Saudia CEO On How New Terminal At Jeddah, Growth In Religious Traffic, Product Improvements And 27% Decrease In Ex-Fuel CASK Is Transforming The “Sleeping Giant”
In this extensive interview, Saudia CEO Jaan Albrecht discusses how the airline has successfully transformed over the last three years as it has integrated more than 80 new aircraft and improved its product. Another step change is occurring over the next few months as Saudia moves into a new terminal at its Jeddah hub, resulting in further product improvements and enabling it to pursue more sixth freedom traffic. An increased focus on religious traffic (resulting in a 12ppts market share gain) and costs (resulting in a 27% reduction in non-fuel CASK) are two other key pillars of Saudia’s transformation programme. “I have used the term sleeping giant. Saudia is the 30th biggest airline in the world. We have so much potential but it has been neglected over the years for several reasons,” Mr Albrecth says. “Now with a focused approach we are seeing quite a success in putting Saudia to where it belongs.”
Transcript
Jaan Albrecht:So I joined Saudia more or less exactly 2 years ago, and it has been a big, big, big transformation, and I would say a successful transformation process. We integrated 82 new aircraft, widebodies and narrowbodies, in the last 2 and a half years. We are focusing now on the opportunities, big opportunities that we have, focusing on product improvement. Focusing on the benefit of having a new hub in our new terminal in Jeddah. We already operate some flights out of the new terminal, and as of March, April next year, we will have the full operation. So giving us the opportunity to add some sixth freedom traffic to our flights. And the big market opportunity for Saudia is to regain the pilgrim traffic. You are the national carrier of the country of the 2 holy mosques. We are having a below-average market share, and focusing on this traffic, we have been quite successful in the last 2 years to regain that pilgrim traffic to fly on board Saudia. Of course, for any pilgrim, it's a better product if you are able to reach the whole 2 holy mosques on a nonstop flight than to connect via any other part of the world. So with a clear strategy, with a focus on that, we are fortunately being successful in regaining this traffic. For the normal traffic share, the market share would be 50%. This is based on the granting of the visas. So the traffic is still very much controlled due to the visa issue to reach the kingdom. And if we would do our reasonable job, if we just would do our homework, we would have to aspire to a 50% market share. In the last 2 years, we regained 12% market share. We are now close to 40%, which only means that it's relatively easy, has been easy to get back to, to regain this market share. To me, surprising, but it only confirms that if you have a strategy, if you really focus, if you put it one of your priorities, if you make it one of the focus areas of the company, company, you are regaining to what would be your fair market share, what customers actually want. And this is overall my comment also on Saudia, that I have used the word or the term of a sleeping giant. Saudia is a big carrier, is the 30th biggest airline in the world. We have so much potential, but it has been neglected over the, over the years for several reasons. But now with a focused approach on that, we're seeing quite a success. In regaining or in putting Saudia to where it belongs. We have a huge domestic market. We have about 50% of our passengers are domestic, 17 million passengers, 27 airports in the kingdom. The other half, the other 17 million passengers are international passengers, pilgrims, a little bit of sixth freedom. So the business model of this carrier is not to aspire to become— to be the 4th big Gulf carrier. But we have our market by ourselves. We have this domestic market, we have the pilgrim traffic, and yes, we will regain a little bit from the sixth freedom traffic. Basically, we are gradually reducing the number of wet leases. We still have 18 aircraft on wet lease, mainly devoted to the pilgrim traffic, but with the addition of new aircraft, our fleet age today is 4.7 years, which is really a dream to have in the industry. And having added these 82 aircraft over the last years is really allowing us to grow, to replace some aircraft. Yes, some of the older 777s, but it's allowing us basically also to gradually reduce the dependency on, on wet-lease aircraft because more and more there is a growth of the pilgrim traffic, not only during the Hajj season, but during the other 10 months in the year, which is the Umrah traffic. And now with a focused product, with a focused approach on the pilgrim traffic, we're seeing double-digit growth rates. in the Umrah traffic, which is helping us a lot because by this way we are able to even out all this seasonality, all this huge traffic demand during Hajj. So that's helping us in filling