The Vertical Space

#78 Montie Brewer: Interview with former Air Canada CEO

• Luka T • Episode 78

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In this episode we’re joined by Montie Brewer, former President and CEO of Air Canada, who provides a glimpse into the airline industry from the vantage point of a major airline leader. Montie draws on his experience as a CEO to share insights into how airlines make decisions about their networks and approach technology adoption. For entrepreneurs hoping to break into this space, Montie offers great advice, explaining how airlines, under the scrutiny of passengers, shareholders, and sustainability goals, make or break the technologies you're developing. He stresses that for airlines, decisions are data-driven and focused on clear returns, demanding solutions that enhance operational efficiency and financial performance.

Speaking from the perspective of someone who led a major airline, Montie talks about challenges such as balancing airline schedules with operational performance, predicting block times well in advance, and navigating the complexities of IT upgrades. Montie's reflections, combined with his personal passion for aviation, make this episode a must-listen for anyone looking to navigate the airline industry.

Montie:

As an airline, I always thought my competitor was not the other airline. My competitor was Amex, right? At Air Canada, I can take you anywhere a Canadian wants to go, but Amex can take him anywhere, right? That was the competitor. How can I serve the customer with every need in terms of that destination. So once you do that, you've got a huge differentiation that the airlines have not figured out how to unlock and have allowed that to be commoditized through how they sold their product in the past.

Jim:

Welcome back to The Vertical Space and a refreshing change of venue as we talk with Montie Brewer, a great leader in our industry, a noted expert in airline network planning and the former President and CEO of Air Canada. As I mentioned earlier in the podcast, it's so important for our audience of entrepreneurs, some less familiar with the airline market to thoroughly understand how airlines make decisions about their networks, how they evaluate technology, and yes, what airline CEOs focus on and what keeps them awake at night. Let's face it for many of you, it's the world's airlines who make or break the technology that you're creating and selling. And for those new to presenting, selling and attempting to implement technology to the world's airlines, there are fewer, tougher organizations to sell to. They have teams of experts in every area where you're attempting to demonstrate value. They are both data driven and demand to know the return on their investment in terms of value to their travelers, their passengers, their income statement and balance sheet, their shareholders, and of course their sustainability commitments as well. Yes, it's possible to initially get their interest with technologies that may affect their multiples when speaking to their shareholders, but let's not fool ourselves. Airlines won't actually buy value anything in any real quantities if it doesn't meet the other criteria that I've described and what Montie talks about today. Interesting how Montie answers our first question and how not everybody agrees with him on his vision for low cost carriers. It's a great introduction. So this is a person who has always loved aviation, who at an early age was reading the airline OAG book and studying airline schedules. Love to hear how we got interested in aviation. Listen to what Montie says about network planners, an audience very important to a lot of you when speaking to airlines. Listen to how he talks about how airline schedules and operational performance are constantly pulling on each other, and how slack built into the airline schedule can help performance, but reduces the opportunity of getting more flights into the schedule. A terrific discussion around how airlines build block times and the importance of accurately predicting block. And as Montie says, they have to predict block three months in advance and at the latest 45 days before the actual operation. He discusses the big three focus areas for the major airline CEO and how they manage on the macro. And I really like his mentioning Richard Anderson, the former CEO of both Delta and Northwest Airlines, a great leader. He discusses his comments from 15 years ago on why it's difficult for airlines to make money, and what's changed and what hasn't changed in the last 15 years. Listen to how Montie responds to Luka's questions on how airlines manage the variability of costs, and on how airline CEOs think about capital allocation. A must listen to is his discussion of the importance of tech to airlines, how challenging it is for the big airlines to upgrade technology, especially their big IT systems, and the fight over the airline IT budget. Listen to about the long sales cycle and how it's a short window to make the sale. And that the return on the tech investment must be short, including easy and low deployment costs. So many thanks to Montie for a terrific discussion. And to you, our guests, we hope you enjoy our talk with Montie Brewer as you profitably innovate in The Vertical Space. Montie Brewer is the former President and CEO of Air Canada. Under Montie' s leadership Air Canada became an industry innovator in pricing sales distribution and onboard product. Montie joined Air Canada in 2002 is Executive Vice President Commercial. Prior to Air Canada he was responsible for revenue and planning functions at United Airlines as Senior Vice President of Planning. An industry veteran, Montie has also held senior positions at Northwest Airlines, Republic Airlines, Braniff, and Trans World Airlines. He has planned and developed over 20 hub operations worldwide managed low cost airline operations as President of United Shuttle and successfully restructured the route network of three major carriers. While at United Airlines, Montie acted as a key negotiator and founding the Star Alliance of which United and Air Canada were both founding members. Montie currently sits on the boards of Allegiant Travel company, Finnair and ID90. Montie also was a member of the management advisor council with the FAA and, has served on the boards of Swiss international Airlines, Aer Lingus Airhelp Radixx International and Flyiin. Montie it's great to have you on The Vertical Space. Welcome.

Montie:

Thank you.

Jim:

And I'm about to ask you our first question, which we ask all guests. What, others, don't necessarily agree with you on? But before I do, and as you think about your response, let me tell you a little bit about our audience. And why you're such a good guest for this audience. Our audience are a combination of aviation and transportation experts, yes, but also those still learning about aviation. Technologists and entrepreneurs who have technology that they believe applies to aviation and they want to know more about aviation, especially airlines, and how they purchase aircraft and other new technology. And as many are starting to learn, selling to airlines is really hard. So we want to hear from you why it's so darn hard And as a former CEO of a major airline, that will be really helpful. But also you're considered an expert in network planning, and this too will be hugely beneficial to an audience which have aircraft or technologies where the network planners, they'd be one of the primary decision makers or influences within the airline. So we're really looking forward to this conversation. And so with all that, and getting back to our first question, is there anything that very few in the industry agree with you on?

Montie:

Uh, there's probably a couple of things. The most current thing right now, I guess, is the viability of the ultra low cost carrier model. I think everyone's saying it's a dead model. I just think it just needs to be resized. And I think there's, I think that model has a lot more challenges than it has had in the past. I think the network carriers have learned to be better competitors against them. And then also the cost structure underlying the ultra low cost model have been kind of calibrated in such a way that it's their cost advantage is not as great as it was in the past, I don't think it's dying. I think it's just bigger than the market can support.

Jim:

So tell us a little more about that, Monty. When was the belief that the LCC model was at its peak and why in recent years has it become challenged?

Montie:

I think it's become challenged because after COVID, I think, travelers initially, and we'll see if this, how long this lasts. actually now do see some value in paying more for more space or for different kind of brands. Well, before it was more viewed by the consumer as a commodity. And at the same time, the ultra low cost model had a great benefit of having a low entry price, the price for the seat, and then you have all these ancillary add ons, which kind of brought them to a very close, similar average fare as the legacy carriers or the network carriers, but the network carriers were offering that full end price as the entry point. And as you see, as time has gone on, probably too long a time, the legacy carriers have become very good at finding ways to monetize the different services they offer. And that has taken some of that advantage away. And also, coming out of COVID, the ultra-low cost carrier in the U. S. grew at a very fast rate. Probably faster than the market could absorb, especially with this change in dynamics. So I think they've just over scheduled themselves, got way too much capacity for the kind of natural market they can support.

