“The question I always get asked is, ‘Will Europe follow the same path the U.S. has in consolidation where, four carriers hold 80-plus percent of the market?” says easyJet’s Robert Carey.
Despite unease about the global economy’s impact on the rise of air travel worldwide, and the competitive pressures on Europe’s low-cost carriers over the past year, easyJet Chief Commercial & Strategy Officer Robert Carey evinces calm buoyancy about the prospects for the LCC and the continent’s aviation marketplace in general.
Even the challenges – from ancillaries strategies to the role of artificial intelligence and machine learning – seem to primarily offer more opportunities than concerns.
Carey has been in his role at London’s easyJet since Sept. 2017. For the prior decade, Carey was a partner at McKinsey & Company, where he was a leader in the airline practice. Over his tenure at the global consultancy, Carey held analyst posts at Delta Air Lines and America West Airlines, focusing on revenue and operations functions.
Kambr Media: What’s your take on the practical use cases for Artificial Intelligence and machine learning within commercial aviation operations? What’s easyJet’s approach to exploring these technologies?
Robert Carey: Let me separate machine learning from AI. At this point, we're still focused quite a bit on the state of machine learning. There are absolutely potential applications for AI. But we haven't really gone to that level, yet, in terms of truly exploring those functions.
We still feel we're in the early stages of what we can do with machine learning. In terms of where we're seeing practical applications, we're using it today in revenue management. We have machine learning algorithms integrated, allowing us to set multiple different price points for any flight. My general philosophy is, a machine by itself will beat a human, but together with human learning, it will advance much more quickly and more intelligently than a machine by itself.
I see two applications. If you're looking at a more steady state environment, we're actually seeing very strong performance from machine learning independently. In markets that we've operated for a couple years, with normal competitive pressures, machine learning does very well.
In these markets, we've moved over to machines doing a lot of the work that, in the past, you would have manual human intervention. It's very efficient here.
Where it's less efficient, where we still leverage humans quite a bit, is where we have new market context or major changes in a process. This is the second application, and where we have more manual intervention.
Can you illustrate that use case?
A great example is when we enter a new market or a new base opening. That's where we see better, or accelerated, learning with human involvement. The person kicks off the process more easily than if we just started with a machine on its own because it's such an unknown context, and the machine doesn’t have much to learn from. The machine can reach the right answer quicker early on with this information
Going forward, we’re also looking at the trade-offs between marketing and pricing, and how we leverage machine learning better in those cases. We're also thinking about how we improve decision-making in our schedule and design on our network, as we think about the impact of disruption and non-predictable events.
What is the state of LLCs, particularly in Europe, and how does easyJet’s current position reflect and differ from the competitive landscape?
It's an interesting time in Europe, right now. If you go back two years, you had two pretty big demises with the end of Air Berlin and Monarch.
Last year, we had a number of smaller exits from the market where most of them were fairly niche specific market carriers. Now, we've got a competitive market today with a general economic slowdown impacting airlines across Europe. So despite these failures, its’ still very competitive. Berlin's a great example.
The capacity in Berlin is net up from where it was when Air Berlin was flying. This is counter to what you've seen happen with consolidation in the U.S., where capacity came down. That hasn't happened in Europe, yet.
Looking forward, you've got high fuel prices coming in the next year and uncertain economic environment. All that is a recipe for some more evolution in the competitive environment in Europe. Obviously, Ryanair and Wizz Air are great competitors with great legacies. But you've also got a number of players that are reportedly seeking more funding. Overall, I think easyJet is well-positioned.
What’s your take on Europe’s commercial aviation challenges in the wider global marketplace?
The question I always get asked is, “Will Europe follow the same path the U.S. has in consolidation?” where four carriers hold 80-plus percent of the market. In Europe, four carriers hold somewhere around 55 percent.
And you have a lot of interesting dynamics: For example, all the majors have low-cost subsidiaries. You also have a lot of smaller countries with a national airline.
While it will be different than the U.S., investor pressure will force evolution.
How is easyJet’s Worldwide Partners program evolving? What do you expect the number of airline and airport members to grow to in the next year?
The worldwide program is evolving very well. easyJet started it almost two years ago. We intentionally started it small, with a product that would allow us to learn-as-we-go, versus trying to solve everything upfront. It’s been performing exactly how we expected.
The program has had good growth in terms of passenger volumes and in terms of number of airline partners. We have airlines ranging from smaller regional-focused carriers, such as Logan Air. We've got LCC such as WestJet, Norwegian, and Scoot as well and we've got leading network airlines such as Cathay, Singapore, Virgin, and Emirates all on the platform.
We continue to have a lot of demand for new partners and airports that want to join the platform. We’ve now got more than 20 airports at this point that we've put into our global platform.
There has been a lot of debate about whether ancillaries have gone as far as they can go -- What else can be added, subtracted or otherwise changed? I’ve been hearing often that for low-cost carriers, ancillary revenue are absolutely essential – “lifeblood,” one source told me. Can you characterize the role and strategy of managing ancillaries at easyJet and how essential they are?
