Boardroom Conversation – Creating an Airline

Transcript

Richard Quest:I've got a really good idea. I mean, we all know the oldest joke, you know, about you've got $1 billion, how do you turn $1 billion, etc.? Start an airline and you'll end up with a couple of million. But I've got a really good idea for you. Let's start an airline. How many people in this room have actually started an airline? How many people went broke? How many people ended up with a very large psychiatric or therapeutic bill as a result? You get my point. God, if we only hire— the number of times I've got a really good idea for an airline. Now, we could sit here and fantasize to our heart's content about how brilliant it would be. But when they say they asked me to do Boardroom: A Conversation Creating an Airline, I realized what we had to do here was not go into the land of fantasy and dreaming, but we had to take the issues of the day and extrapolate them into If you were starting an airline today. Now, if you were starting an airline today, you'd need your head examining. You certainly would need a bunch of capital and very deep pockets. You would have to provide— you would have all the regulatory issues that we all know about. So why do people do it? Why do people have JP-4 in their blood? Why do people still want to run or own or start an airline in an industry that, as Willie will tell us no doubt later, makes absolute zero economic sense in most cases, most of the time. Where the— what's the average yield, Willie? Net margin, 3.6%. Oh, 3.6%. You could put it in a sock under the bed and do better. And yet you still all want to do it. So you're either lunatics or mad, or there is something else going on. Conor McCarthy is with me, joining me first. Conor, come up from— CEO of Emerald. He's— he knows a thing or two about that, along with Bjørn Tore Larsen from Norse. Gentlemen, you start by coming up first, please. One of you take either side. Where are you? There you are. You sit— one of you sit there, one of you sit here, because we're going to build it up. Slowly, point by point. Also, Peter Bellew, COO of— which one is it this week? Oh yeah, right.

Peter Bellew:Morning.

Richard Quest:Cheeky, cheeky pub. Don't sue me. Oh, sorry. Sit over there. And Angus, Angus Clarke is with us. Angus, can you come up as well?

Conor McCarthy:Great to see you again.

Richard Quest:All right, sit over there. And you are, sir? Tell us about you.

Angus Clarke:I'm at Air France-KLM.

Richard Quest:Yes, I know, I know that. You're Air France-KLM. Your role is?

Angus Clarke:Chief Commercial Officer.

Richard Quest:Chief Commercial. Your role is?

Bjørn Tore Larsen:Oh, I'm the psychiatric patient, so, um, but, uh, I'm, I'm basically the founder of the company.

Richard Quest:Founder?

Bjørn Tore Larsen:Yeah.

Richard Quest:I saw your plane the other day. There were several planes.

Bjørn Tore Larsen:Isn't it beautiful?

Richard Quest:They really are. Still in business.

Angus Clarke:Yeah.

Bjørn Tore Larsen:Oh yeah. For a long time.

Richard Quest:And sir, yourself, airlines.

Conor McCarthy:Founder and executive chairman of Emerald Airlines.

Peter Bellew:Chief operating officer of Riyadh Air.

Richard Quest:Right. Brilliant choice. This is where you all come into play. As we are building this new airline, any of you at any point can stand up and throw a problem. All right. Preferably a problem related to the area we're talking about, preferably a real-life sort of problem that they have to face. So we want to start an airline. We'll come to the 2 of you on the outside to be in a moment. Bjørn, tell me the philosophy. What sort of airline are we starting? What niche have you spotted that you want to start, bearing in mind reality Yeah, well, we didn't really spot the niche initially.

Bjørn Tore Larsen:So what we really spotted was COVID. Everything was broke. There were a lot of aircraft on the ground and you could avail of aircraft at historic low levels. That was the starting point. And then we tried to figure out what to do and we, you know, did a few mistakes and maybe we have cracked the code a little bit now. I think so. But, you know, we are still a baby.

Richard Quest:But why? Because all this came out of Norwegian in a sense.

Bjørn Tore Larsen:Why? Well, boredom perhaps. You know, we could do nothing in COVID. So we were looking for what is the next thing. And my background is in shipping, luckily still in shipping.

Richard Quest:Oh, well, that's really useful for aviation.

Bjørn Tore Larsen:Yeah, isn't it? Yeah, it's very, very useful because money comes in from shipping and goes out in aviation. So it's a great thing.

Richard Quest:But why did you feel the need for another airline? I mean—

Bjørn Tore Larsen:Well, to tell you the truth, when Norwegian went bankrupt, Yes. They left a big gap in the market for a great value product that nobody served, and that was the opportunity.

Richard Quest:So the core here is finding the thing that nobody serves.

Bjørn Tore Larsen:Yeah.

Richard Quest:Which was what?