Luka:

Monty, why is that not obvious to others? Why are you alone or in the minority with this insight?

Montie:

Because I'm smarter than everyone? No, no, because

Luka:

End of the podcast now

Montie:

I think, I think it's mainly, hey, you know, there's a legacy carriers going, fighting, going against the look, ultra low cost and making the kind of headway they've made. There's a lot to be proud of, and

they may not appreciate

Montie:

how much growth the ultra low cost carriers have had done since COVID, and at the same time, changes in the dynamics and changes in how products are sold and bought by consumers. I mean, the ultra low cost carriers were in the GDS, the Global Distribution Systems, which kind of displayed all carriers, and they would have a low price point in there that they could steal eyeballs away from the legacy guys with the lower price point. So, yeah. Well, since COVID, I I think the legacy carriers or the network carriers are down probably 10 to 15 points of their traffic going through the GDS. I think, I think the lowest point is that 30, 27 percent of the American is going through the GDS now, percent of their sales. And I think Delta might be at the highest, or I could be wrong. Could be United that somewhere around 40%, but it's down by double digit. And so you've got less traffic coming through for them to steal. At the same time, they're growing at 20 percent a year for two years in that range.

Luka:

What about the structural advantage of not having some of the legacy costs that major airlines have, is that in your opinion, a gap that is closing? And with this assumption of the LCC model not being advantaged as much anymore, when you extrapolate that future, what does the future look like in terms of the airline models? So two questions.

Montie:

Yeah, I mean, as I said, the cost gap is decreasing because mainly because the pilot costs had to kind of come in line because there was such a shortage of pilots coming out of COVID. So, one of the primary advantages that the ultra low cost carriers had were lower labor costs, higher density aircraft, in some cases older aircraft, and then, usually higher utilization. And, over time, the network carriers have densified their aircraft, certain areas of the aircraft. not necessarily the whole aircraft, but the real estate that they had allocated for low fares is a denser space now than it was before. As I said, the pilot costs are converging, but that will separate itself out again. I mean, now that, as soon as markets gets off, there'll be too many pilots and then there'll be a contract or there'll be a restructuring or something will come into play that will reset. And then it's the utilization play which it's getting tougher and tougher in crowded skies because you're relying on the FAA, you're relying on airports, you're relying on there's other congestion factors that are going to slow that down, but it doesn't take away the cost advantage. It doesn't take away the fact that if the ultra low cost got just as good or better than the legacy carriers are now with ancillary sales, I mean, don't make up that advantage. Part of the model historically, has been that they fly in fairly dense markets at a capacity level that it's very difficult for everybody to match, because if they match, all the flights would be full. And sometimes they've gotten in front of themselves in a number of markets. So I think that model's still there to be played. Maybe not the size that's being played at today, but if the ultra low cost carriers were to disappear, I think a new one would come. It would be profitable.

Jim:

Are there ultra low cost carriers today that you think are more of the model as to how you see it playing out in the future? Better performing?

Montie:

No, I think they're going to adapt. I think that, I think they will just adapt. I think there's a, as I said, if they don't adapt, someone will come in.

Jim:

And who are the ones you think will adapt the best?

Montie:

I'm not going to handicap that.

Jim:

it's funny, I was just reading about Don Burr in People's Express this past week. Obviously it's a classic business, case in business school. But, he was one of the first, right, What are your thoughts on People's Express?

Montie:

I don't think they, they had a model and they didn't adapt as they grew, I think.

Luka:

If we had, Michael O'Leary, Ryanair CEO here. How would he credibly respond to your contrarian argument?

Montie:

Well, I think most of my comments have been really targeted at the U. S. because that's where I'm the contrarian I mean, you have, you know, the head of Delta and United saying that the ULCC model's dead and we found a way to compete with them and they can't survive. And others I talked to have similar views, and I'm the one who says, well, they'll figure it out.

Luka:

So what is it about the European market that is different?

Montie:

Oh, I think it proves the fact that the ULCC model works. And they've got the same kind of cost pressures and some of the same, third party issues. but they've managed their growth better. And some are overgrown and having some stress, but, they'll figure it out.

Jim:

Very good, Monty. Before we get into some of the questions about what it's like to run an airline and we want to learn about network planning as well, tell us a little bit, how'd you get into aviation? What, how did a Connecticut guy get into aviation?

Montie:

I'm a, I'm an airline geek. So I was on a trip with my father, and he had a business meeting to go to, so I had some time off sitting in a hotel room that night, and I picked up the brochure rack in the hotel lobby, and I picked up a timetable, and I looked at it, and I opened it up, and it was all those columnized timetables, you know, that had cities down the line, and I spent the night just fascinated by it, and figured out how the airplanes rotated, and because it started here, it had to come from somewhere, and then backward engineered the rotations, and I thought that was fun, and it's like a 3D puzzle. Because how do they know to have it be there at that time of day? How do they know people are going to want to fly at that time of day? And so, yeah, this became entranced by schedules when I was in seventh grade, my parents bought me a subscription to the OAG, which I would read every month that came in,

Jim:

in seventh grade? That's

Montie:

in seventh grade. so I always wanted to, do airline scheduling, but I could never find anybody who could tell me how to apply and where to go. And I would, stop at the ticket counters at airports and they would look at me like the scheduling department they had. I had no idea. but luckily my mother ran into the retired VP of scheduling for TWA at a cocktail party and, she's told him about me and asked if I could visit with him, which I then, I think a couple of weeks later, I did, I remember going to his house and going into his den and talking to him and telling him what I just kind of told you and, over time he slowly got up to his desk and called somebody. And then in that conversation said, I got one. And then, three months later I was working for scheduling at TWA.

Jim:

That Isn't that something. So scheduling and network planning have been your quintessential love, that's great.

Montie:

It's a 3D puzzle. What are the industry where the operating plan of the plant is this is the product,

Jim:

right? Isn't

Montie:

right? And to do that correctly, you have to understand how a plant runs. And at the same time, you have to understand what tolerances customers will have the pressure of the plant wanting everything to be done completely opposite to how the customer would like to have have

Jim:

Isn't that something? So, give us a little bit of a, more of a background on network planning. Again, this is a group that this audience, wants to better understand. What makes them tick? What makes good network planning hard? And who does it better than others?

