While The Global Aviation Industry Faces Crisis, Viva Air Remains In Growth Mode: Exclusive Interview With CEO Felix Antelo
The fact that there is a global crisis facing the commercial aviation industry is no longer news, however not every airline is in the same situation. While legacy air carrier Avianca (NYSE: AVH, BVC: PFAVH) is in bankruptcy court and unable to pay their expenses or debt, low cost airline Viva Air, based outside of Medellín, Colombia remains in growth mode and has big plans for the future, even despite the Coronavirus COVID-19 Pandemic.
The low-cost carrier that flies an all-Airbus fleet has not canceled its planned deliveries of new planes on the way, equipped with highly efficient General Electric turbofan engines. The airline has new international and domestic routes in the pipeline and has not laid off any of its 800 employees (though 70% of them have taken voluntary temporary leaves of absence).
The airline has asked for a $60 million USD bridge loan from the Colombian government, roughly half the cost of a new Airbus A320 aircraft to assist with liquidity, and insists it does not need a “bailout.” Unlike Panamá based publicly traded Copa Airlines (NYSE: CPA) which raised money in capital markets, Viva Air is still a private company backed by Irelandia Aviation, the same low-cost pioneer behind Europe’s Ryanair and Allegiant Airlines in the US. Legally named Fast Colombia S.A.S., Viva air actually is a Colombian company, while competitor LATAM (NYSE:LTM, IPSA: LTM) is Chilean and even Avianca is legally domiciled in Panamá as it goes through bankruptcy procedures in the US, home of its controlling shareholder United Airlines (NASDAQ: UAL).
Finance Colombia’s executive editor Loren Moss was able to catch up with Viva Air’s CEO for an update on the airline’s plans and status during Colombia’s national curfew, and to present the question countless Finance Colombia readers have asked: “When will the skies open to travel again?” The exclusive in-depth interview follows:
Finance Colombia: Thank you for your time. I know that you are extremely busy. I saw that for example, today you published on LinkedIn an open letter to the passenger public, because everyone is still asking when we return to the air. I do know Copa Airlines in Panamá said: “that they think that by June they are going to fly,” but, what do you think about that?
Felix Antelo: Loren with dates, we are, as a group of airlines, through ATAC (Association of Colombian Air Transport), we are talking with the Ministry of Transportation and with Aerocivil, about restarting operations, always talking about national domestic operations. It takes a lot more for the international operations. So, for national operations, what is being talked about without any definite or fixed date is June, the beginning of June, but there’s where complexities appear. Once we start we are not going to be able to fly through all the airports, we are going to be able to fly to 5 or 6 airports that are the largest ones, most likely, there are going to be hourly operational restrictions, so when you could normally fly in an airport 30 or 40 times per hour, we will operate between 5 and 6 times, obviously there is the whole issue of biosafety protocols that we are discussing, which is going to happen; the issue of an empty middle seat, then all of that adds complexity Loren, and also the biggest situation: the country situation with the pandemic.
“YES in capital letters! We are going to be able to expand our service on international routes and domestic routes and why? Because we have the most efficient structure, the most efficient aircraft operating in Colombia…”-Viva Air CEO Felix Antelo
Colombia so far has tried to control it and they have done a good job, but it all depends on when the country is ready and the government wants to reopen the country, all that obviously adds complexity to establishing a fixed date. And I also add Loren, that the airlines need at least three weeks to go out to promote and sell the capacity we have to sell. I mean, then they can’t tell me on May 28 or May 30 they begin to fly on June 1, we need some time to be clear about which itineraries we publish and which itineraries we are going to sell. So I am, sorry I can’t answer your question with something more specific, but I estimate that it will be June sometime and until that moment we are waiting for the authority to say when we can do it.
Finance Colombia: I understand, and aviation is always a sector with a lot of competition, with very small margins, but you are in the process if I understand well, of negotiating with the government, possibly a bridge loan of up to $60 million dollars and that is a very small amount. For example, Copa just issued short term bonds for $350 million dollars in the private markets. I understand it is a bigger airline; the other airline here in Colombia is in need of billions of dollars, so my question is: $60 million? Does that demonstrate your strength? Because, that’s relatively small, that would be enough for you to endure this pandemic, this recession that we are facing?
