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CAPA Live June: Viva, CEO Felix Antelo "faithful to the A320neo"

Analysis

Talking at the CAPA Live, Viva CEO Felix Antelo spoke with CAPA's Senior Analyst (the Americas), Lori Ranson.

Viva Air is rebranding, to Viva.

- "to change the livery for a plane you need to give it to either Airbus or Boeing more than one year in advance, believe it or not"

- "The brand Viva Air wasn’t easy to pronounce for Spanish speaking people necessarily"

- "One thing the pandemic taught us was how fast demand can recover or can stall"

- "we have vaccinated so far 11 million people here in Colombia"

- "We have an obsession here in Viva regarding cost"

- "We have analysed the A321, but for now we will keep faithful to the A320neo"

Some of the key highlights can be found below.

LR: We're delighted to have Felix Antelo here with us. He is the CEO of Viva, which just rebranded from Viva Air. So congratulations on that. We're really happy to have you here. Could you just, to start off, talk to us about why is now a good time to rebrand and then set some new goals?

FA: We were working on the rebrand to Viva mid year 2020, but finally got our first new Viva Airbus livery at the beginning of the fourth quarter. The colour is a total depart[ure], so a brand new deal that['s] fresh, young and yellow. It is a very good uplift for the Viva brand and for our awareness. We are turning nine years old, so it was a good way to celebrate with a new era.

“It's great to be here and then thank you for having me. Look, it's been a wild ride, right, over the last 15 months or so. Many of the plans that we have, as Viva, were supposed to be executed at this time last year, on around mid year 2020, that included the rebranding and the new website for the airline.

"One of the many complications that this industry has, and everybody knows, is that to change the livery for a plane you need to give it to either Airbus or Boeing more than one year in advance, believe it or not. So we have been working on that for many months before, and actually our first Viva Airbus plane came at the beginning of the fourth quarter of 2020.

“So we have this new plane arrived with this new image, which is completely different, as you might have seen it. It's a total depart[ure] from where we were. We think that yellow is our colour to differentiate ourselves from local competitors here in Colombia and in Peru, number one. So obviously it's a brand new deal that's fresh, young, and yellow is a kind of a disruptive colour and blending it with our kind of fancy blue. Now we’ve launched it, we are realising that it is a very good uplift for the Viva brand and for our awareness. This new brand was officially launched only for 10 days now, but it has been amazing.

“Traffic to our website has increased by 50%. With this, we launched a new website where conversion rate has gone up more than 40%, and we're coming from a good conversion rate on the previous website. We're launching a new app. That's going to be communicated next week, too. How we can communicate with our passengers, not only from the leader of the plane, but from the graphic designs, it's a way easier brand to communicate. Viva is a brand that it's short, it's uplifting, it's easy to understand in Spanish and in English.

“So to be honest, we're delighted. The team is absolutely delighted. It was really hard to find a good timing during this year [2021] to launch it. We were supposed to launch it back at the end of March, beginning of April. And every week that went by from the end of March until the last week something happened, here in Colombia or in Peru. If it wasn't the third wave of COVID or the social demonstrations. You see more of social demonstrations where there are roadblocks, but this is Latin America as you know, and we are used to have to be very flexible.

“I think we've found the right time in the last week, which, by the way, we made it on purpose to make it match with our anniversary. We were turning nine years old here in Colombia. So it was a good way here to celebrate the anniversary of Viva, to start a new era on our history, going only to Viva.

"The brand Viva Air wasn’t easy to pronounce for Spanish speaking people necessarily. So this is more uplifting.  A new website, you can see it there above my head our yellow, blue print plane, so we're absolutely delighted with it. It's going to bring more awareness and bring people closer to our brand. This obviously is introducing sales, which is obviously that absolutely what we need. So far, really, really a great launch and I think it's a new starting point for Viva."

LR: You touched on the third wave and prior to this third wave happening in several countries in the region, Colombia was on a pretty steady path to recovery and Peru's recovery seemed a little bit slower, but it was on a solid path as well. Has that changed, or can you give us an update and what you see kind of in both of those domestic markets?

FA: Colombia had a fast domestic recovery from the pandemic. In Mar-2021 we operated almost 20% more seats than in Mar-2019. The whole market was almost 70-75% of the total market in Mar-2019.

Colombia was probably, it was one of the two or three markets in the world, domestic markets in the world to have a fast recovery. I think it's only being surpassed by Mexico.

