Airline Leader Interview - Viva Aerobus

Transcript

Peter Cerda:Good afternoon, everyone.

Javier Suarez Casado:I'm back.

Peter Cerda:I promise this is it. I've told CAPA my union does not let me work more than 3 panels, so you won't see me anymore. Good afternoon, everyone. It's my pleasure to have a Thank you. So we're going to have a fireside chat with Javier Suarez-Casado, who's the Chief Network Alliances Officer at VivaAerobus. So we're going to be kind of just jumping into the discussions. If we do have some time, maybe we'll ask one or two questions, some easy questions, please, no complex questions. But for those of you who do know, who have heard of VivaAerobus, and this is a very innovative airline, an airline that has really contributed to society here in Mexico, getting more people on airplanes, helping with global development, regional development, local development. It's now going outside its traditional ULCC path in commercial agreements with Iberia, and we'll talk a little bit about that and other opportunities. Javier, welcome. Good to have you here. Why don't we just kind of kick it off on post-pandemic? I think we can stop talking about post. Yeah, let's move on to the new reality, the new world. How is VivaAerobus doing? Where are you going? And, you know, how are you seeing the transformation that's going on?

Javier Suarez Casado:We're doing well. We're doing well. We are— we're making money. We're growing really fast. Our unit revenues are growing as well. So things, things are good. It's actually really good to have like COVID way behind us.

Peter Cerda:Well, an airline that's making money, that's good. So really good. You guys are— tell me a little bit about what you're looking at now from your seat in terms of trying to develop the markets, opening new destinations. You know, is your plan still looking north or are you beginning to look South or even west or east with commercial alliances like Iberia?

Javier Suarez Casado:So, you know, if you're a Mexican airline, you know, you can look south, but there's like, you know, it's a very, very small percentage of the Mexican market. So you look at domestic growth and you look to the north, the US and Mexico. I'm not sure about now, but it was, you know, last year it was the largest international market in the world. So you clearly look north. Then Canada is also an important market. So it's more domestic and looking north, of course.

Peter Cerda:In terms of your looking southwards, let's talk south of the border. How much of an interest is there or appetite for Viva to begin to look down into Central America, South America, knowing that you have other competitors similar to you who are ULCCs like JetSmart and Sky who are slowly moving northward? Do you see them as competitors? Do you see you as partners maybe?

Javier Suarez Casado:We, you know, again, our focus is North America, not South America. And we do fly to Colombia. You know, we're doing well in this market. But again, we don't see any threat coming that way. You know, at one point, you know, we actually compete with some Latin American LCCs on routes from Cancún to Bogotá. But it's a very small percentage of our ASMs.

Peter Cerda:And northbound?

Javier Suarez Casado:Northbound, uh, how are you seeing that? We, we have Mexican competitors, we have U.S. competitors, and we of course are looking forward to having our joint venture with Allegiant approved. Uh, and, and that's gonna, that's gonna change our, our business model, our seasonality, and our growth potential.

Peter Cerda:How much is the Category 2 impacting that growth potential? Because you're bringing on new airplanes, You probably have a plan, commercial plan moving northbound and expanding and opening. How much has the Category 2 slowed that growth that you had planned for in the future?

Javier Suarez Casado:I mean, at this point, like, there's very limited growth we can do into the US due to the fact that we're not in Category 1. But, you know, we're— you know, we see a lot of opportunities domestically. We've been growing domestically and again, you know, improving our unit revenues. So there's still opportunities and growth. in Mexico domestico, but again, you know, there's this huge market we can really penetrate further.

Peter Cerda:Let's talk about Iberia a little bit. Now, is this just a coincidence, Spaniard, Iberia, or if Juan Carlos would have had a Frenchman there, he would have been talking about Air France now?