Ancillaries have not yet gone as far as they can go.
The way we think about ancillaries is that these are value-added services we give to our customers. We're not looking to punitive charges to try and make money off a customer that way. We want ancillaries to be for things that create a service and are valuable for the customer.
In a world where we are selling directly in a completely digital context, we have the opportunity to innovate quite a bit in terms of how we personalize those ancillary offers to our customers and how we can tee them up. Maximizing a combination of the offer we give, how we give it, how we deliver it per consumer, and, the way we package it.
There are still a lot of other retail contexts we can learn from. Ancillary growth is far outpacing our ticket revenue growth. It's something that has a fundamentally different elasticity curve underlying it than ticket elasticity.
We are spending a significant amount of our resources diving into ancillaries. We've stop ed talking about measuring tickets and ancillaries separately – we look at total revenue.
Looking at easyJet’s network, where do you think the biggest growth potential for routes/frequencies are? Has the past year seen any notable changes for easyJet’s network?
We continue to build and grow the network. The way we think about it, we've got the UK and Switzerland that are clear home markets for us. France, which we stated a couple years ago, is the next home market we're developing.
Of course, we're never going to be bigger than Air France in France or British Airways in the UK. But we want to be considered a top airline in the UK, France, and Switzerland.
In addition, we have a number of, as we like to call them, city markets: Milan, Venice, Naples, and Berlin all fit into that category. We continue to see lots of growth potential in those places. They present interesting opportunities for us to think about in terms of how we want to develop both a city and potentially a country strategy. There’s no shortage of growth we can go after there.
After that, there is further white space, such as in Eastern Europe, where we are also evaluating options.
What else is driving easyJet’s growth strategy for the rest of 2019?
We are very focused in driving profit per seat. To that end, we’ve announced our strategy focused on growth in addition to our core network via holidays, loyalty, and business. For example, our holidays market development is targeting a very lucrative customer segment. Of our 90 million passengers last year, we carried 20 million to the top 20 leisure destinations in Europe. As we build the offering to capture more spend from that use case, that gives us a lot of new interesting solutions where we might not have historically gone to as an airline.
In terms of drilling down on the holiday strategy, does that imply deals around the holidays or deals that connect passengers with, say, hotels or other amenities at destinations or more to come?
The package tour market is still a very big market in Europe. And yet, it hasn't gone through the same “revolution” that air travel has gone through, where so much of the process has moved to a digital experience, we see opportunities.
We're now building relationships with hotels directly in those key destinations. And then, on top of that, we’re creating a user experience that will truly represent something new and different.
What’s easyJet’s approach to loyalty/rewards and frequent flier deals? Is the importance of frequent flier miles changing for airlines? And are low-cost airlines driving those changes in strategy at legacy carriers?
We like to joke that, actually, we have the world's least known loyalty program. Our easyJet Plus is a subscription-based benefit program where you pay a yearly fee for unlimited access to benefits. Then, we have a second program called Flight Club, an invitation-only program, which provides perks to our top frequent flyers.
As we think about loyalty, we’re looking at innovations happening in other industries beyond airlines. We're looking to do more than the pure, traditional airline strategy where you get points to exchange for discounted or free tickets.
The creates a lot of new and compelling opportunities that can reinforce our strategic focus on holidays and business.
We’ve read in Simple Flying that easyJet might be considering an order for A321XLR. Is there anything you can say about those considerations and how easyJet regards its relationship with Airbus, particularly during the concerns surrounding Boeing and the 737 MAX?
We continue to have a great relationship with Airbus. We are one of the largest Airbus operators in the world with an all Airbus fleet. The Boeing issue has had very little impact for us, as we don't fly any Boeing planes. And our customers are fairly well educated that we don't have Boeing.
We have seen some capacity rationalization even out in Europe as a result [of the Boeing 737 MAX grounding]. But that’s the extent of the impact for us.
On the XLR, I don't think we see it in what we want to do at this time. We have enough opportunity with just the standard 321neo and 320neo fleet, with which we're very happy.
Is it fair to say that the commercial aspects of an airline have grown more complex than they used to be? If so, what’s driving the most complexity from your perspective?
Commercial has definitely grown more complex. Just as we find new opportunities, they create complexity. We have to make sure that any complexity that we take on, the benefit outweighs the cost. That's something we are very dogmatic about.
For example, I see a lot of challenges in the markets. My ability to react to changing conditions is very limited in the near term, because there's still a slot process. I've got to build my processes around the timeline of managing slots in a constrained airport. I just can't move all that much. That is one clear area that continues to grow more and more complex.
Then, you add into that, the dynamics of pieces such as E261 regulations, the European disruption rules. Those rules basically say, “After three hours of a delay, I have to pay compensation to passengers." It fundamentally changes the equation of how I think about building a network and schedule. All that is core to an airline and adds significant complexity to the equation.
The other piece that adds complexity is the personalization question. It's a combination of targeting ancillary services and optimizing revenue while managing a host of partner offerings. How do I make sure I can get, as often as possible, the right product to my customer?