After achieving positive operating results this year, the board will "start working on improving the net result" in 2023.
TAP’s CEO defends a partner for the airline to leverage sales and have greater power to negotiate with suppliers. Whether it is a joint venture or a new shareholder is for the government to decide.
After achieving positive operating results in the first half, Christine Ourmiére-Widener says that next year the board will “start working on improving the net result”. One of the goals is to reduce the cost of debt by going to the market to restructure it. To do so, the company will hold roadshows with investors. It also intends to reduce its exposure to the dollar.
The CEO guarantees that, for now, TAP does not feel any impact from the economic slowdown or inflation and expects the third and fourth quarters to be similar or even better than 2019. On the cancellations and delays in the summer, she admits that the company “was perhaps too optimistic about the aircraft delivery schedule”. The situation has improved, but “getting back to normal in Lisbon does not seem possible, because of the infrastructure.”
Next summer is already being prepared and the CEO hopes it will be identical to this one, particularly as TAP has a limit of 96 aircraft to operate, as stipulated in the restructuring plan. Giving up 18 slots at Humberto Delgado airport to easyJet “will not affect” the increase in capacity.
You said during the presentation of the results on Tuesday that TAP is ahead of the restructuring plan and will end the year above the established target. If the company maintains this performance is it possible to reach profits before 2025?
Why not? The difficulty lies in the below-the-line results. As you know, operating results combine operating costs and revenue. If you have good efficiency and plan better, have the right network, try not to be too creative about which destinations to open… If you do it with discipline and rigour, it is possible to improve the operating result. What my CFO [Gonçalo Pires] tried to explain is that what is below the line is the legacy and it’s time to restructure it. We will do our best, but it is more complex.
What is most difficult about that legacy?
I think it’s all the financial costs, the depreciation and amortisation. We have the cost of the fleet, the number and the type of aircraft. After that, there are the bonds and the interest on those bonds. Next year we will have the perspective to address these issues. This year we had to ensure operational improvement and next year we will work on improving the net result, going to the market and seeing what we can do to restructure the debt.
This year we had to ensure operational improvement and next year we will work on improving the net result, going to the market and seeing what we can do to restructure the debt.
What are you going to do to restructure the debt?
What Gonçalo mentioned is one dimension. We are going to do roadshows. We will start working with investors because we have bonds that are going to mature in 2023 and 2024. That will be an important indicator.
The idea is to reduce the interest costs.
Yes. The important thing is to reduce all the costs that are below the line and that are too high. It is easy to compare with the results of other companies. With the same or even higher operating result, in the end, we have a negative result while others manage to stay positive. The question is how to reduce this significant gap, to be competitive not only at an operational level but also in the net result. We have to work with the different partners, the fleet. We work a lot with Rolls Royce, for example, with Airbus, and with the aircraft leasing companies. It’s not just the cost of the aircraft, it’s also the cost of operating the aircraft.
Two-thirds of the debt is in dollars, which affected the results in the second quarter, given the strong devaluation of the euro. Is the idea to change this aspect as well?
In our industry, leasing contracts, and the purchase of aircraft or engines, it’s all in dollars. We are starting to talk about doing contracts in euros. Decreasing our dollar exposure is very important and the finance team is already doing that.
You mentioned the constraints. Is the situation calmer now? Can it return to normal in the coming months?
Going back to normal in Lisbon I don’t think is possible, due to the nature of the infrastructure. But it is better than it was. We had problems with SEF, we still have some difficulties with Groundforce and the level of resources, because workers are leaving because they find better jobs in other companies. They have recruitment difficulties and there are delays to get the access card to the airport. The processes are better at SEF. The ANA has been increasing resources. But things are still not 100% perfect in Lisbon.
And what about the airline company? Doesn’t it have responsibilities too?
We had delays in the delivery of aircraft, we had to find ACMI [Aircraft, Crew, Maintenance and Insurance – aircraft, crew, maintenance and insurance] on the market. We had additional work on the A330-900neo and that’s why we had to do an ACMI with Hi Fly as well. Then there is also the impact of the other airports. What we have seen is that some are doing better, but others are still having problems.
