SUNBIZ

Airline Success Owed To Leadership: Viljoen

Fiji Airways managing director and chief executive officer Andre Viljoen said profits were derived from investments, not just airline ticket sales. This year’s revenue increased by nine per cent to $1.12 billion at the end of the latest financial year, compared to $1.02 billion in 2019.
29 Aug 2020 16:44
Airline Success Owed To Leadership: Viljoen
From left, Fii Airways managing director and chief executive officer Andre Viljoen, Attorney-General and Minister for Economy Aiyaz Sayed-Khaiyum with Fiji Airways chairman Rajesh Punja. Photo: Charles Chambers

Leadership at Fiji Airways was instrumental in its consecutive years of profits in excess of $1 billion.

Fiji Airways managing director and chief executive officer Andre Viljoen said profits were derived from investments, not just airline ticket sales.

This year’s revenue increased by nine per cent to $1.12 billion at the end of the latest financial year,  compared to $1.02 billion in 2019.

The increase in revenue was despite Qantas, a 46 per cent shareholder of Fiji Airways, becoming a competitor against the national airline since July last year.

Qantas grabbed 95,000 passengers last year in the code-share agreement, which yielded an 11 per cent decline that resulted in a $65 million loss of revenue.

 

Fuel costs

In 2018, the airline spent $50 million on fuel.

In the last financial year, the cost of fuel dented the company’s finances with a $29 million expense.

Mr Viljoen said 30 per cent of the airline’s expenditure was on fuel costs, even with hedging to cover risks.

The airline addressed the concern by reviewing ways to improve flight operations, types of aircraft and the purchase of the Skybreathe software – an eco-flying solution which increases fuel efficiency and savings.The company also hired Seabury Capital, a leading global investment bank, advisory and investment management firm, to look at streamlining the company’s financials.

Mr Viljoen said the company saved $41 million last year in costs, while savings was used to offset fuel costs for 2019 and the previous year.

 

Small Airlines Closed Down

In the past 10 years, 80 small national airlines, similar to Fiji Airways had “disappeared.”

Mr Viljoen said the disappearance was owed to over-capacity in the market, while Fiji Airways was dealing with a $100 million loss – from loss of code share with Qantas and increased fuel price.

He said the loss was managed through the grit and resilience of the leadership of the company and its employees.

“It is this same grit and resilience which we are using to survive through COVID-19.”

Mr Viljoen said small airlines like Fiji Airways were faced with challenging fundamentals such as distance in destination from countries like Hong Kong, China, Japan, Singapore and the US continent.

“Here, your ticket prices are higher and your holidays are more expensive and challenging,” he said.

Mr Viljoen said 95 per cent of customers were holidaymakers who looked at pricings, while business travellers did not really care.

Bigger airlines carried more business travelers, he said.

The costs for rising fuel prices were mitigated through the air fares paid by such groups of people, Mr Viljoen said.

“With the bigger airlines, the playing fields aren’t even,” he said.

“They have deeper pockets and market power, which we don’t have.”

He said the Frequent Flyer programmes introduced by some airlines also played a major role in drawing customers.

“When you take all these fundamental issues, and look at Fiji Airways and its size, and the fact that we have produced the type of results that we have, speaks volumes of how we punch way above our weights.”

 

Currency Exposure

Mr Viljoen said the airline earned the bulk of its revenue in Australian and New Zealand dollars, but paid the bulk of its costs – such as aircraft acquisitions and leasing – in United States dollars.

Such currency exposure cost Fiji Airways $11 million loss last year.

“To convert Australian dollars and New Zealand dollars to United States dollars creates this currency exposure,” Mr Viljoen said.

 

Key Achievements in 2019

  • Skytrax four-star rating – attained through a change in culture in the employees and the way they treated customers. The rating was on par with airlines such as Qantas, Emirates, British Airways, Lufthansa and Air New Zealand.
  • Best airline staff in the South Pacific.
  • Top 20 best crew in the world.
  • Fourth most improved airline.

 

Aviation Academy

Fiji Airways started using its $65 million Aviation Academy in Namaka, from December, 2019.

“Today, we have one of the most modern, advanced training academies for our pilots and cabin crew facilities in the world,” Mr Viljoen said.

“In the past, we had problems where every six months, our pilots had to go overseas for training.”

Mr Viljoen said being from a small airline, Fiji Airways pilots were given the worst time slots for training in simulators, where the company was charged premium rates.

He said investment would save costs and the academy was now drawing pilots from airlines such as Aircalin, since COVID-19 denied access to countries where pilot training was offered.

 

Max 8

Mr Viljoen said the Boeing Max 8 aircraft acquired last year by the airline are part of the modernisation process, that replaced the ageing Boeing 737-800 aircraft.

“The Max 8 aircraft were purchased to save fuel – 15 per cent more fuel efficient – and it is low maintenance,” he said.

“Regretfully, all Max 8 aircrafts were grounded.”

The grounding of two Max 8 aircrafts and return of two of the five 737-800, brought a sense of dilemma, Mr Viljoen said.

The dilemma was on servicing routes via the Max 8 aircraft.

Mr Viljoen said aircrafts from other airlines were used to maintain Fiji Airways routes.

All revenue lost and all costs incurred were claimed from Boeing. Boeing settled all claims from Fiji Airways, he said.

“It is widely considered in the industry that Fiji Airways received the best settlement from Boeing for the Max 8 aircrafts,” Mr Viljoen said.

The aircrafts were still grounded and the airline was still being compensated.

It is believed that the Max 8 could be flying again by October.

 

Fleet Acquisition

“When you purchase an aircraft, you go to what we call the original equipment manufacturer,” Mr Viljoen said.

The type of aircraft needed is based on the route it proposes to service.

“There is a catalog price which is advertised,” he said.

“The more discounts you get, the more credit you get, before a flyaway price for the aircraft is reached.

Mr Viljoen said purchasing an aircraft has stringent repayment guidelines.

Very few airlines have the cash to pay those deposits, he said.

“That’s why very few air crew airlines buy aircraft,” Mr Viljoen said.

“It is the cheaper form of finance, because there’s no middle party, so of course it’s going to be cheaper.”

While airlines had to finance the 80 per cent of the cost of an aircraft, Mr Viljoen said there were very few banks in the world that would finance such margins. In the last 10 years, many airlines have failed in their repayments.

“We want to have good securitisation of the aircraft because the security for the loan of 80 per cent is the aircraft.

“The company issuing credit insurance insists that we have to form a special purpose company.”

In the case of Fiji Airways, Waqavuka was formed and owned by a security agent.

“Once the aircraft is paid off, all the ownership reverts Waqavuka to Fiji Airways.”

Feedback:  charles.chambers@fijisun.com.fj

 

Fijisun E-edition
Total Excellium
Subscribe-to-Newspaper
Fiji Sun Instagram
Subscribe-to-Newspaper