Airline Leader Interview JetSMART CEO Estuardo Ortiz

Transcript

John Strickland:Well, good morning everybody. I'm John Strickland from JLS Consulting over from London. Delighted to be here in Lima for the Latin American Leaders Summary. We haven't given Estuardo a real break, a true local airline style. He's got up, gone off the stage, come back on, very rapid turnaround. So Estuardo Ortiz, welcome back again. Good to meet you. Thank you, John. Nice round of applause for Estuardo on his solo. Okay. Yeah, Estuardo, we were chatting earlier this morning and, you know, not only is JetSMART a young airline group, but you are young to the industry. You came from a consumer goods background. How on earth did you go from what I assume to be kind of high margin, more predictable business into the airline world?

Estuardo Ortiz:That's a good question because You know, my stage of my tour of duty on consumer goods, I don't think I ever heard the word cost. You know, it was all about revenue.

John Strickland:Yeah.

Estuardo Ortiz:And about marketing and about branding. And yeah, it's definitely, it's a different world. But travel has been always something that really I have enjoyed very much in my life and my family. So it was always a great place to be. And things go around and around. And I was in a very high-speed career in this multinational. And we wanted probably to go back to Central America, from Guatemala. And we ended up in El Salvador with TACA. And it was great. I think one of the best things. And a few concepts of the consumer goods. So it's interesting that were applicable to the airline industry. And it's been very good.

John Strickland:And what's the idea of JetSMART? Was that something you originated as an entrepreneur or was it something that you were approached about by the big investor, Indigo Partners, or a bit of both?

Estuardo Ortiz:Well, you know, the, I guess, Indigo Partners had this view, and I think I shared that view, that South America being such a large continent and 600+ million people and middle class that was growing, a disposable income that's relatively low compared to other economies, it just made sense to have a low-cost carrier that could actually penetrate the market further. And I was super excited to start the airline back in those days. I did have a stage in life of, let's call it a micro entrepreneur, and I really enjoyed that phase of life. So having the opportunity to do this in this industry that I love with the support of IndiGo and the network and the carriers that IndiGo also is part of the portfolio was an incredible opportunity. And It's been 9 years since then. Part of my team is here with me at this meeting room and we've been through a lot, right? Through, in the morning Roberto was talking about, I mean, who would think, you know, in 2020 that we're gonna face a COVID pandemic that really put us ourselves on the ground for pretty much 2 years and a half.

John Strickland:Yeah.

Estuardo Ortiz:We were only operating back in those days in Chile and Argentina. Both countries were very restrictive compared to Brazil or to Mexico that actually continued flying and operating through COVID. And then of course everything that's happened since. But I would say that we found a way to continue growing and establish ourselves as a, I think, relevant offer now in the region.

John Strickland:I mean, it must have been doubly tough. I mean, you've scarcely been flying for more than a couple of years in the home market of Chile, adding Argentina, and then the kind of pandemic hit. So if we can maybe look at both sides of it, just at that start point, I mean, we heard in the previous session of the dynamics of Latin America, both large population but lower income profile, long distances. It should be ripe for much more growth in low cost. So you began in Chile and Argentina. You described them both as being a bit restrictive. You bought, I think, was it the kind of, I don't know if it's right to call it the franchise of Norwegian that they'd set up, the European low-cost carrier, set up an Argentinian arm. But was it particularly challenging? Was it a more protectionist era? Because my impression from a distance, so I could put my hand on heart, could be wrong, was certainly Argentina was very protectionist. It was all about Aerolíneas, not really wanting anybody else to get in.

Estuardo Ortiz:Yeah, I think a combination of things, Jon. In fact, you're right. We wanted to have presence in Aeroparque and Norwegian had the presence in that airport. So we thought it was a good idea to actually get ourselves into that airport. And the timing was not great because this is at the end of 2019.

John Strickland:Mm-hmm.

Estuardo Ortiz:So by the time we were actually starting to operate, COVID hit. But again, you cannot choose those things. I would say that For us at JetSmart, the pandemic ended up being a positive, ended up being an opportunity more so than a problem. It was very hard, of course, to navigate it. It was very hard to go through it. We did have the support of financiers and capital to go through it. But the most important thing I believe was the attitude towards how do we face the issue?

