Avianca CEO Anko van der Werff tells ATW correspondent Kurt Hofmann about a year like no other and explains the airline’s future plans as it looks to emerge from Chapter 11 bankruptcy protection.
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.
Rush transcript:
Kurt Hofmann:
Hello everyone. And welcome to another interview of Aviation Week Network ATW Leadership Forum. My name is Kurt Hoffman. I'm a correspondent for ATW and I've a great pleasure today to talk to the CEO of Avianca, Anko van der Werff, in Bogota. Anko, nice to have you with us.
Anko van der Werff:
Good morning for me. Good afternoon for you. Thank you. Thanks for your time.
Kurt Hofmann:
Thanks for your time. I know you're very busy in times like this especially. Avianca one of the oldest airlines in the world, the second oldest, 100 years old. Transporting around 13 million passengers a year. And you told us in an interview earlier this year for ATW in Bogota in your head office about the plans you have. You have to be become more efficient, long hauls plans and things like that. But however, Corona came up. Doesn't stop for even to South America, chapter 11, state support is necessary. All this crisis, how much throws Avianca back? How many years? What's the state?
Anko van der Werff:
Let me first say, indeed, I mean, the timing of our interview back then, right, end of January, pretty much a month before all of this unfolded was yeah in retrospect, an interesting timing, right? I mean we had a very good evening, right, that night with 100 guests, festivities. Threw a big party in Columbia and afterwards, and all the Central American countries and everywhere else. Yeah. Great. But little did we know that time, right? A month later, everything would come to a standstill. Yeah. How much has it threw us back? I mean, in, in a way, one of the, I think more positive things for us is we already, we went through a restructuring last year. So we had our plans. Remember we all spoke back then about the Avianca 2021 plans. Well, here we are almost 2021.
Clearly we need more work now, but I think much of what we were planning on doing still stands, right. And I think the direction is still very much the same in the sense that we still want to lower our cost. You still want to have your costs more flexible, right? With the fixed costs especially in our industry, of course, that can easily have a big impact for every single airline. That's become abundantly clear this year.
So I think much of what we were planning on doing, we will still do. And yes, some things have been delayed. We were on track to densify our fleet already this year, that was a massive CapEx expansion or expenditure for this year. So we moved that, but I mean, that will still happen, right? I mean, fundamentally things will still happen. I think our network review, some of that was already in place. Some of that actually now, because of COVID, will probably go faster in 2021 now, right. Again, postponed. But many of the plans that we had in the original Avianca 2021 plan, becoming more agile, becoming more nimble, more efficient, more digitalization, more technology, densification, all of that still stands.
Kurt Hofmann:
So something speeded up maybe a little bit. But you was not flying five and a half months. Is this correct?
Anko van der Werff:
Yeah. So I don't recall the dates precisely, but probably 12th of March or something, our first hub shut down. And then one by one over the next few days until the 22nd or 25th of March, every single of our hubs shut down. And then for three months we were not flying at all, right, apart from humanitarian flights. And then we started back up in Ecuador.
In Colombia, domestic, five and a half months that we've been on the ground and then also Central America. And some of those markets for international was even six and a half months. Right. So yeah, six months of cargo flights, six months of humanitarian flights, some domestic in Ecuador, but that was really sometimes only four or five, six flights a day. And yeah, the bulk of our traffic was the bulk of our aircraft was stuck on the ground for let's call it six months. Now, right, I mean, early November, we're only flying about 15, 20% of our capacity at this moment.
Kurt Hofmann:
Unbelievable. Is it mostly domestic? Some markets recover a bit quicker in domestic markets and I know in Columbia is quite intense domestic growth.
Anko van der Werff:
Yep.
Kurt Hofmann:
And it's domestic number one and then a little bit of the regional flights?
Anko van der Werff:
Yeah. That's exactly right. Exactly right. I think no surprise, not different from any airline in the world probably. I mean, if you have a domestic market, domestic recovers more quickly than international, and I think also, yeah, VFR and leisure basically, right, recover more quickly than business, right. That's definitely what we're seeing. Now, the Central American markets, the smaller markets let's, they don't really have a lot of domestic markets. So everything is pretty much international, but you still have quicker recovery intra Central America, for instance. And of course the stronger rides to the United States. Right. I mean that still works. It's a lot of VFR. That's a lot of leisure traffic. Yeah. That rebounds. But again, I mean, 20% at Avianca holdings level, right, at the most, 15% throughout October. And now we've got some additional slots and everything. So let's say that we're going to go to 20%. That is still very limited.
Kurt Hofmann:
Absolutely. And do you think that you can increase the capacity or is it uncertain to see, because we don't know where it's lock down or where the travel restrictions, which kind of a vaccine maybe will be available. There are so many question marks actually.
