Anko van der Werff, CEO Avianca, reveals details of the airline's Chapter 11 filing and his plans to restructure Avianca through the COVID-19 pandemic
After travel bans across the Latin American region forced Avianca to ground its fleet, the Colombian airline sought Chapter 11 bankruptcy protection as a necessary step going forward.
Why did you feel it necessary to file for Chapter 11?
We did so to protect our business as we continue to navigate the effects of the COVID-19 pandemic and to comprehensively address our debt and other commitments.
We have seen firsthand the unprecedented challenges and distressing effects that the pandemic is creating for the global airline sector and the broader travel industry. The filing was necessitated by the unforeseeable impact of the COVID-19 pandemic, which has resulted in a 90% decline in global passenger traffic.
We believe that a reorganization under Chapter 11 is the best path forward, because this process is a well-established legal process in the United States and is recognized by other countries around the world. The process is a temporary one that, according to US law, allows companies to reorganize their operations and complete financial restructurings under the supervision of the United States court system.
We are still pretty cautious but at the same time we are planning additional destinations”
How does the reorganization fit in with the Avianca 2021 strategy?
Last year, we successfully launched the Avianca 2021 plan, and throughout 2019 and in the first two months of 2020, the company had achieved significant positive results from this plan.
Though there continues to be uncertainties ahead due to COVID-19, we are confident that we can continue to execute our Avianca 2021 plan, optimize our capital structure and fleet, and emerge as a better, more efficient airline.
Should governments have been more supportive to aviation during the crisis?
Many airlines in the world are undertaking some form of financial restructuring, many with the direct support of their governments. This shows the critical role that aviation plays in the world.
The aviation sector is essential to the economic development of countries, because it directly contributes to economies by moving passengers, essential goods, and cargo.
We all understand that this crisis was a surprise for governments too and that the priority was public health. But now it is time to think about the recovery and to help the critical sectors that boost economies.
For Avianca, we have already got approval for our financial restructure and have made our first debt payments thanks to current and new investors. We are not dependent on government participation.
Is there anything you would change about your management of the crisis?
If we look back, we never thought this crisis would last as long as it has. So, it is essential to keep focused and keep on thinking differently. At Avianca, we have done plenty of good things: Daily “town halls”, keeping our people close, successfully approaching our unions and so forth.
But clearly all of us would have liked to know at the beginning of the crisis that it would last this long.
You are being quite aggressive in the number of destinations you are flying on your restart. Do you see lots of demand for air travel in Latin America right now?
We have to consider the context. Pre-COVID, we had 130 routes but now we’re down to 64, less than half. Overall, we are at 10-15% of capacity because of frequency reductions. So, actually, we are still pretty cautious but at the same time we are planning additional destinations and more frequencies to our network over the next few months. We are also checking where our customers want to go and whether we need to adjust our network.
People are willing to fly. In the domestic markets we have a good load factor, between 70%–80%, but there are still have plenty of restrictions from authorities regarding how much we can fly. Hopefully, next year there will be more flexibility for airlines and passengers.
350- Cargo has always been important for us and in the pandemic has taken on an even greater relevance. We have flown more than 350 “Preighters” (passenger aircraft with cargo only), and more than 50 Special Flights on our passenger fleet
How do you think aviation will develop in the years ahead? What will be the main changes to the industry?
First, none of us knows how long it will take demand to recover. But what we do know, and what we need to work on as an industry, is lowering cost. More importantly, we must make our costs as flexible as we can and adjust our services to the new reality. That must be done across the value chain, from fleet to labor to onboard products, and of course we must deliver as much as possible through digital solutions.
The strong restrictions in all countries regarding the reactivation of domestic and international commercial flights, the fear and uncertainty of travelers, and the economic effects, are reflected in the absence of significant passenger demand. And that is framed in a sector with high financial pressure.
All this has necessarily led the airlines to reduce their capacity, but the big picture is that we are restructuring and making the way we operate and serve customers far more flexible.
Will cargo continue to be an important revenue stream?
Cargo has always been important for us and in the pandemic has taken on an even greater relevance. We have flown more than 350 “Preighters” (passenger aircraft with cargo only), and more than 50 Special Flights on our passenger fleet, making history by reaching new destinations such as China and Amsterdam, generating important revenue.
Avianca Cargo has quickly adapted to new market conditions and has managed to deliver positive results despite the reduced belly cargo capacity caused by the coronavirus outbreak. We expect this to keep growing and strengthening in the near future.
We are boosting the freighter and passenger network and more passenger planes carrying cargo ramps up our growth. Avianca Cargo is a key business unit and will continue supporting the passenger business.
64- Pre-COVID, we had 130 routes but now we’re down to 64
Will biosafety become a regular part of the passenger travel experience?
I think similar to what happened after 9-11 we will likely see some of the measures stick. And whether is for a long period of time or forever, that needs to be seen.
The pandemic marks a turning point that will permanently change the experience of travelers across the whole journey, from sales to the onboard service. Therefore, as long as there is no vaccine for COVID-19, the biosecurity measures and protocols established by all the local governments will be rigorously and strictly maintained.
In fact, this situation will lead to an unprecedented transformation of the industry with the acceleration of digital services and travel autonomy throughout the traveler’s journey. The value chain must rethink the passenger experience and make it more personal and autonomous. Ensuring the tranquility and safety of passengers in each moment of their journey will be structured into the new service experience that airlines will offer. Technology will play an even greater role than the one it plays today.
At Avianca, we have strengthened our digital channels to make the travel experience easier and safer. Our passengers are benefitting from a new version of our website and our app, as well as self-management channels like “Vianca” in Facebook Messenger.
We believe that a reorganization under Chapter 11 is the best path forward, because this process is a well-established legal process in the US and is recognized by other countries around the world”
Is there a danger that other aviation priorities, such as the environment, will be forgotten as airlines struggle to survive?
At Avianca, environmental sustainability is more than just a slogan. We are committed to continually improve how we manage the impact associated with our operations through initiatives that create value. To ensure that our flights impact the environment as little as possible, our aircraft have a low noise footprint and we have reduced fuel consumption by up to 15% and the generation of nitrous oxide emissions by 30%. We are proud to be in the top five leading airlines in the Dow Jones Sustainability Index at the end of 2019.
The industry leaders have an obligation to make sure other priorities are not forgotten as a result of this pandemic.