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Avianca’s Business Model Transformation

Enric Puig:
Today we have Robert Mulet with us, the Chief Digital Technology Officer at Avianca, and he’s explaining to us the great journey Avianca is on, going from being a legacy airline into the low-cost world. It’s very interesting because Robert has been in every different type of airline. He has a great history with low-cost airlines, but he’s also been working with legacy airlines. And he’s fully engaged in this business model transformation. He will also talk about Abra – the new project in Latin America composed of Avianca, GOL, Viva Colombia, Viva Peru, and Sky Airline – and many more things.

I was really excited about this interview today because I think you guys are doing a great thing with Avianca and we’d love to know more about that from the source. For those who don’t know, could you give us your background, what you’ve been doing and what you’re doing now for Av.

Robert Mulet:
Working as director of ancillary and ecommerce, I arrived at Avianca in December of 2017, almost 5 years ago, and my background is strongly in the airline industry. For more than 10 years I worked for Vueling, Iberia Express, and now Avianca. Also, for several years I worked in consulting services in Spain. I am travel addicted and especially airline addicted. That is my background.

EP:
So Robert basically we’ve been hearing a lot about the big transformation that Avianca is going through. Could you tell us a little bit about that?

RM:
We were a legacy carrier, now we are migrating more to a low-cost carrier or low-cost model. I think it’s necessary, when you see how all the changes have impacted the industry in the last year and the current year, that you need to adapt to these changes and transform your model. In the end, the main vision is to be as profitable as possible. If you’re not thinking about profitability, you will die.

EP:
These are usual terms in our industry – full-service airline, legacy airline, hybrid airline, low-cost airline – but some of them sometimes are perceived as not that good. Since you’ve worked for a lot of different airlines, could you give us your own definition of what a legacy airline is and what a low-cost airline is?

RM:
I will start with what a low-cost airline is. People used to be confused that a low-cost airline is low-cost in terms of operational cost or security or maintenance, which is not true. Every day, we are investing more money into security than the day before. Security is the priority of all our airlines, low-cost and legacy both. The main difference is that we want to reach all the customers. When you are a legacy airline, you are providing very interesting packages of fares with interesting services in each fare, but maybe not all customers will pay for that. Maybe not all customers will pay for a fare with baggage or flexibility. When you are a low-cost carrier, you must be very efficient in your costs. For example, the switch-up costs or change fees. You want to be flexible in your processes, and that allows you to have better, lower fares. When you have very competitive or very low fares, you can get more customers, new customers. For example, in Colombia, we don’t have rail, so the people have fewer ways to move within the country. They can move by airplane or by bus. By airplane, it may be 1 hour, but by bus it is 8 hours. Not everyone can pay a ticket to fly from Bogota to Medellin. This is the reason for this new change for Avianca. We believe that we should have an airline open to everybody, accessible to everybody; this is the objective. You must be very efficient in the costs, but at the same time be very competitive in the prices to make this balance.

EP:
Being efficient, being price competitive, for sure. Is there some sort of ability to configure the product the way you want? Maybe you want to fly as cheaply as possible but maybe you want to build your product so that it’s customized to your needs?

RM:
When you start thinking of your products, you start thinking of your fare families. ‘I should have three fare families, or four or six or two or one or five.’ At the end, when you decide what was the right number for each market, you start deciding which entry you should include in these fare families. We’ve compared the products of other airlines; you are constantly compared with competitors. But in the end, you try to see which are the best routes or services that you can offer to customers. So maybe you have some routes with a very short duration of flight. Maybe these types of routes are not necessary to sell some type of services. Maybe you have some other routes that are, Bogota to the coast, for example. You have one segment of customers that when they fly to the coast they prefer to go with special baggage or equipment. Maybe we can introduce these services during the purchase, during the online check-in or during the manager booking area, and the customer can purchase these types of services. ‘I want to pay for the better seat,’ or ‘I don’t want to pay for the better seat because it’s a 30-minute flight,’ or ‘I want to pay for the seat because it’s a two-hour flight and I’m traveling with my family,’ or ‘I want to be the first person to get off this aircraft when we arrive.’

EP:
I can’t help but notice that you’re using the word maybe a lot, like ‘Maybe we are not really sure yet.’ And, it sounds good to me because I think it happens in every industry. You’re not sure about your next step, you have to try.

