CEO Interview with Widerøe’s Stein Nilsen

Transcript

Jens Flottau

Hello and welcome to this program that is dealing with a very special airline. My name is Jens Flottau and I'm the Executive Editor of Commercial Aviation at the Aviation Week Network. Special welcome to Stein Nilsen, the CEO of Norwegian regional carrier, Widerøe. Now I assume that most of you know Widerøe anyway, but in case that you don't, here's what they do. Widerøe's primarily a domestic airline operating a fleet of Dash 8's and Embraer 190E2's on a dense, highly interesting route network, mainly along the west coast of Norway. For some time during the early phase of the COVID-19 pandemic Widerøe was Europe's busiest airline with close to 200 flights a day. Widerøe is connecting remote places in the country, sometimes flying very short hops of just a few kilometers and then sometimes extreme winter conditions. 

But that's not the full story. Widerøe is one of the most aggressive airlines in driving environment, environmental change. It is exploring using all electric aircraft, where it can in the network, as the Norwegian government wants the first all electric domestic flights to take off around the middle of the decade. We'll talk about all of this on the program here, but first let's start with a look at the current situation. So let us know how Widerøe operated during the pandemic, you had to cut back as many others did, but not as extremely as many of your [inaudible 00:03:14], right? 

Stein Nilsen

Yeah, that's correct, but for us as everyone else in the travel industry, it's been a really tough 15 months there from March 2020. But we have a very, very special network in Norway. It's more like a public transportation system in some areas of the rural parts of Norway, especially. So of course, it has been a lot of focus on keeping a good transportation system also during the pandemic. We have in fact been flying around 70 to 80% of normal capacity, most of the periods during the last 15 months. We have been lower in very, very special pandemic situations, but around 70 to 80%, we have flown. Half of that 50% is the PSO route network in Norway, and that's a very crucial network for the rural areas. 

We were asked by the ministry of transportation to keep up a high production level on that network, despite of low cabin factors to support the local communities in keeping a good transportation offer also in a very special situation. Of course, we are very glad for that support of the ministry of transportation and there is also awarded some extra compensation to us and to other operators on the PSO network in Norway. We have a small airline, Swedish airline, called Air Leap, and we have a lift transport in the northern part of Norway, also flying on the PSO network. So the government in Norway has done a lot of extra and extraordinary efforts to keep a good transportation systems going through the pandemic. 

Jens Flottau

So you're saying 70 to 80% of your capacity was still in place, but can you say how much passenger numbers dropped? 

Stein Nilsen

Oh, when we entered into March 2020, it dropped by 80% overnight and it took five to six weeks to have some demand in the market again. And then, but towards the summer period of 2020, the pandemic eased down a little bit and we did a very, very good summer season. In fact, the borders were regulated, so a lot of Norwegian people were doing holidays in Norway. And that was one of our best July's in many decades in Widerøe because of the inbound tourist industry. So it was a very, very special period, but during September, October, we had of course the second wave of the pandemic, and then we shut down some of that capacity. And I think we flew through Christmas with around 70% of normal capacity compared to 2019. 

Jens Flottau

Which is still a very high compared to some of your other colleagues in Europe. So what are your expectations for this summer? A lot of the expectations for Easter, for the Easter period has been disappointing in many parts of Europe. Now it seems a lot of airlines are reporting a strong rebound and demand. Do you experience something similar? 

Stein Nilsen

Still the border of Norway is strictly regulated. There's a lot of quarantine, rules when you're passing in and out. So, we are very, very uncertain about the international traffic to and from Norway for the rest of 2021. At the moment we have a drop in international traffic from Norway to other countries of 96%, only 4% of the traffic is left. So of course it's a very special situation and difficult to do prognosis of what is going to happen to the summer. But we are very, very convinced that we will have a new strong holiday summer inside of Norway. So in fact, we have expand our route network with 14 more city pairs, flying between the north part of Norway and the south part of Norway to give our customers a possibility to have holiday in Norway. So we are very, very dynamic and try to launch a good offer to have a summer holiday in Norway. 

As for the international traffic, it's of course, we have a full vaccination ratio still below 20% in Norway and of course that will hold back the demand for the next couple of months. And we don't think there will be a strong international summer traffic in and out of Norway. So we are preparing to keep the focus on the domestic side of the operation for a couple of months to go. 

Jens Flottau

Yeah. You mentioned the financial support by the, the extra financial support by the Norwegian Government. Was that enough for you to compensate for the additional burdens by COVID and, and how sound is Widerøe financially right now, 

Stein Nilsen

There has been a couple of packages from the government in Norway to support airliners in the Norwegian market. So we have some extraordinary compensation for the PSO, but there has also been a suspension of some of the taxes. The government has even supported both [Vitara salsa, Norwegian 00:10:22], where they guarantee loan guarantee facility. And SAS and Norwegian has used their part of it, and we are still considering it. But of course this kind of compensation from government it's not nearly enough to cover for the big loss of demand we have. But Widerøe is in a very, very special situation when the pandemic came in March 2020, we had equity ratio over 30, so we very, very financially stable and robust. So even without that kind of government support we all right, but to take the company through the pandemic and be ready to pick up when the demand pick up, hopefully for the second part of 2021. 

