if we had customers that came into a unit of Google, we would be able to say to you, here's a deal about carrying baggage or here's a deal about hotels. We would eat the data of somebody walking into an airplane and you have them in a closed environment flying with you for a couple of hours. I don't think the carriers think enough about that, that data is gold and I don't think the carriers treat it as gold
Luka:hey, everyone. Welcome to The Vertical Space for a discussion with Declan Ryan, one of the co-founders of Ryanair and a serial builder of low cost airlines. With commercial drone operations, starting to gain momentum and the contours of future eVTOL operations becoming better. Understood. It's important to highlight the evolution of the low cost airline business model and learn the lessons from this market. And we have just the right guests to take a deep dive into this fascinating topic. Dec takes us to the early days of Ryanair, how they viewed the market opportunity initially. How they chose to compete with legacy airlines. The strategic choices, early pivots all the mistakes along the way. And some very funny moments including negotiating a potential acquisition with British airways. More broadly though, with discuss how low cost airlines make money in a highly commoditized environment, the revenue opportunities, ways to remove costs from operations and the role of technology in this relentless pursuit of operational excellence. Dec has been in the industry for a long time. And what you'll hear from him is a sober, unfiltered view of the challenges and opportunities that the airline industry is facing both today and in the near future. Throughout the conversation we make references to AAM and the ways in which the lessons learned in the low cost airline business might inform eVTOL operations and drone operations at scale. There are many lessons that the advanced air mobility industry should embrace, mistakes it should not repeat. And Dec highlights those, backing them up with personal experience, starting, running, or being involved. With a number of airlines around the world. We discussed many other topics, such as decarbonizing aviation, supersonic air travel, how startups should pitch airline customers. Advice to entrepreneurs and much more. Declan is the founder and managing partner, Irelandia aviation, which has built five low cost carriers to date, including Ryanair Allegiant, Tigerair. Viva Aerobus in Mexico, Viva Air in Colombia, and Peru. As mentioned he is a co-founder of Ryan air, where he also served the CEO. Former Avianca board member and a former executive chairman of Viva Air. Declan is also the founder of The One Foundation, a major Irish philanthropic organization. He invested and advised a number of technology startups with a strong focus on travel and aviation. Thank you for being on The Vertical Space. Welcome to The Vertical Space. Declan. It's a real treat to have you on the show.
Declan:Thanks Luka. appreciate it. And it's nice getting involved in the industry.
Luka:I would dare to say that almost everyone our audience has heard of Ryanair, but not all are aware of the impact that it's had on the airline industry. So today we get to unpack the story behind the founding of Ryanair the low cost carrier model in general what it took to disrupt the legacy status quo and importantly, what lessons should. Drone operators take from low cost carrier operators, so lots to unpack today. But as usual, let's start with the 1st question is there anything that very few in the industry agree
Declan:with you on? I would say very few. We take a view that, fares should be free, zero and make the revenue by adding on. So that's our cost position. So if you do that, you just keep focusing on costs and what happens, I think with carriers is they get good years for revenue and they forget about the cost certainly the legacy guys do that.
Jim:Oh, I got to follow up on that. So Dec that's wow. That's innovative. So you're saying don't charge for the seat, correct me where I'm wrong, but charge for the other ancillaries first of all, have you ever done it and peel it back a bit, just talk a little bit more about it.
Declan:We haven't ever done it because I don't think we've got the cost to the level we want to. I'm talking about Ryanair, but we were involved with other ULCCs around the world, which I'll talk about in a minute. So we've never got to the position that we would do it. But kind of interestingly, when we do free fares or, you know,$1 fares we make about 16 euros out of it. So, you know, that's people doing add ons. So I think if the fares were cheaper then you get more of the add ons and people feel like spending because they haven't been raped on the high cost of some of air fares.
Jim:And you're not talking about, charging for walking on the plane, putting something under the seat, putting something in the overhead. You're talking about ancillaries like credit cards and the like, where the airlines are going to make the money. Can you just talk a little bit more about how the airline would make money if they're not charging for the seat?
Declan:Well, the auxiliary revenue can be very high people pay for insurance they pay for onboard service. They're in our app, do holidays. There's just loads of different options for charging. Irelandia is a low cost operator, so that's why we think low cost. It's kind of philosophy that you try to get the fare as low as possible and then add on the auxiliaries and most people will add it on and, as you know, guys yourself I don't think travel agents and particularly travel operators have much of a future because I think most of us now booked to different sectors, the car hire, the hotel. And so we, we were shareholders in a great airline and I don't know what the numbers are now, but, Allegiant used to sell like 60, 70, thosand hotel beds in a month when we were there and that's, that's colossal.
Peter:And so, Dec, what do you hear in terms of feedback from the customers? What do the customers? Want when you compare against offering such a low fare with, generating revenues through the add ons, versus addressing a degree of certainty to the customer in terms of what the trip is ultimately going to cost them. What are customers saying on that topic and how do you address it?
Declan:I know this is going to sound funny, but I think they lie. And the reason I make that point is we used to do loads of surveys with all the airlines were involved with six in total. And we used to ask them you know, what's the reason they're flying with Viva Columbia or Ryanair or whoever. And price always came in fifth. Which I just used to laugh at because we know the reason they're flying with us. It's because we're low costs and the fares are low, but you know, the consumer doesn't want to admit that they go to Walmart or fly Ryanair or fly Frontier and so on. So it's kind of a quirky thing and some areas, Peter it's regarded as cool and that's more the younger generation who are being smart with their costs and so on. There's a joke around the low cost airlines that, if your girlfriend's in Paris and the fare is 30 euros and you say you can't make it, the relationship's in a lot of trouble.
Jim:You mentioned costs. So at the end of the day, you're still making money on all the different ancillaries. But what your major message is, you got to keep the cost down. Yeah, you just kind of break down. You've done so much with somebody different airlines, including Give a perspective on the airline cost Dec A lot of our listeners generally err towards advanced air mobility and clearly there's a lot of airline leaders listening in. But this is a market that they generally are selling into. And these are really important customers, give them a sense for how you view costs, how your airlines view costs that not everybody would otherwise understand.
