Kurt Hofmann of Air Transport World, Aviation Week, interviews Peter Foster President and CEO of Air Astana.

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.

Below is a rush transcript of Kurt Hofmann's conversation with Peter Foster.

Kurt Hofmann:            Hello everyone and welcome to another interview of our Aviation Week Network ATW Leadership Forum. My name is Kurt Hofmann, I'm a correspondent for ATW, and I've a great pleasure today to talk to Peter Foster, the President and CEO of Air Astana. Hello, Peter. Good to see you.

Peter Foster:               Good afternoon, Kurt, and very good to see you too.

Kurt Hofmann:            Thank you much for your time. I know all airline CEO's are very busy in these days, and we appreciate, really, to have a chat with you. Air Astana, I can say, is the leading airline in Central Asia, and it really builds up a strong brand. It have a very modern fleet, for example, operating Airbus A321 Neo LRs, or Embraer E2 jets. Air Astana grow, over the last years, very well and is a profitable company. But however, the coronavirus pandemic, also Air Astana is not immune about that. So, Peter, maybe you can give us an update, where is Air Astana today? How is it working? And how good is it to have a big, large domestic market to resume operations?

Peter Foster:              Yes. Thanks Kurt. Well, thanks for the opportunity to be with everybody this afternoon. Yeah, I mean, in terms of the number of movements, actually, the actual number of movements, takeoffs and landings, that we have at the moment, if we take the entire total number, both domestic and international, we're actually only 21% down on the same period last year. But actually, if you divide that into domestic and international, then the picture of course is very diverse. Domestic operations are actually up on last year. They're up by more than 10% in fact. But international operations are very significantly down. In fact, in terms of international passengers, even for the month of the months of September and October, we are very close to 75% down on international movements and international passengers.

                                   So, in terms of ASKs and in terms of RPKs, we're well short of where we were this time last year. And again, it's the international network, or lack thereof I should say, that is the problem for us. So yeah, I mean we are fortunate to have a large country and therefore a large domestic operation, but that doesn't compensate, obviously, for the absence of by far the majority of our international network.

Kurt Hofmann:             I know that you have actually two hubs, you have Almaty and the capital Nur-Sultan, the former name was Astana. And I know the sixth freedom business was quite a... Was it an important segment for you? The sixth freedom recovery-

Peter Foster:               Well, sixth freedom-

Kurt Hofmann:            Sorry. Do you see any recovery of this business in the near future, with all these travel restrictions what we have internationally?

Peter Foster:               Sixth freedom for us, I mean, traditionally, up until about 2011 we were not a sixth freedom carrier, but then it became part of our business model. For the last sort of, really, from about 2016, 2015, 16 on, it's been approximately 25% of our total revenue. It's pretty safe to say that it's all gone, the whole lot.

Kurt Hofmann:            There is no comeback?

Peter Foster:               We can talk about that in a second. We've lost 25% of our business. So that's a painful blow. But it's not in our case an existential blow because it wasn't the key driver of our business. So as I say, it's painful but not terminal. And will it come back? Well, we are not planning in our forward planning, we're not planning for it to come back certainly for the next 18 months, which I think is the bare minimum really.

Kurt Hofmann:            From all the international and also long haul routes you have, do you think all of them can resume in the future, or some markets are really never will return?

Peter Foster:               Well, I think we have to look at how the market is changing. Clearly, one change that's taking place is that the leisure market is showing I think surprising resilience. But it is a very different leisure market, it's a leisure market that quite clearly does not want to transit through large hubs. It's clearly developed into a market which wants to get broadened aircraft in point A and get off in point B without having to transit. So that's quite a dramatic development, I would say. But it is there. So we are already operating and clients operate more point-to-point charters, two letter destinations, which inevitably means that there will be less operations through some, if not all, but through some hubs.

Kurt Hofmann:            Peter, we talked about some time ago regarding alliances with airlines. Is this a topic still with an airline need today to be in an alliance? I know Air Astana was never really a favorite of it. How you see the importance of an alliance today, or you go more with joint ventures or co-chair agreements?

