Hi, I’m Alex Zoghlin. I’m the President and CEO of ATPCO.
Now if you've done some Googling you'll know that David Siegel is a
true veteran in the industry. He came up through the ranks of Continental Airlines, has
held the position of CEO at a number of airlines, including US Airways from 2002 to 2004, XOJET
2008 to 2010, and Frontier Airlines 2012 to 2015. And David, if I’m not mistaken somewhere in there
you were also the CEO of Gate Gourmet and managed to shut down Heathrow, if my memory serves.
So while you've grown up in the network carrier world, you're also the
current chairman of four companies including two low-cost carriers, as well as being a consultant
to the largest private equity company in the world investing in the space. Which brings
me to my first question in this segment we're calling ‘if you had a crystal ball.’
So Dave, if you had a crystal ball, what do you think the airline industry
will look like in five years and whom do you think is best posed to take advantage of the future?
Well, Alex I thought it was a great idea to kick off with the poll and interesting to
see that 25 percent of respondents said that they're completely rethinking their business.
The businesses can look very different in five years
and we're starting to see the changes already. And I see three big changes. The first is
business model evolution, and the airlines today have to focus on completely rethinking
their business models. And that's across all segments in all geographies.
And if you look at the different players today and you look at what's happened to them over the past
year, and now as traffic begins to rebound, at least the earlier signs of that return to normal,
airlines are now loaded up with debt. They've never had more leveraged balance sheets
and many of them are still burning cash so they have to focus. In the short term they're going to
be distracted by stabilizing and repairing their balance sheets, but to do that they're going to
have to completely rethink their business models. So if you look at network carriers,
obviously the long-haul premium traffic has all but disappeared.
Airlines are hoping that it's going to return to kind of 15, 20 percent of normal this summer
and then ramp up, but it's at least two or three years before long-haul premium traffic comes back
and the network carriers have been heavily reliant, arguably overly reliant, on that.
So they're going to have to completely rethink how they do business. And you look at the boom
of private aviation. So the premium travelers are actually choosing to travel now, they're just
doing it in different ways. And we're not really here to talk about the private aviation sector,
but that's booming and it's being democratized. So that's going to steal away a lot of the premium
traffic both domestically and internationally. And if you look at carriers like Delta and Emirates,
I think they've been the real leaders and innovators in trying to rethink the ways
they're going to restore confidence with the travelers and begin to bring them back.
So I think you need to look at carriers like that and see what they're doing. I also would note that
Delta hiring the first chief health officer, Dr. Henry Ting out of the Mayo Clinic, is a sign
of an innovative approach to dealing with the new world. And the reality is while we're starting to
declare victory on a recovery here, we see the signs of it, people getting confidence with the vaccine,
there are new variants every day. We may be declaring victory prematurely, but the new
normal is these pandemics. And if you think back over the last 20 years we've had SARS, MERS, H1N1,
but now we truly understand what a pandemic can do to the industry. So the new business model,
whatever sector you play in, whatever geography you play in, you have to be prepared
for that new reality and be prepared for that next pandemic, because it's not a question of
if, it's just a question of when. If you look at the low cost space, that's clearly the space that's
going to recover and has done better and will recover faster. Airlines like
Sun Country and Allegiant demonstrated the agility of their business model, and if you look at their
financial performance and their recovery, carriers like that are clearly going to win. Volotea
in Europe had some amazing statistics last year, but the low-cost space is one that obviously will
recover faster, but even the low-cost carriers have to dramatically change their business models.
And it's the agile carriers, again like an Allegiant or Sun Country here that did well
and the market's rewarding them. But if you look at the low-cost space in general, even though it's
recovering faster it was very hard-hit as well. So everybody has to deal with this new reality.
I’d also say that another major trend is going to be market consolidation.
The strong will acquire the week. The strong will get stronger. Damaged balance sheets
and airlines with business models that have been less agile and less resilient, they're going to
be consumed. But we've got to take out capacity in the industry across all sectors. Consolidation is
the efficient way to do that. That means marginal carriers, marginal focused cities, marginal hubs
will get consolidated out. Now the U.S. has been ahead of the rest of the world in that.
I’d see a lot of consolidation in Europe in this wave. So you'll see that rationalization.
You've seen failures but this is an industry where if an airline fails,
that vacuum is filled quickly, either with a new competitor or an incumbent backfilling, so
you see some innovation there. Here in the U.S. I’d expect carriers like Frontier and
Spirit to finally merge. Now that Frontier is public that's much more likely.
And you see new entrants again in an interesting time, companies like Avelo and Breeze with their
new models with point-to-point service. So you can see consolidation at the same time you're
going to see new business models emerge trying to capture what they perceive as an opportunity,
given the fact that existing models will either be completely rethought or they'll go,
or they'll be replaced by, either you reinvent yourself or someone will invent the business
model to take the market away from you. And finally, I see the disruption of the market
via technology. And you always see that happen but here we're really on the cusp
of some very fundamental changes that will profoundly impact the industry. One of those
is data science and airlines are getting a lot smarter commercially. And data science manifests
itself on the pricing RM side, but it manifests itself in how you run your business completely
and really understand your customer in unique ways. It's is a very powerful commercial tool. AI
is being deployed both on the commercial side and the operational side. Using Volotea as an example,
I know very well they're really leading in areas of data science and AI, and they're
using that power as a small airline to be better than the bigger carriers. And that technology
is accessible now to any airline, you don't have to be the biggest. You can be the smallest and
take advantage of AI tools and data science. And in fact, the smaller carriers are being
more innovative and agile. So that's going to be a significant strategic weapon for airlines as well.
And then finally I’d say on the technology side, and there's been a lot of hype and mania,
I’m also chairman of the SPAC, aviation SPAC. So you see electrification of the industry,
and you see autonomous flight. Now we're years away so it's not really a five-year question,
though I will tell you that there's a lot of open questions about how we'll manage
airspace below 500 feet AGL. And when it will really solve for the battery storage and weight issue
for electric flight, companies like Cessna on the manufacturer side and Surf Air Mobility run by
Fred Reid, right, a great industry veteran, are doing some very innovative things there.
And electrification will fundamentally change the cost structure of the industry
once we figure it out and we have electric power plants. It's going to start short haul
and obviously it's what's fueling that maybe but the growth of
autonomous flight. But all that is going to change the world, it's just a question of when.
And two, three years ago a lot of these companies really struggled to get funding.
And I’d say the market's gotten a little over exuberant here, and billions of dollars have
poured in, but that capital coming in now is going to accelerate the pace of change because these
companies didn't have access to capital two, three years ago. They really struggled to raise five and
ten and fifteen million, and now they're raising hundreds of millions and billions of dollars. And
just like the space industry got totally disrupted in the past five years, our industry will as well.
Dave, I have to say you did not disappoint. Thank you for that commentary. That was a wide range,
and in fact we are out of time, so I apologize we're not even going to get to
next question. If you could stick around I’d appreciate it, if not, that's okay,
but we are going to have a Q&A at the end and I suspect based on some things
you've said there might be there might be some interesting questions. So thank you.
Thank you. It's been fun. So I’m now going to be handing it off to
Emma and Eduardo to learn more about LATAM’s sustainable approach to pricing management.