10 Feb Onward and upward
Gilles Feith, CEO, Luxair Group, tells us about the maneuvers his airline made to navigate the travel industry’s worst ever crisis and why the stage is now set for future growth.
How has the pandemic affected the different segments at Luxair Group?
I would venture to say that no sector has been hit by the COVID-19 crisis as hard as the travel sector and, in particular, aviation and all surrounding it. To date, not everything has been coordinated between all the different fields, so, as an airline, the task at hand is to learn to live with the situation while gaining experience to tackle similar situations in the future.
As you know, March to May 2020, we were completely grounded. When I came in for the relaunch, I had a choice: we could have just buried our head in the sand like an ostrich and waited until the storm passed, or we could push the envelope to the maximum, flying whatever, whenever, and wherever possible. I chose the latter route. Now, this is an extremely difficult thing to do because you have to be relentless, opening new routes to new destinations; and some work while others will not. We are also subject to the rules and regulations, not only from the Luxembourg authorities but also from all the countries we fly to and connect with.
I knew we had to first work on people’s psychological state and their general mood, which had been so heavily affected. In response, in 2020 we launched an art plane with SUMO!, a Luxembourgish artist. This plane was plastered with positive messages saying ‘Relax, Up and Away, Live Life Like it’s the Weekend.’ This was not done as a publicity stunt. We just wanted to elevate people’s moods. The artist was given free rein to run his own communication campaign, and he also did it for free. He was given a percentage of the merchandizing, but he did it as a gesture to encourage people to break out of the psychological burden that lockdown and isolation had created in everyone.
That is the most important takeaway also from the COVID crisis. We have to keep going and keep pushing out of this. If I had to summarize the COVID situation in aviation in one word it would be perseverance. We need to persevere. In June of 2020, everybody in our industry thought we would push through quickly, and the situation would be over. But it was not. It is a continuous push, and it will continue.
To give just a bit of background information, we were founded in 1961 and we are a full-service airline with 11 small planes, the de Havilland and eight Boeings. In 2019 we were running seven rotations a day to London City, four or five to Geneva, four or five to Vienna, as well as others. Today, you cannot sustain such a network because the demand is simply not there.
Beginning in 2020, we began to steadily increase our connectivity network. One of the first connectivity routes we opened was on the 29th of May 2020, with Stockholm. In December when the Alpha variant hit, we were the only airline flying from Europe to the UK. We also had passengers from Portugal flying through Luxembourg to the UK. Because we were still flying, we became a kind of hub. Remember, my maxim is always fly as much as we can. We opened new destinations to compensate for the missing rotations. Our planes were sitting there needing to fly, and so we opened many new routes: to La Rochelle, Toulon, Usedom, Bologna, Dubai, Oslo, Belgrade, Rostock, Krakow and Bucharest. Our strategy was to diversify, doing whatever we could, offering demand and sustaining connectivity on our co-routes.
From the very beginning we spared no cost on sanitary measures. All disinfectants and related materials were offered for free. Luxair also pledged to work together with other sectors that were suffering. This year we launched our first ever collaboration with HORESCA, the local restaurants association, to do an incoming campaign. Luxair had never done a campaign to get people to come to Luxembourg. They offered a 10 percent discount on the hotel stay and we offered $55 off the next flight for people coming to Luxembourg. I have friends in the restaurant business who have lost all their savings. We need to stick together. A crisis, remember, is always an opportunity to bring us closer together. The participating hotels are on our page, so clients can see them and take advantage of the offers more easily. This initiative launched on the 13th of June and will run through September. In fact, it has already had rather good feedback through voucher redemptions.
We have a social responsibility for the 3,000 people working directly at Luxair, and the 14,000 people in the sector, to do the best we can again and guarantee operational continuity. These are families who have to pay their mortgages. We cannot downgrade their contracts until this blows over. This is another reason we fly as much as we can. In terms of management, it is significantly more complicated and riskier to open 10 new destinations than to just wait it out, but we did it because we have a social responsibility to our pilots and to all the people working in the sector. All those additional rotations mean more salaries, but we have to be there for everybody.
Of course, the numbers are not outstanding at the moment. In terms of passengers, we are down 81 percent and Luxair Tours is down 49 percent. The outlook is also not so great. From January to May, there was a 90 percent decrease in business travel and 38 in leisure, with a total decrease of 75 percent. However, I am not the type of person that goes around lamenting about statistics. What I say to my people is that this is way better than if we would have just served our old network less. Hence, these are actually, from my perspective, absolutely not the worst-case scenario figures.
What has the cargo business meant during COVID-19, and is this a new model of business that can be applied in Luxair, as in a shift toward more cargo and fewer passengers?
