Listen in as EasyJet CEO Johan Lundgren talks about how the LCC will reach its ambitious sustainability goals and updates on its fleet as it gears up for a potentially record-breaking summer season.
Don't miss a single episode. Subscribe to Aviation Week's Window Seat Podcast in Apple Podcasts and Spotify.
Transcript
Victoria Moores:
Hello everyone, and thank you for joining us for Window Seat, our Aviation Week Air Transport Podcast. I'm Air Transport World, Europe, and Africa Bureau Chief Victoria Moores. Welcome on board. This week, I'm joined by easyJet CEO, Johan Lundgren. Johan, thanks for joining us today.
Johan Lundgren:
Thank you for having me.
Victoria Moores:
So Johan, you've been with easyJet now since December 2017, so that's six years of heading one of Europe's largest low-cost airlines. And I know that you came over to this sector from more the leisure and tourism business, from TUI, which is a very large European leisure operator. And I'm wondering whether that actually played a part in your decision to diversify easyJet much more into the holidays business?
Johan Lundgren:
You know, funnily enough, and I've had this question before, it didn't. I left TUI in 2015, and then I started working at easyJet, as you say, at the end of 2017. And I didn't have any ideas that I was actually going to take the company in one way, or the other direction. I mean, I'm a firm believer that any company who's looking for success could build on the strengths, and out of the strengths, trying to create as unique a position as you possibly can, and obviously the strength of easyJet was then - and is now still very apparent - a fantastic brand. We're rated number one when it comes to value, reliability, awareness of the brand, easiness to book with across all our source market in the low cost sector, and then also when we are competing within legacy airlines. So, I had in my mind when I joined that this is what I would like to continue to do.
So, the idea of easyJet holidays, which is a separate standalone business within the company, actually came after I've been in the company after two, three months when I was sitting down and learning more about the company and about the route and about the network, which is amazing by the way. And I saw that we had the largest network into the leisure and beach destinations than any other airline in Europe. And then, when I dug further into this and the team told me that, "Look, we also have a huge number, millions of people who book hotels with us." Then my reflection was more to say: "Well, why are we giving that business away?" And so we already had the network and we had the attraction of the brand. So the traffic for a potential holiday business back then was going to come more or less for free.
And this is one of the biggest expenses for any holiday company, it's actually how do you acquire the custom to come into yourself? And then secondly, the other part was clearly the quality of the network for this type of operation. So the two biggest challenges you would have, if you and I were setting up a holiday company, they were already there. So it seemed to me like we were just leaving lots of money on the table and didn't take part of the benefits of that. But it was definitely not any ideas that I had before I joined easyJet, and easyJet as an airline, we're focusing on being an airline. That's absolutely what the core of what we're doing, but at the same time, we have almost like a free opportunity in here, which is a relatively simple idea that the team, Gary, as you know, Wilson and his team is doing a fantastic job to execute on.
Victoria Moores:
And like you say, I mean that's really reflecting through on your results when you released your full year results in late 2023, that now makes up over a quarter of your group's full year pre-tax profit for the holidays business and also 9% of your group revenue. So it's clearly making a difference that diversification. Now, I know that another one of the passions that you brought to easyJet is sustainability, and easyJet has been doing an awful lot in that area. I know that you've just placed a significant order for Airbus aircraft. And I'm wondering at what point do you see your fleet cutting over to a completely new technology aircraft beyond the Airbus A320neo family aircraft that you're taking at the moment?
Johan Lundgren:
Yes. I mean that will obviously take some time, but Airbus have stated that they look to have a hydrogen aircraft available to the market by 2035. And obviously, we would like to be at the forefront and be one of the first customers to take that and put that into the fleet and the network. But obviously getting one aircraft and then replacing all of the aircraft, we would have at that point in time, will take some time. But I think the important part of this is that even the new technology that we have, and you mentioned the order that we placed here with Airbus and with CFM, that is all-new aircraft. That is technology, current technology that is still developing and becomes more and more efficient as well. So I think that the cut over when that will happen, that will take some time, but it is part, as one measures out of the key six drivers that we have in order to get to net zero by 2050, that will make a difference.
But I think coming back to your question about the sustainability being close to me, yeah, I felt strongly about this and I've been passionate of this for quite a long time and I think this is a topic, as you know, that has been quite high up on the agenda from the Nordic countries, and I'm obviously from Sweden, so that was something that was already in my mind that I thought was important because if we're going to have a license to grow and if we're going to have a license to continue to offer aviation with all the benefits that it has on livelihoods and that it has for economies and communities, we need also them to have a plan on how we can decarbonize and we are part of the initiatives in order to get us into a better place on this. So, I felt strongly about that, but in all fairness, the company had belonged to this also before I joined.