Jens Flottau

Yeah and even if there is another wave in the next winter, which can't be ruled out at this stage, right? 

Stein Nilsen

Yeah and therefore we are also considering using this government supported credit facility to be sure to have enough reserves if we will have a fourth or fifth wave of this pandemic. But that's more to support for things that we don't know at the moment, so like an insurance, if you like. 

Jens Flottau

Yeah. Yeah. That makes sense. 

I want to just look beyond the pandemic and look at the Norwegian market. There's been a lot of change to date. Obviously everyone has read and heard about the difficulties that the Norwegian Wizz Air entered the market and is now about to exit again. How does all of that affect you? I know you're in a special niche of the market, so maybe not that much, but you can tell us more. 

Stein Nilsen

We, Widerøe, has a very, very special niche, it's a very special traffic system. And we are flying along the coastline of Norway and between the Northern part of Norway and the West coast in the Southern part of Norway mainly. For the others SES, Norwegian, Wizz Air and, and also [inaudible 00:13:03] coming up. They are very, very focused on the traffic in and out of Oslo. We are not in Oslo - not part of our strategy. But up to now it's been more or less a battle in the newspapers. There had been very, very low demand and Norwegian has nearly flown zero capacity. They, I think they have a six or seven aircraft flying at the moment. SAS has cut back a lot of production and Wizz Air was shutting down before the news that they will pull out a lot of their capacity. 

So we have been flying 50% PSO and 50% of the commercial business and our market shares through the pandemic has grown. Because of the big production cuts from Norwegian and SAS during the six to eight months we have behind us now. So it has been a very, very strange situation. And I had not in my wildest fantasy imagine that Widerøe should be Europe's biggest airliner in. So it's been a very, very strange situation to be in here in Norway. But of course during such an pandemic, when the demands lowers with 80% it's a big advantage to have smaller aircraft. I think that is the key issue for Widerøe to pick up some market shares during the pandemic. We had the right aircraft size for this kind of crisis. 

Jens Flottau

Yeah. But if you wanted to enter more of the international market and pick up market share there, then you know that wouldn't be the Dash 8 operation, but more the Embraer 190E2, right. I was going to ask you about the Embraer. I mean you've been operating it for two, a little more than two years, two and a half years or so. What's been the experience so far and how has it been used over the past year? 

Stein Nilsen

We are most satisfied with the E2. Of course we lost a lot of customers, so we were prepared to have some challenges during the entry into service. But we had a very, very good support from both Embraer and Pratt and Whitney and their main partners. So we definitely had the issues rising through the entry to service. So now it's very stable and the fuel burning on the E2 is fantastic. It's better than we expected. So it's a really good aircraft. We had plans for further expansion of the fleet, but of course in this pandemic situation, we have paused all investment at the moment. So we have to see what kind of market we will enter into in 2022 and then we would consider it again. 

Before we went into the pandemic, it was mainly two operation for the E2. One part was domestic between the Northern part of Norway and the south coastline of Norway. Long sectors for domestic travel, up to 150, 140, 150 block. So long sectors. And then we had the E2 on the international route to Munich. We flew a lot of shorter operation from secondary airports in Norway. So it was a very, very good operation, but of course during the pandemic we had to reshuffle all of our traffic programs. So we have mainly used it now for the long sectors domestic. So we are flying more at the moment, but in the Northern part of Norway and the west coast, that we didn't before the pandemic. I think the market has been good to us because the pandemic has hit the Oslo area hardest. And you know Norway, you know that the government is the hub of Norway. But many of our customer prefer now to fly with Bergen as a hub, because of the pandemic situation in the Oslo area. They don't want to go to Oslo. 

So we have to see what kind of demand or what kind of customer behavior we have on the other side of the pandemic. But for us in Widerøe, it's all about domestic now. Maybe when traffic picks up from September, October, we will reshuffle the E2, but I think the big launch of new international destination for us in Widerøe will be towards the summer program, 2022. But we are in fact the only airliner in Norway that has flown international routes since March 2020 on stable basis, because we have an operation between Bergen and Aberdeen in Scotland. That route has been open all the time because we have a very, very important customers that we try to support on that route sector. 

Jens Flottau

I want to go back to the thought pops and the PSO network, and to talk about electric flying. Been engaged in at least two projects, Heart Aerospace and Tecnam. A 19 seater aircraft and a nine seater aircraft. And you indicated that you're working on the project, evaluating what it means for the business model, and so on. Tell us what, what the status of this is. So how close are you to actually committing to buying some of these aircraft? 

Stein Nilsen

Yeah. Widerøe's strategic challenge on the PSO or the short haul network. It's a little bit bigger than normal, only the PSO is that the Dash 8 100 to 200 will end its lifetime towards 2030, maybe 2035, we can come back to that. But we have to invest in a new aircraft type and with all that kind of focus now on the emissions, it's very hard for us to do a large investment into 25, 30 aircraft with the old technology, if you will. We can say that. We have been working for several years to try to find a more sustainable platform for the short haul fleet and of course there is a lot of projects going on out there. So two, three years ago, we decided to give it a real try to find a sustainable platform and have emissions, really low emissions or even zero emissions concept for our next generation of short haul aircraft. 

