flyadeal CEO Update

Transcript

Con Korfiatis:So, flyadeal, we're the low-cost arm of the Saudia Airlines Group. We launched with our flight 6 weeks ago, so we're still a young cub, a young baby. We have 3 aircraft and we're operating domestic services. We're on 3 routes at the moment and we're looking to expand quite aggressively. We have 2 more aircraft coming before the end of the year, 3 in the first half of next year, so we'll have a reasonable offering within 12 months on the domestic landscape. We also plan to be an international airline, and we're looking to start international flights in the second quarter of next year when we have some more aircraft deliveries coming through. Longer term, we're obviously— we want to have a comprehensive domestic network in the Kingdom, but also have a substantial part of our flying network which will be internationally based. Primarily within the region and what's within the sweet spot of a narrow-body A320, which is what we're flying. But so we see ourselves having a primarily domestic network, but a sizable international network in the next two or three years. So we've we've we've committed to eight aircraft already. That's to cover our first about eight nine months of operation. That's in the lease market. We've gone for brand new aircraft. We've gone for brand new A320s to start our flying. We've gone relatively early also in our life. Cycle into an RFP for a longer-term order. You know, we're looking to grow the aircraft— sorry, the airline at between 8 to 10 aircraft a year, and we've gone with an RFP out to the major manufacturers to look at our long-term fleet needs, and that's something that we'll be working on in the first half of next year and making a decision on our longer-term fleet requirements. And in the meanwhile, the short-term uplift and growth in the airline will be facilitated through more leased aircraft. It's a genuine RFP. We're opening it up to all the manufacturers. Doesn't mean to say we'd go to aircraft types. If we moved to a non-A320 aircraft, we would standardize the fleet around whatever selection we make. So that's part of the RFP requirement for us, that we would still center around one aircraft type. But it doesn't mean because we are operating the A320 today that we'll necessarily stick to that. We do see it as primarily Boeing versus Airbus choice. not driven anything more than the markets we're operating in are quite thick, so they do need a larger narrow-body aircraft rather than something that's mid-sized. So likelihood is it will be one of those aircraft, and it remains to see which choice is made out, which will come through the RFP process. If we were looking to diverge away from a baseline, you know, 737, say MAX 8 or A320neo, well then the 21s and the larger MAXs certainly is something that of interest. Even though we've only been operating 6 weeks, if I look at the flights we have between Jeddah and Riyadh, our capital, that route is so thick it would easily accommodate a larger, higher-density aircraft. And absolutely what you said around lowering our CASK is the name of the game. We're all about providing low fares, so anything we can do to lower our seat cost and pass that on to savings and better airfares for our customers, that's the mantra. Basically, it's a true— and the space we've seen for flyadeal and what we've launched into, into the Kingdom, We've seen the white space has been around the true low cost. We belong to a group that has a premium airline as part of it. I think the primary competition in the Kingdom is a hybrid airline, so we saw the low cost as white space for us. So we're really excited that we have that white space to grow into. Having said that, it is purely pay for what you want on board. So we do have ancillary product offerings which are available for purchase or can be bundled for a discount price at the time of making the booking. So you could— there's seat selection, there's options around baggage. We have the most generous carry-on baggage allowance, which is free, which is 10 kilos. Hold luggage is chargeable. We provide meals and hot meals and a selection of a range of hot meals that can be pre-ordered and delivered on board. Of course, we have buy-on-board food, buy-on-board merchandise. We will be launching in the coming few months a streaming service as well on board where people can have access to magazines and newspapers and also some video and audio content as well. We're looking to progressively keep expanding on ancillary offers. Accommodation options will be coming in the new year, hire cars and other things as well. So that's an area of the business we're looking to grow. Well, the objective of setting up flyadeal is to provide and really occupy that true low-cost airline space. So, you know, establishing the lowest seat cost that we can in the Kingdom and the region has been our objective in the business. And as such, we've been into— we have the independence to chart that course and to deliver on that. We're not tied to having to take certain services from, you know, the parent company or the sister airline in Saudia. If it makes sense and it suits our cost base, we can do that. But if it doesn't, we know we're purchasing in the global market to deliver a world-class airline and a world-class cost base. So that we won't deviate from that in terms of our cooperation and network and our network strategy. We need to provide a network. I mean, there is not a true low-fares airline in the