CEO Interview with LAM Mozambique Airlines, CEO/General Manager, João Carlos Pó Jorge

Transcript

Richard Maslen:

Hello, I'm Richard Maslen. I'm delighted to welcome you to the latest CEO interview for the November 2021 edition of CAPA Live. We often neglect just how large Africa is as a continent, where traditional map design significantly downplay in the size of the continent in comparison to other parts of the world. In fact, it's the world's second largest and second most populous continent. That's about 30.3 million square kilometres, including adjacent islands. It covers 6% of Earth's total surface area, and 20% of its land area. With 1.3 billion people, it accounts for about 16% of the world's human population. But air connectivity remains limited, especially between different regions of Africa, and there remains much to be done to build a sustainable and profitable network of flights within the continents.

Richard Maslen:

In Southern Africa, there's been significant turmoil during the COVID pandemic. We've lost a couple of national carriers, one rising again like a phoenix. For many, the outlook is complicated at best. Aaron Munetsi, the new CEO of the Airlines Association of Southern Africa, describes the aviation sector is facing the most devastating crisis since World War II and considers the most likely route for helping Southern Africa's airline industry survive, is opening up the skies. Now that's been a long running discussion in Africa for decades. It's clear there's never been a better time now to take action and deliver on the promises of the previous century. But is there an appetite for change and do fundamental barriers that have limited progress still remain in place?

Richard Maslen:

I'm pleased to this month, welcome LAM Mozambique Airlines CEO, general manager, João Carlos Pó Jorge to CAPA Live. Thank you for joining us today.

João Carlos Pó Jorge:

Thank you.

Richard Maslen:

Now, being an airline CEO is not an easy task at the best of times, but over the past 20 months, the challenges-

João Carlos Pó Jorge:

[crosstalk 00:02:44].

Richard Maslen:

... of the global pandemic... Yeah. The challenges of a global pandemic, of escalated stress levels, that will remain the background for our discussion over the next 25 to 30 minutes. But in the case of LAM Mozambique Airlines, there've been some other difficulties, most notably, a recent cyber attack that highlights that a health crisis is just one of a number of challenges that airlines will face.

Richard Maslen:

So to begin with, can you just perhaps give me a quick update on this cyber attack, what happened and how it's impacted the airline and where you are now in terms of resolving the situation?

João Carlos Pó Jorge:

Yes. Thank you very much. Going to the cyber attack straight, it's been one of this ransomware types where we started getting our files infected and we didn't notice it. And when we did notice it, we had like a backlog of files already affected. So putting the systems back was very difficult. Luckily we managed, but this is a big lesson for us. We learned that we need to go beyond the standard backing up, the constant monitoring, the constant what-if. It's not only like the remote sites that is our safe haven, we need to look more into it. The cyber attack affected all systems in the company, every areas, both finance and commercial. Luckily, what we had very strongly lodged in our clouds, meaning the GDS, the check-in system, that survived and that allowed us to continue operations quite normally.

Richard Maslen:

So it's been quite a difficult thing. Now, a lot of people would think that a large airline, like an Emirates or British Airways, there's a lot of resources to be able to invest and ensure [inaudible 00:04:35] these things hacked, that you can recover from these back hacked things, you can protect against them. But for an airline like yourself, that's a small airline operation in Africa, is this a lesson for the industry to realise that this is a major threat that we could be facing?

João Carlos Pó Jorge:

Indeed, a major threat that I believe, and I hear that many airlines are facing now and you definitely need to be prepared, and believe it or not, but our recent difficulties we had with having to adapt to COVID, et cetera, made it easier for us to build the teams, to get the teams working remotely and not affected. So somehow that kind of helped us in recovering from this major upset. Yeah.

Richard Maslen:

I guess we've learned a lot over the last 18 months of being flexible, being able to change, being able to adapt. So it's encouraging that what we've learnt over that time has been beneficial in this circumstance as well. Obviously COVID has been a major, major problem for airlines across the world. It remains a big issue. This week we've seen the US open up and allow visitors in, which has been a massive step forward in the global industry, but Africa still faces lots of challenges. Here in the UK, we're quite fortunate with vaccinations. We're quite a long way ahead, but COVID remains a threat. In Africa, vaccination levels are a lot, lot lower. So how do you see the industry beginning the recovery in Africa and over what time scale do you think that will occur?

