Airlines and Alliances - understanding the mutual benefits

Transcript

Jonathan Wober:Thank you very much, Dimitris, and it's my pleasure to be back on the stage again and to welcome back Dimitris and also Theo Panagiotoulis from the Star Alliance to moderate a discussion between the two of them on the relationship between the airline and the alliance. So please, gentlemen, if you'd like to take a Please, Mr. Theo. And we have a lot to try and cover here, which is what I think is a very interesting subject. So I'm going to start with Dimitris. Thank you for your welcome again. And I did fly over from London on your airline, and very comfortable it was too. Thank you. So you've been around, or not you, well, you personally actually, but your airline and you personally in the airline for more than 25 years. It's a big milestone which the airline hit last year.

Dimitris Gerogiannis:Last year, correct.

Jonathan Wober:But you only joined the Star Alliance in 2010.

Dimitris Gerogiannis:Yep.

Jonathan Wober:What took you so long?

Dimitris Gerogiannis:Well, we had a lot of other trouble to go through before joining Star Alliance. Well, obviously, Aegean was a startup operation, started in 1999, so we faced obviously the very difficult startup years with lots of really tough challenges. And before you make a step, any step in this business, you really have to think very well before you do it. You really have to think why you do it, what do you expect in terms of deliverable, in terms of result. And if you want to join an alliance, you want to think what is that you will contribute before you think about what is that you will take from the alliance. So we needed the 10-year maturing period, so to say, In order to feel confident that it's not going to be us only benefiting from STAR, but we will also be contributors to the rest, to the other members of STAR. And this is— we felt like that, or we felt that we reached this level 10 years after the start of our operation. That was 2009, and within 9 months we integrated Aegean into the STAR Alliance system. And what has the STAR Alliance Well, Star Alliance has given to AEGEAN, and I think this is overall the benefits that an alliance, or at least Star Alliance, does very consistently. First one is the so-called, from Star Alliance promoted, seamless travel, which is not a logo, it is a reality. Seamless travel is? Try to facilitate the customer experience throughout a multi-airline itinerary, from ticketing to checking, boarding, baggage handling, even disruption management. So this is a real value that Star Alliance brings to its members. It has invested a lot in the relevant technology to facilitate that and allow the process of different airlines to work through this technology. Another element is, for us, a regional airline, Star Alliance, which is a group of airlines operating globally, gave us access to markets that we are not— we were not back then present and we still are not present. And the third one, and also very important, is through the loyalty programs and the fact that the loyalty programs between the different carriers talk to each other.

Jonathan Wober:We give—

Dimitris Gerogiannis:we increase the loyalty of our customers. So we keep our customers because they have the opportunity, if they fly United from New York to London, they will prefer to be on an Aegean flight London to Athens because they will win miles in their United Gold Card flying Aegean. So those are the 3 main elements, the 3 main benefits that a carrier gets from an alliance, and especially from Star Alliance, which has made seamless travel not just a logo, as I said, or a motto, but a reality through the development of the relevant systems.

Jonathan Wober:Okay, thank you. I'm going to bring Theo in. So Theo, pretend he's not here, pretend he's not listening. What does Aegean contribute to the Star Alliance?

Theo Panagiotoulias:Well, he's such a great advertisement, how can I ignore him, right?

Jonathan Wober:I said pretend he's not here.

Theo Panagiotoulias:What does Aegean— I think what's really important is The member carriers that— all 25 member carriers in STAR have to meet 53 standards to be a STAR member. And so where Aegean is an invaluable member is not only do they fulfill those standards, which are quite strict, but they actually are passionate about them because they have a very clear understanding of the importance of the customer experience value proposition. And as an alliance, you'll see that alliances have evolved over time where initially when they were first formed, it was about airlines not being able to serve every destination globally and leveraging partnerships to be able to achieve that outcome. There's the loyalty and the recognition piece as well, but there's been a very important shift and pivot to a disproportionate focus on customer experience and making that as effortless and as seamless as possible, and member carriers such as AEGEAN lead— are at the forefront of that. And I'll give you an example of how AEGEAN embraces that. One of our customer experience initiatives is having the ability to do seat selection across the 25 airlines irrespective of which member carrier you fly, and AEGEAN have got 89% of that covered, more than any of the other member carriers. And so the member carriers that embrace us the most are the ones that actually extract the most value as well.

