In just 18 months Uruguay's Pluna has been transformed into a completely different carrier. Since German-based investment firm Leadgate took over the long floundering flag carrier and installed a management team led by Leadgate founder Matias Campiani, the airline has renewed its entire fleet, overhauled its network and changed its business model.
While Campiani is still battling Pluna's unions and the Uruguayan government, who are in particular bitter about Leadgate's decision to drop the carrier's only long-haul service, the carrier is now profitable.
"In November or December we'll break even," Campiani predicts. The Pluna chief executive adds that in the first quarter of 2009, which is peak season in Uruguay, the carrier definitely should be profitable.
Campiani says the financial turnaround is proof Pluna's new strategy of turning Montevideo into a hub for the Southern Cone of South America is working. Over the last year the carrier has added frequencies to key business centres such as Buenos Aires, Santiago and Sao Paulo while launching new thin routes such as Asuncion in Paraguay, Rosario in Argentina and Curitiba in Brazil.
Pluna previously was primarily an origin and destination carrier with less than 10% of its traffic connecting. Campiani says Pluna has already succeeded at increasing its transfer business to 40%.
The new network strategy was made possible by switching to smaller aircraft. Pluna last year placed an order for seven Bombardier CRJ900 NextGen regional jets plus eight options. The carrier over the last six months has already taken delivery of six CRJ900s with the seventh due to be delivered next month. "In a crisis situation I think we have the right size aircraft," Campiani says.
He adds the CRJ900 is also the right size aircraft to operate fifth-freedom routes from smaller cities in the region such as Asuncion. Pluna currently only operates from Montevideo and the Uruguayan seaside resort of Punta del Este, but Campiani reveals the carrier aims to begin operating routes that entirely bypass Uruguay in March.
"We have open skies with Chile and Paraguay so we want to start using that," Campiani says. "We're pretty limited with the hub out of Uruguay, but there's a very big point-to-point market [in the region]. I think there'll be a lot of opportunities for Pluna on point-to-point."
In addition to open skies with Chile and Paraguay, Campiani adds Uruguay also has a liberal bilateral with Brazil which allows Pluna to operate fifth freedom flights in and out of Brazil. He says Pluna in particular is interested in launching fifth-freedom routes from the Paraguayan capital Asuncion as TAM scales back operations at its Paraguayan subsidiary, TAM Mercosur.
Campiani claims TAM Mercosur has been cutting routes because it has had trouble filling aircraft since it replaced Fokker 100s with larger Airbus A320s. Campiani believes the Bombardier CRJ900 is the more appropriately size aircraft for most short-haul international routes out of Paraguay. He says Pluna is not planning to compete directly with TAM Mercosur but instead believes it can work with the carrier. TAM and Pluna recently started codesharing on the Montevideo-Sao Paulo route and Campiani says "we hope to develop that relationship and do more with them".
Campiani says Pluna also began codesharing with Iberia in late October and aims to begin a codeshare with American Airlines once Uruguay regains US FAA category 1 status. He says Pluna is now feeding Iberia's Montevideo-Madrid service by offering connections from several smaller cities in the region and aims to similarly feed American's Montevideo-Miami service.
Campiani says dropping Pluna's only long-haul service, Montevideo-Madrid, in favour of the Iberia codeshare was a critical step in transforming the carrier because that one route was losing $2 million per month. He adds phasing out Pluna's mixed fleet of Boeing 737s, 757s and 767 was also critical as it improved the company's cost structure and efficiency.
He says the new management team also has negotiated a new deal with the Montevideo airport after convincing the airport operator it could afford to lower fees because Pluna's new business model "will bring you more traffic than forecasted". Campiani adds Pluna also has succeeded at lowering its ground handling costs
On the revenue side, Pluna has gone after ancillaries, become the first South American carrier to charge for checked bags. But in a unique twist, Pluna waives this fee for passengers checking online. As a result Campiani says 33% of its passengers do web check-in, a very high figure for Latin America.
"By doing this we're driving people to the website," Campiani says. "We're helping them while they're helping us".
Campiani is no stranger to restructuring, having last turned around Uruguay's largest dairy company after it was purchased by Leadgate from the government. He says the airline industry "is a very tough industry" but his transition was made easier because Leadgate brought in airline expertise from other South American countries to help it turn around Pluna.
Campiani was initially appointed interim CEO until Pluna completes its transformation. But Campiani now points out "the restructuring and transformation will take a long time" and he has "no plans to leave the job".
Campiania, who is Argentinean, says the biggest remaining challenge is settling with Uruguay's fierce unions and the government. The unions have had a rocky relationship with Leadgate from the beginning and Leadgate's relationship with Pluna soured in August after it decided to axe Madrid-Montevideo over the government's vehement objections. The two have since been arguing over recapitalisation and an unpaid fuel bill with Uruguay's national petrol company that mainly relates to fuel used to fly to Madrid while the two sides argued for four months over whether to cut the unprofitable route.
"We were negotiating for four months and finally we said, 'sorry we will take the decision without your support'," Campiani explains. "We were losing too much."
But Campiani says Leadgate has since gone back to the table and is now close to completing a new deal with the Uruguay government. He says the new deal will settle the unpaid fuel bill, mainly through the government taking back ownership of a hotel that Leadgate took as part of the original deal, and will require Leadgate to put another $9 million into the airline. "We're negotiating with them to settle everything," Campiani says.
Settling with the unions may be trickier as Campiani says the carrier cannot afford to give wage increases. But he is confident something can be worked out be year-end.
Nearly all 600 of Pluna's workers are unionised, with one union representing pilots and another representing flight attendants and ground handlers.
"Our biggest challenge now is closing the deal with the government and entering into an agreement with both unions," he says. "These are three big challenges that will need to be solved in the next few weeks."