Wednesday, 1 August 2012

Interview: Alex Cruz, Vueling CEO

Cruz says AENA fee hike will not derail Barcelona growth

Vueling will achieve net growth at its Barcelona El Prat hub throughout 2012, chief executive Alex Cruz tells Flightglobal, with the availability of spare capacity following Spanair's demise comfortably outweighing the impact of higher fees at the airport.

The low-cost carrier is lobbying AENA over the doubling of charges at El Prat and Madrid Barajas airports in "continuous" top-level private meetings, he says.

But Cruz does not anticipate any revisions to the higher fee structure - implemented on 1 July 2012 - and Vueling is instead pursuing "concessions" from the airports operator over the 5%-above-RPI increases planned for the beginning of 2013 and 2014. Though a goal for the airline, Cruz admits that such provisions will be "insufficient".

"AENA has about €10 billion deficit debt. These guys are going to be looking for every possible opportunity to raise their prices," he says.

Dismissing Ryanair's announcement that it will reduce winter growth at the two Spanish airports, Cruz emphasises that both low-cost carriers will in fact see a sharp increase in net capacity following the collapse of Spanair in January 2012. Year-on-year, "about 70%" of the defunct airline's fourth quarter capacity will be shared primarily between Vueling and Ryanair, he says.

"Ryanair are smart in the way in which they tell the story, but when you actually take a look at the capacity you will see that they have more seats for sale now out of Barcelona than they did last year," he insists.

Nonetheless, Cruz admits that the higher airport fees decried by his main competitor will combine with uncertainty in the wider economy to make planning winter capacity a difficult task.

"Spain is really not that good a market right now," he concedes. "What is making us very nervous is [the challenge of] making the right decision about capacity in the fourth quarter. What is the net effect on demand going to be [after you factor in] the increase in VAT, the increase in taxes and the overall economic environment in Spain?

"I really pray that we get it right, because we could increase by one aircraft or six or nine - we need to make sure that we increase by the right amount."

Cruz is encouraged by indications that El Prat was shielded from the downturn in the second quarter, with the gateway witnessing a 7% reduction in domestic traffic compared to 11% nationally; and 12% growth in international traffic compared to a flat market at other Spanish airports. "Overall, Barcelona has grown by 4%, but of course Vueling has grown by 39%" at the base, he says.

Madrid Barajas, meanwhile, remains primarily a destination market rather than an origin market for Vueling, though the three aircraft based there will continue to provide some feeder traffic to El Prat, the chief executive adds.

Spanish debt crisis complicates Vueling fleet renewal

Negotiations over Vueling's autumn fleet renewal order are in "phase three of four," says chief executive Alex Cruz, but the Spanish sovereign debt crisis continues to slow down progress.

Speaking to Flightglobal after the airline's second quarter results briefing, Cruz said talks with Airbus, Boeing and Bombardier had advanced during the Farnborough air show but that there are still "difficult steps" to take.

Being a quoted company on the Spanish stock market creates "certain antics in terms of financing which may be different from other regions," he admits.

"Ultimately all the manufacturers want to have a clear view as to how we're going to do the financing, and they have their own opinions. But we are encouraged by the degree of attention we're getting - from the manufacturers and from finance entities - with regard to Vueling's long-term viability and this particular aircraft order."

The chief executive remains tight-lipped about the size of the order - planned for October - though he reiterates that Vueling is "interested in having a good view on the replacement of the complete fleet as a starting point".

"Beyond that we'll have to wait and see what the prices are like, [and] what sort of flexibility we receive."

Vueling currently operates an all-leased fleet of 55 Airbus A320s and three A319s with an average age of nine years. The fleet renewal programme should involve the acquisition of some aircraft on-balance-sheet, Cruz predicts, adding: "That's something that we're going to have to work through over the next two or three months."

He concedes that even with more fuel-efficient aircraft, Vueling will continue to trail Ryanair in terms of fleet CASKs (costs per available seat kilometre) due to the latter's economies of scale.

But emphasising the Spanish airline's commitment to cost-cutting - which Cruz describes as "part of our DNA ... it's [based] around the culture" - the chief executive says Vueling is confident of closing the gap with its larger rival.