John Strickland:Mm-hmm.

Estuardo Ortiz:I think most of you guys probably know the symbol, the same crisis and opportunity. And in Chinese, I think at the end of the day, this is what we chose to do. And indeed, there were opportunities. I mean, when you look at the region today and the region before the pandemic, it is sad to say, but it's a reality, there was consolidation. There are 14 operating airlines that are not operating today that they were. before the pandemic. And we knew some of those changes may happen and we got ready for it. We were able to get our AOC in Peru, which we now operate since 2022, an airport that was very difficult to get in. And it's again resonating with the good news of New Lima. But back in the day, we had to seize that opportunity. And the other market that we thought or going to have some changes, and it did, was Colombia.

John Strickland:Mm-hmm.

Estuardo Ortiz:So it was also a historical point in time, a window, let's say, of opportunity that we acknowledged that we could take advantage of. And once it opened, we moved fairly quickly. And now we're happy to say that we are now operating 4 domestic operations in Chile and Argentina, as you say, but also Peru and Colombia. We operate to other 4 countries, so total of 8, 50 destinations, 80 routes. We are now flying 49 aircraft, and 3 years ago we were operating 17. So it was a pretty rapid growth.

John Strickland:Well, that kind of sums it up. I mean, I'm just wondering, as you speak there, Estuardo, is it— was it a case of a combination of circumstances? You were born with this, the backing of a financially solid group, Indigo, who already knew about low-cost operations in different markets before anybody experienced a pandemic. You went into a pandemic like every airline, grounded, bleeding cash every day. But I'm imagining you kind of getting around the table in a huddle and just looking at what you described. You see these markets, now is our chance. We've got some cash to keep us going. We've got to force that baton through the, you know, the door of the castle and break in.

Estuardo Ortiz:Yeah, I think you You said it right, John. I mean, it's a combination of circumstances that put together there, and we decided this is the time to do it. This is the time for us to move forward quickly, to expand, and to gain a position that is more sustainable. We all know that in this industry, scale matters, and we knew that this was the right time to do it. We also took took advantage in the pandemic to restructure a lot of our operations, a lot of our commercial operations, because we knew when we go out, the market may be the case that it's going to be less airlines, but it's going to be more competitive. I think the narrow-body aircraft, it's going to be more competitive. Costs will come down from some of our— from other carriers in the region. So we need to be ready for that. We need to be ready to capture more customer segments. And the operation has gone really well. We had our challenges back in 2023, but today I would say the customer proposition that JetSMART has is very simple. It's, you know, flying a brand new aircraft, safe, on time, reliable, with a friendly crew, bought on your phone. And I'm happy to say that customers have received it really well. I mean, it's surprising to note, and I think it's a lot of work behind it, but just maybe you probably guys don't know, but we have been, you know, selected by the Skytrax Airline Awards a couple times by now, 2 or 3 times, as the best low cost in South America. But more important than that, we have customer preferences and satisfaction that goes above full-service carriers.

John Strickland:Mm-hmm.

Estuardo Ortiz:And people ask me why, how is that possible? Most people would think, well, low cost means low service or low quality. And I think at the end of the day, people wanna have a reliable experience. They know what to expect with us. They know they're gonna pay a fair price. They're gonna fly on time. They're gonna get their baggage. They're gonna treat it nicely. At the end of the day, there's a segment in South America, a big segment of population that values that a lot. And I think that's the space where we want to be.

John Strickland:But you've got to that point, which is fantastic and full congratulations. But maybe you're being almost a bit too modest in expressing that now because again, I want to bring you back to the midst of that crisis situation. You are managing the cash, restructuring the business, learning lessons. From the expertise of the Indigo Group. You mentioned in the previous session about needing to, with politicians, with regulators, give an example of a market that opened up, give an example of success. You've done that by broadening out, you know, getting into, you know, for example, into Venezuela as one market and Colombia. So not Venezuela, Colombia in particular opening up. Has that really helped in pushing it forward? And has it also worked in consumers' understanding that there is this genuine low-cost offer available more widely across the continent?