João Carlos Pó Jorge:

Well, we are seeing the industry picking up again and I must say domestically and regionally, we are not at the numbers of below, or before COVID, sorry, in 2019, but we are reaching the revenue. So it means that corporate is travelling more, we are able to get more revenues and in the same [inaudible 00:06:33] flights that we were operating before. People are prepared to pay a little bit more because, of course, they are aware the costs are higher, the cost of operation and the preparedness. And in some cases, of course, flying aeroplanes slightly lighter in both [inaudible 00:06:48] than we did before. So we are seeing that recovery. Of course, when it comes to the long haul flights, intercontinental, that feed our domestic and regional routes, we don't see that getting back before the next two to three years, I would say.

João Carlos Pó Jorge:

Definitely vaccination levels are important, but in Africa we reach 20%, 30% and that would be very, very good. But in the other sense, I have to say that the hospitalizations and the fatalities that unfortunate everybody experience, and one fatality is too much, but the numbers are kept quite low here so far. We have hit the third wave in July, and we know that there's a fourth wave coming but we don't think it's going to be of that major impact as it was in Europe.

Richard Maslen:

Well, that's encouraging. And it's always good to hear positivity about the return of traffic, especially on the corporate side, which is so important to airlines, to build that back. Now from your airline's perspective, just ahead of COVID striking, you'd made some plans to change your fleets, you've moved to bring some Q400 turboprop aircraft in. How was that affected by COVID? Have you had to delay those plans or did you just push ahead as per normal?

João Carlos Pó Jorge:

Yeah, we definitely had a combination here of some delays of the mega projects in the north and the COVID, that the impact hit about the same time. So we had to delay some of our, an increase of capacity plans. In the beginning of COVID we were quite lucky in a way that about 20% of our fleet was based on very short contracts for ACMIs that we were able to return immediately when we saw the traffic drop. But we are now seeing traffic growth. And like you said, the Q400 is going to be a focal point of growths, the opening new routes, we will combine between the 145 and the Q400 to open new routes. We are reopening Harare after a few years, way before COVID, that we had to close that route. So we are seeing more regional movement here and definitely a lot of more, like I said, high quality, [inaudible 00:09:13] domestic use of our seats.

Richard Maslen:

How would you describe yourself as an airline going forward? Will you be a regional airline serving domestic markets and the local markets, or would you be looking to serve wider afield? You fly to Dar es Salaam, I believe, at the moment. Will Africa, the wider Africa, be an important part still of your network?

João Carlos Pó Jorge:

That's very true. I mean, definitely the core business for us is the domestic market, and the government has decided and reinstated that we are focal in the economy growth plans. So we are here to stay and to grow. But of course, as part of the approach, we'll also want to get directly involved into the regional, but also with partnerships using other airlines' capacity, both on the cargo and passengers markets, we want to be there.

Richard Maslen:

Now, a big thing in Africa has been the, having your own airline. It's an important, a pride thing, for governments and for each country, and part of that is sometimes flying long haul routes, which can sometimes be a little bit of a challenge. Now, obviously Mozambique has quite strong links to Portugal. You've had your Maputo, Lisbon operation flying for awhile, operated by third parties because of issues with US FAA and security concerns there. Are you planning to go back into long haul or will you decide to stick to regional operations?

João Carlos Pó Jorge:

Well, we definitely, domestic and regional will be our main source of business. We will not drop the plans to have long haul capacity, because that's strategic as well. I mean, when you say there is an element of, of course, pride in having a local national airline, but we've seen in these crisis moments that there is an element of needs. We had a major cyclone, and actually a couple of major cyclones, and the airline was a very important part of the distribution of both goods and people in that time. But it will apply a little bit on the international long haul, but I would say in international long haul, we are now approaching that what we did with Lisbon, with a partnership. And we have some partners now with extra capacity that are able, or willing to combine that with maybe the opportunity of doing some extra flights for them.

João Carlos Pó Jorge:

So, we'll see. We have some need to connect Portugal. Portugal is a major market for us, both in cargo and for passengers, but then we also need to explore, maybe in the future, Brazil and China, probably when the large projects, oil and gas, et cetera, and agriculture and minerals start opening as well.

Richard Maslen:

And that's encouraging to see, that the door is beginning to open, to be able to see the airline grow. And I've seen an article recently stated that you see the airline grow in its fleet quite strongly over the next coming years. I think there was a mention of 25 to 30 aircraft. Is that accurate?

João Carlos Pó Jorge:

Well, we have a strategic view that we are working on. It's more of like a vision associated to growth of the airline, that we have mentioned 30, 25 to 30 aircraft, but that's in probably a decade, and that we are embarking, we are starting the real restructuring of the airline, both financing and then the business plan that will come after the strategy is defined. But, yes, that's the size we think in about perhaps seven to 10 years, all depending on the growth of the economy, of course.