Bjørn Tore Larsen:Well, we are an airline. We don't have a nationality. All right. So like, like this month we are flying zero flights from Norway at all, although I'm Norwegian. So we are really flying on the big routes where these big aircraft could fly, fill the aircraft and give a great value product. And make a small, small margin.

Richard Quest:Tell me about yourself. Come on, we want to start a new airline. He said we've got to find a niche that nobody's flying at the moment or where there is a gap in the market.

Conor McCarthy:COVID again, huge disruption across the globe. What probably bonds us all is an overoptimistic view of life that everything's going to get better soon. aviation will return even though we were stopped all through 2020. And an opportunity came up where Aer Lingus, which has a very old regional network serving the UK from Dublin, had a franchise available for tender. And we put together a team and a pitch and won the tender.

Richard Quest:Your airline in a sense had a guarantee— not guaranteed in a It had an obvious revenue market. It was not a great risk in the same sense as his.

Conor McCarthy:We only had one little problem, that 80% of all of our seats compete against Ryanair, which is a little bit of a challenge. But other than that, a real opportunity.

Richard Quest:But you knew the market you went for?

Conor McCarthy:Absolutely, yes.

Richard Quest:You sort of know the market you were going for, but it hasn't been successful so far.

Peter Bellew:Well, well—

Richard Quest:It went bankrupt.

Bjørn Tore Larsen:Yeah, but I think they missed one part, to be quite frank. They were— their costs were too high. All right. So to have— be a low-cost carrier, first you start with low cost and then start from there. And I think we have lower cost, basically.

Richard Quest:All right. So we've got lights up in the room. Lights up in the room. Put the lights on, please. How many people in this room, when you heard about Norse, you thought these people are They're never going to make it work. You're just all being polite here. You are all, 'cause I know what you're all saying. You over at the back. All right. You've heard, you've heard the philosophy of the two of them. What's wrong with the philosophy? What's the problem that they've got to face with what they've said? Come on, you wanna join in? Join in.

Audience:Yes.

Audience:Cost is not going to be a problem.

Richard Quest:Cost is not going to be controllable. Answer that.

Bjørn Tore Larsen:To a certain extent, you are absolutely right, but you have to keep cutting it continuously. And then you have to be, you know, it's— cost is relative. So you have to have a lower cost than your competition. So you have to— I mean, somebody is going to be best in the race and we aim to be it.

Richard Quest:Yes.

Audience:Yes.

Richard Quest:Low-cost, long-haul operation, critical.

Bjørn Tore Larsen:Sorry?

Richard Quest:Low cost on long-haul operation is critical. Right. You're short haul, so it doesn't matter for you. But you've got costs in relation to a different type of cost base.

Conor McCarthy:Yeah, but I think no matter what niche you decide to get into, you can adopt a stance which achieves low costs.

Audience:Yeah.

Bjørn Tore Larsen:And, you know, it's very hard to run low-cost long-haul. It's very hard to run low-cost short-haul as well. I mean, there's not many Ryanairs and And I think generally having low cost is a competitive advantage to high cost.

Angus Clarke:Sir, where do you find the capital?

Richard Quest:Good point. We've moved on to the next bit.

Bjørn Tore Larsen:Thank God for shipping, put it this way. Yeah.

Richard Quest:All right. By the way, we haven't got a name for this new airline. What are we calling it? New airline that we're creating today. What's its name? Any idea?

Peter Bellew:Sorry?

Richard Quest:COVID Airlines. COVID Airlines. Oh God, that's great.

Conor McCarthy:It's insanity.

Richard Quest:Excuse me, I'm going to go on COVID. That'll be a success.

Peter Bellew:Whatever.

Richard Quest:Okay, I've got it.

Audience:Hope.

Richard Quest:Hope Airline. I'm flying Hope. All right. Capital. Where are you getting your capital from?

Conor McCarthy:The leasing companies.

Richard Quest:Oh God, that is so— let's borrow from the people who are going to pay back. Absolutely.

Conor McCarthy:They all had a crash.

Richard Quest:That is so— let's all get into the same leaky sinking boat together.

Conor McCarthy:Well, they seem to make money despite themselves, and they provide capital in the form of financed aircraft. So you can actually start with quite a light balance sheet. What you need is working capital though to get through the bad periods.

Richard Quest:Isn't that a mistake to start with a light balance sheet? Isn't that just absolutely building in from day one catastrophe?

Peter Bellew:No, but experienced airline people have never had a problem raising capital, arguably.

Richard Quest:No, they also haven't had a problem losing it either.

Peter Bellew:Yeah, and it's still at the moment, there's walls of capital chasing airlines and aviation because the aircraft themselves are probably the most mobile asset class you can get, because if it doesn't work out with one, you just move it somewhere else. So also that you'll see the private equity companies, the large syndicated banks, They're chasing the leasing industry or they're chasing investment in the leasing industry. I don't think capital's ever been the problem. I think actually human talent, being able to make the capital useful, that's always been the challenge.

