2020-2029 The Golden Decade for Airline Profits

Transcript

Peter Bellew:So I'm on the graveyard shift. So half the room is thinking, will he be quick because we want to go to the bar? And the other half is thinking, we're going to dinner, so will you be quick because we want to get changed? So I think we have 20 minutes. That's it. 20 minutes. I'm gonna talk for about 10 minutes roughly about how I maybe see the future and maybe some things that are positive for the industry that are going to help us, that are external to the industry right now. And then I'll do the promotional pitch for Malaysia Airlines for a few minutes as well. So you have to bear with me. I think the next 10 years of our industry is actually going to be shaped by people who have nothing to do with the industry and have no plans to have anything to do with the industry. I think the biggest determinant other than aircraft costs for most of us, the biggest determinant is the cost of fuel. And my personal belief is that the work being done by Tesla, who I think won't be the company that will profit in the long term on battery technology and renewables, I think the autonomous cars development that we're seeing, and I do think that will be a reality by 2025. And then I also think the massive investment that's taking place in renewable energy by the likes of Goldman Sachs and Morgan Stanley and the investment banks and sovereign governments is going to lead to a situation where we'll see a sea change in the price of fuel. I think around about late 2019, 2020, we'll hit an inflection point with the usage of oil. We'll also see that the renewables will be there, that it will be coming on stream in big, big, big numbers, and that will lead us for the next decade, 2020 to 2029. I think we're going to see oil stabilizing at around about $30, $35 a barrel. That'll have an impact on the cost of construction of aircraft because a lower price of fuel and a lower cost of the fuel byproducts will mean it'll be cheaper to manufacture the composites And just to manufacture aircraft. I think also the artificial intelligence that you're seeing around and the rapid developments of autonomous vehicles, I do believe some of that technology is going to progress in the next decade into aircraft. I don't think you're going to see one-pilot aircraft, but I do think where you see at the moment 4 pilots on some of the long-haul aircraft, I could see that going down to 3 or to 2. And I can see the way that they're managed and the hours they're managed and over the next 10 years some extension to the hours that they'll be allowed to operate. On overflight costs, the rapid development of performance-based navigation. I won't go into the technicality of that, but basically for people in the room who are non-technical, it'll mean there'll be much shorter routes to fly in and out of airports on the final approach. And also There'll be more availability of airspace because there'll be more efficient use of the airspace. And then around maintenance, we're starting to see this the earliest area to benefit from the technology. The 2 principal manufacturers are getting much, much better at using the data streams coming off aircraft to use predictive analysis of maintenance that needs to be done. And the modern aircraft generally are now starting to prove to be far more reliable. All these things together, I think, leads to a golden decade of opportunity for us to actually start making somewhat— some money. And maybe structural shifts in the Gulf carriers will also play into that, but that's a little bit more difficult because there's a geopolitical situation around that. Fuel, 1807, you wanted heat. You wanted to do something, you want to make something, you need to have wood. You chopped down forests, you dried wood, and you cooked with it, everything. 1857 saw the inflection point for coal, and 1937 the first oil wells were found and developed in Saudi Arabia. So it's not that long ago that we were reliant on, on wood, and 2020 I think is where the renewables is going to kick in. The cost of panels, solar panels, has dropped by 98% since 2008. In Ireland now, it's cheaper to install solar roof tiles than it is to buy traditional shale tiles. And in terms of solar, this year it's the first year that the number of gigawatts that's come on stream for electricity generation from renewables has exceeded all other energies put together— coal, gas, oil, etc. And China, from their premier, it is absolutely the dictum that they are investing massively in renewable energies. They're building 3 cities right now at the moment that'll be on stream next year that are just producing renewable technologies, and the cost is going to go down and down and down. And the battery technologies will come on stream in the next 3 or 4 years, and the Chinese are investing in a multiple much greater than Tesla could ever have imagined, and it must be frightening for them at the moment looking at it. And you're going to see it here in South Australia with— they tell me