Airline Leadership Keynote Interview - Discussion with Adel Ali, CEO Air Arabia Group

Thank you, John, and thank you for having me this year. It's through screens but it's always good to catch up. And I think it's the first time I've actually seen you sitting there in the hot seat in your office. Normally we're sitting of course in ATM at the World Trade Center, which is where I prefer to be today.

Well, I hope not. I mean it is an unfortunate one. I seriously hope it's just a one-off and it goes behind us. It's something that will be dealt with by the governments of the states that are involved, and ICAO will come in to ensure that a one-off individual incident does not change the way aviation is run and operated. Because the industry, aviation, is already given the security requirements post-September 11, with the COVID complication now, the last thing you need is yet another thing to change as a result of one incident. You know, it's good to know that nobody was injured or anything happened, the aircraft landed safely. And as you know, in this industry, once such things are over and landed safely, the authorities will take care of it and I'm sure it's in good hands to manage it. Too early to sort of judge what exactly happened, I'm sure more will come out of it.

Well, I suppose there isn't a conversation that goes on nowadays without talking and starting with COVID-19. Sometimes I wonder, once COVID is behind us, we need to find a topic to start. You guys in the UK probably could go back to talking about the weather, but the rest of the world will find something. But I think the comet seems to have gone from east to west and now it's reverting from west back to east. So where we are today, 12 months back it was a very interesting time. It was time that we were sitting doing nothing and we didn't know what was going to happen next. Literally everything was grounded apart from a few repatriation flights. Airports were empty, roads weren't here, everything was shut. And now comparing 12 months to now, you know, it's a world of difference. Not the norm of what 2019 was, but there's a big difference in the last 12 months that we've seen. As we said today, but yeah, it was a difficult time. It was time for tough decisions, it was time for cash preservation, it was time for making sure that you manage your people's anxiety. The stress levels were high, the unknown made us all adapt to very new things, very different things in a very complex industry. And this situation and circumstances applied to everybody, any living creature, and also to every business. But our business in aviation of course, you get the other complexity that comes with it — people had fear from flying. Totally. And there were reports that the worst thing to do is to fly. That perception has changed in the last 12 months, and a lot more recognition that aircraft cabins are probably much cleaner than a lot of other places that people go to nowadays, and feel safe. So that was that. We sort of had, just like everybody else, grounded all our airplanes. We had to restructure, readjust our business. We had to lose a few people in terms of leaving jobs. We had a small portion of our people who were infected with COVID, so we had to look after them. And we were very pleased that nobody — we had no casualties overall in the company. And generally it was okay. Now life has progressed. More than 85 percent of our people have taken their... two jobs, so things are better. But at the time it was not terrible. We looked after it well and we're very happy that the early decisions that we took right back in April and May last year paid off and it put us in a strong position to sort of move on with the future.

I think yes. Back at the time, any money coming in was good, so it was appreciated. But in terms of materiality, it was small. It was less than two percent of our fleet that was flying. And I remember I had to make a trip on a flight that was a cargo flight — there was me and everything else was cargo. So I was sitting next to boxes and cartons. And it was an interesting experience right at the beginning. But yeah, we did the two things we were doing at the time. One was carrying cargo because it was needed — you know, the borders were closed, trucks could not move, and food and medicines, people needed it. In fact, people were staying at home and they needed more food and medicine. So we helped and did quite a few cargo flights to wherever possible that we did. And in addition to that, we had quite a few repatriation — people wanted to get back home, stuck in the wrong place. So we did a few of those and it was useful. It was good to see still an airplane taking off. Always small, so you know, it was not necessarily going to help in a big way the bottom line, but it was a contribution that was needed at the time. And it gave the people, particularly the pilots and the engineers and the crew, a sense that it's not the end of this, and that things will come back. And that was nice.

