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Quest Means Business
Airlines Shift To Profit As Passengers Return; Saudi Arabia Seeks To Boost Oil Prices; Apple Unveils Mixed Reality Headset; Walsh: We Need More Sustainable Fuel Production; Al Baker: Industry Is Far Behind Net Zero Goal; Air N.Z. Passengers To Weigh In. Aired 3-4p ET
Aired June 05, 2023 - 15:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN INTERNATIONAL HOST: An hour to go of trading on Wall Street, start of a new week, and if you take a look at the way the markets
are moving -- interesting developments. Everybody is watching and waiting but the afternoon has seen somewhat of a sharp fall in the market. We're
watching closely over the course of the hour to see how that progresses.
The main events of the day that we are following for you tonight. It is a special aviation program. The chief executive of Korean Airways tells me
he'll fight to the end get his merger past EU and US regulators.
Apple shares hit a record high. You're also going to have how the market has been reacting to its first major product in years.
Live from Istanbul on Monday. It's June the 5th. I'm Richard Quest, and I mean business.
Good evening tonight from Istanbul where the world's aviation community is gathered. IATA, the International Association of Airlines is having its
annual meeting here. It is one of those events where just about every CEO, every airline CEO in the world comes here and attends.
There is a celebratory mood in Istanbul, as 2023 is shaping up as a banner year for aviation.
So tonight, we have an embarrassment of aviation riches. The chief executives of United, Qantas, Air France-KLM, Qatar, Air New Zealand,
Pegasus and the new Riyadh Air will all be joining us along with of course, you'll hear from the IATA director-general, Willie Walsh.
Now airlines have turned into a profit. Don't get too excited. It's about $10 billion, which makes just 1.2 percent on the margin. It's better than
nothing, and it is a new forecast from IATA, double what they were seeing in December. The reason of course, cheaper fuel and China reopening.
There are also strong passenger numbers. IATA is forecasting four billion passengers this year, marginally down four percent from 2019, but that
shows you just how the recovery has taken place.
There are still headwinds. All the airlines here have reported serious difficulties with things like supply chain. They've employed more staff, so
there won't be the fiasco of last year, but there are still pressures in the system, which will make summer 2023 a difficult time.
I asked Willie Walsh, the director-general of IATA, why and how can the industry handle the recovery?
(BEGIN VIDEOTAPE)
WILLIE WALSH, DIRECTOR-GENERAL, INTERNATIONAL ASSOCIATION OF AIRLINES: Well, I certainly told last year with the disruption that we saw in many of
the European hubs. I think in in a lot of cases, we should avoid that this year.
But some of the problems that we didn't face last year we will face this year, principally Air Traffic Control. So you know, there are concerns
about the US and we've already seen capacity reductions, because they know they don't have sufficient resources.
We're seeing already in Europe delays, three, four times what we were expecting. So, I think ATC is going to be a big factor this year and the
other thing that's playing on the industry, which didn't have as big an impact last year are the problems with suppliers.
QUEST: There is a variety of issues. Certainly, the US has had some very troubling runway incursion issues, and they cannot supply enough Air
Traffic Control. But you're getting a similar sort of situation in Europe with strikes.
WALSH: Yes. It is exactly that. So in Europe, the resources are there, but the issue that we face, particularly from an agency point of view is French
Air Traffic Control going on strike every day, and when France goes on strike, it disrupts traffic right across Europe.
QUEST: The minister of Transport in France when I interviewed him on this point didn't seem to give any ground. He didn't seem to suggest that this
was the big issue.
[15:05:10]
WALSH: No, it is the big issue, and --
QUEST: It wasn't going to change -- it wasn't to change the law.
WALSH: No, they're not going to change and we've known that for some time. You know, what we've been pushing for is, you know for France to facilitate
overflights.
So if the French want to shut their country down, fine. You know, let them shut their country down. But it's the idea that they can shut Europe down
that is causing problems because once France goes on strike, you can't overfly the country, and then it's putting pressure on Air Traffic Control
systems around France and that is causing delays and cancellations in other areas, so it is chaos.
QUEST: You're not going to get high altitude overflight exemptions, either.
WALSH: Well, I think in time, we will, because I think in time, we can demonstrate that this situation is just unacceptable.
There is no reason for people to disrupt flights that are going from Ireland to Spain. You know, why do the French want to disrupt that? Because
that's disrupting Europe and that is the point here.
QUEST: That is the whole point of industrial action, Willie.
WALSH: No, it is not. No, the industrial action is to disrupt things in France. They are annoyed with what is happening in France. They love
Europe.
QUEST: You put as much pain in as many places. That is the point to pull up industrial action.
WALSH: No. We have to get this sorted out, because the environmental impact alone, I think gives justification to address this overflight issue.
