Airline Leader Interview Air Serbia CEO Jiri Marek
Air Serbia's recovery from the COVID-19 pandemic has been outpacing that of the wider Europe market since the start of 2022.
Its capacity has been above 100% of its 2019 levels since the start of the northern winter 2022/2023 season at the end of Oct-2022.
This expansion in the aftermath of COVID-19 has been achieved without sacrificing profitability.
CAPA - Centre for Aviation asked Air Serbia, CEO, Jiri Marek to share his views on the airline's development.
Transcript
Speaker 1 (00:10):
So it's been a very interesting time in the aviation industry. It's a troubled time for a lot. But before we go into a bit more detail about Air Serbia, I'd like to perhaps look a little bit back at you and your career, why the role here in Air Serbia was an opportunity that you couldn't miss to come and work for the airline?
Speaker 2 (00:36):
Look, I should go a bit back because actually it's very interesting that I moved here five years ago and where we are now, there was nothing. There was a hole in the ground five years ago and five years ago when we've been on a CAPA in Malta, we actually had the idea to bring the CAPA to Belgrade. And it's five years from now you see all this construction around and we are here. So that answers the question why I'm here because when I saw five years ago the opportunity, how the country is developing forward in terms of economy, development, tourism and everything, it was a great opportunity that Air Serbia will be part of that and that's why I'm here.
Speaker 1 (01:12):
So obviously when you started, it's a great opportunity to develop and then you are hit by the biggest crisis that aviation's ever faced. That must've been a big concern for you taking on the CEO role at a time when there was a lot of problems in the industry. Since then, you've just grown significantly. Why is Air Serbia been so successful at growing quickly out of the pandemic?
Speaker 2 (01:37):
Look, first of all, it was easy decision because actually I came as a chief commercial and chief strategy so I could test if the strategy will work before accepting the role of CEO. So from that point of view, it was easy. Smart
Speaker 1 (01:49):
Plan, smart, smart
Speaker 2 (01:50):
Plan, it was easy. But I think the one word which will describe what is behind the success of Air Serbia is agility and adaptability because when you are small you can very quickly react on the market changes. And we all know that last five years the market changes was tremendous in terms of covid, pent up demand, everything and I think who can react very quickly on it can actually capitalise on the outcome.
Speaker 1 (02:20):
So what's been the key initiatives that you've introduced to be able to do that?
Speaker 2 (02:25):
Look, first of all we have to go back to 2019. In 2019 we've been typical legacy carrier having the load factors below 70 and being kind of not able to take bold decision. And at the time we had the first team meeting with a commercial and we told guys we should aim on 80. And everybody gets scared like that's not possible. If you don't aim high, you don't achieve high. And we really went to aim at 80. We didn't achieve 80, but we achieved over 75 in basically three months. And we started the double digit cross already back in 2019, which was the numbers never seen in our airline before and then came the covid and of course covid, you have to slow down and we didn't waste the time. We use it for internal restructuring and optimization and efficiency and now we are already achieving 50% levels above 2019 with the same number of employee as in 2019. So it's just you can easily calculate how much efficiency was going through during the covid restructuring.
Speaker 1 (03:32):
So you've done this restructuring, it was the perfect time to look at that, but the industry has changed somewhat from before Covid, what's been the trends in this part of the world in terms of changes to traveller habits and in terms of how you can focus the growth of the airline?
Speaker 2 (03:47):
I think that for us biggest surprise and biggest success was stepping into the high end leisure demand. And that's basically after covid whatever we open in terms of leisure destination, it's being sold in a matter of a couple of weeks and it's working extremely well. So just example, like before Covid we had two weekly Barcelona and two weekly Madrid. Now we have Valencia, Malaga, Paloma, Madrid, Barcelona, many of them with multiple frequencies. We openly on Porto, almost 10 destination in Italy, many destination in Greece. So the leisure demand I think is one which definitely work extremely well.
Speaker 1 (04:27):
And how are the loads performing the industries in a little bit of a sweet spot in terms of travel? What are you seeing and which markets have seen the biggest opportunities going forward?