within 90 days they'll have developed a vast solar power battery storage farm here That'll be one of the first proofs in the world of how this will work. So the solar roofs is real. It works everywhere in the world now, the renewable energies. Autonomous cars, it really was science fiction stuff up until maybe even 18 months ago. A very good friend of mine is chief designer in California for BMW. He tells me every effort of that company is focused on developing autonomous cars. The auto industry have decided by pretty much by 2025 every single vehicle will have the sensors on board to be an autonomous vehicle. And it'll take time because there's only about 100 million cars produced or vehicles every year, but it'll take time for this to filter through. But what will happen very quickly in areas like Asia— ridesharing is really, really common now in Malaysia. Very fast adoption. 2 years ago, nobody really used it. I would never have touched it myself. 4 times last week, I took out the phone, I clicked on GrabCar. 2 or 3 minutes later, the car came by. There was somebody else in it. I didn't care. The guy dropped me off where I was going, was there instantly. That's amazing. I was disintermediated. I didn't even care who the driver was, what the car was, what was going on. Autonomous cars seems like science fiction. It will happen. And most people in the developing world couldn't care less, guys, if it's an Uber Black or an UberX or an Uber whatever else it is. They just want to get from A to B. So oil demand will drop. It is going to happen. It's not a matter of If it will happen, it's, is it 2020? Is it '21 or '22 or is it '19? But it's going to happen. In 1903 we started the industry with the Wright brothers and if you asked anybody in 1903 would we put a man on the moon in 1969, they would have locked you up somewhere. But that's the progression, it's going to happen any faster. Selling seats is going to become much easier from a technology point of view. Artificial intelligence. Some of the airlines I visited over the last couple of months, their customer service is now being run by chatbots. It's very, very effective. It works really, really well. The chatbots are self-learning. The chatbot can process a customer's query 7 times faster normally than a human can do. And with a lot less attitude and emotion. Late at night. I'm already seeing— I've been a geek and a hacker since I'm very young. I'm already seeing, because I'm plugged into so many new technologies, I'm already getting airlines sending me predictive messages and booking engines telling me, you're going here on this date, this is the flight you should be taking. That's gonna happen. Voice search is gonna become very common. Distribution costs are just going to drop. And somebody will come up with a new GDS that will cost much less than the rest. And maybe it'll be new adopters that'll get it. We all pay mostly 1.5% to 3% credit card processing charges. Blockchain payments, Bitcoin probably won't be there anymore, it'll be something else. And maybe IATA should have set up its own blockchain payment system by now. Yeah. So we don't pay any costs for processing payments. But that's going to happen. Virtual reality would help. And the mobile has far faster seen adoption for e-commerce than we could have expected. Facebook announced last week that 87% of all their traffic is through the mobile device now. And they've also been able to put up their charges for advertising by 24% in the last quarter. Thank you. Now artificial intelligence, if you read the papers, it's a great buzzword and people talk about it. But of course revenue management for airlines has had artificial intelligence for 40 years. So it's not so new, but we'll see it advanced. And selling seats. The first mobile handset, you know, if you doubt that some of these changes will happen, the first mobile-enabled phone was in the year 2000, the Nokia 7110. The handset cost $399 in 2000. So I guess it would be $1,000 now. And 2010, we saw Vueling was one of the first people to have full mobile check-in and everything. These things happen fast. And we need to keep up with it. Because if we don't keep up with it as an industry, we will have our bread and butter stolen from us by the technology companies. The market is going to play into our hands. If we do nothing, If we just do nothing even, there's a billion people in the world have passports today. And within a short number of years, there will be 1.7 billion people will have passports. Another 700 million people in the world would have passports. They'll want to travel. And China, it is breathtaking to me to see the growth in the number of people traveling. where they're traveling to, how they're traveling, how often they're traveling, and what they want to do when they get there. And we have been very, very poor, all of the airlines outside China, in having our websites and our staff addressing this marketplace. A small number of airlines are getting their act together around this, and they're going to