Airline Leader Interview, ABRA CCO Angus Clarke

Transcript

Lori Ranson:Angus, welcome. Thank you for joining us.

Angus Clarke:Thank you, Laurie, for having me.

Lori Ranson:So you are coming up on your 1-year anniversary at ABRA in October. So I think it might be start to— good to start with what drew you to the company and its strategy. Where do you see the most opportunity? And kind of what has surprised you the most looking back? And you can't say fuel.

Angus Clarke:So I mentioned a little bit of the strategy on the previous panel, but really what we— one of the reasons I joined ABRA and was brought in was the experience I had at Air France-KLM of— now, I didn't do it. It was done in 2004 when Air France-KLM came together, and they had a long runway to integrate. To get more integration, that is one of the strategies. What we get from that, we do get some cost synergies, but for my relevance, we get revenue synergies and marketplace presence. That's one of the key strategies that— I alluded to it in the previous panel. We want— if we're going to make— Bogotá is a successful hub. If we're going to make it a more successful hub with higher-yielding traffic, We need to access more of the Brazilian consumer to come over on Avianca, and they need to feel like they feel on GOL on Avianca. Now, you'll have different cultural nuances in the service, but that's one of our key strategies. Investment in product, we're buying a lot of new planes, we're investing in new cabins. We want to be— we are, but we want to be a more relevant, higher-yielding consumer proposition in South America and obviously have North American partners, have European partners to be relevant in the full-service landscape. That's a core strategy.

Lori Ranson:Back when ABRA was formed in 2022, there were a lot of comparisons to IAG that it was going to become the IAG of Latin America. Do you think that's still a relevant point? Or, you know, what's the nuance with ABRA versus some of these other integrated groups besides just keeping the brands intact?

Angus Clarke:So I think IAG is a very interesting model to look at and to have been modeled on. So I think what I think ABRA has that's in the IAG DNA is the investor return focus. I mean, we're acutely focused on financial outcomes, not compromising product operations, Um, you know, engagement with people. But out of the, the big 3 airline groups in Europe, IAG is, is the margin leader. And there's, you know, the Willie Walsh legacy, um, and the existing management, but the, the model he built up has delivered that. I would say interestingly, just in a year I've been there and the activities we have between GOL and Avianca, we're more commercially integrated than IAG is. I mean, you can fly London-Dublin on BA code on an Aer Lingus metal, or if you're on BA code, you cannot go to the Aer Lingus business class lounge in Dublin as a British Airways customer. Now, maybe that's changed recently, but that just shows that Aer Lingus is this independent model. BA is an independent model. BA and Iberia seem to have a bit more going on, but it's bizarre. The returns are great, so no criticism of them, but the integrate— we are definitely going for more customer-focused integration at ABRA than IAG appear to be going for, whereas Air France-KLM is entirely integrated on the commercial side. So you've got different, different models, but I think that's, that's my take on the difference.

Lori Ranson:I mean, just to the short-term and demand and demand patterns, um, Is it holding up? Are there certain areas that are weaker than others? Do you see any cracks? Have you been surprised about the resiliency of demand so far with the fuel increases and the fare increases?

Angus Clarke:I would say I'd actually break the market up into a few different segments. I would say north of Colombia pushing into the US and Caribbean, Central America, US, Canada has been very strong, and we've seen our biggest fare improvements in those markets. Long haul to Europe, the European carriers have not been as active as we would have liked at putting— pushing through fare increases. So from that point of view, um, I— it's that they've got higher costs than us, so I, I don't, I don't understand all their logic.

Lori Ranson:Do you think that's because they have some hedging positions still in place?

Angus Clarke:There's no doubt the European carriers went into 2026 with very good hedging positions. They've also got to think about what are they doing in 2027. This crisis is not over. Oil just keeps going back up again. The spreads are up. We're paying near to the top of what we were paying in the beginning of Q2. It's a big issue that I certainly think the European carriers are going to have to address in terms of higher fares and capacity discipline. In the South, what I would say is South Cone markets, you had winter and high oil prices at once. Even though we've got persistently high oil prices, we're coming into a better summer peak for the South. That is typically characterized by better quality revenues. I think, again, US carriers in bad periods used to talk about getting through the winter. The winter is is better for us in the south. So, uh, so I think that's, that's at least a positive.

Lori Ranson:And do you see demand holding up in premium cabins as well? Because it doesn't seem like in any region that there's been a dent in premium demand.

Angus Clarke:No, premium year-on-year premium's up a lot, so it's, it's good. Premium, uh, is doing well. So GOL is introducing a premium cabin. They've got long haul, but, uh, GOL is introducing a premium cabin on the narrowbody business, so we're very optimistic about that. But Avianca, the wide-body premium cabin is doing very, very well.

