Somas Appavou, CEO of Air Mauritius tells Tony Concil that patience is vital in building a sustainable strategy
Somas Appavou, CEO of Air Mauritius, understands the airline’s importance to the nation’s economy. But he insists that every carrier is unique and each must adapt its strategy to stay competitive in a dynamic market.
How is the airline performing?
Demand is good, and we have the infrastructure and resources to cope with growth. More people will certainly want to come to our beautiful island. That is good news.
But cost is becoming an issue. Mauritius is a premium holiday destination—competing with the likes of Bali and the Caribbean. But the price elasticity of leisure travelers can be quite high. We need to compete, and it is hard to pass on cost increases.
Fuel is the biggest worry right now. It is about 30% of our costs. We expected oil to be in the $65-$70 per barrel range. But now it is trading at around $80 per barrel. This is hurting. And it is a difficult challenge to balance. Absorbing the increased costs hits the bottom line pretty quickly. And passing it on to travelers impacts demand. So, we need to be creative.
There is the possibility to absorb some of that shock by shaving a little bit of cost here and there. But it is not easy, and we are looking at more serious mitigation efforts. That means postponing some projects and perhaps accelerating others. Another potential fix is in tapping into regional markets for demand. For us, regional flying is up to six hours. That definition includes dense markets like India and some Asia-Pacific destinations.
Fuel is the biggest worry right now. For Air Mauritius, it is about 30% of total costs
Just considering the fuel bill, it costs us less to bring passengers from these destinations than from our traditional long-haul European destinations. Our re-fleeting program is also helping. Our Airbus A350 fleet burns 5.7 tonnes of fuel per hour, which is better than the 6.5 tonnes burnt by A340s. It will take us a while, however, to fully replace the less fuel-efficient parts of our fleet.
The discussion about the airline’s vulnerability to rising costs exposes the need to better balance risk and reward across the supply chain. The businesses around the airline are not as sensitive to fuel price increases as airlines.
As part of our shock mitigation strategy we are exploring closer cooperation or even involvement in some of these other businesses.
How important is the airline to the national economy?
The airline started in 1967—one year before Mauritius gained its independence from the UK. There is a strong correlation between the development of the airline and the country. Air Mauritius is the island’s unique bridge to the world. The destinies of the airline and the country are aligned.
Directly and indirectly, the airline supports about 30,000 jobs nationally. And we have about a 50% share of the travel market. So, the airline is very important for tourism revenues—a critical part of the economy. And, although we serve a tourism destination, the airline’s role goes well beyond that. We are critical to freight and business connectivity. The overall impact on GDP is 14%–17%, depending on how you measure.
Does the Mauritian government understand the value of aviation?
They appreciate and expect our positive impact on the economy. But governments look at everything from a macro point of view. We need to ensure they have all the elements to gear Policy decisions that enhance the value the national economy can derive from aviation.
When it comes to the challenge of fuel, for example, some of our stakeholders assume it affects all airlines the same and expect Air Mauritius to get through it as other airlines do. But every airline’s mix of fleet and traffic is unique. And given our specific situation with many long and thin routes, fuel price increases have a big—disproportionate—effect on Air Mauritius.
Similarly, some quarters may also not fully appreciate the impact of running an airline with a unionized workforce when some of your competitors don’t.
But regardless of any unique situations, we need to be competitive when passengers are choosing their travel and vacation options. To do that we need to be financially viable.
Is there a future for airlines based on small islands?
It depends on the geography and demographics. Look at Singapore. That’s a very small island, but its demographics and [geographical] position make it an ideal place for an airline.
Mauritius is between Africa and Asia, and we have to exploit this. Other airlines are doing this, but they do not go to smaller hubs. We need to put a network and fleet in place to make that vision work.
Our aim is to give customers the service they are expecting. This is a huge undertaking and you have to be patient. You can’t get everything perfect right away
It will also take partnerships where we feed each other’s hubs. It is always better to have two bridges. Some partnerships work when both partners serve the market. Others work when partners are given the capability to tap into a new market.
We’d like to feed passengers into African hubs that can then allow our customers easy access to points beyond on the African content.
Is there sufficient human capital to fulfil your growth plans?
We are being prudent with growth at the moment in order to contain costs. Finding potential employees is not an issue. And we place a lot of emphasis on developing our people to ever higher standards through training.
In fact, we think that this could be a business opportunity. There is an ambition to provide training for other airlines, but first we must make sure we get it right at our airline. Being fluent in both English and French means we can provide manpower across Africa.
Is digitalization just for major airlines?
We are a smaller airline and digitalization is in our plans. And it sits with our Customer Analytics department. Their mission is to bring value to the data that we have. Like any airline competing in the market, we need to get closer to our customers. That means understanding who they are and finding ways to meet their needs throughout the travel process.
We know for example that many passengers want to do as much as possible on their smartphone. In essence the smartphone would become their ticket to travel. We also know that not all customers want this.
Our aim is to give customers the service they are expecting. This is a huge undertaking and you have to be patient. You can’t get everything perfect right away.
Is the Single African Air Transport Market (SAATM) an opportunity to unblock aviation’s potential in Africa?
It is an opportunity, but we need to have realistic expectations. The volume of traffic within Africa is small. Although the continent is gaining in prosperity, the population that has the economic means to fly is limited. And the economies of the continent are still developing.
Implementing SAATM across Africa is very different than the European Single Market. While Europe is propelled by domestic demand, when you look at who is traveling within Africa it is very often international tourists.
For the potential of Africa to be unlocked, Africans must have the ability to travel. It is not just about money. Solving visa issues is equally important. Although Mauritius is very open, most destinations in Africa require visas even for visitors from within Africa.
And the infrastructure needs to develop in tandem. The deficiencies at many African airports are well-known. But infrastructure concerns go beyond that to hotels and other facilities that a traveler needs.
Directly and indirectly, the airline supports about 30,000 jobs nationally. And we have about a 50% share of the travel market
And lastly, with specific reference to Mauritius, we need to make sure that we have a product that will be interesting to the prospective market. Mauritius is a sun and sea destination. But many places in Africa have lots of sunshine and beautiful beaches.
So we need to try and understand what the customer is looking for and cater to it. SAATM is an important development. But it is not a silver bullet.
What is the best thing about being the CEO of Air Mauritius?
First, being in Mauritius! Also, it is a very interesting job. The trouble is I am always busy and so I don’t get as much time to enjoy Mauritius as I would like. Before, when I was working with Airbus, I traveled a lot and didn’t get to see a lot of Mauritius. Now I am here but I still don’t get to see it. Being an airline CEO ties you to a desk more than you would expect.
What are you like as a boss?
I am very direct. When we have an objective, I want everything done to achieve that objective. And I want to see it happening. So, I am the first Air Mauritius CEO to have an office at the airport. I talk to the engineers, the crew, the pilots. Communication is a big part of the job.