What is the current number of cancellations and the level of delays?
Last week 24 flights were cancelled [round trip].
We were perhaps too optimistic about the aircraft delivery schedule.
Weren’t the cancellations also because of mistakes in planning the operation by TAP?
Some aspects could not be expected. The fact that we were supposed to have 90 aircraft before the summer season and there were aircraft that were not delivered. I don’t know if I would call that poor planning. The plan was to have the aircraft. Not getting any of the six aircraft on time… The question is how much backup do you plan for? Do you plan that you will not get any of them? Half? After that, predict the constraints at Heathrow, Amsterdam and Frankfurt.
What lessons are there to learn from what happened in the summer?
Many. We were perhaps too optimistic about the aircraft delivery schedule. People were perhaps optimistic and excited about the growth of the company, which is positive. We underestimated the fact that there were aircraft that came from another airline that was not in good shape, Air Europa. Perhaps we could have engaged ACMI earlier.
What other lessons are there?
Regarding ground handling [ground handling service, provided by Groundforce] understand better the impact of pressure, of low wages. We’ve given them all the support we can. Regarding crews, we hired in record time over 400 workers for cabin staff and 85 for ground staff. We have been opening branches everywhere. I think that with the crisis we have learned that we have to work better together. Many things can be improved if we have all parties around the table, like ANA, NAV, ANAC and the other airlines. I hope winter will be an opportunity to revisit what has happened, understand what can be improved and not repeat [the mistakes] next summer.
Do you have any news from the government regarding the improvement works at Humberto Delgado airport?
No. I follow the news.
How close was TAP to 2019 levels in July and August, for example in terms of revenue?
I can’t give you the numbers. That is why we are showing data on the level of bookings for the third quarter and you see that it is above 2019. It will be very consistent with the second quarter’s performance [operating revenues almost matched 2019].
What about the fourth quarter?
We have a huge peak around Christmas which is very important for the company’s results. Many airlines in Europe don’t have this peak. The level of bookings is in line with 2019. Honestly, and being transparent, the only impact we felt was a fluctuation in point-to-point bookings in Europe. I think some of our customers reacted to the airport constraints. Now it’s ok because there’s less noise about the constraints.
the only impact we felt was a fluctuation in point-to-point bookings in Europe. I think some of our customers reacted to the airport constraints.
Don’t you notice a lower demand due to the economic slowdown, and the rising inflation rate?
Not yet. It doesn’t mean it won’t happen. People will still have money to spend and go on holiday or visit clients and sign contracts. We are looking at the forecasts to plan for next summer. We are starting to budget for next year.
At this point do you look at next summer still expecting it to be similar to this one?
Yes, because we have limited fleet growth [99 aircraft as per the restructuring plan]. The question is more where we are going to put more capacity and we will not be very creative about new destinations. We will be cautious. In a year with full visibility, it is possible to be entrepreneurial and test the market. This will not be the case next year. As CEO I will encourage you to reinforce what works, rather than start exploring new opportunities.
TAP has 96 aircraft, when do you expect to reach 99? Next year?
The plan provides for 99 aircraft in the last year alone. Next year we will have exits and entries but we will not reach the limit.
You are going to relaunch the Stopover programme. What will be different?
The programme is little known and we need to communicate it better. It is a unique programme and has the potential to be used more. It is good for Portugal, for TAP. It’s not closed yet, but it’s an additional stop and more days. Instead of one stop at one destination in Portugal, they can stop at two and can stay for more days.
Does giving up the 18 slots at Humberto Delgado Airport to easyJet mean that TAP will have to reduce capacity or routes?
No. We will reorganise our rotations with the slots we have. We will have to adjust schedules, but the proof is that we will add two narrow-body and one wide-body aircraft and we will continue with a slight increase in capacity. It will not affect us next summer.
The long-haul is profitable and the short-haul loses money. In the long-haul category, Brazil is the primary market in sales, after Portugal.
What contribution did Brazil and the USA make to the group’s results in the first half of the year?
