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Routes News

16 Apr 2018

BY Edward Robertson

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Viva striving for higher peaks

In an interview at Routes Americas 2018 in Quito, founder of Ryanair Declan Ryan revealed his latest aspirations for VivaColombia and Viva Air Peru

Rainbow Mountains, Peru
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“We’re in deep discussions with some airports in Ecuador and we’re looking very seriously at the market. I’m a bit of a virgin to Ecuador, but I was blown away by the airport in Latacunga.”

Mention Irelandia Aviation and its founder and managing partner Declan Ryan to anyone in the industry and they will immediately think of its oldest and most successful airline, Ryanair.


Carrying 130 million passengers a year on a fleet of about 400 Boeing 737-800s, Ryan is rightly proud of the 30-year-old Irish airline.


Speaking in an interview on stage at Routes Americas 2018 in Quito, Ecuador, this pride is evident as the conversation immediately turns to Europe’s biggest airline.


He says: “The Ryanair story is amazing. It took 12 years to IPO and we went through a lot of bumps, but it’s just amazing. We had a lot of scares from it and we nearly went out of business several times, but the rest is history and it is fantastic.”


However, when pressed he openly admits that the decision to set up his second airline Tiger Airways in 2004 with headquarters in Singapore was partly prompted by his decision that Ryanair “was getting too big and too boring”.


So it’s no surprise that his restlessness eventually led to the creation of Viva Air, of which he is the CEO, five years ago and its low-cost subsidiaries VivaColombia in May 2012 and Viva Air Peru, which began operations in May last year.

 

Lessons learnt from Ireland

Lessons learnt from Ireland

Given the location of the interview, it was no surprise that the conversation focused on the two South American carriers, although Ryan admits that in setting them up, there were lessons to be learnt from their Irish counterpart.


He says: “Fundamentally, most people will know [our principles] – we won’t do different aircraft types. The Viva Air holding company for Colombia and Peru has ordered 50 new airplanes from Airbus [to complement the rest of the fleet].


“We’re agnostic about the type of airplanes we operate. Ryanair finds Boeings fantastic and they are fantastic, but both manufacturers make really good airplanes.


“You just stick to one kind of style and one type of model. You then do the usual stuff – you negotiate like hell with the airport groups and we make sure we are as efficient as possible. All the lessons are kind of similar.”


Ryan argues that it is these basic rules that then allow the two airlines to charge between $30 and $40 a fare, giving the airline a mark-up of $5 to $6 on each passenger.


He also says Viva Air must always keep its focus on these basic rules in order to survive in a regional market which, despite not being as developed as in other parts of the world, remains just as cut-throat.


Ryan adds: “When we started Viva, there were 16 airlines in Mexico and today there’s only four; it kind of shows what happens in the marketplace and the same will happen down here, particularly in Peru.”


While he admits that the five-year-old VivaColombia may have some way to go before it can emulate the efficiencies of Ryanair, he adds that the region’s mountainous nature thanks to the Andes make it perfect for the LCC model and will help drive growth.


Ryan says: “A lot of the routes in Colombia are small sectors and short sectors – for instance Bogota to Medellin is 28 minutes [in the air]. It’s nine hours by road, so it’s perfect for aviation. We want to do more sector lengths and we’ll start doing international routes out of Medellin and Bogota and out of Peru.”

Building up the fleet

In order to achieve this, the airlines will need the Airbus aircraft,15 A320ceos and 35 A320neos, currently under order, to join the current fleets of 11 aircraft in Colombia and three in Peru. The ceos will be the first to be delivered with seven arriving this year and eight next year. Ryan says some of the aircraft will be used to replace ones currently in operation, adding: “The growth will be 36 aircraft and in this marketplace 36 is a lot of airplanes.


“Our fleet will come up to about 25 in Colombia and 10 to 15 in Peru. We think about 50 airplanes is about right. I wouldn’t like to be in Jetsmart’s position – they say they have 70 aircraft coming down the line and that’s just for Chile. I don’t think that’s correct.”

Ryan adds that much of Viva’s focus this year will be on Peru, where the fleet will double in size from its launch last year with three new aircraft. He maintains that since then the airline has proven there is a viable market there as they have been “blown away” by the load factors, even if yields have been lower than hoped.


He also admits that the airline has learnt quite a bit in its first year of operations in the country, having pulled two of the seven routes it initially launched because they weren’t working out.


But Ryan also believes improvements need to be made at Lima Airport, which handles 98% of all international arrivals and is run by German operator Fraport.


He adds: “Lima Airport is a nightmare because they’re not doing enough with the infrastructure. Cash is being taken out and they are not doing the investment that should be done there.”

Viva Air Peru in numbers

Countries: Peru
Destinations: 6 domestic, 0 international
Fleet: 3 Airbus A320s (180 seats)
Passenger numbers (May 2017-Jan 2018): 364,076
Weekly flight operations: 110 flights


VivaColombia Peru in numbers

Countries: Colombia, Panama and Peru

Destinations: 13 domestic, 4 international
Fleet: 11 Airbus A320s (180 seats)
Passenger numbers (May 2012-Dec 2017): 14.5 million passengers
Weekly flight operations: 490 flights

Until it does, Ryan argues that other Peruvian airports should start securing and growing international routes, although he believes all of them need to raise their standards to international levels.


