Abra Group CEO Adrian Neuhauser talks with ATW editor Karen Walker about Avianca, GOL and the South American market.
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Karen Walker: Hello everyone, and thank you for joining us for Window Seat, our Aviation Week air transport podcast. I'm ATW and Aviation Week Network air transport editor-in-chief, Karen Walker. Welcome onboard. Now this week I'm in Lima, Peru, at the AGM and Leaders Forum of the Latin American Airline Association, or ALTA, and I am delighted to be joined by Adrian Neuhauser, who is the CEO of Abra Group. Adrian, welcome and thank you so much for being our guest today. Abra Group is a very interesting company. It's a holding company whose airlines include Avianca of Colombia, Gol of Brazil, and Wamos Air of Spain. Now, before taking leadership of Abra, Adrian was CEO at Avianca.
So, Adrian, we are now in the beautiful city of Lima and lots of airline senior leaders are here discussing the opportunities and challenges of aviation in the South America region. So let's just quickly start with that. What are your key thoughts about what's going on in aviation in this region? There's lots of challenges, but also opportunities.
Adrian Neuhauser: That's a great way to frame it. Lots of challenges, lots of opportunities. It's a region that continues to be underpenetrated in aviation. It's a region that has a thirst for connectivity. We have growing economies, lots of entrepreneurship, lots of also integration between different economies as people sort of move their families around, move their investments around, think about how to grow. And in that sense, we play a really key role. This is a region that has, because of its history, 1) isolated geographies, 2) sort of difficult geographies, just lots of mountains, lots of rivers, lots of forest, and so limited road networks, limited scarce rail networks, limited waterway networks. Flying plays a key part of allowing these countries to connect and we play a key role in that and we see this sort of growing demand, and in particular as we make air travel more accessible as we make it more affordable, you just see more and more people flying, wanting to fly, and it's a great opportunity.
Karen Walker: Yeah, it's a lifeline for people, but it's also, you see that growing of economies. As you say, the infrastructure can be more than a challenge, but while people are flying …
Adrian Neuhauser: But that's the challenge. The challenge is really to work cooperatively with governments here and how we make this easier. Certainly, growing air travel is a more cost-effective and simpler way to connect, especially smaller distributed communities than it is to try to build road networks that are elongated projects, etc. So the region does, even in air travel because of how quickly air travel has grown, have a deficit of infrastructure, have a deficit of … have overcomplexity in terms of rules. But these are things that we can work on to fix that would allow us to continue to provide a service that we think is more and more essential. And the key challenge is really to be able to do this in a way that's efficient, effective, and really accessible. The other part where this gets complicated is when there's not enough infrastructure or where there's too many regulatory impositions or where you have sort of conflicting objectives, it gets difficult to continue to grow at a cost level that allows really access to people in what continues to be a poor region of the world.
Karen Walker: We’ll return to some of these general issues for this industry in this region in a minute. Like I said, I still think it's a very exciting part of the world in terms of aviation right now. But let's talk a little bit more specifically about Abra Group and especially the two South American airlines—Avianca and Gol here—and what you're doing with that, I believe you are now looking, Abra is looking for an IPO in the U.S. What's going on there?
Adrian Neuhauser: So we've made public that we have an intent to file an F-1 shortly, and on the back of that, obviously prepare the company for an IPO. What's going on is really the execution of our original plan. If you go back to when we began creating this group and consolidating Gol and Avianca under common ownership, our view is we're creating a broad-based network that will allow us to service connectivity within South America and Latin America really, and from Latin America to the world in a cost-effective, easily affordable and accessible manner. Part of that really is getting the capital structure right, and we think that tapping the public equity markets is critical to that. If you go back to when we did it, obviously the Gol's need to file for Chapter 11 was not in our plans, and that took a while to work out and restructure. But now we have Gol performing very well out of Chapter 11—healthy balance sheet, very, very solid results, Avianca far along on its journey that it began years ago. So really solid results consistently over the past few years. And so the net of it is we think we're now ready for that, and that's another big step for us really in having access to more efficient capital and putting us on par with our peers.
Karen Walker: That makes sense. And the other thing I'd just like to quickly ask you as well, of course, you were in discussions with Azul, the Brazilian carrier, that have now ended, but it was originally looked to could you merge that Gol and become part of Abra? Can you make any comment about the decision to end those discussions and is it a case of not for now or maybe in the future?
Adrian Neuhauser: You can never say never, but it's more than a case of not for now. It's really we're very happy with where we are with the companies, with how the companies are performing with the value they bring to each other or the synergies we see there in the potential synergies we see in the future. And we're executing on our business plan and we moved on. There was a point in time when we viewed that as strategic. It's no longer the case. And really sort of what's happened is Gol is outperforming what we expected. The network that we've been able to design and integrate—and more to come on that in the future—with Avianca is proving to be very powerful. We're very, very happy with the strategic positions that we think are unique to Gol in Guarulhos, in Galeão and in Brasília. And we've sort of designed a business plan that's executing very well around that. So we're focusing on the universe we can control and it's working very well.
