Airline Leader Interview Condor CEO Peter Gerber

Transcript

John Strickland:Good morning, ladies and gentlemen. Just like to welcome straight away to, to the stage with me my guest, Peter Gerber, CEO of Condor. Peter, welcome to Berlin. Welcome to CAPA. I think it's your first visit to CAPA, isn't it, Peter?

Peter Gerber:Absolutely true.

John Strickland:Yeah, yeah. And I'm sure it's not your first visit to Berlin.

Peter Gerber:Not really. For this week, the first. Okay, good to hear.

John Strickland:Well, Peter, also just introducing you, I mean, you're a man with a long airline career, principally with Lufthansa, but joined Condor about 2 years ago. So I don't know if there's a similar German expression, but to me we could say you are poacher turned gamekeeper. You've switched to the other side and you know the enemy, but maybe you'll define them as the enemy or not. We'll find out as we chat. And Condor, you know, as an airline, has got a really long history going back decades. If we focus even on this century, from the early 2000s being part of a Lufthansa Group, switching over to Thomas Cook— Thomas Cook sadly with us no more— and then a private investor, a company about which I know little, Atesta, which I believe is a German-Anglo investment company. And currently you have a German state as a minority investor coming out of pandemic aid at the present time. It seems to me it's a It's a pivotal year for you. The world changed for all of us only a few weeks ago, but you had a very good year last year, Peter. I think you told the aviation world about that a couple of weeks ago. So tell us now, what were the highlights for 2025 for Condor?

Peter Gerber:Yeah, thank you, John. I think what maybe is most important with Condor, that we continue to finish our transformation. I think we can now show that this transformation bears fruits. And so this means we are successful. And definitely one of our highlights in '25 was the establishing of our own feeder network. So we had to do this practically overnight. And again, Condor was able to achieve this. This is maybe one of the key features of Condor, that in very difficult situations, the team is always able to find ways, to find a solution to survive finally, whether it's bankruptcy, whether it's Corona, no matter, Condor survives. And we also survived this. And of course, we are quite proud that the feeder network works.

John Strickland:Yeah.

Peter Gerber:Our long-haul destinations work. And with our brand new planes, I think we could deliver a result which brought a record EBT. And of course, we are looking forward to continue this.

John Strickland:I mean, it was what, about €151 million EBIT results and close to 10 million passengers as well? Was that a record year also for the company in passenger volumes?

Peter Gerber:Exactly. It's a record. And we are, of course, aiming for more with our growth.

John Strickland:But so I think we, this year, we clearly break through this Then you had, as I mentioned, like many airlines, there was pandemic aid from the German state, which I think was due to be repaid later this year, but I think you just announced you've actually repaid that now in full.

Peter Gerber:Exactly. Maybe also one of the highlights I missed, there were so many last year. It's true, we repaid the full state loan to the KfW, the German state bank doing those investments, and we paid it back before time, exactly 6 months beforehand, showing that, of course, the year has been quite successful for us.

John Strickland:That was up till March, and we've got to inevitably touch on the current situation, but I just want to take another step back. I think the last couple of years— I don't know if this predates your arrival as CEO, but there's been quite a long, protracted battle with Lufthansa because you had a special prorate agreement giving access to, to Lufthansa flights for feed to your long-haul network. And I certainly read a lot of it about this in, in the trade media. You know, Lufthansa was eager to stop that. It did come to a stop, didn't it? Was it, was it late last year, that special deal?

Peter Gerber:December, December last year, yeah.

John Strickland:And that in itself triggered the move to the European network, which we'll speak about in a moment. But I mean, was Lufthansa within its rights to do that, or, or is there any discussion about that point still?

Peter Gerber:I think this is still open for discussion and in the end maybe also open for decision because at the end of this lengthy struggle, the only thing which was ruled out is that the head, the leader of this whole case, it's the Federal Cartel Office of Germany, of course. It's not Condor, it's not Lufthansa, it's the Federal Cartel Office. And what the judges at the court ruled out is that the Federal Cartel Office had committed some formal mistakes. So meaning they did not decide on this question, where was there an abuse of Lufthansa's market dominant position? Is it therefore necessary to grant Condor the right for feeder flights? They did not rule out this at all, just stating that the Federal Cartel Office had committed some formal mistakes. Within the investigations, and so they pushed it back due to those formal reasons. So meaning a material decision is still outstanding. Maybe some, someday we get one, but as you know, already this case lasted for more than 4 years, so it's not likely that we hear something in the next weeks.

John Strickland:And you couldn't wait. Meanwhile, you had to make strategic changes to particularly support that long-haul network, and Exactly.

Peter Gerber:So this wouldn't, wouldn't have been possible because then our long-haul fleet would be empty and this wouldn't be a good signal for our P&L.

