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Recorded at CAPA Live October from Puerto Rico

CEO Interview with TAP Air Portugal, CEO, Christine Ourmières Widener

Based in Lisbon, TAP Air Portugal (TAP) is the national airline of Portugal. The carrier operates a domestic and regional network of services within Portugal and Europe as well as international services to North America, South America and Africa. In addition, TAP operates cargo services on five all-cargo routes as well as bellyhold cargo on TAP Portugal flights. TAP has been a member of the Star Alliance since 2005.

Join TAP Air Portugal, CEO, Christine Ourmières Widener for her first interview with CAPA since taking over as CEO of the airline.

Speakers:

  • CAPA - Centre for Aviation, Chairman Emeritus, Peter Harbison
  • TAP Air Portugal, CEO, Christine Ourmières Widener

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Transcript

Speaker 1:

All right. So off you go and I'll speak [inaudible 00:00:06] the end.

Peter:

What have we got? 25?

Speaker 1:

Yeah, that's Right.

Peter:

Okay. Sorry. Let me turn that off. Big welcome to CAPA live, to Christ Ourmieres, who's CEO of TAP Air Portugal. We've spoken in a number of different roles. I'm the same one, but Christine, you are much more versatile. Welcome to CAPA live. Great to see you.

Christine:

Yeah. Thank you Peter for the invitation today.

Peter:

It's always good to talk to you. Now, if we could perhaps kick off with the thing that's spilling most people's windscreen. I know you've got a few other things in the windscreen at the moment, but coming out of off the back of the [inaudible 00:00:55] regime, obviously, the environment is a major issue. And while financial issues, perhaps most top of mind at the moment, it is an area that we have to explore. So maybe we could kick off with that and just sort of look at where TAP stands in this. And what sort of understanding you have of where the industry and TAP can go, just to respond to pressures but also actively to make a difference.

Christine:

Yes. Very important. And we just sign, as many other airlines, the commitment and of IATA to the world. So that was for us also, a key step in our commitment to the planet. I think that TAP has been quite strong in all initiatives, including renewal of the fleet. We have now, a much younger fleet that definitely as an impact on our carbon footprint, we are also relaunching a number of initiative concerning our infrastructure. How we first measure this carbon footprint and how we want to improve it. So there is a renewal of this plan and also see how we can partner with other organisation. We starting now a project with a major energy company in Portugal called Galp. That's a new project for us with a commitment to test biofuel. So it's just an ongoing massive change for any airline, but we are committed like many of our colleagues to contribute to this improvement.

Peter:

Yeah, it does seem to be certainly from what Willie Walsh was saying too, in his press release, is it is obviously a massive challenge for the airlines to make the sort of, particularly in the next decade up until 2030, to make the sort of changes that are needed. And he emphasised very strongly the need for governments to play the role and to support the industry, particularly in SAFs, Sustainable Aviation Fuels. But also areas like a ANSPs, and particularly of course, within Europe where enormous inefficiencies come out of the Eurocontrol system, how do you see that working? Do you think the industry can actually make the necessary adjustments, particularly in this current decade?

Christine:

I think that the industry needs to do some adjustment, after that, the airlines are operators and we also use system and we follow regulation that are defined by very different stakeholders. So it's also a challenge for us because we are part of an ecosystem, but the pressure is on us, mainly. We are flying aircraft that manufactured by a big organisation, we are also flying aircraft with engines that are manufactured by a limited number of provider, and as you mentioned, the navigation system and governments helping in some countries. So for us, we are the most visible part of the system, but for us to improve our footprint, we need many stakeholders to do something. And most of the time it's huge investment. That's why investment could be private, of course, but need to be supported by government. That's why we need everybody aligned with a common objective.

Peter:

How confident are you that something will happen on the ANSP front that the single aviation skies will at last be material rather than just talked about?

Christine:

Think we need to be optimistic, keep pushing, after that is true that single sky is definitely a challenge, because of different reaction of different countries. But we need to keep pushing because we only do that for us, but also for our grandchildren. So it's definitely a purpose that we need to pursue.

Peter:

And of course, when you say that different countries, your next door neighbour is one of the strongest supporters [inaudible 00:05:50] is one of the strongest voices in maintaining the status quo, isn't it? I won't push you too hard on that. Sorry.

Peter:

But I mean, going back to that previous point, it's enormously important that governments do play a role, because airlines are in the firing line, as you say. There is this reflex almost, from a political point of view. It's much easier just to blame the airlines, so "We'll tax them, we'll throw taxes up." And do you have the sort of reassurance from your government that that's not going to be something they would support? Will they be behind you? Do you think?

Christine:

Yeah, we have carbon taxing in Portugal, too. I think that would be difficult to find countries in Europe, not either thinking about it or deploying it. So our carbon tax started July this year, so it's very recent. So we are still looking and studying the impact on our flows of traffic. We have a constant dialogue with the government. So it's something that we decided to talk about and to see what is impact in the next month? So it's constant dialogue. I think the government, the same, have a huge pressure coming from the population to show their commitment towards this project. And I think that the question is more, if you collect taxes, it's something or it's appointment. But the question is how I use these funds and ensuring that these funds are used for the aviation industry to just help investment in the right projects, such as sustainable fuel, or maybe a futurist projects such as hydrogen.