Declan:I'm actually not going to give you a Ryanair example. I'm going to give you an Indigo in India example, which is one of my favorites. They decided not to use curtains on board and their view was it was too costly and it was also too costly to clean and they worked out. It was something like two grand a month per airplane to maintain curtains and they decided not to do it. So that's the philosophy. Some people don't like it. I think it has to happen in the eVTOL industry. We in Irelandia and we're looking at Europe on this is, and we, we wanna be the number one provider in Europe. The way we look at, at it is. take cargo as an example, do you really have to land at the airport? Can you go from a cargo hub, for example, to a relatively close place at the airport? I don't mean another transfer, but, you know, don't always focus on airport real estate because it's expensive and maybe dublin, the Belfast maybe it doesn't have to actually go from airports
Luka:To what extent is the airline business commoditized today and in what ways can airlines still differentiate themselves and build some long term defensibility,
Declan:Differentiate themselves from who Luka from other competitors. It is commoditized. You know, when you think about it an airfare with Ryan air or any of the for 30 bucks or whatever the price is as it's low, that is a commodity. And that's been seen around the world. I think the way. ULCCs differentiate themselves is just be different than the legacy guys. And that's very easy to do. you know, Delta can't move quickly or United can't move quickly. they're a bit of a Mike Tyson, make sure you don't get punched in the nose, but dance around them. We can do stuff on social media that they probably can't and, that kind of stuff helps.
Luka:Well, I'm sure we'll come back to some of these in more detail, but let's rewind to the founding of Ryanair. So tell us a story of how that came about and, as you tell the story highlight, what signals you have picked up in the industry that convinced you that there was an opportunity that not many identified before, but certainly not in, in Europe.
Declan:Okay, Luka at the start with, we got all our strategy wrong at the beginning we tried to be a me too, to the legacy guys, and we were never going to win then we looked at the Southwest model and said, that's for us. What transformed the airline was an order with Boeing. We were operating back one 11 aircraft. That's what transformed the business. We never thought it was going to be the size that it was today. You know, anybody says that to you, they're lying. And today, for example the CASM, the cost per seat mile on Ryan air is probably 50 percent of what it is on Southwest and today Luka, I don't regard Southwest as a low cost carrier. I admire them greatly, but what they do effectively is say, I'll be 20 percent less than Delta or 30 percent less than United. We had several people who wanted to buy us, including British Airways and Aer Lingus. I was for selling because. The first 10 years of Ryanair were a shit show. It was very very difficult cash operations and,
Luka:sorry to interrupt you, but, given that we like details give us a little bit more, take us back to those, you know, 80s. Who were the main protagonists? What was the conversation around the table?
Declan:Luka, a little bit more detail. We used to have Saturday morning meetings at 8. 30 with my pop down in Tipperary and myself and Michael the guy behind the success in Ryanair, Michael O'Leary. We used to travel down every Saturday morning. We were shitting ourselves because we were always asking for cash. And we took turns about who would arrive in first, because you were being growled at by Tony about cash and I went in, I took the hit and I agreed that I would come in 1st the drive from Dublin used to be about 3 hours. So I would effectively come in 1st on this particular day and Michael would be, you know, 2 or 3 minutes behind me. But anyway, my pop had built at the back of the farm where his office was, he had built a well, area kind of look like something religious. It looked like an area where water would be and you would walk by us and so on. And I was making sure I didn't use the word cash in my first sentence. Because I would be eating and I said, what's the well for and he said, you bastards will need it because you're going to need holy water when you come down here. That set the tone. Tony and Michael were brilliant. They had different ideas, but they were brilliant. And. You know, putting in Michael as CEO was a great idea. It was something I was pushing with Tony for a long time. I was CEO for a while and I loved it, but I think I was in my early 20s. I was in my early 20s and I was at an engineer's meeting one night and we. We're making sure that they got the message about the spare parts and all that stuff and the engineering for the year. And I said, listen, we're not going to, order APU's for$200 000 or whatever. And there was a guy at the back who said, why do you take it out of your communion money? He was being sarky, but that's when I realized. Run the airline, the guys think I had cash in my bank account at home, which I didn't we were offered, I remember at one stage Erlingus wanted to buy us and they offered 23 million pounds. We have pounds at the stage and Tony asked us when we went another Saturday morning, he said, what did we put into it? And we said 29 million and he said, well, the price is 29 million. So the deal fell away, but Jesus, I was in tears. I would have sold it in the morning, but you know, I think anybody would think that Ryanair would be worth 10 billion or whatever the market cap is today. Just didn't realize what the success would be.
Luka:So you said initially that you tried to mimic the strategy of others, I assume Southwest to a certain extent.
Declan:No, no, no. I didn't be the legacy guys in Europe.
Luka:What specific insights prompted a pivot? And at some point you mentioned that it was the aircraft that transformed the business. Tell us more.
Declan:Okay. Well, you know Aer Lingus has been around for a long time and so has BA. So if we were trying to offer you a croissant or we were trying to, you know, go to the business market, we'd be kind of third on the list. I think most of our business carriers, customers and all the ULCCs are small businesses or entrepreneurs. They will come to Ryanair, but the guys who have an account with Diageo or Unilever or McKinsey would fly with the big boys. So we were losing that business traffic. We had originally bought a 737 200 via Boeing. When we got the 800s. The fuel burn was effectively the same as the 200s and we had another 50 passengers that is just incredible. And we obviously got a very good deal out of Boeing because one thing Boeing does very well is if they believe you, they'll make pricing possible. You've seen that with Southwest and other Boeing carriers. So that really transformed us. And I always remember the numbers and fuel you know, effectively carrying another 50 or 60 passengers and the fuel burn being the same. And also what happens guys is you order new airplanes and everybody takes you more seriously.
Jim:Dec, the one thing that I remember Mr. Kelleher from Southwest when he was opening up. Long Island I told him that I was from Rhode Island, a Providence area. And he said, yeah, nobody ever thought the Providence would work because, they felt that there just wasn't enough market. But he said, I went in there with my lower prices and I uncovered markets that nobody ever thought were possible. So were your lower costs, were you able to uncover demand that was not otherwise there from the two big guys?