do very well and make a lot of money. Because my personal experience has been the Chinese authorities actually are very open to other carriers from around the world operating in their marketplace. As long as you show them some proper respect, which the trend is among many of my colleagues is that we don't. And a lot of these people who are traveling, these new market people, they've never heard of a global distribution system or Apex Tickets. They don't have any of this legacy thinking that we have around here. They just want to buy a seat on their mobile phone in under a minute and not get get caught up in all of the complexity that we generally have created for them to do the transaction. That's a graph which is impossible to read because it's far too small. But I always feel if I don't put in a graph like that at an event, people would think I didn't put any effort in. So Malaysia Airlines, I cannot thank the travel trade and all of our colleagues in Australia enough for the support that you have shown us over the last 3 years. We went through a very difficult time. You could have just run away and, you know, did your business with anybody and everybody else, but you didn't. And I'd like to express on behalf of the family of Malaysia Airlines staff our genuine and sincere gratitude to you all for sticking with us over the last few years. Thank you. We're getting our act together and things are starting to go really well. If you've travelled with us recently, you'll see we've got lie-flat beds on the widebodies. We have— the food has improved dramatically. We used to have 20-year-old documentaries on the IFE. We got rid of them. We've got very good IFE experience now the last couple of months. We've got much better on on-time performance. We've got much better in terms of not losing your bags. Unfortunately, a few years ago we were the world champions in losing people's bags, but we've lost that title now. So our mission has been to be back to being a premium 5-star airline, whatever that is. And really just to cater to a market for about 15 million people and show good old-fashioned Malaysian hospitality. And I think there's a great market out there still for us to do that. And that's been proven by the results over the last 12 months. And a little bit of what we're trying to do is put back what my mother beat into me when I was very small. You know, when I was being mean or nasty to either one of my siblings or saying a word out of place, she said to me, what have I told you, Peter? What's the golden rule? And I'd say, Mom, treat people as you wish to be treated yourself. And that's the way we're trying to do. We have some very complex policies that we're trying to get rid of around the place and it's going to take us time, but that's what we're trying to do. The plan is around the 4 Fs. It's about flying smart, getting the funding right, fixing it, and the family. In terms of fly smart, we're flying some new routes. There's some great expansion in China to some new airports. We're doing it with proper value fares. We're stopping doing some stupid things that lost us money. Just today we've, we've pulled back this month of August. It's all planned. We've taken 6 aircraft out of our domestic network. We're redeploying them internationally. But we were losing a lot of money on some domestic routes. We were flying ridiculously intense schedules with multiples of flights that we should never have had because we thought we were competing with low-cost carriers. But that wasn't our business. We're filling up the planes. We've apologized to the trade. We went out of our way a number of years ago to try and direct bookings to our booking engine to try and avoid the travel trade. We've done an about-turn on that and we're committed to supporting the travel trade because full-service carriers need travel agents. And that's the way of the world. We're not going to unbundle things because I think too many people are doing that and I don't think it works in our part of the world in Asia. And we've just installed— we've great cooperation We have a new PSS system that's making a lot of work. We've put the money in place to get the turnaround done. The funding is there. I became CEO a year ago. When you're a CEO, it's a great time to go looking for money. You can catch some breaks for 6 or 8 weeks. So we have everything lined up we need. But we've also been very aggressively renegotiating things with lessors, with manufacturers. So we're trying to get the best price. And we're arguing the price on every single item with everybody now. And we're going to get better and better at doing that. That's a culture that we didn't have. We're also starting to put in place new planes. That'll have its own efficiencies. And some planes that didn't make any sense we're taking out of the fleet. Customer service will be absolutely key to the rest of our recovery over the next while. And that goes without saying. But it's— everybody talks about it, but not a lot of people do it. Although you have very