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Lease New or Run Older Planes

Former Chief Strategy and Planning Officer at Etihad Airways

IP Interview
Published on May 23, 2020

Why is this interview interesting?

  • How airlines think about managing the fleet between older and newer planes with the fuel price at rock bottom
Executive Bio

Wayne Pearce

Former Chief Strategy and Planning Officer at Etihad Airways

Wayne has over 40 years working in the airline industry. He spent over 27 years working for Qantas Airways, Australia’s flagship carrier, where he worked his way up as a leading revenue management executive. He then led a turnaround at online travel company Gold Medal Group in the UK before joining Etihad as Chief Strategy and Planning Officer where he was responsible for pricing, capacity and fleet management for the group. In 2012, Wayne joined as CEO of Oman’s flagship carrier before moving on to advise the CEO of Thai Airways on a turnaround plan.

Interview Transcript

I think this is one of the most interesting questions, right now. They were producing 60 odd planes a month, a huge oversupply of planes now. If you’re managing a fleet, do you upgrade to new planes? Do you scrub the old ones? Do you run the old ones now, because the fuel is cheaper? How do you look at minimizing your variable costs?

You’ve raised another really interesting question, because there’s been this massive, unbelievable, improvement in technology, in aircraft, over the last 50 years. A lot of people say that the airplanes look pretty much the same. There’s a lot of truth in that. If you look at a 777 produced now, compared to 30 years ago, you could put them up against each other and they are very similar. But the efficiency of those aircraft is just staggeringly different, in terms of the amount of fuel per passenger that they burn. What’s happened that is so extraordinary is the cost of oil – and in the aviation industry, we call it Brent Crude – has gone down from a period of about 2008 to 2012, where we were paying $110 a barrel, to now, where you can buy it for about $25 a barrel. That is incomprehensible. It’s like taking the price of fuel back 25 years.

Everything that justified that extraordinary capital investment in jet engines, composite materials, amazing sophistication, to get the drag down of the aircraft, has gone. If I’m sitting there, running an airline now, I’m going to think, I can almost use anything because, as long as it can actually make the mission and back, it will work, because the fuel isn’t going to be the difference that it once was. What a lot of airlines are doing now, and how they’re making dollars, is that they are using passenger aircraft, believe it or not, as cargo planes.

What they do is, in the hold of the aircraft, like a 777-300, you could probably put about 20 tons of cargo. Originally, we’d have about 12 tons of cargo and eight tons of people’s baggage and other stuff like that. So you stick all that in cargo, and they don’t take the seats out. You either just put boxes down and tape them onto the seats, believe it or not, and these things have been converted into semi-freighters. When you talk about flexibility, you’ve got to be prepared to do anything.

What you suddenly start getting your crew to do is operating all these services for freight. As long as you can cover the variable costs, you’re ahead. So anything goes.

As you said, you’d rather own older planes, today, than the newer A320neo, or newer planes, which are more expensive?

There are a lot of people making some pretty incredible claims about a vaccine, at the moment, including Oxford University and some people in the States. Let’s just say, for argument’s sake, that happened, and oil didn’t go up, materially, and it stayed at this $25 mark, Brent, approximately. I wouldn’t be in a hurry to buy anything new, that’s for sure. If I had aircraft that were, eight, 10, 12, 14 years old, I would think, I’ve paid it off, I’ve got a higher maintenance bill, like your car – you pay more maintenance as it gets older – but I’d say, I’m going to go with that. I can’t afford the capital, anyway. I’m pretty broke. So I’d rather just use my old planes. If anything, put some nice seat covers on. I wouldn’t bother to paint them, because not too many people look at the paint outside, unless it’s an ad. I would just get people on and focus on the service for the customer. That’s what I’d do, bearing in mind what the guy actually sees, when he or she is sitting in the seat.

Most people’s interaction is defined by a tiny amount of space. It’s what do you see on the back of the seat in front of you, which is the in-flight video and who is that crew member coming down the aisle? How are they interacting with you as that personal skill is a big deal? What do they give you to eat and drink? Increasingly, and I imagine when you go on an airplane, you probably take something like an iPad, and you watch movies you’ve already downloaded and you skip whatever is on the screen in front of you, anyway. You’ve probably got a bottle of water. A lot of people, if it’s short haul, have brought something to snack on, anyway.

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