Three keys to Aegean’s success
The public is often fascinated by aircraft and airlines because of their connection to travel. For the insiders, however, the market is a fragile structure that is hard to build up and easily crumbles amid a number of small and large crises. Eftychios Vassilakis, the vice president of Aegean Airlines, is one of those people in the sector who talk little but prefer to act, especially in difficult times. Nonetheless, Vassilakis spoke about all aspects of his work in an interview with Kathimerini, notably about Aegean’s development, its recipe for success and its plans for the future. Vassilakis wonders about the lack of a policy-shaping forum in a country whose airports have annual traffic in excess of 33 million passengers. The state, he said bitterly, is the regulator (through the Civil Aviation Authority) and an owner of both infrastructure (the airports) and an airline (Olympic Airlines). A triple role that breeds confusion and encourages bureaucratic rigidity, even on trivial issues. Vassilakis told us Aegean may add another six planes to its order for 19 Airbus aircraft – which are now in the delivery process – by 2010 and that its new expansion will target the Balkans in the medium term, through a new subsidiary. He was adamant that Aegean Airlines is not interested in any part of Olympic Airways or Olympic Airlines but said the privatization of the maintenance division (part of Olympic Airways) would be desirable for all airlines that use Athens International Airport. He clearly believes Olympic Airways and Olympic Airlines continue to function via direct or indirect state subsidies. Since 1992, many private investors have tried to operate airlines and Aegean is the sole survivor. What is your secret and how do you see the company in five or 10 years? Aegean’s success can be attributed mainly to three factors: our total commitment to quality of service from day one; the creation of a team of about 30 managers who shared the owners’ vision and passed it on to the rest of the personnel, thereby creating a corporate culture based on this vision; and, finally, the backing of a team of shareholders with plenty of resources and, more importantly, with a cohesion that has helped the company throughout these years. The company has passed through several stages of development: The first was to become competitive in the domestic market, something we achieved several years ago and now we are market leaders; the second, which is the current goal, aims at dominating the mid-range market, that is international flights of up to four hours’ duration. We believe that the new planes we have ordered will provide advantages in service quality and cost. We need another three to four years to implement this phase. The third stage could be comparable to that of Greek enterprises in other sectors, which, having attained maturity in the domestic market, expand their operations abroad, mainly the Balkans. This is the area, after all, where we have a relative advantage, in know-how and financial power. You invested $800 million to renew and expand your fleet. The type of aircraft you chose shows that Aegean wants to be a regional player in the eastern Mediterranean. Do you have plans for other markets, including longer-distance ones? What matters in air transport is to specialize in a specific market segment. To achieve this you have to focus on that particular segment. This requires certain types of aircraft, a specific commercial policy and, at least initially, a limited geographical area in which the company can grow and become able to pull its weight. Thus, Aegean Airlines must continue to focus on short- and medium-distance flights for quite a while yet in order to add to its destinations and become entrenched in the consumers’ mind as an international airliner. How can you pay for this acquisition, an enormous one by Greek standards? Indeed, this investment in 19 A-320 type Airbus aircraft is the biggest in the history of Greek air transport. This in itself is important because it helps Aegean, and Greece too, to re-enter the European air sector with higher-quality standards. We made this investment knowing that it must bring in certain benefits. We thus expect our product to become more attractive, which will lead to higher turnover but also to lower costs per passenger per kilometer, because new-generation aircraft such as the Airbus A-320 consume less fuel and are cheaper to maintain. Thus an investment is repaid at a pace commensurate with the success of your choice. As to how we will fund it, there are several options: We estimate that 20 percent will come from our own capital, with the rest coming from either borrowing or leasing. How do you see Aegean evolving in the small Greek market? Greece’s population may be small but, with 34-35 million passengers going through our airports on domestic, international and charter flights, this is not a small market. It is a major tourist destination. Aegean now has a 14 percent market share, including 51 percent of the domestic flight market. It is obvious that international flights offer greater scope for growth. This year, we will be offering flights from Athens to Munich and Frankfurt and we have added to our Athens-Milan segment. Last year, we added Sofia, Bucharest and Cairo. We will add more as we take delivery of more aircraft. After the alliance with Lufthansa, should we expect a share swap or a closer relationship, such as an acquisition? Our commercial cooperation with Lufthansa has several advantages. One is that a company of Lufthansa’s size and prestige recognizes us as a regional partner that offers services of comparable quality. Another is the connectivity of our network with Lufthansa’s, which offers our clients more options, including shared «bonus miles» programs. Lufthansa is an excellent long-distance carrier that keeps adding services. Aegean is, at the moment, a middle-distance carrier. This complementarity and the need for specialization ensure that our cooperation will remain an exclusively commercial one. How is your listing on the Athens Stock Exchange going and why did you decide to list? We are at the final stage of preparing our application and we hope we can get listed before autumn. Why are we doing it? Boosting our capital is the main reason, but we also believe that expanding our ownership base will improve the immediacy and quality of our relationship with the public. We want a wide dispersal of shares. There is evidence that the state continues its illegal subsidies to Olympic. Are you going to complain to the European Commission again? The whole Olympic group (Olympic Airways and Olympic Airlines) has been losing money throughout the last decade. It is obvious that, with its capital being negative, it is only through direct and indirect state subsidies that it survives. Aegean pays its airport use fees and employees’ social security contributions on time and expects any competitor to do the same. Would you be interested, as in the past, in buying part of Olympic? Olympic Airways was a monopoly until 1999. Aegean has proven that it can grow organically. So we do not need any of Olympic’s activities. What we would be very happy to see is the privatization of its infrastructure, specifically its maintenance base, which could significantly upgrade its services to airlines that use Athens airport if it passed into the control of a globally known technical support firm.