Estuardo Ortiz:Yeah, yeah, I think there is, absolutely. As I mentioned in the previous interactions, we've seen after the pandemic demand come back in a steady way. So you look at the market in South America today, It's going to grow about 8% against last year. If you look, zooming into the markets, Colombia is the one that has grown the most against 2019, almost 25% by the end of this year. That's a tremendous growth. Argentina probably comes second, and then probably a tie between the others, Brazil, Peru, and Chile. You can see that recovery is steady. I think governments have also realized that it's important to have more competition. So we come in at a moment in time when governments are willing to support and airport concessionaires are also, you know, in a situation that they need to recover volume. So it also played out nicely to be part of the recovery in those markets, both from the government perspective, from the airport perspective.

John Strickland:So would you say that political mentality is changing sufficiently across the continent away from the old idea we have to have a national carrier, we have to have a flag carrier, whatever? that means, even if it isn't meeting the needs of customers.

Estuardo Ortiz:Yes, it has changed. I believe it has changed, not to the extent that I would like, but it has changed. I think the consumer has now a better understanding of what the low-cost model principles are. And it's not only JetSMART, it's other carriers in the region that not only are low-cost carriers, but also full-service carriers offering unbundled fares and You know, you pay what you want to use, and that has given the consumer more options. It is concerning sometimes when we think that some of our jurisdictions are thinking about regulating that baggage, for example, needs to be included always in a fare. And again, that's not my sign. I couldn't—

John Strickland:Is that a big discussion here?

Estuardo Ortiz:Yes.

John Strickland:Because it's happening in Europe as well, which to me seems crazy.

Estuardo Ortiz:It's happening here in Peru. It's always happening in Brazil. So it's a good intention and it's a bad idea, right? At the end of the day, including baggage in the fare will always come at a higher fare. Baggage is expensive. We all know this. We got to carry it, we need to check it, we need to transport it, we need to bring it off the plane, we got to give it back to you as a passenger. So it's very expensive to manage baggage, right?

John Strickland:Yeah.

Estuardo Ortiz:The lowest fare will always have to be without baggage, and it's a process. So to your point, it has improved, but we're not there yet.

John Strickland:Yeah.

Estuardo Ortiz:We're not there yet. We still need to continue making all efforts to make sure that a simple principle remains, which is let the customer decide. Why should the airline decide? We already given up.

John Strickland:Yeah.

Estuardo Ortiz:We already given the consumer the opportunity to choose. Why should Congress choose for them?

John Strickland:And the upside, I mean, again, for politicians of the countries, never mind the consumer who we should put first, must be enormous. I mean, if we look, you know, GOL has been around, I don't know, what, about 20 years in Brazil? We're talking about them later today. Massive volume growth. You're experiencing, you know, PAN 4 countries with bases and other countries as end destinations. There just has to be an upside. What you described earlier about the balance of traffic coming from outside, US, Europe, versus what could be going on within the continent, you know, it's surely going to be a continuous battle for you to get the politicians to accept it and buy into it.

Estuardo Ortiz:Yeah, absolutely. I mean, we, we get together in these forums and we all agree on these things. The guys that are not in this room are the guys that don't agree sometimes, and we want to make sure that they hear us. I think It's a huge opportunity. The region clearly has still so much more to develop economically, and tourism has to be an effective part of the agenda. We have seen in the region many countries saying tourism is part of the economic plan, but then no changes are being done. Yeah, it comes to us, it comes to the associations, it comes to making allies, I think, also with other parts of the tourism and travel ecosystem like hotels to really bring together an agenda that really fosters things. In our case, we have been able again to grow pretty quickly and penetrate markets, but the potential is tremendous. I mean, the fact that we are still looking at Brazil, or, you know, 0.4 trips per capita, Argentina is not much higher than that.

John Strickland:Mm-hmm.

Estuardo Ortiz:Even Colombia, 0.7, you know, and we have an example in the region. Chile has 1.2. So yes, of course Spain has 4.5.