Jonathan Wober:Okay, Star Alliance, if I'm right, was the first of the 3 branded global alliances, and I think if I'm right, next week it's 28 years old, so even older as an alliance than AEGEAN, which hit its 25th anniversary last year. So you've touched on how alliances have evolved, but how would you, if you were to wind back the clock to 1998, what was the prime, And how is— what is the prime purpose today of the alliance?

Theo Panagiotoulias:I think the prime purpose when the alliances were formed was driven, as I said before, about a desire to be able to serve destinations that you aren't realistically as an airline going to serve. And so coming together with partner carriers and leveraging those networks to give you that extended network, that breadth that you otherwise couldn't do on your own was the, the primary focus. There were a bunch of different reasons beyond not practically being able to do it. There were regulatory issues that the industry were dealing with as well. So that's where it initially originated from. It evolved into making sure you had the right loyalty and recognition for frequent travelers. And now, from a Star Alliance perspective, as I mentioned before, It's very much focused on the customer experience. And let me just add a little bit to that because it's a really important point in that technology has evolved very rapidly, I would say, over the last 5 or 10 years, and our industry has been struggling with a lot of legacy technology. As a result, customer expectations is what we used to call it, I would say it's now customer demands. If you look at how technology is being used in other sectors in society and in our everyday lives, uh, our industry has a lot of catching up to do. Now the good news is we have been doing so in recent years, but it is— it's evolving at the most rapid speed ever. And so it's important that we are focusing on identifying on the multiple touchpoints across a customer journey and prioritizing things that are very big pain points, investing in those and making it more seamless.

Jonathan Wober:You mentioned the very important point about technology and the ability or inability, as the case may be, of technology to talk to, talk to each other. So when the alliances started and when Aegean started in the early part of this century, the technology was way behind what the customer requirement was. Where would you— how would you characterize that now? I mean, both of you, is the technology still behind or is it catching up? It's catching up, but how far has it got to go?

Dimitris Gerogiannis:It is catching up. Airlines, when I joined the airline industry, I thought I went to a Stone Age industry in terms of technology because I came from a completely different industry. But it has definitely improved a lot and it's It's catching up. We in Aegean, we value technology from the very beginning because we knew how you can use technology to improve not only customer service on the frontline, but also to improve processes and efficiencies in the organization. We have been consistently investing in technology. In some cases where we have been ahead of technology in terms of introducing it into our processes, both customer-facing but also back-office processes. And it's one of the 2 key issues for AEGEAN. The first top key issue is investing in our human capital, and the second is investing in technology.

Theo Panagiotoulias:Yeah, yeah, yeah. No, I think to answer your question, in the last, I would say post-COVID, we've seen a rapid elevation in technology where the gap is closing. So I look at things like If you look at Star, all our 25 members now have digital instant redemption. So any of the Star Alliance carriers that you fly upon, depending on your frequent flyer program, upon landing you will have the miles credited instantly in your account. So leveraging the technology and being able to do that is something very, very powerful. But then there are other examples We are working right now on seat selection, having the ability to fly, say, on Aegean from Athens to Frankfurt, connecting Frankfurt-Chicago on Lufthansa, having the ability to be able to select a seat on the entire journey. We've been rolling that out. Aegean's already done it, which is great, but we're not 100% there yet, and this is a really good example where customers are looking at our industry and saying, that's an expectation, you should be doing this. And that's just one of many, many examples, and that's why we've prioritized it so heavily.

Jonathan Wober:So in, in this, as in all factors which, you know, which are relevant within the alliance, how does the Star Alliance differentiate itself from the others?

Theo Panagiotoulias:I'm not going to speak for the others. What I can tell you from our point of view is we are disproportionately focused and concentrating on all the touchpoints from a customer experience perspective. If you look at our organization, the way that our organization is now structured is it's structured based on the aspects of the different journeys. So we have an organization that is about the booking experience. We have an organization that is about the connection experience, the check-in experience, the recognition loyalty experience. And so we've built the organization based upon a customer's journey, looking for the pain points, of which there are many, and they're infinite. So you've got to prioritize them and focus on that. So anything that is outside of that focus, we really don't spend that much time on anymore. That's where we believe we differentiate ourselves. We are aligning ourselves with customers' expectations and being customer-centric to the business.

