Austrian Airlines CEO Alexis von Hoensbroech tells the ATW Leadership Forum about how his airline is adapting its business model as the pandemic drags on, and when the recovery really needs to kick in.

This interview is part of Air Transport Month, a detailed examination of the future of the air transport industry as we begin to climb out of the COVID-19 crisis.

 

Transcript:

Kurt Hofmann:

Hello everyone and welcome to another interview as part of our Aviation Week Network ATW Leadership Forum. My name is Kurt Hoffman, I'm correspondent for Air Transport World. And today we have the pleasure to welcome Mr. Alexis von Hoensbroech, the CEO of Austrian Airlines. Hello Alexis.

Alexis von Hoensbroech:

Hello Kurt. Nice to talk to you.

Kurt Hofmann:

Thank you for your time. Alexis, I like to start with a big problem for all the, of course the aviation worldwide, but especially in Europe as we see at the moment permanently ongoing changes in travel restrictions.

As an airline like yours, traveling a lot within Europe, do you feel sometimes the airlines are on their own? No support from the government to make traveling easier. How do you deal with things like that at the moment?

Alexis von Hoensbroech:

Yeah. That's a very good point Kurt. And this is indeed a big headache. Although I wouldn't say that we don't see support from governments, I think the governments show that they're very keen to support the airlines or the national airlines to survive this crisis. But at the same time the travel restrictions that come from all the nations that are trying to fight the virus are making it very, very difficult indeed.

Right now we see ever changing restrictions from all the nations. Sometimes not only the nations, but sometimes also the provinces within the nations. They are all different, they are varying from day to day. And this is both highly confusing, both for us and for our passengers, but it's also slowing the demands dramatically and right now we hardly see any demand.

And what I'm really disappointed is that Europe is not taking the lead here. Because this would be such a good area for Europe to deliver real value, to develop standardized travel restrictions or dealing with travel in a standardized way. But the way we live it right now, this is like in the Middle Ages.

Kurt Hofmann:

Is there a sign of hope that there's some improvement? Do you discover something within the European Union or from some governments? Or is it still too complex?

Alexis von Hoensbroech:

Well I think a good move is that the European Union has at least issued some recommendations. So they are trying to at least move the nations into a direction whether harmonized they are approached on this. So I think this is good. On the other hand I don't know how long it will take until something like this will realize. I think so far the governments are trying to fight the virus by restricting travel.

And whether this is successful or not remains a different question if I look at the current figures. However I think there are some signs of hope because within the last weeks there was several new testing procedures that entered the markets, rapid testing. So in contrast to earlier days where the PCR tests, that's very expensive and takes a lot of time, was the only way to test what the people are infected.

Now several rapid tests entered the market and they are both cheap and rapid as the name says. Within 10, 15 minutes you get a result. And this is actually a tool where we believe that this could at least allow some freedom of travel. Because in the end I think it’s. In the long run it is not the right way to have real travel restrictions, in terms of people from a certain nation may not enter a different nation because this is hitting everyone.

But we should get to a differentiated approach where those people who are not infectious and not infected, or where the probability that they are not infected is very high, that these people are allowed to travel. While those people who are infected should not travel, they should say at home anyway and rapid testing procedures can open the way for that.

And I think some governments in Europe are ready to go that direction. I think the Austrian government is actually quite positive in this direction, other governments are somewhat hesitant. Sooner or later I hope we will get into this arena.

Kurt Hofmann:

I think time is essential as we go now entering the low season. Which the airline is coming out of a low season anyway and entering now the winter low season. I think Austrian Airlines have now just 30% capacity compared to the last years schedule for autumn.

So for the next five, six months do you see any kind of improvements or will be this a very serious, challenging time for the airlines here, now let's say in Europe?

Alexis von Hoensbroech:

I think looking at the next couple of months we don't expect any improvement. In contrary, I think it's going backwards. 30% is a figure that we talked about a couple of weeks ago. I think it will be significantly less so we are cutting capacity again. I think right now you don't earn money on flying anyway so it's more keeping the aircraft in the air and not losing money off it. So but it's nothing you can really finance an airline with.

I think all airlines are now challenged with capacity or are facing the challenge that they have to get through the winter. And I think our position to get through the winter is actually pretty good. We received a strong liquidity package from the Austrian states, from banks and from Lufthansa so we can definitely survive the winter.

But the critical thing will be what is going to happen next summer? Is it realistic that next summer we will have some kind of relief so that people start flying again? Not on the pre-crisis level of course, but that some demand returns into the market because there's some kind of vaccine or some kind of rapid test regime or some therapy or anything so that traveling becomes possible again.

And then I think most airlines will be able to get out of this crisis. Or whether the next summer will be lost again. And if this is the case I think basically all airlines will be in new trouble.

Kurt Hofmann:

So that means most of the airlines would need money again, a kind of support. But let's hope that the summer will see some improvement. Your airline itself losing around 40 million euros liquidity per month at the moment. So far you are stabilized to survive the winter?