good customer service here from the airlines, I believe in Australia generally Qantas would be seen as probably something to emulate. A big push on safety. Massive. Because we're technically a new airline, we've had to go through all the audits again. We had to get new AOCs. We just got our, re-renewed our IOSA just this week. So a lot of work taking place around that. A lot of work on OTP. We hadn't been cleaning the aircraft for many years. I don't know why. But we've been going through that. Improving delivery of bags. Improved the food. And the lounges are all being upgraded right now. They should all be ready by Christmas. The most difficult job for me, and I think probably for most airline CEOs, but particularly for me, was dealing with the people and dealing with what we call the Malaysia Airlines family. It's not like like working in a normal place. There's 14,000 people, but many of them have been there for 30 years. Many of them are related to each other or they know each other or— it is like a giant family and that's the culture in Malaysia the way it is. And a little bit I had to change my own approach. I had a very European approach when I arrived first. We've got lists of things, we've got processes, we've got procedures. I'd bark at people and expect people to do things and tick them off of my list. And suddenly after 2 months nothing was happening. And then I realized that's not the way things work in Asia. You have to, you have to try and get some sense of consensus, but you also have to get people to feel as if you have some empathy what's go— what's going on. So we're trying to let people do their job now. We're trying to make, make them realize that this is the common goal that's shared. They are incredible people. And the transformation that we've had where we've gone from load factors in the 60s up to the 80s just in 12 months, it's because all of the tragedy they've been through over the last number of years and all the difficulties of losing colleagues and many people losing their jobs and also the pressures financially that they've been put under around that. It's built a backbone in the people at Malaysia Airlines, a steel that will see us through the rest of this recovery over the next couple of years. And they have a shared mission because we want to make this the greatest turnaround of any airline in aviation history. And it's now within our grasp to do it because we can see it can happen. And that's a wonderful thing to be part of for me. And I'm very proud and grateful to be working there. So we've had some profitable months. We've had some unprofitable months. And it's going a little bit better than we thought. The growth is happening year on year. We've seen a significant growth in passenger numbers. And the load factor year on year over the halfway, just this last 6, 7 months, We're up in the double digits increase in load factors across the airline. Major recovery on London. May 2016, we operated London double daily A380s at under 50% load factor. Under 50%. And we were operating at 80% just past. Australia is going really, really well for us. We've seen a 9% increase in load factor for 6 months and we've also seen an increase in RASK, which is great because it's counterintuitive to maybe growing the numbers as well. Big expansion happening in China, the PSS I spoke about, and the outlook for the next 6 months is very strong for us as well. The lounges are getting done. We're fixing all of that up. And we've even, we're not changing the brand or changing the name, but we've a nice new colorful livery on some of the aircraft that has got the Malaysian flag on board and Really emphasizes our wish as a group of people in the Malaysia Airlines family to try and become the pride of the nation again. Fleet, I won't talk about too much. We're beating up the manufacturers to try to get some great deals. But in the words of U2, I still haven't found what I'm looking for. And because I love the A380, I'm the world's biggest fan of the A380. It doesn't work for us commercially on the London route because the costs are too high and we have too many seats. We're taking the 6 aircraft out next year from scheduled service and we're putting them in a new airline that will focus primarily on charter services all over the world servicing the Hajj and the Umrah. Some of the aircraft will have 662 seats and I had a very Very fruitful trip to Saudi Arabia just a couple of weeks ago working on that. We've, we've, we're very close to getting some partners there that are gonna make it a reality. So terima kasih, as we say in Malaysia. I've run a minute over time. And just to say, I think it's gonna be a great next decade for this business. I think together we can make a lot of money. I think God bless Tim Cook and Elon Musk. and all the other pioneers in renewable technologies and other technologies. I think they're going to help us over the hump we've got of these fuel costs. So thank you very much. Thank you.

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