Karen Walker: It's a relatively recent thing to see in Latin America a sort of a holding company. We've seen LATAM of course grow, but again, that's still relatively recent compared with the likes of IAG and Air France-KLM and other groups. What are the key strengths or advantages do you think that it brings to you, particularly in this market, but also globally to be a holding company?
Adrian Neuhauser: So it's less recent than you think, right? If you were to look inside Avianca and cut it open, right, you'd see we have seven operating AOCs. So ultimately one of the things that makes Latin America different and more complex is it's not a unified market. It's not a unified market from a point of view of regulatory control. It's not a unified market from tax considerations, from currency considerations, from employment considerations. You've got different employment agreements in these countries. So if you look inside Avianca, you'll find that really these certificates operate separately and we market them together and what have you, but we have to address all of this overlay. And if you were to then say, well, okay, that's Avianca and TACA. Well, if you, TACA itself was a roll-up of several Central American and Indian airlines, so it's not as recent as you think.
LATAM itself is a hybrid of what we're saying, right? Because you take all of these different entities, but then you layer a single brand and sort of a single organization on it. The approach we've taken is to say, look, we believe there are a lot of synergies we can create up by putting these things together. We also believe we can extract many, many of those synergies while retaining the separate brands and the separate cultures. And we believe that the incremental synergies that we could extract and one day we may choose to extract today, we just simply are not convinced that they're there in terms of layering a single brand on this and destroying what has been years of creating customer loyalty, customer branding, and really internal cultures that we think are very valuable. So we basically take the position that we're going to integrate what we can and what we think is valuable in terms of creating cost synergies, commercial synergies, capital structure synergies, and really CapEx synergies. But on the other hand, allow these companies to do what they're really good at, which is address their customer's needs in their different markets and build really, really committed employee bases that we're very proud of in both cultures.
Karen Walker: How complicated is it running airlines that are in different countries, even though they're in the same region, although of course you've got the company in Spain as well, but focusing on this area in a region that in general is known for its high costs, lots of government taxes and fees and regulations, how complicated is that, bringing that all together?
Adrian Neuhauser: Well, it's interesting. The complexity of each country almost argues for actually keeping these companies separate and having real senior management on the ground that understands the nuances, that understands what's happening. They can get ahead of the curve, they can have a dialogue with the public, with regulators at a very fundamental well thought out in a well-argued level of why certain policies may or may not be in the best interest of the countries we serve, why we commercialize things the way we do. So in a very real way, the complexity itself is sort of what pushes you to say, look, you can't really say I'm going to have an airline in Brazil and just manage it lightly from overseas and hope that it's going to work well. Brazil is a universe on itself. It's a beautiful, massive country with a lot of complexity and a lot of opportunity. And having a senior team there like we do in Colombia, like we do in Central America, really is a part of making this work.
Karen Walker: Avianca in Colombia has a very strong cargo element. Can you just talk to where the cargo market's at, at the moment?
Adrian Neuhauser: Cargo is really interesting to us because if you want to go back to Avianca's Chapter 11, we had long discussions as to whether we were meant to keep or not keep cargo. And one of the things that you see is it's pretty countercyclical to passengers. The other thing that you see is that it's actually pretty complementary from a revenue base because it allows us to fill the bellies of the aircraft that we fly. So we've made the decision that its strategic to us that we're keeping it, that it fits well into our network. It actually has not been cyclical over recent years. We've had a very positive demand environment for passengers coupled with a very positive demand environment in the regions that we fly, right? We're not touching the sort of all the flows between Asia and the Americas that are more affected really in recent months by industrial policy, by tariffs, etc.
So, in the regions that we fly, we're mostly export markets from Latin America. Those flows have continued to work well. And really part of the secular reason for this strong environment that you've seen is, to a large extent, not just really good execution by airlines in general, but also the result of a broader issue of limited capacity. The OEMs haven't delivered the airplanes they need to deliver, the engine manufacturers haven't serviced the engines that they need to service, so there's less aircraft flying than there would be otherwise. That means there's less capacity. That to an extent means that there is a good alignment, if you will, of supply and demand for passengers, but also for cargo. So those things have worked well. Will that continue to be the case forever in the future? Maybe, maybe not. But again, we're long-term investors. We think about how these things correlate throughout the cycle, and we're really excited about how cargo has been performing.
One little advertisement that I will throw in there, they've made a massive investment in service levels in our cargo business. So if you were to think about our cargo business five, six years ago as basically being, to use the term, sort of a scrappy but below-price provider, that's not what we're doing today. We're giving what we think are the best service levels in the region. We're flying the loads on time; we're delivering them on time. We're communicating very well with customers, etc., and it's working really, really well for us. So we're really proud of the business we're delivering there. And if anyone listening out there has not is a user of cargo services and hasn't tried us in the region, please let us know.
