Viva CEO provides a market update and expansion in a pandemic

Transcript

Laurie:

Welcome back everyone. We're delighted to have Felix Antelo here with us. He is the CEO of Viva, which just rebranded from Viva Air. So congratulations on that. We're really happy to have you here. Could you just sort of to start off, talk to us about why is now a good time to rebrand and then set some new goals?

Felix Antelo:

Hi, Laurie. It's been great to be here and then thank you for having me. Look, it's been a wild ride, right, over the last 15 months or so. Many of the plans that we have, us as Viva, we're supposed to be executed at this time last year, right, on around mid year of 2020, that included the rebranding and the new website for the airline. One of the many complications that this industry has, and everybody knows is that you have to change literally for a plane, you need to give it to either Airbus or Boeing more than one year in advance, believe it or not. So we have been working on that again for many months, before that, and actually where our first Viva Airbus plane came with the first year that came to Viva on the beginning of last or fourth quarter of 2020.

So we have this new plane arrived with this new image, which is completely different as you might have seen it. It's a total different from where we were having. Obviously, be looking around the yellow. We thought that we would think that the yellow is our color to differentiate ourselves from local competitors here in Colombia and in Peru, number one. And then we go, so obviously, it's a brand new, that's fresh, young, and yellowish, kind of a disruptive color and blending it with our kind of fancy blue. We thought, and we think that now that we've launched it already, we are realizing that would be a very good uplift for the Viva brand and for our awareness. I mean, again, within this new brand officially launched only for 10 days now, but it's been amazing.

Traffic to our website has decreased by 50%. With this, we launched a new website where conversion rate has gone up more than 40%, and we're coming from a good conversion rate on the previous website. We're launching a new app. That's going to be communicated next week, too. How we can communicate with our passengers, not only from the leader of the plane, but, from the graphic designs, it's a way easier brand to communicate. Viva is a brand that it's short, it's uplifting, it's easy to understand in Spanish and in English. So to be honest, Laurie, we're delighted. The team is absolutely delighted. It was really hard to find the good timing during this year to launch it. We were supposed to launch this back in, at the end of March, beginning of April.

And every week that went by from the end of March until the last week where we launch it, something happens, something arise here in Colombia or in Peru, if it wasn't the third wave of COVID or the social demonstrations. You see more of social demonstrations where there are roadblocks, but this is Latin America as you know and we are used to have to be very flexible.

I think we've found the route, the right time in the last week, which by the way, we made it on purpose to make it match with our anniversary. We were turning nine years old here in Colombia. So it was a good way here to celebrate the anniversary of Viva, to start a new era on our history, going only to Viva, and the brand Viva Air was an easy to pronounce for Spanish speaking people necessarily. So again, a short ground, more uplifting, a new website, you can see it there above my head our yellow, blue print plane, so we're absolutely delighted with it. It's going to, again, bring more awareness and bring people closer to our brand. This obviously is introducing in sales, which is obviously that absolutely what we need. So far, really, really a great launch and I think it's a new starting point for Viva.

Laurie:

Yeah. You touched on the third wave and prior to this third wave happening in several countries in the region, Colombia was on a pretty steady path to recovery and Peru's recovery seemed a little bit slower, but it was on a solid path as well, has that changed or can you give us an update and what you see kind of in both of those domestic markets?

Felix Antelo:

Yeah, actually, Laurie, Colombia was probably, it was one of the two or three markets in the world, domestic markets in the world to have a faster recovery. I think it's only being surpassed by Mexico. So we had a really speeding recovery here in Colombia. Up to March, figures were really amazing. Just to give you a number, Viva in March 2021, just two months ago, we operated almost 20% more seats that in March 2019, which is the comparison based month, because as we know in March 2020, the coal industry was shut down here, it was grounded due to the pandemic. We had the fastest recovery as a company in Colombia, but the market was operating by March. The whole market was almost around 70 to 75% of the total market of March 2019. And that was only again surpassed by Mexico, by Brazil in some good months, but Brazil had a peak and then it went down on the third or second wave.

So Colombia was again in an upward trajectory, amazing recovery. Colombia is a country where you can move yourself from one point to the other. In most of the cases, you need to do it by plane. Geography wise, railroad wise, there's no... You don't have the infrastructure there.

