When The Model Actually Works

Transcript

Marc Cavaliere:Well, good morning. Bula Vakalevu, and greetings to everyone from each one of our 330 islands that make up Fiji. So during yesterday's opening session, reference was made to several different types of business models. currently in play within the airline industry. And this morning I'd like to touch on the application of one of the older models, and that is of the state-owned, state-sponsored airlines, at least as it applies to Fiji Airways. Now, I'll admit I'm a relative newcomer to this part of the South Pacific region. I joined Fiji Airways in May of this year. And in that short period of time, I've already become reintroduced to an airline business model that many of us thought was rather limited for its prospects for success, specifically that of the state-sponsored airline. Now, for more years than many of us would like to remember, we've repeatedly heard, and some of us have been associated with, carriers that have floundered or failed or produced terrible drains on their national economy because of being state-owned or state-sponsored. And it's— while often it's resulted in well-intended but rather inefficient or ineffective or sometimes purpose-conflicted or bloated institutions that have too frequently brought about their own demise, or as I said, caused a tremendous negative outflow on the national treasuries. Now that said, there are some exceptions, and prior to joining And in researching Fiji Airways, I was encouraged to learn that there's actually a confluence of characteristics and circumstances, and obviously some management brilliance and genius in there, that's formed the foundation for such an exception. And it's resulted in a state-sponsored national airline where the business model is actually working for us as the airline, the institution, and also for the nation. In the case of Fiji, Fiji Airways is actually producing healthy returns for the carrier and the country on multiple levels. So now going into the 5th year of progressive and record profitability, little, mild-mannered Fiji Airways has actually managed to transform itself into a healthy, self-sustaining, net-net contributor to the government, To the economy and to the nation. Now admittedly, this particular model won't work for everyone. As I mentioned earlier, it's really a product of a confluence of a number of different factors, both internal to the airline and external relative to the nation, that don't necessarily exist in all states. And therefore, what's worked for us isn't necessarily going to work or be replicated in all locations. Now that said, I'm happy to share with you this morning a little insight into some of these dynamics that have been effective for Fiji Airways and allowed us to become one of the successful exceptions. It should also be noted that our success with the national carrier model has not been the result of any single silver bullet or just the lucky alignment of certain circumstances. It's actually required a lot of transformational work over the years that continues as really a work in progress. And while we may be a state-sponsored airline for everyone's benefit, we absolutely run it like our very own for-profit business. So what about those factors then and the circumstances in the airline's transformation? Well, the circumstances are that we're a modest, Very friendly little nation way out in the South Pacific, blessed with a lot of natural beauty and very dependent upon tourism as our key economic driver. Now, we have much to gain from our geography and the position that we occupy in the South Pacific and the appeal of the islands, but we're also very dependent upon aviation to unlock the economy for us. So in order to direct and ensure Fiji's own destiny, it's imperative that we find a way to continue to be self-dependent. As a company, and apologies for this eye chart here, there's just a couple of red-circled notable points, but as a company, we have to be self-sustaining and producing a net contribution, not a draw on the national treasury. Both the country, meaning the government, and the company recognizes that we own the dual objectives of serving the national development of the nation as well as operating profitably. Now, that national development means serving strategic routes which offer long-term deliverables or which are otherwise in the national best interest. Yet profitability and being a net positive contributor remains our defining feature. So Fiji Airways then has a double mission and a double challenge. And as our CEO likes to say, our business model exists somewhere in between that of being a national developer and a national network carrier. So for countries like Fiji, aviation really is our only bridge to the world. And when we do well, and by extension, the economy does well along with the country. So if you have a look at the screen, you can see that tourist arrivals in Fiji since 2014 have had an increase that are commensurate with our growth in passenger numbers. More accurately stated, our increase in service, both routes and ASKs, has stimulated the corresponding growth in tourism. Thank you, Marc. And this is particularly important if you consider that the tourism industry constitutes approximately 33% of the nation's GDP. Fiji in whole employs roughly 40,000 people directly in the tourism sector, or in other words, tourism accounts for about 35% of the employment in the country. And that's a pretty high percentage for a country with a population of only about 900,000 people. The airline itself, we directly employ about 1,400, most of whom are all Fijian, and so we're a major economic and an employment contributor in the country. Around 65% of all the arrivals into Fiji actually travel on Fiji Airways, so that in turn makes the airline the single biggest contributor to the largest sector of