John Strickland:And just reflecting on the broader competition issue in Germany, I mean, Lufthansa had a Capital Markets Day late last year in which they had some nice pie charts showing their share of capacity at their home hubs in Frankfurt and Munich as compared to some of the peers around Europe, and I think it was the largest share. I mean, 67%, I think, Frankfurt, higher still in Munich. You are, I guess, the homegrown competition. You have a pivotal role to play in that sense in the German market, so you, you need to flourish.

Peter Gerber:We, at least we try to be equal to this occasion. It's true. So we are the only left competitor, the only competitor in Germany. And I have to say the only growing airline in Germany during the last years. And of course, in Frankfurt, so the main hub in Germany, in the meanwhile, we are number 2 with well above 10% of the market share and the slot share. And of course, our plan is— and then we keep growing.

John Strickland:Yeah. And because of that prorate coming to an end, notwithstanding the fact there's still an open legal case, You have massively re-engineered your network and even expanding this summer with quite a wide European feeder network. And I'm interested in that in 2 respects, Peter. Obviously, I understand the logic of feeding the long-haul network. You've got a sizable long-haul fleet and pretty broad global coverage. So you need to feed in the absence of a decent pro-rate agreement with Lufthansa. But you're also pitching it, it seems to me, as the local market. So many of these European routes that you've introduced, cities like London, Gatwick, for example, 3 times a day. I mean, that's a big investment in aircraft time, cost of operation. And can you make it work both as feeder and local? Because let's say in the UK, is Condor known? You know, it's always hard to break into a market, get your name around.

Peter Gerber:Yeah. Of course, I think it's very difficult to have a final answer to this now because it's already just a year.

John Strickland:Yeah.

Peter Gerber:When we started our city network and our own feeder network. So this means we are learning literally by the day and we also need to see whether it works out or not. What we have already seen is that we need 3 waves. This is the reason why we fly 3 waves with practically every city, because that's the optimal way for feeding and de-feeding, connecting our passengers. So they like this, this very much. That's one thing. And the second thing is, of course, their city is working better than others.

John Strickland:What—

Peter Gerber:but what is common to all of them, we have a huge transfer share on the cities. This is necessary for a long-haul fleet, and this is especially necessary in Germany because, as you know, we don't have a natural hub like France or London. England has with London. Frankfurt is the next big city where it's possible, despite of Düsseldorf, where it's not possible due to legal restrictions of the airport. But it's only Frankfurt. And also Lufthansa has always relied on, has to rely on a big chunk of feed because otherwise you can't compete with the other European carriers.

John Strickland:Yeah.

Peter Gerber:And it's the same for Condor. So you need this quite broad network. And we are seeing now after one year, especially since we implemented a third wave that the cities are working better and better. So the transfer share is already okay. We have a lot of city-to-city connections, sometimes crazy things. At the end of last year, we had a huge amount of passengers flying from Vienna to Paris via Frankfurt. Can't say the reason, maybe it was too expensive as the guys on the other side did. And the third thing we see now is that we get, of course, partners in. Flying with Condor who are not partners of the Star Alliance. So Korean or Vietnam Airlines, other guys coming in with us. And the last segment is the point-to-point traffic. And there we are very good in Vienna, getting better and better in Berlin, for instance. And could have some improvement in Munich.

John Strickland:Okay, good to know. But it was a big investment. I mean, not just as you've explained there, you need 3 waves, which for me was surprising that you needed that much throughout the day, but you had to take out some, if you like, to me as a non-German but a Brit looking at the German market, some natural, I would've thought, moneymakers to southern Mediterranean, maybe Spain and so on, to free up the aircraft slot capacity. I suppose in some ways maybe there's a regret there, especially in the situation we're in now. We see this massive demand moving to Western Med. I guess you still serve some of those markets, but maybe less than you would do ideally.

Peter Gerber:Of course, we had to cut back a bit of our touristic program, but we mainly did this in winter, and in winter it's not such a big issue because, as you know, Touristic flying is especially profitable in the summertime, so we could manage it in the winter. In the summertime, we took in additional capacity from partners, ACMI providers, to at the end mitigate this. So we only missed out a small chunk. But what we couldn't— could not do all in all is we couldn't grow on the touristic side like planned. But we managed to keep our footprint, especially as also the sister company of of Condor Marabou, got some more planes in. So all in all, this was fine. But of course, what in this respect, we lost a year of growth on the touristic side by establishing the feeder network. But let me make this quite clear, in the end, the result is mainly driven by the long-haul business. And so therefore, also shown in the results already of last year, this proved to be successful.

John Strickland:And in terms of your fleet, I mean, not only have you re-engineered the network, but the fleet's really gone through, You know, I remember seeing last year a lot of coverage of your last 757 flight.

Peter Gerber:Yes.

John Strickland:I think we chatted on the phone the other day.

Peter Gerber:It was quite, was quite an event.

