ATW's 2011 Regional Airline of the Year - Air Nostrum

>> Wednesday, February 2, 2011

In the middle of difficulty lies opportunity,” Albert Einstein said. This is exactly the approach ATW’s Regional Airline of the Year for 2011 adopted when the Spanish economy slid into a stinging recession at the end of 2008 and passenger numbers at Spain’s airports did the same. The unemployment rate in Europe’s fifth-largest economy reached almost 20% in 2009 and the GDP contracted 3.6% in the wake of the global financial crisis. In addition to this challenging environment, LCCs significantly increased their presence in the country. The combination led to an unprecedented drop in yields and pushed Air Nostrum into its first red ink in more than a decade.

But the Valencia-based regional did not sit back and wait for the market to recover; quite the opposite. It decided it was time to “reinvent” itself based on its still firm conviction that yields will never return to the levels of old. Management outlined a drastic plan to cut loss-making routes and reduce unit costs.

Under the Reshaping the Future plan, Air Nostrum terminated a contract with its flexible crew capacity provider, removed the second cabin attendant from its 50-seat transports, cut overhead and management salaries and grounded 11 50-seat aircraft as it reduced production by 24%. Simultaneously, it committed to long-term growth, purchasing 35 100-seat CRJ1000s for which it is the launch customer. The first two were delivered last December and a further six arrive this year. The CRJ1000 has full crew commonality with its CRJ200s and CRJ900s and will improve CASK significantly (32% lower compared to the CRJ200). It also committed to 10 ATR 72-600s, targeting an improvement in unit costs for its turboprop fleet as well. Taking advantage of the buyer’s market for aircraft in 2009, it got very favorable commercial terms and thereby was able to cushion most of the costs associated with the grounded fleet.

The recent cutbacks notwithstanding, Air Nostrum is an unqualified success story. It enjoyed robust growth after launching in December 1994 with one F50 and one route—Valencia-Bilbao. In the current winter schedule it operates 2,450 weekly flights on 100 routes, mainly in Spain, Italy and France, with a fleet of 63 aircraft comprising 48 CRJs, 10 Q300s and five ATR 72-500s. It is the largest Bombardier operator in Europe. Passenger numbers expanded from 260,000 in 1995 to close to 4.5 million last year.

It turned a profit from its second year of operations and continued to do so for 13 consecutive years through 2008, the year it also achieved record EBITDAR of €120 million on revenue of €677.4 million. It could not disclose financial results publicly when this was being written, but it confirmed to ATW that it was confident it would close 2010 in the black despite the lack of improvement in load factors and yields in the Spanish market.

“I believe the good relationship with our employees played a key role in the success of this very painful but necessary process. It was not easy for me [or] for my management team to rapidly change our ‘setup’ and move from growth to reduction in a period of just a few weeks. I am very proud of how we managed this completely new situation,” CEO Carlos Bertomeu tells this magazine, pointing out that the carrier implemented the comprehensive restructuring without any strikes and while preserving a good level of punctuality. In fact, it ranked sixth in the “2009 Global Major Carrier Arrival Performance Report” by Flightstats. It also remained true to its longstanding commitment to delivering excellent customer service.

Air Nostrum’s founding was based on three key ideas, Bertomeu says: The belief that there was a place for a regional carrier in Spain, that it would need to cooperate rather than compete with Iberia if it wanted to succeed and that having a strong shareholder (Nefinsa) was crucial to supporting its business plan and providing flexibility. It entered into an exclusive franchise agreement with IB in 1997 and since has operated successfully as Iberia Regional under the IB code. The regional assumes its own business risks and IB is responsible for commercialization of the flights.

Air Nostrum’s superb safety record and dedication to operational excellence, its track record of combining growth with successful financial performance, its management through the 2008-09 downturn and its commitment to future expansion make it a highly deserving recipient of ATW’s 2011 Regional Airline of the Year Award.

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