Airline CEO Interview - flyadeal CEO Con Korfiatis  

Transcript

Richard Maslen:

Welcome to this latest airline CEO interview as part of the CAPA Live series. Today, I'm going to be speaking to Con Korfiatis, the CEO of flyadeal, a Saudi Arabian airline that's part of the Saudi Group. Con, welcome to CAPA Live.

Con Korfiatis:

Hi, Rich. How are you doing? Good to see you again.

Richard Maslen:

I'm good. Thank you. So over the next 30 minutes, we're going to have a little bit of chat about aviation in Saudi Arabia. Talking about the vision of Saudi Arabia to open up its economy more, allow more visitors, and just diversify away from the oil and resource-based business that it previously had. We'll have a little chat with Con about flyadeal, its establishment, how it's grown and how COVID has affected its plans and how it's looking into the future once international stability returns and airlines are enabled to grow again. So Saudi Arabia used to be a country that was really hard to access, very restrictive with its visa policy. But tourism is now a key pillar of Saudi Crown Prince Mohammad bin Salman's ambitious reform strategy to move away from the economy that was oil dependent.

Richard Maslen:

The kingdom opened its doors to foreign tourists in September 2019 by launching a new visa regime for 49 countries. And he wants the sector to contribute 10% of its gross domestic product by 2030. These are bold steps from a market that a lot of people have a lot of preconceived views about. So, Con, just to start, it'd be good to get a little bit of context into how this has all been working. It was early days before COVID struck, but there must've been some signs that you're beginning to see if the market's opening.

Con Korfiatis:

Absolutely. Good introduction, Rich. Look, an incredible time to be here, and really it was a big draw factor for me in coming to Saudi Arabia and to look at the flyadeal opportunity and bring it to life. I think, as you say, the kingdom has historically been a bit closed, certainly closed to tourism, open for business but I guess in some sort of restricted fashion or maybe just the business opportunities weren't there in the same way. An economy that was predominantly resource-based albeit it still is and that still has a long lifeline ahead of it. It is looking longer term and saying, "Well, okay, what else do we need to do for long-term viability?" And really this is a country outside of being rich in resources, rich in so many other things.

Con Korfiatis:

It's got some absolutely spectacular sites and places to visit. It's got a magnificent ocean, it's got mountains, it's got parts of the country that gets snow Believe it or not. You've got some incredible dessert sites and architecture and history there. And really there are other industries to exploit also. You've got a large population. We have the largest domestic population in the GCC. It's very well-educated and qualified and certainly a number of other industries can survive and prosper here. I think the early ones we're hearing about outside are quite infrastructure and tourism related, and that's fantastic because clearly we need to enable people to be able to come and explore and do business here, or holiday here or come here for religious purposes or any other reason unless you choose to come. And those opportunities are there to be exploited.

Con Korfiatis:

I guess, 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 the region, the Middle East is a little bit 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.

Con Korfiatis:

So here we are flyadeal we turned three in September last year, so we're still a young airline. We bolted out of the boxes in late '17, 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 sort of narrow body direction in '19, which slowed down our ability to take some more aircraft quickly. And then in '20, 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.

Con Korfiatis:

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.

Richard Maslen:

It's really interesting Con. And obviously, you mentioned about a large growth and looking very positively, obviously the start of 2020 hit everybody with a lot of shock, no one was anticipating what had happened. How did this impact you? And how has Saudi Arabia worked to actually manage the spread of COVID?

Con Korfiatis:

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 March. It started it 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 31st of May 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.

Con Korfiatis:

And we had curfews people couldn't travel more than two kilometers 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 travelers here, for example, and to be completely locked down to something quite foreign here locally, so we had to get through that period. Conservatively, domestic flights were re-introduced at the end of May. We had COVID measures, we still do on board. In our case as a narrow body operator we're not allowed to sell the middle seat and on the wide body flights they can't sell a seat next to a seat sold.

Con Korfiatis:

And so there's been onboard restrictions. There's obviously been measures around airports themselves and how you flow in and out through different checkpoints on 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, there was a bit of [inaudible 00:08:42] coming back 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.

Con Korfiatis:

And since day one, actually through that buildup our flights have been full. The seats were 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 brightest guys ahead this year, but it's still a bit early to tell.

Richard Maslen:

Well, it's a really positive story when we compare some of the problems that other airlines have faced. So that's really encouraging. You mentioned about international now the theme of CAPA Live this month is about international. And we'll move on to that in a moment, but I just wonder you say that demand has returned. Are you seeing any changes to the trends from passengers? Are booking windows changing? Are you seeing different routes being higher in demand than previously?

Con Korfiatis:

Yeah. Good question. We have an unusual a booking pattern here anyway, 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 behaviors 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 behavioral sense. In terms of where people are traveling to Jeddah, Riyadh is one of the busiest routes in the world traveled. 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 were way down.

Con Korfiatis:

So we had some events that was 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.

Richard Maslen:

You've had the safety net quite fortunately have just being a domestic airline. Your parent has been a bit more impacted by the limited international flows. But as you said, international is a key part of what your development plan is. Where do you stand with that? Obviously, it must be quite difficult to start preparing ahead when there's so many restrictions still in place, and we don't know when they're going to be lifted.

Con Korfiatis:

Very difficult, Rich, I think it's all about agility. I think look, our sister company, parent company has a substantial wide body 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 narrow body 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.