Declan:Yeah, well, first of all let's talk about Herb for a sec. I met him a couple of times. I actually stayed up too late within one night gambling, and I lost all the money. But there was a couple of us. He was still drinking whiskey at whatever hour in the morning. And I was just amazed at this. kind of regarded him as a bit of a Walt Disney with regard to his mind and his aspirations and so on. At one stage, and it was a long time ago. The biggest route on Ryanair was between Bournemouth and Han, I don't care if you went to Harvard or Stanford, you wouldn't have guessed the a small airport in south of England and an airfield over in outside of Frankfurt would be our number 1 route. So, the beauty of ULCCs is you can try something and, if people aren't traveling at 30 or 40 dollars. you don't need a McKinsey's to do a market survey. effectively that is your survey and people won't travel there, but you know, we can do routes that people never would imagine happening. You see it a lot in the U S some of these new regional airports that the likes of frontier and yeah, yeah, yeah. Yeah. So you can try them. And after six months, if it doesn't work, you have the answer, but Herb was God.
Luka:Dec, let's stay back in the early days and you start early operations. You receive the larger aircraft share some additional stories and insights from operations that then informed your strategy going forward and ultimately, I'm intrigued by your comment that. You don't really regard Southwest as a low cost carrier, but most people would associate Southwest as the pioneer of the low cost carrier model. So give us a little bit more background in terms of the business model evolution informed by the early days of your operation and how that compared to the Southwest model.
Declan:You know, the U. S. guys is a very expensive area to operate into and you know, your airports are expensive pilots are bloody expensive in the U. S. They're expensive everywhere. But, I'm always surprised about the cost in the U S you would think it's cheaper than it actually is. And maybe that's for a conversation for another day. I think one of the things Luka that transformed Ryanair on our course was what we did with the pilots. If you wanted to play golf for the summer, we had base salaries, and then you got a a payment per flight. And that's still there today. If you wanted to work your off, you could earn, I don't know at the time, a hundred. 110, 000 euros, and you'd be flying, up to 800 hours a year if you wanted to play golf for the summer or do something with the family effectively you had your base salary and you didn't have your instruments for flying. You know, I really worry about the industry today. Luka, when you hear United and American, paying up to half a million dollars for a pilot for a captain. I'll give you an example. We had our own Tiger Airways in Singapore, which was a very successful JV with SIA and SIA cleverly didn't take majority control of the airline. They had 40%. And the primary reason they did that Luka was to say to the pilots and the engineers from. The legacy was, we don't control this and the salaries are different. And so anyway we got Changi to build a budget terminal. And I think the figure was 22 million for the terminal. And, when you look at that, that was very cheap and they did it within a year, which was amazing. It's typical Singaporeans anyway, at the launch stage. There's all the dignitaries and stuff there. And I said, screw that. I'm, I'm going to head up with one of the airport ladies was showing us the way around for the tour. And was asking her about, they called it the budget terminal, you know, what a shitty name. But anyway so I said to her where's the coffee shop. And she said budget passengers don't drink coffee and I just roared laughing, so you have this concept. The other Tiger story was we had an airplane AOG SIA ring us up and said, when are you leasing in a new airplane? And we said, listen, would you go jump yourself? Because we're not going to lease in a new airplane for at least a couple of days. The SIA model is all customer and they would have a backup for an airplane straight away. So we just told them, you know, We stopped taking calls from HQ.
Jim:So based on your experience at Ryanair, and you said you'd do a lot different, including not go head to head with the two big guys. What are a couple of things that you would do different that you would want our audience to hear that, you know, don't make these mistakes. And here's what we would do different at Ryanair from the early days.
Declan:Yeah, think by the way, there was a bucket load of mistakes that we made. And when you look back at Ryanair, the transformation was the aircraft order, and we were never going to get our CASM right until we did that original order with Boeing. We should have done that earlier. And we kept going around saying we can't afford Boeing aircraft and that that was actually wrong. And, you know, Luton Airport. Some people love it. Some people hate it. It's ironically Luka, the demographically the best airport in the UK, because so many people live around Luton. We tried to get American Airlines to buy it, and they looked at it very seriously. But the perception of Luton was, it was kind of like an ice hockey game with everybody thrown beer. It just wasn't taken seriously and so on. We moved the Stansted when it opened up and, I'm not too sure we didn't, tackle the issues on Luton quickly enough. And part of that, by the way, was connections into the city because everybody was going into London. So it's a bit like flying to New York with all the different airports, but you're still trying to go into, the city we want to race against all the carriers. There was a race from Dublin to, let's say, St. Paul's cathedral or something like that in London. And we won the race, but the only reason we won the race is we use the motorbike and not a car for the passenger, but we didn't tell anybody that. Which was kind of funny, but we wouldn't have won the race with needed a car, you know,
Luka:what kind of pushback did Ryan air get from legacy carriers, both at the beginning of operations? And then later, as it started to gain market share.
Declan:Well, a couple of things in Ireland at the time, Aerlingus, this was owned by the government. So we used to say when we met the minister for transport. It was like a boxing match and the referee owned one of the boxers. So, there was this deep belief in Aer Lingus and the government. We weren't going to succeed. And secondly we weren't safe. And there was all these barriers out there and the airport operator in Dublin, you have to remember how cozy these things are. And in those days, some of the women in Aer Lingus had married some of the guys in the airport, and then vice versa. And there was just this ongoing perception, and, Aer Lingus was a very powerful Brand and they're very good at fighting sometimes below the waist, but effectively we just try to do all the David and Goliath stuff and, and be seen as the cheeky startup. But, you know, there was always a question mark in people's mind with Ryanair survive and so on.
Luka:So what ultimately made Ryanair successful? Despite all odds, what are some of the strategies or technologies or processes or partnerships competencies? What key resources were necessary to profitably execute on the Ryanair idea?
Declan:Well, I think the internet transformed everything for low cost carriers. And if you remember in the old days, you're probably too young, Luka, but the, travel agent commission was around 9%. And sometimes we knew that the Aer Lingus was paying, you know, a little bit above that and then the internet came along and our effective distribution costs went down to around 2%. So that transformed the airline. That's a very good example for the airline. And then when we took away the connection between the fare and the auxiliary, and in particular bags that also transformed the airline and, people weren't focused on how many bags they were carrying. And I have this ongoing issue with my partner, we go away for a weekend and her bag is, 25 kilos and, you know the average stay used to be in Ryanair for somebody was about two and a half days for all the trips that they made around Europe. Most men will tell you, you can do that in a rucksack and a carry on bag. Most women will tell, you know, and they pack also for the kids. So, that was a strategy that was very careful and we'll thought out with regard to the disconnection between the fair and the other stuff and, you know, baggage was huge.