"So we had a really speedy recovery here in Colombia. Up to March, figures were really amazing. Just to give you a number, Viva in March 2021, just two months ago, we operated almost 20% more seats than in March 2019, which is the comparison based month, because as we know in March 2020, the whole industry was shut down here, it was grounded due to the pandemic.

"We had the fastest recovery as a company in Colombia, but the market was operating by March. The whole market was almost around 70 to 75% of the total market of March 2019. And that was only again surpassed by Mexico, by Brazil in some good months, but Brazil had a peak and then it went down on the third or second wave.

“So Colombia was again in an upward trajectory, amazing recovery. Colombia is a country where you can move yourself from one point to the other. In most of the cases, you need to do it by plane. Geography wise, railroad wise, you have the infrastructure there."

One thing the pandemic taught us was how fast demand can recover or can stall. We were very fast to take advantage and put seats again to Miami for customers that were going to get vaccinated there

“Again, the trend was absolutely amazing until March 2021, end of March, then Easter came, which we had a good Easter. Exactly the last day of March, first week of April, we had this third wave that we were talking about and demand got hit. Amazingly, you know what? And this is one of the things I think the pandemic left us, many, many, many lessons learned, but one is how fast demand can recover, or can stall.

“And no one can go down, and how the demand stalled at the first week of April was amazing. No one saw that coming. Actually, we reacted pretty quickly, cancelling flights on those routes where we saw we were not going to pay on variable costs.

“I think we took some decisive actions. We did go out to the market, try to stimulate. We shifted away and took seats out of the domestic markets and put some of those seats on the international routes, mainly to the US, where we were starting to see an upward trend due to vaccination trends. We were very fast to take advantage and put seats again to Miami for customers that were starting to go and vaccinate there, and we were promoting that and that kind of compensated.

"When we were starting to trend up at the end of April, beginning of May, social demonstrations came, and roadblocks, and some of the stuff you might have seen in the rest of the world, and that was a new hit during the month.

“And towards mid-May-2021, we started to normalise on the COVID front. They haven't gone down, but we're at a stable level now. And the social demonstration have eased down, but they haven't gone away. We still have a lot of work to do as a country here in Colombia to get to back to normality.

"But we are now in a way better place than what we were three or four weeks ago. And people in South America are used to these kinds of events. So entering into the high season, July and August here, as we know it's a high season. It's not the peak season. Peak season here is December and January, but July and August is a high season."

When you combine the high season coming in, plus a stabilised COVID situation, demand started to peak. Next week we are launching Orlando, starting with three weekly flights and going to five weekly in July. We launched Cancún and Mexico routes, both full flights

“So when you combine the high season coming in, plus a stabilised COVID situation, plus a more stable social situation, your demand started to peak, to come back again, and start to be picking up both for domestic markets and for international markets.

"Not only Miami now, just to give you a number Miami, we went from flying one daily Medellín-Miami flight to flying now in June, up to four daily flights. That's the spike in demand we are seeing to Miami. We are launching, in the next week, the Orlando routes starting with three weekly flights, going to five weekly flights rapidly in July.

"Yesterday we launched the Cancún and the Mexico routes, both full flights. So what we're seeing is, again, Colombia going back on a very strong recovery line and being very optimistic really for the high season that's coming up. For the second half, sorry, of 2021 in general and for 2022, we are really bullish of what we think is going to happen when you combine vaccinations.

Colombia started very slowly back in February this year. When we started in Colombia, vaccination rate was between 20-30K per day. This week, we are having around 300K vaccines per day. That's every three days almost one million vaccines. We need to vaccinate 35 million people. That's around 70 million doses because mostly are two-dose vaccines, but we have vaccinated so far 11 million people here in Colombia.

"So that base is really picking up. On top of that, Colombians are flying to the US to get their vaccines, which is not a minor figure. I think it's going to be around more than one million Colombians being vaccinated in the US. But when you combine that, the local vaccination plus people being vaccinated outside, plus the high season kicking in, there are many reasons for you to be bullish and to be optimistic of what's coming up for Colombia."

LR: And what about Peru? What's the situation there?

FA: Peru had a very long lockdown and was one of the hardest hit countries by the pandemic.  On top of that there are elections, so there’s a lot at stake

Peru, I think it's a different story. It's a much more common story. It's way more related to what happened in the rest of the world, in the US, Europe, rest of South America, with the exception of Mexico, Colombia and Brazil.