Peter:

Yeah, well, that's probably the 2030s decade of hope for reducing emissions, isn't it? Once we get to hydrogen, but that's obviously quite a way away. Let's turn back to TAP. You've obviously run in into some very substantial headwinds financially. The commission approved your restructuring a couple of months ago. What stage are you at now with restructuring and perhaps some sort of state aid to help you through the next few months?

Christine:

Well, I think that with the current crisis, we can see a number of steps now with a sort of recovery, but very slow. All airlines are still in restructuring. We cannot say that we are stopping. We started... Before my arrival in TAP, we've seen almost 2000 people leaving the organisation, so that was a difficult step for the company. We are reducing our cost everywhere. So it's quite a challenging plan, but we are deploying it. In terms of revenue and network, it's like all my colleagues, it's not exactly the same world and same business. We are optimising our network every single week, it's not exactly what we done in the past, but we have to we adapt.

Christine:

Our network team are working very hard to make sure we are capturing any border release or any change in the rules, to see if some flows of traffic will either improve or stop. So we have been doing that for months. It's something very exhausting to be honest, you have to also watch if some people can still fight or be on their toes. So it's something that you have to watch because it's very exhausting for a number of people that have to follow these constant changes.

Peter:

Yeah. That must be really tough. And once you start talking about that sort of scale on human resources side, that makes it very painful on a personal level, I can understand that. TAP's strength has been its Latin American connections, and I mean, going back to our prior conversation, its long-haul routes that do tend to be most targeted for their level of emissions. That's where a large part of the global emissions come from, the long-haul and from wide-bodied aircraft. As you say, you've got relatively new aircraft, but how do you see this strength of your network? How do you see that evolving? Is it coming back? Is it reasonably strong, the South Atlantic and... I see, sorry, just to go on a bit, I see you're also doing a new via New York operation to Brazil, or planning it. Tell us a bit about the network and what your plans are there?

Christine:

[inaudible 00:10:56] at TAP as from a long goal perspective, we have a hub in Lisbon and our three main region for long-haul are North America, South America, mainly Brazil, and also Africa, with mainly all Portuguese communities and previous colonies in Africa. So what we've seen... I think as far as we can see today, Brazil has been a very resilient country. As soon as we had the announcement of the border release by a number of countries in Europe, including Portugal, we've seen a significant rebound in bookings. So it's very good news, but hopefully only the beginning. North America has been quite slow, but again, with some announcement in some new rules for borders, we've seen some uptake, like many of our colleagues. Africa's been more resilient with not so many inflexion points in the forward booking, quite stable in the forecast.

Christine:

But definitely, South America has been quite amazing as soon as the borders were open. So I think the question is more on the long run, the resilience of this booking curve, because they are constantly change. We are not like in the past where we could rely on historical data. We are trying to figure out if some trends are reflecting back to normal, but we also definitely accept that it'll be a new norm. So the historical curve of forward bookings, maybe will never come back. So we have to understand what the new normal is.

Peter:

Yes. The new normal, which changes from day-to-day almost. As a few people have said, "I think it's like building the aeroplane while you're still flying it."

Christine:

Yes.

Peter:

What are you seeing in the Brazil market, particularly as you say, it's been remarkably resilient given the impact of COVID in that country? What sort of travel are you seeing from that? Is it mostly VFR and leisure or are you seeing some business coming through?

Christine:

Historically speaking, TAP has been always more, a leisure focused airline than a business one, but it's changing step-by-step. First, we had a focus on small and medium enterprise, and now we have a more, let's say, a stronger corporate travel policy, but because we are so strong in our leisure traffic, I think we've seen many leisure starting again everywhere, anyway. Business travel for us, like all the studies and surveys are showing, will be slower to recover. So we need to watch it and to see what will be the impact and the behaviour, but also all the cost cutting of all corporation around the world, and the new way to organise meeting with hybrid meetings, everywhere. So that's what we can see, but even only with leisure travel, there is quite a significant increase in forward bookings. And we have also, a very strong peak season around Christmas, starting in November. And we are definitely expecting or hoping that it will be a very stronger season this year, if the borders stay open. So we are finger crossed.

Peter:

So you are starting to see, presumably, you're starting to see some initial signs of the forward bookings for the Christmas period, now. How do they compare with say, 2019? Are they up to that sort of level or are we still well suppressed?

Christine:

No, they are not at the level of 2019, but what we can see is behaviours are slightly positive because people now are starting to book, two to three months in advance again. That was something that we didn't see for a while, but again, that's very volatile. So hopefully borders will not change the rules and we will have all the borders open. And we will also have our customer having trust again and being confident in the rules they have when they book, and the rules are not changing. So that's something that will very important to keep, is trust and to keep this customer on our flights.