Speaker 2 (04:39):
Look, I think the best definition would be that still when we hope that after covid we return to some new normality, it's didn't happen. It's just keeping volatile and not only because of all the challenges we have within the industry but also in the market itself. So for example, we reached 2019 level already back in 2021 at the end only 2% below and 22 and 23 we have a significant growth. We opened almost 40 destination. What we saw is that for example, the season get extended so that the season is not typically only June and September, it's like May and October. And the first winter after Covid was extremely strong. We basically first winter we've been profitable every single month, which is something unusual for the aviation. And next year again the seasonality started to come back. So the extended season started to again shrink.
Speaker 2 (05:33):
And the winter difference between winter, summer was again very big. That was in 23. Now in 24, again October one of our best months and many airlines which are in a room reported October one of the best months for them as well. So we had October almost 80% load factor, which again, number of which we never see before. So it's like you cannot really tell one thing. You just again need to be flexible and agile to adapt whatever changes will come Initial forecast for let's say November, December at the moment look like that it's much slower than expected but on the other end the yield are pretty strong versus last year almost double digit.
Speaker 1 (06:12):
So what's the expected passenger numbers you expecting this year? I think you've already very close to the record you had last year and how do you see that growing in the years ahead?
Speaker 2 (06:21):
Look, last Friday we surpassed 4 million passenger for this year. At the moment we believe we will end very close to our historical record, but we will not surpass, I think we will be around 4.4 million. The historical record in 87 was 4.5 million, but at the time it was a whole Yugoslavia market over 24 million people. So I believe that next year for sure we will sur that record, let's put it this way.
Speaker 1 (06:48):
And obviously to deliver this network growth that you're having, you've got to invest in the fleet, you've got to grow the airline, you've added more regional turbo crops, you've added more long haul aircraft, you're bringing a whole new aircraft type into operation as well. So what's your strategy in terms of going forward on that side?
Speaker 2 (07:06):
Look, I mean again we use that opportunity of that window of one or two years during the covid where you can really make very good deals for the fleet. So we completely grounded our Boeing 7, 3, 7. We've been one of the last operator of the type in Europe, they've been very aged and also all our a TR 72 200 and we use opportunity completely the turboprop fleet. Now we have 10 80 R 72, 600 and we believe for some time that's the proper size to serve the region. We have 17 roots in the former Yugoslavia. So there is not much let's say to cover. So it'll be more like densified rather than expanding. And we have classical, let's say backbone of the fleet is the Airbus 3 19, 3 20. We will continue to grow that fleet in three 20, but everybody knows situation on the market. So if any lessor have an aircraft talk to our team over the break and we just stepped now in also into emry and Emry for us will be replacement of the three 19 whenever they will be face out at the end of the leases. And main focus last two years was actually developing the long haul. For many years we operated just 1, 3 30, 200. Now we already have three. At the end of the year we will have four. So it's a lot of things and work behind all these.
Speaker 1 (08:30):
There's a lot happening at the same time. I just want to look at the Embraer slide first of all because you have a similar capacity aircraft with the A 3 1 9, bringing the emre in complicates things a little in terms of you need a new team of pilots, it's the 3 1 9, you'll have the same cockpit and cruise as the three 20. How do you offset those additional costs? What benefits does this aircraft give you?
Speaker 2 (08:54):
Look, I've been in a couple of airlines and it's kind of interesting that whenever you are not profitable and you get the consultant, they will always first go to simplification of the fleet and reducing the complexity. If you are in a profitable airline and you are running hub and spoke, you are looking for profitability of all the routes which are feeding and you need all that capacity. And currently we have over 40% already of the transfer passengers. In 2019 we had around 20. So it's a big change and now for us feeding the network, especially developing the long haul, that's very logical choice. On the other hand, in a long run one we will face our three nineteens, we will concentrate on three 20 difference between a TR and three 20. You need there another aircraft type which will serve the demand.
Speaker 1 (09:43):
And then looking at the long haul side, the three thirties are bringing you growth opportunities into China mainly with low frequency services to begin with. What's the plan with that? I'm assuming you're going to ramp up frequencies as the market grows.