Luka:And this was pioneered by Ryanair.
Declan:Not sure. Think we were the pioneers in Europe. And I think Ryanair as an example, and I would use some of the U S carriers. They think about costs all the day. I don't think Southwest. Think about calls all the day, by the way, I'm not trying to urinate on Southwest I think they're fantastic, but, I think if Herb was around, they would do things differently when it comes to cost.
Jim:One of the things Dec and still staying on Ryanair because it's so interesting around the same time I believe People Express started and there's kind of a classic case that People Express was if they had just stuck to their knitting, they would have probably been fine. One of the things they, did which caused harm is that they started encroaching on the routes of the bigger airlines like American. Yeah. It sounds like you didn't do that. You may have made a lot of mistakes. But it sounds like to Luka's question of, you know, what did you do well, while you're successful. So clearly the, Boeing purchase was a big deal. And then number two, you went to the airports where they were not, the big guys were not three, it sounds like you flew routes, like Breeze and Avelo we're doing here in the States today that you're flying routes that are generally not the same routes as the big airlines. Is that the case? And, did you do those right in the beginning? Or we can also, I should add. As an additional, you know, those airports, you're operating it are a lot less expensive than other airports. The bigger airports. Did you do those things? Well, in the beginning, did you did you stick with it?
Declan:Yeah, we did. And we were very clever bit cheeky, you know, calling Beauvais Paris. And it's about an hour and a half out, but if you're paying 20 bucks versus the World Cup rugby is on at the moment and all the carriers are screwing. the passengers I heard of, a one-way ticket back from Paris up to 800 euros and the guy actually said, screw that. I'll go via Brussels. And he actually got, for 150 to get back to Dublin. Yeah, the regional airports were really important. You know, thank God for World War Two. I know that sounds naughty and NATO because they built so many bloody airports around Europe Scandinavia and Germany and so on, as you know, well military and commercial can work very well. At the same airport. So that's what we did. And you get a bit of size what happens is you say, I remember we had a great issue. I'll talk to you about tiger in a minute. We had a great issue years ago in Manchester, where they up the fares the passenger charge. And we moved everything, everything like, you know, let's say six airplanes that I say they're seven out of Manchester to Liverpool, up the road and Manchester changed their mind within, A week, because there's rivalry between the 2 cities and the last thing they could do is not have Ryanair come into it. One of my favorite stories on airports is Tiger. Where the differentiation between the budget terminal and the main terminal was 10 bucks and that year, we actually, let's say, we carry 2, 000, 000 passengers that year. Our profit was directly around 10 dollars net and I said, Jesus, you know, that's down to the airport transaction. So, you know, if you think like that. It's different today, but if you think like that, maybe your profit is what you negotiate on airports, then, you become like, I don't know, you become like a wall street trader who is just focused on getting the trade, right?
Jim:So, I know we're going to talk about advanced air mobility a little while, but you just sprung something on me Dec that I'm going to ask and let me see if it's a simple answer or not. If not, we can postpone it. Is it conceivable with the air taxi revolution, I'll call it that they could play a similar role with the routes and the airports and the competition for the airports, whereby they could serve an entirely new market. I know it's going to be expensive in the beginning, right, because the pilots and other costs, but is it possible they could revolutionize aviation? Have you ever sat back and said there's an opportunity here as long as they can keep their costs down, which in the beginning they may not. But is there a possibility that the air taxi market could change air travel in this respect in a similar way that Ryanair did?
Declan:I don't know if it'd be exactly like Ryanair, but I don't see any reason why it couldn't be. We're looking at the economics on the passenger side at the moment and it's an issue. We have to get the cost further down than what the OEMs are talking to us about for eVTOL. On that point Jim, one of the things that comes straight to mind is on the passenger side about utilization, and we're really good at utilization of our assets, that is going to be an issue with some of the eVTOL operators, wherever they are, and, on the passenger side. We have to get the on the cargo side as well, but we're kind of 100 percent focus on cargo at the time. I'm going to get killed for this comment, but I don't think the pilots should be called pilots on the FAA may shoot me or, Boeing or Beta or any of the guys out there who are involved in the industry. But, I've called them something else. I call them technicians because if we screw up the cost of pilots, that's going to come back. if you take that a captain, I know it's a stark reality, but I know that the carriers in the U S who are paying 500, 000 a year for a captain. Their only place to go now is actually bigger airplanes. And right for the industry. So I call, I would call the pilots technicians. I know I'm going to get shot for that. we're looking at the engineers to be actually pilots as well. And, engineers are very intelligent people. For example, we're looking for an Uber driver who we can convert into an eVTOL driver just to prove the point and we'll get somebody who can do it. We have a search around Dublin, so if any taxi lads are out there and they want to become a technician on an electric aircraft, please give me a call. But, you know, the point I'm trying to make here is, this is an opportunity for the industry to get the calls right from day 1 and, let's not make mistakes that commercial aviation has made in the past.
Luka:That's a very interesting thought. Very controversial as well. Let's put a pin on it for now. Let's go back to airlines and LCC models and talk a little bit about the propensity for LLC airlines to adopt technology faster than legacy carriers. Is that true? It is and give us some concrete examples of how technology has been adopted at Ryanair besides internet and, and some of the others that you mentioned already.
Declan:I don't know the exact number, but I know Ryan air, for example, has invested in Ryan air labs and places like Poland and other destinations where they have three or 400 people who are just on the technology side, we started Viva Columbia 10 years ago. Yeah. And our main competitor who eventually bought us last year, Avianca, their I. T. department was Jurassic in Avianca and the other legacies down there. And we effectively. We're able to dive into the internet I think we forget in the industry when we have an app on the phone, how transformational that has been to the airline industry. Obviously the Ryanair app is very good, but, low cost guys, when they start. Can do an app within a couple of weeks and, the thought process is not Jose, who's been in it for 50 years. It's, young guys and girls who effectively are probably more focused on Tic Toc than they are on travel agents or Amadeus and so on. So I know it sounds simple, The legacy guys, if you look at them their IT departments are huge and when you're starting up, you can be very cost sufficient with the use of social media, as well as the Internet and, some of the. Providers of the middlemen on the agency side have, have come up with some good And I would include uh, uh, Amadeus and that when they bought Navitaire.