On the 25th of March 2020, I was called to the cargo center by the chief of staff for the defense minister. The army was also asked for help because the workforce was depleted. It was undoubtedly a troublesome time. You needed papers to cross the borders, and people were intensely afraid. There was panic, particularly in the cargo center, because there was all this merchandise from China. There was an impression that the boxes could be contaminated with COVID. There was a great deal of chaos and instability, which led to a sharp rise in the cost of labor.
The increase in volume in 2020 lead to a loss of $12 million in the cargo handling business, which differs totally from the cargo airline business. Full freighter airlines, like Qatar and Cargolux, are artificially boosted because of the connecting and international travel with the long-haul travel not being there. 2019 was a tough year for full freight cargo airlines, and 2020 would have been difficult for them as well. Business was declining because cargo is a side gig for a normal airline, in which most cargo is flown in the belly of passenger planes. It was simply not there. Essentially, we had a six percent increase in volume, but the loss was about 10 percent of the turnover. Nevertheless, we had to pitch in. As I said, there was not enough labor, so we had to draw from different sources, and we had to award premiums. It was a terribly difficult situation. Even this year, although we are making some money in freight, it is still an exceptionally low margin business. Since it is still not automated, it is labor intensive, which in a high-wage country is always a challenging thing.
To answer your question, for me, the cargo business is something which we are today happy that we can do it, but which has a very uncertain future. We must see how it works with belly cargo. The reinvention we have done in the airline business needs to also be done in the cargo business. We need to analyze, innovate and see what we can do best in our model and under our constraints. There may be an opportunity in high-value cargo because we have a very efficient process and a very secure site. I also see an opportunity, perhaps, in pharma cargo, which is also on the rise.
Will competitiveness also go through alliances, and not only with the big three but maybe with high-speed trains or other type of alliances? How do you approach competition?
First, it is important to say that competition is not an evil. Competition is necessary because all businesses need to be challenged every so often. However, what is also necessary is a level playing field, especially in aviation. The playing field is not, in fact, level, and here I come back to the Do No Evil motto. It is tough to compare two airlines flying into Europe if we consider C02 regulations and now all the discussions about the taxation of fuels. Any new regulations should be introduced on a level playing field. Competition should not be influenced by outside factors.
Just as with meat, flying cannot get cheaper. If flying gets any cheaper, it will come at the cost of either the environment or customers. The plane is not a factor; it is the fuel, the people and the CO2 issue. If flying gets cheaper, it will not be better. This means that we have to see what model will be proposed for the future. The model change in aviation may be that you might not fly five times to one location, opting instead to go once or twice. Business travel may mean that instead of five people flying for business purposes, only two or three might go. I predict that it will not be the number of trips decreasing after 2024, it will be the amount of people traveling in each group that will decrease. I see at least a 30 percent decrease on the business travel side.
We are open to alliances, and we are looking into it, consolidating as much as possible. I am aware that with our plane capacity—the 189, 140, and the 79—we are not an airline that can service a high-demand route. We have to fly in a niche area, and we have to fly with connectivity. For example, Toulon, one of the new destinations, is a small airport that is remarkably close to Saint-Tropez. The airport was thrilled that we came to them. Again, we also fly to Nice, Montpellier and Marseilles. Then I thought that now we have to give our customers a choice. Our innovation was to allow them to purchase multi-city tickets online. You will be able to fly from Luxembourg to Toulon and then come back from Nice to Luxembourg. You should be able to purchase it easily, and you will not be penalized for changing airports and cities. People can customize their own travel plans. Some people may want to fly from Biarritz, which is a pleasant location, to La Rochelle, and then rent a car. Perhaps you take a delightful holiday from Bari to Napoli, or from Rome to Napoli. The best part is that the prices are reasonable. We have had to get broader in our innovations. This was an IT development we undertook during the lockdown: tackling the challenge of fulfilling people’s desires to be more individual and more in control. It makes total sense that we adapt to their needs.
In LuxairTours we also launched an integrated dynamic production as a new strategy. Rather than just the ordinary hotels, we offered apartments, villas and boutique hotels because we saw a shift in demand and had to cater to that. Again, this is another innovative IT development. I want to have at least 500 hotels by next year. You can spend a week in Portugal for $1,100. In Mallorca, we have 30 apartments at terrific prices. People also want something different because of COVID. They want a nice apartment and to be with their families in a controlled environment. We took the time to do this carefully, reinventing our business model on that side as well.
How is Luxair facing the issue of sustainability and what specific actions are you taking to make the airline more sustainable?
First, let me just say that I drive an electric car and I pride myself on being environmentally conscious. Bur an airline should do no evil, and, really, no company should do business at the cost of nature.