Speaker 2 (09:58):
Look, again, we need to understand who we are. We are regional airline so we don't want to make any kind of decision which potentially can jeopardise our profitability. So we start with the low frequencies to test the market is the market is working, we are satisfied, we will continue to grow and densify and for us this strategy at the moment working very well. So we open Zwan job with a two weekly at the end of September. We are opening Shanghai in 11th of January. And if this will work we will continue to densify those routes and potentially we are looking into third destination in China, which logically will be Beijing. But with all the application process for the permission traffic lights, landing permission, all this in China, it take a lot of time. So at the moment we will concentrate on densification of banjo and Shanghai and parallel work on another destination.
Speaker 1 (10:52):
When you say on the destination, would you consider other markets that you are looking at to fly?
Speaker 2 (10:57):
Look, I would like to highlight the word consider because usually when we tell that we are considering or looking into something next day in media is that we are opening the new long haul route next day. So that's always very important but there is no secret because numbers speaks. So if you look the numbers and logical choices after we densify the China next destination will be in North America, either Miami or Toronto or both. And after that far east Seoul and Tokyo, that's we told already many times and it's very logical step of the development.
Speaker 1 (11:32):
Well let's see aircraft availability and opportunities to be able to move that forward. We are able to, if anyone has any questions, we obviously do have the Slido app that was highlighted earlier and I think the team will put it on the screen if they haven't already. If anyone's got any questions please put them in the app and I will if we have the time, try and ask a couple. It's a very competitive market out there, low cost carriers competing heavily. How do you as an airline differentiate yourself and make sure you are competitive in this marketplace?
Speaker 2 (12:07):
Look, I mean based on our let's say analysis and assumption, we should always try to maintain over 50% market share at our home airport because then it'll guarantee you that you can first you can make the successful hub and spoke model plus you will became also attractive for other airlines coming in which can fit your network because we cannot take all the market logically. So we just starting now successful cooperation with China thousand, we signed the memorandum for understanding, we are discussing the JV because for us it's not basically competition, it's somebody who is bringing in additional flow and using the hub as a nice niche gateway towards the beyond Europe flows. Same thing is like we are developing a partnership with any airline which is willing to come to Belgrade. Of course there will always be the Locos career and loco careers for us are actually kind of benchmark and internally we are always asking people, did you check how another airline here which is flying here, how they are doing it, what are their KPIs? Because that's the only way which will push us forward to be better and improve also more our efficiency. So at the moment we are pretty satisfied with the competition which is here we learned that we have to fight competition. We should not let it just go and take our market share. And I believe we are doing that successfully on some route they win on some routes we win on some routes we coexist. But the market,
Speaker 1 (13:35):
Well obviously the demand is there. I've seen that myself when I came over, I unfortunately almost missed my flight in Amsterdam. I had a tight connection because of a late service and I was told that if I didn't get that connection the next flight I could get was three days later because all of them fall. So the demand is there but how do you meet that? It's quite hard to be able to with the peaks and troughs of travel and everything. How do you work the business to be able to be competitive there?
Speaker 2 (14:05):
Look, the demand is there, but the problem is that that demand is still very volatile even on months, on months or year on year. And it's very difficult to forecast or plan beyond I would say three months window because majority of the booking is happening like last two weeks. What happened after Covid, the booking window really shrink. And I can give you one extreme example. When we were operating Jin, which was a destination in China, which was the only available during the covid, all the booking came in eight days to departure. So just imagine you are running the long haul service where you see it empty and eight days before departure it get full.
Speaker 1 (14:43):
It's quite a stressful thing for us.
Speaker 2 (14:44):
It's very stressful thing. And we suspended recently and we suspended because when we opened the guango basically we realised that those people which were coming in in last eight days, now they are using the guro or other points because there is already sufficient capacity for that demand which is currently available in China.
Speaker 1 (15:03):
Okay. Now you are obviously driving the commercial success of the airline ultimately A CEO with the role you had beforehand as well, but you've also got to drive the corporate culture of the business as well. And we do have a question here about staff wellbeing. So what would you say are the core values that define the way Air Serbia operates and how do you make sure that's reflected in day-to-day interactions with staff and with customers?
Speaker 2 (15:28):
I think the main two values we have is our people and our brand because at the only things which you cannot replicate everything else, you can hire the plane, you can hire the, let's say at least provider as well we are using as well, but your core team and the brand is something which you cannot replicate and that's what we are trying to last couple of years built on last two years. Every year we increase the salaries to many departments, some departments even more for the critical categories. So it's something which we also realise that we are step-by-step returning to kind of institutional education that we will not be relying only what is available on the market currently. We have some representative here also from the dual education from the government. They invested a lot into aviation academy. We sign up the current programmes that we know what resources will be available on the market coming forward that we can start to plan it like it used to be.