Because the flights are operating, they're just operating around France, extending the distance to have to fly, burning more fuel, producing more
CO2, and that has to be addressed.
QUEST: Back to the recovery that's going -- that is sort of -- were you surprised? Were you surprised at how -- I mean, Asia-Pacific is still
slightly behind, but it is ramping up as well. Did this --
WALSH: Yes, no Asia-Pacific did surprise us. We weren't expecting China to open in January of this year. You know, the forecast we had -- so China
opening in the second half of this year. So the recovery is ahead of where we had expected.
International travel within Asia-Pacific is still only at about 56 percent of where it was in 2019. So there's still ground to make up there, but it
is recovering.
I think the closure of Russian airspace will impact on the pace of which flights between Europe and Asia, particularly China recover and indeed,
flights between the US and China.
QUEST: In your state of the industry address, your message was what?
WALSH: My message was one of quiet confidence in the future. We're back in profitability. It's been an incredible --
QUEST: For the moment.
WALSH: We have to acknowledge, you know, the levels of profitability are very, very small. But given the losses that we had encountered in recent
years, to be back in profit is a great achievement.
Now, though, the net margin is about 1.2 percent. You know, it's tiny. And I think this is another, you know, misunderstanding about our interest
rate. I've heard politicians talk about, you know, airlines are making billions of dollars.
When you look at it in a margin terms, our margins are tiny, 1.2 percent net margin, and we're celebrating it. Well, we should celebrate it because
the losses we had in the past few years were just eye-watering, and the fact that the industry could survive that demonstrates the resilience and
the determination and the actions that have been taken.
So you know, we are fully acknowledging challenges, but we are still quietly confident about the future.
(END VIDEOTAPE)
QUEST: That is Willie Walsh, the director-general of IATA.
So the industry is making money, not as much as it would like, but it is better than it has been. The pressures for airlines are just about
everywhere, especially in the United States were issues with Air Traffic Control, along with ground handling and staff shortages, means it could
also be a difficult summer for the US carriers.
Scott Kirby is the chief executive of United Airlines. He joined me and said having learned the lessons of last year, they've spent a great deal of
money ensuring the robustness of the US airline or at least United for 2023.
(BEGIN VIDEOTAPE)
SCOTT KIRBY, CHIEF EXECUTIVE, UNITED AIRLINES: United is working extremely well. You know, international -- it used to have lower profit margins, pre-
pandemic, it had lower profit margins than domestic, now, it has higher. You know, we're doing really well internationally.
And what's happened is, so we are 39 percent larger across the Atlantic than we were pre-pandemic. The rest of the industry in total is two percent
smaller.
All the other airlines retired, literally all of them, retired their wide- body fleets, and downgraded their pilots. Everyone else thought demand would never recover and because of that, they permanently downsized their
airlines and we are taking advantage of it because we're literally the only global long haul carrier that didn't do that, the only one.
[15:10:11]
QUEST: Right. we're not going to go into recession, but it's protecting against harsher economic times. That's really the key here as interest
rates continue to go up, as economies slow down.
KIRBY: Yes.
QUEST: Could you end up with too many seats?
KIRBY: We want to stay focused on the long term and like, well, we may be in a recession right now, but if we're in a short-term recession, instead
of completely changing the five-year tenure strategy, because you're under short-term pressures, we're carrying three times as much cash on the
balance sheet as we did before. We've dramatically improved our relative and absolute profit margins, and we're starting to pay down debt. And that
gives us the firepower to really ride through a short-term recession, stay focused on the long term.
So, it would take something really bad to happen in the global economy for us to really come off track.
QUEST: And this summer?
KIRBY: Yes.
QUEST: And how it's going to be. Is the jury out on how difficult it's going to be?
KIRBY: You know, I think we feel pretty good about it, both for United Airlines and for the industry at large. What we've done is really build a
lot of buffer into the system to cover for things that are outside of our control.
QUEST: How concerned are you, in a sense, obviously you are, but the runway incursions, incidents that have taken place, the number of incidents -- I
know, one swallow does not make a summer, but it suggests that more work needs to be done by the regulators, by the authorities on safety.
KIRBY: I think there is a new -- there is a reality today that there's less experience in the system, whether it's pilots, air traffic controllers, and
everything. So United, we've made huge investments in effectively increasing the amount of training and there are dozens of things that we've
done to keep the safety standards the same high level when there is less experience in the system. It means you need to do more.
QUEST: And if you then take it to the governmental level and the regulatory level, you would also be looking for them to do something similar?
KIRBY: Well, I think first we need to get the FAA staffed up.
QUEST: Really?
KIRBY: That's the key, it is getting the FAA staffed up appropriately.