Anko van der Werff:
Yep. Yeah, no, absolutely true. Look, we had something more aggressive in our plans for November already going more international and more wide bodies again to Europe. We flew six daily flights into Spain, five basically to Madrid and one to Barcelona before COVID. We're currently flying one, well maybe twice a week. Right? I mean, that's where we are currently to Spain. We have London starting up again. That was a daily product before. Now once a week. Munich, for instance, right. I think you took the Munich flight after you flew back from our party back in, back early in 2020. Right. That's still a big question mark. I would doubt at least for the very short, medium term that will come back. Right.
So yeah. Big impacts of course. And yeah. Domestic better because also you have at least one set of rules, right? I mean exactly what you're referring to. The difference between all the country rules, PCR tests, negative PCR tests. Quarantine rules what have you, of course didn't make things easy at all for anyone over the past few months. Now, at least in Colombia this week, good news. They have dropped the negative PCR requirements. So that's good news.
Kurt Hofmann:
And do this have already an impact on both sectors. Then when something like this will be cutting away.
Anko van der Werff:
Yeah, I think, look, this is the decision actually the government took yesterday and it's into effect as of last night. So we have to see, but yeah, clearly that will have a positive impact I think because, it's complicated. It's also complicated in these markets to get a PCR test. Right. I had to get a few and over the first few weeks I was either not able to get one or I was able to get one, but no one wanted to commit to, well, we'll give it back to you. We'll give you the results within well X number of days. And then of course it's already not vetted anymore. So then again, you can't travel. So yeah, those complications, but the less restrictions we have in that sort of, in those fields, right? Quarantine, PCR tests, the better it is of course.
Kurt Hofmann:
There's Latam is the largest group of airlines I think in Latin America then is Avianca and number three is Aeromexico and Copa. I remember well.
Anko van der Werff:
Yeah, those were, yeah.
Kurt Hofmann:
One day this crisis will be hopefully disappear or they will change the industry most likely. How can you, what you expect? How will the airline scenery will look in Latin America?
Anko van der Werff:
Yeah. I actually think that there's a good future still for Avianca, but certainly for aviation as a whole. Look there's one thing and I think we touched upon it also when we spoke last. Many of these markets, the road infrastructure, right, the highways and stuff, there's no train, there's no highways or at least limited. There's a lot of mountains. So geography really plays into the hand of aviation. If you look at the two biggest cities in Columbia, Bogota and Medellín, with that 10 million people, right, connecting that with multimillion people cities around it. Bogota Medellín by car takes about eight hours, right. 35 minutes by air. So yeah, for economies and for the economic rebound also that we're going to see over the next months and years, for sure, aviation is absolutely critical. So I'm pretty positive actually there still for the medium long-term.
We have to get through the short term and that's at least where we've been working hard. I think have set ourselves up for future success there as well. We've got the dip approved, we've got the dip funded. We have more cash again in the bank. So I think that's good. Medium, long term, I'm still bullish, let's say, on Central South American traffic.
Kurt Hofmann:
And what you have is also Chapter 11. Also LATAM is in Chapter 11. This is an instrument we, for example, we don't have in Europe.
Anko van der Werff:
Yep.
Kurt Hofmann:
And you use it quite early I think so there was essentially, and then I can imagine an airline like you, all your colleagues are happy to have this instrument.
Anko van der Werff:
Yeah, I, yeah, look, there's a few angles there. It's a lot of work. It's very hard work, but I must say that I really do appreciate the, well, tool if you like it, right, of Chapter 11, the whole setup. And for those that are not really familiar with it, I've come to appreciate it as a very it's very geared towards you as an enterprise continuing, right. Going concern. That you you survive in a way that you emerge from Chapter 11, right? It's managed by nothing but professionals. Right. If you look at the United States, the courts that they have specifically for this, the judges, the trustees, UCCs, everything is really geared towards professionalism around you. It's really tight.
It's a really well-known procedure of course in the United States as well. So yeah, I do appreciate it, although it comes with of course, additional pressures and time pressures. But it flows, I think once you're in there, it does flow. And yeah, we were making use of it to the best extent of course. And I think so are some of the airlines in the region, LATAM, Aeromexico joined within, I don't know, weeks and I think Aeromexico a month or something after we did. So yeah, those three are now in Chapter 11 and working hard to make sure that we take the steps that are necessary to emerge next year.
Kurt Hofmann:
Can you tell us, or give us a bit of an update about your partnership with United Airlines and Kingsland? How is this working in a crisis like this? This is very helpful or is it more or less-
Anko van der Werff:
Yeah, so I think to be fair to the ones from United, we have, I mean, above and beyond we have a very good relationship both with Scott Kirby and John Jibo. Great personal relationships, but also with our broader team. Commercially speaking, of course, when you're on the ground for six months, there's really not much you can do, right. I mean, it wasn't much of a commercial year, 2020, right. So that is something that we will pick back up in 2021.
