Airport chief discusses how the facility in Ecuador's capital is meeting its financial obligations to bond holders after shutting down for more than two months and seeing traffic drop by 87%.
Here is a rush transcript of our interview with Andrew O'Brian:
Kurt Hofmann: Hello everyone, and welcome to another interview of our Aviation Week Network, ATW Leadership Forum. My name is Kurt Hofmann. I'm correspondent for ATW, and I have the pleasure today to talk to Andrew O'Brian, who is the president and CEO of Quito International Airport in Ecuador. I was thinking that's a very nice way to talk to the situation in South America. Andrew, thank you for your time. Nice to talk to you today. Hi.
Andrew O'Brian: Hi Kurt. How are you? Very nice to speak to you. Thank you for the opportunity.
Kurt Hofmann: And we thank you for the opportunity. Andrew, we know that your airport is just opened 2013, a new facility, I think for South America, one of the modern airports that we have. How was the airport performing before this Corona crisis actually all makes a mess in the aviation industry? How was your passenger performance, cargoes, I think is important, how was it working so far?
Andrew O'Brian: It was working very well and we were off to a great start in 2020, Kurt. And then, as you know, everything changed quickly in February and March of this year. This is an airport that handles as the capital city airport for Quito, Ecuador, about 50-50 domestic international traffic. We were moving 5.2 million passengers last year. Again, you can break that in half to look at what was going overseas and what was here inside the country, in particular, the Guayaquil Quito market, which is very strong. Domestically we were handling a well over 200,000 metric tons of air cargo, all international export mainly. I speak to, of course you'd know, Kurt, the beautiful Ecuadorian roses that we export. That's very important here in the country.
And we had just been notified at the start of the year, to great elation in my executive team and management team, that Skytrax had audited us. After four years as a four-star Skytrax airport, we became only the 13th international airport in the world, and the very first in all of the Americas region to receive the fifth star rating by Skytrax. So we were off to a great 2020, I must say.
Kurt Hofmann: Yeah. So it sounds like you offer very good quality. And I have seen, of course, you have strong domestic traffic to Guayaquil, some international routes. When started the things to change? When this coronavirus actually arrived in your area? And then how important is it for a nation like Ecuador to have an international airport to have an important connectivity?
Andrew O'Brian: I think it's critical. When we opened this greenfield airport in 2013, we had exponential growth, Kurt. And then I think to answer your question directly, I mean, that was a product of latent demand, as I call it. There was just so much pent-up demand for air travel, for cargo, but because of the technical conditions of the old airport, it was considered one of the most dangerous airports to fly in and out of in the world. It made for very exciting flying, but it was not good for economic activity. And as you know, airports like this in the capital city, this is a huge economic motor. And so since we've opened, we're providing something like 35,000 direct and indirect jobs into the Ecuadorian economy, in particular here in Quito. The international connectivity, regional and to Europe and North America, has been phenomenal for us. And I mentioned the flowers. With a much longer runway and capacity on the airfield, we really have seen great numbers in terms of the efficiency of the flower system for export, in particular to Europe.
And so the shutdown came in March. We were right in the mix, along with many other countries in the region. We were watching what was happening in Asia, watching what was happening in Europe, and no sooner did we see the tragedy that was unfolding in countries like Italy and Spain when it came here. And it came here in particular on one flight that we were able to identify, where there were four or five Ecuadorian nationals living in Spain who came over on a flight direct from Europe, and that entered into the country and began what they call this community spread. And from there, unfortunately, there was no looking back. The government decided to shut down commercial air service in March, and of course we had to comply, and as you know, start to ready and brace ourselves for all kinds of new protocols and requirements that we'd never seen before.
Kurt Hofmann: And now you reopened in June. So how much traffic you have now today compared to before the Corona crisis? The percentage?
