LEVEL CEO Update – Adopting Different Production Models To Support Low-Cost Operations Out Of Spain, France And Austria

Transcript

Vincent HodderWell, something as a starting point, I really do feel like I'm standing on the shoulders of giants. People like Alan Joyce and Bruce Buchanan at Qantas Jetstar, who really started the first successful low-cost, long-haul model, both of whom were role models and teachers of mine as I came up through my career. But also, in different ways people like Fredericko Block and Roberto Crepe from Tarca, who really, I think, mastered the model of multiple AOCs inside a single operating brand, to the Tony Fernandez and [inaudible] McCarthy from AirAsia and AirAsiaX. The further development of the low-cost, long-haul business. The Michael O'Leary's, the Ryanairs, the easyJets, all of these elements have sort of come together. We're taking pieces out of each development that the industry has gone through to put it together in a new way.

I feel it's a lot of weight to put onto their shoulders, but it's fantastic for me to have the benefit of all that experience come together in developing what I really think is a new business model for the future of aviation.

So, if you think about the customer being the center of what level is about, and around the customer we build the brand, the commercial offering, the customer experience, all the way through from xurge and booking on the website, right through to the airport experience, the travel experience and beyond, that's the full responsibility of Level as the airline management company. We distinctly separate though, that airline management company from what we call the production units. The people who are actually flying the aircraft, that have the AOC, who deliver the product to the customer on a daily basis. We do that to break that vertical, integrated chain that is so traditional in the airline industry, but which locks you into a particular way of operating and a particular way of delivering the product.

It's not necessarily by design, but already 15 months into operation, we're already operating with three distinctly different production models. One, which is an external production model, where Iberia operates under the Iberia AOC, a business out of Barcelona. We have OpenSkies, which is an IAG subsidiary. It's actually a subsidiary of Level itself, which is operating our French business and then we have a franchise business called INNOTECH, operated as Level Austria.

So, three completely different models across long-haul and short-haul, all designed to work together in a consistent way to deliver the overall level promise to the consumer.

I honestly believe that you could not do what we are doing anywhere except inside IAG. The organization of that group as a multi-brand portfolio of airlines, who are targeting different geographic and different customer segments, Level fits into that mix and it fills up a wide space that existed for IAG, but it, as an incredibly difficult thing to do, to build a new, low cost model in the long-haul sector, we have the scale and the capability across all of our operating companies to draw on to help us to move faster, to scale quicker, and to get the business to profitability faster.

So, I don't want to let too much out of the bag too early, and we do have a period of consolidation over the next 12 months as we had already two aircraft deliveries coming into the long-haul section of the business, but I think longer term, what I would say is we've got a fairly ambitious and aggressive approach to how we want to scale and grow the business.

I think you're gonna see more in the long-haul sector, both in terms of growing the footprint of where our operating bases are, as well as growth in the number of aircraft that we have in each of the operating bases.

I'd like to see further enhancement development of the short-haul franchise model as well, but I think what we're gonna see is some really, really exciting stuff coming up over the next couple of years.

We've been talking about long-haul, low-cost for a long time and Jetstar for example, started with it's long-haul business in 2005, 2006. So, it's not exactly completely new, but the history of those discussions really started out with a lot of negativity. "It's never gonna work." "There's no way to make this happen." "There's no demand for it."

Over time, that's changed. Different people have come into and have expanded on that business. We've learned new lessons about what works and what doesn't, and we've now gotten to the stage where the launch of Level in Spain is a prime example of why the model works.

So, in the first 16 hours, I understand they sold 60 or 62,000 seats in the first 16 hours of being on sale. That's a level of pent up demand from the consumer, which says, "Yes. We do want this model." "We do want to lower the cost of long-haul travel." "We do believe that introducing this model opens the world up to us as consumers as in a way that nobody has done before."

This conference today as the first long-haul, low-cost specific global summit, is really a recognition by the industry that, okay, we can't ignore this anymore and all these people behind my shoulders are all here because they want to understand more about the model. They want to be participants in the growth of this section of the market.

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