RM:
You have the experience of other markets, you have your competitors, you have a lot of data, but at the end you need to test it. You can copy the things that your competitors are doing, but it’s probably not the right way for you. Maybe they are doing that only for one segment of customers. It’s important to test things very quickly, and then probably we will have successful use cases. And we will be wrong in some others. We need to be able to correct quickly. Sometimes you need to change. Maybe you want to change from a legacy to a low-cost model. Iterating is not enough. You need to turn 180 degrees. In the day-by-day, business-as-usual work, you need to reiterate and to test these types of policies.

EP:
There’s nothing wrong with being wrong. From the technology point of view, is there something that you can do now or that you’re aiming to do? We learned about the distribution systems that are too heavy to move. ‘I wanted to introduce this product and it took 6 months.’ With this amount of time, it’s almost impossible to experience.

RM:
At the end, we need to learn a system of different partners and solutions and be able to integrate these solutions. When you have full dependency on only one partner, it’s going to be difficult for you and for that partner. For this partner, they might not have 100 people for you, and you probably don’t have 100 people to make possible all the initiatives this partner has with you. At this moment we are trying to build this ecosystem. We are trying to think in a clean slate mindset; we think in a modular ecosystem. Things should be easy to integrate. Sometimes we also have internal discussions, like should I develop in house this product, service, or feature, or should I buy an off-the-shelf solution?

EP:
What are your criteria for deciding that?

RM:
It depends. Sometimes you are thinking of a product or service that maybe is not your core — for example, the login component to sign in the users or customers. Maybe you have a very good team in house to develop a solution, and you can go ahead and design, develop, and go live. But maybe you don’t have the team in house, and maybe you need to recruit this team to try to define the product from scratch. Maybe you can see five vendors in the market that are only doing this product, that their business is only this product. If it’s their core, they will improve and evolve this product constantly, and you can get this product from them. The time to market will be lower, and the cost might be lower if you have to start from scratch and take into account the internal costs. And in some cases, you may have the right team with experience, but if you are thinking of a flexible and modular strategy, you have to start introducing new pieces in your ecosystem. You can probably have something in house, but it’s impossible to have the best people in terms of login, data analytics, CRM, IBE… You need to try to see which is the best partner or player in the industry to help you develop these components.

EP:
So you have to be very careful what you are taking on yourself, especially if we’re talking technology, with the scarcity of IT-savvy people right now.

RM:
Maybe you can find one partner who can tell you, ‘I can do all the things or services that you would expect or envision,’ but it’s probably also difficult to find only one partner that you can manage. Maybe you find a very big partner, but it will be difficult to manage them because they have lots of different teams, and you only have one team. You have to find a good balance of, ‘How many people do I have in my company to manage these types of projects and how many partners can I manage to make this product successful?’

EP:
We are talking strategy, and I would like to ask you: if you had to mention, three, four, five pillars of your strategy of how you guys are going to move Avianca from being one of the top legacy airlines towards the low-cost model – it’s funny that someday we should change the name because it only refers to the cost but there are many other components. To go through the journey, what are the main pillars of your strategy?

RM:
When you try to transform the organization or at least your team – let’s start with your team, in my area, for example – first of all I think it’s important to define the processes. We have a lot of processes that we need to change and some others that we need to start from scratch and define. Maybe some others are okay, and we will continue using them. It’s important to focus on the processes. You always look at technology. Technology is an enabler, and we need to build this ecosystem and see how to build this technological pile and see how many players and which types of technologies we need. And you need to be efficient or careful with the money. You can buy all the software or hardware or platforms you want, but you need to use a clinical eye and pay attention to detail. ‘I have 100 suites in the market, but I need these 10.’ I could have 10 Ferraris in my parking lot, or maybe I can have these three good cars. But I have to be sure that I will drive these three good cars.

And the third thing is the culture and the people, how to engage the people in your brand, and how to engage or transform the culture to an agile culture. How to be more agile-oriented, how to have more of an execution mindset to get the things done. You can have a lot of ideas and you can have a visionary low-cost model, but if you don’t have a mindset of execution and getting things done and put KPIs and metrics to a lot of these initiatives, the process will be much, much longer.

EP:
Let’s talk about the Abra group with GOL. This will be a big cultural integration.

