Before the official start of the IATA General Assembly to be held on Monday, October 4 in Boston, United States, together with colleagues from Telam news agency and Clarín newspaper, we interviewed with Pablo Ceriani, President of Aerolíneas Argentinas, in which we reviewed the current situation of the company, its recovery prospects, its fleet, and destination plans, and how a state-owned company with the characteristics of Aerolíneas Argentinas can be articulated in a context of mergers and global alliances that are also taking place in the region.
En vivo desde la #IATAAGM en Boston, Pablo Ceriani, presidente de Aerolíneas Argentinas. Mañana publicamos la entrevista completa en la que tratamos la actualidad de la empresa y planes futuros. pic.twitter.com/CzDFeobjHb
— Aviacionline.com (@aviacionline) October 4, 2021
In line with the global market trend, although with very specific localisms, Aerolíneas Argentinas has two highly different realities: domestic and international traffic. Regarding the former, Ceriani detailed that they expect to recover 80% of domestic passengers during this summer since many people are planning to spend their vacations in the country. This will even lead to the re-scheduling of flights to El Calafate or Bariloche with A330 aircraft, although always departing from Ezeiza (there had been certain speculation of a possible operation of these aircraft from Aeroparque, but Ceriani ruled it out alluding to operational issues of this airport).
Likewise, the Córdoba hub is being reassembled, adding frequencies to destinations such as Mar del Plata, Iguazú, and Ushuaia, and thus being able to connect the south with the north without connecting through Buenos Aires. This option is popular as it allows decompressing Aeroparque’s operation. Nevertheless, the operation is still reduced to a few weekly frequencies until the demand reacts.
International traffic, on the other hand, is developing much more slowly because of border restrictions, both those specific to Argentina and those of the rest of the countries, which include (still) special characteristics such as daily passenger quotas, which add tension to that already generated by the pandemic itself.
However, looking forward to 2022 with fewer restrictions, Ceriani commented that they plan to grow very strongly in the United States, with a goal of nine weekly flights to Miami and a daily flight to New York. Madrid is another destination planned to be reinforced with daily flights, while a return to Rome is still being ruled out due to the lack of certainty as to how the market will evolve and whether there will be any new wave of contagions and restrictions during the northern winter.
Ceriani revealed a key fact: for the first time in years, flights to the United States generate profits for Aerolíneas Argentinas. This, he explained, is a consequence of the significantly higher fares charged due to the shortage of supply caused by the quotas (which is replicated in all companies).
For this reason, the current situation is not representative of what may happen when the borders are reopened and all the supply and pent-up demand would be channeled.
We asked him about an issue that usually generates conflicting points: international flights from the interior, which some sectors see as a «delivery» of passengers to foreign companies, claiming reciprocity, when without hubs in Lima, Panama, or Sao Paulo, it would be of little benefit for Aerolíneas Argentinas to fly there from cities such as Córdoba, Rosario or Mendoza, intertwining this with how the company plans to insert itself in a regional market that is increasingly consolidated, with new mergers and alliances.
«We have to offer a very competitive product, and for us, that means Buenos Aires hub. From Aeroparque I think we have very strong advantages over other companies to offer a product that is quite good, and afterward, be able to enhance as much as we can the connectivity with international flights,» Ceriani said in this regard.
«We are strong there, it is a very powerful asset that the company has, but we have to explore direct connectivity between cities in the interior of Argentina with Brazil and other countries. It is something we have done and that as soon as we can we will do it again because we know that they work very well,» he added.
When asked if they «accept» that there are foreign airlines that «take» passengers out of the interior, he answered that «there are bilateral agreements, thus, traffic rights that each country has and we do not have much to say about what the law says in this regard».
Fleet
When asked about the fleet of 26 Embraer aircraft and the plans of the previous management to replace them with Boeing 737 MAX aircraft, Ceriani said that for them «it is a fleet that gives us a lot of flexibility», allowing to operate flights adapting the supply to the demand.