QUEST: I want to just touch on sustainability and the issues. You made it a big focus for your tenure as CEO. Can the industry hit the targets?
KIRBY: The short answer is yes, but what we have to do is we have to build the sustainable aviation fuel industry. Many of my counterparts here at
this meeting will complain about you know, it doesn't exist yet, like what am I supposed to do?
And my point to them, and what United is doing is we have to make the investments in the companies that are going to build and create this. We
can't count on someone else to do it for us,.
QUEST: Even government, you can't count on government.
KIRBY: Well, we need government. We have to have government support. And so in the United States, the Inflation Reduction Act, I think the
sustainability provisions are some of the most impactful legislation that have passed in decades and that creates the foundation that this industry
can be built on.
QUEST: The rest of the world is frothing about the Inflation Reduction Act.
KIRBY: Yes.
QUEST: And trying to work out how to respond.
KIRBY: Yes.
QUEST: In a sense. But even if you get all of that, I suggest you can't hit net zero by the dates and targets because you can't generate enough staff.
Even if you get the staff, you can't reduce the carbon because of the growth of it. There has to be more drastic action.
KIRBY: You're wrong, is the answer. We can get there. Thirty years ago, when did solar -- everyone said it can never compete with coal or nat-gas,
it'll never be economic. Today, it's cheaper.
This is going to work, but it had to have the right government framework but we are all closer. We're not there yet. But if the government framework
makes it competitive, we can make this happen.
(END VIDEOTAPE)
QUEST: That's Scott Kirby of United Airlines.
On average, each airline probably spends around 30 percent of its costs on fuel. It's the largest item perhaps except for labor.
Saudi Arabia is seeking to boost the oil price, which is not particularly good news for the airlines. It is cutting output by a million barrels a
day. Oil jumped as you can see from those numbers on the screen, Brent crude is now just about a half a percent. West Texas, WTI is four percent.
Prices are sliding since October despite several OPEC interventions. Other companies also cut. At the same time, the IMF estimates that Riyadh needs
the oil price to be above $80.00 a barrel to balance a budget to fund its grand projects.
Among them, the new airline, Riyadh Air. You can see the pictures there -- today unveiled new livery on a Dreamliner. Expected launch flight is 2025,
I believe complete in crowded Middle East.
Joining me now, Tony Douglas the CEO of Riyadh Air.
Congratulations, sir.
[15:15:10]
TONY DOUGLAS, CEO, RIYADH AIR: Richard, absolutely wonderful to see you here in Istanbul, and it has been a special 48 hours for us. The
opportunity to accept our IATA code RX.
QUEST: Received.
DOUGLAS: Received, absolutely right. You know, Romeo X-ray, a digital kind of twist on that as an IATA designation. Interestingly, one of two
liveries, so a tease and a reveal, we've gone for our first livery, which will show to the world at the Paris Air Show, after we've done a low-
altitude flying over the city of Riyadh, so our citizens see it first.
QUEST: Right. What purpose is this airline going to serve. I am not going to be a hypocrite. I have said, the last thing the world needs is another
sixth freedom carrier.
DOUGLAS: But the most important thing for the world's second fastest growing economy is world-class connectivity, and at the moment, the capital
city, Riyadh is heavily point to point dominated. We don't serve our Kingdom well enough for our citizens. But also, there is up to $4 trillion
being spent on global destination attractions, and we want to allow the world ease of passage to the Kingdom.
QUEST: So how does the relationship exists between you and Saudia, which has been around for years, and maybe needed a refresh and a bit of money
spending on it? And all of that to bring it up to standard? Why -- how are you going to cooperate or compete against Saudia?
DOUGLAS: So it's a great question. And of course, Saudia is the sister national carrier of the Kingdom, put it into perspective, Jeddah, which is
the home base of Saudia to Riyadh, the home base of the new national carrier, it is the equivalent in flying time from New York to South
Carolina, or London Heathrow to Rome.
We're talking about a country that's half the size of Western Europe. It needs a lot better connectivity as part of that an economic diversification
plan by 2030. We will connect to over a hundred cities, all around the region, all around the world, fundamental to our economic growth.
QUEST: Okay, so I can see that they do a religious -- a lot of the religious stuff, you do a lot? Where do you want to position? Do you want
to be a Singapore Qatar top premium airline? Obviously, the best of seats. Do you want to be a middle range airline? What are you aiming for?
DOUGLAS: So I think the livery that we've released in the last 24 hours.
QUEST: Right.
DOUGLAS: Super exciting, because I think for many people, they're going to look at that and say, that wasn't what we were expecting from the kingdom.
What you're seeing there is a statement of a brand that allows us to tell a story. You probably expect to see that on a high-end private jet, and the
story is, of course is this -- it's a full service carrier, it will set new standards, Richard, in terms of an obsession, an obsession, and absolute
obsession.
