Airline CEO Interview with Brussels Airlines, CEO, Peter Gerber

Transcript

Peter Harbison:

I'm very pleased to welcome to CAPALive, Peter Gerber, who's the CEO of Brussels Airlines. Peter has been part of the Lufthansa Group for I think, 17 years or so. A part of his history is CEO of Lufthansa Cargo, and we were just having a chat about that before, one of those boring areas that nobody's really interested in, until today when everybody wants to be in cargo. Peter's also the president of the German Aviation Association and Lufthansa's chief representative of European affairs for the Lufthansa Group. Peter Gerber, welcome to CAPALive, great to, so have you with us.

Peter Gerber:

Hello. Hello from my side.

Peter Harbison:

Peter, let's start in the present and the recent past. Obviously, it's been a very, very difficult period, in lots of ways, this summer period in Europe. Really, the uncertainty, but then also the having to gear up very quickly. Confronting a whole lot of, as has often been said recently, I think it's like trying to build the aeroplane while you're flying it, in terms of getting used to issues at airports and inflight. But, also getting people, your own team, back in the air. Just run us through quickly, what your experience has been in the last few weeks, which basically was the summer and what you're expecting probably up until the end of October?

Peter Gerber:

Yep. I must say you already stated it. I think it was quite challenging, during the last week, so it was quite challenging for the whole summertime. I have to say, I'm very proud of our team at Brussels Airlines, how they managed it and how they were able to cope with the situation. But I also have to say, also the team at Brussels airport, the authorities, I think everybody was really up to it, and they managed, given that the circumstances, we had, managed it quite well for all the customers, and did a really, really tremendous job.

With all those ever-changing rules and regulations, with all those coming practically from zero, and starting to 100%, this was really challenging, but in the end, I believe it was quite successful. It was quite successful because we could, in the end, fulfil the customer's needs. Of course, there were problems here and there, for the customers. There were problems for us, for our staff, which of course, have been extremely busy, to a certain extent, but in the end, I believe it turned out well, and we can all say that we made it within the aviation industry and can be, I believe, a little bit proud, when we look back at this summer, which is now, of course, coming to an end.

And you asked about perspectives for the upcoming month. I believe, for the moment, the perspectives are still quite good, because the holiday season, the vacation season seems to be prolonged a little bit, at least for this and maybe the next or the two upcoming weeks, because it seems to be that the really rainy weather in Europe made a lot of people decide on seeing, at least, and before going into the autumn to see a little bit of sun.

So, they are booking on quite a short-term notice, which is possible at the moment, and try to get at least some sun before the winter. But afterwards, of course, there are quite some big question marks. The biggest question mark we have at the moment is, of course, how business travel, business traffic, will develop? For the moment we still see quite a weak demand on business travel, but also there it's a little bit mixed. So we see the small and medium-sized enterprises; they are already coming back a little bit more to business travel. Also, what I would call essential business travel is coming back, so mechanics who need to fly, parliamentarians who need to talk to each other to get things done, also NGOs, so there are a lot of people who need to travel now, and they, of course, start to travel again.

Very big companies still tend to be a little bit reluctant, so we don't know. And the second big question, for the moment, is the intercontinental travel, still not really open between the US and the EU, which causes us some troubles. The second thing is also when we look at Asia, it's not so much a problem of Brussels Airlines, but of the big airlines' groups.

So there's still a lot of restrictions in China and Japan, and for the moment we can't see how this is changing. So I think we have to expect maybe here and there, again an unpleasant winter, especially as we also don't know how is this fourth wave developing. Will there be more variants of the virus? Something like that. I expect, maybe, what I could call a really cold winter, but on the other hand, I'm quite optimistic when we look into the summer, which means for us, as you know, airlines start with the summer flight by the end of March, and so I expect normally worst being over then. When it comes to business travel, when it comes to the restrictions, and so I'm looking forward to a quite interesting year 2022.

Peter Harbison:

As if you haven't had enough interesting years recently.

Peter Gerber:

But it's normal for airlines, you know? The problem's always when they ask you, "Why do you really work for an airline with all those problems you have," and what a colleague of mine is always saying, and I think I couldn't frame it better, "The reason is because never a dull moment." This is what we can say.