Félix: It’s a good point Loren, and indeed if you look at other companies as well, , in the conversations we’re having, it is a bridge loan as you well mention, of less than $60 million dollars, I mean in the market it’s being said that Colombian airlines need between $1 and $1.2 billion dollars, right?. In the case of Viva Air, as I mentioned in (Colombian business daily) La Republica, it’s less than 5% of that total amount, an amount close to $50 million dollars, it is a low amount for aviation, but for commercial aviation, like you, you are a person who the understands the market, you know that this is a very small amount, very reasonable for a government, it is an amount that for Viva, with the cost structure that we have, effectively helps us to go through this pandemic and get ahead, which is what we need.
Finance Colombia: Yes.
Felix Antelo: We entered this crisis with in a good way, let’s say a good first quarter until March 20, with a profitable position, the costs are very controlled as you know, and indeed it is an amount that sounds very reasonable for the state and that satisfies the needs that Viva has and meets the needs that Viva has to survive and to continue growing in the future.
Finance Colombia: But that’s even less than just half the cost of a single Airbus aircraft that you fly.
Felix Antelo: Yes, it is.
Finance Colombia: We can see the drama happening around the globe even before the crisis like the struggles of Avianca or South African Airways, even before the Coronavirus COVID-19 Pandemic they were already in a bad state…speaking of which, nobody hopes for misfortune upon their competition but what opportunities are there for Viva? Will there be opportunities for those airlines that are in a growth stage such as Viva? Will VIVA be able to take advantage of, or serve any excess demand here in Colombia or in the broader region for example more routes between Colombia and Peru?
Felix Antelo: The short answer Loren is “YES” in capital letters! We are going to be able to expand our service on international routes and domestic routes and why? Because we have the most efficient structure, the most efficient aircraft operating in Colombia is the Airbus A320. It also has a very efficient configuration due to the number of seats we have and, as you well know, they consume less fuel, they have more reliability, they fly more hours (between maintenance), so for the unit cost of Viva the answer is: We do believe that there are going to be more opportunities in the market and business opportunities as well because the market is going to be reconfigured, and we have to be vigilant and agile to take advantage of those market opportunities, and as I repeat, it is going to involve national and international routes too, so that’s what I predict.
Good things to come
Finance Colombia: I know that you were already about to launch new routes in places like the United States, the Caribbean and Ecuador, but do you still have these plans or did you have to postpone that for months or years? What is the status of those new routes?
Felix Antelo: Well, indeed, as you mentioned, we were days, days literally, not even weeks of announcing and luckily we were able to adjust our plans before announcing, but the answer is Loren, that the plans have not been canceled, they have been postponed. I would tell you that we think of retaking those plans, but it will depend a lot on how demand evolves, surely it will not be a launch with four routes at the same time, but rather it will be somewhat more phased in, with some routes launched before others, and also seeing a lot of how international demand is evolving. What we are seeing around the world is that domestic traffic will be the first to fly for various reasons, and the people feel safer flying inside their own country.
Second because people also feel, from the issue of feeling close to home, being covered by a health plan, a third issue the cost system is cheaper to fly domestic flights than international ones; due to these factors the first traffic that will fly will be domestic traffic so seeing how the domestic scenario will evolve first and then the international one…we are going to take these international routes, but I would say that it will surely be, let’s say from the original date of when they were going to fly that we were going to start flying them from July to September of this year. On average, everything will be shifted I would say between 9 and 12 months.
Finance Colombia: You will be pleased to know that the number one question I have from the readers of Finance Colombia is “when can we fly to Colombia?” So many people: executives, tourists, yes, I see the demand.
Felix Antelo: International or domestic flights?
Finance Colombia: Internationals, there are people who, even tourists, who have unfinished business, deals to do here. There are people who have pending matters, meetings, or private matters, but the demand is there contrary to what a lot of people fear. I think that there are many who say that there is no demand but people need to see family, to do business. I hear from them.