Montie:

A network planner is born to optimize, right, to give you a sense of how much. I don't know if you remember the game SimCity, but through my career, PCs were introduced and then, had it in the office and no one had it at home. But when SimCity came out, a lot of my network planners were at the end of work with spending all night long playing SimCity at work, because it was like, it was fun for them. It was optimization. How do I get everything to be just right? So you're constantly looking at all the data and you're getting all the feedback from the operating groups so you you're building the schedule, you're quantifying the demand that you think is out there. And then you're comparing it to the cost to capture that demand. And then in that cost is the design of the network, because there's a if everything leaves at exactly the same time, you need a lot of crew on the ground. If they all leave 20 minutes apart, there's, maybe less crew. So you're trading costs for revenue in a kind of a 3D way. And you're trying to build that network in such a way that success will beget further success, no different than an army. If you start expanding and you don't make any money on the expansion, it's hard to expand further. So you're optimizing to make sure that every growth you've got in there works, because that will allow you to do the next step.

Jim:

So there's two questions I want to ask you about. The first one is, how does operational reliability play into, how do you account for, forgive me for the term, the slack you may build in for operational reliability? Explain that to an audience, why that's so important and why that's considered.

Montie:

We have to, I mean, the product has to run on time, because the plane is designed to leave certain spot at that one time, and you've got it designed to leave somewhere else at a later time, and that later time was the perfect time for that market. And if the flight's late, you're not there when the customer's ready. So for the plan to work, it has to fly on time. Now, the realities of the day make it very difficult for it to run on time without sufficient slack. Now, every department, so you're coordinating what supports a schedule or you need pilots, you need flight attendants, you need ground crew, you need gate agents, you need gates, you need runway capacity. All these things are pulling at each other. You have the operational control guys who have to make the schedule run on that day. And all of them, for that, and they also look, want to be cost optimal as well. So everyone's coming and asking for slack that helps them, right? And the planning guys have to decide which slack really, and at what level, really is necessary to allow the operating department to operate the schedule that day. So that's a constant recalibration. if you put too much slack in the schedule, it's just as bad as that and not having enough slack. If you put an extra 20 minutes of pad and the block time and the flight mainly flies on time, it's 20 minutes early. It doesn't have the gates, customers just as unhappy.

Jim:

But your operational performance will improve.

Montie:

Not necessarily, because now you're creating some congestion somewhere, and you're creating unnecessary pressure on crews, and then you change gates, and then they change gates, and then they don't know where the bag is supposed to go, because it always was on gate 5, but now it's on gate 7, because that one broke them up first. I mean, it's when you run on time, it's a thing of beauty. If you run a little bit off time, other than being too soon or too late.

Peter:

Has the problem with network planning gotten more difficult over the years? It feels like it's a race between the tools and approaches for doing this and the additional complexity in the real world planning problem that is introduced because obviously, the scale has grown, but, congestion at airports has become more of a factor, perhaps. Perhaps there have been additional new dimensions to the business, new complexities to the business that have been introduced as the capabilities of the planning tools improve. So how is that equilibrium balanced out over the years, and is it easier or harder now? I mean, certainly at arm's length, we know that gate to gate to get from one city to another, today, the schedule has it taking longer than it did a few decades ago in so many cases. What do you think?

Montie:

Oh, absolutely. Absolutely. Well, you have to remember, I think I had to turn in my network planning card about 25 years ago. So it has gotten more complex. I have visited some of the planning departments at different airlines I've worked at since then, just to see how things have changed over the 20 years. And the reason why I changed my card is because I became, had a commercial at, different jobs at United, then at Air Canada, then eventually CEO. But all this plays into running the airline. You need to know all those different trade offs that are being made. It has gotten more complex. I mean, the fleet has almost tripled at United since I was in charge of network there. A good network planner has to know the tolerances of their markets that you're trying to design for. And you get very little data as to how each market will respond to different types of schedules. So you have to learn it over time. So the planners back then literally just read every load of every flight every day. It might take a couple hours to do it, but you do it because you realize that, hey, Texas, they won't leave after one. They'll do it at seven and they'll leave, but they're going to go up to New York to have a dinner and then, but they don't want to get in at night. You know that, LA San Fran can fly all night, but, Boston, New York, you leave after 7pm, no one's flying. I can't understand why. Toronto, Montreal, we were flying until 1. 30 in the morning. It's just, markets have their own travel habits, and you have to learn that. But with the scale that you have now, there's no way you can sit down and just read every load of every flight at the volumes that are there. I think I've gone back to one of the carriers and I think the way they handle that now is they kind of look at exceptions. So they'll have programs that kind of look at trends and if anything starts going off trend, then the analysts would go in and look at that and research a little bit more, kind of the way revenue management is done and pricing is done. They let the models run and then they look at exceptions and then they handle the exceptions. And on average, I don't see how you can do much better than that. But now I look at AI and I'm really thinking, okay, can that finally figure out, okay, the market conditions of different.

Jim:

Right, you would think it, you would think it's a good fit. Are block planners, are they all coming out of the network planning? The people planning the block?

Montie:

no. Well, it depends on the airline. on the

Jim:

If you could, Monty, explain block to our audience. it's so important. I talked to a top official in the transportation a couple years ago, and I said, what's the number one goal of NextGen? The FAA program for a decade or so. And he said, at the end of the day, I think it's to reduce block. To actually reduce real block. If you could just for a moment, What is block?

Montie:

Block is the time you think it's going to take to fly between point A and point B, and then even more specifically at that time of day. And that time of year. So when you build your schedules, you have to have the block times for the different routes so you can figure out where to build the slack. And as things slow down because of the congestion in the airways, you're constantly updating those. If you're going to put slack in the schedule, sometimes you put it in the block, sometimes you put it in the turn. So that, the rotation of a plane in a day is made up of blocks and turns. It leaves when it leaves in the morning and it lands somewhere and it's going to have a turn time, then it's going to leave again. And those are the two tools to where you're going to put the slack in.

Jim:

Now, ideally, and I'll just end it at this. It's one of my, if you like network planning, block is something that I love to understand about the airlines. So you use the word slack. Well, slack's not good. If, I mean, ideally. If you can help a block person or a network planner plan in advance, and for our technologists listening today, hey, help an airline better understand the future, so that they'll have a more intelligent way of predicting the need for slack, and how do you potentially reduce that slack within the schedule. Because in some ways, slack is sloppy, is it not? And it's suboptimal for the airline. You're wincing, so what am I saying that's bothering you?

