Pieter Elbers, CEO, IndiGo; Joanna Geraghty, CEO, JetBlue; Adrian Neuhauser, CEO, Abra Group; Richard Smith, COO International, and CEO Airline, FedEx; and Moderator: Richard Quest, Anchor, CNN International.
Richard Quest: This is fascinating because many people in my business don’t realize just how enormous as an airline you are.
Richard Smith: We’re actually much bigger on the ground. The majority of our traffic actually doesn’t touch an airplane. So that’s the remarkable thing. Today we’re seeing goods travel shorter distances between production and consumption. So, most of our volume actually moves in our vast surface networks which connect basically every household in the world. We connect 99% of world GDP. We’re in 220 countries and territories and have incredible parcel handling capabilities in the market.
Richard Quest: I’ve always said the parcel carriers are the best barometers of what’s happening in the economy.
Richard Smith: Yes and no. It can be misleading because take the United States for example. We’ve always been seen as a bellwether of the economy. But in the United States, 70% of the GDP is services, not manufacturing. So we’re a bellwether for the goods economy. Right. Consumer goods economy, which increasingly the United States is less reliant on.
Richard Quest: So what are you seeing in the goods economy?
Richard Smith: Obviously, the tariffs have taken a bite, but we have seen a resumption in the trade since the president lowered the reciprocal tariffs into what I would call the zone of reasonableness. We’d like to see them maybe come down a little lower and a little more trade to resume, particularly for low-value goods that are not in the strategic national interest to repatriate.
Richard Quest: And how difficult is it to manage when you’ve got tariff changes on a daily basis?
Richard Smith: It can be incredibly difficult, but as difficult as it is for us to flex our network up and down, it’s even more difficult for our customers. So what we’ve really been focusing on is harnessing the power of our data and our expertise. So we have a vast amount of classification data on all these commodities coming into the country. Of course leaning into AI and better digital tools to help our customers. Because when these tariffs fluctuate like that, particularly the smaller customer, and a lot of your formerly de minimis low-value goods, this is impacting small customers in a very big way. They can’t keep up. So we have to help them with better trade classification tools so that we can smooth out the entry filing process.
Richard Quest: Adrian, are you noticing any shift in business as a result of what’s happening in the United States? Is the US traffic weakening?
Adrian Neuhauser: It’s a great question. The short answer is no and not that we don’t expect it to be right, we look at it every day. We have seen a significant change in consumer behavior, right? And I think this is consistent through which tickets are being bought a lot later than they were. But ultimately the passengers are showing up which given the kind of political dynamic, we think is pretty remarkable.
Richard Quest: I guess, maybe the journalist in me is still prodding around, because I’ve asked every airline CEO I can find, are they seeing weakness? And everyone’s saying, not yet, but dot, dot, dot. Would that be a fair description?
Joanna Geraghty: We are seeing weakness in domestic markets and I think most airline CEOs in the US would say domestic is weaker. Predicating that domestically that we just really – leisure. So what’s predicated I think is the volatility with tariffs. Safety is also kind of top of mind in the United States because on the news every incident that occurs gets sort of a lot of public display and so the challenge is I think the consumer is uncertain.
Richard Quest: I wonder what is it that this industry again has the same issues that come back again and again and again. Admittedly this year we have some nice new ones with things like tariffs. But if we take for example supply chain, why do you think this can’t be solved?
Richard Smith: I think it can be solved with the power of data. Because at FedEx we say, we don’t shape policy, we don’t write policy. We just have to comply with it. And we have to help our customers comply with it. So I think the power of the digital insights that we provide to customers help them plan their supply chains better. And we did a very smart thing about five years ago. We set up a division we call FedEx Data Works where we took all of our systemic data and we put it in a big data lake we call Atlas. And we have a digital twin of our network. Every system, every piece of data that flows through those clearance systems, our flight planning systems, our flight planning systems, our route planning systems, our hub sort technology and scanning, all goes into that. So we can use the power of that data in really, really profound ways to help our customers. We’re a very data-rich company.
We move 17 million shipments every day. We move over 6% of the United States’ GDP. We move $2 trillion worth of commerce globally every year. So imagine the richness of that data. If data is the new oil, we are Saudi Arabia.
Richard Quest: Let me ask you, how many aircraft at the moment do you have on the ground? How many aircraft are unusable at the moment as a result of either engine difficulties or any form of supply chain problems?
Joanna Geraghty: 9 out of about 300. We’re seeing, I think, some modest improvements. I think the challenge is being certain that there’s a level of predictability around planning. So we’d expected a slightly higher number, but we’re around 9 right now.
Adrian Neuhauser: We have a pretty extraordinary number, but part of it has to do with GOL’s previous financial difficulties and today trying to service engines that for a while had been run out getting them through so you know there’s there’s somewhere between 30-40 at GOL and then at Avianca there’s seven today.