But on other elements, definitely the stakeholders, both United and Kingsland, absolutely crucial in making sure that we got our dip and making sure that they are a strong, strong partners for us to make sure that we got to dip our financing funded about a month ago, 5th of October, 6th of October roughly. And that we got it approved by the judge at least. So, yeah, very strong, doesn't change anything. In fact, that relationship probably in that sense with certainly Kingsland and United has only become stronger. Very good to have those partners with us. And I think also you see that, right? You see that there is a role for Avianca to be played because all the suppliers, stakeholders, staff, everyone chipped in and made sure that we continue, right, as a business. And that’s the same with Kingsland and United and we thank them for that.
Kurt Hofmann:
One role is for example, with Avianca to be part of the Star Alliance. And I remember asking you this a few months ago and Bogota as a hub in Star Alliance. How do you see a hub Bogota in the future and will be an alliance important in the future or more joint ventures are the name of the game?
Anko van der Werff:
Yeah, the last part I'm still having worked in a joint venture environment for many, many years of my career, I still believe that joint ventures are strong tools. Quite frankly, we were on track of course, to do one with Copa and United. And we have to see where that pans out. Not because I'm more negative on it right now, but simply because we have not spent much time on it, like I said, I mean, this hasn't been really a commercial year, right? So that's really the only reason.
I think the hub Bogota will still exist. It's 10 million people in a catchment area, strong economic center, again with a geography that's somewhat against road networks and rail networks. I think therefore that you can make that hub work. And we have seen that historically speaking. Now will be at least for the time being, it will be smaller. We all have fewer operations at least for the next few years still. But again, medium-long term, I don't see any reason to doubt that. Again, 10 million people, catchment area strong, economy strong, one of the bigger domestic markets also in South America, Latin America. I think that will still be very successful.
Kurt Hofmann:
Is it the time to think about future aircraft? So is it no time at the moment because you need all the money to survive actually the company, because the A321neoLR for long thin routes in America from Bogota to New York, or what else, it is a nice aircraft. But is it time to think about aircraft like that?
Anko van der Werff:
No. No, not really. I think, of course, we're always in touch with both Boeing and Airbus around new stuff and middle of the market or whatever you want to call it. Right. I call it the 797, but anyway. I mean, there's on the Boeing side and of course the LRs on the Airbus side. Yeah. We know where we think these aircraft end up and what they could potentially do for us, but let's be honest, at this moment, yeah, we're not in the market for new aircraft. Let's be very clear there.
Kurt Hofmann:
Is the worst over for Avianca?
Anko van der Werff:
I'm actually a bit torn. I am not, look short-term no. No, I think for every single airline at this moment, it's dire. The winter season will be what it will be. If I look at Europe, everyone's scaling back again. I think that's different probably for Latin America, because we had, as we have discussed, six months on the ground, so we're finally getting back on track. I think Europe had a better summer than we had, but it's now winter season, everyone's scaling down. Yeah. We're still growing, but from a very, very low base.
I think afterwards, we will really make sure that we set ourselves up for success. So for the medium longterm, yeah, again, I do think that there is a significant role for Avianca to be played, for sure, as a company over the next, whatever, right. One, two years, whatever you want to call it. Right. As long as COVID lasts and as long as there's no vaccine, yeah we will be smaller. We won't dump capacity back just like that. Right. We will be prudent. But again, medium longterm, I think a lot of ingredients are there for these markets to still be successful. And for Avianca, with its product, with its service, with the company that we are, with the number of aircraft and our capacity shares, I think we will be successful.
Kurt Hofmann:
100 years of Avianca and that should much more years come. I hope so. There's a much more more flexible Avianca.
Anko van der Werff:
Yeah. Exactly. Yeah. Yeah. One of our taglines has been actually this year that we want to go for another 100 years. For 100 years more – “100 años más.” And that's still the goal. And therefore, yeah, COVID hopefully one day when we look back, it will certainly be more than a bump in the road, right. This will, I think change segments, travel patterns. It will change the market in many ways, as we all know by now. We will have to adapt and we will adapt simply because we have done that for the last hundred years. Right? I mean, if you look back, aviation has always been different over those 100 years and we will adapt again. And it's a very resilient country. It's a very resilient area, in rural part of the world, region, not just Columbia, but all the other markets with strong aviation ties, right. Everything from El Salvador down to Colombia.
Kurt Hofmann:
Anko van der Werff, the CEO of Avianca in Bogota. Anko, thank you so much for your time and your insights about second oldest airline of the world. Thank you very much. And we wish you all the best and good developments. Good restart.
Anko van der Werff:
Thank you very much and we hope to see you on board of our aircrafts soon again, right? I know that your last long-haul flight was probably on us. Wasn't it?
Kurt Hofmann:
Absolutely. My last long-haul was Bogota Munich and I enjoyed it very much. And luckily I did it early this year. Thanks Anko.
Anko van der Werff:
Hope to see you soon again. Thank you.
Kurt Hofmann:
Thanks Anko. And ladies and gentlemen, thank you very much for watching wherever you are in the world. Take care. And until the next time bye-bye.