Richard Maslen:

And obviously so many other factors that we do not know even that could happen shortly in the [inaudible 00:13:16] bit that [inaudible 00:13:17]. Our big issue for Africa and for African airlines has been profitability. It's a tough business in general, in aviation, but in Africa, it's particularly hard to make money. What's been your biggest challenge as an airline to sort of be able to secure profitability as a business?

João Carlos Pó Jorge:

Well, the biggest challenge in the past three years was definitely to come to an operational breakeven at least there, and that COVID happened right in between those two, those three years. So we have seen, and we are now reaching that breakeven of operational performance. We have a big debt of the past, that's in our books. It's public, it's on our website. And that, we'll have to see how we deal with. Probably it would be a part or somehow renegotiated, that's why we are starting this financial restructuring. So, when we grow bigger, then it will be easier to handle that debt in a proper way. But indeed, we are reaching the point where we can pay our costs currently.

Richard Maslen:

Okay. And, it's a difficult question, this one, and I don't expect you to obviously name names and everything, but do you foresee the industry changing somewhat over the next years because of COVID and will we see further airlines fail, or do you think that the industry is still stable?

João Carlos Pó Jorge:

Well, it's definitely a difficult question, but indeed, because of the unpredictability of both the actual fact, the virus, the way it transmits, the way the length that it remains in effect, and then also the market, the way the market reacts. We had situations where, because of some news in the paper about the virus spreading, the markets, the cancellations that were there. So it's events that we had never experienced in the past. So definitely the industry is going to be very fragile. There'll be failures. We know that because the planning in this industry is 3, 5, 10 years, at least, and these changes happened suddenly. So I believe that the basic lesson, and what we are implementing here very strongly, is to be very cautious, to be... you'll still be a risk [inaudible 00:15:50] risk oriented, but we have to have some element of risk aversion in order to avoid these losses, because we had ourselves, and it would have been very difficult to manage if we were not prepared to shrink when it was needed. And we'll see that. You'll see some airlines failing, some airlines actually growing. We see examples of small operators making offers to buy big operators, because they can introduce that element of control and, lean and mean, that the big operators, the large operators are not used to.

Richard Maslen:

Okay. I mentioned in my introduction about that million dollar question, liberalisation. We've been talking about it in Africa for such a long time. You've been in the aviation industry, in and out in the aviation industry, you've worked across Africa, you've worked abroad. We've talked a lot about liberalisation, but nothing's really happened, has it, in Africa? So, are we making progress? There's been a lot to talk about SAATM and that it would finally deliver. What's your views on it, and do you think the challenges and the barriers that have been there for the past decades are still there and are going to be hard to break?

João Carlos Pó Jorge:

Yeah, definitely. I have sat in Yamoussoukro for the first declaration, and I've also sat in Ethiopia when the SAATM was addressed and presented actually. I'm a great believer that we should use, we need to use SAATM to the benefit of all three parties involved, because SAATM involves three parties usually. It's 50 degrees of freedom basically, that are assigned to an operator between A and B. So if this benefits the operators, the countries in these three points, I agree. It will grow, and it's needed because we have very narrow markets, very small markets, and it's difficult to operate with flights for everyone. So we need to share. If there is an operator that does a triangle and in that triangle, there is capacity that's offered, it should be discussed between the operators, used synergies between the three operators and make it work for all of them, make it beneficial for all of them. In that case, you'll see markets grow and then everyone will be a player there. But if we just say SAATM is okay for one operator to benefit from the traffic rights between two points, I don't think that will work. That's the same problem that happened with Yamoussoukro.

Richard Maslen:

Do you see sort of the structure of the industry changing as a result of that with, there was a big push towards alliances. We're now perhaps seeing alliances be less effective and partnerships become more important between individual airlines. How do you see that coming together now in the post pandemic market?

João Carlos Pó Jorge:

Yeah. I fully support the fact that partnerships are more important now. We have to look at specific capacities. We are doing that with cargo, for example. We see flights coming over the space here, and we say, we negotiate if we can stop the flight and use that capacity, not such as an alliance where everything is done commonly, but specific routes, specific services. So the future, for me, will be partnerships until we grow back to the levels that we were before, and the rates that we were before in order to come back with these large alliances.

Richard Maslen:

Okay. I think now is a good time to, we've spoken about a few questions on just general, but perhaps give people a bit more of an insight into the Mozambique markets. I'm sure there's lots of people that are watching this video that don't have a lot of knowledge of the Mozambique market. So, can you give us an idea on what the important features are, perhaps the traffic dynamic that you have, and has that changed at all? Are you seeing different trends identified now as we emerge from COVID?