Peter Harbison:

Well, you can promise that that's for sure. Peter, just going back to the European market. I mean, there was a lot of talk about pent-up demand, once things did start opening up. To some extent that's been suppressed by the uncertainty of, "Will I get through customs?" or "Will I get through the health controls?" "Will I have to quarantine when I get back?" That sort of thing. But what was your experience with the, if you can name it, then frame it that way, the underlying demand? Did you get the sort of response, that pent-up demand, that you were expecting?

Peter Gerber:

Yeah. As you may have already noticed, I'm quite an optimistic person, but even I was surprised by the amount of [inaudible 00:08:06] customers-

Peter Harbison:

I think everyone can see [crosstalk 00:08:08].

Peter Gerber:

... absolutely, maybe that's true. But even I was surprised by the demand of our customers. People are really eager to fly again. They really want to travel. They really want to see other people. They really want to go to other parts of the world. The only thing they really need is what you already frame. It's a kind of certainty, a kind of security, that they can come back. And if people believe that this is given, people start to travel immediately. This is what we experienced this summer. This is what we all already experienced before, and that's key. So this means, if there is some kind of certainty, if there is some kind of security, then people start again travelling. This is, of course, what people want to, and what they need.

Peter Harbison:

Yeah, and at the same time, I guess if you're talking in terms of March 2022, then that is going to be a challenging period this next six months or so, for everybody. And I think, we're starting to see those signs now. So, Peter, one of the things you've been doing, taking advantage of this period is to, to use your words, to reboot, to change your, to basically to transform. But while you're doing that, you're also part of the Eurowings Group, which is also being transformed. How do you fit all that together? Could you, can you sort of take us through the processes you've been through?

Peter Gerber:

Yeah, of course, I can. So maybe just talking first about reboot or ISB, then the phrased it, reboot-plus, because we already started the restructuring programme. Having seen that already, the 2019 figures of Brussels Airlines weren't satisfactory. And that we thought that we had to do something for a sustainable future, but then COVID hit us. And so then we put, of course, an additional frame on it and made from reboot, reboot-plus. They're even doing a deeper restructuring of the company and this was the first phases. So to restructure really the fleet, get the fleet renewed. And also right-sized the company for the upcoming times in crisis. This meaning also the personnel issues we had to resolve. But afterwards, then, as you already mentioned, we started immediately to rebuild the company. So this means new processes, new systems, modernising of the fleet, embedding those parts in the Lufthansa Group, which need to be embedded to participate at the big systems of Lufthansa and the big acknowledge, at the same time, securing our own knowledge.

When it comes to Africa, you may know, we are the Africa experts, not only when we look on us, but also within the Lufthansa Group. So we have the African competence centre. And this also answers the question in respect to Eurowings, process airlines is not part of the Eurowings group. It used to be part of the Eurowings Group, but part of reboot was also a strategic repositioning of process airlines. Process airlines is now one of the four hub airlines within the Lufthansa Group. This means besides of Lufthansa, Swiss, Austrian, Brussels is the fourth hub airline with the hub Brussels.

Peter Harbison:

Mm-hmm (affirmative).

Peter Gerber:

And as I already mentioned, especially with our African expertise and the African competence centre, and Eurowings on the other side, is our point-to-point specialists having a very competitive offer, therefore at the European market.

Peter Harbison:

Does that mean, though, Peter, that, I mean, the way Eurowings, is redirecting now, does that mean you're likely to be defector more of a competitor with them?

Peter Gerber:

No, I wouldn't. I wouldn't say this because Eurowings, again, they have more, a point-to-point offer within the Lufthansa Group, and all hub airlines do different business. Of course, they can be here and there are routes there where there is a little bit wing-to-wing competition, but not really on a large scale. It's more that the hub airlines fly from their hubs and to their hubs and Eurowings, that's point-to-point beside the hubs. I think in most of the cases, that's the way it works.

Peter Harbison:

Yeah. But, I mean, you can't really compartmentalise it quite as much as that, can you? I mean, a lot of the competition, both for you and for all of the major carriers in Europe is, within Europe is the Ryanair's and the EasyJet's and the Wizzair's. And they're the ones who are sort of emasculating the short-haul feed into the hubs, aren't they? But I mean, and it seems to be that that is really the big wave that we've seen over the last few weeks, even, but more recently, and probably going into the future. How does that affect the way you sort of have to look at honing your costs, for example, because you've got to compete with those short-haul [inaudible 00:13:19]?

