Operational issues prove hurdle to recovery process

Transcript

Torbjorn Karlsson:Good morning, everyone. We've had a pretty exciting morning so far. I think as we've seen, as COVID pandemic is beginning to subside, it's becoming— changing the environment a little bit, but airlines are still having to trim flight schedules. There are still supply chain constraints, and perhaps these concerns are by now far outweighing the challenges from the virus. And at the same time, it's been clear that one of the most acute problems we have is shortage of labor, from pilots to accreditation of ground staff at airports. And it's now having a big impact on the restart, and it's impacting the view of the industry. It's also that the global pandemic has exposed many problems in airline and airport operations, and the return of the travelers is perhaps a little bit put at risk as these things are challenging us. I think also, as we've heard in the last 24 hours, we're also facing a really big change in our operating environment as the ESG agenda takes much more of a centre stage. So what I'd like to do is welcome our 2 panellists up on stage with me, and we'll focus today's conversation a little bit on the 2 halves of what are we doing today to address the current problems, and what do we need to do differently in the, in the future. So I'm joined on stage by, by Elise, recently relocated to Singapore, I believe, to be Vice President Asia Pacific for the Lufthansa Airlines Group. So she's responsible for directing all of the commercial activities of the premium airlines. And prior to that, Elise was the Lufthansa Group Vice President managing all international partnerships globally. And I know you have an aim to drive sustainable innovation and is very interested in, um, the future of aviation is bright in the post-pandemic world. And I look forward to hearing your thoughts on that topic. Uh, Captain Jaffar is currently the Vice President of Technical Affairs for ALPA-SIN. Started as a cadet pilot in 1989 with Singapore Airlines. So I know you spent a lot of time in Adelaide. And you're currently an instructor pilot with the A380. And with 20 years of flight instruction experience, I think you're going to bring some real clarity on the challenges of this industry and how we will be able to continue to fly. So, so, Captain Jaffar, perhaps it's kind of interesting to kick off with you first. The pilot shortage is not new. We've heard this for a long time. What perhaps is different and what are we doing as an industry to address the challenges we have today?

Jaffar Bin Hassan:Well, first of all, I think this is maybe the first time the Pilot Association has participated in this. I believe I may be the only pilot here. So if I make any mistake, nobody will realize. But you're right, the pilot shortage was was there before COVID I believe at that period before, we were like short of 20,000 in Asia Pacific. But the difference between now is that at that time, the shortage was to create new pilots, to train new pilots into the arena so that they can contribute.

Torbjorn Karlsson:Right.

Jaffar Bin Hassan:to the business. But now we have a different kind of shortage where there are pilots who were furloughed or terminated during the period. So they've left the job for some time. And then also at the time, there was no recruitment, there was no promotion, there was no fleet changes and all that. So now with the ramping up of air travel and all that, so now you have a shortage of a multi-dimension. To reactivate the pilots that have been furloughed for 6 months is a lot maybe faster, although I won't say easier, than to reintroduce, or rather introduce new ones into the field. So it's a time thing. And also, there's also the issue of cost and also quality. So you have to cater for different groups of pilots that are re-entering the arena. So that will be the challenge. So the training department especially has to be very versatile.

Torbjorn Karlsson:Yeah.

Jaffar Bin Hassan:Whereas in the beginning, in the beginning, it was just one, one channel, whereas this time you have to cater for different kinds of training requirements.

Torbjorn Karlsson:So a big challenge. Do you think that there's light at the end of the tunnel in the sense that are we getting our mind around how to do all of this?

Jaffar Bin Hassan:Yeah, I think it's definitely possible. I am optimistic about it. It's just that the airlines, especially the training departments in the airline, and also the regulators, should quickly get their act together so we can focus on how to effectively and very quickly put these people in productivity mode.

Torbjorn Karlsson:True.

Jaffar Bin Hassan:Rather than reinvent the wheel, already training doctrines or training methods that are out there. It's just that you have to slowly pick which is appropriate for which group.

Torbjorn Karlsson:Okay.