Felix Antelo: Hopefully. I hope Loren, I hope you are right and that demand is stronger than we all anticipate, I would tell you that international flights—and this is not a formal or official date, my estimate is that they will be for Colombia I would tell you between the end of July and the end of August, it will be around that time. I hope I am wrong and it is sooner, but I estimate that it will be for the end of July or between July and another time in August.
Finance Colombia: With Avianca’s departure in Peru, is Viva’s strategy changing or how are things going there in Peru?
Felix Antelo: Look Loren, Avianca had shrunk a lot in Peru, especially from the year 2000, let’s say until the middle of 2018 and the beginning of 2019 It had been left with only one route to Cuzco with two or three flights daily. Viva had five flights daily. Avianca had already shrunk in the domestic market, and they had practically disappeared in late 2018 and early 2019, so in that sense it does not change much, and the other thing Loren, it is like what happens with the international routes that Avianca flew directly with its Peruvian subsidiary? if those routes were Miami, Buenos Aires, Bolivia, Brazil, it’s not yet clear how it is, so I believe that other opportunities may also arise in the international routes, but it is not clear yet Loren, I would tell you that in the domestic there will be no changes since Avianca was practically no longer flying domestic routes. On international routes there may be new opportunities, but it is not yet clear how that market will evolve.
Finance Colombia: Viva is based here in Medellín at José María Córdova International Airport outside the city in Rionegro. Bogotá has been a victim of its own success and El Dorado International Airport is super-congested and out of capacity. Viva is in growth mode. Can Medellin with its very small international airport (less than 20 gates) still serve your needs as a home-base hub into the future?
Félix: Well that’s a good question, the Rionegro Airport, let’s say it is a good airport, but surely given the growth of Viva, what we estimate for the future…this Pandemic obviously changes all, because traffic is going to be reduced strongly in the first stage, but when it returns to normal and we return to the Pre-COVID levels, if you are talking to the Rionegro airport for an expansion of a first stage of the part of the growth that will have to come, I’d say it would have to happen within the next two or three years so that Medellin does not collapse like Bogotá, we were in those conversations before COVID hit, so I told you now the time, I think that in the next 12 months the traffic is going to have a decrease now, I believe that at the end of this year it is going to start to recover stronger, so this kind of moves everything and delays between one or two years; it delays everything, which gives us a little more time, but going to your point, we have to work together between Viva, the (municipal) airport of Medellin, the Airport of Rionegro and the cities of Medellín and Rionegro to have an airport at the level of (international) expectations that is needed. If we want to continue increasing passenger levels for the next 5 to 10 years within 20 or 30% per year, the greatest growth of that will not all be in Medellin because you know, we operate in many other airports, but if our main base is here and the main airport for Viva is Medellin in Rionegro, then we need the airport to join us in this expansion plan.
Finance Colombia: Yes that fascinates me because they finished, they just finished this growth project, the good thing is that it shows the vitality and energy of the city, Medellin is a city that is progressing, which is increasingly in demand in the area, one thing that fascinates me about the airport is that I was talking to my wife the other day and I reminded her: “You know that it costs more to go from Medellin to Rio Negro in the taxi than the cost of the flight with Viva Air? I pay more for the white cars (dedicated airport taxis) than I pay for VIVA and it fascinates me!
Felix Antelo: Another thing Loren, a thought: either the taxi is very expensive or the ticket is very cheap.
Finance Colombia: (Laughs)
Felix Antelo: Either one, the truth is that the taxi is expensive, and our tickets are very accessible too, they have very low prices.
Finance Colombia: I remember how six years ago I paid about $70,000 pesos for an overnight bus from the north bus terminal of Medellín to Bogotá, but VIVA costs less than the bus and if I am concerned about my health, I can spend 30 minutes on a plane or 12 hours on a bus and buses do not have HEPA filters!
Felix Antelo: Yes that too, exactly then Loren, a final reflection of mine that you just told me, there are few closed spaces safer and healthier than inside a plane, so you just said, you are talking about a modern plane, an A320 plane, HEPA filters keep 99.9% of the air constantly cleaned, free of bacteria and particles, there must be few more closed places, I do not know any place, after being outdoors, that is safer than a plane.