Richard Quest:We'll come to that capital. Did you have any problem raising the money?

Angus Clarke:For if?

Richard Quest:No, no, for Bjørn Larsen. You've got other issues.

Conor McCarthy:Refusing capital is your problem.

Richard Quest:Yeah, you just go to the government.

Audience:Ding!

Richard Quest:Carry on. Did you have any trouble raising the money?

Bjørn Tore Larsen:Not really. I mean, it's— obviously, you have to prove that you can make a successful business. Otherwise, people won't continue throwing money at you. And historically, it's a really, really bad business. I mean, and you're totally right. There is not many sane people who really want to invest in it. Having said that, our ambition— I only have one ambition in this business, and that is not to go bankrupt. That's, it's harder.

Richard Quest:Whoa, that's a really high bar, or a low bar.

Bjørn Tore Larsen:But honestly speaking, then you beat 80-90% of everybody who started the airline. So that is number one, but you won't achieve that target if you continue to lose money. All right. If on the other side, you can prove that you have a profitable business and that your model works over time, I think, you know, money will come into good businesses. Typically.

Richard Quest:Do you have a view between the leasing, private equity, debt basis structured? Do you have a preference?

Bjørn Tore Larsen:My preference is to have zero debt, but that is pretty hard in a very capital-intensive business. We have great relations to our leasing partners, and they have been instrumental in, in, in for us to be able to start the airline, but obviously they want to see return as well.

Richard Quest:As CEOs, how much time is spent, how much of your time is, I mean, you all want to talk about the sexy bit of where we're flying, what we're flying, how we're flying, the routes, the et cetera. But how much of your time is spent on the grunt part of it or the engine room part of it, which is the capital, the investor relations, the subordinated debt, the various issues like that?

Conor McCarthy:I wouldn't call that the grunt part. That's almost the attractive part. The grunt part is getting up early and getting in to make sure Everything goes on time, people turn up, people are trained, you don't have too many of them, you don't have too few of them, you don't cancel flights. They're all the— that's the hard bit. That's about 90%.

Richard Quest:Really? But how difficult is the finance part? That's easy.

Conor McCarthy:Yeah, actually.

Bjørn Tore Larsen:Well, I mean, we have investor relations. Obviously, you need to speak to investors, etc., but we have more clever people who do that on a daily basis. So you sort of have to have good people in every base, and if you don't, then you struggle and you have to find it.

Richard Quest:So we've got our airline. We're not quite sure whether we're going long haul or we're short haul yet. We're not quite sure, but we have got the money. So what's our next issue that we have to deal with? Go on, what's our next issue?

Peter Bellew:It's everything else because—

Richard Quest:Well, I know it's everything else, but give me one of them.

Bjørn Tore Larsen:Competition.

Richard Quest:Yeah, we'll get to that, but what's the next thing we've got to do?

Peter Bellew:Building the team.

Richard Quest:Sorry?

Angus Clarke:Get the team with us, not wanting to lose market share.

Conor McCarthy:Yeah, right.

Angus Clarke:Competition.

Peter Bellew:Yeah, I think building the team is the hardest thing. Getting great talent in this industry right now is really, really difficult. A lot of great people retired, a lot of pals of ours retired quite young, and they're quite happy.

Conor McCarthy:Smart ones.

Peter Bellew:Yeah, the smart ones. And I think it's okay, you can simply say it's pilots, cabin crew. Actually, engineers are like gold nuggets in the snow right now. There's a big shortage. And also just the people to set up and run the business in a competent way who know how to manage costs. They're the most difficult people to get at the moment. And that's the most essential thing. If you get the right CEO who's driven and is focused and you get the right team of 5, 6 competent experienced people, you have a really good chance of success.

Angus Clarke:I think the biggest issue now though is getting aircraft. I mean, you've got, you've got that issue, yeah, and trying to get a competitive— competitive maintenance contract out of any of the engine manufacturers, I think, is for a startup is nearly impossible. So getting your cost right in terms of aircraft ownership maintenance, I think, is for a startup is a near impossibility.

Conor McCarthy:But I think what you're saying, Angus, is We've swapped one set of problems for another. After COVID, we went through the supply chain crisis, then the engine manufacturers have all gone through a technical crisis, and the airlines are always at the bottom of the pile, have to pay the price.

Angus Clarke:I think what Conor and Bjørn Tore didn't say was one of the catalysts for starting with cheap aircraft. I mean, your aircraft was cheap.

Bjørn Tore Larsen:Sure, I mean, and that is the part you cannot change after you start. Most other things you actually can change, but that part you have to Right. So, yeah, so, so this is crucial.