Montie:

Yeah, well that's, this is this whole idea that it's that dynamic, but you're deciding what the block time is usually three months out and whatever you put it as, that's what it is, three months out. So you can get better at figuring out, oh, on a clear day, it's gonna be this. Well, you don't know it's going to be a clear day three months out, and the reason why it's three months out is you have to build schedules for the operation to the crew and what the pay is going to be for the block time, because block time also is involved in the pay for the in flight and the cockpit crews. So everything gets locked down at the latest 45 days out when you have to send out the bids to the crews. So there's a lot of work that goes into figuring out what that block time should be based on history, and that tends to be pretty good. there's a time you try to not put much pad in the block time, because that, you end up paying crews unnecessarily. But at the same time, if you put too much time in the turns, the operation usually doesn't see that time. So, on a hub and spoke system, you have a lot of airplanes coming in at the same time. Around the same time, and they all leave, interconnect, and they all, leave. And you know, you would, if the flight has a hard time leaving over time, they say, we need more ground time. So you tend to give them more ground time. And the issue seems to still be there. The planes still have a hard time getting out. Well, we need more time. We need more time. This is what you hear from the ground crews. Well, then you find out, after doing a lot of research, that the turn time, the actual turn time of planes has been pretty steady. And the more slack you put in there just gives ability for the operating department who has to run the schedule that day of to swap tails. In other words, this plane was supposed to come here, turn out there with a 50 minute turn, they come in, and you find out, oh, it did a 30 minute turn because it needed to move it to some other flight. If it's short airplanes, you're going to squeeze airplanes out of turn time. And so if you put too much slack in, it gets used up, and it doesn't really solve the problem you're putting the slack in for, which is very frustrating. So that's why this constant push and pull and recalibrating, because you've got all these interested parties trying to get the slack for themselves, and then someone else robs it.

Luka:

You mentioned a three month down to 45 days timeline. What would it take to reduce that planning window even further? Is that even feasible, possible?

Montie:

New contracts with the unions, telling workers that they don't know what their schedule is going to be. And you have 45 days to get them the ability to bid, so that they know what their month is going to be. 45 days you close out, the bid goes out. There's usually 5 to 10, depending on the airline, a period of time for them to bid what they want for the seniority rules. And then they get their schedule that they have to fly the following month. So that is, and for them, that's their life. they want to know, am I going to be able to go to my son's birthday party? And, so they want to know that further out actually. and somewhat rightfully so, there might be some solutions to that, but that's the main driver.

Luka:

I wanted to follow up quickly on the network planning conversation we had a couple of minutes ago. What are the biggest vulnerabilities that contribute to the complexity of network planning? We talked about the fleet size as it increases, obviously things get more complicated. At the same time, we are looking at a market that is expected to double in the next 15 years or so. So existing airports will only get even more congested. The concept of a hub doesn't make things any easier. So first of all, what are the main factors contributing to this complexity and points of vulnerability? And then how do you future proof the network model to account for everything that we expect to happen?

Montie:

Well, to be fair, I have not done route planning for quite a while and network planning for quite a while. So I don't feel like I'm an exact expert as to the level of complexity that they are experiencing today and then what issues are next on their horizon that they need to solve. So, um,

Luka:

But like a CEO's perspective on the topic,

Montie:

Well, CEO's perspective, you need to have, you just want to have flexibility, and you want to build that in. the, We've gone through, up until COVID, we've had a fairly predictable growth rate, fairly predictable time horizon to solve issues. I think that might continue for the next five to seven years, but I think with sustainability issues, I really question what the industry is going to look like. I just don't think you're going to have that growth. I think it's going to be, sadly the airline business is burning fuel. That's what we do. There aren't really any clear solutions. There's some patchwork and, my personal fear is that absent any of those, I think governments or parties are going to have to figure out how to just dissuade people from flying. And I think it's going to get fairly expensive one way or another. And I think that will have a dramatic impact on traditional growth.

Luka:

Another CEO level consideration or insight. To what extent do you think that network architecture and choosing the network model is potentially a source of durable differentiation for a new entrant? As we consider, point to point type of networks, understanding the market with greater depth and insight, perhaps using AI or some other tools, is that a lever that new emerging airlines can tweak to get an advantage in the market? Or do you think that quickly erodes?

Montie:

I guess it could. It depends what the network carriers do. I mean, the benefit of a network carrier is they can usually take you anywhere you want to go. And the low cost carrier who's got a boutique saying, I can only take you to LA. Right? And I might be the only one taking from LA, from Raleigh. But guess what? Delta can take me everywhere. Right? American can take me everywhere. United can take me everywhere. To the degree the airlines network carriers figure out how to be better retailers, and better ways of selling the expense they've put in to provide that utility of being able to go everywhere, I think it will make it harder and harder for the point to point carriers to, come in at any scale, because why would they even look at flying them? That would be there because I'm maybe not loyal to Delta and I'm living in Raleigh and I'm going to fly to LA and I'll fly them. It's kind of hard to leverage that going forward when that's probably a very small part of the population in Raleigh who are probably, you know, Delta loyalists or United loyalists or, So that doesn't make it impossible, it just makes it a smaller universe of potential.

Luka:

Couple of times in the podcast, we brought the topic of scheduled versus on demand. How does that choice play into what you're describing here? And what are your thoughts more broadly on the on demand model?

Montie:

Well, if you had unlimited resource and unlimited worries about constraints, you'd fly from every airport every hour to the hub.

Luka:

Maybe in SimCity we do, but we live in the real world.

Montie:

I know, but you get into that point. that's what Southwest model is. they're hourly everywhere. they're point to point. Oh, yeah, but 55 percent or it's more traffic's connecting now. And they didn't design a hub. They just defaulted to a hub because when you've got 35 destinations all flying hourly, I'm exaggerating, but basically you can show up at the airport, get on a Southwest flight and get to the, other Baltimore or some other Las Vegas. And, within an hour or two, there's a flight going to wherever you want to go to. So, the on demand is based on when I'm ready to fly, right, as a customer. And if I have high frequency in the airport to a hub, I pretty much can meet on demand pretty quickly. And I might not have to wait an hour or two longer than normal. But the price to get me going that hour or two sooner for a carrier that's going to be truly on demand is pretty high. And I'm not sure the customers are willing to pay for that.

Jim:

So you're running commercial for a major airline, and now you're the CEO of a major airline. What was that transition like? And what is the major airline CEO focused on day to day.

Montie:

Well, the CEO I mean, your time is split up kind of three major ways. One is, focusing on your executive team and more importantly, the employees of the airline. The next one is you're spending time with the shareholders. And the third one is the government and the outside world. And you tend to spend a lot of, on the last two. And you're doing that to basically protect your executive team from the outside world, so they can actually get stuff done, right? And you need to get the message of the airline out as to what you're trying to accomplish to show this to the customers, and more importantly to the employees, you have to make sure that plan is well structured and believed by the executive team, because they're the ones that are going to actually carry it out. And that's why you're out there protecting them from the world. So they can carry it out. I was very impressed by how well, Richard Hansen had Delta running, because if you took one of their EVPs or SVPs aside and asked them what the goal of the company is and what are we doing here, they would all say the same thing. And that's, that's the goal you want to get to. Because once that happens, then you're, you know, you're. You know you can, you're protecting something valuable when you're trying to engage with the outside world for the company. And you need to get that across to the employees as well, so that when the, when your executive team is deploying whatever initiatives they have, they are appreciated as to what the, their importance are by the staff and eventually by the customer. You tend to work on the macro as a CEO. you try not to get into the nitty gritty. You want to make sure that, in other words, you don't spend the time trying to figure out, how come that Tokyo flight to Chicago is not doing well. You just say, you want to focus on how many airplanes I think I can support and make sure I got the right number, not too many, not too few. Cause the planning guys will figure it out. If Tokyo, Chicago is not working, they'll figure it out. They'll move it someplace else. That's the benefit. so that's just one example, but it plays out in just about every, corner of the company. you just managing on the macro.

