flyadeal Aims To Place New Aircraft Order By Jun-2018

Transcript

Con KorfiatisWe started with flights just between Jeddah and Riyadh. I think last time we spoke, we had started Dammam, and Qassim in the north of the country. Since we last spoke, we've actually spread the network to the south and we've started two destinations in the south. We're flying to Jizan, and we're flying to Abha, so together we've got six cities now we're serving seven routes, because we're also flying some routes out of Riyadh to some of those points and connecting the dots a little bit also.

We've also, since we last spoke, received two more aircraft, so we're up to five aircraft in the fleet now. We're just shy of 40 flights a day. The take up on the new routes has been just as encouraging as our experience on the first batch of routes that we kicked off. Clearly, low-cost is popular, people love the low fares, and it doesn't matter what part of the country they're in and whether from the bigger the cities or the smaller cities, they're coming in numbers that are filling the flights that we're putting on so far, so so far so good.

Well there's 28 airports domestically, and we could possibly serve 28 over time. Not in the next 12 months. Certainly we have two more that are on the short-term radar. We have three more aircraft joining the fleet between now and May, one in March, one in April, and one in May. And that'll take our fleet to eight. With those aircraft, we're looking at two new destinations, two new cities domestically in the kingdom, linked from probably both Jeddah, and some will be just from Riyadh, so more domestic growth. And we're also looking to select our first international operation, which will probably come with eighth aircraft or the ninth aircraft later in the year. There's five or six destinations that we're looking at for international services. We haven't decided which one we would start with. Probably would start with at least two, to begin with. And all six are in contention and we'd certainly be operating at some point as well, but just not sure the order they're going to come out, at this point.

It'll either be our May aircraft, or the ninth aircraft, and we haven't worked out, which would be some time in the third quarter. So it could still be second quarter or third quarter, so we're just having a look at that now. There's just so many things to choose from at this stage, and what we're finding on some of the routes when we last spoke domestically where we thought we could keep the current frequency and it wouldn't need a ratchet up too quickly. We're finding some of them are already asking for more capacity. So we have a bit of a trade-off of, do we start the second quarter or the third quarter with international and perhaps accelerate some of the domestic expansion that we thought might be better in the second half of the year. This is what we're currently weighing up for the third of the three more aircraft to come in the second quarter.

Now for the way we're serving the Riyadh origin flights at the moment, the aircraft are all still starting in Jeddah at the morning, but they do get into, they go directly into Riyadh and then they fly some stuff out of Riyadh before they come back at the end of the day. At this stage, we want to develop the critical mass before we have to start another base, so we want a few more aircraft in Jeddah before we consider another base. You might ask me, "What's going to be your next base then?" So just perhaps to preempt that, it could be Riyadh, but that also has not been determined. There were three or four other points that we consider could be a base for us, as a next base after Jeddah. Riyadh is one, but there's two or three under evaluation as well at the moment.

Certainly, there is a program of privatization in the airports that's happening in the kingdom, so you know, 12 months ago, 18 months ago we would have been saying we're talking to one authority effectively, regardless of which airport you're talking about, so it's left pocket, right pocket completely. There is some privatization going through the airports, the airports have their own management. They are raising the bar, they do want to become more competitive, they're hungry to get more capacity for themselves, so actually we do feel that we can talk to the airports and find the airports that are most aligned with our business model and interested in our business model to, I guess, prioritize first.

We had always had the commitment for the eight aircraft. They're new CEO aircraft, so we hadn't made a choice on the new generation aircraft, and the last of those does deliver before the middle of next year. We've always had a plan to have about three more aircraft in the second half of this year. There are all sorts of options available there, and yes you're right, there's an RFP process going on right now as well. That RFP process should play out by mid-year. So with the options we have available in the second half of the year, it's a little bit of a chicken and egg and a timing game going on here, but there's something we may strike together to give us some more lift in the second half of the year, regardless of the outcome. I don't want to say much more than that now because there's a lot of balls in the air on it. We have a preference with the way we want it to play out, but until we've actually bedded that down, there's nothing we can announce.

There are two aspects, there's the selection of the aircraft, then there's the data, the production slots that will come with the OEMs. But the other thing that that also crystallizes to the extent we want to stay in the lease market, when we know what we're going forward with. We have the ability to go to the lease market for some earlier lift than perhaps the production slots might provide. There are a number of options, as strange as that may seem, in the second half of the year that we can be looking at.

But putting all of that aside, we've been looking at around 10 to 12 aircraft by the end of this year. Reality is, probably it'll be 10 or 11. Next year we were looking for somewhere between 8 to 10 aircraft for calendar 2019. We want to make a decision on the RFP by June.

It's 30 firm and 20 options, but the options are very much related about what comes after the early deliveries, so it's all back-ended. But which stage, we'd expect any growth anyway, but yeah, it's 30 right up front and the 20 options are back-ended. Well I think if you ask for the official position of the OEMs at the moment, they'd be telling you it's 22 and 23 perhaps, but we're confident we can achieve something better than that with both of them.

When we last spoke, we had a few aircraft, but we hadn't fully deployed them yet. They weren't quite flying to their maximum productivity. We've got the five aircraft now running at their maximum productivity. We've only had a couple of months to see what impact that's had. Firstly, the aircraft are flying very full, so that part's consistent and great news. And we're seeing what the full rollout of five aircraft and the impact it's having. I've got to be careful because the airports haven't published their statistics for Jan and Feb, but we've seen some preliminary numbers, and there's very healthy double-digit growth. That's fantastic because that's exactly what we were hoping to see, and there's clearly a stimulus happening with our presence there.

We're not talking about profitability at this stage. Not because it's not relevant, we're obviously having something that we're working towards. But at this stage we're not talking publicly and openly about that. What I can share with you is we've bed our targets in terms of establishing the airline. Year To Date results from startup until now are also well ahead of plan. Both in load terms and yield terms. So from that point of view, we're very happy with the results of the company, and it's trekking better than what we expected up until this point.

Well I mean, as always then, and it's one of the reason I come back to the CAPA events, great draw card of the most senior representatives in the industry. Quite a bit more about the Middle East, I think, than when I was here last time around as well, which is nice from a personal point of view to see, because I think that's an area where you know ... And this particular conference is focused just on the low-cost. And I think, as I said in one of this morning's session, pure low-cost in the Middle East is not really what the early airlines went to market with. They went to market with a hybrid product, whereas the experience over this part of the world was very much about starting as pure low-cost and moving up the food chain. We've kind of gotten the other way around in the Middle East, we've had hybrid which started somewhere up the food chain, and we've really launched flyadeal as a pure low-cost. Great opportunity to have some debates around that and the various merits and the different experiences that the airlines are having. And I think there's been some really interesting dialog and debate.

Also, I very much enjoyed the sessions that we've had and there were a couple that were touching in quite a bit of detail of long-haul, low-cost. Albeit, I don't have a view as to whether flyadeal would or wouldn't be doing that over time, but it's certainly something that we want to explore whether there is a business case for that, and perhaps that may be something we'd be thinking about, a view on, the latter part of this year perhaps.

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