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CEO Interview - Building Bridges

Bernard Gustin and Michel Meyfroidt, Co-CEOs of Brussels Airlines

Bernard Gustin, Co-CEO of Brussels Airlines with Michel Meyfroidt, explains the importance of relationships

Is the market bouncing back or are you still cautious about short and medium-term prospects?

In Europe we have a degree of recovery, but it is very slow. Our African destinations did relatively well in 2009 and continue to be strong in 2010. But we are seeing new competition in some of the markets. And, of course, competition in Europe is fierce. That can make it hard to define a “recovery”. The conditions are always very difficult. So we are being strict with our budget, and we are constantly reviewing the situation.

Low-cost competition continues to be a challenge. Charleroi airport is just 45 miles south of Brussels but it is classed as a regional facility and so is heavily subsidized—by about 50%. Ryanair uses the airport as a hub and is basically subsidized for being there, getting about $20 back on a $100 fare. That really affects the market, especially when you combine it with an economic recession.

More broadly, in terms of the crisis, we actually did well to anticipate it. We saw it coming in June 2008. By October of that year we had cut capacity by 15%, so we managed to limit the damage. We’re now able to look positively at growing our capacity while others are still thinking in terms of cuts. We fully understand that in this economic climate you cannot take things for granted. There is no room for complacency because wrong decisions can have serious consequences.

Today we are optimistic that there is some pick-up but we expect the pace of improvement to be slow for some time to come.

Has the economic crisis changed your strategy?

Our strategy has changed, but not because of the economic crisis. The driving force was the deal with Lufthansa and joining Star Alliance.

Before, our outlook was solo and opportunistic. Having partners has allowed us to define a clear direction. Of course it brings a host of other advantages. When we look at re-fleeting options, for example, we’re able to “piggyback” on Lufthansa’s relationship with the manufacturers.

There is enormous commercial support. We are a part of a big contract to support mining operations in Africa. We would never have won this on our own, and it has made a notable difference to our African services. We are also benefiting from a stronger loyalty program through participation in Miles and More. And this is only the start of a long list of benefits that make us a stronger airline.

But we need to make the relationships clear. We need to separate the financial shareholders from operational partners. That, incidentally, was a big problem a few years back with Sabena and Swiss air. People couldn’t understand why Swiss air, as a minority shareholder, was influencing decisions.
Lufthansa is a minority shareholder, albeit a big one. That particular story ends there. Then it is our operational partner through Star Alliance. It’s a very important partner for us because of its size and proximity. They give us critical mass, particularly in our outstations. Recently, they stopped flying Frankfurt to Bristol, UK. We offer a daily service to Bristol and so have picked up a lot of that traffic. It’s making Brussels into a hub. Previously only 12% of our traffic was transit, but that’s now changing.

But all alliance partners are important. Previously, we had three people working in the US. Through our Star Alliance connections, the present number is 253. We are now playing a vital role in connecting the US with Africa. Despite our size we are giving back to Star. We offer seven destinations in Africa it didn’t have before.

Is partnering with other airlines the only way to survive? Do you support IATA’s call for liberalization?

Before working in aviation, I was involved with utilities. There, liberalization had little effect. This is because it isn’t easy to build a new nuclear power station or a new electrical grid. But liberalization for airlines is different. It’s relatively easy to get hold of an aircraft and start flying somewhere. So we have to be careful because it would have a profound effect.

Liberalization offers great opportunities. But we must have the same rules for everyone. Governments must ensure a level playing field. That does not always happen today. We’ve already explained the situation at Charleroi with Ryanair. We have to pay social security in Belgium. Ryanair doesn’t. We can work very hard on all our costs, but we can’t avoid paying social security in Belgium, and so we can’t get the same treatment as Ryanair, which is effectively starting with a $20 per head advantage on every trip. It’s entirely legal, of course, but the point is we can do nothing about it.
And look at what happens in Africa. There, state airlines can be very different animals. They are sometimes used simply as marketing tools, so are judged by the amount of traffic they generate rather than profit. Brussels Airlines can’t compete on those terms.

Can the industry achieve its environmental targets?

The first item on the agenda, from a European perspective, would have to be the Single European Sky. It is by far the easiest way to save some 16 million tonnes of CO2. All we need is the political will. It is not a technical problem.

IATA is doing a lot to help airlines and the industry improve environmental performance. But we also need to think about the image we are presenting. Too often, airlines are seen simply as “evil” in environmental terms. But we were never that bad and we are getting better all the time.
We must ensure we take the correct position. We are a global industry, and we have to be seen in that light. I am absolutely fine with the notion of airlines paying for their CO2 emissions but a regional program such as the European emissions trading scheme is wrong.

We fly passengers from the US to Africa, via Europe. So if Europe suddenly becomes a problem or too expensive, then airlines and passengers will simply find another route. Aircraft can fly anywhere. We have a very volatile industry and environmental mismanagement could make it even more so.

What more can be done to enhance safety and security? Does your African network present any particular problems in this regard?

We always say that safety and security are our top priorities.

Regarding Africa, there are still some countries on the European blacklist. We need to help them, and make sure their safety standards are of international quality. We’ve deliberately chosen to work with a local company in the Democratic Republic of Congo. We are sure this will allow the country to develop the processes that will bring them up to standard and help get them off the blacklist. We must all do something.

For the same reason, we believe that data sharing is an excellent idea. One accident affects us all. It is in our best interest to ensure everybody is safe. Whatever helps us to progress is a good idea.

With fuel prices rising, cost reduction in other areas will remain critical. What is the airline doing to save money?

We can always do more with cost reduction. But there is a difference between taking out costs at industry level and taking them out at the company level. You have to be clear about why you are doing something. Too often we think about costs without thinking about our customers.
We talk about harmonization a lot as a way of saving costs. As an industry, that may be true. But we have to ask as a business whether it will benefit us. Will it help our customers or our business? There’s no sense in doing something if it doesn’t bring any advantage. We sometimes think things are important when they are not.

As an example, we were the first airline to stop business class in Europe. To be honest, we may have been wrong about the timing. Or, as we prefer to say, we were right too soon. But we thought about our business. We didn’t accept industry norms.

Today, we have again reintroduced a business class on our European network due to our strategy with Star Alliance.

Self-service will take out cost and improve the passenger experience. Is it important to the way you run your airline?

In the BENELUX countries, one out of two passengers books online. They now have so much control at their fingertips. They can even choose which seat they want. Really we have more contact now with the customers than we ever did—even though it’s self-service. But again, it goes back to listening to what the customer wants. They will decide the best way to run an airline.

How would you describe your management philosophy? Does having co-CEOs work well?

We have been working together for a number of years. I had been a consultant for Brussels Airlines since 2001 and worked with the carrier on the Virgin Express and Lufthansa transactions. So becoming co-CEO in June 2008 was really just an extension of the existing arrangement. Meyfroidt is 20 years older and has great experience. He’s seen crises before and his insights have been invaluable.

We have divided our areas of expertise based on our personalities, but it is good to have someone to talk to, to count on and get advice from. And we share responsibility. If something happens in Africa, then it is an issue for all of us. Our contracts are exactly the same so that ensures there is absolutely no bias.
As for our management style, there are two things we have brought to the company. Although this is not technically true, I was really an internal candidate. And we have decided to adopt that strategy throughout the company. We always look to promote from within wherever possible. This gives out a strong message of trust.

Second, we look to be hands-on. We see our role as being captains of a team, out there with the players. We are not on the sidelines or sitting in an ivory tower.

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