Jim:

Explain a little bit how the airlines make money. in some of this will be a little bit of a surprise to some that it's not all coming from ticket sales.

Montie:

Well, we don't make money.

Jim:

Yeah, actually, I wanted to ask you a little bit about the comments you made a couple of years ago about why they don't necessarily make as much money as they should. How do they make money? I should say, where's the revenue come from?

Montie:

Well, the majority comes from ticket sales, but let me reference back to that comment I made, I think probably 15 years ago, which I pointed out there's five reasons why the industry never will make money. And the first one, it's a capacity led model. This is historically how it's been, in that for you to grow the revenue line, you have to grow the cost line in terms of putting, you have to schedule more flights to get more revenue. And we can forecast revenue from the industry fairly well, and we use basically a share model. So your capacity is always in front of your demand. The second one is you, so you've bought too many airplanes, and airplanes don't go away. That's the second issue. Third issue is you have labor, which has basically complete control over the company, because you can't take a strike. You can't hire a whole new set of pilots. You can't really hire a whole new set of gate agents. Just to get security clearance and badging at the airports would take too long. So you have to figure out how to get labor in line to understand the company and get, and give them political cover to do what they need to do. Not impossible, but not easy. Fourth one is that the costs are highly variable volatile, sorry. And that's mainly fuel. And you could start a year off with your budget being at$75 a barrel and end up at$140. That's anywhere from 30 to 40 percent of your cost, depending on your other cost structure. And when you have that kind of volatility, it's kind of hard to go in and take food off the airplane, just to pay for the change and fuel that. And that's going to go down the next month. Right? So now when the price of fuel goes up, you already have people who bought tickets ahead of time. So you're losing money on those, but when fuel goes down, the prices don't come down just as slow as they went up. So you usually get cash on the backside of the curve. And if you can figure out how to hold onto that cash, you have enough to cover for the, for the deficit on the front side of the curve. So that comes down to what I'd say, one of the roles of the CEO is basically hide the cash. Because your capacity model doesn't work too well and your margins always very thin, you tend to have to hold as much cash as your market cap.

Jim:

But I think you mentioned once that the problem with holding cash is the people will see you're holding on to that much cash, the unions and others. And

Montie:

Right. So Wall Street comes in and scrapes it out, buys you, scrapes it out, kicks you out again. Or the union can't say, Hey, they, they really need this cash. Right. hard for a union leader to say that. And so, yeah. So your job is trying to figure out ways to hide the cash. And then last one is everybody in the value chain is happy with the fact that airlines don't make money and it's all in their, it's all in their business models. I mean, everyone assumes that a certain percentage of the industry is always gonna be in restructuring. I've gone through, sadly, a number of restructurings and the participants all say, well, we kind of expected this and we, and they seem to survive, right? They have very high margins. So, if you ever try to change what's going on, nobody in the value chain wants it to change, right? So, whatever you're doing, you're going to take margin from them, so they can't help you with this, you got to go, go it alone. And the airlines have been trying to do this over the last 15 years to address this, which is why you see more ancillary sales, which is maybe what you're trying to get to. Ancillary sales are not a very high portion because that is some revenue that comes without adding an airplane. And has a very high margin and has not driven by, by share of capacity and that has allowed them to better differentiate, which can, it's more loyalty, which then makes it easier for them to latch on to frequent flyer revenues and leverage that base of fliers.

Peter:

So on that topic of loyalty, how has that worked over the years? Does it still have a future? Are loyalty programs playing the same role that they did 10 years ago, 20 years ago?

Montie:

They're playing a larger role. You've got a lot of great franchises out there in terms of legacy carriers and even the Ryanairs and out there they have great brands. And great usage by customers that you could call them loyal or not, but we'll use them consistently because they have the best product in the market they're, they, they live in. And frequent flyer programs are a way to identify them and to give them volume discounts of some sort for, for that continued use of the system. But airlines have figured out. And I think more so, the banks have figured out that this loyal group of customers is pretty loyal to a brand more so than other industries. And, through the use of affinity cards, the credit cards, the airlines have been able to figure out a way to monetize the loyalty they create by having a superior network. And this is creating now a very interesting dynamic where they're, I think, becoming better retailers, better differentiators. And finding ways to better hold on to those customers through that differentiation.

Peter:

But at the same time, it seems that value of a frequent flyer program to a passenger, let's say since 2010, over the last 15 years, has dropped tremendously. Even for the passengers that are at the middle and high tiers in that program, and that the complexity of the program has gone up exponentially, that, that there are a lot more dimensions to it in terms of, accruing miles, and how you can use them, and how you can get upgrades. Everything has exploded in complexity, and so are passengers still hanging on to it and paying attention to it in the same way that they did. a decade ago?

Montie:

All I can tell you is that the airlines are monetizing it more than they have in the past. So,

Peter:

But the credit card is playing a bigger and bigger role in that now.

Montie:

Well, but that's, that's the form of monetization. I mean, if the bank didn't see those customers as loyal, the bank wouldn't pay the money. The banks are seeing tremendous loyalty to that card because it's associated with the airline. That Delta lounge, and as I'm not, as a Delta frequent flyer who doesn't have the card, I really kind of snarl at the people in that lounge, but the airline's monetizing it and has great value for it for, and I think over time, airlines will kind of solve the capacity issues will solve some of this complexity issue. It's a little bit. I think the success of the program has caused it. For them to figure out how to put governors on, because I remember one time, a long time ago, we were one of the airlines, we decided to give the top frequent flyers in every market we served. some special upgrade only to find they all fly to LA, right? So, the Peoria guy and the Appleton guy and all the stuff was great, but they all get to Chicago and they're going to LA, right? So then they're all unhappy because I can't get to LA. So you're going to run into those kinds of, I think, issues. And the airlines get better at figuring out how to retain the loyalty. I think because of the technology the airlines use, it's very difficult for them to innovate and come up with ways, which I think they can easily do, to find ways to personalize, a journey for you, or personalize a frequent flyer retention program for you, that can be equally fit, because there's things that you probably want that no one else really wants, and they're giving it to everyone else, and they're afraid that they'll get overused. So I think, once they change the tech, who knows when that's going to happen.

Luka:

Can we put a pin on adoption of technology and I just want to follow up quickly on the business model. If you were to start with a blank sheet of paper, how would you design a business model for an airline that has the potential for much greater profitability and to deal with the variability of the cost drivers within the constraints of the real world?