Dimitris Gerogiannis:You would not agree?

Jonathan Wober:You agree?

Dimitris Gerogiannis:Yeah, I want to add that I think Star Alliance was the alliance that started earlier than any other investing in technological backbone to facilitate this seamless travel. I think we see the benefits now.

Jonathan Wober:I guess this sort of seamlessness and the benefits that you're talking about, to some extent, they're part of your preparedness and resilience for the buffeting that the industry throws at you? I mean, we've, we've had a lot of discussion this morning already about all the ups and downs and the various shocks that the industry throws at you. So how is Aegean ensuring its resilience within the Star Alliance, but also independent of the Star Alliance?

Dimitris Gerogiannis:Well, the resilience— if you don't have resilience independently as an airline, Star Alliance will not give you resilience. So you have first to take care of your, of your of your home before you think about other people's homes. This is what we have been doing. We didn't expect Star Alliance to improve us. We learned from Star Alliance, but we have to define our own future. Now, the way we dealt with the ups and downs and the crisis is we have developed from the very beginning a very agile mindset and a very performance-driven mindset. We have been from the very beginning fostering and developing a— and we have been managing to do it consistently for the past 25 years— a very customer-centric culture and a very performance-driven culture. Agility and adaptability allowed us to respond quickly to changes in the environment. And this is key in the airline business because it's very easy in this business to lose lots of money and it's very difficult to make little money. Unless you are very agile and adaptable and respond quickly to the changing circumstances, being market circumstances, being geopolitics, being fuel prices or foreign exchange, the euro-dollar exchange rate, unless you are agile and adaptable and quick to respond, soon you will find yourself in trouble. I think in Aegean, because we have gone through lots of difficult times and long periods of difficult times, Agility and performance drive is in our DNA, and we cope with crisis and we always manage so far, and hope it will continue like that, to come out of the crisis in better and more efficient organization than before going into the crisis.

Theo Panagiotoulias:Okay.

Jonathan Wober:Now, in addition to the relationship that you have with the Star Alliance and members of the Star Alliance, you also, of course, have important bilateral Relationships, partnerships with other airlines that are not within the Star Alliance. I think you recently announced some extension of your cooperation with Emirates, for example, in terms of loyalty, mutual benefits. How do you prioritize when you're going to deepen a relationship with a member airline versus a non-member airline?

Dimitris Gerogiannis:Again, it depends on how we develop our business. Obviously, in Star Alliance, we have 80-plus percent, probably 90% of our codeshare or interlining customers that come to Aegean come from Star Alliance carriers. But when we see opportunities outside Star Alliance, obviously, we will go after such opportunities. We're not blind to the world.

Jonathan Wober:Star Alliance doesn't mind that Aegean is running off with Emirates?

Dimitris Gerogiannis:If members of Star Alliance gave us the opportunity to do the same, but we asked and we never got the positive response, so, you know.

Theo Panagiotoulias:There is no such thing as absolute. I think what you'll find is there are valid and sensible exceptions that help our member carriers be successful, and there's governance in place from the membership that allows member carriers to come forward with an exception because of the unique business circumstances, and as long as the membership support that, then those things are allowed. But so there are some exceptions for very valid and sensible business reasons, but at the same token, there's very, very few because to the point that Dimitris just made, yeah, 90 to 95% of the business is covered by the membership given that we are the largest alliance in the world. We cover 95% of the globe, so they're not very common, but when they do arise, common sense and good judgment prevails.

Jonathan Wober:You've had recently, you've had SAS departing and you should be having ITA Airways joining the Star Alliance. So how does that affect the alliance and what changes do you need to make, or is it just a plug one out, plug one in?

Theo Panagiotoulias:I wish it was that simple. Look, that's a business reality. Different business outcomes occur from time to time. Scandinavian were a founding member of STAR. They were a great member, and I think I speak on behalf of the membership in expressing gratitude and appreciation for their participation over the years. But as business brought us to where it did, they took a different direction, and we obviously accepted and respected that. We're very, very comfortable with the amount of member carriers that we have that serve Scandinavia— excuse me— and the presence that we have there. That doesn't really leave any lasting negative impacts on our network as a whole. And as you quite rightly outlined, we're looking forward to welcoming ITA early next year. And it does take a lot of work because Other than all the commercial agreements that you can conclude with bringing a partner member into the alliance, there's a lot of behind the scenes, in particular IT integration. There's the 50 standards that I referred to that a new member carrier must be able to fulfill. So it can take several months to get it done, but we move as quickly as we can. And I think we'll be pretty excited And confident to welcome ITA early into the alliance in 2026.