Kingdom. We also think actually in the region it's mainly hybrid airlines through the Gulf states and the Gulf Middle East region more generally. So we see a lot of white space for international services as well for the low-cost model. So we need to provide a network for people from that point of view. We don't need them thinking that we only fly 5 routes and they can't use us everywhere else they really need to go. So it's about providing a comprehensive network. And I think as that evolves, there will be some natural opportunities to look at what we do with our sister airline in Saudia and where it makes sense to do some things together on a network basis, but at all times staying true to the model and at all times staying true to maintaining that very attractive cost base which translates into the attractive fares. Well, summer was 10 years ago and is long gone, and I think the whole regulatory environment was very different back then to what it was today. It's certainly a liberalized market today. There are no barriers to entry for people who want to set up an airline. It was a little bit of a different environment long ago. I think the Kingdom right now, Saudi, is far more exciting than it's ever been for a number of reasons. Firstly, if you look back just a few years ago to 2014, there was Saudia and there was the competitor, Flynas. If we look at now, we've got about 7 airlines that are operating in the Kingdom, and that's been in the space of 3 years. That's come about because of the liberalization in the market and people being allowed to set up new airlines and more AOCs being granted. So from that point of view, liberalization has allowed us to come into existence, you know, and we have access to airports and to slots and to other things to facilitate actually building an airline of size. And I think logic would dictate, particularly with this particular model, that, you know, this airline should be second largest airline in the Kingdom within a relatively short amount of space— a short amount of time. And that's not unforeseeable at all. So it's an exciting time to be growing. The demographic of Saudi is very interesting. We have a very young population, you know, something like 70% of the population is under the age of 30. It has a very high propensity for travel. They're avid travelers domestically, they're avid travelers internationally, and I think where the Kingdom is headed with its 2030 vision about liberalization, expansion, internationalization, diversification of the economy away from just oil-based existence. Transportation, aviation, and tourism are key pillars of that, and a low-cost product plays very well into facilitating the maximum amount of growth you can leverage and generate out of this. So I think it's the perfect storm. If there was the right time to be doing this in Saudi, it is now. So from that point of view, it's great. Although we're only 6 weeks old, our aircraft have been effectively full from our very first day, and we're starting in low season. So I think that's just a great indicator of the appetite for this sort of product and the potential for it to grow more. Probably, you know, one of the biggest infrastructure challenges we have in the Kingdom right now is Jeddah Airport itself, which is also our home base. But there's a new airport coming in 2018 in Jeddah. It massively increases the capacity. It's a world-class airport. It'll be run by a world-class airport operator in the Changi Airports International Group, and we see that being a real game changer both domestically and internationally for Saudi. So, you know, we've got big fixes coming in that area. I think in terms of charges and the like, you know, we're finding a pragmatic approach to this. There's good incentives for new airport operators and for expansion. You mentioned the fare caps. The fare caps do exist. They'll be completely wound back by the end of 2018, so they're less a factor for us going forward. As a low-cost airline, they're not really a factor for us anyway, to be honest. So there's no inhibitor on that front. So I won't say we're quite there yet, but relative to perhaps where we were 3 years ago, we're probably 70% in the right direction with some more work still to come. So minimum fares, again, there are no obligations, there are no floors that apply to Flydeal and its operations. We've been free to price as we see fit for the market and to stimulate the market. It's in fact what we've been doing. PSO routes still do exist in the Kingdom, but they're not— you're not obligated to fly them. You basically bid for them if you think it makes sense for your business model. None of our flying is PSO. It's not to say that it wouldn't be, but if it was, it would be on the basis of it makes economic sense for flyadeal to do so. Well, there's 28 airports domestically in the Kingdom, so if you think of the different permutations and combinations. It's quite a network you could build just domestically. They're viable routes, just driven by the population bases of the catchment areas for each of those airports. Certainly would sustain a model like Flyadeal in those markets. So definitely that potential is there. In terms of the growth of the market, if we look at over the last 5 years in the Kingdom, air traffic volume has almost doubled, and that's without the stimulus of really, you know, low-cost Impacting that. So when we can achieve that without the low cost, we see that on a continuing cycle. And, you