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CEO Interview - Something Special

Fernando Pinto, CEO TAP Portugal

For Fernando Pinto, CEO, TAP Portugal, the flying experience must not be taken for granted

You’re celebrating 10 years at TAP. What have been the highlights so far and what are the next steps?

I thought I might only be here for a year. That was the average for the CEO when I arrived. TAP was in a difficult position. A privatization process had started but there was no cash to see it through to completion. We developed a three-year turnaround plan that was focused on survival, not privatization. Despite the difficulties of 9/11, we were able to achieve our goals.

In the past 10 years, we have grown more than 100% and we estimate our efficiency has increased by a similar percentage. We’ve also made substantial cuts in our cost base. And we’ve posted positive results each year apart from 2008, when the fuel price took its toll.

We are now working with the government to finalize a privatization process again. That’s our main focus for 2011. There is no schedule as yet but the government has indicated it is prepared to discuss the matter.

Have recent developments at Lisbon turned the airport into the hub you need?

There has been a lot of investment in the airport. Particularly important have been several new airbridges, which have allowed us to improve our widebody, intercontinental service a great deal. They give us cleaner, more efficient operations.

Besides that, we have been working with the airport on a collaborative management program. This has been excellent and we have solved problems that had existed for years. Teamwork has allowed us to develop new ideas, which both sides constantly evaluate. I would recommend that airlines sit down with their hub airport, particularly when they have such a big percentage of traffic. We run 65% of operations at Lisbon.

But although there has been considerable improvement, one new challenge has arisen: slots. We need more slots now in order to grow the airline.

The plan is for a new facility in 2020?

I hope we would have one by 2017 but this is a long way off. Anything could happen and there are still plenty of negotiations ahead.

TAP has strong connections to Latin America. How do you see that market developing?

Latin America is proving that it can grow steadily and is posting good figures. I think that the growth is there to stay.

There have been significant mergers between airlines in the region. This is an intelligent move in my view. Stronger airlines multiply the effect of positive growth so in that respect it is welcome news for the airline world. It works well for TAP too. We fly mostly to Brazil and we see a lot of opportunities for partnership with airlines in the region.

As a medium-sized airline, where will you find your market in a consolidated world?

We have developed our own niche. We have several gateways to Brazil and Africa, and these connections are the foundation of our success.

TAP certainly has a role to play in a wider context—in Europe and globally—but right now I wouldn’t know who our partners might be. There needs to be a lot of scientific analysis done on that question.

What is certain is that an easier, international flow of capital will help the industry. This is the only industry that doesn’t make sense in a globalized economy.

Following the environmental agreement reached at the International Civil Aviation Organization’s (ICAO) Assembly, what more should be done to help aviation achieve its environmental targets?

IATA has done an excellent job on the environment and we finally have a common, global policy. Individual countries or regions having their own policies created enormous problems for airlines. ICAO was a great victory and now we have to approach the European emissions trading scheme (EU ETS) with ICAO standards. If we do that, we will be taking a significant step forward. The EU ETS needs to be adapted so the system can be recognized and harmonized around the world.

Aviation’s environmental targets are realistic. For example, carbon-neutral growth from 2020 is achievable with the right investment, new aircraft, and modifications to flight profiles. No other industry has such a plan. But we will need a Single European Sky.

The volcano crisis has shown how necessary it is to make air traffic control more efficient. We want to save carbon but governments must help us.

TAP was the launch customer for the IATA industry carbon offset program. Has it been a success?

We launched the program in June 2009 with a goal of offsetting 1,500 tonnes of carbon by the end of that year. We actually finished the year having offset 2,500 tonnes—67% better than the target. For 2010, we set a more ambitious target of 3,500 tonnes and we beat that with a total offset of 4,277 tonnes, surpassing our target by 22%. This tells us that there is a demand among our customers for this option.

 We were pleased to be the launch airline for the IATA program. And we were honored to have been awarded the IYPE “Planet Earth Award 2010” for having delivered to our customers what UNESCO and the International Union of Geological Sciences thought was the most innovative sustainable product of the year.

There are new or increased passenger taxes in Germany, the United Kingdom, and Austria. Could we see more of this while countries are scrambling for cash?

It is so shortsighted. Airlines contribute so much to tourism, culture, and the economy at large. Whenever or wherever we make it more expensive to travel, there will be fewer passengers flying. This is a basic market law.

Clearly we haven’t been able to show governments how damaging these taxes are. From their point of view, they are short of money and aviation is one of the best and quickest ways to raise cash. But we have to give them the figures that show that the negative effects are equally quick and far outweigh any short‑term cash gains.

How can we turn our customers into industry advocates?

In the past, flying was something special. These days travel is a commodity. Customers take it for granted, and airlines have encouraged this mindset by substantially reducing the cost in real terms. Travelers simply don’t imagine aviation is a system that can be disrupted so easily. This is why they haven’t been engaged. It will be difficult to get them involved but we must try.

How should we enhance security?

Safety and security are always our prime concerns. They are the basis of this industry and getting them right is why the industry has grown.

But whenever we have an incident like the Yemen cargo packages, governments react by looking at solutions that apply only to that particular event. Again, it should be about the bigger picture. All stakeholders have to work together on this. It is not about stopping one particular type of event but about stopping every security threat.

Intelligence will be very important in the future, and there will have to be a lot of technology involved. We have to find ways of solving the security problem, and that includes the question of cost. Security costs are a government responsibility.

An airline business depends on passengers. How do airlines ensure they provide the service today’s customers require?

When airlines went into mass transportation, it became harder to serve specific passenger segments. There are leisure passengers who are travelling on vacation, there are business executives who travel frequently, and there are those who want a first-class service.

Most airlines try to serve all these types of passengers. And they have to try because the only way to survive is through volume. Without passenger numbers the price of tickets would be too high.

I think we are improving the service for every type of passenger and technology has been the key to this. But the problem is the rest of the travel process. Security has become more unfriendly, and there are delays at check-in or waiting to take off. Once more, we have to look at the whole picture and involve all the stakeholders. The public perception is that the problems are always airline issues. We have to confront this mindset. We must invest a lot more in infrastructure because it will make such a big difference.

What is your Vision 2050? What needs to change for the industry to have a sustainable future?

First, it has to make a return for its investors. We never return the cost of capital and we will have to if there is to be any future at all. This means we will need to continue to grow the volume of passengers, which in turn means improving safety and security. Getting these areas right is essential to getting people to travel.

The whole flying experience has to be different. It needs to be fun to fly again.

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