Speech during the Aviation Outlook MENA March 2012

Here I was, invited to give a presentation to my industry peers. Just after Emirates and Air Egypt Express, so the companies kept getting smaller. Good to know that after my presentation we all had lunch or else we would have ended with a model aircraft enthusiast.

My Business Development Manager was probably more nervous than I was since he expected me to spill the beans but obviously I did not. Unfortunately, I am unable to upload the slides I used during the speech. If you are interested in them, please drop me a line.
Good afternoon, Ladies and Gentlemen.

What a day it has been so far. After the coffee break, we started off with arguably the number 1 in the region, moved on to a regional carrier, and now we have reached domestic services. It is a good thing that there is no presentation after mine because we probably would be hearing about a bicycle service between the Dubai Mall and Burj Khalifa!

It is a real pleasure for a manager of a small start-up regional airline to speak alongside all these distinguished hosts and to interact with esteemed industry colleagues such as you. So first of all I would like to thank Terrapinn for inviting me here to speak and special thanks to Lynsey for her patience shown with me.

My name is Alex de Vos, and I am the CEO for Eastern Express in Fujairah, a start-up regional carrier for the UAE. Eastern Express has been incorporated last summer and is scheduled to launch operations on domestic and regional routes summer 2012.

So here I am, talking to you about UAE domestic services. Domestic services in a country that figures high on the economic and political world map yet at the same time has only twice the size of my home country, the Netherlands. And I am sure you all know that in Holland we have signs in our trains stating that it is forbidden to lean out of the window without having a passport on you since you would technically enter Germany.

Just last week I was at a seminar in Abu Dhabi and one of the UAE’s high profile consultants approached me. While taking me aside, he told me bluntly: “Alex, your project is not going to work. The country is too small and besides, your aircraft choice is all wrong.” Of course, I later found out that the very same consultant had secured a project with one of our competitors and that he had previously unsuccessfully tried to sell us a turbo-prop aircraft. The very same aircraft he is now convinced will not work on our routes. So I am obviously somewhat biased of his sincere intentions but nevertheless, his opinion seems to be the norm in the UAE.

So what would make us, and with us our stakeholders involved, think that domestic air services are going to work in such a small country? Bear with me for the next few minutes and I will tell you why domestic air services are indeed needed for the UAE in order to progress even further economically.

A long time ago, sometimes during the last century even, I, as all young lads, went to my father and asked him for career advice. “You want to make money, you go into banks or insurance” was his advice before he returned to his science section of the newspaper. And as all good lads, I ignored his advice completely and went into aviation. Why? Because I wanted to be surrounded by people like Bob Crandall.
Bob arguably is one of THE biggest names in aviation. He has been awarded with the Tony Jannus award; he has practically invented yield management, and he led an airline successfully through deregulation. Major achievements that keep inspiring most industry colleagues and they certainly keep inspiring me. Not that I dare to compare myself with Mr. Crandall, yet we have one thing at least in common, we both call ‘a spade a spade’, which, undoubtedly, makes us both unpopular with many regulatory bodies from time-to-time. Yet, this airline is not all about me, so I believe this a small price to pay as long as I help the airline to prosper.

One of the aspects of how-to-make-an-airline-work is to sit back, relax and reflect on the airline’s strategy. Now I must warn you: I have scored a very weak mark on my strategy paper for my MBA-course so don’t take my views on this complex topic as carved in stone! Yet I have learnt a thing or two from my professor and probably the most important one is: kan het niet zoals het moet dan moet het maar zoals het kan, which roughly translates into: when it is not possible the way it ought to be done then it ought to be done the way it is possible. Apologies for the lousy translation, English was apparently not my strong point either!

So here in this beautiful country, modern in any way, and probably going to, if not already, leading the way in transport, what public transport is available to us? Taxi? - yes; Bus? - yes and no. You can take a bus from Fujairah via Sharjah to Dubai and then get on another bus to Abu Dhabi but the country border stops the busline. Train? - no, not yet, at least. Aircraft? Well, we are getting there…And what would the public like to see available to them? Obviously the largest choice of transportation means available to them, and that, if you like it or not, includes domestic/regional services. Here is why:

The famous Gulf Aviation, the holy grail of the airlines in the Middle East. Forced to fly, due to aircraft performance restrictions amongst other reasons, regionally. Let BOAC do the profitable long-haul routes, and leave the much harder, lower operating margin routes to the regionals. I am pretty sure this was the way BOAC thought back then.

However, this short-haul focus ended when regional airlines, and by that I mean airlines in the region, were capable of acquiring modern, longer range aircraft. The consequence?

A320s, B737s, A330s, A380s even… all very modern, exceptionally comfortable, highly reliant and safe aircraft. Efficient too, but only within their respective design envelopes. 25 passengers on a 40 minutes flight in a wide-body? Normal here and obviously very nice for the passengers but the efficiency factor? Well, maybe not so great.

Now, don’t get me wrong. I do believe the GCC has a few of the finest airlines in the world. Within a few decades, the regionals managed to challenge established airlines all over the world. Even if the focus is slowly shifting to the east, to the Chinas and Cambodias, nobody can take this achievement away from them.

I believe it to be an accepted aviation business statement that more money is made on medium and long-haul routes. So quite rightly, airlines in the region chose their fleet types according to maximum efficiency on these routes. That is the perfect smart thing to do from a business perspective. Yet at the same time people in the UAE wanting to travel domestically are restricted in their transport choice to land transport means.