João Carlos Pó Jorge:

Yeah, we're definitely seeing a lot of people in this market that travelled quite far to go to beaches, which is a bit of a contradiction because Mozambique has beautiful beaches, very nice deep sea. We have historical diving, like in [inaudible 00:20:25] Mozambique, which is 17th century, very active slave trades and trade in general. And in the sea, there is a lot of diving to do, which is different from, of course, the fishes and coral reefs. But then we also have the animals parks, like Gorongosa for example, and we are seeing a lot more people travelling domestically to those destinations, and also regionally coming to those destinations. We are seeing some interest also from Europe in those specific, very high quality, not so much high numbers, but high quality. So, I can see there is a lot of tourism there, but then, of course, there is this oil and gas projects in the north, with agriculture projects, with the minerals as well. And that will be a lot of cargo movements that is a totally new dynamic for the country. We've never had a cargo operation per se, here, apart from the emergency distribution of food that we had in the eighties, but we never had a specific cargo operation. And I think we're moving towards that direction again, starting with partnerships in the region and then moving into a local capacity to be offered here.

João Carlos Pó Jorge:

In general, I see the market growing some conferences, there's a large conference in about two weeks from now in one of the best archipelagos of Bazaruto where there's some very nice, specific wildlife endangered species that are there. So we can see that happening a lot more now, both, like I said, domestic, regional, and even international.

Richard Maslen:

You mentioned there about cargo, I think a lot of airlines had neglected cargo quite heavily, and it was always seen as, sort of a secondary thing. But COVID's changed that quite considerably in a lot of airlines. And as you say now, it sort of opened your eyes to cargo operations. How do you see that developing? Is it now going to be a key aspect of the airline going forward?

João Carlos Pó Jorge:

Definitely. In every route we are reopening, we are now considering cargo as an important contributor. Like Harare flights, we are looking very much into that, seafood and other commodities going around. And we know the markets' need. There's also a big increase in seed shipments, as you probably know, three, fourfold. And that is helping us to justify transporting with that urgency, reaching markets on time and with fresh products that we... in the past was not so attractive. So, yes, definitely it's going to be a very important element of our operational, of our revenue element.

Richard Maslen:

Now, a key thing moving forward for the airline is obviously your relationship with the government and how the government approaches aviation in general. What is that relationship like, and is there anything there that you feel could be built stronger to be able to benefit both the airline and the country as a whole?

João Carlos Pó Jorge:

I'm sorry. There was a call coming. I cancelled. Can you-

Richard Maslen:

That's no problem. I was just talking about the relationship you have with the government, and how you can build that relationship better to be beneficial to both you and to the country.

João Carlos Pó Jorge:

Repeat that please. I'm sorry.

Richard Maslen:

Can you still hear me?

João Carlos Pó Jorge:

Yeah. Now I can hear you again. Yeah. Sorry.

Richard Maslen:

No problem.

João Carlos Pó Jorge:

If you can repeat the [inaudible 00:24:17]. Sorry.

Richard Maslen:

Yeah. That's no problem with all. So yeah, I said about the government is an important part of any airline, in how it develops, whether it's a shareholder or whether it's developing the structure and the rules that you're operating by. How do you see that relationship in Mozambique moving forward? And is there any areas that you feel that will be key to developing a better industry for the airline and for the people of Mozambique?

João Carlos Pó Jorge:

Yeah, definitely. What we see is the government sees the need, just like in other countries in the region that closed their government supported or operated airline, they're bringing them back. I think what's important is to run them as a private company because, and that's what we are being pushed to do. The government has hired very good capacity. Some foreign consultants are coming in to make sure the airline is run properly, lean and mean, and profitably. I mean, there will be operations that will need to be done under special agreements, that are there to support government missions or social responsibility of the government. So, we will be there to support and we'll be there negotiating that to make sure that it's not uncontrolled expenditure and uncontrolled loss of revenue. So we will...

João Carlos Pó Jorge:

I fully agree that there is room for that. There is room for other operators to come, like the airline will not be flying the small commuter jets, and there is room for the private sector to do and probably grow from there. Once this market goes beyond the 1 million passengers a year, because that's what the size of this market is not very large, then I can see two or three airlines operating here, maybe fully privately owned and some combination of government ownership with some private equity.

Richard Maslen:

Unfortunately not all governments are the same across Africa. What's been your biggest issue in terms of trying to grow the airline previously, when you're looking at international flights, in terms of being able to deliver a route that will ultimately make money and be successful.

