We have a good opportunity to grow in the regional market

The Kuwait-based Jazeera Airways, formerly a low-cost carrier but now gearing up to become a leading regional network operator, appointed Stefan Pichler as Chief Executive Officer in June this year to deliver this goal. Pichler's reign has already seen the airline add new classes to its aircraft, the addition of new routes and moves to establish a second hub.

In this interview with Emirates Business, Pichler lays out his vision for the airline, demystifies low-cost operations and tackles the tougher questions with his characteristic no-nonsense candour.


Recently you said you intended to move away from your budget airline roots and add more cabin classes. Can you elaborate on this strategy?

We have had a strategic review of Jazeera and are now very clear on the direction to take for the future. This airline is going to become the leading regional network carrier, which means we are not going to compete with the like of Emirates, Qatar Airways and Etihad, which also carry long-haul travellers. We are competing with some national legacy carriers such as Gulf Air and we think we have a very good opportunity to grow and become the leader of this segment. The thinking in low-cost and legacy is very wrong. The airline industry is an asset-driven business, which means it costs a lot of money to buy an aircraft. If you are in an asset-driven business, you always want to have the lowest costs possible. Every airline across the world should strive for the lowest possible unit cost. It is risk mitigation. And every airline around the world should try to get the highest revenues possible. There is some irrationalism in the industry. No customer wants to fly low-cost because he thinks low-cost means less maintenance or whatever. What people want to do is pay low fares. Companies that have better cost structures can offer better fares. Jazeera has a brand new fleet and has the leading on-time performance of all Middle East carriers at 93 per cent, which is great for business travellers. We have a pretty good network not only in the GCC but also in the Middle East and we are expanding. So our ambition to become a leader in this segment is quite rational. Our ambition to always have the lowest costs in this region is rational. And our ambition to get higher revenues, which means focusing on business and government markets, is also very rational. We have to think outside the box. In the end all airlines compete for same customers. The customers who have a preference for schedules, the customers who appreciate service on board and those who spend discretionary income on visiting friends and families and trips. And as all airlines compete for all customers, you will always find all airlines also competing on price. So you can go on the web and maybe today you have the cheapest fare on Jazeera, the next day on Emirates and the day after on Etihad. So there is competition in every segment of the market and on every route.

After pulling out of Dubai, are you looking at a new second hub?

Yes, but first we are going to become a multi-market segment airline. This means we are not only going to attack leisure travellers but also business travellers. We are very happy that from January 1 Kuwait Government travellers will no longer be restricted to flying with Kuwait Airways. There will be a tender so we can apply for it and get some of this traffic as well. We also have good offerings for corporates in the Middle East. That's our first multi-market segment move. We will announce details of our second hub in the near future.

Why not focus on operating out of just one hub?

We have consolidated and are working out of Kuwait. We are increasing destinations from Kuwait. We recently announced double daily flights to Abu Dhabi and are starting to operate the winter schedule to Aswan, which is our sixth destination in Egypt. So we are doing all that. But on top of that we are looking at other markets because the Kuwait market is limited with 3.8 million people living there. And it is also an outbound market. It is not a market where tourists come in so we have to try and balance demand.

Your aircraft leasing unit, Sahaab Leasing, was due to acquire between 40 and 50 planes this year. How many did it actually acquire and what is on the order book for the next few years?

We have 30 additional firm orders for Airbus A320s. Currently we operate 10 and have 30 more to come within the next couple of years. These are firm orders. Looking at this order, we have taken a conservative approach, which means we did not factor in any major strategic movements into our requirements. The delivery schedule is reviewed from time to time to hit the right timing. We have introduced two new aircraft this year. We have the next aircraft coming in January. After that we will decide when we want the next aircraft.

What is the value of your order and how have you managed the financing?

Aircraft values are always a result of bilateral negotiations between the supplier and the airline and are not discussed in public because everybody tries to get the best deal. And, of course the financing of aircraft is done with different banks and also with a lot of equity behind it. We don't have any issues in financing the aircraft. Banks over the past few months have become a little bit more bullish about this sector than they were a year or two ago.

What are your expansion plans?

In September 2009, we had doubled our capacity compared with the same month last year, and we will continue to expand. This will not only involve new routes and markets but also new customer segments. Last week, we introduced business class on our flights. So we are also targeting the business segment now. Expansion also involves quality, which means you expand into these kinds of higher-yielding market segments. We will introduce these class segments on all our flights.

Jazeera Airways reported a loss of KD1.26 million [Dh16.2m] in the second quarter of this year. How did Q3 go and what is your forecast for Q4?

Our Q3 results have not been announced yet. The work is in progress. We expect to have a good turnaround in the second half of the year and overall we will be profitable for the total year.

Earlier this year Chairman Marwan Boodai told us that he expected Jazeera Airways to be a completely debt-free airline by early 2010. Are you on course to meeting that objective?

I am very much in line with the statements my chairman has given and this is always a question of the structural set-up of the company. But our future outlook hasn't changed, which means the structure we had when the statement was made is still valid. However, we might change structure, we might acquire companies or whatever. That's why I hesitate to answer because if we acquire something then the statement might become different.

What are your cost-saving targets?

In the industry, costs are like grass. If you don't cut them back all the time they grow. So of course we have cost-cutting programmes all the time. The objective is to have the lowest unit cost in the region. To bring costs down you look at scale and scope, which means growing and going to new markets and leveraging new markets. This means overheads are distributed over a bigger operational platform. You can leverage the brand in a better way. You can leverage the sales team in a better way. You can use your maintenance in a more efficient way. So growth is one target. The other is asset utilisation, which adds a lot to your productivity. Your unit costs align if you can use aircraft not 13 hours a day but, let's say, 14 or 15 hours a day. Also if your staff become qualified to work in more than one area and increase their productivity that helps save costs.

With oil prices high and ticket prices dropping, what strategies are you employing to keep margins healthy?

Fuel prices always go up and down so you can't just put fares up and down accordingly. In our business you have three major risks. One is the fuel price, the second is interest rates and the third is exchange rates to the dollar. You try to manage these risks so that they don't influence your core business, which means you try to use hedging and other instruments in order not to have a short-term influence on your business performance.

What is your strategy on hedging?

We have adopted a far firmer approach on hedging which is pretty consistent with industry standards now. We have hedged the majority of our fuel for the current financial year.

Would you consider listing the company in Dubai?

We are a very young company, just four years old. I think the first step is to have a sustainable track record of profits and convince our shareholders on the Kuwait Stock Exchange. If at any time, we require a second listing for whatever purpose we will certainly discuss it, but right now we don't see any need.

What competition do you foresee from Wataniya?

What's that? Is that really another airline? That's a hobby. It's not an airline.


PROFILE: Stefan Pichler CEO, Jazeera Airways

Pichler's task as CEO of Jazeera Airways is to develop and drive the airline's growth strategy and regional expansion.

He was previously part of Richard Branson's senior management team and was responsible for Virgin Blue's transformation from a low-cost carrier to a network airline.

He served as Virgin Blue's Chief Commercial Officer and Chairman of Virgin Australia.

Before that Pichler was Chairman and CEO of Thomas Cook and he had also held senior and executive board roles at Lufthansa.

In addition, he had been a non-executive director and chairman of major corporations including Deutsche Bank, Steigenberger Hotels and Fraport in Germany, Grupo Iberostar in Spain, Havas in France and Thomas Cook in the UK and India.

A former internationally ranked marathon runner, Pichler, started his career as the Head of Sport Promotions at Nike International in Beaverton, Oregon. He has a Master's in Economics and Law from Germany's Augsburg University.

 

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