Karen Walker: I know that Avianca has invested a lot in technology in the cargo side, which makes a big difference. So you mentioned two things there now that I want to pick you up on: the T word tariffs and the supply chain deliveries and everything, the aircraft and engines. Let me just pick you up on tariffs. How much of an impact is that having on your airlines? I'm particularly thinking of course of some of the things that's going back and forth between some Latin American countries and the US.
Adrian Neuhauser: Look, this is a constantly moving environment. I guess the good news is we have operated very successfully in a region of the world that historically has very rapid change: political change, economic change. We deal with that every day. And so it's not our job to opine or try to set industrial policy between countries. That's up to them. Our job is to, within the parameters of what happens there, give people a service that's as reliable, as trustworthy, as friendly, and as economically viable as we can. And so we focus on that. We are pretty agile at adjusting our commercial strategy, our network. When things change, there's always effects. But what's interesting within that is people want to fly, right? So I'll give you an example: When you look at—because this one's more mature—if you look at what happened in Brazil over the past six, eight months, Brazil went from being a market that was largely growing internationally and more stagnant domestically to very, very rapid domestic growth and a little bit slower international growth. And that's simply a matter of, okay, people want to fly, they want to go on vacation, and if the currency weakens or if visas become more complicated, or if you don't feel that you're as welcoming one market or another, well, maybe you change your destination. Maybe your vacation is domestic instead of being international. But what's really, really interesting is that that passion for the core product we provide remains there. So we adjust our network accordingly. And again, the results have been tremendously positive.
Karen Walker: And as you say, people want to fly in. There's so, so many more people in this region who either haven't flown or fly once and want to do it again. So there's a big growth opportunity. I have to also ask you about aircraft and engine deliveries, delays and all the rest of it. You've got new aircraft on order, new aircraft in the general fleet, where are things standing with the deliveries?
Adrian Neuhauser: What I’ll tell you is the narrowbody deliveries have begun to normalize. They're not where they need to be, but they're getting a lot more predictable from both of the major airframe manufacturers. We're seeing more visibility to it. They're delivering on time or not on time, but with much more measured delays and with much more predictability. Engines continue to be a longer lead-time issue. They just are, right. Whether it's the engines aren't lasting as long on wing as they're supposed to, whether it's you can't get spares, whether it's you can't get slots to service them, whether it's when you do get the slots, the spare parts aren't there, or the TATs are much longer in terms of getting them serviced, that we see that throughout our suppliers and partners, and really we see it in our competitors as well. It's something that we're constantly managing. I've only been in, I covered this industry as a banker for many years, but I've only been inside the industry now for almost six years. The amount of time I spend thinking about engine issues, that all of my colleagues and peers and all the people on our team spend thinking about engine issues, planning around them, etc., from what I can tell and from everyone I ask is certainly not what was the historical norm. So that's what we're dealing with. We're probably going to continue to deal with it for a while to come.
Karen Walker: Are you talking months or years on the engine side, do you think?
Adrian Neuhauser: For this to normalize? Oh, it's definitely years. It's definitely years because some of it is just how long it takes to actually build lines and fix lines and build production facilities or what have you. Some of it is how long it takes to learn from the failures that equipment is having to then develop engineering fixes, to get that approved, to get regulators to sign off on it. And some of it is really just the investment logic of if you know that you're dealing with a subset of engines that are affected, if you were to overbuild capacity, if you're an OEM and you were to overbuild capacity to address that, well, what happens to that capacity tomorrow? So you have to sort of let it run through the system. You can grow the system somewhat, but ultimately you have to let it run through the system and then run over time.
Karen Walker: It's a very complicated issue. That's right. You've been very generous with your time. Thank you very much. May I just ask you very quickly, one last thing, what is your key, what's your key priority and maybe what are you most looking forward to in 2026?
Adrian Neuhauser: So look, our key priority is to continue to deliver on the business plans of the companies that we have. We're extremely focused just on giving the respect that we feel is due to the people that have invested in us, have trusted us with their capital, to our employees who work hard every day to deliver service, to the customers that trust us with their flying. And so we're constantly looking to challenge ourselves, to improve our service, to improve the delivery of what we do, but also to make that become results on our financial statements that then give sort of the proper respect to our investors. We think next year is going to shape up to be a very, very solid year. We're very happy, too.
Karen Walker: I wish you every success in that across the entire Abra Group. Thank you very much and thank you so much for joining us and sharing those insights today. I really appreciate that. Also, thank you to our producer, Cory Hitt, and of course, a huge thank you to our listeners. Make sure you don't miss us each week by subscribing to Window Seat on Apple Podcasts or wherever you like to listen. This is Karen Walker disembarking from Window Seat.
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