Max Kownatzki took the CEO's position on April 15, as the Turkey-based airline was coming to grips with COVID-19. He describes actions that SunExpress took, including liquidating its Germany-based branch, and the challenges the pandemic presented.
A rush transcript of our interview with Kownatzki appears below.
Kurt Hofmann: Hello, ladies and gentlemen, and welcome to another interview of our Aviation Week Network, ATW Leadership Forum. My name is Kurt Hofmann, I'm correspondent for ATW, and today I have the pleasure to talk to the CEO of SunExpress, a joint venture between Lufthansa and Turkish Airlines, SunExpress, Mr. Max Kownatzki. Max or Max, as we talk in English, thank you for your time. Good to talk to you and I hope you're doing well.
Max Kownatzki: Kurt, thanks for having me, appreciate it to be on your show.
Kurt Hofmann: Max, SunExpress is an airline which operates with around 60 aircraft, mainly in Europe, and do a lot of leisure traffic, but also traffic for people who live between Germany and Turkey. And of course, every airline is affected by the pandemic crisis. Can you give us before we talk the further developments of your airline, which ideas and how you see the outlook for your company. What's the current status of SunExpress at the moment, and please...
Max Kownatzki: Kurt, maybe before we go into the pandemic and the market outlook and SunExpress, I just learned about an hour ago, about the earthquake in Izmir. And maybe before we start going into our business topics, I would love to share some thoughts and want to let everyone working on this crisis right now, that you're in my thoughts, in my prayers and that fingers crossed everyone will come out of this safe. So best of luck, and I'm sending you my strength, energy, and all the good vibes and hope that the folks from Izmir will come out of this crisis. I will do my utmost to support this. And again, you're in our thoughts and prayers. We're thinking of you.
Kurt Hofmann: Oh, thanks Max for this message. So many people from SunExpress working for you in Izmir. I understand that's a base from your company.
Max Kownatzki: That's right, actually a very busy base. We have 753 employees in Izmir right now. So far again, this is breaking news. I know the show will be sent out a little later, but right now we have reports back of 67% of our staff being safe. Again, this number is tracking upwards. Hopefully we'll be able to achieve the 100% in a timely manner.
Kurt Hofmann: Yeah good, let's hope for the best. So how is SunExpress doing these days? As you are very much related on leisure traffic for example, so what's your current capacity? How is business doing?
Max Kownatzki: Right. Well, first of all maybe about my role as a CEO and as some people may know, I only took this job as of April 15th, so right on time for the crisis. And literally I think on my first official day, April 15th, we had a meeting with the board of directors and I will never forget that day because this is really when a lot of hard decisions, and the first looming aspect of the pandemic was over us, and we had to look into what that would mean for SunExpress. SunExpress is, or was for that matter a setup, again, you already mentioned it in your intro, of 50% Lufthansa Group and 50% Turkish Airlines. There is a SunExpress Turkey, we refer to it as SXS, which again holds 100% of SunExpress Germany, SXD, and the SunExpress Germany branch and AOC unfortunately, over the course of time, we realized that given the severe impact of the pandemic, we were not able to keep alive.
And hence in the middle of June, we decided to liquidate, with a board decision to liquidate the German part of SunExpress. This made up roughly 20 aircraft, some of them flying for Lufthansa Group, our long haul Airbus A330 operation for example, was part of the SunExpress Germany branch. So that was a hard start, and as many other airlines CEOs, the last six months were very busy, very challenging, and also, again, our hearts go out to the colleagues from SunExpress Germany, for which we have tried to find other opportunities either with our shareholders or on the open market. So, that was the start.
Even though this was very sad news at the same time, we obviously focused on our Turkish operation as you mentioned, the remainder is about 60, 65 aircraft, a full 737 operation. I'm sure that's a topic in terms of fleet we'll also address shortly, and then we're 737 Max ordering airline, I'm sure we'll talk about that too. But they SXD liquidation did help us in terms of focusing on our Turkish-European traffic. We have three customer segments, the visiting friends and relatives segment, which is the ethnic, family visits between Turkey and Western European countries. We have the classic touristic segment, and we have a domestic segment and these segments have shifted in size and importance for us during this crisis. And I'll shed a little more light on that in a few seconds probably. I can carry on. Sure, no problem.
We've seen, for example, the immediate impact of the crisis, and as many other airlines, we've put up a new restructuring cost reduction program, quite ambitious target we're one of the lowest cask operators in the industry, and as such squeezing out a three digit million number is not an easy endeavor. We're making good strides and progress on that number, and as such are pretty helpful for the future. I think again, with the SXD liquidation, this cost restructuring program being well underway, and the assumption that a market would be picking up again, I think SunExpress is very well set up for the future. And this is something I'm actually looking forward to, the market to pick back up.