But it is true that I wanted to accelerate that roadmap that we have. And we were the first, as you know, low cost airline in the world who delivered a roadmap to net zero that was verified by the science-based target initiatives. And I think it's not so much a thing that you do because ‘oh, this is going to attract…people saying that, oh, that's a great day airline to fly with.’ I think we do it because we who work here believe it's the right thing to do. I think it's a credible thing to do, and I think it is something that all companies must adhere to. I think the industry was late on this, but if anything, I think easyJet’s probably been doing more in this area than many other airlines, and that's something that we should be proud of. But every day you need to go take another step forward.
You need to take another way, put pressure on other stakeholders that are slower than you are on this, because ultimately aviation is something that is determined almost by the weakest link in the chain. And we are very much depending on airports to do their job, hydrogen supply to be there and to be there for competitive prices. We need policies from governments on this. We need regulators to be updated on what it would take to safely manage hydrogen as an example. And it's not only hydrogen, we have more significant immediate impact things we can get by finally trying to sort out the airspace and the modernization of the airspace.
The Single European Sky, as an example, has been sitting there for, oh, God knows, what is it? 20, 25 years, that would deliver an immediate improvement about 10% reduction in CO2 emissions, apart from the fact that it would also then help, be helpful to make the whole air traffic system much more efficient. And that's something that is just, there's no defense for politicians or decision makers why that cannot be introduced. So there's a whole range of things. And hydrogen or zero emission technology, whether that is electric or hydrogen, or any other form is very important. Sustainable aviation fuels are also important as part of the mix as well, but when you take all of these things into consideration, I feel very optimistic about it.
Victoria Moores:
And historically, I know that you've said that you don't believe that sustainable aviation fuel is the solution for short haul aviation. So your focus very much is on hydrogen and electric solutions and getting them into the fleet as soon as possible.
Johan Lundgren:
Yes. I think that from what we can see right now today, there's no doubt that in the mid- to longer-term that hydrogen is better than sustainable aviation fuels. I mean, first of all, it doesn't emit any CO2 emissions in there. I mean, sustainable aviation fuels emit actually the same amount of carbon emissions than kerosene. It's just over the life cycle it's neutralized and there's a number of benefits there. But having said that, there also is still a lot of technical challenges that need to be overcome. But I think that the skeptics around this, and the reason why I've been very vocal about this for people who say that this can't be done is that, and that is to some extent what should be relatively informed people on this, they seem to constantly underestimate that the trajectory in the development here, it's not linear. It is something that grows exponentially by every progress that is made.
And hence the reason why we are now seeing hydrogen, nobody's really arguing about that this is not going to work, which it was a couple of years ago because the technology is taking those advances. And I'm sure that's going to be the same thing with sustainable aviation fuel. The issue with the sustainable aviation fuel is that really it's only aviation who would use this energy supply, which means that it puts pressure on the system to be able to produce it in enough amounts that it's going to be needed, that there can be economies of scale for the people and the fuel producers to do that.
But that's where mandates help is helpful. That is being brought into law. That would means that fuel producers will have the certainty that there will be demand for this. Hydrogen is going to be used in a number of industries that are hard to abate from the CO2 emissions that we're seeing at the moment in time, which I think makes more sense. But SAFs will be used, and has to be used, for long haul. There's no doubt that will play a role. And also for the transition in the short-haul and the mid-haul industry.
Victoria Moores:
One of the questions that comes up sometimes is, it's all very well for aviation to be looking at its environmental efficiency. So carbon emissions per ASK, for example but there is that question of gross emissions. And I'm wondering when do you see easyJet reaching its peak emissions before they then start reducing?
Johan Lundgren:
Yes. So I mean clearly that is part of the data that we are collecting as well. I think it's fair to say that if you're looking at the CO2 emission, it does represent the biggest part of the climate impact. There's no doubt about that. But it's true that within there you have other types of emissions and it's the way where they are emitted and what hydro are emitted as well, there's still some uncertainty about the climate impact on that. But obviously if you can have a plan on reducing and decarbonizing this from the CO2, you've done a big part of that. But we are collecting also the other type of emissions that we are doing to actually start looking at this in a more holistic way on how we're reducing the impact on the climate rather than just looking at the effect of the CO2 emissions. So you're absolutely right on that, and I think that will be something that there will be more focus on rightly going forward as well. And that's something that we are also currently working on within easyJet.
