Q&A: John Strickland, JLA Consulting, and Sir Tim Clark, Emirates Airline
From what I’ve seen, 2019 has been a much better year so far. Is that a fair observation?
Yes, I think so. [The 2019 HY results] are as far as the airline is concerned, a considerable improvement on last year and don’t forget we had the runway shutdown in May. We had to ground 54 of our aircraft for seven weeks. Nevertheless, we’re significantly ahead of where we were this time last year. At a group level we’ve had to deal with a number of things, not least of which is the fallout of the Thomas Cook exposure. And we’ve found that particularly in our European markets, mainly in the UK, that there was a degree of exposure, which we’re still trying to get some estimation on. But that’s not helped.
Do you think that the failure of Thomas Cook was inevitable?
I’m not sure I have the answers for that. The affect it’s had on UK airports, principally where it was operating, has been devastating. They had been in trouble for some time and in the Sydney IATA meeting last year, I was asked what I thought the industry would look like in 18 months, I said that around the fringes of the main squeeze there will be multiple failures, simply because the trading conditions were becoming a little bit adverse. But I knew that there were some airlines that were on the margins of profitably and their business models would not be able to sustain the things that were going to come at them. Whether or not [Thomas Cook] was due to go out of business, I think we can see that there was a history of difficulty with the management team.
Emirates’ fleet of B777s (pictured) and A380s is to be complemented with 30 787 Dreamliners and 50 A350s.
Did you see high load factors and improved revenues over the summer months?
Yes, we’ve improved what we’ve done. As you probably know we’ve stripped capacity out. In fact, we’re bumbling along at about the same capacity or perhaps slightly less than we were this time last year. We rationalised a lot of routes, had a good hard look at the deployment of the assets on the routes. We’ve now adjusted and aligned our capacity to where we think things are in the short to medium-term. That has seen a flattening of our growth while we make an assessment of what we’re going to be doing in the future.
Does that fattening of growth reflect deferring of deliveries or just a lighter use of the fleet?
I think it’s a combination of both. We have a number of active contracts out there with manufacturers, which includes the A380. We have the 777X programme coming along. We’re looking at how we bring these in in the future to make sure that we are not overcooking capacity. That’s not to say that all the new routes that we have in our back pocket we won’t activate. They may take a little bit longer to activate, some will come sooner, but we want to make absolutely sure that we are not overcommitting the shareholder with regard to the debts on the balance sheets and the cash that we generate.
There has been a festering WTO complaint between Boeing and Airbus about who is or is not subsidised more than the other. Do you think that is going to finally get put to bed?
I think the Europeans will reciprocate in the first quarter of next year. The WTO will make a ruling that Boeing is subsidised and therefore [Europe] will raise tariffs. Whether sense will prevail I have no idea. One would assume that if they both get their knuckles rapped then the only downside is that the price airlines pay for these aircraft will be affected. In the end, the prices that we get charged as a result of tariff imposition will be passed through, as they have to do, to consumers and so prices are likely to rise.
Do you think there has got to be a new approach as to how aviation responds to environmental sustainability? It’s tended to be a defensive response.
It’s interesting. We are only 2% [of global carbon emissions], but we seem to be the environmental poster boy as an industry. We seem to be bashed by just about everybody. After all, we are very glamorous, everybody sees us, a lot more people are travelling, and so it’s easy to knock us. The story we have been telling doesn’t seem to resonate or have much traction. The problem is that we have been so efficient that [fare] prices are now so far below of what they were 30 years ago, that so many people can now afford to fly. On the one hand, we should, as an industry, be given some accolades for allowing people to travel. Let’s be quite clear about this, we will not be lifting a 600 tonne A380 and flying it 18 hours with 515 people on electric batteries. That’s never going to happen. But there are lots of other things that can be done. The leaders of [various] industries will be well advised to sit together and share views and set up work groups without government involvement, because I believe that the airline community could learn from maritime, power and utilities.
You’ve been very straightforward in talking about aircraft challenges. Give me your thoughts on the Max specifically.
Let’s be quite clear, [the Max] will not fly again unless it is 150% safe to do so. No regulator will allow this in their skies unless it is safe. Even as I speak there is disharmony as to the approach of the global regulators. Will it get sorted? Yes it will. We must get unanimity of the regulators so that you cannot fly the aircraft in America and not in Europe, or Canada, or Japan and China, because consumers will push back on that. That’s probably what’s delaying the whole thing. It’s really a question of getting your mind round the continued human interaction with very sophisticated systems. They are pushing technology more into aircraft systems but they need to keep the human factor in the cross-hairs all the time.
Do you think we’re going through a phase when the push from airlines to get good efficiency is just proving a bit too much for manufacturers?
We need to establish what we require as an industry. With the demand for air travel growing and people wanting more and more and more, the pressure on manufacturers to improve their production lines, improve the technology and bring new aircraft and propulsion to market has caused a degree of overpromise. We have been guilty of pushing manufactures. There has been a little bit of a shift, it’s not driven necessarily by the airlines, but the manufacturers are becoming a little bit more focused on shareholder value, free cash flow, dividends etc. And I think we have to re-establish the absolute criticality of quality engineering going into these aeroplanes and delivering to the community, such as ourselves. We do not wish to be mice in the experiment, we want mature aircraft that give us 99.5% despatch reliability.
I guess you’re already reworking your advanced network plans for next year because the 777X should be in the fleet…
The 777X has an engine issue which I believe is being resolved. [Boeing] are hoping to fly it in December and then start an intensive flight testing programme. I insist on a 13 to 16 month test programme. I don’t care if you put 20 aircraft into it, we are insisting that that’s what you do. So there will be no compression, I expect the regulators to be all over this so that the engine is doing what it should.
Other business models like long-haul low-cost and ultra-long-haul are growing flavours in the industry. What are your thoughts on both of those?
In terms of long-haul low-cost, it’s an interesting one. [In the late 90s] I believed that there was a place for it. When I did the back of cigarette packet maths it looked as though it could be done. What’s happened since then is that the legacy carriers have now got tools which are cheap to operate. The pricing proposition given by the legacy carriers now equates to, in some cases, what Norwegian is offering. Whereas back in the late 90s, no such thing existed. The science that tech has given us to be able to refine the income per seat per seat mile per seat km is far better than it was then. So [new budget long-haul carriers] are almost coming to the business too late because the legacy carriers will be able to react to all of that. The regional short-haul low-cost market is something completely different. It’s the long-hauls that carry the greater degree of risk, which is why I think the Norwegian business model has been challenged and whether or not they will survive, I don’t know. We, along with Singapore Airlines, pioneered the ultra-long range operations to the west coast of the US and the east coast of Australia. Today we have an A380 flying between Auckland and Dubai, that’s a 17-hour block. The notion that you have more of that, you’ve got to be fairly careful at which city pairs you look at. I believe there is a meaningful segment within that area, it’s obviously working for us. But you have to be geographically positioned to be able to use those. You’ve got to be absolutely sure you know what you’re doing. And of course the manufacturers are going to say: “How many of these are we going to build and at what cost?” So it will be interesting to see where Alan Joyce [Qantas’ CEO] and his boys are doing all of that.