Kurt Hofmann: So the window which is coming is very tough for all the airlines in Europe actually, and there's really a weak demand, but you have this three segments like the domestic flying floor, an AnadoluJet, that I think you said it also you do some work for Turkish Airlines for the low-cost subsidiary AnadoluJet. These three segments will help you through a difficult time before hopefully a good summer maybe is coming up again for the aviation industry. This is a good survival models for you?
Max Kownatzki: Yeah, I think that's exactly right, and you mentioned the Turkey traffic, you mentioned the AnadoluJet, 100% Turkish Airlines subsidiary, and so we're flying 15 aircraft for them. Let me just give you one example. Our domestic Turkish travel segment in the past was about 10, 12% of our capacity share. This number has gone up through the crisis to almost 25%. So a quarter of our traffic is now within domestic and Kurt, it's interesting, we have a capacity numbers, as I mentioned, about 80% of 2019 levels flying in Turkey, and at the same time, they're flying with load factors between 75 and 80%. So this is a segment that actually carries us quite well. Yes, there's obviously price developments, yield developments, and also a foreign exchange rate or Turkish Lira devaluation tendencies that we're seeing right now.
Those are obviously counters, but again, we're able to carry over by shifting some of the business segments we're carrying over some of the strengths. And maybe one more note on the VFR segment, the visiting friends and relatives segment, the ethnic travel. This is something people are, let's say they're more focused and this is a more stable demand flow. You will visit your mother and father, you will visit a wedding or a funeral. And hence this demand is more inelastic, and that has helped us to really keep that capacity up where we're at levels that over 60%, if you ask around with the other European airlines, those are good numbers.
Kurt Hofmann: Absolutely. I agree with you. And besides this traffic, I was saying also the leisure traffic will be the first one that we're picking up again in the near future. How do you see your cost base in these days? Can you compare your cost base with EasyJet or Ryanair and so far you could settle with your cost base for the future? Or you have to adjust more things?
Max Kownatzki: Kurt, you gave me a bit of a slam dunk here with the leisure segment. I need to say one more thing because that's the softest of our three segments, but I would love to preach testing over quarantine on that one, because obviously the touristic leisure segment is a segment that is most susceptible to government regulations and travel warnings and bands, and testing and quarantine policies. And I would, for anybody watching this, our strong, strong position is testing over quarantine. As a lot of people know when flying out of Turkey into Germany, 100% of our passengers are tested. If you don't have a negative test result to show at the gate at check-in, you will be denied boarding, and Turkey is doing a fantastic job of basically making these tests and making sure that all of our passengers are 100% tested. So, sorry, this is segue from your question
Kurt Hofmann: ... Other nations could learn from that from this?
Max Kownatzki: Absolutely 100%. I fully agree. And hence there's no point from our point of view to have drastic quarantine regulations that force people to go into quarantine five days until they've returned. On your cost question, I think we're very, very competitive. I don't want to mention the exact numbers, but I'm very, very proud of the numbers we've achieved. We can easily compete at the levels of EasyJet for example. Our domestic competitor in Turkey is Pegasus. I think we're also a more than competitive in terms of our CASK levels on that note, and so, again, as I mentioned, I think if SunExpress Germany liquidation gets wrapped up according to what we've planned and according to everybody's efforts, and also shout out to our employees, our unions for a real joint effort on this, together with the cost restructuring program that I mentioned, we call a reshape, if you put that together and then the market KPIs that I just mentioned the commercial performance right now, I believe SunExpress is in a very, very good position to pick up and leverage the rebound from the market's recovery to come next year.
Kurt Hofmann: Before I come to the fleet question, I remember when one of my interviews, on Turkish Airlines a few years ago, there was sometimes discussions if there is a future for SunExpress in the future between Lufthansa and Turkish Airlines. So if they want to continue, but I think this is no danger anymore. SunExpress have a future, are there are some discussions about if it needed or not?
Max Kownatzki: If I understand your question correctly, you're asking me whether there's a question mark around having SunExpress carry on? Yeah. I mean, there's no doubt. I think again, SunExpress has its strongholds, obviously our headquarters in Antalya and Frankfurt, and as a strong base in Izmir. So we are a major player, especially in the Southern Turkish Riviera. We have a very well established market shares in these markets, and we're basically the home carrier of Izmir and of Antalya. I don't think there is any game plan by either of our shareholders to serve this market without us. Quite the opposite I think. There's few ideas floating around what more we could do. You may have seen in the press last week, we have established besides code-shares with Lufthansa Group out of Munich, we have now added Frankfurt. So we're looking at a lot of additional commercial actions that we can take to intensify the relationship between bolt-ons that Turkish and us, as SunExpress.
Kurt Hofmann: And SunExpress is a well-known brand. I must say, especially in the German speaking market, and of course in Turkey. Regarding the Boeing 737 Max, as we talked before, and you're an all Boeing operator, how many of them you have on order, and regarding their delay, of course, what that means for your fleets now and how you adjust about the further development of the fleet and your confidence in the aircraft?