Jonathan Wober:Does that affect you in any way, your relationship with either of those 2?

Dimitris Gerogiannis:No.

Jonathan Wober:Okay, so something that isn't specifically about the alliance, but you mentioned in your remarks just now your investments that you've made in MRO and training. Can you just expand on those a little bit and whether there is perhaps an alliance angle at all?

Dimitris Gerogiannis:No, actually there's not an alliance angle. But in any case, we on the MRO side, we are not the new kids on the block. AEGEAN has been doing line maintenance for our own fleet for the past 25 years, and we have been doing base maintenance for part of our own fleet, given the limited hangar space we had, also for 15 years. So we have developed a very, very experienced, very skilled group of mechanics, of planners, and other relevant skills. Based on this human capital, that was the decisive factor for the investment in the MRO, was that we had a very strong base of human capital, which is the most important asset for AEGEAN. Based on this human capital and the growing needs that we could see in the market for maintenance services made us decide to invest in the new, as I said, brand new and green MRO facility. The MRO facility has a— the goal of the MRO facility is twofold. First of all, to improve and increase the capability, Aegean's capability to serve our own fleet. It's a much larger facility, so we can increase the percentage of our fleet that we can serve on our own, which means control quality, have flexibility on the slots, cost-effectiveness, and obviously from the very beginning to go into third party, offering third-party services. Which in fact, from the first year of operation in our new facility, we're very happy to see that we had customers, major European airlines, which is very pleasant, very good news for us. And it's a testament to the fact that the experience and the skills of our human capital that I claim we have, it's not only that I claim that we have it, but also the customers now testify Similar is for our flight training activity, which is a joint venture with CAE. There we capitalize again on, you know, 25 years of experienced pilots, trainer pilots, training pilot trainers, and it improves the efficiency of our own training program. Instead of having our pilots and cabin crews going abroad to Bremen or Frankfurt or München. We do it now at home, which is obviously a, a more efficient way to do it. But at the same time, the joint venture, the goal of the joint venture is to develop business out of it, and we are happy to see that we increase the utilization of the 4 installed simulators and we have an increased number of third-party customers also in the flight training center. Excellent.

Jonathan Wober:Okay, there is actually a question that's come up on the screen. Where are the barriers or pain points that are hardest to fix for technology delivery? I mean, in a sense, that does arise from something we just discussed, but it's not really alliance-related. But quick answer?

Dimitris Gerogiannis:Quick answer: legacy systems in the airline that have been there for the past 30 years, and they change very slowly. We want to put new technology on top of it, and the providers Until very recently, they do not facilitate it at all because they want to milk the cow.

Jonathan Wober:Okay.

Theo Panagiotoulias:I'm going to just add on to that. In particular, the PSS systems, which are the historical part there. I'm not being critical of the systems, but rather we've got a world now that is evolving with technology that goes beyond that. And as an industry, excuse me, as an industry, we've got to be quicker and more fluid in the way we respond if we want to Meet these customer demands.

Jonathan Wober:Okay, if there are other questions, don't forget you can use Slido to, to get a question up on the screen for Theo and Dimitris. So the alliances first came about all those years ago to some extent because it's not possible for full-scale cross-border merger activity to take place except on a limited level within regions, as we've seen particularly in Europe.

Dimitris Gerogiannis:Do you—

Jonathan Wober:if there were no restrictions on ownership and control, there were no market access restrictions in the industry, would you ever expect to see a time where you've got Star Alliance airline and you've got, you know, Oneworld Alliance airline? So in other words, there's full-scale mergers.

Theo Panagiotoulias:That's a really interesting hypothetical.

Jonathan Wober:It is a hypothetical, but I'm interested in your answer.