QUEST: Are you going to serve --
DOUGLAS: With guest service and a digital twist to all of that.
QUEST: Are you going to serve booze?
DOUGLAS: The legislation, whatever it is, in the future, we'll follow the legislation. It's as simple as that.
QUEST: I'm not sure that's a yes or no, or maybe.
DOUGLAS: It's a function of whatever the legislation is.
QUEST: Tony, we've got many years of watching this. Well, a couple of years, certainly. We will be on the first flight.
DOUGLAS: You'll definitely be on the first flight, and every two months, there's going to be a tease a reveal.
QUEST: Oh, here we go.
DOUGLAS: There will be a second livery.
QUEST: Nailed it. Nailed it.
DOUGLAS: A second livery later on in the year, and then an incredible interior product early next year, and you'll definitely be on our first
flight, Richard.
QUEST: Oh, get into maximum amount of it, I suppose for the amount of money you're spending, you deserve to.
Thank you, sir. Very good.
Coming up on QUEST MEANS BUSINESS from IATA in Istanbul, Apple's most ambitious project in years.
We're live from the Worldwide Developers Conference.
QUEST MEANS BUSINESS, good evening to you.
(COMMERCIAL BREAK)
[15:22:01]
QUEST: Welcome back to QUEST MEANS BUSINESS live in the magnificent city of Istanbul.
Apple has unveiled its next big thing, it is a mixed reality headset. It is called Vision Pro. It's the first major new project from Apple in some
eight years. Tim Cook shared the news a short while ago.
[VIDEO CLIP PLAYS]
QUEST: Now the Apple shares are actually down, a bit in the red, but they had been higher, and they had been trading at an all-time high, but now as
you can see, it is just off the top.
Jon Sarlin is at the event.
The only thing I know, Jon, about any Apple launch is that you have to treat it with the utmost seriousness because what they do can define the
way we will be using technology for years to come.
JON SARLIN, CNN DIGITAL PRODUCER: That's exactly right and Apple is taking a big bet here that the next frontier of computing is going to be a mix
between the virtual world and the real world.
The product is called Vision Pro, and you might be familiar with virtual reality headsets, right, the ski goggles that have a whole screen. This is
different.
This allows the real world to come through. Apple unveiled a suite of apps you can use it for, things like FaceTime. They showed how people might be
able to use it for work with fake screen setup on a desk.
You can make a computer screen or a cinema however big you want, but bear in mind, this is a product that consumers have not shown a big interest for
in the past.
Google Glass was around in 2013. That was one of the biggest tech disasters of the last decade. Apple is banking on the fact that the technology has
advanced and their design team has cracked the code of virtual and augmented reality.
QUEST: Absolutely splendid. I look forward to getting your hands on one so that we can test it back in New York. Thank you, sir. Grateful for you.
Other business news I need to bring to your attention this morning. Binance has been accused of running an illegal exchange. It's a serious accusation.
The SEC in the United States is suing the company, which is the world's largest crypto exchange and says Binance has disregarded US securities law.
The chief executive, Zhao was named as a defendant. The major cryptocurrency has slumped. You see that, it is now off more than five
percent.
Allison Morrow is in New York. Now, this is this is an extremely serious allegation, an illegal sort of exchange per se. How are they defending it?
[15:25:05]
ALLISON MORROW, CNN BUSINESS SENIOR EDITOR: Yes, it is a very serious allegation and Binance has said respectfully, we disagree. It says it has
been working in good faith with the SEC to work on clarifying rules, and that is something that the entire crypto industry has been working on.
But they're saying that the SEC kind of gave up on those good faith negotiations and just hit them with the book, but I think the most
important thing to remember is that like, it's not a huge shock that this lawsuit has come.
You know, the suit basically says what is the quiet part across crypto, which is that US customers who aren't supposed to be trading in these
complex overseas derivatives are being allowed to by these platforms, allegedly by Binance and by other overseas platforms.
QUEST: So with that in mind, what is the next step in this? How does it proceed?
I mean, these often settle somewhere on the way, but we're a long way from that, I'm guessing.
MORROW: Certainly a long way away from settling, I think. There are other companies who have received notices from the SEC, who are probably having a
lot of boardroom meetings today and a lot of fear through those offices right now, because of the regulatory crackdown.
You know, ever since FTX imploded quite spectacularly back in November, regulators have been really stepping up their game, taking this a lot more
seriously, and these suits and these complaints are going to keep coming.
QUEST: Alisson, joining us from New York. We will watch it closely. I am grateful. Thank you.
The chief executive and chairman of Korean Air says he is determined and will get the merger with Asiana through despite objections that have been
put forward by the European Commission and the US Department of Justice has also said to be unhappy about the merger, which would essentially remove
competition on the important Korean, US and European routes.