the Fijian economy, and that's a responsibility that we just can't take lightly. We have a very real connection then to the livelihoods of 40,000+ people directly employed in tourism, but also to a significant percentage of an even larger peripherally related workforce. We've got dozens of local companies that depend upon Fiji Airways for their businesses across a number of different industries and sectors. To further support the economy, we have a mandate to source the maximum amount of supplies and resources and materials locally within the country. And as you can imagine, that has a tremendous multiplier effect. We're proud to play such an important economic role for the country. And as we've been able to demonstrate, the concepts of national interest and profitability are not necessarily mutually exclusive. They can be complementary. And from our perspective at Fiji Airways, we're striving to find that optimal alignment between the objectives of profitability and national interests. Now, another aspect of the state model is that the national airlines remain committed to their home countries. We're here to stay in good times and in bad. And in fact, to support the country, we are expected to produce those good times and to immediately step up and answer when the times get bad. We're not in it for a quick buck or a strong route, and we won't pull out of the market if operating conditions turn negative. To the contrary, that's when the country depends upon us the most. And we fill this role as the national carrier without government subsidies. We rely on our own profitability, our own funding, and still contribute to national tourism and developmental objectives. And additionally, the airline has been funding its own growth and expansion for the past several years. Another example would be in the times of crisis and natural disaster when we have to be self-dependent. In February of last year, Fiji was hit by Category 5 Tropical Cyclone Winston, which happened to be the 2nd largest storm to make landfall in the world. We had a number of lives lost, and the storm was so severe that it did approximately 1 billion Fijian dollars worth of damage to the national economy. As you can imagine, tourism took a particularly hard knock, and the forward bookings immediately tanked. But the national airline, we worked with tourism office to stimulate demand, and immediately after the storm to bring the traffic back that was so critical to reviving the economy. We slashed the fares by up to 40%, and we got involved with a number of other joint venture and marketing initiatives around the world to bring the traffic back into the nation. So restimulating the market like this was in addition to all the assistance that we gave in the country worth millions, particularly donating a lot of relief effort supplies and offering up our domestic aircraft in service for medevac flights and distribution of relief aid. So again, when we do well, the national economy itself does well. We pay more taxes, we pay profit-sharing checks and bonuses to the employees, We pay dividends to the government, which is our major shareholder. We invest in more aircraft, expand the network, create more jobs, and help improve the livelihoods of the Fijians. And as our financial results from 2013 show, we've been continuously able to achieve growing profits since. Now, those are the circumstances, the factors, as I've called them, of our national position. And the next step has been to align those realities, or those needs of the nation, With the abilities of the airline and then the collaborative support of our key constituents. Now, for key constituents for us, that includes the multiple relevant ministries with which we work very closely in the government, the entire tourism sector, the suppliers, our own employees who themselves have been very much a part of the significant transformation from within the airline, and of course, the Fijian citizens. Now, while tourism brings the visitors into the country, one of our other key obligations is to consistently and reliably provide efficient and affordable air services out to the world for our citizens. Now, in turn, their support of the national airline has been essential back to us. They proudly fly the flag. They realize that the flag carrier can only be there for them dependent upon their patronage. And so the support from all these different key constituents and partners has been fundamental in making this business model work for us. Each group has stepped up and realized that we're really inextricably intertwined for a greater mutual benefit. And here the model works because of the collaborative effort. So up to this point, we've mentioned the indigenous circumstances, the collaborative alignment, and now what about this transformational program that I've been talking about? Well, that actually started a few years back within the airline, and to begin with, we needed to get our own house in order. We needed to have commitment from our partners to becoming a well-managed, first-rate, service-focused, world-class airline. And as I mentioned a little bit earlier, we may be state-owned or state-sponsored, but we really have taken to heart the fact that we have to run the business as its own for-profit enterprise. So the first place we started was by addressing the cost basis across the company, and this involved just about all aspects of the business, including operations, labor, procurement processes, finance, maintenance organization, pretty much the whole establishment. Then once we've addressed those cost elements, we were able to operate in much more cost-effectively and have a much more efficient operation. The next step was to rebrand the airline from the former Air Pacific that many of you knew into Fiji Airways, returning to its roots. Now beyond just the livery, what we really