Richard Quest:This is crucial.

Bjørn Tore Larsen:It's crucial. So, so our mindset is to be very countercyclical. So in other words, in bad times, this is the times where you really want to try to expand and to create the new deals. And in the good times, you have to be very, very patient and try to make money out of what you have.

Richard Quest:So we've got our airline, we've got our name, we've sort of our My words, not yours. We are poaching staff from elsewhere, either retired or we are, or friends who we have known and loved and worked with before, and we have enticed them with huge options and prospects of great wealth, wealth larger than mammon in the future. Is that what they did with you?

Peter Bellew:No, I think they have to appeal to your sense of lunacy that you're up for another startup.

Richard Quest:Right. So we've got, we, we've got our key 5, 7 people, and now we start the really hard part of building the, the, the, the structure. You've got your financing in place. This aircraft problem issue, you had planes from a, a previous iteration. You had planes sort of.

Audience:Yeah.

Conor McCarthy:No, we didn't. We had to go out and get them, but the market was awash with ATR 72s after COVID. So it was a— and you could, you could get them on attractive terms and with low-level, low deposits. So that, that's where your capital gets a little less burdensome.

Angus Clarke:Cheap planes.

Richard Quest:Cheap planes.

Angus Clarke:Cheap planes.

Richard Quest:Yeah, that helps.

Angus Clarke:You don't have to fly them too hard. You can fly when you make money. Yeah, yeah.

Richard Quest:You didn't— I mean, you did a different strategy.

Peter Bellew:No, we've ordered new aircraft and they're on their way to start delivery in the 4th quarter. And when you do that, you can get the product you want in terms of what's on board the aircraft. And also you can, you know, you can manage the delivery cycle in a way that matches the network that you're going to set up.

Richard Quest:Well, you can't really, because the aircraft at the moment are just about— they arrive when they want to.

Peter Bellew:No, it has actually Boeing have— Boeing on the 787 have significantly stabilized over the last 12 months. And—

Richard Quest:Do you think the fact that— I'm not sure you're going to want to answer this, but do you think the fact of the nature of Riyadh, the size and scale, the money involved, the geostrategic significance of the sovereign helped in a sense, we don't want to piss off the Saudis?

Peter Bellew:If you look at— if you look at— it's public, the schedule of the deliveries from Charleston, and we're just in the line with everybody else at the moment, and it's coming now when we expect it to come. So actually, I don't think that makes any difference other than they know they're going to get paid for the aircraft. So, but if you look at the 787 order book, it's all premium airlines, high quality. They're all doing extremely well and they're well financed. I think at the end of the day, we will get our Airbuses towards next year, and that's going to accelerate. We'll get them out a little bit quicker than we thought.

Richard Quest:Are you all surprised at how, how the OEMs and how the industry has just taken so long to recover from COVID from, you know, Supply chain difficulties, which I know we're about to get another raft of because of tariffs, etc., but it just seems to be interminable and it doesn't seem to end. Let's start with—

Angus Clarke:Yeah, so I think for Air France-KLM, we, we do have delays. 98% of our—

Richard Quest:Get some water, you carry on.

Angus Clarke:98% of our order book is Airbus now, so, uh, so I think that's, that's a big change from the past, uh, but Airbus, let's just say on the narrowbodies, they're 6 months late. The A350 is about to be 6 months late, so 6 to 7 months late. Now we can live with that, but they have been pretty reliable over the last 3 or 4 years in delivering. So I think Airbus has been in a much better position than Boeing, and I still—

Bjørn Tore Larsen:I've heard—

Richard Quest:Are you surprised? It's a mature industry.

Angus Clarke:Yeah.

Richard Quest:That they cannot, either of them really, I mean, and certainly with the engine manufacturers, The same. They can't get it right.

Angus Clarke:I think too, if you go down the supply chain, certainly the engine manufacturers are the biggest issue more than the airframe. I mean, airframe's becoming a little bit because of Spirit, but I think all the people that worked at the casters and forges just got let go, and they can't build that back up again fast enough. It's a real issue. And I think there's a risk from what I'm hearing that engines like the GE90 will just, you know, the overhauls will just grind to a halt. and all the shops will just build up engines sitting there, and ASK growth will really struggle, which will probably help us.

Richard Quest:In any other industry, this would be extraordinarily— I mean, it would be appalling. People would be shouting. But the airlines, I'm not sure who's got who by the balls.

Angus Clarke:They've got us by the balls, I feel.

Bjørn Tore Larsen:Yeah, well, I mean, individually as airlines, we would be, you know, we're not happy when Aircraft are not delivered. But, you know, collectively, it's not a bad thing. It keeps capacity down and supply is still there. So, you know, right. But I'm not sure we are in the worst place.