However, the chief exec and chair of Korean says, this is a deal he is determined to get done.
(BEGIN VIDEOTAPE)
WALTER CHO, CEO, KOREAN AIR: No, I'm not going to let go. I'm full on and I'll fight to the end to gain this approval and we are talking with DOJ and
EU in a positive way and I expect some sort of resolution towards the end of this year.
QUEST: So that really depends on what concessions you're prepared to make.
CHO: That's part of the request from both committees, US and the EU. Wea re fully committed to meeting their request, and we'll do whatever it takes to
get this deal done.
QUEST: Is there a point upon which you will say this isn't worth it?
CHO: No, I will -- no matter what, I'm going through with it.
QUEST: Why?
CHO: Because it is very important for Korean Air and Asiana employees, our family and for the industry, every airline industry in Korea, it's a very
important deal.
QUEST: I suppose the argument would be well, if Korea -- if you don't, if the deal fails, Asiana either gets bought by somebody else, probably not
since you're the dominant carrier there or it goes out of business and somebody else starts up.
CHO: Yes, but to me, this is very important, because I've committed to it once and many of our employees are looking forward to it and looking upon
me to make this 00 get this deal done and I will get it done.
(END VIDEOTAPE)
QUEST: The chief executive and chairman of Korean Air talking to me later.
Coming up in a moment, working towards net zero by 2050. Now, Qatar Airways says it's not going to happen.
(BEGIN VIDEO CLIP)
AKBAR AL BAKER, CEO, QATAR AIRWAYS: We will not even reach the targets we have for 2030, I assure, you because there is no enough raw material.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
[15:32:34]
QUEST: And so, the battle for sustainability in aviation continues. And now the question is whether the industry collectively can meet its net zero
commitment by 2050. Can it cut emissions by such an extent in such a relatively short period of time, when there are so many, like fixed
problems? Well, the main way to get there is to abandon kerosene and to abandon fossil fuels and turn to sustainable aviation fuel or SAFS.
The problem is, the world can't create enough SAF in time, not without considerable help from governments, which of course will have to pay and
subsidize this. It's turning into a major issue and crisis almost for the aviation industry. But Willie Walsh, the director, General of IATA says
that the industry can make it.
(BEGIN VIDEOTAPE)
WILLIE WALSH, DIRECTOR, INTERNATIONAL AIR TRANSPORT ASSOCIATION: I disagree. In fact, I strongly disagree with you. You're right on some
points. So, there isn't enough SAF. We don't produce the staff. You know, the motorists doesn't produce the petrol that they put in their car. The
idea that is the responsibility of the person driving the car to go out and manufacture the fuel, you know, would be laughed at.
Yes. So, it's not for airlines to produce SAF. What we're seeing though, is the demand exists. So, every single drop, you've heard me say this before
every single drop produced, was bought by the airline industry. Now, it's small volumes of 300 million liters in 2022. The industry, the airlines
that purchase that fuel spent about $350 million more buying SAF than they would have spent if they were buying conventional fuel.
So, you know, the demand signal is there, what we need, we need greater production, we need governments to provide the framework to support the
production of SAF in the same way as they supported the transition to, you know, low carbon when it comes to domestic electricity and other issues.
QUEST: Even if you get that, you still can't get to the target.
WALSH: No, I think we can. I think we can. I, you know, I see -- between now and 2030 I think we'll see a lot of investment and we'll see the
volumes of SAF being produced ramp up. Now, it is (INAUDIBLE) I don't want people to, you now, believe that what I'm saying is the problem of sorting.
[15:35:02]
This -- there is still a huge challenge there and I've always said it's going to be difficult but the idea that we can't do it, no, I don't accept
that. You know, and of all the industries that, you know as well, when it comes to a challenge or crisis, we've never failed, we have never failed.
We, you know, we find a solution, we work hard, and no question about it, we will get a solution to this issue.
QUEST: You are -- if not failing, you are in challenging waters.
WALSH: Yes.
QUEST: In the -- in the court of public opinion after the moment.
WALSH: But, you know, I would accept that. And that's why, you know, we've got to convince people through our actions, as well as our words, that we
are determined to achieve this goal. And we will do that and we will, you know, we're not shy about talking about this. We're openly discussing it,
we're openly acknowledging that this is going to be a huge challenge. We're openly acknowledging that it's going to come at a huge price.
You've heard me say it, you know, ultimately, ticket prices will have to reflect higher fuel costs, because the transition to net zero is going to
be expensive. And that means ticket prices will go up. You know, and that's the reality. And I think it'd be wrong for us to try and convince people
that this is going to be easy, and it's going to be cheap, it's not.