Luka:Dec, what other technologies do you see on the horizon that you're excited about in terms of continuing to lower the cost? And also, following from that question, how much more room is there in general to remove costs in the airline industry today?
Declan:the cost one, there's a very interesting comment with regard to the first part of the question, a pal of mine works in Google. He's very senior in Google here in Ireland. Google have eight and a half thousand people. And he said, you guys are crazy. And I said, you know, Jesus, why, you know, what, what have we done wrong again? He wasn't talking about Ryanair. He was talking about all the airlines and he said. If we had customers that came into a unit of Google, we would be able to say to you, here's a deal about carrying baggage or here's a deal about hotels. would eat the data of somebody walking into an airplane and you have them like in a closed environment flying with you for a couple of hours. I don't think the carriers think enough about that, that data is gold and I don't think the carriers treat it as gold It's a really good question about the future and costs. I'm a bit worried about that, Luka. And the reason I'm worried about it is, if you look at ATC and pilots as an example, the only way costs are going are up. And I don't know what the LCC carriers do because they do lose a lot of pilots to the legacy guys because of the salaries and the type of airplane and so on. So I'm worried about the future on the cost side. If you take something, we won't spend hours on it, but ATC is a problem around the world. It's a big problem in Europe. I think it's a bigger problem than the, USA, I don't know why the actually monitor and manage. I heard a figure recently is that the air traffic controllers, the capacity they have, staff wise is something like 54% percent for the New York area. that's a very scary figure.
Jim:Couple of things to ask, so one was and yes, you're probably not far off given recent conversations we've had with some of the busy slot controlled airports and the capacity, when you say the ATC is a problem, how, what do you mean? Is it charges? Is it capacity? Is it efficiency? What's the problem you're defining more so in Europe than in the United States?
Declan:I know this is going to sound funny, but when Italy played football for an international match, All the ATC guys booger off, I know that sounds kind of like dad's army, but that's what happens the French strike at the turn of a coin and a lot of airspace that France controls a lot of carriers go through, my understanding is the whole ATC requirement for Europe could be done by any of the countries like Ireland could do it just out of their ATC system, Germany and so on. So you just think of the inefficiencies that are happening there. I give you 1 example, and it's kind of a little bit away from causes when we had the ash cloud here in Europe. We had 27 different definitions of what an ash cloud is because of the EU way of working. You know, like, why don't we just do what the Alaskans and the Indonesians do? And no fly zone of 50 miles, but we had fucking, excuse my French. We had bloody definitions of what ash cloud is.
Jim:I'm going to go back to a question. Luka asked if I may. So let's say you had a 300 person technology lab for an LCC and. And you had a whiteboard and one half of the whiteboard was, revenue generation opportunities with technology. And the other side was cost reduction opportunities. Which side of the whiteboard is most filled for an LCC today in their technology laboratories?
Declan:It's a great question because one side of the whiteboard will be focusing on how the app and other IT platforms can reduce the cost. But the guys on the revenue side and auxiliary services side, might make a case that every time somebody goes on our app that they spend X and that's revenue led. So there, there's a bit of a contradiction in the labs. I don't know in detail, but you can drive the cost down with technology, but there's a revenue angle to it as well.
Luka:With cost being such a critical factor in the strategy of a low cost airline, there's gotta be a tendency to intentionally or non intentionally to cut corners a little bit. So how does an LCC carrier balance providing a low cost operation and affordable travel while at the same time, maintaining high safety standards and passenger satisfaction.
Declan:Well, a couple of things. If you look at the ULCC safety record, it's very good. It's excellent in my terminology or in my view low cost carriers know that if they have an incident that it could be very damaging to the airline, I think one of the worst safety records in the world. I'm going to be shot for this, but that's not new is Air France, but everybody thinks Air France is safe, the safest airline and so on. But, you know, just think about it, guys. Safety is everything and, that's not a glib comment and we take it very seriously. For example, one of the things we did in Ryanair and we did it in all the carriers is the head of safety reports to the board and doesn't report to the CEO. And I know that sounds simplistic. But it's brilliant because the chairman who we get are always fantastic aviation people who sleep, eat, and drink safety. And the CEO he can't get involved. LCCs don't cut corners, but the perception is they do cut corners. the reality also is, I'm not too sure how much the passengers look at the airplane when they're getting on. They just, you can see it as a bus, but with regards to safety they always make the comment that Qantas is the safest airline in the world. And they do have a great record and it's run by a great Irish guy called Alan Joyce. I'd love to be the head of safety for Qantas because the airline takes off once or the airplane and it, it's up in the air for 14 hours. If you think about the Ryanair network or the Southwest network, the utilization and landings and takeoffs that they do is just incredible. So, it's not talked enough about in the industry. I think the industry needs to reaffirm to passengers how good our safety is but nobody has taken on that manful look, look at it, guys, when you get a chance to record of LCCs around the world is. Right up there.
Luka:Yeah, that's a very interesting comment about Qantas. I haven't thought about it that way.
Declan:The other point on that Luka is we create a relationship. This might sound funny, but we create a relationship with the local CAA or FAA or DGAC. And that relationship really is strong, and we asked them what they want us to do. There's terrible arrogance in Lufthansa or Aer Lingus or British Airways. Well, you know, we're not going to be told what to do. LCCs really work on their relationship with the authorities and, the authorities love that because you're taking them seriously and you're looking for advice.
Luka:You mentioned, An interesting comment earlier about passengers and how they're not completely honest in how they rate the most important factors that drive their purchasing decisions for airlines. Tell us a little bit more about your observations and your thoughts on passenger satisfaction. What matters to them the most? And how do passengers look at LCCs versus legacy carriers?
Declan:I don't think they look at it in huge detail because the driver for them is the fare as I said, I'm not too sure people will admit that. Passengers believe in LCCs because of people like Southwest and Ryanair and how long they've been around and so on. But, I don't think they're truthful when it comes to the reason they pick Southwest versus American, some of the comments is, food, you know, LCC food is crap. They pick other reasons. it's the airports near my house. they just don't want to admit. That they're being cost efficient and it's kind of funny because what's wrong with being cost efficient.
