever we thought we would do over a one to five, eight year, 10 year life cycle, we now want to do it in three months, six months, a year, two years, three years. So I'd say certainly they're the key things."

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