(END VIDEOTAPE)
QUEST: If you ask the CEOs here, they will generally conform to the idea that they will meet the target. Some will say, I don't know, some will say
it's challenging, there'll be a general view that it won't be easy. Akbar Al Baker known as the chief of Qatar Airways is a lot more blunt. He simply
says, no, the airline industry won't be able to meet that target.
(BEGIN VIDEOTAPE)
AKBAR AL BAKER, CHIEF EXECUTIVE OFFICER, QATAR AIRWAYS: And one of the only CEOs, I think, that have been very frank, that we will not be able to
achieve the target. SAF, the volumes you need will not be available. And go incidentally, and the Qatar Economic Forum, the boss of Boeing did say that
anything will not happen until after the middle of the current century. So, it was right. We won't be able to achieve. Let us not fool ourselves.
QUEST: The whole industry is predicated. It's just frothing about this idea of net zero by 2050.
AL BAKER: We will not even reach the targets we have for 2030, I assure you, because there is no enough raw material to get the volumes of SAF.
I've spoken to -- I don't have to mention the oil companies. And they said that the volume they need is not available.
QUEST: So --
AL BAKER: This is why not enough volume of SAF is being produced. You know, you cannot only produce SAF in United States and, you know, cater for the
U.S. carriers. We are talking about the global net zero emission by 2050. It's not only one region, and it's not available. And what we are trying to
do is for P.R. exercise, saying that it will happen and it will be done, it will be achieved but it won't be able to be achieved.
And the governments will use this to line their pockets. By putting levies.
QUEST: You -- you're a bit like, you know, the boy in the Emperor's New Clothes standing there. When the Emperor goes past and say the emperor is
naked, you're sort of saying what nobody really wants to hear, which is that it can't be done.
AL BAKER: I'm not saying it can't be done. But to do it in the timeframe, the industry is far behind.
(END VIDEOTAPE)
QUEST: Interesting prospect and analysis from Akbar Al Baker. When we return in just a moment. Alan Joyce of Qantas is retiring as CEO. He's
brought back his A380s. He's very happy about it. The CEO of France-KLM is not so happy about that plane.
(BEGIN VIDEO CLIP)
BENJAMIN SMITH, CHIEF EXECUTIVE OFFICER, FRANCE-KLM: The pane is -- it's not the right size. The cargo uplift is not great. I'm good friends with
Airbus. I don't want to say what I really think about the airplane.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
[15:42:09]
QUEST: One of the most well-known and I must say popular chief executives is retiring. Alan Joyce is leaving his post as chief executive of Qantas
Group after some 15 years in the job. He's seen the airline through many ups and downs. Now, of course, he's managing the recovery which has been
somewhat bumpy for Qantas as it's got back in the air after a very long period. I spoke to Alan Joyce and asked him what's next.
(BEGIN VIDEOTAPE)
ALAN JOYCE, CHIEF EXECUTIVE OFFICER, QANTAS AIRWAYS: We have -- we're nearly there. So domestically, we're back to over 100 percent of pre-COVID
levels. And that's a huge market. Internationally, we're around 84 percent today and by next March, we'll be back at 100 percent. The supply chain
issues are still there. That's the stuff that we're still hearing from Boeing and Airbus.
You know, we're still having delays of aircraft. We're still having issues with spare parts. We're having to put spare aircraft into the system to
manage those supply chain issues and resources getting our crew retrained. So., we haven't lost many of the crew. Very little pilots, our attrition on
pilots is two percent. But it's very -- it's a long process to get them retrained on the aircraft. And all of that has been delaying our ability to
get back to 100 percent.
QUEST: Right. But you talk about this mismatch between capacity and supply. And where is that weakest point?
JOYCE: So, the mismatch, I mean, what we have is coming out to COVID. You've got some markets that haven't fully recovered, like the corporate
market is not back to where it was before COVID. May, it's back over 100 percent of revenue. But in terms of volumes, it's around the 80 percent.
And that's people not making the trips that they used to because we're using Zoom and Microsoft Teams.
The SME market the small and medium-sized business for us as back to pre- COVID. And the leisure market is booming. It's way above pre-COVID levels. Partly because people can work from anywhere and they're taking holidays as
they're working. So, we're seeing that as being a massive demand. So -- and that's across the board. And what we're seeing in Australia is fascinating.
People are also prioritizing travel over other expenditure. So, in all research we're doing we're seeing twice the amount of attention to travel
domestically than it was before COVID. 80 percent more internationally. People are cutting back and going to restaurants, buying alcohol. They are
doing that to make the trip that they were -- they weren't able to do during COVID.
