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Fernando Pinto, CEO of TAP Portugal

Fernando Pinto, CEO of TAP Portugal

» Interview | Saturday, April 25, 2015 • Air News Times
Fernando Pinto, CEO of TAP Portugal, says now is the time to privatize the airline. Tony Concil reports at iata.

How did the airline perform in 2014?

It wasn’t a great year for us. After a strong start, we encountered significant problems in Brazil.

The country hosted the FIFA World Cup in June/July, which caused a downturn in a market that accounts for a quarter of our revenue. Business travellers had no business to do at that time and Brazilians stayed at home to watch the games. We filled the planes, but with low-yielding traffic. Then the country went into standby mode for elections which prolonged the slowdown.

We were also hit by labor action as the discussion of TAP’s privatization progressed. The strikes started in August—our peak season—and continued through November. We even had strike threats for the year-end travel season. The actual number of days of disruption was limited but we lost the confidence of business travellers. Yields were also kept down because of low-cost competition.

Despite all this, the airline did expand in 2014. We opened 11 new routes and passenger numbers were up 6.6%. But revenues did not grow and lower fuel prices have not yet made their way in to the cost structure because of our hedging. We were also hit by the strength of the US dollar compared with the Euro.

As we look into 2015, we hope the oil price stays low but we have to be prepared if that doesn’t happen.

We are watching demand carefully. It has strengthened compared with the year end, but we have seen some weakness compared with the beginning of last year.

What is your view of Brazil as a market now? Is it high cost?

With 12 destinations in Brazil, TAP Portugal has the greatest exposure to Brazil out of all the European carriers. It has huge potential, but it is a tough market.

There have been a lot of improvements to the air traffic control system. That’s not an issue anymore. But not all of the airports that we operate from have ideal infrastructure for long-haul operations. In general, the costs are high when compared with similar infrastructure in other countries. Costs—including labor costs—were allowed to grow when the country’s economy was rapidly expanding. Fuel costs are particularly high.

Your other big market is Europe. How difficult is it to do business as European airline?

There are a lot of difficulties in Europe. One is the crowded airspace. It needs to be viable and that means a Single European Sky (SES). We have been trying for years to implement SES. It is progressing—but we are nowhere near where we need to be. As a result, we spend too much on fuel, emit more CO2 than is necessary and cannot give our passengers what they should get for their money.

Then there is onerous regulation with passenger rights. We are in a competitive business. Airlines are fighting to keep customers with good service but the EU passenger rights regulations add a layer of bureaucracy without adding any incentives for good service. In some cases they destroy connectivity because the costs make some routes unviable.

Do governments understand the global economic role aviation plays?

They are doing better. At one time governments in Europe saw us as the bad guys—polluters—even if our contribution to man-made CO2 accounted for only 2% of the problem.

Of course, airlines need to take responsibility to ensure sustainability. We are doing that as an industry in our calls for a global market-based measure to manage emissions. European airlines are paying for their carbon already. It’s a level playing field in that all airlines in the market play by the same rules. But our overall costs are higher as a result when compared with airlines based outside Europe­—and this is an industry that competes globally.

Last year was difficult but we stayed in the black and our geographic location gives us an advantage in connecting Europe and Latin America

Europe could do a lot more to improve the competitiveness of the sector. Our basic ask is for governments to ensure a level playing field—among airlines, across business models and with other modes of transport. Then airlines can give their best to support economic growth with efficient connectivity.

Having said all that, is this the right time to be privatizing the airline?

There is never a perfect time to privatize, but this is the right time. For me, it’s a third attempt. I joined TAP in 2000 to prepare it for sale to Swissair. Swissair went bankrupt in October 2001 putting a stop to that. We attempted again in 2012 but the conditions were not right.

It may happen this time. The economy in Portugal is growing, the lower oil price will eventually help the business and the airline has expanded. Last year was difficult but we stayed in the black and our geographic location gives us an advantage in connecting Europe and Latin America.

I think that there is respect for how TAP Portugal has strengthened over recent years. We have a good product, high frequencies and a competitive cost structure. There has been a lot of interest from Latin America, but more broadly as well. Investors are most likely to come from within the industry though. Not necessarily an airline but perhaps someone with specialization in a particular field. I don’t think we are talking hedge funds here.

Is the infrastructure at Lisbon potentially your Achilles’ heel?

The airport has been privatized and we’re seeing significant efforts to help us meet our needs and those of our customers. Investments have been made to facilitate growth. But there is still some ground to cover so that we can comfortably accommodate peak season demand. Taxiways are being changed and new parking stands built for incremental change. The terminal will even be extended to accommodate our A350 fleet starting in 2017.