Javier Suarez Casado:No, no, no, no, no. I mean, Juan Carlos is from Mexico. The one who is from Spain is myself. It's not a coincidence. It's evaluating what the largest markets, largest international markets are to Mexico. Madrid, Mexico is the most dense route from Europe to Latin America. And Mexico is a big market for Spain. And after Interjet went bust, Iberia was left without that connecting capabilities in Mexico City. You know, the fact that I'm from Spain and that I was part of the group, because I used to work for an airline part of IAG, Vueling, I know them well. And that's, I guess, helped us do things faster because, like, you know, we, you know, from From when we started talking to them until we implemented, I think it was less than 3 months. And I think that that's helped. But I know it was obviously a market-sized decision. And it's working well, very well. This was the first alliance that VivaAerobus was doing. I, you know, I had the background of working for another LCC who was also open to doing alliances. But this was the first alliance for ourselves. I knew the way in which we built and designed that alliance was meant to, one, reduce complexity, not— don't increase, you know, don't give our operations people a big hassle. We had the cost as, you know, we did not want to increase our cost by doing an alliance. And it has exceeded our— my expectations because, you know, you'll think of alliances, I'm like, you know, you're going to start like misconnecting passengers. It's going to be a hassle.

Peter Cerda:Yeah.

Javier Suarez Casado:But it has exceeded my expectations. It's working really well. There's, you know, I think there was a point a couple of months ago when I got a WhatsApp saying, hey, we have this business class passenger here, blah, blah, blah. But it was like 7 months after we started. So, and that was my concern because like we have, you know, at Viva we're very small teams. I'm like, you know, we're doing this. If, you know, if Iberia starts giving us problems, issues, etc., you know, how am I going to manage the rest of the departments? And it's given us no issues. So really, really good.

Peter Cerda:Because That's a big DNA change from being who you are, how you grew, how you were born, now to begin a new relationship with, you know, what you say, complexity, hassle, legacy, business class. That's a big transformation, isn't it?

Javier Suarez Casado:Yeah, I mean, there's some trade-offs that you need to make clear. And, you know, again, it's not— it's working well. I mean, you know, and I guess the fact that we were pretty much the only player capable of doing that with Viva, and we told them. And then the fact that they have also done partnerships with Vueling, which is an airline that is kind of similar to us in terms of DNA and the things that they do want to do and those they don't, I think it made it easier. But, you know, I mean, the great thing is that, you know, we have access to— and I think I mentioned this in the previous panel— you know, we have access to revenue that no other Mexican airline has. So, you know, we're competing with the Mexican carriers on the point-to-point. These are passengers that are coming from Spain that, you know, we're taking and the unit revenues are good. So I'm very happy.

Peter Cerda:Could you see that expanding to passengers coming from London, Paris?

Javier Suarez Casado:I could see that happening. You know, what we're doing is, you know, we're evaluating other alliances, other partnerships, and, you know, again, like, you know, looking at, you know, what are the largest markets. And yeah, we're exploring. I mean, now given the good experience that this is not giving complexity, you know, we're evaluating other partnerships.

Peter Cerda:And I imagine the more partnerships that you go into, the bigger the problems could possibly surface in the future.

Javier Suarez Casado:Sure, sure. But given that Iberia has given us no problems, we're maybe trying something else.

Peter Cerda:Okay.

Javier Suarez Casado:If things change, then we probably stop.

Peter Cerda:So you have Iberia, you have, you know, maybe BA in the future, some others. Do you see alliances maybe fitting in?

Javier Suarez Casado:Alliances meaning as in becoming one world? No, that's kind of forbidden for us.

Peter Cerda:So more it's just a commercial relationship?

Javier Suarez Casado:It's commercial relationship and making sure what we do does not increase our cost. And entering into a big alliance increases your cost.

Peter Cerda:We'll talk a little bit of Mexico. 3 airlines today, yourselves, Aeroméxico, and Volaris. Do you feel that this market is today well served?

Javier Suarez Casado:Is it well served? I think it is indeed. It's one of the most competitive markets in the world. I mean, you have a legacy airline and you have another LCC that is, that is well managed. And if you look at the pricing, the yields that consumers are provided in Mexico and compare it with other markets, you know, it is very competitive.

Peter Cerda:Is your competitor still the bus or is it really now Volaris and Aeroméxico or the combination?