Richard Quest:That's Carsten's view, isn't it, over at LH? The industry has been— no, his view is the industry has been saved from its own stupidity. Yeah, but capacity constraint being enforced. Yeah.

Bjørn Tore Larsen:And I think, you know, I see some similarities to shipping, and one of them is that shipowners are always very optimistic in good times, order a bunch of ships, and then they are delivered and the market crashes. And it's, it's, I think this market would have been worse if, if these logistical issues were not there, in my opinion. I'm not saying that since we don't wait for any aircraft that, you know, we don't want you to have yours, but it's, but it's definitely a factor. And secondly, I think we, you know, when I, when I started the airline, one thing I didn't realize was that I was actually buying one aircraft and 2 engines, you know, Sorry? I thought I would buy a package, but it's really, you're buying an aircraft and then you buy the engine separately.

Richard Quest:You really didn't know that?

Bjørn Tore Larsen:I had no idea about it. You know, you buy a ship and you go—

Richard Quest:It's the Gillette principle with the engines.

Bjørn Tore Larsen:Yeah, you know, I'm a novice guy.

Angus Clarke:Used to be.

Bjørn Tore Larsen:But what I did know was that these engine manufacturers had a lot of issues. And we have Rolls-Royces on all our aircraft and not good, but Rolls has been really great to us. And we have worked very well with them. Clearly, they have issues like everybody else, but I'll praise them. I think it's a lot of hard work by very smart people who have faced tremendous challenges for whatever reason.

Peter Bellew:Listen, I think a lot of people misunderstand the industry because you almost get the airframe for free and you pay for the engines and for the cost of the maintenance of the engines is extraordinary. Take back, why is it like it is today? We had COVID, a lot of people have got to let go. We also had the introduction en masse of the LEAP engine, which, you know, has had challenges. And we had the GTF engine from Pratt Whitney, which has also had bigger challenges. So those 2 things actually have slowed down some of the deliveries, particularly the narrowbody side, but also created a lot of ongoing maintenance. But it comes back to the engines actually are the trickiest things of the whole lot, other than the turboprop. You know, it's slightly less of a problem and that is, but that's actually where the huge costs are going to be for everybody over the next 10, 15, 20 years because there isn't actually engine shops available to service all the engines that are actually flying there today because the time that they're having to go into the shop 2 or 3 times more often than they used to.

Angus Clarke:Yeah, and there aren't the parts or the people to overhaul the engines either. That's a labor shortage and parts shortage.

Peter Bellew:And there isn't training. Conor is one of the few people in Europe at the moment who's training apprentice engineers, and he's working hard at it.

Conor McCarthy:And I still run out, I still run out all the time because the airlines poach them. Well, back to the point though, I just, I think there's 2 things, Clay. One is airlines are their own worst enemies, and you can look at that with the boom-bust cycle over the last number of years. And just like Bjørn says, you know, they order in the good times thinking it's always going to be like this, And the aircraft typically arrive right when the downturns happen. And they are cyclical downturns. We consistently have them in the industry. But there's the other factor which Angus touched on was during COVID an awful lot of businesses in the tier 2 and tier 3 supply chain let people go. So foundries, casting companies who make all the big forgings for landing gears, make the discs for engines, etc., very specialized metals, but a dirty, difficult job. They let their people go and now they can't get them back because they went to work in an Amazon warehouse and found, I'm earning the same money, I'm not, I'm not doing as hard work, why would I go back to that job?

Angus Clarke:If they do come back, they're going to be on double the money and the cost of making—

Conor McCarthy:Yeah, and the costs have—

Richard Quest:If they come back.

Angus Clarke:Raised.

Richard Quest:Costs have gone crazy since COVID But the thing about it is that this airline Is, I, I was gonna say sleepwalking, but it's not. You've got your eyes wide open. More planes are being delivered. The networks are getting bigger. Older aircraft are still being maintained into the fleet because of the necessity and the difficulty of lot of, of deep maintenance and ma— and engine shops, which— I don't want to be depressing about our new hope airline, means it doesn't bode well, does it? It's going to get worse, the situation.

Angus Clarke:Yeah, buy stocks of existing airlines. They're pretty cheap at the moment. I think that's the, that's the better investment.

Richard Quest:Nothing you hear today should be taken as any indication to make any investments.

Conor McCarthy:You know what they say, Richard, timing is everything. So I would not start Emerald today. If I had the opportunity.

Richard Quest:What would you start today?

Conor McCarthy:I wouldn't start any airline today.

Richard Quest:This doesn't— sorry, wrong answer.

Conor McCarthy:Now, and we paid, we paid back 30% of our debt last year. So in our 3rd year of operations, we've made money, paid down 30% of our debt.

Richard Quest:Why did you pay that down?