João Carlos Pó Jorge:

Yeah, definitely that's where the biggest challenge is, is to open a route like that. When we're talking about one route, two routes, it's very difficult. And especially with this volatilities of the market now, suddenly the market can close and you have no capital from other routes to support that. So I think that in order to go to the international markets, being a government owned company, we have to be very careful and grow with partnerships. Like I said before, that's what we did in a specific period where we needed to provide lift, and we see airlines sometimes taking advantage of lack of capacity in that route. So that's what we did. And now we are waiting and seeing, creating capacity. And you mentioned, we will need to train a lot of people, change a lot of infrastructure and airport capacity in order to be able to fly to this, the United States or Europe alone. Yeah.

Richard Maslen:

We're running short time now and it's been really interesting. So now, I'm going to ask you the most difficult question ever. Now, obviously, you've been in the business for a long, long time. You've got a lot of experience across the industry and understanding both within and outside Africa and operations. How do you see things recovering? I don't expect you to give a precise date and things. How do you see aviation in Africa looking over the coming years, and what do you hope to achieve most over maybe the next five years?

João Carlos Pó Jorge:

Well, the growth of aviation will not be standalone by itself. Aviation has to grow as a combination across the board. We have to have easy access to visas, health facilities, good hotels in every destination that's attractive, of course, to create that dynamic. I see it definitely, it has to grow, and we are seeing it growing as already airlines that are being reestablished, capacity that's growing. The South African market is growing back to what it was before. We see South African Airways being reinstated.

João Carlos Pó Jorge:

I believe there is a perception of this great opportunity, and aviation employs a lot of people, trains a lot of people, creates a lot of knowledge and has this dynamic of creating market mobility or market, or economies to grow. I definitely see it growing. Governments are now conscious that there's no interference. It has to be a very professionally run operation and with adequate investment support. But I can see it in the next five to 10 years, growing back to big numbers. This is a bit like three times, four times the United States, a lot of people willing to travel, low buying power. Mozambique has maybe 1% of the public flying compared to the United States that has probably 30% flying, Europe much, even more, and the distances are large. So there is definitely a big move, a big pressure too, for this growth of aviation in the continent. And we will see it happening, I'm sure.

Richard Maslen:

I think that raises a last question of how do you make that happen? Is the massive untapped market there? How do we get those people flying and building a strong aviation industry across Africa?

João Carlos Pó Jorge:

Yes, definitely. Like I said, we need to have government across the board creating all these facilities and easiness of travelling. Training, we see the examples of Ethiopian, I was there when there was a lot of training done. Growth of the training facility, creating capacity. There's a lot of young people. Our population, 50% is below 17 years old. So, there is a lot of men, how shall I say, a lot of raw material to feed this basic need of aviation, and if government invests, and there is a lot of help as well to invest on training, capacitating the young people, providing financial tools in order to grow the... The interest rates here are extremely high for investment on aviation that are so big. So that also needs to be addressed just like you lower interest rates for a major infrastructure. So, I see, if that is all done together, we will be able to see aviation growing very fast to its capacity in a very short, five to seven years time, I'd say.

Richard Maslen:

Okay. And one final question is not all airlines are the same. What is different about LAM Mozambique Airlines? What makes you different from other airlines across the world?

João Carlos Pó Jorge:

Well, first one of all, we're very small. We're a very small group of people, extremely dedicated. I must say, COVID has brought to us at the attention how our people are so attached to the airline. The brand is very strong, and when there is crisis, everyone jumps on the bandwagon and everyone wants to play the same song and get success. So that's the most critical element that will help this airline grow. And I can see that government is very, very efficiently now trying to get advice to trying to get assessments done, to make sure that we don't drop off the lines. And that is very helpful for me when leading the airline, to know that there is this kind of check and balance, but at the same time support constantly because that's what we are enjoying. We are enjoying support, permanent support, and at the same time some checks and balances constantly.

João Carlos Pó Jorge:

The people is the key thing that made us able to face the spirit of COVID, because without that, we wouldn't be able. The main change we did in the airline was mental health support, to be honest. Everything else came with that. We made sure that everyone was well, well within himself or herself, within the team. [inaudible 00:33:22] have been able to support this.

Richard Maslen:

That's really nice to hear, of people being thought of first before other things. It's been an absolute pleasure talking to you. Thank you very much for taking time. And I wish you every success in delivering on this vision and building a new airline for Africa effectively as LAM Mozambique Airlines grows into a big regional operator. Thank you.

João Carlos Pó Jorge:

Thank you very much. Thank you.

Speaker 1:

That was brilliant. Well done.

Richard Maslen:

That was brilliant. Thank you. Thank you very-

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