Saying all that, there is a limit to what we can do at the airport. There are plans for a replacement to be built and the private owner of the current site will have first rights to build and operate it. However, construction was deferred when Portugal had its economic problems. So far, there is no indication of when it might be revived.

Are we moving closer to a globally liberalized market?

I think it is the way to go. Everybody has to be free to serve where it makes sense and to access capital where it is available. The world is moving towards liberalization. Airlines cannot be different. Wherever there is greater liberalization, there is consolidation which may not be a bad thing for this industry. But it will take time.

What is the potential of the New Distribution Capability?

I have followed this closely. It is a good tool. Essentially it is about helping travel agents sell our products. A few years ago many people thought the travel agent role would diminish. I did not share that view. At TAP we could not market around the world without them.

The world has changed. There is lots more information everywhere. Customers expect their travel agent to have that information and to use it to advise them. That’s where NDC comes in. It will help travel agents to do their job better. That’s good for airlines because we can push our information to the market more effectively. It is also good for travellers because they can make more knowledgeable decisions.

By displaying a wide array of good products, you bring the clients into your shop and present them with choice. The net result is that they are happy to shop there.

Where can technology be more effective in the airport process?

When I was Chairman of IATA, I raised the problem of unfriendly airports—that it is not a problem with the airports, it is more a problem with the system.

Long lines, long waiting times, errors, difficulties—we have to find a way to make the airport process friendlier.

Smart Security will be particularly important. There has to be a way to get most of our passengers through the airport more efficiently. Remember 99.999%—if not more—of them are good people and pose no threat. That is why the risk-based approach of Smart Security is so vital. We need a way to concentrate our efforts where the risk is greatest. I am glad that IATA is working on this.

Baggage handling is another problem that we have to deal with. We need to have better controls. Ideally, we should never lose a single bag but if it happens we have to be able to locate it immediately.

It is the 70th anniversary of TAP Portugal this year. What is the secret of your survival?

In 70 years, the industry has been through a cycle. The initial years were very tough and a lot of airlines did not make it. Then came a period where everybody made money. Easy years! That was bad for the airlines, they got fat. And then there was a period where you had to be lean. TAP has survived because we evolved through the evolutionary cycle.

I believe well prepared airline managers play a critical role. My point of reference is my father who was a pilot for 40 years. He started flying on a five-seater aircraft and finished on the B747s. It is not easy for a pilot to fly such small aircraft and then suddenly be flying a Constellation to New York. But he was able to grow, he was trained extensively. The technical people do that very well.

Not all managers are prepared in the same way. That’s what happened after deregulation when so many carriers went bankrupt. Airline management had become used to government aid and suddenly it was cut. Management played a big role in bridging that gap. Some survived. Others did not.

'When I arrived at TAP in 2000, the airline was in a critical condition. Our shareholder - the government - could not give us a single cent'

When I arrived at TAP in 2000 the airline was in a critical condition. Our shareholder—the government—could not give us a single cent. The management team pulled together to restart the airline. We were supported by a strong team across the company with solid backgrounds and a firmly established safety culture. With that, we turned the airline around and have grown at about 7% every year since.

Professional management, facing challenges and focusing on safety got us through the first 70 years. And it will see us through the next 70 as well—and maybe even longer!

What kind of a CEO are you?

I am very open and transparent. As soon as I arrived here I opened all the communication channels including to the media. A CEO who places an emphasis on communication makes a big difference. On the one hand I am acc­essible with an open-door to all. And I place a lot of emphasis on ensuring that every employee understands our goals and the critical information supporting them.

I always try to have people understand the options. I lay out all the options and the expected impact of each. The goal is to have the team own the final decision. Of course, as the CEO I also give a view as to what I think is the right choice!

Fernando Pinto

1972-1973: Trainee-Engineer at Viação Aérea Rio-Grandense (Varig)

1973-1976: Engineer in charge of the Engine
Test Cell Project, Varig

1976-1981: Head of the Engines Division, Varig

1981-1982: Resident Engineer at Airbus Industrie, Varig

1982-1988: Head of Workshop Department, Varig

1988-1992: Technical Director at Rio-Sul Serviços Aéreos Regionais (SL)

1992-1996: President and CEO of SL

1996-2000: President and CEO of Varig

2000-present: CEO and Executive President of the Board of Directors of TAP Portugal

Fernando Pinto was also President of the Association of European Airlines (AEA) in 2005. He was Chairman of the IATA Board of Governors 2007-2008

Education: Holds a degree in engineering - Technical
degree in Powerplant & Mechanics

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