Peter Gerber:

Absolutely. We have to, and I think this is really something we almost have to look into competition is in itself a good thing. It's a good thing for us staying awake, but also a good thing for the customers because they have the choice and freely can see what the best offer is for them. On the other hand, we have to have a competitive of a mix between the quality we can offer. And of course the price we can offer and the price always relates to the cost we have. And therefore, the difference between the low cost and us can't be that big. So that's the reason why we did our restructuring, this is the reason why we did reboot-plus. And we feel that for the moment when we look at our costs, we are quite competitive. So our offer combining again, the hub network quality, our quality of service, and the costs, which translate into price seem to be for us competitive when it comes to Ryanair or other competitors in the market.

So I'm quite convinced that we can make it. And the second thing you have to see to our business, you have always have to add the Intercontinental business. And to a certain extent, the short-haul flying is always the part of the feeding of the Intercontinental business. So it's a miscalculation, of course, you have only, you have routes where it's not so much feeding there. You have to be more competitive as when you look at the feeding combined to the Intercontinental business, so that's the way it is. And I have to say, we have always, we have to work on our costs and we always have to work on also qualitatively competitive offer for customers. But for the moment, I'm convinced that we can compete with those other guys. I think maybe the difference is more that they are a little bit more vocal on everything, but I would believe it's better to rely on the facts.

Peter Harbison:

Absolutely. I'm right with you there. I was trained as a lawyer. So the facts are very important. For some lawyers, anyway. Peter, I mean, that said, obviously you've got an older fleet, your fleet is sort of an average age of about 16 years old now, I think. And the unit seat cost is much higher than, say, the new seven-threes that Ryanair's flying, for example. I mean, we're talking very substantial, unit seat costs being very different, aren't we? I mean, how do you, as you go forward, how do you compete with that?

Peter Gerber:

Yeah, absolutely, the only answer there is fleet renewal. So what we are up to and what we are working at it's means that part is already done because we have now quite a competitive fleet when it comes to long haul. So the 330, we have only the modern 330, 300 now with Rolls Royce engine. So they are quite competitive and it's a homogeneous fleet, which is, of course, a big achievement and it's wonderful. The second thing is when we look at, onto the short-haul fleet, we plan during the next years to phase out the three-nine teams to come to a complete 320 fleet. And in addition, what we also do is now we phase in 320neo's, and this is, of course, a big hour in the history of process airlines because first time in our history, we really get brand new planes.

And as you may have already noticed, we get the first 320neo at the start of 2023. So for the summer flight turn period there, the first three ones, and we, of course, we are looking for more now. So this means, step by step by step, we get into a fleet renewal of the 320neo. And when you look and compare the three-seven to the 320neo, I can say that this is even a more competitive plane. Of course, for the first years, we have a mixture because it's not everything 320neo, but we are getting into this direction. And so it's pretty clear, our answer must be also to be competitive when it comes to the aircraft. We have to be competitive when it comes to the wages, to the people. We have to be better at the service, which I believe they are. And the second thing is we have to be also competitive when it comes to aircraft, that's pretty clear for us.

Peter Harbison:

And thanks for that, that segues pretty nicely into the topic I'd like to talk about for the remainder of this session. And that is the environment, basically, your carbon footprint. You have a target of reducing your CO2, carbon dioxide footprint by 50% by 2030, a noble, noble move. How are you going to do that part of it, by fleet renewal, obviously?

Peter Gerber:

Yeah. So one, of course, one big part is fleet renewal, because when you compare 320neo to the normal 320ceo, meaning the classic one, you have already an advantage of 30% when it comes to CO2 emissions and 50% when it comes to noise. So that's quite a big chunk, meaning that every new generation of aircraft and engines, of course, you really make big steps. The second thing we want to do on the technical side is to really heavily invest into what we call SAF. So it's the short form of sustainable aviation fuels. So meaning try to get a CO2 neutral fuel into our tanks and fly this up to now, already 50% of your fuel can be this SAF. This is what the producers of the engine state to us. I believe in the future, it will be even more.

But the thing we need to have is, we need to have enough of this SAF, which is not produced up to now. Of course, there are some percentages you can get. And of course, there are some promising projects so that we believe we will get more in the upcoming years, but clearly, this is the direction we are heading to. And when you look at what the EU is planning with a blending mandate on fuel, they already head in this direction means we also will get a regulation on that. Now, this will make things more easy. What we, of course, have to look at is the competitive landscape there. If it's more expensive and others don't need to use it. Then we have to look for a level playing field in Europe. But that's one part. This just means technical evolution.