know, some of the estimates that are being bandied around in the Kingdom at the moment sees the market growing again by double over the next 5 years. So, you know, we see a very aggressive growth opportunity there, and we expect, you know, very significant double-digit growth going forward. There are some routes which are smaller aircraft routes and have runways that can't accommodate the you know, the A320, but there's a large number of them do. There are also a number of the airports are expanding at the moment. They're having runway extensions. There's new terminal facilities being put in place. GACA, as the owner of airports in the Kingdom, has quite an aggressive investment strategy around the airports and expanding facilities, you know, capabilities, and ability to take larger aircraft as part of what they see as the continued growth in the region. There's some major projects around brand new cities for the Kingdom, massive investments on a scale that's sort of, you know, not been seen before, and they also are going to provide opportunities with new airports to go into those areas as they build going forward as well. We've started with the Jeddah base. We see ourselves having a Riyadh base within— by the end of next year, if not early in '19, and we think we could see ourselves with 1 to 2 more bases in the next 2 or 3 years in the Kingdom, out of which would be flying obviously domestic, But also they provide, and the rationale for the bases is the international opportunities that come out of each of them. Saudi is a large country, east to west is quite a distance, and the catchment area heading in a different direction varies. So, you know, southwest versus northeast versus east and versus north all provide some really attractive opportunities, and our hub strategy as it evolves over the next 2 or 3 years will factor that into consideration. To Dubai, definitely, but beyond as well. You know, the whole economic development of Saudi is not just Jeddah and Riyadh. It's nationwide and in many cities. We started new services to Dammam and to Qassim last week domestically, and I was in both of those cities last week and having a good look around. Those cities have got massive investment going into them. There's massive growth growing into there. There's a catchment area just in those cities outbound But similarly, with all the economic growth opportunities there, there's also inbound markets. So, you know, they have potential to sustain their own mini hubs of sorts, if you like. Obviously, you know, you don't want to have 15 hubs in a country as well. It's very hard to manage economically and efficiently. But certainly, you know, flying patterns out of those places is something we're looking at. Obviously, the medium-term game is DWC in any case. Question is, do we start there or whether we do we start in DXB? To begin with, that we've just started discussions with the airport. Dubai is in the top three international routes for Saudi, and so from that point of view, it's a market we do see ourselves in and in early. We've just started having the discussions with Dubai airports, and that will play out over the next couple of months, and we'll make some announcements. Politics aside, and I think politics even regardless, you know, the two. Most important religious sites in the Islamic world sit in Saudi Arabia. They will always be there. That's something that will be there forever. If we look at the 2030 vision that's been announced at government level, one of the key pillars of that is to grow Umrah traffic significantly. It's around eight million passengers a year right now. As part of that vision, they're planning to grow that to 30 million. So that's going to grow by 150 percent. There's the demand versus the supply elements of that is always greater. So that opportunity in itself from an inbound point of view. Is huge and is nowhere near being tapped to its potential. So that's growth for as long as I can see. There's also, as part of the 2030 Vision, there's a strategy to double the number of heritage sites. And they're looking, particularly with the new international or the new Jeddah terminal coming online, they're looking at changing the visa arrangements for travel into the Kingdom as well. So I think there's a massive potential to develop a tourism industry. If you look at what aviation does in terms of GDP contribution, its importance to the Kingdom and job creation, it's right up there as it is for all the other Gulf states. The one area though that it is quite different in Saudi relative to the other Gulf states is the proportion of GDP contribution that inbound tourism provides, and that's really the potential that sits there for the Kingdom. And, you know, the strategy from the Vision 2030 level down to the Saudia Group strategy level and the flyadeal strategy level, is to take advantage of that and tap that and absolutely grow that market very aggressively. There are many tourism-type destinations which are inbound markets and survive very well on that. The beauty for us is we've got flows in both directions. We've got a very young demographic in the Kingdom. It's got the largest population of the Gulf states. The propensity to travel for Saudis is high and must be up there in the top handful in the world. They're avid travelers, and so that combination of inbound potential and the outbound markets that are there presents enormous amount of possibilities.

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