FEATURE: How to succeed with LCCs (Oct 5)

Alex Cruz, the high profile ceo of Vueling, a Spanish low cost carrier which merged this year with rival clickair, tells ABTN what he believes are the two ingredients for success 

Alex Cruz

Cutting costs and finding new streams of revenue are the two essential guides Alex Cruz uses to map the path to success. The two phrases regularly crop up in his conversation as he tells how he plans to position Vueling, a Barcelona-based low cost carrier (LCCLow-cost carrier - LCCs, also know as no-frills airlines, offer low-fare flights with reduced passenger services) in the future.

Mr Cruz, a 43-year-old from the northern Spanish city of Bilbao, took over as ceo of Vueling after it merged with the airline he previously ran, clickair, also a Barcelona-based LCC.  He was the unanimous choice of the two boards to take over as ceo of the enlarged carrier.

He has had a 20 year career in aviation, starting with a variety of posts with American Airlines followed by consultancy wok for a wide range of carriers, among them BA, Lufthansa, Virgin Atlantic and Cathay Pacific.

He joined Accenture in 2004 as a partner-director which led to the creation of clickair. He became ceo of the airline in 2006 and oversaw its rapid growth to 26 A320 aircraft, 720 employees and 58 domestic and Europe-wide international routes in just over one year.    

The merger, he said, has been successfully completed "with no big hiccups" except for some back office things that need sorting out. He is now concentrating on moving the airline forward which, in this current climate, he sees as a constant battle to control or cut costs and also, equally importantly,  to find new stream of revenue.

While Vueling, which has about 90 routes and carries 11m passengers a year, is very much in the mould of an LCC, Mr Cruz is not tied to the format. Airlines do and must evolve, he said. He cites only a few LCCs, among them Ryanair, which he thinks will never change, but points to others which over the time have altered their business model.

"I think easyJet today is very different from easyJet five years ago," he said.

Vueling's own continuing evolution is not that dissimilar to that of the British LCC. Like easyJet, Vueling is in search of business travellers. Partly this is because as Mr Cruz acknowledges, that many of his carrier's routes are well suited to the business travellers, like flights from Barcelona to Milan, Rome and Paris (nine a day) and to Madrid (13 a day).

Against normal LCC practice but very much in the interest of attracting more of these customers, Vueling is listed on Amadeus and Galileo and, through code-sharing with Iberia - its largest shareholder - it also appears on the other two GDSs, Sabre and Worldspan. Just the place corporate travel managers, looking for the best deal of the day, are going to see them.

"It means we have a product and a way to sell that product. A lot of people do categorise as a low cost carrier and it is important to say that we have not moved away form our customer base but we have added more product. We have become more hybrid," he said.

The result of aiming for the business traveller means that up to 40% of his passengers now come from that category, a higher proportion than most LCCs. But while he sees full service carriers adopting aspects of the LCC model, Vueling, he said, would only go so far down the hybrid path.

There are, for example, no plans for a closer co-operation with Iberia, even if the Spanish Stock Exchange rules would allow it. "Iberia is content to see the merger has gone through and there might be expectations of us but our main focus is to develop Vueling.

"Closer co-operation is not on the cards. Short term we want to develop as an independent airline company and it is as an independent company that we will develop our assets."

One path Vueling seems unlikely to take is to add long haul to its services. Air Asia X launched a low cost service from the Malaysian capital of Kuala Lumpur to London Stansted in March and might feasibly add other destinations.

But Mr Cruz said that while he found low cost short haul "puzzling" and was not sure it was right, he would be happy to co-operate with any such service which came to Barcelona where his airline's network would make it "the perfect partner".

Nor did he see LCCs carriers forming similar style alliances as the legacy airline have done. "No - the combination of some of the personalities of the ceos and chairman would not make this work. But there are also the shareholders and ultimately the market in which they operate that would also not make this conducive.

"I think you will see one to one partnerships although there have been so far which have been successful. The personalities are too strong."

 But he also feels that more consolidation, more mergers and acquisitions might be on the horizon. This is especially so as the winter rolls in and carriers struggle as the number of passengers drops. "There are a number of airlines struggling and some will have hard time in winter. In October we could see a couple more go under," he said.

But if Vueling is not among those which might feel the chill of winter, Mr Cruz is far from certain the bad times are over. At the World Low Cost Airlines Congress in Barcelona last week, the delegates were asked to raise their hands if they thought things would get better in 2010. Very few did and Mr Cruz was not among them.

"We are at the bottom. We all want to believe that and, more, that we are going to be out of it soon. There is a great effort to highlight the small, positive signs. But I am not feeling confident and that is why I did not raise my hand," he said.

"So many people have been burned so they are now taking a conservative position. They believe that things are not going to recover that quickly. I am not sure we are right to expect growth next year. This is not an easy subject and it is difficult to go beyond that."

With the merger behind them, he thinks the big challenge will come next year. "But there is a tremendous amount of uncertainty and investors do not want to hear about uncertainty.

"We have to keep on cutting costs and we have to find new sources of revenue which do not have costs and that is the only was to get to a better position. If we do these things, we shall be heading for the future." 

Stanley Slaughter