John Strickland:Yeah.

Estuardo Ortiz:But even within this region, there is an example that we can do things better.

John Strickland:Well, again, does it help there being part of the Indigo Group? Because as you say that, I'm thinking, what, more than 20 years back when Wizz Air was born, you know, your colleague in Indigo Group with Joseph Ferardi, People in the west of Europe thought, oh, there's no point to set up a low-cost airline in the east of Europe. It's low per capita income. It's never going to grow. Completely disproved by Wizz Air, which has now got 260 or something aircraft. It's going to grow to 500. That's got to be surely very similar for you. I mean, you're going to double by the end of this decade in fleet and passenger volumes. But that in some ways, not to diminish the importance of that, that's got to be scratching the surface. You could go beyond that, surely.

Estuardo Ortiz:Yes, absolutely. I think our view has always been we would like to bring to the market as much as we can an offer for the non-flyer than the current flyer. And of course, there's flyers that are flying more as well. And it comes back to mostly, there's a few factors, of course, mostly comes back to price. And as I was mentioning before, there's not a lot more that we can do as airlines to lower the price.

John Strickland:Yeah.

Estuardo Ortiz:It's gotta be coming from the airport fee, which at the end becomes half of what people pay. But yes, I think the opportunity is there. I do see an industry that has become stronger and more resilient after the pandemic. The carriers in the region are, you know, very efficient, modern fleets. If you look at the structure of the market today in the region, Mm-hmm. I'm optimistic about the structural change that has gone through, the focus of each airline on managing their business in a safe and a sustainable way. And I think that creates a good base for change. So yeah, it's really about how do we change the rules of the game? Because with the rules we have, I think we're playing a pretty good game. And I guess we need to just Like I said before, just get one good example done and hopefully that helps with the others.

John Strickland:And in terms of the fleet, I mean, you have an order in, as we said, you're going to go to 100 aircraft. You have the neo-generation A320s, A321s. I'm interested to see that you already have A321s in the fleet, and that seems to me to be another good element. It's just that much larger aircraft giving you a lower unit seat cost. In markets where I would guess you're going to need that large size aircraft, you can run it at high load factors.

Estuardo Ortiz:Yep, absolutely, John, absolutely. I think one of the key advantages for JetSMART as a startup was to be part of the Indigo Partners portfolio. The fact that we were able to order aircraft back in 2017, again 2021, in the middle of the pandemic, which I think was a great move. right at the moment when no one was buying aircraft. And now we have a fleet plan that ensures us our growth all the way to 2031. We expect to reach 50 aircraft November this year. We, out of coincidence, we're going to be boarding our 50 millionth passenger in November as well and opening our 50th destination. So something's happening with the number 50 at JetSMART this year.

John Strickland:Yeah.

Estuardo Ortiz:And then we expect to get to 100 aircraft back, you know, hopefully by 2029, 2030. So certainly has paved the way for us to make sure that we have sustainable path for growth. We've grown a lot in the past 3 years, more so than anybody else. It's just crazy. The first semester we grew 45% in passengers.

John Strickland:Mm-hmm.

Estuardo Ortiz:This semester against 2024. And we're going to continue to grow, but we need to slow down. You know, it's not sustainable.

John Strickland:Yeah, because I guess what, 2 challenges. One, immediately, I know you're not a quoted company, but I was telling you before, there's a bit of financial information I managed to get my hands on through fishing around on the internet. Obviously, you've invested in that growth. You've been hit by the pandemic, so you're not producing profitability of the scale that, say, a Wizz Air has in Europe as yet. But the logic is there for the future. So I guess that's going to be your aim, to grow but not constantly growing so you don't actually put some margin back into it.

Estuardo Ortiz:Look, I think the key for us, John, has been to be very focused on the fundamentals of the business. We have kept our cost to be world-class. And I mean world-class, I mean really world-class in and the culture and the people and the service and the operation.

John Strickland:Mm-hmm.