«The previous management had this idea of replacing that fleet, so it did not invest what it should have invested, and that caused the fleet to fall, in the sense that there are many maintenance tasks that have to be done according to the regulations and that are overdue», commented the president of Aerolíneas Argentinas.
As per the above, they will invest in reversing this situation, giving rise to the creation of three major maintenance lines: one at Aeroparque and two at Ezeiza, which they firmly believe will work well throughout the next year.
Regarding the wide-body fleet, Ceriani said that two A330s that left will be replaced by one by the end of October and another one before the end of the year. A call has also been launched to incorporate two more A330s that will replace the two older ones that remain (with their contract expiring) and have Pratt and Whitney engines. Thinking about A330neo, for now, is out of the question until the market recovers and stabilizes.
«The A330-200s like the ones we operate are very versatile and have all the features we need and a much lower lease price as well,» he said.
Asked about negotiations with the lessors during the pandemic, keeping the debt level under control without losing aircraft, Ceriani said that these companies «always worked in a very collaborative way with the airlines, because many of them went through complicated financial situations throughout their history.
«Lessors know this business, they understand how fluctuating it can be, they do not leave the airlines adrift and support them until they can resolve their situation. This is clear to them as they know this industry first hand. In fact, before the pandemic, when we took over the company in 2009 it was a «mess», the fleet had debts all over the place and they wouldn’t take the planes out of our hands. We asked them for time, they trusted us and even leased us more aircraft, and we were able to bring in 20 737NGs as we were paying off the debt.»
Losses
Ceriani estimates that 2021 will close with losses of around USD 600 million, USD 100 million less than 2020, and like 2019.
Always considering that revenues in 2019 were USD 1700, while in 2021 they will be USD 600. «We lose the same but with less than half of the revenues because we reduce the rest of the costs».
He even mentioned that the number of employees dropped from more than 12,000 to 11,500, not because of layoffs but because at the time of retirement, the staff was not replaced.
The tariff floor
The arrival of low costs in Argentina in 2018 gave way to an important series of measures that promoted competition and stimulated demand. And the elimination of fare floors was one of the main battles of the process.
The aeronautical unions rejected that measure from day 1, and insisted on it again in the statement they issued last week in which they declared themselves in a state of alert given the lack of response from the government on that and other issues.
When asked about this issue, Pablo Ceriani said that the floor is positive because «it orders the system and does not harm anyone», while not having it » may harm because it can generate a situation of dumping that can be dangerous».
In any case, he clarified that it would not be necessary to reestablish it today, but only when the market returns to normal, which should happen by the middle of next year.
When asked by Aviacionline why there should be tariff floors in the Argentine market when today they are a rarity in the world, Ceriani said that in our country «there is a lot of macroeconomic volatility, especially with the exchange rate, so the level of uncertainty faced by airlines is higher than in other countries, so giving them some certainty is a tool to allow the development not only of Aerolíneas but also of other players».
In search of profitability
In light of his last answer, we asked him if that same volatility is not the one that would make Aerolíneas Argentinas never be able to become profitable, and Ceriani said that «there are still too many structural issues that can be improved», not as much as before, as in 2009-2010 when it was nationalized, but that «they are already minor, in micro-management, in factors that can still be greatly improved», and he gave an example the maintenance area, where lots of work is being done to make it more efficient to provide services to third parties.
«Then it also depends on market situations, which are fluctuating. There are years when everything goes well. Both in this administration and the «Cambiemos» administration the variables sometimes benefit you, such as the price of oil,» he added.
«Does this mean that we will never be profitable? No, I believe that we must work independently of these fluctuations to reduce the structural unproductiveness of the company so that when better times come, we will be in a position to have a significant reduction in losses and eventually make a profit,» Ceriani concluded on the subject.
Of course, to make progress on these issues, collaboration with the unions is key, and that is why we asked if he believes they must make extra contributions to reduce this «structural unproductivity».