Fujairah International Airport to Abu Dhabi International Airport equals 260km. With the new highway stretch from Fujairah connecting into the old Kalba to Sharjah highway, it takes you around 3 hours to reach Abu Dhabi, assuming no traffic bottlenecks.

Yes, I have heard from numerous people, including police officers, I might add, that they can do it in around 2 hours. But believe me, this way you spend more on speeding fines than you would on an air ticket. I speak from experience, last week I had to pay for two speeding tickets coming from Abu Dhabi. Apart from being mad at myself, my wife is now also mad at me because I could not buy het that shiny necklace anymore. Is that really worth it?
A flight takes around 30 minutes, add to that 30 minutes embarking and 15 minutes disembarking time and you have saved almost 60% of your travel time.

Of course, as has been argued before, by driving yourself you have the advantage of a car at both ends. True, yet Eastern Express provides you with a pick-up / drop-off service. So instead of traveling more than 6 hours for a business meeting in Abu Dhabi or Fujairah, going by air means a travel time of only 2 ½ hours both ways. I would claim this to be worth serious consideration, if nothing else.

True, once we had made our plans known to the public, some companies and individuals had a close look at our business plan, modified it slightly and started planning the execution of domestic and regional operations. Do I see there one or two faces turning pink? Let me assure you, we do mind only to a limited extent since Eastern Express has worked on the concept for almost 3 years now and that time span cannot be caught-up within a few months time only.

We have done our homework, some of it exceptionally well and some of it not that well. Yet, what we have definitely achieved by now is that we are on the map of the stakeholders involved. And fortunately, I am in a position to say today that all stakeholders support us. I am sure you all know that this ‘getting there’ time span takes always longer than one might hope for. And here we are, having achieved it to a large portion.

We have been, and still are, introducing the product to potential passengers, to the relevant authorities, and to industry peers. We are confident that we have a head-start over potential competitors. In the end it is the public that decides whose product will succeed. Competition never kills a business, poor and hasty planning and execution, however, does.

We have been fortunate enough to attract high caliber and regionally very experienced staff. Some of them actually do sit here somewhere in the audience. As if we would not have enough to do at the office! So please remind me to give them a very stern warning during lunch! Just kidding, of course. What is true, however, is that without them our journey so far would not have been possible. Period. So before you think to yourself: “that Dutch chap is actually pretty smart”, give those guys the credit they deserve.

Of course, we have had our difficulties along the way. I believe this to be normal for any kind of start-up business. It is general accepted business acumen that you try to stop potential competition as early as possible from operating. And it has happened to us numerous times. As a consequence, we have been forced to delay our launch from Q1 2012 to Q2 2012.

Our original concept foresaw an ACMI-leased aircraft fleet. Shortly before launch date, we were officially informed that this concept would not be allowed. So we switched the aircraft acquisition model around, with all subsequent financial implications. Fortunately, we were able to raise the additional capital needed that will cover the increased short-termed negative cash-flow.

Again, we have been lucky enough to have the continuous backing of a number of stakeholders involved. Many other astute businessmen would have closed shop and cut their losses when confronted with the obstacles laid into our path. Yet, everybody at Eastern Express, from staff, over management and board level, to external stakeholders believes in the product and I am convinced that the received sound support will materialize into a superior quality product.
Sure, there is still the perception in the region that turbo-props are old-fashioned and unsafe. Yet here we are: starting with turbo-prop aircraft on our routes. So yes, we make our lives that bit more difficult by educating our market segments that turbo-props are actually perfectly safe. They even have numerous advantages over jets on shorter routes. Advantages that I certainly do not need to describe here for you.

I agree with you this to-be-undertaken education process forms a risk to our business model. Fortunately, we have some risk mitigation factors built-in but in light of the earlier addressed competition, I am not going to disclose them to you!

Somebody is always first. Southwest Airlines was. And look where they are now. And Air Arabia was first in the region. Of course, those success stories do not guarantee the success of Eastern Express. As much as we all would like to see Eastern Express prosper; the one thing that we already have achieved and nobody can take away from us is that we have changed the mindset of the aviation trade in the region.

With all the aviation firsts and grandeurs that the region currently possesses, it becomes increasingly difficult for our industry to find potential lucrative regional markets. I am not claiming that we have invented the wheel, far from that. Numerous airlines have launched successful, some very successful, and some plain failed domestic carriers in other parts of the world. Yet, as the attempts to copy our model have shown, aviation professionals in the region start realizing that there always will be another market niche to conquer.

In the end it really does not matter who comes-in first and who second. What matters though is that each business, and contrary to what many believe airlines are a business, delivers a superior product and adds value to its socio-economic environment. One way to do so is to talk to each other from early beginnings onwards.

I would like to see other entities and individuals buzzing us and saying: “hey, here is what we are going to do.” Naïve? Perhaps, yet what would be lost in such a scenario? Don’t be afraid! We do not have the resources to take-over your business model. And at least this way we would coexist rather than compete with each other.

4 different continents, 4 different successful airlines. The thing in common though is that they all add value to Big Brother. As Big Brother, what would you rather have: flying 30 minutes with your very own wide-body hauling 25 passengers or outsource it to a dedicated regional airline, leaving the financial risk mostly with them?

My choice would be obvious. And I believe that is indeed an obvious choice for everybody involved. We have looked at the UAE and I strongly believe we have seen what the population wants: a choice of travel possibilities.

And with that, I thank you again for your patience. Enjoy the rest of the illustrious speakers, shukran and tot ziens in the UAE airspace.