Airline Leader Interview with Air Arabia CEO Adel Ali

Transcript

Yolanta Strikitsa:I have absolute pleasure of interviewing today, as I call it, the gentleman of the 7 A's, 7 magic A's. That's amazing. Adel Abdullah Ali.

Adel Abdullah Ali:Chopperman.

Yolanta Strikitsa:From Air Arabia Airlines.

Adel Abdullah Ali:Thank you.

Yolanta Strikitsa:So that's my 7 magic A's, and I hope together with you, with all the audience, we can explore slightly more of the— of this absolutely genius aviation leader who are one of the top Forbes-mentioned aviation professionals in the world and who created first MENA Low-cost carrier and progressing it to the airline that increased profits last year to the 65%, isn't it? Yeah, which is amazing results. Well, Adel, how are you?

Adel Abdullah Ali:I'm good, thank you. It's good to hear good words. I don't know how it happens, but it happens.

Yolanta Strikitsa:Yeah, so good. Just let me I'm going to take this straight away from you.

Adel Abdullah Ali:All right.

Yolanta Strikitsa:This is how it happens. So back exactly 20 years, 1 month, and 1 day ago, 28th October, year 2003. Do you remember that day?

Adel Abdullah Ali:Very much so. Very much so.

Yolanta Strikitsa:Do you guys know what happens on that day? It's the day of the Air Arabia start. Air Arabia is 20 years old. 1 month and 1 day. Can you just tell me about that day? Do you remember about it?

Adel Abdullah Ali:Thank you, Yolanta. I think the most interesting part of this I should share, given that we are in Abu Dhabi, Etihad is a big sponsor. We and Etihad and Air Arabia were going to launch at the same time. At the time, the chairman of Etihad Airways was His Highness Sheikh Ahmed, been safe. And we were talking who launches first. And so jokingly, we're having this marathon going on. And he was getting his airplane, we were getting the airplane, we both had the AOC. And luck had it that when they were checking the airplanes, they took the first 2 A330s from TAM. One of them needed an engine change, which gave us the opportunity to fly first by a couple of days. So, so, so, so, but basically what happened, it's, you know, we looked at the region at the time. Low cost, of course, it's, it's not something we invented. It exists 50 years ago and more was in America and 30-plus years was in Europe. I think the region needed it. The diversity, the demography of the region, it looked pretty simple that repeating the story that repeated itself everywhere in the world, that people wanted affordable travel.

Yolanta Strikitsa:Yes.

Adel Abdullah Ali:The more interesting part was the people at the time in the industry, they did not believe that an LCC will ever work in this part of the world.

Yolanta Strikitsa:Yeah.

Adel Abdullah Ali:Some CEOs of the airline at that time thought everybody who lives in this part of the world have a tap of oil in the garden, so they have enough money that they do not need a low-cost airline. What was fascinating is that the first 2 years of our operation after that fantastic date of October 28th, 2003, the first 2 years, 85% of the people who actually boarded the flights to fly with us were the first time for them to get on an airplane. That's what market stimulation means. That's how we managed to stimulate the market in the region. Since that, obviously, we had 20 years of growth. Other airlines grew as well, so overall, the market grew. Many, many more LCCs started in our part of the world, and they're all, as usual in this business and any business, copy and paste is a great thing. Some who don't know how to paste, they do not make it, and those who do, they tend to succeed. We've been in good shape. 20 good years, hard. This particular airline industry or aviation is always difficult. You'll have a good few months and then something hits you absolutely unexpected that you just got to meet. Over the time, you become resilient and you just recognize that as long as the world is there, there are people, people are traveling, you just got to face the challenges and make them an opportunity and get on with it.

Yolanta Strikitsa:You just have a very interesting subject about the change in mentality and opening up. the very new markets and getting the totally different auditory to your airline, and especially in MENA, where they have a slightly different culture and different mentalities, for example, to Europe. But 20 years period and looking forward 20 years, how do you plan to untap that mentality again? What are your plans?

Adel Abdullah Ali:I've always been convinced of one thing. There isn't anybody in the world who does not want to travel. Some people maybe cannot travel for some reason, but everybody wants to. Even us in the industry, we complain about too much travel, but if we don't travel for a few weeks, then we complain about life is getting boring. Everybody wants to get on an airplane.

Yolanta Strikitsa:Yes, that's our nature to complain.

Adel Abdullah Ali:The people in MENA are no different. The normal human being, They want also to get on an airplane. In fact, what we witness, they get more on the airplane than a lot of other regions for 2 reasons.

Yolanta Strikitsa:Mm-hmm.