Alexis von Hoensbroech:

Absolutely. So of course we are trying to reduce this figure as well as possible. And right now I think the main task of all airline managers is to minimize the cash out. And this is what we are doing and what all other airlines are doing as well so we are trying to get below this 40 million per month of course.

And the better we can do that the longer we can survive that the virus is possibly not being dealt with. So I think this is what all airline managers have to do right now. But of course the next summer will be critical.

Kurt Hofmann:

Mm-hmm (affirmative). Do you have to implement additional measures to have your cash position in a good shape? So meaning maybe you have to ground more aircraft. So let's say maybe the A320 is too big now at the moment. So you have to do something more and reduce capacity further over the winter time?

Alexis von Hoensbroech:

Well I said it already, we are currently reducing our capacity as we are seeing that travel restrictions are rising.

Kurt Hofmann:

Below 30 percent?

Alexis von Hoensbroech:

Below 30 percent, yes. We will go below 30% as we are seeing that travel restrictions are rising and you don't just have to extrapolate how the Corona figures are developing right now. So I think you don't have to be a prophet to know that things will only turn worse. So therefore I think we need to act a little bit in advance and reduce capacity.

We are looking at all measures to reduce our cash out. I think this is what we have to do because our main goal has to be that we can survive as long as possible without additional cash because we don't want to enter into a new round of negotiations.

Kurt Hofmann:

And we see this situation all around the world. It doesn't matter which airline we talk in the last few days, everyone have to reduce capacity, nearly everyone. But you as an airline, which is a hub operator, you have... Austrian Airlines is still a specialized between West and Eastern Europe and it's still actually a good program.

But how can you operate on a hub with really less, with a small percentage of capacity? How difficult is it to do a kind of hub operation in times like this?

Alexis von Hoensbroech:

Well it has advantages and disadvantages. So right now, as Vienna is more and more a risk area from perspective of many European countries, the point-to-point traffic from and to Vienna is actually pretty low while connecting traffic through Vienna is still relatively stable. So ironically the hub function is currently securing that our network can still work.

So we are connecting Eastern Europe, Southeast Europe with the German speaking countries with Western Europe. And also, not to forget, with some of our long distance destinations. So we still have a handful of flights to the United States. We can get hardly any people from Europe because Europeans are not allowed to fly to the US to enter the United States and vice versa.

But people from outside European Union, they are allowed to enter the US so we are filling these aircrafts now with people from Eastern Europe, from Southeastern Europe. So they have functions actually really essential for maintaining this small network that we have. And we are currently learning how small a hub function can be designed, while still be functioning so it's quite interesting learning also for us.

Kurt Hofmann:

Oh it's amazing, it's interesting to hear. Because the long-haul segments will take a longer time to recover actually. As we see Lufthansa, Austrian Airlines is part of the Lufthansa Group, to recover or restore long haul operations is a very difficult thing.

How you see your long-haul operations, the future for them? And is there a kind of minimum size of fleet necessary to operate an long haul network ideal?

Alexis von Hoensbroech:

Well obviously there's a big difference between the Corona time and potential post Corona time. So within Corona time, I think we all fly on site and the long haul businesses giving us some support, but there's nothing to build a business model on. On the long run, we are committed to maintain our long haul network.

How small it can be, I think there's no mathematical figure. But currently we are expecting that after Corona we will have nine long haul aircraft active here in Vienna. So I think to go much below that would be probably difficult simply because in a normal market situation running a hub only makes sense for long haul. The intra-European hubbing is a business model of the past.

So it still creates some contribution margin, but it's not a profitable... it's not a business that you would build a long-term profitable business model on so therefore you need a certain component of long haul traffic and this is also true for us.

Kurt Hofmann:

My last question. As you are part of the Lufthansa group, which benefits brings Austrian Airlines for Lufthansa? The Swiss is a big network carrier, there's Lufthansa itself. We have Eurowings. What's the main support from Austrian Airlines for the Lufthansa Group?

Alexis von Hoensbroech:

Well first of all, I think it's fantastic that Austrian Airlines is part of the Lufthansa group because we are connecting to markets, Austria and Germany and also Switzerland, so those are the three markets that have a very, very strong industrial base, a lot of business travel but also a lot of private traffic.

So this is a very strong group of airlines that works very well and we profit very much from being part of that group because of the commercial power of this group. While at the same time from the Lufthansa perspective it's very attractive to have Austria and especially the markets, Vienna and around Vienna which is a big market, to have that as one of the strongholds home markets of the Lufthansa group.

And at the same time, Austrian Airlines has a very strong network in eastern and especially Southeastern Europe. and so in some of these countries we are the main carrier. Since these are growing markets this is a big value that Austrian Airlines also brings to the Lufthansa Group.

Kurt Hofmann:

Alexis von Hoensbroech, Austrian Airlines CEO talking about the challenges of the aviation in Europe. Alexis, thank you very much for your time today.

Alexis von Hoensbroech:

Thank you.

Kurt Hofmann:

I wish you all the best to you and your company. Stay healthy.

Alexis von Hoensbroech:

Thank you.

Kurt Hofmann:

Ladies and gentleman, thank you very much for watching us today and wherever you are in the world we are looking forward to see you again. Thank you and bye bye.