We do not disclose those figures. The long-haul is profitable and the short-haul loses money. In the long-haul category, Brazil is the primary market in sales, after Portugal. Most of the revenue on routes to Brazil is generated locally. It is a major driver of profitability, but it is not the only one. In the US we are reviewing our commercial strategy and we have a new director. I think we can be stronger, maybe not at the level of Brazil… We are trying to be closer to our partners, JetBlue and United Airlines, with more codeshare [shared flight sales] agreements. In the US we are very competitive on connections from southern Europe, because of the structure of the route, because you don’t have to go up and then come down. For example, from Milan or Nice, with one stop.
Jet fuel prices are down about 17% since their peak in June, but they are still very high. Still, could the price of tickets come down?
The tariffs always reflect the market. We are more followers than leaders. If at some point we have to adjust prices to be competitive that is what we will do.
How many price adjustments have TAP made?
We have made three waves of increases, but not always on the same routes. From now on, the value of fares will depend on demand. If demand decreases, prices will go down.
To survive in the long-term, will TAP have to be integrated into another group?
We have external factors we don’t control, like the price of fuel or exchange rate variations. Yes, having powerful partners is important. We see this with codeshare. On the Tel Aviv route, for example, we have an agreement with El Al. In Dubai, we have it with Emirates. It works very well. If tomorrow we can replicate that across all our outlets with one partner and have greater power over suppliers, sure. It’s a question of revenue and costs. If it brings more revenue and the ability to reduce costs…
If tomorrow we can replicate that across all our outlets with one partner and have greater power over suppliers, sure. It’s a question of revenue and costs.
So a partner makes sense.
Any company that can contribute to both.
An equity partner who buys a percentage of the company or even the entire company?
It could also be a joint venture. In our industry, there are distinct steps. There is codeshare, joint venture, equity or full control. There is a big list of things that can happen in the future that can make us stronger.
Are there meetings with potential partners?
We meet with everybody. That’s my job. We try to have more codeshare agreements. If you are talking about something more strategic, that is the shareholder’s responsibility.
When will Portugália be integrated into TAP SA?
That is also a question for the shareholder. A general meeting is required. I hope it happens next month.
What changes with this integration?
It is a corporate integration. Nothing more. It means that Portugália will be in TAP SA instead of TAP SGPS. It will have no impact. Portugália provides the capacity to TAP at a competitive cost level. It is our own ACMI. It is the same as working with Hi fly or Air Bulgaria, but it is our own company. The relationship will be the same.
Why change then?
It is a corporate evolution. It is an expectation of the shareholder, who might want to simplify the corporate structure. For the executive team, we believe it can simplify a lot to focus everything on TAP SA.
Dubai’s National Aviation Services (NAS) is in exclusive negotiations with Groundforce to take a 50.1% stake. Did it also have the best cost proposal for TAP?
As Groundforce’s main client we are negotiating with them for the next contract. We have been having meetings. From the beginning, we said we would do everything to ensure the sustainability of Groundforce because it is the handler of our hub. We are in contact with NAS.
When do you expect to have that contract closed?
What we said is that we wanted to have the new Groundforce figure as soon as possible because we have to prepare for next summer. Having a stronger Groundforce would be very important.
Will this new contract mean lower costs for TAP?
We are always looking for efficiency. We will see what is possible, but we will try to reduce costs.
NAS and Menzies are showing tremendous motivation to do a good job in Lisbon. We have to work together.
Were you not surprised that Swissport did not win the process, considering that they already work with TAP at many other airports?
They gave up. The process is not managed directly by us, but by the insolvency administrators. We are in contact with Swissport because we work with them on 27 stations, but it is their decision.
Would you have wanted Swissport to acquire Groundforce’s capital?
It is not a matter of preference. The most important thing is that Groundforce has investment, namely in technology and that it has an experience that benefits all employees. Lisbon is a big airport, but it’s complicated.
Has NAS committed to making those investments?
NAS, as you know, is acquiring Menzies. Menzies has experience in Europe and NAS and Menzies are showing tremendous motivation to do a good job in Lisbon. We have to work together.
Will TAP sell its 49.9% stake in Groundforce? Is it provided for in the recovery plan?
It is too early to answer. It will be part of the ongoing process with Groundforce. We commit to the plan so we will have to look at that.