John Strickland:I remember when the 757 came into service, excitement about highly powerful aircraft, and there was that final flight with Condor on a 300 to Vienna. But now you've gone all Airbus and their new generation, not only NEOs on the, the 350s, 320, 321 side for short haul, but I think you're one of the few operators so far with the, the 330neo giving a much more efficient proposition for long haul.

Peter Gerber:Yeah, I have to say it's, it's really a great plane in those times with rising fuel bills. It's even more—

John Strickland:What's the difference? Is it about 25% more efficient?

Peter Gerber:About that. So it's even more fantastic seeing that, and I, and I think this was exactly the right decision to take this bold decision in the mid of pandemic times when nobody was willing to order planes. We did. And this gives us at the moment, of course, quite an advantage because we have now this very homogeneous new A330 fleet with an incredible product, the best business class product from Germany at this, at this very moment. And this gives us at the moment—

John Strickland:I thought Lufthansa had the best business class product according to them.

Peter Gerber:It will be maybe in 10 years when Allegries is done.

John Strickland:Right, okay.

Peter Gerber:For the moment, I think we can safely say it's, it's, it's very, it's very good. And I do believe with this really homogeneous fleet and the homogeneous product, we have a big operational advantage because we came from the 767 fleet and the last one we retired was the 767 with the most cycles in the world ever flown. So it's also kind of record, but maybe a record you don't want to have normally.

John Strickland:What was that? What was it? What was the number of cycles on that?

Peter Gerber:I can't, I can't, I can't. I can't. It was, it was very high. It was way, way above 30,000. So, and doing this, managing this within only 18 months, So meaning from all Boeing on the long-haul side to all Airbus within 18 months to these new planes. This was also quite a tough ride. It's absolutely fantastic that our team was able to manage this. But now again, they're also— we are bearing the fruits a little bit of this working very well.

John Strickland:I mean, as you said, so much behind that because it's both at the engineering side and the ops side, pilot training, crew training overall.

Peter Gerber:Training is a crucial thing, of course.

John Strickland:And the extra resources you need while you've got those crews out on the ground.

Peter Gerber:They were all delayed, the planes and all that, so it was quite a story. We could talk about this for hours.

John Strickland:The deliveries, of course, still coming through. And you put in place also a number of partnerships. Some things, if we link in now to the current situation that all of us are facing since this war began, you put in place some big strategic developments planned for this summer in in terms of, for example, a major codeshare partnership planned with Etihad and operations to Abu Dhabi, and I think— I don't know if it was a base, but much more activity into Tel Aviv, not a base, more activity. They've had to be put, if you like, on ice at the moment because of what's going on. What has that meant for you this summer in terms of key strategic pillars there that you've not been able to fulfill?

Peter Gerber:Of course, something you never like when you have a plan and you have to change your plan due to reasons you can't influence. I think it's, but it's not, not a strategic change because the only thing we did is we delayed it to start of the winter flight plan.

John Strickland:Right.

Peter Gerber:So meaning the end of October. And normally this is, of course, the interesting season. So we decided to start in summer, but maybe the low season a little bit. So it's not, not so difficult in this respect. All strategic ideas are untouched. We simply start A little bit later, the capacity, of course, we deploy now deliberately, maybe on the other side of the globe. So moving more westwards.

John Strickland:Is that what— is that looking good? So that's North Atlantic and you're a Caribbean operator as well?

Peter Gerber:Yeah, we have a lot of Caribbean and we have a lot of Mexico and other things. So this is looking pretty well at the moment. So also our customers tend to now move a little bit more westwards.

John Strickland:Would you say, I mean, the size and scale of company you are compared to, let's say, one of the more traditional companies like Lufthansa, that you've been able to do that in a quicker, more agile way to move that capacity?

Peter Gerber:Yeah, this is maybe one of our advantages so that we can react a bit quicker and move a little bit faster. And the second one being, of course, that we have quite a good cost position when it comes to network carriers. And we badly need those 2 advantages because on the other side, we have to clearly say aviation is a size game. And the bigger you are, the more advantages you have.

John Strickland:We talked about your good financial result last year, but part of the challenge this summer, airlines have been hit by pretty well 100% increase in fuel prices based on market price. If I'm not mistaken, you're pretty highly hedged, not completely, but at quite a high level.

Peter Gerber:Yeah, we are hedged on a high level, so we have a normal hedge policy in place. like most other airlines have. And so this means, uh, in this respect, we are quite well protected. But as everybody knows, and I think it's true for every airline, when this conflict lasts longer, much longer, and high fuel prices like we see them now, they are of course kind of crazy. And, and of course, there's a lot of speculation in it. This would harm, uh, on long term the whole industry.

John Strickland:And you haven't chosen to apply any actual surcharges to, to No, that we don't do.