Adel Abdullah Ali:One is there's a lot of people that are able to afford traveling. There is a big part of people who live not in their home. They live elsewhere, not their city that they were born. When you are an expatriate, one thing you want to do, either get somebody close related to you to come and visit you, or you want to go home as frequently as possible. As I always use the routes between London and Dublin, it's so popular on the weekend because everybody wants to go back home and come back on Sunday evening to work. Middle East is the same.

Yolanta Strikitsa:Slightly narrowed down into your, again, type of the passenger because, well, again, going back in 20 years, you were saying that that's more people who are untapped, the traveling market. Now you say, you continue saying that, yes, sort of you still are tapping the traveling market, or who is at the moment your type of the passenger?

Adel Abdullah Ali:So 20 years ago was everybody who was not privileged to be in the aircraft. Well, those people will never go back to travel anything else but on an airplane. And what I'm seeing now is this myth that some airlines believe about market segmentation. Everybody wants to travel at the lowest possible cost that they can. Unless somebody else is paying for your ticket. If you're paying for your ticket out of your pocket, you want to pay the lowest fare. Even when you travel first class, you bargain for the best price. That's the reality of life.

Yolanta Strikitsa:Or somebody paying for you.

Adel Abdullah Ali:I think if you look at the next generation that we're looking at, the Z generation and so on, it's clearly that they don't care. They want transportation from a point to a point.

Yolanta Strikitsa:Uh-huh.

Adel Abdullah Ali:Give it to me as cheap as possible, as long as it's a good airplane, safe. Again, safety was a big thing for choosing an airline in the past. Today, in the traveling public, has been taken for granted that airline flying by air is safe. That's probably element. This is why in such conferences, 20 years ago, we would have been talking about safety. Now nobody asks anybody a question about safety unless it's a safety conference because we recognize that the industry is safe. The customers are going to be— the future customers, I think, going to be everybody. Right now, where we see people who fly with us, a lot of family traffic. The youth definitely are a big portion of our business. and the R&R and VFR, the visit friends and relatives. Those are the really mass businesses that do fly. The frequent travelers who cannot wait any weekend but to travel somewhere else and explore something. I can see that's only growing because the pressure of the life and the technology that's bringing into the human The human quality of life wants to improve, so they keep traveling to get away from it.

Yolanta Strikitsa:Well, yeah, so basically you're saying that you are catered or you focus your target, basically anyone who would like to travel and who would like to pay less for your travel, which is your business model.

Adel Abdullah Ali:Yeah, absolutely. I think, you know, I can be sophisticated, but of describing Our customer segmentation.

Yolanta Strikitsa:Let me, in this case, let me also set a point because you guys, you also in very unknown markets, very new markets. You have JVs in Armenia, you have JVs in Morocco, you have JV in Pakistan or coming year JV in Pakistan. That is very much the untapped markets where people also never flew or just starting flies. Change your segmentation into that market towards what you have in UAE, or is it the same segments?

Adel Abdullah Ali:We've been in Egypt and Morocco for 12, 13 years now. They're very much developed markets because, of course, Morocco is a couple of hours away from— well, it's 18 minutes from Spain flying and a couple of hours away from UK. or 3 hours. Therefore, the travel between Europe and Morocco, and given that they have got a comprehensive open-sky agreement, there's plenty of airlines fly and we're one of them. Our competition there are very different to the competition in this part of the world. Morocco, we compete with Ryanair and EasyJet and Wizz Air and everybody else because that's how the market is there. Big business. Egypt, again, if you look at the number of EgyptAir between people internationally living and within Egypt, and the fact that the country used to, and they seem to be growing with reaching 10 and 12 million tourists every year. It's a well-established market and we're growing in those. Pakistan, we see that there is 220 million people live in that country, huge room. Everybody wants to travel. We take that philosophy. We see that a great potential. We've been doing the first year following the regulation in Pakistan to do the domestic. Year 1, we're carrying in a 94% seat factor on the airplane.

Yolanta Strikitsa:Very good.

Adel Abdullah Ali:That tells you that people are desperate to travel. We should not underestimate the size of the population of the Pakistanis living outside Pakistan. It's also a very big site. We again see that's a promising market. So far, our experience in the 20 years, and there is no reason to believe that will change in the future, wherever you put an aircraft that logically says that people will fly, they do. Now, occasionally you do get it wrong. There is nothing wrong in stopping those ones and moving on. It has been good for us, 20 years of 15 hours utilization, 20 years of 82% seat factor across the group. We are pretty comfortable with the forward-looking at what springs.

Yolanta Strikitsa:Excellent. Well, very interesting. Then that again leads me to the next type of the point of view on everything. We looked in the segments, which is clear. You cater for everyone who wants to fly with all the different markets, not really segmenting by the luxuries or not luxuries, but people who wants to be from point A to point B and beyond. You just slightly touched the capability of the fleet that allows you to do that. I know that you guys are waiting for XLRs. How that will change your geography of the view, how that will change your routes, and in a way, how that will change your competition? Because again, you slightly mentioned your competition, how that will change your position.