introduced was a new mission statement and a refocused set of values. And these are values that align very closely with the essence of the Fijian culture, and they have a very deep meaning can proudly come to life with each of our employees. It's really become how we interact with our guests and with each other within the company. This, as many of you may have experienced in visiting Fiji, is a very natural Fijian sense of friendliness, a sense of warmth, a sense of welcome, and it's incredibly impactful and powerful when we unleash this on our guests. So much so that it's really become the essence of our brand. and one that we take very seriously to nurture that reputation. So completing the new brand and, and, or complementing the new brand and the values is what we redefined as our company vision. It's actually a leadership role. Very modestly, very humbly, we intend to be the most desired, the most flown, and the most profitable airline in the South Pacific. We believe that through the service we provide and earning that reputation if we can become the most desired airline in the region, then the other 2 objectives of being the most flown and the most profitable will just naturally follow. So we have a new cost structure, a new livery, a new brand, new visions, and now new airplanes. We recently introduced a new wide-body fleet of state-of-the-art A330s, the 200 and 300 series, with very sleek Fijian interiors along with all the bells and whistles and the comforts and the conveniences in the cabin. And beginning next year, we'll completely refleet our narrow-body fleet with the brand new Boeing 737 MAX jets. So with the new fleet in, our average aircraft age by 2019 will be only 3 years old, making us one of the youngest fleets in the world. That's humble, modest, modest little Fiji Airways. So onward with this transformation. We've really put a big focus on stepping up the customer service side of the business, and we're committed to taking our service game to a whole new level. We've retained a world-renowned service expert and his team, and along with them, we've embarked upon a year-long service culture transformation that involves every single individual in the airline, from the CEO to the tea room staff. And by pulling all of this together, by combining the enhancements in both the hardware and in the software, it's our objective to become a Skytrax 4-star airline by the end of 2017, which we're well on track for achieving. So with that, we have the business basics and our strategic objectives pretty well sorted out, and now that we've sustained profitability, we're moving on to some other endeavors that will further strengthen the aviation interests and infrastructure not just in Fiji but also in the region. We want to continue connecting the South Pacific, our own backyard, to the world, not only with our own direct flights but also by expanding our partner networks such as with Qantas and Jetstar, and also with some of the carriers from our neighboring islands, such as Solomon Airways and, and other partners within the region. And we will keep up this relentless pursuit for sustainable high performance within the organization. That'll mean more product enhancements to come, and that'll be just part of our commitment to a continuous product improvement environment. Another example that we have undertaken as a state-sponsored airline is we feel committed to further development of the intellectual capital, the technical skills, and the job opportunities for the Fijians. And to that end, we've just announced the opening of Fiji Airways Aviation Academy, the first of its kind in the South Pacific. So with the construction of a new $45 million US dollar facility, the opening of this full-fledged flight school from ab initio training all the way through captain's recurrent training, with the installation of state-of-the-art simulators both for widebodies and narrowbodies, we'll be able to hire and train more pilots in Fiji instead of recruiting from and having to train in other countries. Not only will Fiji Airways benefit from improved operational efficiencies and the cost reductions, but it's also going to accelerate the development of command-quality captains that are in line with the highest of standards. And in the long run, the academy will reduce the need for so many expat pilots, and then also a lot of saving in terms of training costs, creating more jobs, and bringing in more earnings for the country by selling surplus simulator time within the region. Simultaneous to all of these programs, we've also decided that it's time to share our expertise and our experience with neighboring carriers and with other countries from within our region. You may have recently seen in industry news that we're now helping Samoa to set up their own national airline with an MOU that was signed just last week. And once this airline is up and running, it'll do wonders for the economies of Samoa, and we're proud, proud to be able to play a supporting role in that story. As the CEO says, the Pacific is our backyard, and the airlines owned by the South Pacific nations have to be able to determine their own destiny. So in wrapping up this morning, I hope I've been able to share with you through these experiences and the learnings of Fiji Airways some examples of just how the business model with a state-sponsored, state-supported airline actually can work and work well for all of us. In our case, we're very fortunate that it's become a very profitable and successful one. Even though we may be one of the minorities these days. Nevertheless, examples like this do exist, and under the right circumstances, can fulfill the ideal of being a healthy net contributor, in fact, a catalyst to the national economies. So with that, thank you very much, and binaka.

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