Aviation cannot be green washed of CO2 use, but, then again, we are one sector that fully compensates for their emissions, which is getting more and more expensive. We are also thoroughly involved in the research because the environmental friendliness of a plane is linked to more efficiency. Therefore, if planes are better for the environment, it is also better for the airlines. Airlines have an immensely powerful interest in investing in clean planes. As an environmentally responsible individual, I am delighted that even the companies looking just at the costs will have to change and re-fleet their planes.
We are planning to have a re-fleeting in 2025-2026, and the planes will be a lot more environmentally friendly. With the current cash flow problems, it is not on our immediate roadmap. However, there are smaller actions we can enact, such as replacing a pushback tractor, which consumes about 50 liters of diesel a day and has a highly polluting enormous engine. We plan to to implement an electric model too, although it will cost us twice as much. Fortunately, in Luxembourg, there are significant incentives in place to encourage electric car leasing. In any event, we should do whatever possible until we can do the re-fleeting. Essentially, everything we touch can be made better for the environment. I tried to ban as much any plastic from the plane as possible, even if it meant having your holiday champagne in a paper bag. You would not believe how many people at six o’clock have the first glass of crémant as an official kickoff ritual to their vacation. We should also focus on local products wherever possible. Flying should not be a convenience. It should be something special, with perhaps fewer people flying while maintaining value. Aviation needs to be kept sustainable and acceptable for the environment in the long run.
Some companies could use this as an excuse to take a step back from investing in sustainability, but I would say that we are past the point where that is possible anymore. From a regulatory and political point of view, it is just not acceptable. I am the opposite. I want to push the issue. There are different ways to solve this, and everything should be done so that nobody cuts corners on sustainability. Perhaps funding or sector aid should be directly proportional to environmental criteria.
Another fun social initiative we are implementing that is especially dear to me is an internal campaign called Work as You Are, in which we relax the dress code for our staff. We will be one of the first airlines to allow small tattoos, ear piercings, colored nail polish and long hair for men. I believe people should feel happy at work. If we cannot give people a prosperous outlook, you can at least let them feel free to express themselves with their sense of style.
How do you face the challenge of the quickly evolving industry and do you collaborate on R&D solutions with universities or other like entities?
I have been here for over a year now, and I have yet to have the chance to do so, having been so wrapped up in the crisis. I did, however, sit down with people to make an internal management training plan to identify high potential profiles. Coming from a heavy digital background, I know we need to invest in the future, something we have already begun in many of our projects. We need to innovate and find new solutions for the future.
In August, we will launch some new products. Last-minute offers, for example, which will appear on Thursdays or Fridays, allowing you to fly that weekend with a weekend return. We might, say, offer 10 tickets to Rome at a very discounted price. These are seats which otherwise would have been empty. People can have a spontaneous weekend in Rome or Paris.
There are also different areas of collaboration. I sought collaborations with local retailers. For example, a local supermarket might have some special action related to a specific country, such as Portugal, which is a big thing here. If they do an action, we might join in with some tickets. A perfect example is our booking engine. As it stands, you cannot choose Spain as your origin city. You can only go from Luxembourg to our destinations. This is another IT innovation project in which we want to work together with LFT Hotels to offer special rates for Luxembourg. It truly does not matter whether people fly from Luxembourg or the other way around. We understand that we have to adapt to the demand, because the demand will not adapt to us. I also want to have eco-friendly hotels in our catalogue, another emerging interest. It is my responsibility to offer new concepts.
Where would you like to see Luxair in the next five years?
The quick answer is that I want to sign a re-fleeting agreement, which should not be misinterpreted as the desire to sign some big contract. If I sign a re-fleeting agreement, it means that my shareholders, my banks and the financial sector believe in our future as a company. For me, in business the strongest thing you can get in terms of outside validation the belief in buying an asset that will last us 30 years.
What would you say to any brands or businesses that may want to come to Luxembourg?
I am a native Luxembourgish guy, born and raised here, so I feel I am qualified to speak to this. What I love about Luxembourg is that it has very tried-and-true ways. There are problems like in any country, but in Luxembourg they can get solved quickly. Here you know everyone, and you know what needs to be done and how to get it done. People are pragmatic and speak so many languages. Luxembourg offers quick solutions. This is a driving factor for business.
The success of the Luxembourg model, which has been proven, is something you have to see for yourself. It is easy to do business here. As well, I am highly active with many friends in the expatriate community, and Luxembourg is really a joyful land for newcomers. We have a strong sense of community here and a lot of things to do. It is a wonderful place to visit, a wonderful place in which to settle down.