Ahead of the 2009 Paris air show, Flight Daily News conducted this Q&A with Niki Lauda
Niki Lauda's second airline Niki recently received its first Embraer 190, to be operated alongside its 11-strong fleet of A320-family aircraft. The former Formula 1 motor racing world champion tells Flight Daily News how he is bucking the trend and growing traffic during the downturn.
You are a fully qualified airline pilot. Do you plan to seek a type-rating to fly the Embraer 190?
The problem is the new rules that came in two years ago, which are that you can only fly two types commercially. I have all the Airbuses, A319 up to A330, which is one type, and I have a Bombardier Challenger type rating. If I do the 190 I have to give up one of the others, which hurts!
Why not switch your Challenger for a Lineage 1000, which is based on the E-190?
It's a $42 million aircraft, which is way too much! A Challenger is $16 million!
How is Niki coping with the economic downturn?
Very well. We started five years ago, and the first move was to get together with Air Berlin. Since the first year we have always flown in profit, which normally never happens if you start on your own. Last year was our best year when we made €7.1 million ($10 million) profit after tax, double the profit of the year before. Why? Because we are low cost, 30-40% cheaper than the Lufthansas, but we have sandwiches, we have the service on board. Now, with the crisis, companies look at the cost of a ticket to Zurich, Frankfurt and Munich, and they say: 'There's this other guy flying 30% cheaper and the passengers don't complain because they get more than on the others." We are benefiting at the moment from the people moving away from expensive tickets to fly with us, and the biggest help is Austrian Airlines because they are struggling and all they have is negative press. We are in a lucky situation in that our home carrier is weak and our product is right for this time of crisis.
How does your relationship with 24%-shareholder Air Berlin contribute to Niki's success?
I am fully responsible for my financial situation. We are fully responsible alone for where we fly, how many times etc for the Austrian market. Air Berlin is nothing to do with it. If we go to, say, Stockholm as a new destination, then we combine Air Berlin and Niki's marketing money in Sweden. If we go to Moscow we do the same. We use all the benefits from Air Berlin's 130 aircraft fleet and infractructure, sales, internet and all that. There's never been anybody [before] who thinks low-cost airlines can get together.
How does running an airline compare with a career as a racing driver?
Running an airline is the most difficult job in the world. Racing was more dangerous for my life. To have a real challenge when I stopped racing, which was a difficult life in another way, I founded an airline. Driving is easy if you do it right like [Jenson] Button. You win easily because you have the best car and make a lot of money. In aviation you never make a lot of money.
How did you end up losing control of your first airline, Lauda Air?
Lufthansa was my shareholder and they asked me to let Austrian Airlines join Lauda as a shareholder. That was my biggest mistake, because I underestimated the cultural differences between people working in Austrian Airlines, Lauda Air and Tyrolean. This I would never do again as it did not work out. We thought we could speed up Austrian Airlines with our direct approach, but the Austrian Airlines avalanche killed Tyrolean and Lauda Air. For three years I was not allowed to do anything, but when I started again I started with Air Berlin and I made sure that Air Berlin has the same culture as us.
What lessons did you learn from the Lauda Air experience?
When I start a new airline I need to reach critical mass quickly. If I would have started alone with two Airbuses and then tried to grow on my own it would have been impossible in today's times. My logic was that I had to find somebody - Air Berlin - to whom I could give a 24% stake for free, to hook up to an existing airline which at that time had 110 aircraft. This was the only way to do it, it was the right move. I had another rule when I started Niki: no bank loan. We have to finance the aircraft and I'm proud that out of our 12 aircraft one is with Air Berlin on wet-lease for the summer, and all the others are financed through banks for 12 years, written down to zero. So we own them all. Every expansion we did was done only using the cashflow from incoming tickets. When we have the money in our account we start the next route.
What does Air Berlin get in return?
No more [low-cost] competition from Austria to Germany, which is their strongest market. They fly nine times a day from Germany to Austria.
How will you offset the costs associated with introducing a second type into your fleet?
When you start a new route with an A319 or A320 you have to invest €1.5 million into the market for one to three years before you can make money. With the E-190 you have to invest €400,000, so starting new routes is less painful with this aircraft, especially in today's crisis.
Would you consider operating aircraft smaller than the E-190?
My strategy is 100-seat jets, no lower because then you are not low cost any more. You have to be careful. Below a certain number of seats you cannot sell them cheap enough. The 70-seat regional jets, for example, you can never fly low cost.
What is your strategy for the future?
To continue in the low-cost sector and use every possible opportunity when the European Commission decides what Austrian Airlines has to give up when they get sold to Lufthansa. My hope is that by the end of 2009/beginning 2010 the crisis will have passed the bottom and then we will have a slight increase of 1-2% per year again and we go back to normal again. If I can overcome the bad times getting more passengers because my product is right for the time, then I'm happy.
Would you ever consider a move back into the long-haul low-cost market?
At the moment I would be extremely worried, to continue with my low bank loan strategy. I would shit myself today if I would be crazy enough to say I would go low-cost to Bangkok. I think I would kill myself because at this time it makes absolutely no sense.
Do you always come to the Paris air show?
If I want to negotiate yes, if I just need to look I have enough information. If I'm interested in certain developments, yes.