I think we did all the above. You know, this is the most challenging part of this virus — it's very unpredictable and you do not know where it hits and what it hits equally. I think you've got so many decision makers. You know, we in the industry, we only fly airplanes, but the decision of where you fly and what and how is taken completely out of the hand of the people in the industry. It's more managed by the health people, the security system, probably the foreign affairs systems, and the commercial need of different countries. So probably the least input into the system in the last 12 months across the world has been the airline people's view of how best we should do this. And that's probably something to learn for the industry for the future. But what we had to do obviously, we had a very good first quarter, and at the time life was better — about 50 percent of our overall aircraft were in the air, but the other 50 percent were in long-term storage. Since what has happened in the Indian subcontinent, of course, it's gone down in a big number. So it's almost close to not flying there. We do fly, we take people into India at the moment, and Bangladesh and Pakistan and Nepal, but we don't bring people back until the situation improves. And it's good to see that the trend in the Indian subcontinent is actually improving — they moved from three and four hundred thousand cases a day to about 120 and 130 thousand week on week, which is positive and encouraging. I think equally our hub in Morocco — in quarter one we were flying to most places in Europe and there was good traffic. At the moment, as we speak, in quarter two Morocco decided that they will stop operations into Europe, and we're hoping that this will reopen in June. And if it does, then life will be a little better. But Morocco is just doing a few domestic flights at the moment. Egypt is about 50 percent operational and as Europe is coming back, they'll be able to do a few more flights into Italy and France and so on.

So there are two things happening, of course. The leisure for Air Arabia Egypt from the Red Sea to Europe — we always had that business, and we just had to suspend it during a certain period of time with COVID. And now it seems to be coming back, so we're back into that. But yes, on the other hand, we are seeing what is happening — the business traffic is not as significant as it used to be. So the leisure traffic, people are desperate to get back onto the airplane to go to safe places. So we've been looking at, okay, where can we take people on holidays? And as a result, we go back to a few places that are safe and people want to fly. And talking of Sharm El Sheikh, we literally last week I announced that as of the beginning of next month, June, we will be flying from Sharjah, here in the UAE, into Sharm. Totally new market, we haven't done it before. So I think what is proving to us is that wherever the airport opens, people do want to fly. We just had the Eid break after Ramadan — it was amazing. All the flights were full, all the hotels were full, and people were really eager to get out and travel. So I have absolutely no doubt about the market rebounding back once airports and countries open up.

Well, I think the human contact will remain, not just in the Gulf, everywhere. I think it's all what we do today with technology — it's a fantastic thing, and I think, you know, hats off for the people who put it together. Otherwise you can imagine what life would have been the last 12 months for everybody. So it's a great thing. But the few people that I have seen in the last two or three months that have been able to come from Europe or Southeast Asia to visit us — seeing them, the first thing they say, 'Oh, it's great to see people and talk.' And it feels very different, very different. The business for us in this part of the world is all about the chemistry between people able to work together, and that is so important and something you cannot really get from a screen. But it's nice to have you. So what my take on it is, I think the business traffic will start, will come back. It takes a little longer. But I think the need for travel by individuals — whether it's for education, for medication, for VFR, holiday, just to get out of a place that you have been stuck for a long time — and a good sign that I read into most of the countries you talked to, and the bankers around the world: whether I spoke to people in France, in the UK, in Canada, and in this part of the world, the bankers tell you that the savings accounts of individuals in each country has gone up significantly because people did not have the opportunity to spend. So we think the first thing people want to do is get out and relax and spend some money to go on holiday and see their loved ones and so on. So while I think this will compensate the slowdown in the business traffic, we did have — you know, our business is about 20-25 percent is business traffic, the rest of it is all personal and leisure. But I have no doubt that once the operations start gradually improving, all the airlines, all the flights will be full.