Adel Abdullah Ali:There are 2 separate things. I think the network development and the competition is the point we're raising here. I think the competition, we got to accept. Life will go on. There is always going to be competition. Competition would always love for you to die because they will grow. So you've got to be smart enough not to die. And that's the pragmatic view. Watch your business, not what the competition is doing. You need to know what they're doing, but you don't need to react to what competition is doing. If you want to kill your business, you do that. That for me is off the table. It's interestingly that remarks you read from time to time that some airlines start talking about we should stop other foreign airlines coming into our market to take our business.

Yolanta Strikitsa:Yes, that's quite—

Adel Abdullah Ali:We're going back to 1950s for some odd reasons. On the route network, The business model was created a long time ago. They said LCC should be doing only 3 or 4 hours. That was mainly coming out of Europe because you've got too many airports. Every 200 miles there is an airport and the population was very high. What we noticed is as long as you can offer a decent, good, comfortable service and leg space on an airplane in economy. You got to compare LCC economy with legacy economy. A lot of people tend to confuse themselves by saying, oh, but this airline is better, because they try to confuse themselves with the business class ticket that is getting paid by somebody else. Then when they go on their own holiday and they mix up the For us, we did the A320 up to 5 hours and it's working perfectly okay. We then used the A321neoLRs and we opened up Italy from here, which is 6.5 hours, Thailand, Malaysia, extremely well and very receptive, good seat factors.

Yolanta Strikitsa:Okay.

Adel Abdullah Ali:All what will the XLR do is probably push that boundary for about an hour and a half further.

Yolanta Strikitsa:Yes, but are you certain you will get them?

Adel Abdullah Ali:Well, I guess we're certain we get them. The when is always a question. It applies to us and every airline. You just got to—

Yolanta Strikitsa:Because the competition may get them earlier and then about that may—

Adel Abdullah Ali:That's perfectly okay. In fact, one of the things I would rather the competition gets it earlier because Certainly, in the last 10 years, there hasn't been a new aircraft in the industry that did not have its own problems. I'd rather the competition fix the problem and then I have a decent airplane to fly. Hence, I'm very happy at the moment using mainly 90% of our fleet is CEOs, not NEOs, because NEOs, it's public knowledge that has some engine challenges. CEO's working perfectly okay.

Yolanta Strikitsa:Guys, any guinea pigs in the room, just to let you know that Air Arabia will watch you on the XLRs trial.

Adel Abdullah Ali:We took 6 of them and we tried them. They're okay, good aeroplane, fantastic. I think the engine's teething issues will go behind us in time.

Yolanta Strikitsa:I'm very sorry, I'm totally out of running time. I have too many questions. Very important question, but Elsa, before we're going into this later, which I think we need to touch, you mentioned again about the new generation wants to fly, but that also new generation, and that's my experience because I have quite young adults kids, they always cater for how their action respected and how they are adding value to the society.

Adel Abdullah Ali:Yes.

Yolanta Strikitsa:Having greener flights, having the better impact into the economy is matter for the young generation. Unfortunately, from what I learned, your ESG ratings is D- at the moment. Can you comment on that?

Adel Abdullah Ali:I think that particular item, I would have been surprised if would have not come through. The industry have inherited a problem that it's not theirs. I always use the example of cars. The cars a few years ago were using normal petrol. Then lead petrol came in and the car manufacturer produced cars that only takes lead petrol. Therefore, people had no choice but to use that. Now, we're with the situation that airline is responsible for making sure they use the green fuel when the fuel is not available and not every airplane can manage it. As the technology will move, it moves on. We also got to be realistic about life that there was quite a lot of paperwork in Yes. A lot of companies that comes to you saying, well, you need to be ESG compliant. What does it mean? Oh, just tick these books and it's okay. We've got to be realistic, but everybody has to do their bit to get it right. Today on Air Arabia, for example, if you fly or any of our subsidies, you will find everything on board the airplane that's within our control. It's 100% compliant from the trays to the food to the crockeries and cutleries. Nothing that is not recycled if it's possible to recycle. Everything in our offices is done. We do have ordered 120 of the newest airplanes. So everything that you can do as an airline, you do it.

Yolanta Strikitsa:Right.

Adel Abdullah Ali:Things are— if the airports can't give me the fuel and if the engines are not working, somebody else is—

Yolanta Strikitsa:But you do have some established policies to—

Adel Abdullah Ali:Of course.

Yolanta Strikitsa:To improve that. Okay, we'll have to watch on that. I have to go in a few questions which is on the slider you guys put. The first question is, what are your lessons learned regarding your former JVs in Jordan and Sudan? If you can very briefly touch on that.

