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Air Serbia and Swiss/Lufthansa airline executives: Leading an airline in 2021

Tamur:

I think we have to distinguish between short term, medium term and the long term. The very long term, it’s of course a question also of sizing and dimensioning of each of the carrier’s operations in the kinds of groups. Swiss does the same. In the short term, we already mentioned, we expect demand to drop now, this will go into Q2. And I think we will not see a major uplift for Easter. I think that will be, if at all, a small peak. And then the big question for the whole industry, not only for us, is what’s happening in the summer. And when you take together the expectation of vaccination, penetration, testing regimes, testing regulations, and quarantine regulations all together, I think at the moment, the expectation that in Q3, during Q3, there will be some substantial change. And it’s only the question is it with the summer business or without?

And I think that is a, for some area carriers it’s a question of survival. For us it’s rather it’s we have enough liquidity, it’s the question of how we can shape this future. And I think we definitely will not say it’s a forecast. We are talking about scenarios and we are now thinking of three different scenarios for the whole year. It could be a 14, a 50 or 60% scenario. I think that’s the range we’re talking about a moment about and how big the summer peak will be and how much pent-up travel there is, we will see. We definitely get from the customers a lot of response that there is a big wish to travel. A lot of people really can’t wait to really do a summer vacation since they have skipped one or two of those vacations since the start of the pandemic. And so, we have still optimism that there will be summer business, to what degree we will finally see only according to the development of the pandemic and the vaccination points.

Jens:

I’ve seen different, or I’ve heard different views about the pent-up demand. There are some people that argue it’s really a big factor and once we’re allowed to, we’ll all start travel, be traveling, because we  haven’t done so in such a long time. And then there’s other that say, “Well, actually caution will prevail,” and that peak won’t be as big, as high. Jiri, do you have a view on that pent-up demand issue?

Jiri:

Well, it very much depends on overall picture and how the puzzles will connect together. I’ll give you as example, exactly, again with Switzerland so it’s close to my colleague as well. In October, we’ve been actually last year operating more frequencies than in 2019. We’ve been flying 22 flights a week. Some days was even for daily with 84% load factors. And it was not only that the demand quickly returned, but it’s also because the rest of the network was restrictive. So, you actually channel the demand to the market, which was less restrictive because there was basically no PCR. There’s no quarantine required. Despite this, the Serbians couldn’t still enter Switzerland. It was mostly the [inaudible 00:10:28] province was traveling.

Very similar, we saw, for example, on Turkey, before they introduce a PCR test, a lot of demands when we were fighting daily 87% load factor. So, it’s very much depends. I agree that the demand is there, and we are expecting that the demand will rebound very quickly, but that all the markets will reopen at the same time, I think it would be rather [inaudible 00:10:50]. It will most likely be again, uncoordinated and depending once you’re open, if this will go as kind of dominoes through the rest of the markets, or if we will see another spike, what would happen actually during the summer is that market re-opens, and it start to close again because the locations and the virus was circulating over. So that will be a rather quick revamp, I believe, but it will not be like one goal. It will be like market by market.

Jens:

Do you think that for your airlines, there will be a structural shift towards more leisure demand and more, a customer base that’s more leisure driven? For the industry as a whole, many people expect it, that air traffic will recover quicker than business traffic. But if that’s the case that will have huge implications for the airlines, right? Do you need to adjust your cost base to your, probably lower yields, passengers and tickets? So, A, do you foresee that for your airlines and what are the consequences? Tamur?

Tamur:

Yeah, I think, when we talk about pent-up demand and in the medium term also structural effects both together, we really have to look at what traffic streams and what demand segments we’re looking at. I think we all expect a quicker rebound in Europe than in the long haul. I think that there’s no conventional wisdom. Then we expect for sure that leisure comes back earlier, but the leisure summer businesses will very much depend on the possibility of people to travel and the feeling that they are having a smooth process for that and they’re having a safe travel possible for that.

VFR, visiting friends and relatives, is a segment that’s very crisis-prone. And so, its price-resistant and that’s something we would expect at any time that people can travel also for the summer. So that’s the segment we believe to come back probably quickest.

Within corporate travel, I think you have to differentiate. I think the smaller, medium-sized business will come back earlier. Their social capital is even more important. You have to meet the people. It’s probably less so for large corporation in general travel, that will take longer, probably replace, but also there is a question in which economic area you are, and particularly which industry you’re working in. So, there are different degrees then of how the business comes back. And depending on how you as a carrier, they rely most on in your model as a point to point or hub and spoke here, like we are, and from what economic basis you’re working and geography you’re working from, you have to make your assessment about dimensioning of the fleet. You have to make your assessment about, of course, the cost base, but also of the way you want to operate your hub and spoke system, as we do with the strong long-haul focus and being a premium carrier.

We still believe that there is a market also in the next normal out there for us with a strong base in Switzerland and with strong ties in Europe and transplanting in Asia. So, we believe that overall, our business model is very valid, still, also in the post pandemic situation, but definitely we’ll have to look at our sizing and to our dimensioning. And that’s why we question then giving up the business as such, which has worked perfectly well in the past with the profit margin we were out to achieve.

Jens:

Jiri, did you see these structural changes, and what do they mean for Serbia?

Jiri:

Look, I would look into it a bit differently in a way that I think that this crisis is not only changing our industry, changing many other industries, but it’s also changing the social life and the way how the people approach the thing. So, I think the typical division between leisure, corporate and other segments it will become a bit blur because, for example, now many companies already announced that the working from home will be applicable up to end of 2022, some even 2023. I think that the typically corporate travelers, which we saw in the past, maybe they will be replaced with a higher end pleasure, the people which are in senior management and will work from home and will travel and have some virtual offices all over the globe, because many of their destination and are targeting now this group.

So, it will be different segment groups in the future. I agree that the leisure will come first, typical leisure, would be now, but there would be maybe the new segment, which will arise up through this crisis because this will change completely as a way we work up to now. And that’s influence will stay for the future, seeing many companies, it will take them years to return to the person to person meetings, and we will have to serve this new customer trends in the future as well. So, as I look at it, there will be new opportunities coming up and same way, like we managing this crisis, whoever will react faster and flexibly and more agile to these changes will be the winning factors for that.