Javier Suarez Casado:I believe, you know, bus passengers are more likely to start flying on ourselves or on our purple friends. That's the natural thing to do, I believe. Now, we have an advantage, and the advantage we have is that our shareholders also run a very large bus company in Mexico. So, you know, having access to those— transitioning those bus passengers into air passengers is easier for us.

Peter Cerda:Do you see alliances between the bus and yourselves in terms of what we see in Europe with the airplanes and the trains?

Javier Suarez Casado:We actually do. You can go onto our website and you can buy a combined ticket, air and buses.

Peter Cerda:Yes. How beneficial is that? Has that proven to be successful in terms of your growth?

Javier Suarez Casado:It is successful. The only thing is that we're growing like, you know, maybe, maybe too fast. And, and, you know, growth is coming from other sources as well, but that's definitely helping. Yes.

Peter Cerda:Your growth is important because you're going to be receiving more airplanes. Let's hope in the future we see something with Category 1 Is the structure— the airports here in Mexico ready for that growth that you're going to be seeing from your side and possibly the other airlines, particularly at some point if we do see Category 1 return where you can begin to really go full throttle?

Javier Suarez Casado:Difficult question to ask. I mean, the good thing about not having excess capacity is that airports should be capable of providing us with like low cost. which is not necessarily the case at all times, as you know, and we're not getting there. But there is a challenge. There is a challenge for Mexican airports to grow as fast as I believe airlines are willing to grow. It is challenging. But we have, like, very professional airport groups in Mexico. They know how to do things. I think they can— they're capable of doing it. They've done it in the past. I hope they do it in the future.

Peter Cerda:And we were talking in the panels earlier this morning on the importance of partnership between airports and airlines, particularly nowadays as the industry is so dynamic, it's changing, we're all adapting to new ways of operating, but planning towards the future is critical because you have to purchase airplanes way ahead of time, building a runway, building a terminal takes time. The airport systems here in Mexico, are you seeing that collaborative approach that it permits you to have a vision of By the time I bring these airplanes in and I bring new passengers, I'm going to be able to start flying automatically with good level of service?

Javier Suarez Casado:Again, I think, I think, you know, the airport groups, you know, the main airport groups in Mexico, they're very professional. They know how to forecast. They're, they, you know, they've done it in the past. They, you know, there's very few airports in Mexico that are congested. I mean, you know, you know, when I think of OMA or GAP, if I want to add new flights, Most of the times there's maybe like in a few airports at beach destinations where I, you know, I need to look into, okay, can I fit this in here or not? But at this point we haven't had issues with the exception of, as you know, Mexico City Airport, and we're not getting there.

Peter Cerda:We talked about a lot about that this morning.

Javier Suarez Casado:But again, you know, they also have a huge challenge. I mean, there's regulation around them that, you know, does not make it easier for them to do proper forecasting.

Peter Cerda:Right. You were talking about, you know, the buses, the airplanes. This is a country, a huge country, where, you know, moving throughout the country is difficult. So if you're on a bus and you want to go from north to south, it's many, many hours. But when we see that the airfare has dramatically come down in the last 13 years, the industry, you guys have done a tremendous job to make it, you know, affordable, more affordable than it was before. Taxes are still high. How much of an issue does the tax come when you're trying to create a cost base which is going to be attractive for people to get on airplanes, but then you have to add all that additional cost because the government imposed fees and so on?

Javier Suarez Casado:It is huge. That's right. And we talk to airports and sometimes we get frustrated with them and try to explain to them that they should go for volume rather than going for increasing in departure taxes. It is huge. It is. I mean, you know, airport taxes represent a big chunk of what passengers pay, and they don't come in— the passenger doesn't care whether, you know, the money that they put in is given to you or the government. Now, it is true as well that, like, airports in Mexico are more profitable than airlines. So, you know, ideally, we come up with a balance. And I guess this is why collaborating with airports is key, you know, making sure, like, you know, no infrastructure is built if there's no real benefit, direct benefit to the— to their partners, which is ourselves and consumers.