So John, three things have happened. I think me and the team here — I think we have never worked as hard as in 2020. It's quite funny that we were extremely tired and working long hours when we had no airplanes in the air, but that did pay off. In the sense that we made sure that we restructured the business, we talked to all our suppliers, and there was a lot of discussion with the financial bankers in terms of aircraft loans and so on. So we managed to execute in early time, early hours of this happening, which gave us nice cash preservation. As a result, that took us through the year nicely, and that also resulted in our overall 2020 losses to a minimum. I mean, we had less than 50 million dollar loss, which is relatively small for a company the size of us. And first quarter — and then we did a lot of cost restructuring and we cleaned up our business. I mean, if there was anything you can claim that was positive in 2020 for us, it was the fact that we had the chance to reflect and clean up the business. We re-looked at everything that we had. And we are an LCC, our job is always to improve the efficiency and the cost base. That, along with the part of the operation that came back in 2021 first quarter — you know, India came back, Egypt was working well, Morocco started working, and within the GCC some airports opened and some tourism — that made very quickly, because of the cost savings in 2020, it made sure that our first quarter was reasonably good. All the oil has actually increased in terms of the oil price, so we were very happy and we're hoping that this will sort of continue and the year will gradually develop. But you know, the jury is still out, we need to see how the next few months will develop with regard to opening up, and the subcontinent is a big chunk of our market, very important part.

Yeah, I think there are again several questions there. But the Air Arabia and Etihad relation, of course, started much longer before that in terms of the discussion. The opportunities were much pre-COVID, and COVID did slow it down. And it was really a thinking behind — very simple — that Etihad has a business, a legacy airline, does not necessarily fly everywhere that people fly. A lot of secondary airports they don't go to, and we saw that as an opportunity. A lot of airports that did not need big aeroplanes, but Etihad had a good feed into Abu Dhabi to move on to. Also, that was an opportunity. Adding to that, Abu Dhabi has invested over the last few years a lot of money into building the tourism infrastructure — a lot of hotels, beaches, facilities, parks and aqua parks and so on. So we saw that as an opportunity. And you know, we in the UAE, of course being a UAE airline, we are in Sharjah, Ras Al Khaimah, and it was good to have Abu Dhabi, the capital, to become a true UAE airline. The airline itself — we decided in July, in the middle of the pandemic, July 2020, to launch, and we flew. And despite Abu Dhabi still requiring quarantine and the protocol of COVID inbound, and still it will hopefully open up as soon as they feel more comfortable with it — despite all that, we find that the airline is doing relatively well under the circumstances. So I feel very good. Our relation with Etihad has been excellent. The two teams seem to be learning from each other how to do things best, and that is good. The good synergy — we thought that a total legacy with a total LCC, how do they mine things? But so far it's working, and it's working well. I think it's probably surprised both Tony Douglas and myself. So we will hope that that will continue.

Absolutely. Let's make it simple — there are two things in this industry: airports and your PSS and your booking systems, that's it. So from the system point of view, the two teams have worked together for quite a period of time before launching the airline, and they've managed to make sure the two systems do talk to each other. Customers and agents can easily access both systems and book. That happened, it needed a bit of investment which we did. And networking airports — I think our part of the world is not Europe in terms of passenger flow. Everywhere you have a handling agency, you pay those fees whether you have connections or not. And most of the airports in the Middle East are geared up for connecting business. So from that point of view, we did not have to change anything. And I can say confidently that it is a seamless service from a customer point of view. So that has worked and we're seeing it coming in. And too early, of course, because the market has not taken its normality, but I'm confident the fact that once we go back post-COVID, we see very good potential in the Abu Dhabi hub and it will grow very well. And I think it's a good thing for Air Arabia, for Etihad, and for Abu Dhabi as well. So everybody seems to be happy and winning out of this.

I mean, I hope that the latter part of your comments will happen. And no doubt that this industry does create competition, and I am sure that there will be a time that we will be competing, but that's for the benefit of the consumer. The market is sizeable, but I have to be realistic — we do not have a 50 million population in that market, but the catchment area is a 2 billion market, 2 billion people. So hopefully we can bring out of that 2 billion many more people visiting and using the infrastructure that Abu Dhabi has built. Again, it happened in abnormal circumstances. I'm sure when Wizz were doing their work to come to Abu Dhabi and when we were doing our work to go into Abu Dhabi, both sides — part of their plan was not COVID-19. So we just got to wait for that to finish and then we start. So far it's proven that this region, the GCC, has got a lot of airlines and they're all working. Our business models are different, both of us are LCC, and I hope that they will be able to create their own niche and we will be doing our own niche.