QUEST: OK. So now, let's look at the Australian market because it's not -- it's always been hot-ish, now it's boiling. And I look for example out the
Pacific way, the much stiffer competition you've got not only, you know, Delta American, but United as absolutely returned its guns on your market.
[15:45:02]
JOYCE: Yes. Well and we're in one of the most competitive markets in the world. We have 56 international carriers competing against Qantas. We've
had open skies where a lot of different countries as you know, the government has granted that. So Qantas actually has to hit well above its
way to survive. And were doing pretty well on the Pacific. We're starting New York again next week.
We started San Francisco last week. We're rapidly getting our A380s back in which the customers love. So, they're back to L.A. from Melbourne and
Sydney. And then we've got Dallas from Melbourne and Sydney, which we didn't have before COVID. And we're looking to new routes in North America.
We're looking to either Seattle or Chicago as a new route that will do over the next few years.
So, we're very happy with how the Pacific is performing. And, you know, the competition. It's a very competitive market, but it always has been.
QUEST: You got to bring all the 380s back.
JOYCE: Ten of the 12. So we're going to use two for spare parts and particularly in this environment, but they -- the customers loved them and
they generate cash. And we've just about written them down to a very low value. So, they make money or they make decent money.
QUEST: It's extraordinary, isn't it? The 380.
JOYCE: It's --
(CROSSTALK)
QUEST: Talk about sort of back -- talk about that famous line, talk of my death is greatly exaggerated.
JOYCE: Yes. The great Mark Twain line.
QUEST: Yes.
JOYCE: So -- but it was fascinating because we always thought we'd operate into the full life 20 years and before COVID. We were reconfiguring them
with new products. So, the sad part is we had one aircraft on straight from Germany with new seats on it straight to the desert. And for two years,
nobody sat on those new seats. And so, they were -- they're coming out with an amazing new product on them.
And then everybody else said they were terrible aircraft. Qatar reactivate them. Lufthansa reactivate them, keep them going. So, everybody else is out
there trying to get capacity and put them back in the air under good capacity to have, an environment where demand is well in excess of supply.
(END VIDEOTAPE)
(COMMERCIAL BREAK)
QUEST: Now you heard Alan Joyce talking about his A380s. He is bringing them back into the fleet. British Airway he says brought all its A380s
back. Lufthansa is bringing some of them back. Etihad is going to bring a few back and may bring a few more. However, a very different view from Air
France-KLM which has removed all its super Jumbos and indeed as Ben's Smith, the Group Chief Executive told me it had decided to lose the 380
before the pandemic.
[15:50:08]
SMITH: -- about halfway where we'd like to be. So, 2019, we were not in great shape. Financially, our performance was not at the level that I would
have liked it to have been. We've done a lot of restructuring, especially at our friends. And I'm pleased with how it's coming along. But we still
have a long way to go.
QUEST: What do you need to still do?
SMITH: We're doing a lot of reflating, we have a lot of old airplanes. We pulled out A380s out, which was a big step, a difficult step. And we've
decided to permanently leave them out, unlike some of our competitors.
QUEST: Why? Let's just pause on that bit. I mean, I'll enjoy sat in that chair and said, there was like Air-France got rid of their things. You
know, I mean, why?
SMITH: The plan is big. It's too big. We find -- we're not a slot constrained airport at CDG. The plane is not the right size, the cargo
uplift is not great. I'm good friends with Airbus. I don't want to say what I really think about the airplane. But it's tough. That one's a tough plane
to make money with.
QUEST: So, did you revise that view? When you saw Lufthansa brought a few back and then British Airways brought all theirs back. And slowly but
surely, there were there -- was it just as it just not worked for A.F.?
SMITH: We had already made the decision before the crisis. We just accelerated the decision when the crisis hit.
QUEST: Willie Walsh was banging on about changing obviously, the French Air Traffic Control strikes, and getting basically exemptions for overflight at
altitude. Do you support that?
SMITH: I -- look, the French air traffic controllers strike, we don't support whether it's a high altitude or whether it's a takeoff and landing
off the -- you know, off the, you know, in the French region. I mean, this is -- this has been a real challenge for us for the last five months. So,
you know, our belief is these needs to reduce, this needs to stop. There are some laws in France that are probably going to be introduced toward the
air traffic controller.
They're not in place today which will help us react. But it's, you know, some days we have to reduce up to 30 percent of our flights in Paris with
no notice. It's been a challenge ever since this retirement reform has come in. We've been -- we've managed our staff quite well. We have not
internally been affected by, you know, we've seen across the country, especially in transportation when it comes to strike.
QUEST: Will you tempted to take a stand?
SMITH: On that particular issue, I'm OK with it. You know, it's -- it was very well thought through, a lot of debate, a lot of debate, a lot of
exemptions. We're OK. When I talk specifically about our company, I think it's -- in terms of what we've got in place for our pilots and our cabin
crew and our ground staff, we've got enough protection, that the impact is quite minimal. In other industries, I mean, I don't know the details of it
and how much it impacts.