The second thing, which is also very important, is infrastructure, especially when it comes to air traffic control and other things. We could, of course, save a lot of CO2 if we could fly directly and harmonise at the European sky. There is a project of the use, it's nearly 20 years, single European sky. We were not even able to achieve this up to now, but I think this is clearly something we have to achieve. The third thing is our own processes. So look how we could fly in another way to save CO2. There are always ideas around, of course, it always has to be safe and secure, but, of course, also there you can save quite a bit. And the fourth pillar is product. So looking for waste and other things. And when you all take all this into consideration, we believe our quite challenging goal, being CO2-neutral till 2050 and reduce it by 50% till 2030, is reachable.

But of course, it's quite a stretch. And for the moment, what we have to see, it's more a European issue. Also, other airlines are talking about this, but not, I believe, so seriously with the way Europe do, because also they have this discussion here on a political level. So we have to make sure, if it really works here, that this transformation also works from a competitive point of view. But if we are able to make our mind on this and do this transformation also in a competitive, neutral way, meaning ensuring for us, the European airlines, a level playing field, then we can serve as a role model of the whole world. And I think this is what's there for us.

Peter Harbison:

Absolutely. Man, I mean, it's essential. You're going to have to do it, aren't you? There's no choice, really, as we move ahead. We've got a couple of questions from the audience, Peter and I'll bundle them together. The first one is because suppliers like airports and ANSPs have actually suffered along with you. There's a reasonable prospect they might start putting their charges up to recoup that because they've got less aircraft to charge. But also, and so that's an external cost that is dangerous, particularly given, as you were saying, it's the ANSPs, really, who need to be getting their act together and improving things. But secondly, we're looking at the potential for taxation, environmental taxes, both at a national level and an EU level. How do you can, we haven't got a whole lot of time left, but how do you confront that? And how do you, when you're talking about reboot-plus, how do you fit that into your planning because these are external costs you don't have much to do with, isn't it, aren't they?

Peter Gerber:

Absolutely. I started with the second question because I already hinted at that. I think this is really something we have to heavily discuss with the European authorities. We already do amongst all airlines with the aviation associations, but also with the airports together with other industries within Europe. Because what the EU authorities have to understand is that we really are into this transformation. We really want to achieve this, but we can only be successful if we do this competitive neutral. So meaning, in any case, we have to ensure a level playing field because otherwise, we make the business of our competitors outside of Europe, and this is what nobody really wants. And so this is a big discussion. We are engaged now. It's just starting because of proposals are now the tables since four weeks, but we are, of course, coordinating all forces and bring our models and modifications to the front.

And I'm quite optimistic that the European authorities, as I'm in talks with them quite frequently, they hear our concerns and are really into making this transformation a success and a role model for the whole world. So I think that's a big thing, but of course, there's some work to do.

The second thing is what is about the cost of the ANSPs and the airports? There I can only say this is nothing the airlines can bear. And there's also a lot of pressure of all airlines within Europe to make quite clear that this is something because it's a crisis which hit everybody. And this is not the airlines taking care to all those losses. So therefore we believe that's clearly stately matters and the states have to make up their mind how to cope with this. We already wrote some letters to the authorities, not on the EU authorities but also in the countries. And there will, of course, be more to come. Also, we get some signals that they understood and they have to do something about it, but it's pretty clear the airlines can't cope with that. And in the phases where we really struggled to recover with heavily burdened balance sheets, we can't take those costs. So pretty clear, that's a thing the states should look for.

Peter Harbison:

They don't always tend to be all that rational when it comes to that sort of thing, now they do they, Peter? And you have, of course, you now have an ex-EU member who may be something of a renegade in this. And the UK does look very much like it's going to be very aggressive when it comes to things like this. We've got just one minute left and then we do have to cut off at that stage. [crosstalk 00:26:07]

Peter Gerber:

[inaudible 00:26:06] Yeah, I think we really have to look into this. I think not all relation between the EU and the UK are settled now. And therefore I think the EU is observing this very, very clearly, very slowly. And if things go into the wrong direction, then I think we have possibilities within the EU to do something about it. So in the end, I believe also in Great Britain, they will understand that we can only do this together with common rules and regulations. Otherwise, there will be problems which are not so easy to be resolved, and it's difficult to believe that only one partner can take a bigger part of the cake than all the other [crosstalk 00:26:58]-

Peter Harbison:

I hope that's the case. Thanks very much indeed, Peter.

Peter Gerber:

Thank you. Thank you very much. And thank you

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