Montie:

I'd go out and buy one of the network carriers. I mean, the hub and spoke system works. Some of the issues that I think, people don't realize is that some people think it's a variable cost, it's a fixed cost. And once you buy that airplane, it's going to fly 11 hours, it's going to burn that fuel. the manufacturer's solo team is assuming you're going to do that so they price it that way, or the lessor who's leasing it to you, they assume at least rates that you're going to fly it that hard. So once you get a plane, so it's really managing what's the market I can support through the network I've created and the bigger the hub, the more revenue I'm going to have a more addressable market I'm going to have you try to find efficiencies within that, that plane count to make sure you can capture as much as that addressable market without the minimum amount of costs for those fixed assets. But in those cities, if I can be big enough, the one, I've always said the one with the most hubs wins. Because that, which means in every city you serve, you're going to fly more places more often than anyone else. And you're going to get more loyalty from that customer because you meet all their needs, not some. I mean, as an airline, I always thought my competitor was not the other airline. My competitor was Amex, right? At Air Canada, I can take you anywhere a Canadian wants to go, but Amex can take him anywhere, right? That was the competitor. How can I serve the customer with every need in terms of that destination. So once you do that, you've got a huge differentiation that the airlines have not figured out how to unlock and have allowed that to be commoditized through how they sold their product in the past. And then once you unbreak that. So the fact that, majority of the sales are the legacy carriers or network carriers are going through, they're direct channel now. They have ability to differentiate clearly and hold on to the customers if they're not shopping. and, that's going to make it very hard for new entrants to come in unless you're going to do point to point and boutique stuff and, I'm on the board of Allegiant, and they do extremely well. And it's a niche market that's hard for the network carriers to match. And they don't really want to match to a certain degree because they have other traffic they can carry that are more enriching.

Luka:

What are some of the best practices that you've implemented to deal with the variability of, costs, maybe fuel hedging or, some innovative labor contracts? How did you deal with these macro drivers?

Montie:

You want to make sure you're managing volatility so you're back to hiding the cash, right? Because you know you can manage the volatility, you know, the price of oil is important to me. I mean, that you can stop any airline CEO on the street and ask them what the price of oil is at that time. And they know. If someone said that the price of fuel is going to be$140 a barrel forever, and it's not going to change, that's fine. I'll take that. Right? It's the fact that it jumps around is the issue. So, yeah, finding ways to, to make sure you have the cash cushion to manage through the ups and downs. Because you want to help, you want to protect that from the employee and from the customer. You want to have a consistent product out there. They don't have to worry about, are they taking the olive off the salad for me, cheaping the product. But, so that's one of the key drivers. a nice, stable labor contract is also very good. I think the contract that, Air Canada was able to negotiate, prior to the one that just got ratified today with the pilots, the one that was for 10 years, was I think groundbreaking. And I think very helpful to the pilots, and very helpful to the airline. They both benefited from that stability, and hopefully they'll benefit again the next, the contract that's just gone in for another four years.

Jim:

Montie, with your five reasons you talked about earlier, and you said, this is why it's challenging to be profitable as an airline. Well, since 2012 or so, there's been some profitability in industry. What changed the most that caused them to be profitable where they had not been as much in the past?

Montie:

From when?

Jim:

From 2010, 2012 on, the industry, with the exception of COVID, has been profitable. What changed the most that made the airlines profitable?

Montie:

Lack of capacity.

Jim:

So the first rule had been addressed.

Montie:

Yes.

Jim:

Talk about that.

Montie:

What, 787s were delayed? 380s were delayed, NEOs were delayed, after COVID you had no pilots, so pilots were a problem. Currently we have three, you know, even though you have NEOs, 10 percent of that, approximately 10 percent is on the ground and probably more coming forward. You have Boeing who's been delaying the 787, the 777X, and now with the strike with the MAXs. Even with the pilots coming back, capacity is still fairly tight.

Jim:

So it's no longer a capacity led model?

Montie:

Oh, no, it is. It's just, you just can't get capacity. I it's, yes. Now, I'm hoping it changes. with more ancillary, with more. But when you're a CEO and you're going to Wall Street, talking to investors or to analysts, the first question they ask is, what's your ASM growth? Cause they put that in their model. They know if you give 3%, then I'll probably get 3 percent more revenue or maybe 2. 7 or maybe 3. 1, and then they got their models done.

Jim:

Right.

Montie:

If you go in there and say, Hey, look, I'm going to grow, revenue by 5 percent on, 2 percent capacity, they'll look at your cross sides and you're stupid, it's not going to happen,

Luka:

On that note, what are your thoughts on the current duopoly on the OEM side and whether the industry is changing on that front with the either, new entrants into the market or, the likes of, Embraer, that are perhaps taking advantage of the situation with Boeing or, entirely new designs? How does the CEO of a major airline think about that?

Montie:

You want as many OEMs as possible, and I think right now you want a strong Boeing and you want Boeing fixed. The industry needs it fixed, and I think Airbus would say it needs to be fixed. When I was at Air Canada, we bought the 190, great airplane. You want to encourage that kind of competition, but you know, the, the OEMs bring efficiency to the marketplace, and how they bring that efficiency impacts airlines greatly, because not everybody can benefit from it how each efficiency is applied. So, if efficiency applied to a larger aircraft to bring down unit cost, or unit seat cost, that helps a hub-and-spoke carrier that can fill it. If it's applied to a smaller platform that's lighter, that has the same unit cost as a larger platform, then that helps the smaller carriers.

Luka:

What are the disadvantages of the variability on the OEM side? Is it that you might end up with a mixed fleet that just adds complexity to the maintenance operation, the training, the talent.

Montie:

Well, there's a, at a certain size, the fleet becomes efficient in terms of that support structure you're talking about, the pilot training, the, the parts supply, the warehousing, the maintenance. If you have a fleet of 100, that's pretty good. You don't want a fleet of 10, right? But there is a number in which each additional aircraft doesn't really get you much more commonality benefit. It becomes asymptotic, and historically that's been anywhere from 30 to 40 to 50, depending on the airplane and those support costs, but there's a number. So having multiple fleets is not terrible, and it's very manageable, and if you're very large, it's very helpful because different platforms have different capabilities. So if you're United, you don't care. You've got more or less four or five different airlines in terms of size and fleet.

Luka:

When you were CEO of Air Canada, how did you think about priorities for capital allocation?

Montie:

Well, the biggest one is fleet. But again, you've got different buckets. You want to make sure the product is consistent for the customer. So there's a lot of stuff that's kind of soft with hard return, but is necessary for consistent product. You want to make sure that you have enough capital to live through, you know, variability of the business. And you want to make sure that you have enough of a fleet plan in place that allows you to manage the up and down of the business. The way you do that is you tend to have, try to have a consistent flow of aircraft coming in and then you'll decide through which airplanes you're going to retire as to what your growth rate is going to be. If you can do that and you're staying and the volatility of the business does not kill your margin that supports that capital plan. And that's where, that's what you're focusing on

Luka:

What about the modernization of tools that help executives run an airline from planning to scheduling, all across the, the workflow of an airline? Is that an afterthought? We've had several visible examples of IT systems breaking down, causing significant disruption for the airline and the passengers. And yet it seems that airlines are notoriously slow in updating their software, their IT systems. What's the background for this sentiment or lack of aggressive adoption of new tools?