Con Korfiatis:

And I say that because albeit it's 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 January, we pushed them back to summer. And right now I think there's 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, 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 been allowed to come back in, expatriates living here have been allowed to leave and be able to come back as well.

Con Korfiatis:

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.

Richard Maslen:

Okay. Can I have a look from this side of the business when it comes to your route network and your selection of routes, do you have the freedom to pick which route you want to fly, or is there a little bit of support and a little bit of discussion with your parent company as to where you'll be flying? Will you be flying separate routes to them? Do you fly on the same routes and compliment them with a different model? How will that all work?

Con Korfiatis:

Yeah, that's also a really good question. And obviously that parent legacy airline low-cost startup 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 cannibalization 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, I think will take us... not I think, we will be taking and we have planned a similar approach to look to that.

Con Korfiatis:

So in other words, if it's a route that's really a premium airline route and low cost doesn't... 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.

Richard Maslen:

Okay. And your plans moving forward will be more towards the A320neo now you say you have your first aircraft and aggressive delivery schedule of the rest. Would they directly replace the CEO aircraft or will they work alongside them?

Con Korfiatis:

Well, we don't have very old aircraft. We were blessed to kickoff 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 their 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.

Con Korfiatis:

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 '22 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 narrow body order we would have been perhaps a 30 aircraft airlines 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 no they'll fly alongside each other and the CEO's will probably exit our fleet roundabout '25, '26 somewhere there.

Richard Maslen:

Okay. And what did the NEOs offer to you ahead of the CEOs in terms of not just saving cost, but in terms of configuration, in terms of general operational aspects?

Con Korfiatis:

All right. 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 maximizing the density on board. Our CEO's 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.

Con Korfiatis:

But being our own audible we've for the first time, being able to sit down and look at the interior of the cabinets and say, "Right, 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 the first of those aircraft in April this year.

Richard Maslen:

Okay. I think that will be interesting for us all to see and dates to put in our calendars to mark off when it comes. Now, obviously with your low-cost model, perhaps you're not too worried about these longer range versions of these narrow bodies, though a lot of people now I believe have a much stronger place in the market given that demand is subdued slightly. Is it something that you would consider moving forward getting a say A321LR or an XLR to use on some really specific routes I would guess.

Con Korfiatis:

Yeah. So we've done only very early investigation into this. I think the sort of short medium term will be staying a little bit closer to home on the international front. But we've mapped out a mid longterm 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 wide body, 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.

Con Korfiatis:

I'll give a little bit of way to say that the vast majority of those we can deal with are either the 20 or a 21 or a 21LR 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.

Richard Maslen:

Okay. Okay. Another key thing we have in there, obviously, health and hygiene is an important part now of travel. You said about your middle seat policy now the government's pushed you to not sell those middle seats. But there's an even bigger push more to technology, a push to incorporate in more technological advancements. What are you doing as an airline to meet with that and to support the needs of your passengers?

Con Korfiatis:

So 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.

Con Korfiatis:

So 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 center, a lot of self-serve options being available we've even... We had to close the call center so we thought, "Well, how do we keep some semblance of that going to the extent that we're servicing customer needs." And we did that through building them the mobile. Our customer engagement centers we call it because actually it's multipurpose, it does quite a few things, not just a call center. 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.

Con Korfiatis:

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 anymore, 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-ed 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.

Con Korfiatis:

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.

Richard Maslen:

Okay. That goes on nicely to what my next question was to look at airports. We've had a panel of this month on the airport side. As a low-cost carrier you talk a lot about the airports, big new terminals looking really good, but what is it that you actually want from the airports and are you getting that in Saudi Arabia?

Con Korfiatis:

That's a very good question. So look, historically, without a full DNA low-cost airline in the kingdom, the airports have never really looked at themselves and say, "Okay, 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.

Con Korfiatis:

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, "Okay. 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 program for the kingdom is a strong, the whole aviation ecosystem together to think as a family unit. And therefore everyone is equally motivated and energized by how does the whole thing come together because it's about team Saudi Arabia selling itself to the world.

Con Korfiatis:

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 Rich there's a lot of work to do, but that's part of the excitement of being here.

Richard Maslen:

I think, it's really encouraging to look at what is going to happen in Saudi Arabia over the next five years, obviously COVID has come at just the wrong time just when everything was going... opening the doors, trying to be positive that time will now come. Just to finish off where we're running short on time here is I'd just like to think what if you learned over the last year? We weren't really prepared for COVID and it's affected us quite badly in our own lives and in business life, but as a CEO of an airline, what have you learned over the last year that you will take forward to think, "Okay I need to be better prepared. What can I use go forward?"

Con Korfiatis:

Yeah, you did say we're shorter time, right? It's a whole story. Let me try and do it a little bit of a nutshell. A profound care for customer 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.

Con Korfiatis:

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 on that front anyway, others a little bit less though. But it's forced all of us on 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.

Richard Maslen:

Well Con, I think we could talk for hours about things there's so much to talk about in aviation right now.

Con Korfiatis:

Always.

Richard Maslen:

Maybe we'll see you again on one of the CAPA Live's in the next couple of months, and we will take the conversation further. But for now, it's been an absolute pleasure talking to you. Thank you for your time Con.

Con Korfiatis:

Thanks, Rich. All the best. And all the best to everyone out there who watches this as well.

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