the aircraft beyond the Hajj season. Well, the utilization these days over the year is around 13 hours on the widebodies, 13.2 hours. During the Hajj season, we operate the aircraft up to 16, 16.5 hours. So it's a very, very heavy season. But this only lasts for the 70 days during Hajj. And the big opportunity is to increase widebody and narrowbody utilization on the Umrah, on the shoulder period. Shoulder of 10 months. It's an interesting trend also happening at the government level that in the past, Umrah and particularly Hajj were only allowed to operate via charter operations. But more and more, and because of this very ambitious growth from the Kingdom via this Vision 2030, they are opening up the opportunity for Hajj and for Umrah passengers not only to travel to the Kingdom via charter flights, But using regular flights. Also opening up the new terminal, not only to arrive at the Hajj terminal, dedicated Hajj terminal in Jeddah, but also give the opportunity to arrive via the new terminal in Jeddah, regular flights, or now even to make these arrivals via Riyadh. Another beauty of what we are doing and the support from the government is the inauguration of the so-called Haramain train, which is this high-speed train which has a terminal at the basement of the airport. Directly in 30 minutes, high-speed passengers, pilgrims will be able to reach Mecca, to reach Medina. So that's another big plus, that you have really a hub where you combine the air travel with the last few kilometers to reach the holy sites. So today it's about 20%, 15% approximately still on charters versus scheduled services, but again, increasing the number of regular flights of the international traffic. Overall, it's less, of course, with our huge domestic operation. It's about 10%, 9% of the overall volume that we are offering. So still, our sixth freedom market share is very, very low, 4%, 5% of the total possibilities. This is no surprise because if you look at the today environment in Jeddah, it's not really a terminal that is friendly to connections. We only have 8 All these gates are bus gates. There is no contact gate in the South Terminal today, which we are operating out. But again, with the opening by April of next year for the summer schedule 2019, we will have 47 contact gates and a brand new terminal with a people mover, with domestic, international, swing gates. So it's a totally new chapter for opening the doors for the future for Saudia. It's an important part of our expansion plans. It's an important element, year-round traffic. But again, we don't aspire to build a new hub like in Dubai or Abu Dhabi or Istanbul. We aspire— again, the main focus is the 3rd and the 4th freedom traffic. So the inbound-outbound pilgrims, business people, tourism, local Saudis reaching out to the world. The student business is quite high. But to fill empty seats, so to say, on the aircraft, we have this opportunity from the 6th freedom traffic. So today, again, from a 4 or 5% market share, If we can duplicate, triplicate this to 10%, 15%, it would be a great strategy, but not again to duplicate what they have done in other hubs in the vicinity. It's one of our 4 pillars that we established 2 years ago: the opening of the new terminal, the Hajj and Umrah traffic, religious traffic, the products, and the cost savings, of course. But speaking about the products, we started a project which we call Top 5. We are aspiring now to be at the top. So it's a project which has been going on now for about a year, training flight attendants, improving the service on board, improving the service at the airport. It comes at a very nice time when we're opening the new terminal in Jeddah, improving the overall customer service from every touchpoint that you have with the customers on the ground, on the call center, after the flight, of course, on board. We're improving the catering concept. We are getting very, very good reviews from the passengers. We just launched it on the flights to Europe, to Paris, to London, to Manchester. Our new service concept in economy class, we call it our bistro service. And the review from the passengers is just fascinating. It's a— sometimes they also come back with the feedback to say, are we really flying on Saudia? So it's great for the team, great for us to know that we're on the right track. We are still in the process. We are training 7,400 flight attendants for this new service concept. We hired consultants that have some experience how to do this, and it's very refreshing and very comforting to see that we're on the right track. Now, still many things to do, but I think Saudia is really, really, really on the right track to do that. Absolutely. It's part of this huge investment now, the lounge product. We'll have a porter service on the lounges. We have a dedicated dedicated bars in the lounge. So with the opening of the new terminal, I think all of our passengers will be surprised about the big, big leap