Jaffar Bin Hassan:So yes, I don't see it as a problem. But like I said earlier, one should not compromise quality for cost, because if you don't have quality, then you will compromise safety. And if safety is not, you know, prime, then we will have a lot more problems than we wish. Yeah.

Torbjorn Karlsson:Elise, what are your thoughts? I mean, you've got an interesting background having sat across the Lufthansa Group and Lufthansa Technik and the catering side. So you kind of have not only an airline perspective, but a broader value chain. What are you seeing on what we're doing to address the problems and how long is it going to keep hindering us, so to speak?

Elise Becker:So I completely agree with you. It's a multidimensional problem. And indeed, we have 100,000 employees at the Lufthansa Group and we've seen the staff shortage before COVID I think we first need to understand what is the issue right now. We have COVID as such. So sickness rates that have been increasing and we have— we had that in June and July in Europe. This was a massive issue. Especially in the cabin and in the cockpit. So that's one effect. We have from COVID immigration issue. So immigration that has either stopped or emigration that had happened. So this is something we could see in Europe and in Germany. The traditional immigration has gone partly. So this is another issue. And we have the famous topic of the demographic change, aging population, that is of course very different from country to country. So if you look at Asia, for example, we have Japan and China that are hit quite a lot by that, and Southeast Asia maybe less. In Europe, this demographic change is quite interesting because before the crisis, I could— our partner, the German railways, they already had huge issues to recruit. They were already on the road trying to have more employees and to attract employees. And somehow the aviation industry was spared. So because the aviation industry was attractive, because it's sexy, because it was a passion, we were spared. And now we are hit even harder after the crisis. And we've lost a little bit of our attractiveness, I think. So it's more difficult now to attract recruits. And I think this is in all job categories.

Jaffar Bin Hassan:Why?

Elise Becker:Because of the furloughs. Why? Because we had wages cuts. Why? Because there are other expectations. And here also, we will see very much the differences between the countries. We have had models where, like in Germany, short-time work, where the employees were forbidden to work. If you would work, that would be a problem. We have seen models in Europe where there was short-time work, but actually the government was financing work, so completely different story. And we've seen like Japan is quite interesting where the staff has been relocated to other industries temporarily and are coming back now. So this has a huge impact about how we're going to ramp up. I've seen in the US before the crisis attrition rates, amazing attrition rates in the catering industry, for example. So this is not new, but now we're hit harder. And I don't think it's a short-time problem. Yeah. So to be clear, and I don't think that we found the solution, but if you think positively, it's a once-in-a-lifetime opportunity to put people in the center. And I'm really looking forward to that.

Torbjorn Karlsson:So it's interesting because clearly the recovery has been different in different parts of the world. As from you describing it too, we also face different challenges. Do we— do you think we'll see different solutions in different parts of the world, or is this the same problem and the industry need to address it in a different way? Or will we see a model for Europe, a model for Asia? What's your thoughts?

Elise Becker:So as I said, I think it's a multidimensional problem. So we have different causes and, and the impact of course is different, but we are all confronted to that.

Torbjorn Karlsson:Yeah.

Elise Becker:And one other effect was how steep was the ramp-up. So in Europe, I think in January, February, we were at 20%, 30% of passengers. And in May, June, we were at 90% of passengers. Big surprise, it didn't work out. I mean, no industry can ramp up that way and have no problem. That's just not possible. But I think one of the key success factors, and you mentioned it before, is how all the actors in the system collaborate. And here, I think we've seen in Singapore quite a benchmark ramp-up. There were issues, but they've been tackled jointly— airport, airlines, government regulators, also Ministry of Health. So I think we've seen really a step-by-step, very well prepared. So we are testing every kind of step all the way.

Torbjorn Karlsson:Thank you.

Elise Becker:And then coming into reopening, a reopening that is managed. Yeah, I'm a bit curious about what will happen in China.