"Peru, with Brazil and Argentina, is the hardest hit country by the pandemic, by COVID in this continent. Until now, Peru has the highest death rate per capita, per habitat, in the world, and now that is official. Since the start of the pandemic, Peru went into a full lockdown mode, way more than any other country in the region, way more, and not only because of what the government's mandated, but how people reacted.

“People didn't leave their places. Lockdown was very long. We even had another lockdown this year in February because of the spike in cases.

"On top of that, we have elections. We had the first round a couple of months, second round is this week. That creates a lot of uncertainty on top of COVID, which is now more stable. Airport slots were way more constrained. Our operations to airports were way more constrained. So Peru is in a more normal kind of situation, we are operating around 40-50% of what we used to operate pre-pandemic. That's been pretty stable in the industry around that level, too, so for Peru I think it's a whole different story.

“I think it would take more time to get out of where we are COVID-wise. Crossing fingers, to have set some good results with the election that Peru keeps the trend of an open economy and a market-oriented economy that has been the case for the last 20-25 years, and which made Peru one of the fastest growing economies in the region. But there's a lot at stake. I have to be honest with you about that. That election result will be very important.

“Vaccination wise, Peru, is way slower than Colombia. The good and the bright spot is that Peru now has bought the vaccines for the second half of this year. So it's going to be more one of the logistics deploying the vaccines, more than having the vaccines.

"Now, starting this month the logistics and the infrastructure issue comes into play, so we'll see. There's a lot at stake in Peru with the election. So as you might imagine, we are all pretty, pretty nervous about what's going to happen down in Peru."

LR: Well, we'll keep our fingers crossed, definitely. Maybe just to move on to something a little bit more positive, with the hub in Medellín. That would be sort of the interesting move for a low cost carrier, but more low cost carriers are establishing hubs. So this is something strategic, you all were considering pre-pandemic, or was this accelerated by the pandemic, or did this idea spring from the pandemic?

FA: We have a huge advantage geographic wise being based in Medellín. With the A320neo we are able to fly from New York or Toronto to Buenos Aires with one stop in Medellín. That helps us to lower our costs and we are the only low cost carrier doing this, so we have fares 30-40% lower than our direct competitors

“No, to be honest, we were seeing this pre-pandemic. I have to be very honest about that. For me, I just completed three years with Viva. I was brought in here in May-2018.

"When I got to Viva, we had a privileged position, geographic wise. Being in Colombia and emerging on top of that, having our home base here in Medellín, not in Bogotá, I think that's a huge, huge benefit and advantage geographic wise. With the fleet that we have, the A320neos coming in, which they started to come in last year and they're going to be 35 of those by 2025. With that plane, we are able to fly from New York or Toronto in the north to Buenos Aires in the south of the continent with one stop here in Medellín.

“Obviously, that gives us a lot of advantages, utilisation, red-eye flights. It helps to lower your cost. It's going to turn us into the only low cost carrier doing this. We have competitors obviously, but they don't do it at a low price. I can tell you that.

"And not only low cost and at a low price for the customer, to being able to do those flights and to operate that with keeping our costs down and offering fares that can make us profitable and be between 30-40% below our direct competitors. It's something pretty unique. We didn't do it before, because we didn't have the plane. Now, we do have it, which is the A320neos.

“But this is not that Viva is changing their strategy and not being more low cost; still our focus and our main focus and main market is going to be domestic Colombia, where we have 70% of our seats. It's almost between 70 -75% of our seats are in domestic Colombia with [a] high utilisation fleet.

"And it's not that we are changing our whole network to fit into our hub. It's on the contrary. Now we start feeding these international flights going from the south to the north and vice versa, feeding from the rest of Colombia, not only for Medellín. And now we're going to talk about Medellín in two minutes, but feeding not only from Medellín passengers, but also from the rest of Colombia, Bogotá, Cali, Barranquilla.

“So you get a feed from the rest of Colombia, last Medellín, which is the mid to big city, the catchment area of Antioquia, where Medellín is located. It’s the second biggest city in Colombia.