But to say make a statement about our company and how it's how it's impacted, you know, we think it's not bad. The, you know, I'm not French,
I'm not Dutch. But when I look at what we have in the Netherlands that we have in other countries, it seems quite reasonable.
(END VIDEOTAPE)
QUEST: Innovation is very much part of the ethos for Air New Zealand, both at the front and in economy. It's done some extraordinary things. Now, the
airlines saying not only take out your liquids and gels, or at least security is and remove the shoes, but it's also putting you on the scales.
Anonymously, it is collecting the necessary data that it says could improve fuel efficiency. Air New Zealand, the 2023 airline of the year from
airlineratings.com.
The chief executive, Greg Foran is here. Greg, first of all, everybody's fascinated by this idea of weighing yourself on the scales.
GREG FORAN, CHIEF EXECUTIVE OFFICER, AIR NEW ZEALAND: You know, Richard, I did it when I got on the plane to come to Istanbul just a couple of days
ago. As you said, it's anonymous. We do it every four years or so. And we do it because it's so important to get a sense of what the weight of the
plane is going to be before we take it off. So, we weigh pretty much everything on the plane.
QUEST: The -- you're talking today in the panel about if you draw this 2000-kilometer radius from New Zealand, you have to travel, you have to
fly. But the difficulty is to do it sustainably at a time where everybody's watching so carefully.
FORAN: Yes, it is. You know, it's a heck of a challenge, isn't it? But what alternative do we have, but get on and see how we can make some real
inroads around sustainability. So, we're deadly serious about it.
[15:55:01]
We've set some science-based targets. They're bold, they're aggressive. It's going to take a whole bunch of people to help us get there. But, you
know --
(CROSSTALK)
QUEST: Akbar says it can't be done. Willie says it can be done.
FORAN: Yes. Well, I'm actually in Willie's camp at this point. You know, we're going to give it every shot we can. And as I said, it's going to take
a whole environment fight to get this to work.
QUEST: You now have some very interesting routes. You've got Auckland, New York, you are expanding the airline in some way. Quite a big way. Where do
you go next?
FORAN: Well, at this stage, to really be honest with you, Richard, we're going to nail these routes that we've picked at the moment. So, this New
York one, so not the only one we're doing into the U.S. We're in about six other ports there. And we will go deeper into those. In other words, we'll
increase the schedule to the port's that we're going.
QUEST: The fascinating thing is this new Skynest basically bunk beds for economy passengers.
FORAN: Yes. Now, you know, when we get this going at the end of next year, I'd like you to get on one of our planes travel economy with me. And you
know, we'll be able to get in there and give it a go. Four-hour stretch. What do you think?
QUEST: Hang on. I have a feeling that a challenge has just been laid down to me.
FORAN: I wouldn't call it a challenge. I would say that this is a fantastic opportunity. So you're going to like it.
QUEST: OK. So, the bunk beds at the back of economy.
FORAN: Yes.
QUEST: And we can have, how many hours?
FORAN: About four hours, four-hour stretch. We've got nifty kit. Some rules around this. So, you know, one of the rules is, you're not going to be able
to bring a -- bring a friend. We're going to need you to take your shoes off. There'll be no munching, crunching or lunching in there. But you know,
it's your space curtain gets pulled across. And you're going to have a fantastic sleep.
QUEST: Will you be there?
FORAN: I will be.
QUEST: In economy.
FORAN: Absolutely.
QUEST: With no -- with no business class seat waiting for us.
FORAN: With you, we're going to do the whole stretch.
QUEST: Oh, no. We'll take a profitable moment after the break. Thank you, sir.
FORAN: Thank you.
(COMMERCIAL BREAK)
QUEST: Tonight's profitable moment from Istanbul. So, the world's airlines are together again. And the airlines are making money but the reality is 10
billion. It's about 1.2 percent. So, it's hardly a woohoo off to the races when it comes to the profits. They are making money but they face some
pretty strong, almost existential challenges, especially this idea of two percent of emissions.
The reality again, is that that two percent is going to rise at the same time, it's going to be very difficult for them to bring it down because
things like sustainable aviation fuels simply aren't available. They know what needs to be done. The problem is whether government will help them
whether customers and passengers will support them with higher prices on the tickets and ultimately can they make the decisions to do what they need
to do.
[16:00:11]
QUEST: And that's QUEST MEANS BUSINESS for this Monday night. I'm Richard Quest. We'll be in Kazakhstan later this week. Whatever you're up to in the
hours ahead, I hope it's profitable. I'll see you in Astana (ph) --
END