Speaker 2 (16:28):
This institutional education I think is very important for us for both critical categories, which is pilots and the engineers. And on the same time we are starting to cooperate very closely with the universities. We started to do the paid summers, let's say we call it takeoff campaign when we attract the students and we pay them normal salary just to get familiar with what we are doing this year, we already a couple of them after they finish the school hire. So we need to make sure that we want to grow and we want that the people will grow with us and not only us as a Serbia but the whole ecosystem of aviation in Serbia is not only us, there are multiple suppliers which we need to make sure that our growth is followed with all of them.
Speaker 1 (17:15):
Okay. I'm going to take a few of the questions that we've got here. I think some of them we've been partly answered before. So who are air serbia's main customer segments? Is it driven by tourism, former Yugoslavia, diaspora, industry, China?
Speaker 2 (17:28):
Basically a bit of all but I would say our three main categories historically we always been very strong with diaspora, but diaspora, I would say 25 person maybe of our business. But it's segment which is you cannot base across on it because diaspora is given and in a time third, fourth generation, the traffic demand will slow down. So that's something which is good to have it as a base load, but it's not something which you can build your development on. Second basically segment which developed very strongly after covid and basically our growth is mostly around that is leisure and I would say rather high end leisure and based on creating the critical mass, we plug in the transfer opportunities and we went from 20% share in 2019. Now it's over 40%. So those three segments are key drivers. I wouldn't call that we are corporate airline, we have the corporate traffic, but it's still not that significant. And with having now during summer over 90 destination, you have the critical message, any destination you add into the network, it's automatically became self-sustainable with the feed.
Speaker 1 (18:40):
Right. We've also got is the plan to establish fail grade as a new connecting point airport between East Asia and West Europe, perhaps the Americas as well?
Speaker 2 (18:50):
I believe yes. I believe that we are working closely with the Belgar airport because our main focus now we are trying to explain is that the main driver forward will be actually the transfer business because airport has over to 120 direct already route and there is in last couple of years nobody really open except us new point to point, base route. Next highest demand is doubling and Manchester and even local carriers are not opening it, which means they don't believe that they can stimulate demand to sufficiently do it as a point to point. So any next route which will come will need to be based on the network feed and that should be done with a hub and spoke airline like us or we will attract another carrier from the destination to come and feed our hub. Which means that going forward the transfer opportunity is very important and we need to make sure that the facility infrastructure, everything will be very seamless and smooth that we can be kind of secondary niche to the other well run transfer hubs like Vienna and so on.
Speaker 1 (19:57):
Obviously as you say, it's important the infrastructure you have there has been an investment in the airport. How is your relationship there in terms of having access in terms of growth opportunities and what do you perhaps see as any of the key factors that could actually influence meeting the growth that you plan?
Speaker 2 (20:18):
I'm not sure if, because English is not my native, if you have that phrase, it's like marriage by brain. I dunno if you have something similar, something similar thing. So we cannot move the airport, where is it? They cannot move us as a national airline. So we will always have the days where we fight, but we will have also the days where we work together to some common goal. It's like in any kind of marriage you have these kind of relations but without the jokes we are really trying to work very closely is that now we went through the period where infrastructure was expanding and now we are going into period where we need to find how to optimise that infrastructure to exactly the needs of the customers.
Speaker 1 (21:01):
We have some other questions here. There was one, I don't think I can see it there. There was one talking about India. Is India on the target list for you for growth?
Speaker 2 (21:11):
Not in the near future and it's coming constantly. This question about the India because what we saw during the Covid here was extreme inflow of the Indian tourism and everybody saw that oh time to open the direct line and nobody really properly understands that this was because of these travel bubbles and the option where you can travel, where you can transit when you travel to your final destination. We have a lot of passengers which were coming from India to Belgrade because from Belgrade they can go to United Arab Emirates without any restriction, but they cannot go from India to United Arab Emirates directly. So this was kind of niche which was working during the covid and some of the airline actually open new lines to Belgrade because of that demand. But I believe that at the moment it's not in our radar for the next couple of years.