Conor McCarthy:Because I don't want debt. I don't want to be in business for the banks. So I'll pay down the debt and allow the cash to flow through as much as possible. And we're still growing by about Double digits each year. So that works for us. We keep our costs in control, we keep our efficiencies really tight. But the opportunities that were there post-COVID to take over an existing network with an existing parent operator that could give us good distribution, those opportunities aren't there. So if you're trying to get into the market today, you're going to buy your way in, and it's a very expensive buy-in price. Because costs have gone up so high. And right, so, but the OEMs have pulled out of these power-by-the-hour deals. You can't even get your engine on a power-by-the-hour deal.

Richard Quest:So what you're getting them on now?

Conor McCarthy:You pay when the engine goes to the shop and you pay through the nose.

Richard Quest:So that's what you meant by the Gillette principle's gone.

Angus Clarke:Yeah, it's full retail now. And I mean, unless you're going to order 100 planes, but who can sell you 100 planes? No one. So it's all, everything's full retail.

Bjørn Tore Larsen:But this goes in cycles. All right. So the fact that—

Richard Quest:Oh, no, no, no. Before you say that, Because this goes in cycles. This is a great one of, you know, yes, it goes in cycles, but if you're at the wrong end of the cycle, you go bust.

Bjørn Tore Larsen:Yeah, exactly. So that's what you said. Timing is everything, you know. And not only that, but you have to be fast in changing. And that's another thing. My favorite quote is from Darwin. You know, it's not the strongest of the species that survive, nor the most intelligent, but the most responsive to change. And for us, you know, we have these beautiful aircraft with I think at competitive costs, but we don't necessarily have to fly them in our own network when we can take over when we see things. So, for example, we have a few aircraft out to IndiGo, which is a great airline, which, you know, it's the most unknown secret in the market that goes in a very different market. So we are sort of hedging our bets as well.

Peter Bellew:I think that's the niche. So if we were setting up Hope, If we're setting up Hope Air today, I'd probably pick the Arabic word amal because it's a beautiful word, and I'd go for the wet lease business. So we'd get old assets, really old assets in some cases, and we'd wait, wait, wait, and the Air France-KLMs and whoever else, or the other carriers who want to start up, and they've got aircraft stuck in the shop, the engine shop or wherever else, and we'd say, right, we'll charge you X hundred thousand dollars a month. Is this And I think that's probably about the only thing you can make money out of at the moment.

Richard Quest:This is very similar to what Delta, of course, did years ago when it kept all its MD-80s and it just refurbished an aging fleet that everybody thought they were mad. And all they did was refurbish them. And United just did it after the pandemic with the 767s, which they'd long since paid for, and then just shoved as many business class seats in them as they possibly could.

Peter Bellew:And a brilliant airline in the UK, Jet2.

Richard Quest:Sorry?

Peter Bellew:A brilliant airline of the UK, Jet2. Conor looks after, I used to, 30-plus-year 737s and—

Conor McCarthy:757s. They've just got rid of them now. They've gone for new. But yeah, they've built a very nice business on the back of older aircraft. But now they have converted to the new, so time will tell.

Angus Clarke:I just went on a 32-year-old Delta 757 from Miami to Atlanta. So I mean, the plane was fine.

Richard Quest:Did it feel it?

Angus Clarke:No, it didn't. It didn't shake much. You know, the cabin was sturdy enough, though I was pleased when it landed. But, you know, Delta's obviously a great airline, but, you know, that's, that's pushing the limits a little bit these days.

Richard Quest:Do you get— before we move on to the next, by the way, anyone got any question on financing and, and all the issues that we've got so far? Any prob— sorry? Yes, yes, go ahead. Just shout out.

Audience:Yeah, I, I mean, I think there is an opportunity now that Airlines tend to have a lot of headcount. And with AI, I mean, you just look at what can be done with deep research on network planning or what have you. I mean, you should be able to start an airline. No, I'm not talking, you know, flying staff, but kind of the, you know, more administrative areas with a fraction of the people you did— you would have.

Richard Quest:Now, I think— Now, can you really— can you really do that? Don't you need to know what you need to know before you need to know whether AI can know it for you?

Audience:Yeah, I think you need to, you need to have the seniority, but it's that middle and lower, I think, can significantly be—

Peter Bellew:I think for a startup you need 5 or 6 brilliant people who, who, and, and those people, they can smell money in a network, right? You know, they don't need AI to do it. They, they can tell you by instinct exactly because it's, It's just in their DNA.

Angus Clarke:And I'd say, you know, half your costs as a startup are going to be pilots and flight attendants, going to have caps on hours. So, I mean, as you said, AI, you don't need AI to do that.