Andrew O'Brian: Yeah. Well Kurt, yes, we were able to open on June 1st after a lengthy process. I'd say most of April and May we spent with the emergency center here, convincing Ministers of State, the Mayor of Quito and other very important stakeholders and a lot of interaction with our airlines to open on June 1st. And I mean, since then, even though we're open, things have slowly started to come back, slow but sure. But just to give you a quick number, we've lost 87% of our traffic, both domestic and international. 87. So I'm operating at about 13%.
Now I do think, because it's important always to stay optimistic and keep working,. I think that this month of October, when we close the books early November, we will see significant improvements. I think maybe even as much as a 10 to 12% increase. Why? Because finally the city of Bogota and the country of Columbia, which is so important for our international airlift for passengers and cargo, is open. Lima, Peru, a couple of weeks ago, Kurt, as you know, opened again. So having that regional connectivity is critical. Even though we had European connectivity and United States connectivity from June 1st, that regional international plays a very important role. And so I think numbers are going to come back as airlines start to see better load factors and start to add more capacity as a result.
Kurt Hofmann: But how long can an airport survive with such a lower capacity? Because you also have your fixed costs. I don't know how much you have per month to pay to run the airport system, but how long can an airport survive this?
Andrew O'Brian: Well, fortunately, this airport is really a classic public-private participation project. This is a 3P. So this is a concession we took over in 2006, and the concession runs until 2041. And by having the financing from a bond issue that we did last year to refinance and to remove our lending organizations, our multilaterals in Washington, we have significant financial hurdles that we have to meet. We have a number of covenants that we have to meet. And so thankfully we had pretty significant covenants in terms of liquidity and cashflow. And so we were okay and we are okay in 2020. We had to take some pretty drastic steps, as all airport operators have had to a worldwide, Kurt, as you know, on the operational expenses side. Even on head count, sadly, we've had to take some action.
But fortunately, again, we do have good liquidity here. We're in a strong position until the end of the year. And what I'm seeing is that slow uptick again in capacity and load factors that shows that passengers are starting to feel more comfortable leaving their homes, going through airports. They're more comfortable with that experience. They're getting more knowledge about what it is to fly in an airplane and what hepa-filters are and the safety and importance of wearing a mask and the real risk that you're exposed to. And I think as we continue to move forward and passengers are more comfortable with that experience, then I'd like to think my passengers will continue to have a slow but important tendency of uptick. And with that, we should be able to continue to maintain our operation and maintain our business. Even though as you say, we have those fixed, I'd like to think we'll continue to have some excess of income over costs and be able to handle this until it's over, hopefully sometime in 2021.
Kurt Hofmann: We do talk a lot to IATA, for example, and many airline CEOs, and estimate when there will be maybe a return back to normal one day. So we have figures like 2023, 2024. As you are running an airport in South America and Quito, which kind of feeling you have for an airport return to normal? How many years could it take from your perspective?
Andrew O'Brian: Four years. We believe in 2024, we'll be back to the same level of passengers as we were managing in 2019. Although cargo, I think, has been a bright spot too, Kurt, that I would highlight. In cargo, year to date and what I'm forecasting to close out the end of 2020, we're basically at the same volume that we handled in 2019, because of course we've had a lot of logistics related to the sanitary emergency, which has led to other opportunities. And even though that's been in good parallel with what we've seen in the past, I think also the flower market has not been as elastic as we might've thought. So we've still had a lot of demand for flowers, and that's been good for our producers here.
But Kurt, I also sit currently as the chair for Airports Council International, for ACI. I'm the chair for the Latin America Caribbean region. And I can tell you, when I think about your question and when the majority of our 300 airport members in Latin America, Caribbean, are thinking about return, I'd say the common denominator is four years. That's what I'm hearing more and more from all our airport CEOs throughout this region.
Kurt Hofmann: Well, there are many different nations and countries, of course, in South America, and maybe some markets will recover quicker. The big airports, like São Paulo/Guarulhos, Buenos Aires, Bogota. From which nations you think the air traffic could recover better? The smaller nations like you have, or some which have a strong, big domestic market like Brazil or Argentina. What's your guess for your colleagues in South America?