Torbjorn Karlsson:Yes, I want to come back to that because there was a couple of comments yesterday that I agree with. Thank God China has not opened up yet, but they will eventually. But I was thinking about that interconnectivity. I mean, Captain Jaffar, it's clear that on the pilot side, the flow of pilots between regions that are not doing well— I mean, a couple of years ago, China hired an enormous amount of pilots. That flow of mobility of talent across the region has slowed down, obviously because of COVID Is that going to come back? Is that part of the solution to make sure we have enough supply, or do we simply need to face the fact that we need to hire a lot more pilots globally? We're not going to be able to just shift capacity around. Okay.

Jaffar Bin Hassan:First of all, I just want to maybe go back to your earlier question. I not only represent the local pilot association, but I also represent the regional Asia-Pacific. So we have 10 member associations— oh, I beg your pardon, 16 member associations in the region. And everybody is facing the same problem differently.

Torbjorn Karlsson:Yeah.

Jaffar Bin Hassan:There were some employers, some airlines that kept the pilot body. And now they don't have that big a problem or shortage. But there were some who actually furloughed so many, so now they have what you call a big rush to fill in the gap. So it is not a, what you call, same for everybody. But the common— the goal is common. And I think it should be a consolidated universal approach to look into filling the gap. And I would like maybe later on maybe to expand a little bit on proficiency flying. But to answer your question about the movement, I think it's about borders. You know, just like how the operations opened recently, it's when the borders open, people fly. And if the borders open in terms of job opportunities in China or in anywhere else, Yeah, the pilots nowadays are very mobile, unlike in the early days. So you will get, or you will be able to encourage pilots from everywhere to go anywhere if the, I suppose, if the terms and the price is right. So that would answer one question. But the bigger question is, I don't think in the near future we will ever be able to to satisfy the demand for pilots, because air travel, if we ramp back up to pre-2019, we will be back to square one. We will not have enough people who will still fly, and it is the same nice problem to have after the COVID experience.

Torbjorn Karlsson:Yeah, and I mean, I think also, even if we get back to square one, we won't get back to the same amount. I know from, for example, in the business aircraft segment, They're facing a significant loss of pilots as people are making conscious choices. Why would I want to be away 2 weeks from home? Don't know what my schedule is. So people are valuing time differently. So we're going to have to figure out a way of re-attracting people. And I think Sebas mentioned yesterday, how do we bring sexy back to the industry? How do we make this attractive? And you touched on it, Elise, but are we doing enough to get the next generation of pilots, the next generation of engineers? The next generation of baggage handlers. Do we have a value proposition for why people should join our industry?

Jaffar Bin Hassan:Well, if I may answer this, from our perspective, the only reason how we got over this problem nicely, I'd say, was partnership. There was actual genuine partnership, not only with the airline management, but with also the regulators and also the health body, because everybody has their own problems. And like we, the pilot community, I would use the word suffered in our own way, because when we go fly everywhere, we get locked up in the hotel room, and we come back home, we get locked up at home, and the whole time we were locked up and we're just earning a living. So if there was no partnership or acceptance in that sense, this wouldn't be possible. Nobody would want to fly, everybody quit, and then all of a sudden you have zero pilots, then we have a problem, no travel. So yeah, I think to answer the question, the investment should be in the partnership between the management and the companies and the new ideas that are coming, and also with the labor force.

Torbjorn Karlsson:Torbjorn?

Jaffar Bin Hassan:To make it work.

Torbjorn Karlsson:Is there a difference on that sense between Asia, do you think, and Europe and the US? My view has always been that more people in Europe are exposed to aviation. They live near airports, they've been family, and a lot of people in this industry are in it because of personal connections. Asia is a little bit different. So do we have to work harder here to attract than in other parts, or is this a general change? Towards the industry, do you think?

Jaffar Bin Hassan:I think it's opposite because in the earlier years, if I were to say I want to travel from Singapore to up north, in a state up north, we will book the bus ticket. But nobody's talking about bus ticket nowadays. Everybody wants to fly low cost and it's as cheap as the bus. So I think it's changed. So our challenge is actually to provide the seats. And my advocacy is to provide the pilots that will fly the airplanes that has those seats. So I think it's a joint partnership that needs to continue.