Lori Ranson:Just speaking of the long-haul and GOL's launch, long-haul launch with the A330s, can you just walk us through the reasoning behind doing that now? And obviously, how are the markets performing launching that kind of new type of service in a high-fuel environment? What do you see happening?

Angus Clarke:So I'll say a few things. When the commitment was made, the fuel environment was lower, so the business case was a little bit different. What I would say is we've launched 2 markets. We launched JFK from Rio and Lisbon. Lisbon is performing incredibly well in terms of revenue development. Even in this oil environment, we're positive on Lisbon. JFK has been seasonal, and we did it from the middle of the year, and we're stopping at the northern winter schedule change. We partner with American on that route, so we have a lot of flexibility there. But the reality is we will be back next summer for the JFK service to most likely sit at about 5 a week, and then we go through the year and again American will support us. So it's about getting Rio-JFK to a daily product with American code and GOL code. That's really what we're doing.

Lori Ranson:How much could the long-haul service grow out of Brazil? What's the footprint there?

Angus Clarke:We obviously have a large competitor with LATAM having a very comprehensive long-haul service out of Brazil. They even fly to very thin O&Ds such as Brussels and Amsterdam, which are well served by my former employer. I'm curious to see how that's going for them, but they also have very comprehensive network in very large O&Ds out of Brazil. So that's— it's one of the rationales for our own long-haul service is if we're going to offer a more comprehensive loyalty and customer proposition to the Brazilian corporate and Brazilian consumer, we needed a more comprehensive network. So that was key. So we've got partners obviously with Air France-KLM, but at the same time we— and obviously Air Canada we're doing stuff with, I've got American. But we needed to fill in the holes to be as comprehensive as our competition.

Lori Ranson:You made an interesting comment about pulling some of that traffic from Brazil over Bogotá. Could you expand on that? Because it's interesting and it's moving, it's market change, market dynamics. Sure.

Angus Clarke:We see a very large amount of customers on our São Paulo, our Rio services. GOL operates Brasília. We operate Manaus— sorry, Avianca operates Manaus. We want to expand in Brazil, and the best way to do that is let G3 Gold Code, the G3 Code, sell the Avianca metal. We also have, obviously, Avianca sales strength in Brazil because prior to the codeshare going in place, Avianca was successfully and is successfully operating to Brazil. You bring them together, In theory, you add more destinations, you improve connectivity in Bogotá to more north domestic, obviously to near Bogotá, but also into the US, into the Caribbean, into Mexico, into Florida as well. I mean, obviously Brazilians love Florida. There are a variety of ways of serving those markets, but more connectivity at Bogotá from points behind Bogotá in the south.

Lori Ranson:Once everything is finalized with Sky, how does that work into this whole integrated process with the 2 carriers?

Angus Clarke:Look, I think the immediate— we are pursuing some activities with Sky on an arm's-length basis at the moment prior to the closing. What I would say is Sky has a very reasonable domestic network in Chile, a very reasonable domestic network in Peru, and it just goes to further give more O&D markets to Avianca and GOL's network into those markets. So we will— we should ultimately look at a schedule between São Paulo and Santiago, for example, to feed Sky in those markets. And also Sky can start selling us in those markets. So that's kind of the plan.

Lori Ranson:I wanted to ask you about the E-Jet order that ABRA placed at the air show because that was a big deal. Obviously, it was a big boost for Embraer. Can you walk us through the decision-making, how you came to that decision? If you'd like to announce any destinations, feel free.

Angus Clarke:No, sure. In my previous job, I had a fleet responsibility and I bought 195E2 as well. It's just fundamental. I'm not being pro-Brazil because I'm in this job, but the reality is it is actually a great aircraft. It's very efficient, the weight's good, and it really has very good unit costs for the size. It's going to predominantly be a replacement for 737-700s at GOL. That would be certainly one key use. Avianca would have uses for the aircraft as well. It's about having flexibility to consider it across the group. But the reality is 737-700s are aging at GOL. They're the oldest aircraft in their fleet. So that's where we would see good use for the aircraft. But we're excited about it because it was a very solid margin aircraft at KLM. It is still a very solid high margin aircraft at KLM because it's easy to fill and it's efficient. So It was a pretty easy decision in the end, to be honest.

Lori Ranson:And you were able to get pretty early delivery slots, which was a plus.

Angus Clarke:Yes, relatively speaking, for the timing, yes. So Embraer, generally speaking, Embraer is a great partner. They're a great partner at Air France-KLM, appear to be a great partner at ABRA. So it's something we're all excited about.