Adel Abdullah Ali:Yes, sure. Sudan, we did not have an airline. We just signed an agreement. Sudan is the easy bit. We looked at Sudan as a fantastic opportunity. 40 years of war, 45 million people, the country needed development. The sanctions, international sanctions, was all lifted. Everything was going well. People do come to us saying, we think this is a good opportunity. We looked at it, but it didn't happen because the military decided to fight each other. It's on the shelf. When, if it comes back, we will have a look at it. If it's safe and if it makes business sense, we may look at it again. If it doesn't, we don't need to. That's easy. Jordan. It's sometime into JVs that the national carriers in those countries still seem to control the aviation and the airports. At the beginning, it starts extremely well, and then they start to feel jealous because they see we're doing very well, so they start fighting us. When they do, I'm not in the business to fight. Too much of a botheration, I leave it to them and they'll continue giving government subsidies. We go where we wanted, where we think we can do a difference to creating jobs, contributing to the GDP and the economy of the country, and so on. It's a win-win scenario. If somebody sees that's a negative for their country, then we are a guest. We don't need to be there. Because the world has so much opportunities. What we learned, probably, do your homework better in future when we start something.

Yolanta Strikitsa:Talking about the homework, your JV in Armenia, which is much closer to my heart, I guess, how does it go at the moment?

Adel Abdullah Ali:It's going well. It's got its challenges because when we set up the JV, we were not expecting the conflict in that region.

Yolanta Strikitsa:It seems like you guys are really for the conflict.

Adel Abdullah Ali:We seem to be, yeah. We seem to attract conflict where we go. We have not grown, for example, Pakistan, we're growing. In Armenia, we have not. Waiting to see what will happen, how long this conflict takes. It was not just the Ukraine-Russian, but they had the Armenian-Azerbaijan issues. All those, it's not easy to do business when places are at war. Again, it's one of those things that having these multi-hubs helps you that if one place has a problem, you got another place to take your airplanes to and work.

Yolanta Strikitsa:Yes.

Adel Abdullah Ali:Armenia is— time will tell. It depends how these escalations of war and how long it will take for it to settle.

Yolanta Strikitsa:Again, moving slightly into the last part of the future questions. I'm flying your airline tomorrow to the very lovely city of Tashkent. It seems like your flights, you're connecting the cities that are like Armenian city in Yerevan, like your GVs in Pakistan, and yes, Central Asia. How do you see your presence in the Central Asian markets? Do you guys increasing or what are your plans for Central Asia?

Adel Abdullah Ali:It's a new area and a lot of countries on those places have got good, reasonable income and big populations. Those things do attract us. I tell you a very quick story and always say it about when we started 20 years ago. And this was from here to Egypt.

Yolanta Strikitsa:Mm-hmm.

Adel Abdullah Ali:Everybody was going to Cairo. So we went to Egypt, and at the time I spoke to the minister in Egypt, and I said, I want to fly to Alexandria. And he said, but nobody flies internationally to Alexandria. I said, we want to do it. It has 8 million people. And eventually he allowed us to do 3 flights a week. 6 months later, we did 3 flights a day. I think in Central Asia, if you look at the stories of places like Georgia, after 3 months of starting a few years back, we then just increased the frequency. Now, during season, we sometimes even do 10 flights a day. I think you just mentioned Tashkent. It's not a totally open-sky airport, not enough frequency. I think it's huge potential in that country.

Yolanta Strikitsa:It is.

Adel Abdullah Ali:It has. We're still in Central Asia, in Arab countries as well, some countries, subcontinent, I think there got to be a time come that a recognition that civil aviation need to do what is best for the country and for the people, not for the national airlines. Once that happen, I see that the number of passengers in the region will probably triple, not double.

Yolanta Strikitsa:You're one of the CEO philosopher you can find in aviation. Well, Adel, we—

Adel Abdullah Ali:But the reason I say thus, you can't have a bus stop and not allow the buses to come in. That's what is happening. They build beautiful airports. They have got unbelievable amount of slots, but they don't allow airlines to come in because they say, we're busy.

Yolanta Strikitsa:Well, we can talk for ages, guys, and I'm sure that you have lots and lots of questions as well, which you can ask Adel after we finish that session. Unfortunately, our time ran out, and what I wanted just to summarize is that Well, we paint a picture of the airline that perhaps slightly different from your average LCC carrier, slightly different from your average Middle Eastern carrier. They paint the airline that set up 20 years ago, wants to be philosophical approach towards the business on one hand from the CEO, but also they have very practical financial approach. The share is on a strong buy request from the analytics. If you look in the analytical reports they all buy for this airline. So you do invest in that and you make profit, I guess. But with that particular gentleman, amazing Adel Abdullah Ali, thank you very much.

Adel Abdullah Ali:Thank you.

Yolanta Strikitsa:And your round of applause, please.

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