Montie:

Because it's, some would see it as risky. so that I don't think it's fair to talk about tech in general at an airline cause I think there are different categories of tech that are addressed different ways. So if you come to. Let's say efficiency of just making the planning process better, right? And that would involve, crew scheduling systems that would, you know, optimize crews based on the schedule that's provided to them so they can put the bids out. You'd come with a, you know, even schedule planning tools in the past. what happens is these are such specific markets for those new companies that even if they have a great idea, the sales cycle kills them and they tend to be undercapitalized. And when you come in, you find out that as an IT provider, you might think that this is a commodity, but once you get to the airline, you find out it's not. And then you're spending all your time customizing for that airline's specific issues. And these tools tend to be used by veteran analysts who are comfortable with the tool they have. And if you're saying, well, you don't really need that capability. It can be solved for over here. They're going, well, why? Unless you can show them dramatic change. And that's tough because you're not in there being able to do an A B test with them. Because now you're coming against the number one governor of growth and innovation in the company, and that's the IT budget. I mean, the IT budget on the annual planning basis is where fights between silos within an airline take place. Everybody needs new tech to get more efficient. And you only have a budget of so much. Well, you could say, oh, well, then spend more money. Well, that's not necessarily a money issue. It's an attention issue. And it can get unwieldy very quickly by having too many projects that none of them get done. And it's just this push and pull. So It's going to be a prioritization of some fairly major stuff. Sadly, the tech we have, the industry has, is antiquated and has to get upkeep, and that takes a lot of IT budget. So if you want to come and do an A-B test with it, well then you're diverting very high opportunity costs to, to, do a whimsical thing for crew planning. I'm like, well, what's wrong with the old system? Right? you can understand the debates that go on.

Luka:

Totally, but at the same time, the meltdown that Southwest had in December of 2022 apparently cost them upwards of 800 million. And are these black swans that are not so black anymore, is that just accepted as cost of doing business and will, We'll plug those holes. Peter's shaking no, um, or I mean, speaking of opportunity costs, that's a massive opportunity cost. Why is that not factor in to modernizing technology?

Montie:

Again, I think you need to look at different tracks. In certain areas the incumbent IT provider is basically a monopoly and is keeping them from doing anything. And anything that is brought in to help you solve for the inefficiencies of the old technology, becomes very expensive to do because the old provider will make it very difficult for you to come in.

Jim:

And they're so intertwined throughout the organization, and they have such support of their people within the organization, as you've said, Montie.

Montie:

There's a lot, there's a lot of antibodies to change, especially in certain tech areas. Eventually what you really need to do is get a new platform. And that's a big bang, and no CEO wants to do a big bang. And usually the CEO comes in, I mean, the life cycle of an airline CEO is not very long. there's some really great standouts who've lasted a long time, Doug Parker and Pedro and others. The, you know, by the time you appreciate the issue. Because it's not very clear to you where a lot of these problems stem. And once you appreciate the magnitude of the solution, you're usually gone. And until you understand all that, understand the risk is, if I don't get on a new platform, I'm, I have that huge opportunity cost of that risk that you pointed out. Until I realize that, going onto a new platform, on usually a new company that's competing, that has not been proven, that has, undercapitalized, you might think, or, rumors are they don't know what they're doing. And I'm going to put my whole career on the fact that I'm going to jump to a new platform and if it doesn't work, the airline's dead. So they don't. So I think there's worlds out there now that are trying to figure out, okay, how do we, because this is a side thing that I kind of spend a lot of my time on is helping find technology that helps transition airlines onto new technology platforms that allow the faster integration of tools because The tech has been, I mean, the technology is so outstripped the capabilities of what the tech and the airlines are doing that it doesn't take much for new technology to come in and really bring great benefit. It just can't be applied on the old platforms. I I, on the front side, I keep, I run into a lot of companies that are doing better at differentiating and doing better. Better offer management for, to customers. And the way I liken it is, they come up with a 27 digit perfect answer, and then they got to go through the rest system, which can only handle five digits. So a lot of the value gets just destroyed just through the, delivery. so it's a hard problem. but those are some of the challenges.

Jim:

So as a continuation of this then, as advice to our listeners and those introducing technology to the airlines, what do they need to consider, as they think, and it sounds like you're doing some of this work, it's, they have technology they think could be very effective. What advice would you give to them?

Montie:

It's a long sales cycle and, you can convince someone in a certain area that you're, that the company that you're going to help. Usually it's a bright person because they understand the value you could bring and bright people tend to get promoted. So it's a long sales cycle and then there's a short window to make the sale because whoever's going to be the champion in that IT meeting that fights for the budget, you hope they're still in that same position when the IT meeting shows up.

Jim:

So Monty, the return on the investment has to be really quick for them to be able to make the investment and see the return during their tenure.

Montie:

Right. And then investment really is how much integration do they have to do with the IT? I if you could come in and say, you don't, the IT people don't have to touch this, you've got a lot easier sale, right? But as soon as you go oh but I only need them for one day. Well, now you're stuck.

Jim:

Oh,

Luka:

I'm sure when you were CEO, you've had a lot of inbound pitches. What was the most convincing pitch to you? What resonates with CEOs the most? How do companies grab their attention?

Montie:

Look, as a CEO, I never really participated much in this. Again, I'm protecting my management team from the outside world. If they think there's a good idea and an opportunity, I let them fight for it in the budget and then let them go do it. I rarely would I ever say, Hey, look, there's, let's try this. Why don't you push it down to them? They, I, they know what they need to do to get done. They might tell me, Hey, have you seen anything like this? I'll say, Oh, I found something like this at their request, but. if you're running things well, sometimes coming from the CEO down, that doesn't sit well.

Jim:

So that's one bit of advice, Montie is when you're selling certain technologies to an airline, the CEO is not the first person you should talk to, look at the functional leader of their respective area. Hey, I got to ask you a question before we move down to some emerging technologies. So, you've experienced NAV CANADA. What are your thoughts on the privatization of the ATC function of the FAA? We've had some guests talk about it.

Montie:

I, I wouldn't put it as privatization. I think they need to get out of the budgetary cycle, and it could be a public corp. and I think it needs to happen. The way the budgetary cycle up starves the ATC. and the fact that they, they, they can't have more than a single year budget, it's hard to do any kind of long term tech planning. It's just debilitating, and this shows up more and more each year. It's just, not set up right in terms of funding.

Jim:

Is it realistic? Could it be done? What's it going to take to make it happen, given the implications of the downside of not doing it?