Peter Foster:               Well, we don't see, I mean in our case obviously, alliances because they can be quite restrictive in nature as to who one can or cannot deal with. We have never been a huge fan of alliances because we like to have these bilateral relations with carriers in different parts of the network. And often those carriers are not from the same alliance. So we've always preferred bilateral arrangements. I think at this particular point in time, obviously the value of alliances is much more limited for obvious reasons. But in fact, conversely, the value of bilateral partnerships, if anything is much greater because obviously airlines have cut back capacity, even on major key routes. So we have free... Just to quote two examples, we have code-shares with Lufthansa to Frankfurt and with Turkish Airlines to Istanbul. And conversely, we think that those bilateral relationships that we have with those two carriers, they fall short of joint ventures, but there are extensive code-share agreements, and they're more important now than they ever have been.

Kurt Hofmann:            Now I understand. Another segment in your business is your low-cost carrier FlyArystan, how many aircraft do you have now and how is this performing? And is it good to have a low-cost carrier now in these days?

Peter Foster:               I think, yeah. I mean FlyArystan just taken delivery last week that should be the seventh aircraft, it now has seven aircraft. And we have four more confirmed aircraft arriving within the next eight months. Obviously FlyArystan we only started last May and it's already up to seven aircraft, we started with two. And this year, well for example last month in, we just start looking at the September and October figures. And in that month and a half, right up to the end of last week, FlyArystan has grown at 156% over the same period last year. So it's a huge growth business for us. I think history has shown that over the last 20 years, whenever there's been a financial crisis, be the Asian financial crisis in 1998, or the crisis surrounding the September 2001 events, and then the financial crisis.

                                   On every single occasion, the low-cost carriers have come out and come up and recovered much faster than full-service carriers. This clearly obviously is because there's been a huge pent-up demand for travel. But at the same time, consumer spending power has been significantly degraded. So that combination of a demand for travel together with less consumer spending power has meant very logically that it's being the low-cost airlines that have been able to cater to that resurgent demand. And we are finding exactly the same in our own case, the demand for seats on FlyArystan, which is only operating domestically at the moment, has been very strong and continues to be very strong.

Kurt Hofmann:            And Air Astana learn from FlyArystan and the other way round? Can you learn from each other, you can learn from low-cost carrier and the other ones from your side?

Peter Foster:              Yeah, I'm sure we can always learn. For sure, there's no question that full-service carriers can learn plenty of efficiencies from low-cost carriers. By the same token, we have a very high quality full-service carrier. Air Astana is committed to, and indeed delivers very high quality service. And FlyArystan has to also deliver high quality service. Low cost should not be in low quality. So both airlines can indeed learn from each other. Obviously it's a symbiotic relationship between the two, since they're both part of the same group, evidently. And ultimately we manage both airlines. But all I would say is that we're extremely glad that we do have flyers turned out. It has been an extremely effective vehicle to deploy as particularly domestic markets has come back into life since the end of May.

Kurt Hofmann:            And finally, Peter, I know there are so many challenges now for airlines in these days for everyone. Can you maybe tell us what's the main challenge for Air Astana in these days? So what's the big thing?

Peter Foster:               I think the main challenge is keeping the team together and focused. I mean this is the big challenge at the moment that we've all got, I think the entire industry has got is organizational. There has been plenty of recessions in the past, but there've never been recessions when government decisions have closed down our business as government decisions all over the world. We're not obviously singling out any particular government. And so the recession and recovery such as it is or has been in the last couple of months until the latest round of lockdowns has been almost pattern plus, which has meant that we've had to be even more flexible than we were in the wake of previous crises.

                                   And that flexibility can only be effectively executed with a team that is really working very closely together and remains, despite the circumstances nor the uncertainty, and the job losses, and the salary cuts, and everything else, remains committed and motivated and flexible and nimble and capable of delivering a very high level of customer experience. So I think managing the team and keeping the team motivated and focused is the biggest single challenge.

Kurt Hofmann:            Thank you very much, Peter, for your time. We appreciate very much that we could talk to you in Almaty in your office, and I'm looking forward to see you soon again. And ladies and gentlemen, wherever you are thank you very much for watching us here and until the next interview. Thank you and Peter,

Peter Foster:               Thank you. Thank you, Kurt.

Kurt Hofmann:             Thank you very much.

Peter Foster:                It's been a pleasure. Thank you.