Again, the trend was absolutely amazing until March, end of March, then Easter came, which we had a good Easter. Exactly the last day of March, first week of April, we had this third wave that we were talking about and demand got hit. Amazingly, you know what? And this is one of the things I think the pandemic left us, many, many, many lessons learned, but one is how fast demand can recover, or can stall.

Laurie:

Okay.

Felix Antelo:

And no one can go down and how weekly, the demand stalled at the first week of April was amazing. No one saw that coming. Actually, we reacted pretty quickly, canceling flights on those routes where we saw we were not going to pay on variable costs.

I think we give some decisive actions. We did go out to the market, try to stimulate. We shifted our way and took seats out of the domestic markets and put some of those seats on the international routes, mainly to the US, where we were starting to see an upward trend due to vaccination trades. We were very fast and take advantage and put seats again to Miami for customers that were starting to go and vaccinated there, and we were promoting that and that kind of compensated, not the whole, not the whole turn up or turn down of the aviation market but some of that may started to... When we were starting to trend up at the end of April, beginning of May, social demonstrations came, and roadblocks, and some of the stuff you might have seen in the rest of the world and that was a new hit during the month.

And towards the mid-May, we started to normalize both on the COVID front or on the state with a case is stabilized. They haven't gone down, but we're at a stable level now. And the social demonstration is ease down, but they haven't gone away. We still have a lot of work to do as a country here in Colombia to get to back to normality. But we are now in a way better place than what we were three or four weeks ago. And people in south America, as we know, are used to these kinds of events. So entering into the high season, July and August here, as we know it's a high season. It's not the peak season. Peak season here is December and January, but July and August is a high season.

So when you combine the high season coming in, plus a stabilized COVID situation, plus a more stable social situation, your demand started to peak, to come back again and start to be picking up both for domestic markets and for international markets, not only Miami now, just to give you a number on lower end on Miami, we went from flying one daily Medellin-Miami flight to fly. Now, with June, up to four daily flights. That's the spike in demand we are seeing to Miami. We are launching in the next week, the Orlando routes starting with three weekly flights, going to five weekly flights rapidly in July. Yesterday, we launched the Cancun and the Mexico routes, both full flights and number of full flights. So what we're seeing is, again, Colombia going back on a very strong recovery line and being very optimistic, really for the high season that's coming up. For the second quarter, second half, sorry, of 2021 in general and for 2022, we are really bullish of what we think is going to happen when you combine vaccination.

Where Colombia started very slowly back in February this year. Just to give you a figure, when we started in Colombia, vaccination rate was between 20 and 30K per day vaccines being applied. In this week, we are having around 300K vaccines per day. That's every three day almost one million vaccines. We need to vaccinate here 35 million people. That's around 70 million doses because mostly are two-dose vaccines, but we have vaccinated so far 11 million people here in Colombia. So that base is really picking up when you're on top of that report, Colombians they are flying to the US to get their vaccines, which is not a minor figure. It's going to be more, I think it's going to be around more than one million Colombians being vaccinated in the US. But when you combine that, right, the local vaccination plus people being vaccinated outside, plus the high season kicking in, there are many reasons for you to be bullish and to be optimistic of what's coming up for Colombia.

Laurie:

And what about Peru? What's the situation there?

Felix Antelo:

Yeah, Peru, I think it's a different story. It's a much more easy one, common story. You won't like it, but it's way more related to what happened on the rest of the world, either in the US, Europe, rest of south America, with the exception of Mexico, Colombia, and Brazil. Peru low-risk is very likely with Brazil. Probably, in Argentina is the hardest hit country by the pandemic, by COVID in this continent. Peru has officially, yesterday, they've made this official with a new data, their death toll accumulated. Until now, Peru has the highest death rate per capita, per habitat in the world and now it is official. Since the start of the pandemic, Peru went into a full lockdown mode, way more than any other country in the region, way more, and not only because of what the government's mandated, but how people reacted.