"On top of that, you put on the Peruvian flights, which actually today was the first day when we have this connecting flight Lima-Medellín flight, leaving Lima at 5:00 AM, arriving here at 8:00 AM. From 9:30 to 10:30 passengers connecting to Miami, to Orlando, to Cancún, and then more destinations will come. The same happens on the southern trajectory, where the passengers arrived here between 7:00 and 8:00 PM and they depart south at 10:00 PM. So, when you combine them and you put on top of your domestic network, these international flights, and you start building a hub here in Medellín – we think it's absolutely a winning idea.

“We see more profitability with this. We see a lower cost on international flights; as you know, ancillaries are way higher than in domestic flights. Our domestic flights here are only 45 minutes long, 50 minutes long on average.

"Obviously, if you want to get high numbers of ancillaries on such a short stage length is not easy, but we are getting to a CASK between domestic utilisation and domestic flight and this new international flights, where we will have a very, very competitive cost and we will be able to fly at very profitable levels, offering really good prices to customers, definitely on something which is new, which is kind of ground-breaking, a low cost connecting the continent.

"But if you want to save between 200 and 250 bucks per passenger on a, let's say, Lima, or Buenos Aires, Cancún flight. When you're [a] family of four, that's 1000 bucks. It's a pretty substantial saving, flying on time, flying on the most modern fleet of Colombia and the third most modern fleet of the whole continent, and we think it's a very good value proposition for our customers."

LR: Now, you mentioned cost, and I know that you all have a stated goal of becoming the lowest cost per passenger in the world, which is very, very impressive, very ambitious. So, how do you get from now to reaching that goal? How long does it take?

FA: It is ambitious to become the lowest cost per passenger operator in the world, but I think it is achievable. It’s not achievable with a fleet of 21 aircraft, but we will be up to 40-50 aircraft by 2024-2025, and scale helps you to drive your costs down. We are very focused on productivity

“It is ambitious. I agree with that. Absolutely. It's really ambitious, but also I think it's achievable. It's not easy. I mean, when you compete, obviously with way bigger airlines, when you compete with some Asian carriers towards the cost base, there is cheaper even than in South America; it's not an easy vision to accomplish, but I think we can achieve that vision.

"Obviously, it's not achievable with [a] 21-fleet airline, that we will be at the end of this year, but it's certainly achievable when you start thinking 40 aircraft up to 50 aircraft, where we will be between 2024 and 2025. It is obviously scale, helps you a lot driving your costs down. It's not only about scale. Then you have to focus on productivity measures, department to department.

"Right now, we're going to end this year at a very competitive cost level. When you convert yourself to rest of the top world or class world low cost in any continent that you might want to think about. We're going to be competitive again with 21 aircraft. When you think about new Viva, let's say 2023, 2024, we will be around 40 aircraft. I think we will be able to achieve that. Competitors will also do their jobs, so then they will lower their cost, but it's a nice goal to set within the team. We have an obsession here in Viva regarding cost.

“Hopefully, sometime you can come around and see, but I think we have the right fleet. I think in my opinion, the best aircraft in the world, which is the A320neo.

"We have high utilisation. We already know without these new international flights that are coming in, we're going to have more utilisation and when we launch this red eye flights flying throughout the continent. We are based in the region where the cost basis is way lower than, let's say, the US or Europe.

“And we are very focused on productivity in general. And I can give you an example is our webpage, we were talking before about our web page, we talked about how conversion rate grew more than 40%, but also, we will say in terms of cost of keeping the webpage or maintenance costs by more than half a million dollars. And I don't want to bore you, but on every single department, we are focusing on that same kind of level of detail. And we are aiming to have the lowest cost in the world. We have to talk in two years and see if we have achieved that. But I think we have a very good shot at it."

LR: Well, and as you kind of build up this network, from this hub, that's growing and growing, does the second fleet type make sense or does that create challenges in meeting those cost goals?

FA: We have analysed the A321, but for now we will keep faithful to the A320neo.

“I think it's a very good point. We've analysed very thoroughly the A321; I have to say for now that we will keep faithful to the A320neo. We didn't see really big advantages in transitioning into a[n] A321, which is kind of the logical next step, if we want. So, for now, we were very focused and we operate the A320s."

LR: So I think that we are bumping up against our time, unfortunately, because I could ask you a million questions, but thanks so much for joining us today.

FA: “But it's a pleasure. It's a shame. It's a pity that it went by really fast, but thank you for your time for supporting Viva. And hopefully, I can see you in any time in one of our planes.” 

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