Victoria Moores:
And sort of extending that out to wider challenges, what do you see as the greatest challenges for easyJet over the next five years?
Johan Lundgren:
Well, I mean the difficulty with this is that the answer on that is actually things that don’t sit directly under our control, which is not a satisfactory answer if you're a leader of any business but if you're...
Victoria Moores:
How about rephrasing the question to be, what are the greatest challenges that are under easyJet's control?
Johan Lundgren:
Well, there isn't really any great challenge of significance that sits under our control because the fact that because it is under our control, we have dealt with it, we're dealing with it. Therefore, I'm not so concerned about that, without being complacent. I mean, obviously, number one thing for us at easyJet has always been safety. We are absolutely ruthless, we don't compromise anything on safety, that's number one. But look, we have a crystal clear strategy, making low-cost travel easy. We want to be Europe’s most loved airlines for customers, shareholders, for people who work here. We got four strategic pillars that we know that is working for us, expansion on the primary airports, transformation on the revenue capabilities, including holidays, delivering ease and reliability, we know that matters for our customers, and then also continuing to drive the low cost model that ultimately will give attractive fare for customer that attracts more people coming into us and we can deliver a strong, top-performing return to the shareholder.
I mean, that is the strategy. That is what we are doing, and we are fully in control of the initiatives that we have to make that happen. But obviously, just to get, you mentioned the update we have done here on the Q1, I mean this quarter we've had two full-blown wars and have them ongoing, which is of course, first and foremost a humanitarian tragedy the way you look at it. But that's going on within the parts of the network and surrounding our network, and you have a cost of living crisis in certain parts of the area, and we still manage to reduce the losses with an underlying demand for what we're doing. So you have to do a lot of things to mitigate those things that do sit outside our control. Now that's geopolitical. Then of course you have the things that are mentioned and I’ve talked to you about this many times before, the challenges on air traffic control.
That is just, there's no excuse for how bad this has been. And I think it will continue to be challenging, that causes delays, disruption for millions and millions of customers that it cost the industry huge amounts of money. We are depending on airports, some airports has been better equipped to deal with resilience than others, but we start to see challenges there. But either way you look at that, the customer will look at a ticket where it says easyJet. The weakness in the business model being any airline I would argue, is the fact that actually there are a number of things in here that you are not directly in control of, but that doesn't mean that you shouldn't focus everything you can to mitigate the consequences out of this. It doesn't mean that any airline, including easyJet, gets everything right all the time that is within its control.
But it puts a different dimension on the external challenges when you're looking at the situation that we see just in this quarter. So that's where we're spending a lot of time on. And, for instance, now we're using quite a lot of advanced AI tools to look at different scenarios for how the summer will pan out in terms of disruptions and delays across the whole of European network. And there's a number of technologies you can use to do that better than you did last summer, and you would also hope that you would see improvement directly from these components as well. But those are the challenges; that is the industry.
Victoria Moores:
Yeah. You recently talked a bit about your fleet optimization tool, which is part of using that data and AI to really manage your dispatch reliability, which is within your control. And also I think that you were very much using the data that you've gathered from Ukraine to measure how the market is responding to the Middle East conflict, and you're seeing similar patterns there.
Johan Lundgren:
Yes, and you're absolutely right. The patterns of the booking behavior across the network were almost identical. So when we had the October 7th event and when this whole thing started, I mean the bookings went down really across the whole of network. It wasn't only within that specific region, obviously, Israel and, we paused the flying into Israel and Jordan, but we saw a big massive impact and also into the Egypt area and the Morocco area, but also across the remainder of the network. And really for no other reason at all, the people just get more cautious and they want to see what's going on. But when we looked into the pattern of when Russia invaded Ukraine, we saw exactly an almost identical pattern, how much it went down, and it was quite significant. But it's starting coming back up again after the sixth week and the seventh week.
And I think we nailed it pretty right in terms of our estimates. But if anything, it came back stronger than we thought. And this proves a number of things that we're now seeing. One, the underlying demand from people to travel is strong. I mean, it is just the way the people do things these days, whether that is going on a holiday or commute to businesses, or visiting friends and family. So that will continue when you're having extraordinary events like this. But at the same time, it is also a testament to the uncertainty of the nature that we're seeing, and we have to cope with that, and we have to live with that.
Victoria Moores:
And you're expecting 8% capacity growth for the summer season this year, and also while other airlines are battling with the supply issues related to engines and aircraft groundings, that's not something that easyJet's affected by. So it sounds as though you're planning to really tap into that buoyant market this summer.