Bjørn Tore Larsen:So I think you hit on something very, very important. And when we started, we, I had really no clue how to put it up. So we just blueprinted what somebody else did and turned out it wasn't the great idea for the future. So what we did instead was that we disrupted ourselves. We Built, rebuilt the entire organization, put a maximum age of 22 and a half, and with a very brand new mindset when it came to commercial things, when you came to have to schedule things, etc. Give me an—

Richard Quest:give us a practical example.

Bjørn Tore Larsen:I'll give you 2 examples.

Richard Quest:Please.

Bjørn Tore Larsen:Okay, no, and this is going to be very high level. Number one, we are reducing our SG&A by 50%.

Richard Quest:You're reducing your?

Bjørn Tore Larsen:SG&A by 50% compared to the quarter, Q3 last year. And we are filling the cabins. We're going from 60% load factor to 95%. And this is really by using technology and a completely different mindset. So at what yield? You know, at a yield, at prices that are at par with what we had before.

Audience:Okay.

Conor McCarthy:Yeah.

Bjørn Tore Larsen:So in other words, it's real revenue. I mean—

Richard Quest:Right. But which bit told you to do it? Did the AI tell you to do it or did you decide to do it?

Bjørn Tore Larsen:No, somebody who was— somebody was really running after me. He had seen that we're doing things very old-fashioned, and this was a guy who had never been in the airline business, but in some other travel-related tech business. And he, after a while, he said, you know, you're really being stupid not listening to me. I said, okay, finally, 5 minutes. And he gave me the pitch, and I said, okay, I'm so stupid now, tell me how to do it. And it changed it. So it's everything from where we fly to how we price the tickets to how we thought of the competition.

Audience:Yeah.

Bjørn Tore Larsen:So how we schedule the crew, et cetera, et cetera, et cetera.

Richard Quest:Next, next point from our— anybody here want to contribute at this point? They all seem to be very happy with the way you're about to run your airline.

Angus Clarke:Or, or we're not.

Richard Quest:Or we're not. Yeah. Yeah.

Audience:All right.

Richard Quest:So we've got our planes or we've got them on the way. We've got our team, you've got your routes. where you're going to fly.

Conor McCarthy:Hmm.

Richard Quest:Now you've just got to decide your model, which I guess your model depends on how— on what your concept was at the beginning. But how do you avoid the mistakes of the past? How do you avoid what I've heard so many times people talk about, the arrogance of we've got to have big planes, we've got to— you see, sound familiar? We've got to have New York-London.

Peter Bellew:Yeah, yeah.

Richard Quest:We've got to have jets.

Conor McCarthy:Get jets. Yeah, get the jets.

Richard Quest:We've got to go bigger. We've— how many airlines have collapsed or nearly collapsed on the back of hubris of the chief executive?

Peter Bellew:Yeah, I think there's only 2 models that really work. I think there's ruthlessly low, low cost. They generally tend to be extremely profitable. Or you go the other end and you're a really good quality network carrier, business class, and most importantly, that you have a stunning loyalty program. So you take Air France-KLM, you take Avios, brilliant the way Qatar and IAG and everybody's combined. I think, and what you're doing, Commuter, that there's a niche there. I think everything in between, it's wishy-washy. The share prices are always stuck. They're always— it's always a bit of a mess. I think that— I think it's just polar opposites, actually.

Richard Quest:Right. But at his end, he needs to go into that end as well.

Peter Bellew:Well, the problem is if you tinker at that end, you tend to get burned. Right now, you know, they have Transavia within the group and they have gone much lower cost over the last 3, 4, 5 years. So that's probably working. But still, generally, it's never worked. Never worked.

Angus Clarke:So we operate in slot-constrained airports, so that's a natural advantage, as does IAG pretty much. So I think that helps. I think the only thing I'd disagree on loyalty in respect to the startup, if you start with 3 planes, you don't have a network and who's going to, who, you know, your program is going to be worthless. I mean, we obviously have a huge network. IAG's got a huge network. So we, and corporate traffic as well, you know, corporate traffic buys into it.

Richard Quest:Is it important?

Angus Clarke:It's incredibly important.

Bjørn Tore Larsen:Yeah.

Conor McCarthy:Isn't it important even in our regional model?

Bjørn Tore Larsen:I really love what you say about, you know, you have to be this or that, and we are this. So, and I don't— I've never been very, very good in listening to experts. Sometimes they're right, sometimes they're wrong. But there's one expert I always listen to, and that's Gus Kelly. He's the CEO of AerCap. He's given me a few advices, including when we started, and one of them was that costs are like nails. They're growing all the time, so you have to keep cutting. And if we are going to be in that category, we really have to be sharp. Never think that we are good enough because we aren't. And the second thing which he taught me was that heroes die young. So if you really want to put your flag somewhere and you want to defend it at any cost, you're probably going to be out of the game. You have to be agile and you have to be able to move when things are not working and when you see things being better elsewhere.