Speaker 1 (22:03):
Well thank you everyone for your questions. There's lots coming in here. I particularly like this one here. I think you'll like it as well. You clearly have a passion for the commercial network side of the airline. Was it easy to give up some of that involvement when stepping up to the CEO role?
Speaker 2 (22:16):
You need to find the balance and I'm born Libra, so I believe that I'm trying to balance between different internal, let's say sometimes contradicting opposing, let's say departments which somebody want to grow faster, somebody want to be having more stability and so on. But at the end of the day we are small enough to be able to kill all the siloes and create the bridges between the departments because it's still the same boat. And I think that when we started to be successful and profitable, a lot of people which have been negative and didn't believe that it can happen, they automatically start to be part of that progress. And now I would say that there is still room to improve, but I think we are different companies than we used to be.
Speaker 1 (23:15):
Okay, we got a question about sustainability. We can't have any session without talking about sustainability, but we have a session this afternoon with your colleague from Air Serbia where we'd be talking about that in more detail. But the question we have here is about government's sort of role within that, not necessarily just the government here, but governments across the whole Europe across the world, putting measures in place to push the targets that we're already working to achieve. How important is us as an industry to have a stronger voice to push what we are doing from a sustainability perspective? So we are in control of what we are doing rather than having measures pushed onto us?
Speaker 2 (23:56):
Look, I mean it's part of our agenda as well and we are trying to push forward, but there are certain things you can do if you are small, you don't have the economy of scales that you buy the Ry like some of the airlines or that you buy all the stuff available fuel and so on. So you should find your niche and it can start even the small, for example, we made this year first completely electric turnaround with our partner Menzies in the wider region. And it's something which we've been criticised after that it's not fully electric and so on. But again, people don't really look at it that, for example the bridge for the aircraft is with a solar panel. It's not that you plug it somewhere later on in the socket so it can start small. But I think the important is that my feeling is that as industry we too much talk about it but we don't do it. I think the main problem, and I think that everybody with when we talk about 2050 majority of us will at that time be retired. So I think that we need to actually attract that the next generation of the executive will really start to take that seriously.
Speaker 1 (25:07):
Just a couple of minutes. So a couple of last questions for you. Aviation industry is constantly adapting, we're constantly changing, we having to look very differently at it. What do you think is going to be the next key trend and how are airlines going to look in the future and are you prepared for that?
Speaker 2 (25:23):
Before that I will actually return to the sustainability, right? Because I think that this is the first CAPA where we have a daylight. Usually the conferences are in very dark room and we consume a lot of electricity. So you can maybe tell us that this was the first sustainable Kappa conference, but just I think the team appreciate that. That's a good view.
Speaker 1 (25:44):
It's a different view from this side. Do you want me to ask the question? It's about the industry changing and constantly adapting and what you think the next generation of airlines are going to look like and how are you preparing yourself to be able to be part of that?
Speaker 2 (26:04):
Look, I think that from our perspective, the main thing is that we need to get the whole end to end travel journey. That everybody will have the same goal and it's to make customer satisfied because with a lot of now over tourism, which happen, a lot of the manpower shortages across different, let's say chain of the travel, the travelling is not fun as it's used to be. As you mentioned as well, you've been nervous to get your connection and so on. And whenever you are now travelling it's a must you have to do and then you are happy when you are in a taxi and going to the hotel and so on. And I think before the covid it was already also massive growth over tourism everything. But still it was a lot of fun when people travel now, when you talk about with your friends, with anybody, everybody is just complaining about where you've been long time in a queue where less your luggage when the flight was really and so on. And I think we as an industry and ecosystem, we should put the customer in the centre and make sure that he's satisfied through the whole journey. And stop finger pointing if is a TC control, if is supply chain, if is airline, if visit airport, but to make sure that the customer is satisfied. And I think that should be the biggest change in order that we can cover all this demand which is coming through.
Speaker 1 (27:19):
And just finally, what's the one thing you'd like the audience here to know about Air Serbia for the next 12 months?
Speaker 2 (27:30):
To have satisfied customers and satisfied employees.
Speaker 1 (27:34):
Brilliant. Well thank you very much Zy. It's an absolute pleasure to speak to you. Round of applause. Thank you very much.
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