Johan Lundgren:
Yeah, so you're absolutely right. It's an 8% increase on last summer. And last summer was the best summer ever from a financial point of view for easyJet. We had a record result in the summer, and we're building with 8% on that. And I don't think you'll find any other airline on our network that is growing by 8%. And you're absolutely right, we don't have the supply constraint. Airbus has given us aircraft for this year, 16 aircrafts that we had planned for. If anything, we're getting some of them little bit earlier because they, ironically, they couldn't fit them with Pratt & Whitney engines because they weren't there on time. So they got CFM engines on them and we're CFM customers.
So I think we're probably the only airline who's got aircraft a little bit earlier than expected. But you're absolutely right. There's no doubt that if you go forward-looking into two years, three years’ time, that they will be constrained in the supply chains on all the OEMs. Airbus is not without the challenges going forward, but clearly Boeing has them, that's well documented. And then you have the Pratt & Whitney issues that is exclusive to them. And we are not a Pratt customer and we're not a Boeing customers so at this point in time, we're in a good place on that.
Victoria Moores:
And sort of backtracking to the beginning of the conversation, we discussed how your original career, where you started out was basically in the leisure industry. I understand that there could have been another potential direction for your career.
Johan Lundgren:
Oh, gosh. You tell me, I think I know what you're referring to. Well, I was aiming to become a musician, yeah. I think we should all be very grateful that that didn't happen.
Victoria Moores:
Well, I understand that you definitely had some strengths there. Any regrets that you didn't continue with music and came into aviation instead?
Johan Lundgren:
No, no, no. Look, I mean, I wasn't good enough. Simple as that. I tried and I would've been a very struggling musician if I would continue along that journey. But anyway, no, no, look, when I then took a decision and I was younger then, 19, 20 years old, I loved to travel and I loved people. And that sounded like the travel business to myself. And I haven't really planned my career to that extent. So I want to do jobs that are challenging, that are rewarding in the broader sense that we can have an impact. And you work for something that is a force for good. And I think just this industry, aviation, hospitality industry, I think is just a fantastic thing to be part of because you're making people's lives better in almost every aspect you can imagine by what you're doing and I feel very proud about that.
Victoria Moores:
And that brings me to my final question, which is how have your personality and values affected how you've shaped easyJet and what your vision is for the future?
Johan Lundgren:
You know what? You should actually ask somebody else about that because I think I'm too biased to answer that. Look, the reason why I wanted to join easyJet in the first place was very much because it was aligned with my personal values. I thought that this was a company, was a disruptor, this was an innovative company. It came about in '95 as part of deregulation and they wanted to make travel affordable for millions of people from the prime airports. I liked that. This was a low cost airline, it is a low cost airline, but we also have an amazing crew who gives a great experience so we're not compromising wanting to do a really superb experience for our customers. And I felt very aligned with those values in there. So I didn't join it because I had different values than the company was as well.
I mean, sustainability was one that I think I wanted to make a focus on, and that is personally very close to myself. And, I think in terms of, there's no really big differences in the values that I would have that I think that we want to instill, and that's been with the company for a long time. In terms of where we want to take the company, I mean, it's the same thing. I have the same aspirations as what the company has. There's no different aspirations. I want to hit our new targets. I want to be Europe's most loved airline for customers, shareholders, for the people who works here. And I love the idea of there's something we talk about, if you can think of it in a way that…if this company didn't do what it did, customers didn't have an alternative. I think that's quite a challenging and inspiring vision to have that to say, if we aren't there to do what we're doing, there is nobody else who provides this fantastic service from the prime airports with those fares, with that in-flight quality of our amazing crew as well.
If you can get to that point, and if you're at that point where people will say, in our case, a hundred million people, which we'll hopefully have with us in this year, or somewhere around that, will say that, “oh, nobody else will do that apart from easyJet,” that's a pretty inspiring vision to have and sets you up in a unique position. But we got much more tangible targets in terms of getting to £7-10 profit receipts, and really making sure that we can get to over a billion pounds of profitability and be the most loved airline on the routes that we fly to by customers.
Victoria Moores:
That sounds like a good place to sign off because we're up for time today. So thank you so much for sharing your insights, Johan, and thank you for joining us today.
Johan Lundgren:
Thank you.
Victoria Moores:
And thank you also to our producer Corey Hitt, and to our listeners. Make sure you don't miss us each week by subscribing to the Window Seat Podcast on Apple Podcasts or wherever you listen. Until next week, this is Victoria Moores disembarking from Window Seat.
Related Content