Pieter Elbers: Our number is going to be a bit higher. Indigo has a total fleet in the range of 430 aircraft and the number of planes on the ground today is in the range of the 40-ish. So that’s the number we’re having today, which is significantly better than what it was six months ago when we were in the 70s. So I guess we’ve turned the corner in this situation. Still, the number in itself is a horrible number to look at.
Richard Smith: So we have probably 30 to 40, but they’re not parked because of supply chain issues in the main. It’s more about the muted demand environment we’re in and what I alluded to earlier, where so much of the volume moves on the surface. So, we flexed down and we parked some aircraft in the software.
Richard Quest: Can I have a sort of a human reaction from all of you? Do you get pissed off about it? I mean, it’s been going now for five years, at least since the pandemic.
Adrian Neuhauser: Of course we do.
Joanna Geraghty: Certainly.
Adrian Neuhauser: But it’s interesting, right? This is the OEM’s problem, not ours. But you see them trying, right? The level of complexity of these supply chains that were built up sort of organically over time is so huge and so undocumented that when you see them, they fix one bottleneck, you just have the next bottleneck pop up.
Joanna Geraghty: Yeah, but I do think they’re getting their arms around the issues, and to get angry at them is somewhat futile, because at the end of the day, you want your aircraft back in service. And that is the goal I think we all have, is we want the planes we paid for to be flying.
Richard Quest: Pieter, you’ve got how many planes on order?
Pieter Elbers: A little short of 900, 885 to be precise. It’s a good number. And I think with that good number, we’re getting a plane in each and every week for the next decade. And that in itself, of course, allows us to deal with all these fluctuations. So, despite all these planes on the ground and all the challenges and the supply chain issues, we have been able to live up to our capacity guidance. We’re an airline now which is 50% larger as it was prior to COVID. So we were welcoming 78 million customers a year prior to COVID. Today we’re 118 a year. So that’s like a 50% jump, and that can only be done by putting all this additional capacity in. I think the order book for us has been a very powerful strength, and if you wish, hatching against some of the challenges the industry is facing.
Richard Quest: One of the big problems that has crystallized over the years, is the infrastructure issues. Let’s start with you, sir, because you fly everywhere. Who’s got the best infrastructure?
Richard Smith: I would say increasingly, it’s the Middle East. Their infrastructure is increasingly outpacing a lot of the rest of the world. Asia probably still has them beat. But the Middle East is making a lot of investment. There’s infrastructure challenges, particularly in your fast-growing markets and some of your more mature Western markets. Europe, the United States, as Joanna alluded to, has issues.
Richard Quest: You’ve had experience, Pieter, of both. Obviously, the fast-growing infrastructure here and the slower, the more difficult in Europe with ATC.
Pieter Elbers: Well, Europe clearly has a different set of problems. The shortage of real progress on the ATC side, still the fact that there’s still no single European sky, which I think is an appalling reality in Europe. Contrary to India where over the past decade I think the number of airports has pretty much doubled in terms of that and importantly not only more airports, but also bigger and better airports. And this year is a very important year for Indian aviation with a second airport in Mumbai opening and the second airport here close to Delhi in Jewar. So I think in India, contrary to probably some other parts of the world, new airports are being constructed, more airports are being constructed, and the airports are being upgraded. Then of course we have the usual discussion on tariffs and how expensive it is and stuff like that. But the fact that the infrastructure is being created and interestingly the infrastructure is being used because I think that’s one of the challenges in Europe.
You build airports and you build infrastructure to use it, right? So that’s that I would say India is making big strides forward in creating the infrastructure and using it to the optimum.
Adrian Neuhauser: So we’re in an interesting part of the infrastructure cycle in our part of the world, right? Our part of the world is highly dependent on aviation for connectivity. Airports were an easier solution; planes were an easier solution than roads. So you have historically built reasonable aviation networks. They’re pretty saturated today. And so when you start looking at what’s happening today, the large airports in the region are starting to collapse and you don’t see kind of the next cycle of investment coming. So what you see, we live in our biggest hub, which is Bogota, you see a push by the regulator to try to use the airport beyond its capacities, and kind of all that goes with that, whether it’s with air traffic issues, with turnaround issues on the ground. People don’t solve issues that are highly political when there’s a limited budget, right?
Joanna Geraghty: So this has been a decades-long problem, picking up on tomorrow’s problem is tomorrow’s problem for years in the United States and our airline is the most exposed air traffic control challenges as a percent of our network than any other U. S. carrier because we’re based in New York and in the Northeast. There are the issues span hiring, there’s a personnel shortage. There’s a technology limitation. There’s a funding limitation. And frankly, this administration is the first in a very long time ever to actually say, we’ve got to solve this.