RM:
The news is very recent. We want to be the anchor pilot in the Latin American region. We believe that together we will be a super important player in the region, and the most important thing is we can learn a lot of things. They are a low-cost carrier, and we want to be a low-cost carrier. They have a super loyalty program, and we also have a very good loyalty program. We have a lot of synergies, and we will explore those together. I think this is very good news because you need to be strong in this industry, and you need to create synergies with other partners or airlines, in this case, that are very aligned with your model.

I don’t know when we will start conversations. Right now, we are working out the regulations of the countries. Your mind starts thinking things, or at least it starts looking at what they are doing. When you are in Colombia or in Spain or other countries, you start looking at competitors or players. But now, for example, I have another eye on what they are doing because we can probably learn a lot of things from them.

EP:
When you think about Abra, your personal feeling is that Avianca has a particular role more than the footprint that you guys already have in your market? Do you think in quality you have a different role within Abra or that eventually everyone is going to be going in the same direction of the low-cost carrier business goal?

RM:
We should continue our roadmap, our vision. When you are a group or you’re from a part of a bigger group, you start looking at synergies and how to get the benefits of being a group. But in the end, every market is different, and I think Avianca has to focus and do very good things in the markets where we have a strong presence. We need to be competitive in the markets in which we don’t have a strong presence. I think we’ll see how we can be together, and what we should be in the future. But in the end, the Avianca brand is a 100-year-old company. In the end, the most important thing in this type of conversations is that the brands should be taken into account, to keep and to potentiate even more. I think that’s very positive for both of us.

EP:
If we compare one top eCommerce site like Amazon and the average sales website of an airline, do you think we are close, not that close, or really far?

RM:
Maybe other airlines would like to be amazon, but I prefer to compare with small eCommerce. Small eCommerce can have a very interesting future integrations with niche solutions or partners. When you see the average of airlines, you are seeing the same practices in each airline – the same booking flow, the same services, the same way to sell the services, the same way to inform to sell the services. And when you need a tutorial to explain to a customer how your fares work, you have a problem. We should be simple and have a very easy experience for customers.

EP:
I think there is not that much diversity as you can find in the rest of the world. Airlines look too similar.

RM:
Obviously, the regulations are the same. You don’t have different standards in the airports. The standards are very similar, but in the end, the creativity, and the customer centricity, for example, is the key challenge in airlines. First of all, some airlines don’t know their customers. They know they have buyers, but you have to know and recognize your customer, and then one day you will be able to surprise these customers. But now the average airlines are more into trying to know this customer.

EP:
You have worked for a long-lasting airline like Avianca, which is 100 years old, and then for some really young ones, like Vueling. There is all this legacy that you have to manage every day. How do you transform that? What are you thinking, incremental, progressive, nuclear bomb?

RM:
It’s a long process because it’s not only the things that you need to change internally, but it’s also how to allow these changes in the communication to your customers. It’s not possible to say, ‘Hey, today I’m legacy,’ and tomorrow say, ‘Hey, customers, today I am low cost.’ I think it is a process, but it shouldn’t be a process of 20 years. Maybe you can set out that this phase is 1 year or 2 years or 3 years. In 2025, we will be very different from 2022. In fact, in 2023 we will be different from 2022. If we look now, we can think, ‘Wow, we have a lot of things to do or change to this new model.’ We’ve changed a lot of things since last year. Also, when we compare with the pre-Covid situation, we are a fully different company. I think it’s a gradual process that you have to do every day and every week, and the most important thing is that you are evolving, you are going the right way at the right time.

EP:
What keeps you awake these days. What is the project that keeps you really excited these days (that you can disclose)?

RM:
First of all, as I mentioned I am addicted to this industry, which is very important. If you don’t have passion for your job or your industry or your company, you have a problem. The second thing is the company is amazing. In my opinion, it’s a game changer. There were probably a lot of people who could have had the opportunity to leave in this transformation. And the third thing is that we are working on a very interesting project with Newshore, trying to build a new platform with the principles that we have discussed. Obviously when you build something new, when you don’t start evolving anymore your current platform and you start building something new, obviously the motivation not only of myself but all the team is 200% because you are very engaged with the project, you are passionate about the industry and the company, and you have the tools and the people with you to make it possible.

EP:
Pretty good, Robert. Thank you for joining us today and for sharing your project and this great and exciting project with us and best of luck to you and the rest of the team.

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