Peter:

Portugal has got a very high vaccination rate, isn't it? What are the rules for inbound from Brazil at the moment? Is it just-

Christine:

So people still have to have a test, but they don't have to quarantine anymore. So that's why it's a big difficulty before, I think September, so it changed in September. So I will personally travel to Brazil too this month, to see the teams we have in Brazil, to see some partners, but also an organisation [inaudible 00:16:26] we have in Brazil and some government bodies, because I think it's just a second country for us, after Portugal. So it's obviously a priority for me to travel. So I cannot wait to travel to Brazil, and to visit and to meet in person, so many people.

Peter:

Good. And what about the North Atlantic? How's that looking, now that you can actually fly to America rather than from America?

Christine:

I think it's really picking well. To that I think it's for us connecting traffic because we are feeding our hub in Lisbon for destination to North America. Our strategy has always been, in Europe, to target for North America, secondary city. So if you have to connect in Europe, you can connect through Lisbon because honestly, even for your carbon footprint, is even better. Moreover, if you are connecting through Lisbon to fly on those 321 [inaudible 00:17:28] it's quite an amazing narrow body, quite good for emission to fly to North America, and most efficient route in terms of distance. So we are promoting this connection, not only because it's a shortest connecting solution, but also is very, a green way to fly to north America.

Peter:

What configuration do you have on those aircraft, Christine?

Christine:

So we have a business class, economy extra, what we call, for our premium economy and economy, so in fact, it's two classes. But we have life flight on the [inaudible 00:18:07] 21LR, So it's quite similar to the JetBlue solution that you have between New York and London, but it's between North America, East Coast and Lisbon. And it's very comfortable solution, very short flight and amazing service involved.

Peter:

Of course, of course I wouldn't expect any less, but it is a remarkable aircraft, isn't it? It's quite transformational.

Christine:

It's transformational. Honestly, our pilots love it, our cabin crew too. Is just a new way to travel and technology is definitely bring us this solution. And we would love to see technology providing us more solution to be more efficient.

Peter:

Mm. In terms of connections over Lisbon, I see you have now got an agreement to on-carry and to in-carry by high speed rail. How much of the market do you think will use that option? Do you see a big future for that?

Christine:

It's very low. Still, I think that we need to communicate more, but also the tools and the portals and the OT are slow to embrace the solution. In principle, it should be a new way to travel. The reality is a little bit different because also the tools and the technology are a little bit slow to really show this solution, efficient on the screen. Because we are still relying on rules and displays that are based on airline to airline connectivity. But we are trying to improve the way we distribute this product, but is still very slow. So after that, it's question of communication and also discussion with the high speed rail providers. But more to come, I think

Peter:

That's good. Sounds good. Yeah. Certainly seems to be popular from a European perspective to take people off aeroplanes and put them on trains instead. So would add to your green credentials, it's somebody else's admissions, once they get on the train, I guess. What sort of yields are we seeing in these markets though? You've seen the sort of strength that you were hoping for?

Christine:

It has been quite surprising, but I think that yield has been quite resilient, honestly. So we don't know if we will be able to keep this trends with borders reopening now, but we've shown that in our first half year result, very resilient level of yield. The question is now what will happen with the volumes coming back and also through winter, because winter is definitely the most challenging period for yield. So we are forecasting, not a significant decrease in yield because capacity is still much lower than it was in the past. But again, it'll depend on the appetite of our customer and our load factor behaving.

Peter:

I guess the African routes are probably more resilient. You have a stronger market position there?

Christine:

I think it's honestly all of them. At the same time, it's difficult also to understand what is a root cause or... It's a mix of parameters. Volumes are lower, also people who travelled or who are travelling now, is the one who need or want to travel. So the behaviour are different. And like any other airline, we also took the time during this pandemic to optimise our tools, methodologies, skills, and competency in revenue management and pricing. Because its been lot of challenges and we have been working with teams that add the capacity to test a few things that we never tested before. So where is this yield improvement is coming from? Absolutely, our customers. The reason they book and when they book, but also our teams and our tools that have been more efficient.

Peter:

This revenue management was always a science with an overlay of art. I think probably there's not much science in it anymore. It's real art at this stage with no history to work from.

Christine:

Think that it is a new science. It's a new science, we cannot only rely on history. You have to just have a very good analyst, able to understand trends that are not based on two to three year history, but maybe a few days. And it's a different science now.

Peter:

Well Christine, good luck in the restructuring, good luck in the recovering. I hope everything goes well for you. And I'm sure it will, you've got the dedication and the commitment and just need a little bit of a tailwind at the moment.

Christine:

Yes. Absolutely Peter, but like everybody, you have to create your own wind and your own luck. And it's only about hard work and sweat. But I think that we are all in the same situation and let's say we are doing everything for industry to thrive again. But thank you so much for this interview and I wish you very well for all your meetings.

Peter:

Thank you very much and [crosstalk 00:23:45] Hope all goes well.

Christine:

Bye. Bye.

Peter:

Thanks Christine.

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