Peter Cerda:Would that be for you at Viva the— probably the number one priority outside, let's say, government issues that we want to resolve, that relationship with the airports in terms of the cost structure?

Javier Suarez Casado:Our relationship with the airports, at least our relationship— I'm talking about Viva— is great. I mean, we really get on really well. You're going to see us having a drink or two later with them. It's fantastic. Now they have their shareholders, they have their their strategies, the things they want to do, the things that are not so comfortable because maybe they're, you know, more risky. But I think there we're getting to an environment in which we're a little bit more aligned with them. Again, you know, we're talking and having conversations. I want to believe that long-term or midterm— better midterm than long-term— I think the— Sam, might change and go towards lowering TUA, lowering departure taxes and obtaining more volume. Because like one thing LCCs have proven so far is that the market is very elastic. So you can continue increasing departing taxes, but that's going to reduce volume. And at one point I was having a conversation with an airport like time ago saying, you know what, you're going to end up having like a regional airline because there's only going to be like 10 people in Mexico willing to pay your taxes.

Peter Cerda:Yeah.

Javier Suarez Casado:But I think there's an understanding and hopefully, you know, we see departing taxes getting lowered.

Peter Cerda:Tonight, who pays the drinks, the airport or you?

Javier Suarez Casado:It really depends, but it's normally the airport. It's normally— There must be a reason for that, right?

Peter Cerda:They're making more money. It should only be them. And I hope they're paying the good drinks. Okay, good. Let's shift a little bit in terms of the passenger, particularly here in Mexico. It's a large country. When you look at flights per capita per annum, it's about 0.46 trips a year. It's quite low for a country who is very highly dependent on aviation. What more— what needs to be done to shift that and bring that at least to 1 trip a year?

Javier Suarez Casado:I mean, the most efficient thing is lowering cost of travelling. As I said, you know, the market is very elastic and then, you know, that would have the biggest impact. Now, it is also true that, like, you know, marketing to that person that is using buses rather than using airlines is not always that cheap. That's why I believe having, you know, like having a network of bus stations help us doing that. But, and I don't know, I really don't have I mean, airport taxes, you know, is probably having an impact in there. But at the same time, as I was going back to our previous conversation, Mexico is a very, very competitive market. I mean, and it's been— it is competitive now. It was more competitive before when there was an airline adding and adding capacity without making any money. So I would say, you know, pre-COVID, the demand was artificially increased and then that wasn't real because, you know, you know, you can have a lot of passengers paying like $20 per month, $20 per trip, but that's not real demand because that's not gonna make airlines make money, right? But I don't really know the reason why it is so low.

Peter Cerda:I guess that's probably one of the major tasks that we have, is particularly a country like Mexico that's so Highly developed on an aviation land. I mean, you look at connectivity, this country is very well connected both domestically and internationally, and we still struggle to get Mexicans to travel at least once a year. We have about 7, 8 minutes left. Questions that you may have from the audience? I know it's after lunch, and if I see anyone sleeping, you know I'm going after you.

Javier Suarez Casado:Okay.

Peter Cerda:Any questions? This is your chance.

Javier Suarez Casado:No?

Peter Cerda:Okay. So let's talk the last topic of the day because we've talked about price, making it affordable for passengers, for Mexicans to travel. We talked about the relationship with, with the airports, how important it is to have the right infrastructure at the right price. How important is it to have our government play an active participator role, but not an enforcement role in really not letting the industry grow, but rather collaborating with the industry and having the government have aviation at top of the agenda, or at least one of their key agenda items. How important is that for Mexico to be able to be successful at that level for us?

Javier Suarez Casado:I mean, you know, I'm not going to focus only in Mexico.

Peter Cerda:No.

Javier Suarez Casado:In general, I think, you know, governments are normally aligned and they understand that airlines are connect— I mean, are drivers for economic growth, for tourism, and they're normally very helpful. Local governments that are more opposed to tourism are generally more proactive. You see it like across the world. You see it in Europe. You see it here in Mexico, in the U.S. And we talk a lot to them, and some of them are very helpful. They have like good insights. They, you know, when you open a new market in a different country, they facilitate, they guide you, and we are honest with them. We tell them what our intentions are and that, you know, we're not opportunistic. We go to a new country, a new route, you know, we're there for the long run. They're helpful. We would love governments to help in every country we operate, provide stability, etc.