Peter Gerber:So we react, we react with a normal price.

John Strickland:It's more flexible to change the pricing, isn't it?

Peter Gerber:It is. And for us, to be honest, tell you a secret, for us it's easier to work without a surcharge because a big part of our customers is still the tour operators. With them we have contracts, but they have nothing to do with the surcharge. So we try to move, to move simply the prices.

John Strickland:Inventory levels and so on. Yeah, exactly. There is a question on here, Peter, interesting to answer from the audience. As a newcomer to European congested airports, you may face problems getting 3 ways everywhere. Would you— would it help you if slot rules were changed to get in?

Peter Gerber:Yeah, of course. But, you know, the slot rules are European rules, and it's very difficult. It's very difficult to change them. What would help me more is when simply Frankfurt rises the number of movements per And with the opening of Terminal 3, I'm pretty sure they will do it and this will help us.

John Strickland:So it is possible with runway capacity?

Peter Gerber:No, it is absolutely, it's absolutely, from runway capacity, there's a lot of more slots possible.

John Strickland:Yeah, because there's another question there about will you always have to compete with Lufthansa in terms of building your hub in Frankfurt rather than building a standalone one somewhere else like Düsseldorf or Berlin?

Peter Gerber:I would love to have a standalone hub, but when you look at the geography in Germany and how many people live in the surrounding— Population.

John Strickland:Yeah.

Peter Gerber:Population. It's difficult to do this in Berlin, frankly said. You need to feed like you, like Lufthansa does it in Munich. And Düsseldorf could have worked and would be maybe the German hub because most people are gathered around Düsseldorf when you look at this. But the very famous Angerland-Vergleich, a German word, so it's called, it's a legal ruling They took 1980, how the runways in Düsseldorf can be used, and this prevents you from practically really establishing a big hub. That's the whole story behind it.

John Strickland:That's incredible. Now, I long remembered runway constraints at Düsseldorf, even though the location, it's in that Ruhrgebiet, you know, the industrial part of Germany. Berlin is more price-sensitive, I guess, traffic.

Peter Gerber:It is. And then, yeah, and again, so Berlin as a city is big, but in the surroundings they are not So many people living.

John Strickland:Peter, we're nearly out of time, but, you know, one key question. I said it's a pivotal year for you. I mean, you know, to me, you've, you've left me, who knows much less about Condor than you, leaving this discussion with a sense of optimism. You know, you must breathe a sigh of relief you've got those new generation, less fuel consumptive aircraft in. It sounds like the wave structure is bedding in in a positive way. You're getting that autonomy that, uh, You were forced to achieve, but it's a pivotal year because in terms of ownership, you know, the state is still an owner coming out of a pandemic aid but wants to go. You've paid back that. Atesta, this investor group, has an option, I believe, to either buy the whole airline later in the year, or it could sell out, or there could be a partnership. What is the progress on that, and what are you doing as CEO in terms of trying to influence Which way it may go. I know it's not in your hands, but—

Peter Gerber:Of course. So technically, it's the way that Artesto can, since we paid back the KfW loan, Artesto is, is capable of taking all the shares of Condor to a fixed price from KfW. And this is the reason why they initiated a process to look for minority shareholder, or more precise, for strategic minority shareholder. So meaning our tester is willing to hold the majority of Condor for a longer time and believing with the right minority shareholder, we can even build up our strength. So meaning maybe on the revenue and on the cost side, there could be meaningful synergies with the right partner and then move Condor to the next level. And this is maybe exactly what they are aiming for. And therefore, I have no other goal as a CEO For me, it's most important that Condor has a sustainable development, can grow and can develop on this very good basis Condor people worked so hard for and can grow and establish Condor as the second German carrier. And so I think looking now for the right partner in such a process, which of course eventually, as we all know with European airlines, takes quite some time, It's absolutely the right step to do this, to establish Condor further on.

John Strickland:I guess, I mean, Lufthansa probably would not have lost an interest. They'd love to have you, have you in their portfolio, but competition-wise wouldn't be allowed to. And if I would say cynically, they probably would only really do it to suffocate you, extinguish you, and have you out of the way.

Peter Gerber:And it's maybe some, something, you know, Lufthansa is a great, is a great company. It's a, it's a huge company. And of course, There are a lot of managers in there and various ways of thinking about that. Clearly, they could not take Condor directly. Of course, the cartel laws would be clearly against this and would not allow this. On the other hand, whether you could work together here and there is another question, and whether there are really people now believing that they could extinguish Condor, maybe it's less than there used to be some years before.

John Strickland:Well, it certainly sounds you have a really key role to play here in Germany and for indeed a wider European market. So Peter Gerber, CEO of Condor, it's been a pleasure to talk with you. We hopefully get you back to tell more of the story in the next year or so. Peter, thanks very much.

Peter Gerber:Thank you very much.

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