Luka:Right? I mean, if you look at it from that angle, then isn't everybody converging on an LCC model? What really then sets apart legacy from LCC if there's a relentless pursuit of cost.
Declan:I think you've answered it because there is a relentless view on cost and recently in Columbia we put in charge a guy a very good guy is actually Irish and he, used to work with Irelandia, a guy called John Good. We put him in as a VP of, competitiveness. And I got the idea from the Colombian government. They have a minister for competitiveness and. The beauty about saying somebody's in charge of competitors in the story if you want to use efficiency or whatever you can stick your nose into every meeting in the company because you're trying to make it more efficient and it's also a great signal for people we are serious about being efficient.
Luka:So what really defines in the LCC, perhaps we should have put that up at the front of our conversation, but what is an LCC as opposed to legacy? And if we think about any new emerging airline, are they all basically a low cost airline? Is that even a relevant term anymore?
Declan:Yeah I think the terminology of low cost has been, beaten to death by the industry. And, you'll start seeing terminology in American or United trying to get the message across that their fares are cheap. You know, the barriers of being a legacy carrier versus LCCs are just ginormous. You have the pilots issue, you have unions, you have the engineers, you have the cabin crew, you have, 60 years. I'm thinking of American, you have 60 years of, cost creep. I remember when B. A. were looking at buying Ryanair, we put a clause in the contract, it never came through, but we put a clause in the contract that we would get something like a half a million dollars every time we got a phone call from the HQ and British Airways about the operation, because, the last thing we wanted to do was talk to the chairman of one of your partners, because he'll just say to you my sister, Nancy is on the flight tomorrow. Would you give her a gin and tonic, screw that, you know, just anything that's going to add costs, just, avoid it at all costs.
Jim:so Dec, you've either started or been part of or worked at Ryanair, Viva, Tiger, Allegiant, even America West. As you look around the world and you look at opportunities to either start or partner or buy an airline, what's the low hanging fruit for you? What are you looking at? And again, I'm introducing now listeners right now who are coming from the advanced air mobility world, and they're trying to hear how you evaluate opportunities.
Declan:The great example for us would be Allegiant. What Maury Gallagher does with Allegiant is amazing, but nobody gives them credit for it. So, when we looked at being a mezzanine financing partner for them we were just blown away by their knowledge of MD 80s I think 95 percent of the routes didn't have any competition. when you think about going to Vegas. And you're from, let's say, somewhere in Montana, and there's a flight every day to Vegas, and you booked it, and you're saying to your partner, what happens is, and this reason leads into successful when it comes to Vegas is, you start thinking about what you want to do when you're in Vegas, and it's six months out. Oh, Jesus, U2 are playing this week or we haven't been to the Grand Canyon and so, Allegiant was a great example. And one of our shareholders said that allegiance is boring and he didn't want to invest. And it was actually my dad and he said, they're boring. He said, don't go near it. So anyway, we did it and we made a lot of money out of it. And the headlines in the paper was my dad being so bright about Allegiant and nobody knew he wasn't the shareholder and he, said it was boring. And when the results came out about our investment and the IPO, he rang me up and he said, boring is good. And I said, yes, it is. I'm not calling allegiance boring. His view was, it was boring, but. They were exceptional and, and, and to this day, they don't get the recognition they deserve. So that was a great example of us looking at a company and the three guys who came back who were doing the DD, they all said we should buy into it and they all put their own personal money into it as well.
Jim:And what they saw there was a boring, low cost carrier that was flying routes that were largely non
Declan:competitive. Exactly. And, the biggest operator in Vegas at the time was Southwest they just totally ignored Allegiant, you know thank God but there is carriers who don't get the recognition and I would put Frontier in there as well. I think Barry Biffle does a great job in Frontier, but Allegiant and Mari is just a great example of somebody doing really well and maybe not screaming off the rooftops.
Jim:It's tough to talk about low cost carriers and great airline leaders without talking about David Neeleman. And obviously with the airlines he started, including JetBlue and Azul and in many different places. Now with Breeze, what's your take on what does Dave Neeleman do really well? And what could he do better?
Declan:He is world class at launching airlines and raising money after that I think he should go away and leave the operation alone because I don't think he is an operator like we are. And I'm not urinating on them. I'm just saying that, what happened with JetBlue, I thought was very sad when they I know it sounds like a death, I'm not trying to be morbid about it or like Leonard Cohen, but effectively, when they decided to go for the Embraer, they were throwing up any possibility of being low cost because you have to have the same type of airplanes to be a successful. So, Neeleman a great guy. He's nothing compared to Michael or Herb. He's world class at setting things up. He's world class at selling them as well. And the jury is still out on Azul down in Brazil. But listen, he did a good job. And also Brazil is a very hard market. But he only did it because he was a Mormon. And, you know, I'm not being funny here, but effectively, he had done his earlier catechism or whatever you call it for religion. He, had spent time down in Brazil. But, you know, let's not go into detail there because talking about the Brazilian market is you know, it's very sad. It just it just they can't get their cost down.
Jim:I've read that you've not been a fan of the Brazilian market. Now the Brazilian market has been talked up a little bit on the air taxi side because of all the different places people could take off and land where it's not otherwise available for traditional aircraft. Would you say that could be potentially an interesting market in an area where you are otherwise not a big fan of air travel or air travel investments?
Declan:Yeah just one comment. I stupidly said the country was corrupt and my partner at the time said, obviously, we don't want to go to Brazil for the next 20 years. But, I do think there's a lot of issues with regard to. And not just Brazil. Peru is a real eyesore when it comes to corruption as well. But anyway, park that to the side. Yeah, I think Brazil's a very interesting opportunity. Certainly on the cargo and the oil side. On the passenger side, I think at the beginning it will just be the people who use helicopters. But remember, 80 percent of helicopter use around the world is for oil the other 20 percent is for passengers. So it's an interesting market. Mexico City will be an interesting market. But I just, I don't know if there will be low cost. I don't know enough at this stage. A lot of the deals with the airlines. I'm not too sure the LOIs are that serious. And what I mean by is, United, taking a warrant and some other carriers taking a warrant that's effectively a financial transaction. I haven't heard yet from any airline and we're starting to research how they're going to operate eVTOLs and I think that is still a question mark and a responsibility that anybody who wants to use it for passenger basis, hasn't answered. You know, where is it gonna land? What's the landing fee? Who's going to handle it? The issue on pilots versus technicians nobody has mapped out operationally. And we hope to do it in Europe how this market is going to be efficient cost wise. I haven't seen American or United or Delta look at this opportunity in any serious way. I think Scott Kirby, when he looks at it in detail, we'll say, Jesus, we shouldn't operate this. We should get X to operate it and, I think that's what will happen. There's probably not enough opportunities. Some lunatics will operate it himself. and the reason I say they're lunatics is they're only gonna bring cost to the market, so I think it needs a new fresh page and you need to say what needs to happen cost wise for this to make sense.