And the catalyst was the American Airlines plane crash for air traffic control focus. And so it is so desperately needed, obviously very safe. And the delays are there because it’s slowed down to become safe.
Richard Smith: But what’s inexcusable to me is the technology, the fact that we’re lagging behind so badly in the technology sector. We are the – when we talk about trade wars and whether we’re getting a raw deal or not, we seem to forget that the United States is the largest exporter – unfortunately, it doesn’t move on my airplanes – of arguably the most precious commodity in the world, software. How in a country as wealthy as the United States that leads the world in software as an export, how do we lag behind in technology in our air traffic controls? It’s inexcusable. And I will say I’m optimistic that this administration is putting at least they’re saying the right things and they’re putting some focus on it.
Richard Quest: And that does look like that is now happening, at least in the US. You haven’t got anywhere near as much hope, have you? Be honest.
Adrian Neuhauser: Ultimately, it’s an electoral cycle issue, right? People don’t spend money where results are not seen within their electoral cycle. And the issue is until there’s a crisis, people don’t focus on the issue. So, you know, we have a situation right now in our airport. We slow it down. Bogota airport has more ground delay programs in a year than the entire East Coast. We have at least one every day, it’s often two or three, and that has to do with the fact that the airport cannot tolerate the amount of traffic that’s being put through it. Does it get solved? Yes. In a safe manner? Yes. Does it resolve the issue? No, it doesn’t.
Richard Quest: I sort of feel obliged to mention the next subject even though I sort of, I’ll also groan even as I mention it, which is SAF. Are we ever going to get any? And I did an event in Brussels where I was told by everybody on the panel there isn’t enough SAF. There won’t be enough SAF. The mandates for SAF can’t be met. And I walked out afterwards and people in the room said, oh, they got you there. They had you. They had you. They fooled you. There’s plenty of SAF. There’ll be loads of SAF. SAF will be ready in time.
Richard Smith: I think the folks you were talking to had it right. There ain’t going to be enough SAF. Our approach at FedEx, we put this very audacious goal out there to be carbon neutral by 2040, not by 2050. But the way we’ve looked at it is you want to decarbonize what’s possible based on the technology of it. Modernize your fleet, lean into SAF. We just announced a big deal at LAX in the US with Neste to buy a significant amount of SAF there. So absolutely trying to do everything we can on the SAF front, but you have to lean into the second part of that, which is to neutralize the rest. And so we spent $100 million with Yale to stand up their Yale Center for Natural Carbon Capture, looking at carbon sequestration, because I think it’s not a one-size-fits-all solution. It’s an all-of-the-above solution to this problem, and it has to be.
Pieter Elbers: Rather than repeating what Richard just said, I’ll be very keen to hear to whom have you been speaking in Brussels after that panel who told you they got you there?
Richard Quest: Energy suppliers.
Pieter Elbers: Exactly. And were they really supplying or were they kind of consultancy firms right in the middle trying to make sure that they’re happening?
Richard Quest: The latter.
Pieter Elbers: Here we are. Look at the reality of what has been developed so far and some of the challenges which are there both from a technology perspective as well as a trade-off between what you are going to use for food and food stock and what land you are going to use for chefs. I think the reality is going to be really that it’s going to be much slower unless huge technological breakthroughs are going to take place. That’s the reality which is there.
Adrian Neuhauser: We are all trying to be responsible. We are all trying to do our best. This is one of the hardest pieces of industry emissions to decarbonize. You need a safe, non-explosive, high energy density solution that allows these planes to fly as far as they fly, as safely as they fly, right? And we as a world seem to be focused on starting with this really difficult issue, which again we’re doing work on, but instead of focusing on things like fixed energy sources, instead of focusing on construction, instead of focusing on mining, instead of focusing on all the other issues that really are much easier to deal with than this one. Now again, SAF is part of the answer, carbon capture is part of the answer. We think of newer technology planes, higher density LOPAs, so we’re moving more people on the same. It’s part of the answer too. But ultimately, there is a challenge in the absolute focus we have on decarbonization needs to be inside this industry.
Richard Quest: Do you think the public care? Because I just wonder whether or not there is a level of nimbyism. I don’t want you to fly and I want you to do all the I want you to make the savings but my holiday to see grandma that’s because I haven’t seen grandma for 10 years. So I need to go and see grandma.
Joanna Geraghty: So I think the public cares, but I don’t think it necessarily translates into whether they’re willing to pay for it or whether they’re willing to dial back that extra trip at least in the United States.
Richard Smith: One market where we do where we do see it drive consumer behavior a little bit is Europe. I mean for us in our industry customers will sometimes default to more expensive options if they’re greener and more environmentally friendly.