He also admits that Ecuador is on Viva’s radar, adding: “We are very seriously looking at Ecuador – we’ve seen three or four airports in the last couple of days.


“We’re in deep discussions with some airports in Ecuador and we’re looking very seriously at the market. I’m a bit of a virgin to Ecuador, but I was blown away by the airport in Latacunga. We think that it could be the equivalent to Stansted or Luton to the city of Quito.”


Ryan adds that Ecuador lost out to Peru for initial Viva operations thanks to the belief that the latter had a bigger market – an opinion he is now revising having visited Ecuador.


He says: “There’s no reason why the numbers in Ecuador for tourists shouldn’t be higher; there’s not enough low-cost carriers; they don’t have any low-cost carriers.”


However, he believes Quito shares a problem common to many other airports in the region, adding: “The barriers are the airports. LCCs operate on margins of single figures and then the airports are [operating on margins of] up to 40%.”


Ryan also believes that should the situation change, everyone will benefit. He adds: “At Viva, we carry a lot of backpackers – we actually call them ‘macpackers’ as they all have laptops and iPhones – and if you take the golden triangle of Colombia, Ecuador and Peru there are a lot of Brits, Germans and Yanks who will fly with us.


“Ten per cent of our traffic in Colombia at the moment is foreigners – and that is too low. We want to get that up to about 20%.”

Nor are new aircraft and new destinations the only ways Ryan is considering growing the Viva brand, adding that the company is exploring an initial public offering. “We’re going to list Viva Air, certainly on the New York Stock Exchange, within the next two years,” he says. “We’ll probably have a dual listing in Colombia as well.”


And while Ryan admits Viva is also looking at certain other parts of the region, he is also quite forward about countries that currently don’t feature on his wish list of destinations.


He says: “We are also looking at Central America. We’re not looking at Chile – Chile will be a nightmare, not because of Chile but because of the airlines that are down there.


“LATAM Chile, Jetsmart and Sky are going to have a big fight down there. We would be arriving too late to the party and we think those three carriers are going to beat the daylights out of each other.”


Ryan has also ruled out Brazil, thanks to its government’s dislike of foreign investment, but admits that while Argentina is also currently considered to be a no-go area, that may yet change.


“Argentina is very interesting – it’s also a great country with great people,” he adds. “We had a good look at it; Argentina feels like a gold rush.”


Ryan says this is largely thanks to start-up Flybondi currently operating there while Norwegian’s launch of a subsidiary, Norwegian Air Argentina, in January 2017 will fuel competition in the LCC sector.

“We’re in deep discussions with some airports in Ecuador and we’re looking very seriously at the market. I’m a bit of a virgin to Ecuador, but I was blown away by the airport in Latacunga.”

He adds: “I have no doubt we’ll go back into Argentina at some stage, but there’s too much noise and it doesn’t smell right. It is not a priority – our priority this year is effectively to introduce the new airplanes.


“You have to make a decision on where your strengths are, and our strengths are in the Andes region. There are much easier operating environments in southern America and in Latam. You wouldn’t put Argentina first on the list.”


No doubt the introduction of the new aircraft will help grow these strengths, and perhaps in 25 years’ time, people will be talking about the Viva brand in the same way as Ryanair is spoken of today.


In the meantime, one thing remains certain: the tough negotiating tactics the European LCC has deployed to get where it is today remain very much a part of Viva’s playbook too.


Ryan says: “If the airport charges are high, we just won’t go there. We just can’t make money and we pulled out of Cali. This is Ryanair all over again. I remember we pulled out of Manchester, moved seven airplanes to Liverpool and the Mancunians soon came back.


“One of the advantages of airlines is that you can move your assets around. We don’t have many [advantages], but we can do that.”

Staying mindful of local markets

Staying mindful of local markets

The fact that the LCC model is proving largely successful globally does not mean local considerations can be ignored.


Viva Air CEO Declan Ryan says: “People are the same all over the world – they want to go from A to B at the best possible price… but it would be very arrogant of us to think just because we had a good model in Europe that we can do the same in Colombia or Ecuador and so on.”


He says one of the best examples of this is in Peru which, despite having one of the highest penetrations of smartphones in the region, still only comes in at 40%, far below that of Europe and completely changing distribution channels.


Furthermore, the demographics in the region make price an even more sensitive issue than elsewhere, although he admits that this is rapidly changing with as many as 50 million people becoming middle class in Latin America in the past two years. Similarly, he says the Colombian market has grown by 40% since VivaColombia began operating there five years ago.


While Ryan admits that price is a bigger issue than in other, more developed markets, human nature being what it is will definitely drive change.


He adds: “We’re not seeing the same frequencies of people travelling as we do in Europe or the States, but if you tell your girlfriend you can’t see her for the weekend for 30 bucks, you’re going to be in a lot of trouble.”

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