Max Kownatzki: Sure. Well, let me start with your last question. First, from my point of view, the 737 Max will be one of the best tested aircraft, once it comes back into the markets, you've seen the announcements by the FAA two weeks ago by the IASA last week and so certification and the hearing process that comes along with that, it seems to be imminent. And again, we believe in this aircraft, we have fuel efficiencies of the Max 8 versus the 737, 800 NG of roughly 10 to 15%. That's quite a ballpark. And obviously, so we absolutely trust in the aircraft and the one that will be coming out, we believe will be one of the best tested aircraft in probably the aviation history. So, no lack of confidence and no lack of trust in the aircraft. We are- Go ahead sir.
Kurt Hofmann: Do you have any idea about the delivery schedule or is it still too early to talk about that, and how many aircraft you expected to?
Max Kownatzki: Yeah, so we're operating 59, 737 800 NG, we've ordered 42, 737 Max 8s, and some of these have already been produced. We're in negotiations currently with Boeing. The ink is not yet dry, I don't want to disclose the aspects of the deal, but obviously given our delivery schedule, once certification is available again, there would be quite a number of aircraft coming in. We're in the process of negotiating with Boeing, and I think we're on the final home stretch on this one, how many aircraft we would accept and take in 2021, and then the subsequent years, but this is something where we obviously need to take the impact of the Corona pandemic into account. And the only thing I want to say at this point is I believe SunExpress and Boeing are... There's common ground between us to get to a delivery schedule that can be absorbed by the Turkish and the European market, and that SunExpress is comfortable taking.
Kurt Hofmann: And you have quite a long-term relationship with Boeing. It was always a Boeing operator. The Maxes are now planes planned for replacement of the existing fleet, or also to expand?
Max Kownatzki: We're looking at both. As I mentioned with a reshape program, the market picking back up obviously, the summer of 21 will be a vital, vital time period. And so to us, it basically hinges on how does that summer go? What is the development of vaccinations testing versus quarantine, as I mentioned before. And so we could picture both at this point in time, but we're hoping for the best and preparing for the worst. So if the market doesn't pick back up, obviously a fleet rollover or renewal strategy is also something that we have considered. And again, with the cost benefit of a Max over an NG of roughly 15% in fuel costs. This is also conducive to a more positive business case.
Kurt Hofmann: But do you see your airline's flexible and agile enough, doesn't matter how the summer next year develop, to react quickly on market conditions?
Max Kownatzki: Yes, 100%. I'll give you an example. I fly back and forth between Turkey and Germany every week. And most of my time on that flight is spent with the cabin crew and the cockpit crew, and the unique character and personality of the SunExpress family, and it really is a family, is the willingness to go through this crisis together. And I'll give you one example, one story that's really touched me personally. I was sitting in the cockpit and the captain said, you've reduced the salary for some of us, and so we can all get through this crisis together. You know, you've forgotten about the overtime pay, you should reduce that too.
And to me, that was an eye opener and in a typical moment of SunExpress culture and spirit, because if you had a pilot sitting there basically telling me, Max, take some of my salary that you forgotten to take away some of my salary on that point or reduce some of my salary. I want to do my share and my contribution in us weathering those crisis. Honestly, I think that's the spirit. There's a great agility, flexibility by staff here to do whatever it takes. So we don't have to take structural actions, and as I mentioned on top of that, we have a very unique, and very stable Turkish market that helps us to really weather this crisis. I'm optimistic, as you can tell.
Kurt Hofmann: That's cool. That's good news, and especially in times like this talking about airlines, which very flexible to handle the situations, which not everyone can say this, just a last question regarding the Airbus A330 you was operating also, I think it was for Eurowings?
Max Kownatzki: Yes.
Kurt Hofmann: What's the plan is this aircraft its whole fleets still operating or is this long haul what leaves history for SunExpress?
Max Kownatzki: Yeah. So we've had seven, A330s, and this was the leisure touristic offering we had for Eurowings as you already mentioned, these aircraft had been returned to Lufthansa Group, so Eurowings and are flying, but for what they're going to use them, how they're going to use them, where they're going to fly. That would be a question to address to my predecessor, and I think your previous interview, Jens Bischof, who's now the CEO of Eurowings, so that's a good question for that interview.
Kurt Hofmann: Thank you Max, Max Kownatzki, the CEO of SunExpress. Thank you Max for your time, it's good to hear that the positive... The spirit of SunExpress that and you see your airline well-prepared for the future and all the best, and we'll keep on following SunExpress in the future.
Max Kownatzki: Kurt, thanks for having me. Always fun to talk to you. Take care.
Kurt Hofmann: And ladies and gentlemen at home, wherever you are in the world. Thank you very much for watching us, take care, and bye-bye.