Jim:Where's the river of cash with advanced air mobility? Whether we think about drones drone delivery, air, taxi, electric aircraft, where do you see the big opportunity to be able to operate effectively and get a good return on investment?
Declan:Yeah, we're still looking at that and we've been talking to the OEMs primarily in the US and Brazil. But we think the opportunities is cargo to start with. And, you know, the question that everybody needs to talk about in more detail is autonomous flying. And, I don't see any reason I'm going to get shot as usual. I don't see any reason why cargo airplanes need pilots, right? So, therefore, I'm going to get assassinated on that. But when you think about it, there's no passengers on board. And effectively they fly in the middle of the night and don't need pilots, but, you know, that's going to come. It's a bit like the Internet, the US military had the Internet operational for 10 years before they told anybody about it. So I would really watch what's happening in the military sector. they have their own certification process. What they'll do with eVTOL and electric aircraft might well lead the way the passenger market goes. Sorry, guys, I just want to bitch about one thing terminology. I didn't go to Harvard, but why the hell are we still calling them drones? a pal of mine had the idea of calling them doves. I'm not trying to do marketing now, but you know, all my kids are young adults, but they say to me, Why do you use the word drone? Because that reminds me of Hamas and Israel and military stuff. What would you call them? Dec? I don't know, but I wouldn't bloody call them drones. I really wouldn't. And, you know some of the other terminology just drives me crazy, but, hopefully we can deal with that. What we're going to do in Europe.
Luka:Let's linger a little bit on the skills and the competencies that are transferable from the low cost airline to an operator of commercial drones at scale. and let me refine this question. So if you were to put together a team to run operations of, small UAS cargo missions at scale, what are the talents? What are the competencies that you'd be looking?
Declan:That's topical because we were actually talking about it today in the office. If you take an AOC, that's going to be the requirement for operating these airplanes. I would say to the regulatory authorities, and we have a great regulatory authority here in Ireland, the IAA, the person in charge of the engineering side for the AOC should be a battery guru. And this debate is going on there is avionics and other parts to the aircraft that are important. But I think we have to kind of flip it upside down and say, what's required, the three things I think that you need for an AOC is a safety person, a flight ops person, and somebody on the maintenance side. I'd love to get my hands on a Taiwanese person who's been in batteries all their life because, this is what it's all about. And I don't know if the DGAC or the CAA or the IAA will actually agree with that approach, but it is approach we'll, we'll ask them about. And in the end, they make the decision. I think the other efficiencies is trading in airplanes, which we're very good at and that's important to get the price right. And it's important that all the other stuff that comes with the airplane, like training and maintenance and so on needs to be knuckled in. And so we're good at order. We've ordered over 220 Airbus aircraft through our history. And we're kind of agnostic when it comes to OEMs. We think Beta and Joby will be the leaders maybe Embraer and saying something like that we will have to, and I think we're going to, get deals for eVTOLs, and I hate that word as well, but anyway, eVTOL we should ring Steve Jobs in heaven and ask him to come up with names for the industry, but we have skill sets operationally as well, and we, we think different. You know, we're a pain in the ass, but we think differently. And there's lots of opportunities out there, but, I'd love to do the podcast and 2 years time and say, this is, I was wrong about all that, but here's where the golden nuggets are. So we're in the infancy it's embryonic not just for us, but for everybody. And maybe airports are irrelevant. I know that sounds funny, but maybe they are irrelevant. And if you have to land and JFK. you land in an area close to JFK I know that legacies wouldn't like this, but certainly in cargo you can do it, but, the transfer for other passenger from the eVTOL to the aircraft can be done in a more efficient way. Another conversation guys, but we, I won't bore you tonight is airports. Haven't changed in 4 million years and effectively security has made it worse experience for passengers. I was getting on a flight in JFK and we were told to take off our shoes. And a guy behind me, an elderly guy behind me hollered, there hasn't been a shoe bomb for 25 years. You know, I just thought it was brilliant. So anyway, the airports have to change as well.
Luka:I agree. we complain often about the, whole airport experience ourselves as well.
Declan:Well, it should be like a train.
Jim:But guys, let me throw something out real quickly. I mean, the airport experience, I'll tell you here in the northeast, it's got a whole lot better with, New York LaGuardia, for example, is extraordinary compared to what it used to be. But something you're saying Dec that we really want to call out and you may be right. This may be a separate topic, but if there's the ability to be able to reduce the cost of the airport, maybe at the end of the day, they are monopolistic areas. If you can get now 30 to 40 different landing pads around New York City, where vehicles, drones, cargo delivery can operate, I would assume the effect on the cost of the big airports would be dramatic. So that effect from advanced air mobility could be, beneficial to everyone.
Declan:we're investors in skyports who do both infrastructure they're a great company run by a guy called duncan walker he came from property so he only thinks like property but they do infrastructure and services with smaller drones and so on they think these vertical airports as they call them or airpods they can be built anywhere and they're doing a lot of work in dubai so you know maybe airports are irrelevant to the market. The legacy guys are going to shoot me for that. But I think that's the way we need to think,
Jim:you can get shot a lot as a result of this podcast.
Declan:Yeah. Yeah. Yeah. But, but, you know that's nothing new, but, but I do think we have to think very carefully about it. do I really want to pay Heathrow, I don't know, 200 quid to land on the passenger side, or the same amount for, 50 or up to 500 kilos. I don't think.
Luka:Given that there's many entrepreneurs in our audience can you talk a little bit about some of the common mistakes that you see when entrepreneurs are trying to do business with airlines?