Torbjorn Karlsson:That's good. Elise, what's your thoughts?

Elise Becker:Yeah, to reinforce that, I think one of the elements that make an industry attractive is growth. And I can definitely bet on the fact that in Asia, we will see a lot of growth in the airline industry. So I think this will help a lot in recruiting here. And as I said, the demographic challenge that we see in the US or in Europe are not that bright here, not in every country. And I think this will make a difference. So you're probably familiar with it, but we have this effect of baby boom, right?

Torbjorn Karlsson:Yeah.

Elise Becker:And it's now, now we are feeling it. So now we are seeing a lot of our pilots, but also Other employees going into into pension, and we don't have enough recruits. So this is really a challenge that everybody has to tackle. Also, the war for talent is something that everybody has to tackle. But as I said, I think it's kind of a new challenge for us because we've been sexy for a long time.

Torbjorn Karlsson:Yeah, and I think it's interesting because where the industry is not unique, right? There are other industries. facing similar challenges. And even the tech sector is facing challenges right now. Facebook was super attractive a while ago and maybe not so much anymore. But you wanted to touch on China also. How do you think— will China have an impact on this in terms of the challenges of opening up or in the longer term?

Elise Becker:So my first answer is I don't think anybody knows. And this is a little bit what bothers me currently with our situation. For me, the Chinese market has been, is, and remains a very important market. We cannot just close up China and then do as if it was okay. It's not okay. But indeed, what we are lacking from now is planning. So I've been telling my teams, we need to get ready. We need to get ready. Yeah, and they are not believing me anymore for good reasons.

Jaffar Bin Hassan:Yeah.

Elise Becker:I think for any network planner in this world, getting ready for China is a hurdle. We have the circuit breakers. There is only disruption. And in a world that is capacity restrained, the fact that it takes too much time is a problem. It's an issue. And I'm not sure how we're going to recover then as an industry as a whole in China.

Jaffar Bin Hassan:I think China not opening yet actually is a good— if I say this correctly, is a good thing for now, because if it was open, then we'll be really rushing for seats and there'll be a big, big demand that it's almost impossible to meet on a daily, weekly, or even monthly basis. So in a way, it gives us time to rev up and prepare for the big rush, if I suppose when it opens. So I think that will be the challenge, the next phase of challenge, I believe.

Elise Becker:It's a relief. I completely agree. It's a relief, but it's not a sustainable plan.

Jaffar Bin Hassan:Yeah.

Torbjorn Karlsson:And of course, it's not— you talked about proficiency, Captain Jaffar. I think the other thing is that we're not just looking at attracting anyone. This is a complex industry, we need a certain skill set. It was the point you wanted to make there.

Jaffar Bin Hassan:I think one of the problems we faced during COVID was the reduction in opportunities to fly. And the proficiency of handling it is important, although there are many airports that you can do automatic approaches and landing, but not, not everyone. So You always need that capability to land yourself. So we need to always keep that, and that is a cost factor. So when you want to get everybody in a rush to be up to speed in proficiency, you require facilities, training facilities, simulators, or even flight training departments. So that will be one challenge. So that is one thing you cannot ignore because you think about it, we are a tube, you know, 60 meters long and, you know, 50 meters wide, hurtling down the approach path at 150 miles an hour, about 200 tons. And we are hoping to put the airplane down on a real estate that's about 60 meters wide and 4,000 meters long, and we got to do it right every time. If we don't, then no matter what network planning you have, it's going to be a problem. So that's why I think proficiency should not be neglected. And the balance in the cost structure is understandable. But that one, as a pilot body, as an end user, safety is paramount. And of course, profitability comes next. For us, I have the luxury to say that, but not you, I suppose.

Torbjorn Karlsson:It's a good reminder that investing in people, investing in talent is what's going to take us to the next stage. And I wanted to do that little pivot because I think the ESG conversation has been really great, actually. For me, it's been fabulous to see over the last 24 hours a real focus on it because I feel that's not been the case before. But as I was thinking about it, is that helping or hindering us a little bit on the people side? Because it is changing the kind of skill sets and competencies we want. And at the same time, the people we want to attract need to feel that we are not just a growth sector, but a sector that also fulfills their needs for purpose and desire around sustainability. So what's your thoughts, Elise? How do we leverage this challenge into becoming an opportunity for the industry?