Angus Clarke:He also gave you cheap planes.

Bjørn Tore Larsen:Yeah, well, they were fairly priced. They were fairly priced. Win-win. We took them when nobody else wanted them.

Angus Clarke:It's the key. I think when you think about a business like Air France-KLM, we don't have a labor cost advantage. Let's be brutally honest about that. So I think the only way we can compete is the product offering, the loyalty, the price we pay for the aircraft, the way we lay out the aircraft.

Richard Quest:But does that mean you do have to cede ground?

Angus Clarke:Sorry?

Richard Quest:Well, cede ground. You have to admit that there are some things you're just not going to do.

Audience:Absolutely.

Richard Quest:flying around Europe is going to go for easy or Ryanair.

Angus Clarke:If you say long haul's a disproportionate amount of our business, we had the, you know, these guys have been in Paris in 2 iterations, Norwegian and Norse, and—

Bjørn Tore Larsen:It's not these guys. We have never been there as Norwegian, okay?

Richard Quest:Fighting will be later.

Angus Clarke:But we've got French Bnair Caribe with 10 abreast A350s on the Caribbean and a number of topics there that, I mean, I think that's the right model for low cost.

Peter Bellew:Yeah, I think the key is not to be a busy fool. And if things aren't working, just get out quick.

Angus Clarke:Yeah.

Peter Bellew:You know, you—

Richard Quest:Do you get tired of people saying you have a, Peter, you have a blank check, a deep pocket, no one cares if you make money, there's too much prestige on the airline, and well, Riyadh will succeed because it's simply too embarrassing for it not to?

Peter Bellew:And at the end of the day, you have to focus back on what you have to do, and you have to launch a long-haul airline with widebody aircraft, which is much more complicated than narrowbodies. which you have to get your AOC, you have to get on. So actually, capital is never a problem for successful, you know, groups of people, and we have capital. But if we didn't get it, you get it somewhere else. The opportunity to open from a city where it's very difficult to get to, as you know, Riyadh, it's quite difficult to get flights there. I think we'll be linking up cities that with once or twice a day direct services, and that'll work, and that'll generate revenue, that'll make it easier for us to make money over time.

Richard Quest:We've got 2, 3 minutes left. Anybody in the room want to contribute of why you think or not that this airline is going to succeed? What have we missed out that might or might not succeed? What should we be thinking of? You get one chance. Anybody?

Audience:Which airline you are talking about? Hope.

Richard Quest:This Hope Airline that we have just created. Do you wanna be the chairman? Yeah, but 4 people there.

Audience:So which is of them in hope, or all of them are in the same basket?

Richard Quest:They're all in the same basket. They've all got the job. Would you like the job as chairman?

Audience:I will not mention. I won't give you a reply for that. But however, I would like to mention that you just stated about deep pockets and an airline not to fail. I want to make it very clear that there is a perception. in every forum that any Arab carrier, especially from the Gulf, have very deep pockets and they can do whatever they want with the money, and if they're successful or not, if they make profit or not, it doesn't matter. I think exactly the opposite is correct. Yes, the government has deep pockets, but that deep pocket is not only for the airline. However, They expect every airline to make profit, and I am speaking on behalf of Peter because we went through the same allegations.

Angus Clarke:Right.

Audience:But people should know, regardless who has deep pockets or not, the industry, in my opinion, is going to have a very turbulent several years. One, of course, is because of the trade conflicts that is going to happen between countries. Secondly, there will be a shortage of supply chain. Even if the supply chain is going to ramp up, a lot of that same supply chain will go into the massive defense spending that is going to go up. Actually, it will be even difficult for airlines to get their hands on the supplies they need. Engines manufacturers, both engine manufacturers are going to take massive advantage from the airlines. And finally, finally, there will be most probably, in my opinion, a recession eventually in the industry because of these many conflicts that are going to take place around the world.

Richard Quest:Bearing in mind that cheerful synopsis of the industry, Do you still want to launch Hope Airlines?

Angus Clarke:Absolutely not. Not a chance.

Bjørn Tore Larsen:Not today, but when the market crashes, definitely. Yeah, yeah, absolutely.

Conor McCarthy:Yeah, too late. You missed the gap. There was a gap and that was it.

Peter Bellew:No, I want to do it.

Audience:Yes!

Peter Bellew:And I want you as the chairman. And can I say one thing? Thank you, Richard, for your encouragement for the industry for the last 20 years. Oh, you're kind. You're about the only person who really understands what we do, and you've been endlessly promoting the smaller guys, the bigger guys, everybody in between, and reporting in a very factual and honest and straightforward and easy-to-digest thing. And if we hadn't got that, it's a great support.

Richard Quest:Do come with me, Chief Executive. Ladies and gentlemen, our panel.

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