Declan:God, I haven't thought of it in that way. What
Luka:would maximize chances of making a sale with an airline and airlines are notoriously sort of the long sales cycle, restricted budgets, obviously, for all the reasons that we've talked about. But there's technology that helps them. So how does an airline evaluate a business case?
Declan:I really believe the industry is woeful when it comes to innovation and new ideas, and we can talk about that another day. But one of the questions we ask ourselves is if Steve jobs was around and he was doing an airline, I think the closest thing to it might be jet blue, but he would do it differently. And, that's the kind of thinking we need. Entrepreneurs trying to sell into airlines. I think the critical comment there is your first pitch is to the CFO and if you can convince the CFO and it's not easy because the CFO will send you off to handling or engineering or so on. But I think there's a real opportunity where you can convince the CFO that there's savings to be made here. That's where I would go, but it's not easy and not all the CFOs are rock stars.
Luka:We're coming up to the end of the podcast here, but I was intrigued by your comment about innovation being pretty bad in the sector. Give us a snapshot of it at least and then we'll save the more detailed discussion for a later podcast.
Declan:airports wise, I think that's easy, to make the experience a lot better you know, coming 2 hours to the airport for a flight is just a joke. And, the airlines aren't in control, it's, become a new industry and, security is just not. No, I'm just, I want to be careful here. 9 11 was a great opportunity that the security industry hatched onto. Innovation. I don't see enough innovation from the OEMs, talking about the the Boeing's and the Airbus's of the world. And it's not an industry. Like if you take iPhones or you take other products that people use every day They're not innovative. You know we were asked by Boeing years ago what you would do differently than today. And my bugbear idea was to refuel the airplanes in flight. And I tell you where I was doing that. We were operating Tiger into India and there was kind of like a 37% tax for fuel out of India. I think it was around that figure. So I said, Jesus, why don't we just take off? And the minute we're over, Sri Lanka, we refuel the aircraft. the passengers wouldn't even know. And, people just don't look at it in that way. And by the way, there'll be 20 engineers telling me how it can't be done, but you know, there needs to be innovation. And by the way, maybe the answer here, guys, is the innovation doesn't come from the OEMs that it comes from different sides of the market. But in the end, you have to get the OEMs on side. But I think the OEMs for eVTOL are thinking differently, particularly and, and, and Joby.
Luka:What about all the innovation as it relates to decarbonizing aviation? Do you think that the industry is behaving rationally and realistically with respect to the goals that it has set for sustainable aviation?
Declan:Well, this is the bullet that's going to certainly kill me. I think it's a joke. all the airlines are ticking boxes to be seen to be green and focus on all the omissions and so on. But I, haven't seen anything from passengers where they say, oh you know, Ryanair or Southwest or Viva Colombia are very bad when it comes to the climates and they aren't, cows farting that's worse than aviation and so on. I do think the industry is ticking the box. I think eVTOLs can really help that because they're electric and they'll be seen as more efficient and so on. I just see the legacy guys, we won't go into this conversation now, but I don't see SAF is the solution. I think it's part of the solution. Somebody years ago told me to make SAF work in Europe you have to grow the size of Belgium and crops to make it happen. So I don't think there's push yet from the passengers. There will be, and it's probably the next generation. It's probably kids that are in school now, but legacies are being seen to do stuff and talk about it, but I'm not too sure it's real.
Luka:Where do you see opportunities for innovation and aviation? Where would you point the entrepreneurs to go and innovate?
Declan:Certainly the comment out of Google about data was very interesting, and I just don't know why an entrepreneur hasn't said to the airlines and maybe Google has I can say that Luka always sits in 10 F or whatever the seat is and on Fridays, he might have a beer, you know, that kind of stuff. And that's not Einstein stuff. That's just data would be a big issue. And I think the airlines and entrepreneurs need to look at it, but I think it will come from an entrepreneur I don't think it will come internally from an airline.
Luka:What are you most excited about as it relates to the future of aviation?
Declan:The Chinese. I know the Chinese will come to a state with Comac and other facilities for the aviation industry that will be good. And I think there's the kind of political game on the moment that, don't give them too much technology and so on. let's take the eVTOL, market, they're going to authorize a Chinese operator that will be safe, that will operate in China and they'll probably do it quicker than anywhere else. I, think the Chinese can really add to aviation. My dream primarily is airports, but I know that sounds very geeky. But my other dream would be about the availability of a new OEM because Boeing and Airbus does have a duopoly. There's an example of making aviation hard today. You go to Airbus and they'll tell you that we have an aircraft available in eight years time and you kind of go, Jesus, why would I even bother? So the innovation needs to be on the OEM side and if Steve jobs or anybody else like that maybe the guy who runs Airbnb was allowed to do innovation, it would be great for the industry, but I don't think we have innovators. I don't think we have entrepreneurs
Luka:is now a good time to
Declan:start a new airline. Jesus, no. And the reason I say that is let's say you take the U. S. pilots, ATC the OEMs, there's so many issues going around. I don't say that with any kind of glee, but certainly all our focus in Irelandia aviation in the future is going to be on electronic carrier sort of airplanes.
Luka:What about supersonic? What are your thoughts on supersonic travel and the market
Declan:for that? Supersonic for me is like a drunk uncle at the wedding. You know, I just don't see it happening. I think it's a dream. Maybe one of the billionaires Musk one of those guys might get into it, but I think it's a side show. And I, I just can't see where it makes sense. if I go from New York to London and I save two hours, is it that relevant? I think it's more kind of peacock stuff. You know, I came in on Concord yesterday and I came to the meeting, you know, just. At the drop of the hat and all that kind of stuff, but I wish the industry would focus on cost and really look at the current innovations, electric,hydrogen, solar those are really interesting opportunities.
Luka:Great. Peter, Jim, anything else or Dec, anything else that you feel we should talk about in the closing minutes here?
Jim:I think you've given some perspective. It's here that we need to peel back in future episodes, especially as it relates to the airports and the distribution of flights around an airport to kind of generate demand. I think it's a really interesting area Dec. It's been very good.
Declan:The last comment, Luka, there's a huge opportunity out here, we're going to go after it, particularly in Europe, but the rules of the game of the industry there's still to be sorted out and we can, as in Irelandia, we can certainly help, make that happen in a logical way on the operating side.
Luka:thank you very much Dec. It was a pleasure speaking and thank you for sharing all of your insights.
Declan:Take care guys. Nice.