Elise Becker:I'm going to quote first the introduction of the WIT in Seoul on Tuesday, and the agenda is set. Tech talents and sustainability. And first of all, I think it's a great agenda. And I think three years ago we wouldn't have expected that most probably. And I think we can be happy about that change. And then how to the secret how to attract and retain talents? I haven't gotten it yet. And indeed, every conversation we have with customers or with partners. It's a lot about that, and especially in the tech industry, by the way. And one one thing on top of so I think wages expectation, okay flexibility expectations. But by the way, the whole work from home thing, I'm not hundred percent sure that it has to be you know hundred percent flexible. I've seen new recruits being very happy to be in the office too. So I think we need to cater also a lot of different requir So wages, so flexibility, development, personal development, purpose. But I think we have a great purpose. If we say we want to connect the world in a sustainable way, we have good chances to recruit people. But we were discussing about one other aspect, people leaving and people coming back, coming back and telling us, I didn't feel like someone's caring for me. And I think this is also something we need to reflect. Purpose, yes. Flexibility package, yes. Care, long-term commitment, investment, that these are also the aspects we need to think about.

Jaffar Bin Hassan:Mm.

Elise Becker:How much of what in the recipe? Maybe next year, maybe in 2, 3 years. I'll let you know when I found it.

Torbjorn Karlsson:Yeah, I don't think there's any easy answers. What about on the— Captain Jaffar, on your side, how's the environmental agenda? We heard Joseph talk this morning about hydrogen. He talked about electrification. Is that changing how you think about the pilot supply, the skill sets, and what's needed in the future?

Jaffar Bin Hassan:I think it's changing more of an evolutionary way. It's easily accepted when the proposition is carefully laid out and everybody gets an open view and made an assessment of it. For example, there's some pushback about the single pilot operation. If I were to sit in my airplane and I go to London on a 13-hour flight, and how do I go to the toilet and there's nobody in the cockpit? So those kinds of—

Torbjorn Karlsson:I'll volunteer to help out then.

Jaffar Bin Hassan:So those are things that are questioned, the question that is there. But at the end of the day, from the pilot community, it is not a pushback for pushback's sake. It's more for the interests of the industry in terms of safety, productivity, efficiency. So that's, I think, the acceptance. Like I said, the partnership and the buy-in, I am confident, provided it's done properly. One thing I'd like to say is this, I don't think I would be very happy with the proposition to work from home.

Torbjorn Karlsson:I don't think I would be either if you were doing that.

Jaffar Bin Hassan:I'd like to have my stake in Frankfurt in Frankfurt. But coming back to attracting people, there were some people that also in my cabin service colleague, the cabin crew, They refused to come back because they felt in a way hard done by because when they were furloughed, they left.

Torbjorn Karlsson:Yeah.

Jaffar Bin Hassan:So how do you attract them? Do you say sorry? Do you apologize? Or do you then give them a better alternative in terms of condition, in terms of remuneration based on what they are doing now? Because there is that reluctance as far as I can see. But in the pilot community, that earnest to fly is always there. I don't mean money, I mean handling. So it's always that attraction if the opportunity is there.

Torbjorn Karlsson:That's good. So if I play back, I know time is running out. You are optimistic, actually. There is light at the end of the tunnel. Still need to do some more on the planning to figure out what it is. The industry is in a good shape in terms of purpose and attracting, so we can get the talent. But we've got to remember how we treat people in tough times is how make sure they deliver in good times. So people need to be at the center of what we do. Is that a fair summary?

Elise Becker:I think that's a perfect conclusion. Yeah, we should keep that.

Torbjorn Karlsson:Good. Thank you. Well, thank you very much for your contributions. This is a tough topic. So thank you for your time today, and thanks everyone for listening.

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