And we have been working with very, very many interesting parties here. But a year ago, we decided to go into a closer cooperation with Rolls-Royce. To try to understand both the technical side of it, but also the effect on the business model and the effect on the company and even the effect on the customers, if you could find such a zero emission platform. And out of this close cooperation with Rolls-Royce, we came in contact with Tecnam. And of course that's because Rolls-Royce and Tecnam are doing projects around this nine seater. So it's a very, very interesting development they are doing and of course a nine seater for the Norwegian short haul market is not an aircraft big enough. But it's a very, very interesting first phase and we have some routes suitable for that kind of aircraft down to nine seats. Of course, when you develop a new technology and really new setup you have to be prepared for delays or challenges and something like that. But we hope that Tecnam and Rolls-Royce will keep the tempo in the development. If they are coming with an aircraft to the market around 25, 26, 27, we are really considering to be one of the first airlines to fly such a zero emission concept. 

Jens Flottau

And is Tecnam the only project you're seriously looking at, or are there others as well? 

Stein Nilsen

No, we have five or six contacts with different OEM's, a group of OEM's that we are discussing, But we are very, very focused on the cooperation with Rolls-Royce, we think they have done a lot of work. They are really good and they have a very, very good reputation. So we try to keep the work we are doing at the moment in the context of the Rolls-Royce cooperation, but we are following every project also hard. And ZeroAvia and that kind of thing to see what they can come up with in terms of zero emission or really low emission concepts for the next generation. 

Jens Flottau

So your smallest current aircraft is the Dash 8-100 with you know 30 seats. If you went down to Tecnam, you would end up at nine seats, that would be a huge change to your business model, right? 

Stein Nilsen

Yeah, but that will not be the final solution and we are very open with both Rolls-Royce and Tecnam. But if we want a more sustainable platform for a regional traffic, someone have to go first. And I think a face that when we as regional carriers can show the communities that it's really possible to fly without emission. I think it will change the airline industry or the regional part of the airline industry. And we see a lot of opportunities for new offering into the market, if we can pull off a zero emission aircraft. 

Jens Flottau

So you're saying a few of your routes would be suitable for such a small aircraft, but the larger part of that PSO network on the west coast would need to be operated by a larger electric aircraft or. 

Stein Nilsen

Yeah, and we still need to find an aircraft around 40 seats. The Dash 8 today is 39 seater, so we need to come up in that kind of size. But we expect that will be beyond 2030, and we can hold Dash 8 fleets, towards 2030, 35, if we want to wait that kind of technology development. 

Jens Flottau

What are the main challenges of the transition to electric in terms of operations? Battery swaps, recharging and so on. 

Stein Nilsen

And the most interesting question is at the moment is, what kind of energy source? We are pretty convinced that the next generation will have an electrical engine, but what kind of energy source? Of course, Tecnam is doing an all electric. ZeroAvia is doing some hydrogen fuel cells and there are also other working with hybrid concepts. So depending on the energy source, you will have different challenges. Some for charging, some for producing hydrogen and so that's an uncertain picture at the moment, what kind of infrastructure you need. Of course there is a lot of challenges, and I think the OEMs can fill you in on controlling electric, electricity, electrical engines and that kind of thing. But we are pretty convinced that the electric engine is a better solution for short haul flying than today's technology concepts. 

But of course, Widerøe is flying under very, very special conditions. And we have seen that for all the aircraft types we have tried to take-in in the Widerøe fleet. That the Arctic coastal climate that we are flying in, rapidly shifting winds, severe icing conditions even during the summer, is very, very special challenges for OEMs that will try to build a new aircraft. So we have a long list of details we are discussing with our partners too, and that's one of the main reason that we are using a lot of resources on this. We will like to be sure that we can use such kind of aircraft in Norway when it's released to the market. 

Jens Flottau

Now, your good friends at Embraer are talking about a new turboprop larger than the opposer the Dash 8's and would be more conventional than what you described. Not electric, maybe hybrid capable at some point. What do you make of that? 

Stein Nilsen

Now, I think we don't know if it is possible with today's technology to find a zero emission on that 50, 60, or 70 seater, I can't answer that question. I hope we can have that on the smaller aircraft, but the lower the emission, you're better. And you look around, you have files of flight shaming and you have a lot of emission charges going with extreme growth. That's part of our challenge with the business model we are seeing for the future cannot cope with the traditional turboprop, with that kind of emissions. It's too costly to operate with all those charges we have to pay. I think if you look around, I think the concept of flight shaming will be visible in our profit and loss as time goes by. I think the communities will demand of us in the airline business that we find new and more effective solution, especially on the emission side, to be able and to be allowed to grow further. I'm convinced of that. Sustainability equals future profitability. 

Jens Flottau

Well that's a great way to close this interview. Sustainability equals our future. 

Thanks Stein very much for taking the time, that was really, really interesting. 

Unfortunately, time's up for this. 

Also, thanks to the viewers for watching and until the next time. 

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