Andrew O'Brian: Yeah, look, I think Mexico is looking better. I think there's always going to be a tremendous amount of cross-border traffic by air from Mexico to the United States. And in fact, when you look at airports like Mexico City International, which you point out, Kurt, they've had, I think, a better run. Not a good run, but a better run than most, again because of that cross-border demand. You have a lot of diaspora. You have a lot of Mexicans living in the United States and vice versa, tremendous commercial traffic that runs between the two nations. And so I think anywhere you see that you're going to see the numbers start to come back. Yeah?
Where I see the biggest challenge are markets that are heavily dependent on Europe. As you know, we saw the announcement out of Belgium today. They're going to go back to shutting down a lot of commercial ventures out on the street in Belgium. Bars, restaurants, shops, shutting down for 30 days, I believe. And this is something that we feel. We have direct connections before COVID, with Madrid, with Paris, of course with Schiphol's airport in Amsterdam. And we're seeing that those markets are very slow. While we do have service from KLM and Iberia flying several frequencies a week, we're seeing very low load factors. Why? Because Europeans of course have most of the [inaudible 00:12:55] markets that Ecuadorians might fly to on a normal basis with a tourist visa or a business visa. But they're not able to travel.
Kurt Hofmann: And so... Sorry, please go ahead.
Andrew O'Brian: No, I think that it really depends to your question, Kurt, which markets are you depending on. For example, we also have good dependence on the United States market. We fly every day into Houston, Fort Lauderdale, Miami, and soon back into Atlanta. And those are really good markets for us and have been, because as you know, the US at no point has required any special PCR testing or quarantine. And so Ecuadorians are taking advantage and they're flying to the United States, going about their business and flying back here to Ecuador with absolutely no restriction.
Kurt Hofmann: Which makes this much easier. Before the crisis, how many passengers Quito airport handled per year? And what was your growth expectation actually for a time without Corona?
Andrew O'Brian: Yeah, we last year moved 5.2 million passengers. And as I mentioned, over 200,000 metric tons of cargo. The growth was continued expansion. What I've seen the last few years here, especially in an emerging market like Ecuador, is that we would grow international traffic, Kurt, by about 1.5 times the country's GDP. So if the GDP would grow by 5%, we could see traffic grow as much as 7.5 on international. So we were very bullish. Things were picking up. We have a stable government here. There's a lot of trade and investment going on in the region.
And Ecuador's had a big program, I'm sure you're aware of, to promote even more so tourism and diversify the economy from traditional commodities like a cow and banana. And of course, this is also a petrol-producing country. So oil production here has been really important to the development of infrastructure in the country. And now, really putting effort into tourism, much more than just the Galapagos islands, which everybody knows here, but also all kinds of charms that we have on the coast and in the mountains and out on the Amazon Basin in this country. And all of that, sadly, has been abruptly shut down during this coven COVID epidemic. So for all of us here, it's about reinvention. Trying to rethink, how do we restart? How do we make people feel comfortable? How do we compete with our neighbors and get connectivity and traffic moving again?
Kurt Hofmann: And this is most probably the biggest challenge to run on an airport, I can estimate?
Andrew O'Brian: It sure is. Yeah, reinvention. I had a good meeting with my staff this morning and this is what we talk about. What used to be impossible when we would think about airport development a few months ago is now the possible, and vice versa. So it's really a challenging time for us.
Kurt Hofmann: Andrew O'Brian, the President and CEO of Quito International Airport in Ecuador. Andrew, thank you very much for your time and I wish you all the best with your company, and take care in these interesting times we have. Thank you for your time talking to us, Andrew.
Andrew O'Brian: Thank you so much, Kurt. You take care.
Kurt Hofmann: Thank you. And ladies and gentlemen, wherever you are in the world, thank you for watching this interview and looking forward to meet you again. Thank you, and bye-bye.