Very — I think, you know, of course, if somebody tells me what was the most difficult things that you did in the last 12 months, I said it was letting some good people go that was not a fault of their own. And it was a pretty emotional and difficult time for me personally and for the management team. But it had to happen. You know, you just tend to sacrifice to save the ship. And I think everybody understood that. As life gets back, I'm sure we will need more people. And people have changed — some people have left the country, some people's circumstances have changed. But yeah, I think there is a process that as we want people, we will be communicating and we will be giving the opportunity to more and more people who want to still work with us. And there are quite a few, because we had a good expansion plan and there was a lot of people who were interviewed, good people, and then we had to postpone them. And those people, they will be reconnected again. And if they're happy, we're happy, and the chemistry is still the same — because life has changed for everybody — then why not? We will encourage those sort of things.

I think the current fleet — I mean, we got all the six on the pipeline of the A321LR, and they became useful during the pandemic because a lot of airports put restrictions on the number of flights that you're allowed to fly into. And therefore the A321 gave us additional capacity, so we used it even on quite a few short-hauls just to make sure that it meets the demand that was there in the market. And we're still doing that, and that's working. In terms of future, I guess our new order of the 120 airplanes that is on order with Airbus for A320neo, A321XLR, and A321neo — and that is not due until 2024. And that's good in a way, it was not designed, but Airbus at the time could not give us any slots earlier. By hindsight, it worked out for us in our favour. And every indication is saying the market will fully go back to 2019 levels around 2024. So hopefully, if all those predictions are correct, then we will be in the right position to take delivery at that time. So fortunately, from that perspective, we did not have to address our fleet adjustment as a result of COVID.

I think, you know, the whole purpose of it is to do that — to get the airplane and to go further. With the A321LR, when we got it in 2019, we opened up routes such as Kuala Lumpur and Malaysia, which was about a 10-hour flight. We went to a couple of places in Europe and it worked very well. So we tested the ground with those six leased airplanes. So we think once we get the XLR, which takes us to a few markets that we think have good potential but people can't do it — and also the more studies we do, we see that the customers seem to like the aeroplane. It's not too big, not too small, it's a very smooth aeroplane. The A321LR — I would imagine the XLR will be a few points better than the LR. So I think it will be — my feeling, the airplane still needs to be made and fly and everything else, but if it delivers what the LR has delivered and a little better, I think it will be a real success. It probably will give us an opportunity from all our hubs to open many more routes throughout the network. So we're looking forward, but still a few years to come to decide on it.

I think that, you know, difficulties always make us stronger. Challenges bring us knowledge, and if you read any leadership books in life, it tells you the world is about adaptability. And one thing COVID taught the whole world is to adapt to things that they never had before. So we walk around with our half face covered — we didn't have to do that before. We don't shake hands and hug people anymore. All that, we adapted so quickly. So pressure brings adaptation much, much faster. And this industry is full of pressure. But I think COVID brought a lot of opportunities longer term, because I think overall the public have realised that human beings are vulnerable and it's a great thing to enjoy life. And we are, as a business, in the business of connectivity, connecting people together. And I think with that, we will — personally, as soon as COVID slows down, and we're seeing this happening in the US, in China, in Europe, in the UK, we're seeing things are much, much, much better. Hopefully they will not come back. We see it here in the UAE — we now have plus 70 percent people who have been vaccinated, and as these numbers go up, people are much, much more relaxed. I anticipate a good boom of business for the industry, and that's the encouragement. So I've got a good few years to go. I'm happy to sort of see and adapt what the market brings. I hope that airports over the world will not over-engineer it and make it over-complex the way they did it post-September 11, and they still allow people to enjoy the experience of travel. So I see all the opportunities that are there. I'm hoping that the second quarter of this year will be a much better quarter, the second half of the year will be a much better half, and 2022 will be more getting into normality. So opportunities are great. I think we've also used the 12 months that passed to do a lot of strategic thinking that we will be able to put in motion as soon as life goes back to normality. So I'm all excited with the future. I hope that everybody will now go through COVID much faster, much less casualty, and everybody stays with good health. So I'm optimistic and seeing a good bright future ahead.

Thank you, John, and really nice chatting. And as you said, hopefully we will catch up in person in due course. Look forward to that very much so.