People didn't leave their places, didn't leave their homes. Lockdown was very long. We even had a major lockdown this year in February because of the spike in cases. On top of that, we have elections. We had the first round on a couple of months, second round is this Sunday, in a couple of days. That creates a lot of uncertainty on top of COVID, which is now more stable. Airports, as slots were way more constraint. Our operations to airports were way more constraint. So Peru in a again on a more normal kind of situation, we are operating around 40 to 50% of what we used to operate pre-pandemic. That's been pretty stable in the industries around that level, too, so for Peru I think it's a whole different story.

I think it would take more time to get out of where we are COVID wise. Crossing fingers, to have set some good results on Sunday and that Peru keeps the trend of an open economy and a market oriented economy that has been the case for the last 20 to 25 years, and which made Peru one of the fastest growing economies in the region. But there's a lot of stake on Sunday. I have to be honest with you about that. That result will be very important.

Vaccination wise, Peru, we said is a way slower based on Colombia. The good and the bright spot there that we want, is that Peru now has bought the vaccines for the second half of this year. So it's going to be more of a one of the logistics deployment of the vaccines, more than having the vaccines. Happen to know, Peru, even they don't have the vaccines to vaccinate their population. Now, they're waiting, starting this month, but now the logistics and the infrastructure issue comes into play, so we'll see. There's a lot of upstate in Peru over the next couple of days. So for what you might imagine, we are all pretty, pretty nervous about what's going to happen down in Peru.

Laurie:

Well, we'll keep our fingers crossed, definitely. Maybe just to move on to something a little bit more positive with the hub in Medellin. That would be sort of the interesting move for a low-cost carrier, but more low-cost carriers are establishing hubs.

Felix Antelo:

Yes.

Laurie:

So this is something strategic, you all were considering pre-pandemic or was this accelerated by the pandemic or did this idea spring from the pandemic?

Felix Antelo:

No, to be honest, Laurie, we were seeing this pre-pandemic. I have to be very honest about that. For me, I just turned three years old in Viva. I brought in here at May 2018. When I got to Viva, so we have a privileged position, right? Geographic wise, I mean, being in Colombia and emerging on top of that, having our home base here in Medellin, not in Bogotá, I think that's a huge, huge benefit and advantage geographic wise. With the fleet that we have, the A320neos coming in, which they started to come in last year and they're going to be 35 of those until 2025. With that plane, we are able to fly from New York or Toronto in the north to Buenos Aires in the south of the continent with one stop here in Medellin.

Obviously, that gives us a lot of advantages, utilization, red eye flights. It helps to lower your cost. It's going to turn us into the only low-cost carrier doing this. We have competitors doing this that we haven't spoken. We have both carriers, obviously, but they don't do it at a low price. I can tell you that. And not only low-cost and at a low price for the customer, to being able to do those flights and to operate that with keeping our cost down and offering fares that can make us profitable and be between 30 and 40% below our direct competitors. It's something very unique. We didn't do it before, because we didn't have the plane. Now, we do have it, which is the A320neos.

But this is not that Viva is changing their strategy and not being more low-cost, still our focus and our main focus and main market is going to be domestic Colombia, where we have 70% of our seats. It's almost between 70 to 75% of our seats are in domestic Colombia with high utilization fleet. And it's not that we are changing our whole network to fit in into our hub. That's the beauty of what we're doing is to the current operation we have is how do we start. It's on the contrary. How do we start fitting these international flights going from the south to the north and vice versa, fitting from the rest of Colombia, not only for Medellin. And now we're going to talk about Medellin in two minutes, but fitting not only for Medellin passengers, but also from the rest of Colombia, Bogotá, Cali, Barranquilla.

So you get a feel of, again, also the rest of Colombia, last Medellin, which is the main, the big city, the catchment area of Antioquia where Medellin is located. Its the second biggest in Colombia. On top of that, you put on the flights Peruvians, which actually, Laurie, today was the first day when we have this connecting flight Lima-Medellin flight, leaving Lima at 5:00 AM, arriving here at 8:00 AM. From 9:30 to 10:30 passengers connecting to Miami, to Orlando, to Cancun, and then more destinations will come. The same happens on the southern trajectory where the passengers arrived here between 7:00 and 8:00 PM and they depart south at 10:00 PM. So, when you combine them and you put on top of your domestic network, these international flights, and you start building a hub here in Medellin, we think it's absolutely a winning idea.