«We talk permanently with them. This implies changes in the work processes that they must accompany. Although they understand the situation, sometimes they can do it, and sometimes it is more difficult for them, and we must reach agreements anyway. It is hard work but we have been doing it,» Ceriani continued.
«Maybe the changes we propose are not big, but rather changes in the work modality that we have to agree with them, maybe they are not significant, for example, how is a rest in such and such a post, how we do the training, how we manage the structure, how we set up the maintenance shifts and every day something new comes up», he detailed, besides highlighting the merger with Austral as the great transformation achieved in this period, and for which he thanked the unions for accompanying them.
«Sometimes politically, they can accompany us, sometimes it is more difficult for them to do so and we have some friction and we have to sit down to agree on certain issues, but we have a long history», he concluded on this issue.
Air Cargo
The development of the cargo unit in Aerolíneas Argentinas is a flag that has been raised many times, but in the context of the pandemic, the possibilities of materializing it took another dimension as it became clear how it can be transformed into a genuine source of income and use of the company’s capital.
Ceriani said that they are analyzing how they can better perform, although it is difficult to know what the equilibrium price is, given that currently due to the pandemic prices are very high, while before they were very low.
«If prices were as they were before the pandemic, it would not be profitable to do it. And it is not true that the current prices are going to be maintained, although it is necessary to consider that there is a boom in e-commerce and the transport of goods independently of passengers. We believe that there are grounds to think that the equilibrium price will be more attractive for the business and that we could insert ourselves there», said the executive.
«In any case, the cargo business in Aerolíneas Argentinas is something we want to promote», clarifying that they are studying the feasibility of what he called «the great leap» in this matter, the inclusion of pure freighter aircraft.
Another alternative, he commented, is to convert the A330-200s temporarily by removing the seats, a task that can be done in one or two days, but this can only be considered with the current international operations scheme, well below pre-pandemic levels.
The Politics
To conclude the interview, which was conducted in a very pleasant atmosphere and lasted a little over an hour, we discussed existing examples in the world that show how state-owned airlines are financially successful while others are not, whereas the first ones have built a more politic-independent management team (such as Ethiopian) and the others such as South African or Air India, «used» by the governments, were subject to the ups and downs of changes in government, so we asked Ceriani if he believes it would ever be possible to separate Aerolíneas Argentinas from politics and maintain management that crosses government administrations.
«That would be desirable for all state policies in general, achieving a consensus in society. There should be consensus in companies such as Aerolíneas Argentinas or YPF. Besides, we did not invent the wheel, they are the same plans we have been putting together for many years. There is a certain common agreement on what to do, so there should be room to choose a path and not to change it. It would be desirable for the country in general and Aerolíneas Argentinas in particular».
When asked if it is not often counterproductive for a government administration to raise Aerolíneas Argentinas as a flag, leaving the brand tied to it and causing some sectors to be against its existence just for political positioning, Ceriani said that «in general we try to focus on the service we provide. But when the matter was about the vaccines and what happened during the pandemic, it is something we were proud of, that we were contributing to the country with a huge effort, being able to make more than 40 flights, why are we going to stop saying it? I do not know if it is a political use, but I am not going to stop saying what I think is right, and I consider it is politically important because it is a crucial political fact. It is a public service and as such that comes out at this time of the pandemic to fulfill it, we are not going to hide it and say well, let’s not say anything because we don’t look good. My vision at that point was, let’s go out and say what we did.»
«It is indeed a political speech but it is also true to show the strategic importance of maintaining a public service such as air transport. Because in general people say that we must have subsidized trains or buses, but when we talk about airplanes they say, oh no, let the low-cost airlines come. But in a country like Argentina, you need an airline service. And during the pandemic, aviation was maintained all over the world with governments putting infinite funds that multiply by ten or twenty times the subsidies that Aerolíneas Argentinas receives in its own companies because they are a strategic resource and I am not against that political discourse, and I defend it», he concluded.