Estuardo Ortiz:And it was just a matter of time for us to get some scale. And yes, to your point, we had to prioritize positioning ourselves. But what I see down the road is still is gonna be healthy growth, but a more focused one. The footprint we have now, it's definitely a good base for the future. And absolutely, I think the model works. We're having a pretty good year, 2025, and my expectations for 2026 and moving forward for JetSMART are pretty positive.

John Strickland:And one thing, although the clock is beating us, I mean, one of the immediate challenges you have, these great new aircraft, super efficient, but they're powered by the Pratt Whitney GTF engine, which everybody globally has been hit. I was Talking with you and your CEO earlier on, I think you've got maybe 10, approximately 10, quite a big portion of your fleet grounded currently. How are you handling that? Does that mean literally simply that it's handicapped your growth, or have you leased some capacity in to at least compensate at the moment? Well, that's a massive headache, obviously.

Estuardo Ortiz:I was just joking around that I didn't want my kids to be in this industry, but this I really love. But yeah, it's incredible, but there's always something happening. Right? There's often something we need to manage. And this was another thing that we needed to manage. You know, it's a global situation at the end. The engines, it's not only, you know, the GTF, it's also happening with the GE engine. New technology, right? New technology that comes in and is taking time to mature for us. Now we had a support program signed with Pratt Whitney since 2023.

John Strickland:Wow.

Estuardo Ortiz:So it's not an issue. It's something that we can manage well and we've been able to predict it well. And in fact, to some degree has been also something that, as I said before, you gotta find opportunity in every single issue that you have. So it's become something that is not a concern.

John Strickland:Have you leased capacity in or have you just had to run with a lower growth profile?

Estuardo Ortiz:The growth?

John Strickland:Have you leased in capacity to compensate for grounded aircraft? We haven't.

Estuardo Ortiz:We haven't. The fact The fact that we have this very, very well-structured fleet plan delivery schedule with Airbus has allowed us to manage growth.

John Strickland:So you could extend some of this.

Estuardo Ortiz:We've learned more about our markets. So no, we're happy where we are with the fleet plan and the growth.

John Strickland:Excellent. Well, let's just see, anybody like to ask a quick question to Estuardo while he's here in the hot seat? Solo performance. I'll just bring one other quick thing which I didn't touch on. I mean, I've talked with you a lot about IndiGo, but it's quite interesting to me the other shareholder from the industry is American. That seems quite different, and it's advantageous to your customers in terms of tapping in, in terms of frequent flyer benefits. But what's in it for American as a, you know, a network carrier? Is it about access that you provide to them to extend their reach through Latin America?

Estuardo Ortiz:Look, I think it's been positive for sure for JetSMART and the customer proposition we have. Again, as I mentioned before, simple and consistent, but certainly for a subsegment of our customers has been very positive to be in a position to earn Advantage miles and to burn those in any of the flights from American Airlines or the Oneworld Alliance. So I'm happy with the alliance. We are codesharing many of the flights. That gives us the opportunity for customers to reach markets that they wouldn't have otherwise. And to your question, it definitely allows American Airlines to reach markets that otherwise they wouldn't be able to do so. So it's a very unique alliance in the sense that it's a ULCC with a full-service carrier. So that's been interesting to develop, but we find a way to do it to keep our cost low, to keep our complexity down, Which was one of my main concerns when we started, and it's been contributing positively to the bottom line.

John Strickland:And to be honest, although it rarely happens, there could be some good learnings there for them, and looking at what you're doing here, lessons to change the way they do certain aspects of the business themselves back in the US.

Estuardo Ortiz:That's right.

John Strickland:Well, Estuardo, I could ask you more, but unfortunately the clock has beaten us. I didn't even get to ask you as a cocktail waiter if you've got a good recipe for Pisco Sours, but we can maybe share one later on.

Estuardo Ortiz:Well, talking about crisis, they said, you know, Life gives you lemons, you lemonade. Maybe just life lemons, let's make a mojito.

John Strickland:Good idea.

Estuardo Ortiz:That'd be better.

John Strickland:Fantastic. Great idea. Well, Estuardo Ortiz, CEO and founder of JetSmart, thank you very much indeed.

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