Lori Ranson:I wanted to ask about Sky's A321XLR, because that gives ABRA exposure to that aircraft. They're getting their aircraft soon. I believe they have— I don't know if they formally announced a new route, but it looks like they're considering maybe some destinations in the Caribbean. I know you talked a little bit about cross-fleeting and how you view it, but can you tell us specifically how that aircraft could play a role in the group as a whole?

Angus Clarke:It is an interesting aircraft. ABRA, separately from Sky, has a vision around 321XLR, and Sky, I think the original business plan was a Lima sort of 8, 9-hour sector business plan into the US. It's not that that's changed, but we are constantly reconsidering configurations, what use we would have for the XLR. We see it as a good product to expand our network. Our competitors have ordered them as well. So very similar use for that aircraft, try and fly it to the end of the range. I think ultimately any XLR in the long-term fleet would have a bigger— would have a premium cabin. So I think that would be the ambition, and that's where our studies are going. So we see it as a way to grow our corporate traffic, our premium traffic with frequencies into markets like the US. without having to buy extra widebodies where we don't need the range.

Lori Ranson:It seems like if you don't have a premium cabin on that aircraft, you're, you're going to not be as competitive because most airlines operating it do have some sort of premium cabin that mirrors the widebody experience.

Angus Clarke:No, absolutely. It's in our analysis at this stage.

Lori Ranson:And there was an interesting question this morning on one of the panels about Those type of aircraft, the narrowbodies that can fly the long, thin international routes. Is there any kind of passenger pushback on not flying a widebody? I wouldn't imagine, but—

Angus Clarke:Look, I haven't been at an airline recently that's operating, you know, the 328, the— I guess the 9 MAX is at Copa with lie-flats. I think they're pretty happy. I suspect they're pretty happy with it. AFKL didn't have narrow bodies, but no, I mean, from people that I've spoken to that have been on the JetBlue 321neo LR, everyone's pretty complimentary about the product. So I don't see it as an issue. The only issue I see with the aircraft, it's a bit slow in cruise. So I don't think it's a comfort issue on the plane, but it is— it's like 0.78 versus 0.85. So you You're probably on a 9-hour sector, it's probably 9 hours 45, so you've got to think about that a little bit.

Lori Ranson:Adding time to travel, definitely. I want to talk about partnerships and the approach because you recently announced an MOU with Air Canada, and Avianca and Air Canada are members of STAR and Coordinate. You also recently announced A partnership with Etihad. As you start to work on these backend issues, combining loyalty programs, negotiating contracts at scale, what's the overall partnership strategy?

Angus Clarke:I think in terms of Avianca and Air Canada, obviously, and Star, a lot of the frequent flyer foundation is in place. And there is a frequent flyer foundation in place with GOL and Air Canada. So really what it's about is getting better connectivity, better fare alignment, well, in terms of combination fares, not pricing, but interline arrangements, codesharing arrangements, certainly prior to any JV where we may seek to coordinate on price and subject to any regulatory approval. But Air Canada is the number one player in Canada. They're a very strong business. We do well in Canada out of Bogotá, out of El Salvador. Air Canada puts a lot of traffic on GOL in Brazil. I wouldn't rule out one day that in a more immunized JV environment that we could see GOL fly to Canada with Air Canada's blessing. The market could potentially make sense. Look, I know the Air Canada team well. I've worked there. A lot of people I know are still there. Just, it made commercial sense, and they're a very good, easy professional partner to deal with. So that's just the rationale— expand where we can and do more together to lift our yield and combined yield in Canada where we can and generate more traffic on the combined metal of both airline groups.

Lori Ranson:Would you say the deal with CFM for the engines is the first sort of public showing of the power to negotiate with suppliers that ABRA has, and what else is happening along those lines? Because that's very interesting.

Angus Clarke:Look, it was good to reach a very positive conclusion with CFM. The engine market has been a minefield for everyone over the last 5 to 7 years. There appears to be on a number of fronts the reliability, durability is going going up. So to lock in competitive costs with a major supplier, because we obviously have a lot of CFM-powered narrowbodies at both airlines. No, I think it was a good milestone, but it also— I think if you've got the Gold team doing it, you've got the Avianca team doing it, they don't— you don't know, you can't cross-pollinate the information very easily. You say, well, who's got the better deal? It's all under the shroud of confidentiality on both sides. Whereas if you have a centralized team and the stakes are much double in terms of fleet size, it's easier. Then there's also the option on the Airbus fleet to go or to have gone with Pratt& Whitney. You could bring the tension out of the A320neo opportunity and migrate some of the benefit to GOL. So I think absolutely on that front, ABRA added enormous value leveraging the Avianca position to get a benefit for GOL.