Theo Panagiotoulias:I mean, I don't think so. I think you can only achieve efficiencies at a certain point, and then there's diminishing returns after that. But beyond that, we live in a world that is multicultural. We've got different business models, different priorities, and trying to create that kind of mega alliance that you're referring to, I don't know that you'd necessarily be able to fulfill all those different needs across the world. So I think what you're seeing right now, if you go back to the basic fundamental of how these alliances evolved. And you're right, one of them was a regulatory aspect, but the primary ones are about, um, I'm not big enough to be able to go and serve all these markets. I'm going to partner with someone and leverage their network and then deliver upon my customer promise. And you've got to do both of those in parallel. So I think the way that it is evolving right now, as long as there is Yeah, if you're a customer-centric business and you're listening to the feedback from the customers and you're utilizing digitalization because that's what's going to resolve most of the problems, then I think you're in good shape.

Jonathan Wober:Okay, and you were also shaking your head, that's not going to happen?

Dimitris Gerogiannis:No, I don't think it's going to happen precisely for the, for the reasons that Theo mentioned. There is a lot of diversity in markets, in cultures, geographies, and I don't think this is, this is a possibility. And it's not something that I would like to see happening anyway, but I don't think, I don't think it is feasible.

Jonathan Wober:So they—

Dimitris Gerogiannis:because the mega carriers, you know, as Theo said, there is diminishing returns after a certain size and you start creating inefficiencies. You know, mega organizations become more complacent. They're not efficient. They're not close to the market. They're not close to the customer. It's the nature of being too large.

Jonathan Wober:Yeah. So in terms of markets, Star Alliance obviously brings you long-haul because you focus on short and medium-haul. You've got new aircraft with slightly longer range, A321 coming on board. You can push it, but you're not long-haul. I'm not going to put words into your mouth. Would you ever consider flying long-haul with widebodies?

Dimitris Gerogiannis:Well, in Aegean, and I think I said that earlier, we always, before we take any step, we take a very careful view about what we expect from the step we're going to take, what are the risks, and to make to make always sure that no matter if— even if this step is not going to deliver, we can always bring the company back to a safe haven so that we do not jeopardize what we have built for the past 26 years. Yes, we take— 10 years ago when we acquired Olympic, our international network was not even half of what we fly now. We dared in 2013 in a conference, myself and Eftikis, our chairman, to make a statement about about the number of the size of our fleet 10 years later. Back then, I told him, my God, why are you making such a statement? It's too far away. We're almost spot on on the numbers we had mentioned back in 2013. Not because we are gurus even in the business, but we take steps very carefully. We grow the business steadily, but in a sensible manner. We always make sure that we secure that the company is in a solid financial footing, And it has the capacity itself to finance its future and its investment. This is what we have been doing all along for the past 25 years. The steps we take now, for example, the extension of our original order for NEO. Now we extended by 8 aircraft. We reached now an order of 58 NEOs. We converted most of them to A321s. We have 37 of the 58 will be A321neos. And 4 of them will be LRs. Those are steps that we take carefully, slowly, because we want to make sure that they will deliver results and they will keep the company on a solid growth and development pattern, but more importantly, on a solid financial footing.

Jonathan Wober:But by focusing on sort of short-medium haul Europe primarily, you are competing in one of the most competitive markets in the world with some of the most ruthlessly efficient low-cost carriers.

Dimitris Gerogiannis:We know that, we know the name by now.

Jonathan Wober:A big competitor in Greece. So how do you cope with that competition?

Dimitris Gerogiannis:Well, we are kids of competition. We always had competition. Since 2001, when we first went to the international markets, we faced competition. In fact, the very first year we faced competition from full-service carriers, Lufthansa, Air France, and also from low-cost carriers in the markets where we were making some little money. And we faced the competition from Germanwings back then. So we are kids of competition. We have learned to live with competition and we respect competition. We respect every competitor. We're not scared. And in this business, being scared doesn't help. You have to face competition and deal with it. So far, we have managed to grow. We have managed to be on a solid financial footing and deliver positive results. And I think positive results for our shareholders and for our people. And hopefully we will be able, with our culture, which is agility, adaptability, and performance-driven, to move forward.

Jonathan Wober:And you have been one of the most profitable European airlines in the last few years, so that's a sign of coping with competition, I would suggest. Sadly, we're actually out of time. That time went so fast. So thank you very much, both of you, and please join me in thanking the panel.

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