Montie:

Well, the downside of not doing it has been there for all along, and we're seeing it now, right? We can't, That's what's killed Southwest a little bit. that was part, partly, and then another one is, some internal stuff, but you know, these block times are getting longer because there's choke points and, you find crazy routings to get through the choke points. I think the problem is this is boiling a frog, right? This is happening incrementally to such a degree that it's become, it's just another normal.

Jim:

What would be three things you'd recommend to the FAA Administrator to get it done, if they give you a call? I know that's a long response, but come on, you've lived it. You've seen the benefit of ATC

Montie:

Yes, but it's, so it's a congressional issue. It's a congressional issue. The Congress has got to give up their power to be able to line item the budget for them, right? And every congressman has an airport. And so why would a congressperson give up that power to another party that's going to, take away some of their power So, so you've got a political problem in that from the individual congressperson and collectively you would have to get, a bipartisan approach to it, which not impossible, just tough. And, there's been a couple of runs at the castle in the past, but, you know, they kind of fall short and they'll probably gather some more in the future, but it's a very difficult thing to see how an administrator or the head of the DOT has any real power in this other than articulating the issue and lobbying as much as they can.

Jim:

If we could, with the 10 minutes or so we have left, let's talk a little bit about the emerging technologies. What technologies are you interested in, excite you around airlines that could improve some of the challenges we've talked about?

Montie:

Well, I, anything that can bring a new tech platform to the airlines to be able to build off and better differentiate themselves and, bring the value they create to the marketplace more effectively. so that's, I think, a very large thing that needs to be done for the airlines to truly evolve to the, to destroy the five reasons I talked about before. I'm very interested in how AI is going to play a role in this. I'm very interested to see how fast it gets applied to airlines and what problems they might run into in terms of, That 27 digit perfect answer trying to get delivered to really show up as efficiency to the airlines But that's so new. I'm still trying to get my hand around how that's gonna play out where the players are and such Then it comes back down to once you get on a new platform. It's a lot of things gonna get a lot easier I mean nirvana for a network planner Go back to the whole SimCity story. once you move a flight 10 minutes this way or that way, it's either going to make it worse for the flight crew in terms of schedule efficiency, or it's going to make it better. It's going to make it worse for the maintenance rotation of the aircraft, or it's going to make it better. And when you're doing it, why can't you just show me a different color as to what's happening, right? We do it kind of in batch jobs. You're trying to put these together, but these are very disparate systems, and I'm sure there's some vendor out there today saying, we could do that, but I haven't really seen it done anywhere. and it's tied to the old tech, and having them talk to each other and give that kind of feedback. And if you do that, then the AI can do it themselves, because they can, if it's telling you what the color is right, they know what the answer is, they would go off and do it.

Luka:

What do you think is the role of autonomy in commercial air travel?

Montie:

Define autonomy,

Luka:

Removing one pilot or all pilots.

Montie:

Yeah, well, I mean, the technology's getting better and better. so it's a question of, I think it'd be really nice, and this is not necessarily a fair comparison, but if autonomous cars worked and were viewed by everyone as safe, then I think you'd have less consumer issues with having less and less pilots, because there's two aspects to it, one is how the pilots feel about it, and the other one is, well, more importantly, how does the customer feel about

Jim:

Montie what's your thoughts on electric aviation? Advanced Air Mobility, the Short Takeoff or the Vertical Takeoff Aircraft. What interests you and what doesn't as it relates to the airline and the, the services of the

Montie:

it? I'm interested in getting more power into less weight so that electric can actually be a potential solution to some of the sustainability issues. I'm sure it's not there yet, but I'm also a believer that innovation is coming and things will change one way or the other. I think we need to find other ways to power and what kind of efficiency to come back to the OEM. The more OEMs we're bringing technology to, the better. cause it's not going to get solved by the airlines. It's going to get solved by the OEMs for the airlines. as to the V takeoff or whatever. I just, it's called a helicopter, right? So I, I don't see what the difference is.

Peter:

But in the absence of new technology, making the sustainability question really mitigated. Earlier in the conversation you mentioned we would have to start discouraging people to fly as often, right? How likely do you think that actually will become policy? And if it does What underlying assumptions for how you plan and how you compete, does that change, how far do the second order effects of that reach across the business?

Montie:

Well, it's kind of happening in Europe.

Peter:

Okay, how's that working out as a case study?

Montie:

Well, it's just with taxes I mean, they're going to, they're going to tax it. They're going to make it a syntax. if. If the industry can't figure out how to give political cover to the politicians as to how they're going to solve it, which they're trying to do. And Airbus is, that's where I think you're going with the, you know, the hydrogen.

Peter:

I mean, I'm thinking about something of the magnitude of how airlines competed prior to deregulation and how they competed afterwards. And that was obviously a huge change. And would an introduction of policy like what you're talking about lead to a change of similar magnitude?

Montie:

I just think it's going to get more expensive to fly and become more of a luxury good than a, cheap fares for all, one way or the other to kind of dissuade growth. And that will either happen by us forced to be buying new technology before it's, we're, have the capital to do it, which means we can't buy as much new aircraft because the old ones are going to be phased out. And I, it's going to show up one way or the other in the ticket price. And the question is to what degree, which will slow down growth. Because costs will grow faster than the consumer's wallet. So on a macro basis, the money for spending for travel is going to continue to go up, but the cost to provide that travel is going to become more expensive through new technology, new investment, or tax, or both.

Jim:

So in addition to what you're describing, what's going to change the most in the next 10 years of airlines and airports?

Montie:

Nothing much and a lot. I think we'll keep prodding along like we have for the last 40, 50 years, step change innovation at a time. And at the same time, there could be market corrections in terms of the cost of doing business. No different than the market correction of you can't fly over Russia anymore. Your costs go up 40 percent to fly to Asia from Europe. There's less flights to Europe from Asia. there'll be these kinds of market corrections out there. It

Luka:

Montie in the spirit of diversifying revenue streams and the fact that cargo plays an important role for airlines, if somebody pitched you as the CEO, the idea of going into drone cargo business, how would you weigh the pros and cons of that?

Montie:

depends what kind of cargo business I'm in, right? Some airlines are just fill up the belly off my current structure. Some have cargo fleets. And they're more interested in, going down, up and down the value chain. So it would depend on the,

Luka:

If you're just belly cargo airline, would that even factor into your window of context?

Montie:

if you're building cargo operator, you're using, mainly using freight forwarders for the, the front and the back of the journey. So you're looking at maybe replacing those, which I think, I'm not sure how it would be applied, but,

Luka:

Yeah, maybe we can keep that conversation for the next time.

Montie:

Talk to the freight forwarder. Maybe they want that.

Luka:

Sure.

Jim:

Montie we've been talking for an hour and a half, is there anything you were hoping we would ask that we haven't asked or anything else you want to share with our audience? It's been a great talk.

Montie:

I think I've covered way too much already. Thank you.

Jim:

Montie thank you so much for joining us on the podcast. We've learned a lot. I'm sure our listeners will love the talk, and we appreciate you being on.

Montie:

Okay, thank you for hosting