Lori Ranson:And both carriers came out of bankruptcy much stronger, you know, combined under this umbrella company. Has that been a benefit with fuel being as high as it is? Do you think that they could have struggled on their own? in this environment and just having the framework, the backbone that you all have helps them navigate this?

Angus Clarke:Look, I think Avianca came out of bankruptcy in a very strong position. Then GOL, obviously, you clean up things when you go into Chapter 11 that are nice to clean up. GOL also came out ready for integration. GOL was largely arm's length from ABRA until it came out. So we've fast-tracked these commercial projects. But no, I think it's important. We're getting very good revenue generation between the companies in terms of the coding and the joint sales practices to add decent incremental value. I mean, I would say we're targeting a figure north of $100 million of incremental revenue, and that's with no additional capacity. So that just goes to the bottom line. I think if you end up with that level of synergy, it's just pure profit at that point. I think it's been a good move. What I would say culturally, even though we're effectively Colombian and Chilean when you look at the cross-section of management team on the— at the anchor side, and Argentinian as well, but we've got a diverse management team from the Spanish-speaking side of South America. And we've got the Brazilian side. I'm actually very pleasantly surprised how well everyone's working together, even though we have some cultural differences. I've worked at other airline groups where the cultural assimilation wasn't quite as easy. So, yeah.

Lori Ranson:I want to make sure we have time for audience questions. Let's see. What is the biggest risk that the group-level optimization at ABRA creates complexity faster than it creates value, and how do you measure whether the portfolio level is genuinely outperforming the airlines on a standalone basis?

Angus Clarke:It's a really good question, and I, I've, I've got sort of strong opinions on the first section. I think the best way of trying— if you just throw everyone into the pot and say work it out, cooperate, that doesn't mean anything. I think You've really got to exhaust as many upside levers on an arm's length, but you've got to create this fake arm's length basis of which doing business internally to say, does this work for you? Does it work for me? You pull all those levers and then you look at activities that might benefit Avianca, say, by $10 million but might cost Gold $2 million. And then you put the group umbrella over there and say, well, net-net, the group's 8 million better off, so we're going to do that. And it is a balance on culture because if— and that's just an example, there's no live example that's that, but the reality is the person whose P&L is impacted by 2 million, but the other one is making 8, one party's upset. So I think it's good to try and do a lot of stuff on an arm's-length basis, but then say, well, how can we go to the next stage? And it's— you've got to consider culture in all of this. You've got to consider that you can't just say, well, I like this airline better than that airline, and all these people are going to do those jobs, and don't worry. You know, you've got to pick the best talent from both sides, um, to, to make it work. And then how does it sort of add, you know, complexity? I think the, uh, the reality is you— some airline groups can lose cost focus by focusing too much on integration. I think we're doing it at a fast pace, but at a pace that's not going going to at any cost. If anything, we're seeing significant positive benefits. And certainly in my experience, we're getting very high levels of cooperation from the teams, which is good, which is good to see. It also helped I knew the GOL team very well from my Air France-KLM days because they were our primary Brazilian partner. Obviously, Adrian brought me in, and so he was on the Avianca side. So I think it's been— I think I've been a reasonable bridge between the— certainly on the commercial side between the 2 companies, because I knew the Brazilian side well. So it's helped.

Lori Ranson:And that kind of comes back to the first question, you know, did you see yourself as a bridge and saw it as a challenge maybe because we are in a different region of the world, different cultures? And so is that something that did draw you in a bit?

Angus Clarke:Well, I honestly, I wasn't that sure how it would work, to be honest with you. It was a change of environment and I To be honest, I'm— it's exceeded my satisfaction in terms of working together with the Avianca team and GOL team. It's— everyone's cooperative, everyone's been very willing to get to know each other better. So when I came, we were meeting 4 times a year between GOL and Avianca in person. We're now meeting once a month in person, and the working groups have calls once a week. So it's— we've really ramped up the engagement, and I would say that they've built good friends. It's, it's important that they actually all like each other as well to cooperate, and they do. The commercial teams all get on well. They all like each other. They're willing to help each other out. So, so I think that's a, that's a key dynamic and an important dynamic for commercial success if you want to achieve financial synergies from it. So that's going well.

Lori Ranson:Let's take one more question. How do you see network synergies between the airlines given the different fleet types and brands? Well, maybe just speak to that. We talked about that.

Angus Clarke:Yeah, I've talked about that a bit.

Lori Ranson:I think that's all the questions we have from the audience, and we are out of time. I appreciate it. Thanks for coming. Thank you.

Angus Clarke:Thanks for having me.

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