We see more profitability with this. We see a lower cost on international flights, as you know, ancillaries are way higher than in domestic flights. Our domestic flights here, Laurie, are only 45 minutes long, 15 minutes long on average. Obviously, if you want to get high numbers of ancillaries on such a short stage length is it's not easy, but again, we are getting to a task between domestic utilization and domestic flight and this new international flights, where we will have a very, very competitive cost and we will be able to fly up very profitable levels, offering really good prices to customers, definitely on something which is new, which is kind of groundbreaking, a low-cost connecting the continent.

But if you want to save between 200 and 250 bucks per passenger on a, let's say Lima, or Buenos Aires, Cancun flight. When you're family of four, that's 1000 bucks. It's a pretty substantial saving, flying on time, flying on the most modern fleet of Colombia and the third most modern fleet of the whole continent and we think it's a very good valued proposition for our customers.

Laurie:

Now, you mentioned cost, and I know that you all have a stated goal of becoming the lowest cost per passenger in the world, which is very, very impressive, very ambitious. So, how do you get from now to reaching that goal? How long does it take?

Felix Antelo:

Yeah, it's ambitious. So I agree with that. Absolutely. It's really ambitious, but also I think it's achievable. It's not easy. I mean, when you compete, obviously with way bigger airlines, when you compete with some Asian carriers towards the cost base, there is cheaper. Even though, in South America it's not an easy vision to accomplish, but I think we can achieve that vision. Obviously, it's not achievable with 21 fleet airline that we will be at the end of this year, but it's certainly achievable when you start, when you're thinking 40 aircraft up to 50 aircraft, where we will be between '24 and '25. It is obviously scale, helps you a lot driving your costs down. It's not only about scale. Then you have to focus on productivity measures, department to department.

Right now, we're going to end this year at a very competitive cost level. When you convert yourself to rest of the top world or class world low-cost in any continent that you might want to think about. We're going to be competitive again with 21 aircraft. When you think about new Viva, let's say 2023, '24, we will be around 40 aircraft. I think we will be able to achieve that. Competitors will also do their jobs, so then they will lower their cost, but it's a nice goal to set within the team. We have an obsession here in Viva regarding cost.

Hopefully, sometime you can come around and see, but it's again, I think we have the right fleet. I think in my opinion, the best aircraft in the world, which is the aircraft, the A320neos. We have high utilization. We already know without these new international flights that are coming in, we're going to have more utilization. And when we are going to launch this red eye flights flying you throughout the continent. We are based in the region where the cost basis is way lower than let's say the US or the Europe.

And we are very focused in productivity in general. And I can give you an example is our webpage, we were talking that before, about our web page, we talked about how conversion rate grew more than 40%, but also, we will say in terms of cost of keeping the webpage or maintenance costs by more than half a million dollars. And I don't want to bore you, but on every single department, we are focusing on that same kind of level and detail. And we are aiming to have the lowest cost in the world. We have to talk in two years and see if we have achieved that. But I think we have a very good shot at it.

Laurie:

Well, and as you kind of build up this network, from this hub, that's growing and growing, does the second fleet type make sense or does that create challenges in meeting those cost goals?

Felix Antelo:

Yeah, I think it's a very good point, Laurie. We've analyzed very thoroughly the A321, I have to say for now that we will keep faithful to the A320neo. We didn't see really big advantages in transitioning into a 321, which is kind of the logical next step, if we want. So, for now we were very focused on we operate the A320s.

Laurie:

So I think that we are bumping up against our time, unfortunately, because I could ask you a million questions, but thanks so much for joining us today.

Felix Antelo:

I am sure. I am sure. I know CAPA has a very tight policy about timing, which we do, too.

Laurie:

Yeah. Right.

Felix Antelo:

But it's a pleasure, Laurie. It's a shame. It's a pity that it went by really fast, but thank you for your time for supporting Viva. And hopefully, I can see you in any tension in one of our planes.

Laurie:

Yes. Yes. That would be great. And thank you so much again. Take care.

Felix Antelo:

Thanks again, Laurie. Bye.

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