forward from Saudia, not only at the main hub in Jeddah, but overall an improvement on the onboard service in all 3 classes: first class, where we keep it, on the business class, and certainly also in economy. Yeah, it's both. It's Saudis, of course, they travel premium class. It's quite popular for the Saudi people traveling abroad. For business trips or for tourism. But it is also a product that we are quite sure now. We are self-confident that with this huge improvement, we will be at the same level of anybody else now being successful on the sixth freedom traffic. So it's an overall update. Today, we are mainly getting sixth freedom traffic for those passengers who are price sensitive because the connecting process in Jeddah, as I said, is not the best. But again, with the opening of the new terminal, we know that this will be a big plus. Which will allow us also to charge a premium gradually for this product, because passengers will see it, that this is a different airline. Approximately one-third of our traffic today is pilgrim traffic. One-third is labor traffic. It's a huge market to India, Pakistan, Bangladesh, Southeast Asia. And the other third is a combination of tourism, business people, mainly Saudis traveling abroad. Again, the student traffic is huge. The government traffic is huge. So that's basically the composition, one-third for each of these market segments. So the support, this Vision 2030 from the government, from the Crown Prince, is fascinating. If you listen to the vision, what they intend and actually are well in progress of modernizing the country, it's of course having a very positive effect on the airline. They are releasing several more visas for the pilgrim traffic. They are pushing for that. They are extending and easing the process to get a tourist or a business visa, the transit visa, which is an important element for Muslims traveling via Jeddah to perform their pilgrimage and then continue to other destinations. So it's really teamwork where the airline fits perfectly well into this established Vision 2030. So it's a fascinating time for the airline to be in. We only follow the vision established by the by the government, and it's a great position for the national carrier to be in. Just to give you a figure, over the last 2 years we were able to reduce our CASK 27%. This is a huge, huge effort despite the increases in fuel. So this is CASK without fuel. It's a 27% reduction, which I think only shows on the fact that we are very aggressive in reducing the cost, very aggressive in trying to do cost efficiencies. Of course, the RASK is also on a drive to go up. It's gradually going up, but the main effort really where we see immediate opportunities are on the cost side. So we are not hedged for the time being. So fuel prices, as anybody would expect or would have experienced unhedged in the last year, it's between 20-22%, the real cost increase to the airline. So we still have 787s, the 10s. Next year we'll start receiving the first aircraft. We have 10 of these aircraft on order that will be receiving in the next 2 years. We have a batch of 30 A320s, A321s, NEOs, which we'll start receiving as of 2020. So this is still the last batch of the aircraft that were ordered, I think it's 4 years ago, 5 years ago. The main order for the widebodies has been now received in the last, in the last 2 years, and the only ones remaining are the 787s. But we're now refreshing and growing the narrowbody fleet. Domestic market is growing. This is in addition to the low-cost carrier Flyer deal that they are just about to place an order for 15 narrowbody aircraft to support the expansion, domestic and short international routes around the kingdom. So this is what we have on the order books. We are analyzing opportunities. Of course, it's a young fleet, but based on market growth, expected market growth, we know that eventually we'll need additional aircraft orders to be placed. But nothing concrete at this time. Basically, for the widebodies, retirements are finished now. And for the narrowbodies, we're still in the process of returning some leased aircraft. I think for the next year we have still about 10 to 12 aircraft which will be returned to the lessors. But then we have this order of 30 A320s and A321neos which will be coming. So that's growth. We are just in the phase of upgrading our A320 fleet that we use on the longer flights to Europe. We're putting lie-flat business class seats on these aircraft, so we'll have a much improved product to Europe with the existing A320 fleet. But with the arrival of the A321s, we have part of the fleet will be the A321 long range, which we will then replace the A320s on most of the— not only secondary cities, but the main cities that we operate in Europe today. And with the A320s that will be replaced, we will start operating secondary airports in Europe. So it's part of the expansion plan.
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