Peter Cerda:Last question. Something that you would, being Spaniard, that you have in Spain in terms of air transportation that you would say, wow, what works really well in Spain could really work really well in Mexico? Is there something that you've seen there or any other country in Europe where you could say, if I had that here in Mexico, wow?

Javier Suarez Casado:Related to airlines, I think, you know, I think historically, you know, there were big differences in aviation with regards to continents and and even countries. You know, when I did aviation management in Madrid like maybe 20 years ago, 25 years ago, I don't know now. But I mean, we, you know, did aviation management and we looked at the US as the most developed aviation market. Now, and I started working for a Spanish airline, Iberia Regional, and I was telling them, you know, LCCs would come here. I'm like, no, you know, Valencia, I was based in Valencia, no, you know, LCCs that model is not going to work here. Now that model is everywhere in the world. I don't think Mexico— Mexican aviation is less developed than any other market in the world. I think, you know, we're super competitive. We use technology as much as US airlines use technology, and that applies to Europe. We, you know, I think we, you know, our industry in Mexico is very powerful.

Peter Cerda:And I think, you know, again, A tribute to you, to Viva, Aeroméxico, Volaris. The amount of resources and funding, technology, training, investment into the industry is only helping Mexico grow as a country because this country is better served today domestically, internationally than ever in its time. It's cheaper to fly now, and it's really the dedication and the focus that yourselves have done. The one thing that you're looking most optimistic towards the future?

Javier Suarez Casado:You know, stability in terms of cost, in terms of regulation. And, and, you know, we want to continue growing as we are. You know, we're focused on bringing in the best talent, retaining the talent we have, bringing in the best talent so they can grow faster and be and continue to be the most profitable airline in Mexico.

Peter Cerda:I'm going to end on that, talent and sustainability. How much of a challenge is bringing in the talent and keeping the talent? The second question, sustainability, how much— how focused are you in that area now moving forward considering all the social and political pressures out there?

Javier Suarez Casado:With regards to talent, you know, it is at this point way easier bringing in talent to Viva than it was in 2014 when I joined the airline. You know, when I joined the airline, we only had 13 aircraft. We were pretty much losing money. You know, it was kind of kamikaze joining Viva. At this point, we, you know, we came up with a job vacancy and we have like plenty of people applying to Viva. And there's not too many airlines, but we have a lot of candidates coming from other airlines. So I think there must be something that we're doing well. And retaining talent on the other side is like, you know, people look at you, look at Viva saying, okay, if these guys are making money in a challenging industry, you know, they must have good talent. So you see other airlines, other industries poking your people. So that's why it is important that we really focus on keeping the talent and keeping them happy. The other question—

Peter Cerda:Sustainability.

Javier Suarez Casado:Sustainability. We're very, very— I mean, it's—

Peter Cerda:we—

Javier Suarez Casado:I think it was a year ago we decided that we needed a Chief Sustainability Officer, who, by the way, is here today. It's a top priority for us. The one thing we're doing on our side, on the network side, on the things that I take care of is, you know, we believe our network, the way in which we're developing our network, our fleet decisions are helping a lot. I mean, you know, for example, the A321neo that we use, they have 240 seaters. It's pretty much the most fuel-efficient aircraft at this point. We focus on point-to-point traffic rather than connecting. So, you know, those passengers that would otherwise fly via hub, now they're flying nonstop, less fuel burned. And what else? I mean, you know, like our ops people, they're constantly trying to be more efficient and try to do our best. Interesting. This is a collaborative effort. You know, the aircraft manufacturers, pretty much everybody is like moving towards that direction.

Peter Cerda:Javier, as you can see, we're in red. Okay. Thank you so much for your time.

Javier Suarez Casado:Thank you, everyone. Thank you.

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