TAP Air Portugal CEO Luís Rodrigues on Needing a Partner, Not Wanting XLRs (Across the Aisle)

We’re going to go old-school today with an Across the Aisle transcript of an interview I did with TAP Air Portugal’s CEO Luís Rodrigues. I was supposed to do this in person on the day of TAP’s inaugural LAX flight, but Luís was held up in customs, and I had to leave before he was able to get to the gate. So, we made up for it a few days later with a phone interview that I think you’ll enjoy.

Brett Snyder, Cranky Flier: I’m always really curious about TAP just because you’re a very unique airline right now. You have a big transatlantic presence and no joint venture, which is rare. I know there’s a lot of discussion about how much will the government sell to possibly a different airline. It could change things, but right now how do you look at your position in the transatlantic market?

Luís Rodrigues, CEO TAP Air Portugal: The airline has been under a tough situation over the last few years. Even before COVID, there was a shareholder fight which eventually led to the airline being reacquired again by the government, and becoming a state-owned company again. And then if that was not enough in itself, we were hit by COVID at a time when TAP was in a bad financial situation and poor organizational situation. So the effort to settle things down has been significant. I think we were probably the airline in the worst condition just before COVID, given the previous circumstances.

Now, the effort has been done by a lot of people, and I think we’re now starting to look again into the future. There was a cost to that while we were focusing on internal peacemaking, if you will, and calming things down and getting the right focus of people and so on and so forth. We were probably not looking at the market as much as we should. And that meant that together with the situation of the Lisbon airport, we have been under pressure from our routes to the South Atlantic and North Atlantic as well. But having done all that, I think we’re still coming up very strong.

We are now flying to 13 destinations in Brazil. 9 of them, we are the only European airline flying there. We’re flying to 10 routes in North America, so that’s a good base to start from. And we’re now in a condition to start looking ahead again at the time when the privatization process is supposed to reignite. So that’s gonna be our main focus from now on. We’ve been under pressure, but we’re still market leaders to the South American continent,

Cranky: I was gonna say… Brazil, you have a very impressive franchise. Obviously Portugal and Brazil, the historical connection there makes that an easier opportunity plus the distance makes it an easier opportunity. But when it comes to North America, how do you find a way to compete with the three large joint ventures for traffic? You’re expanding into some pretty long-haul routes, including the Los Angeles one you just started. So how are you able to compete?

Luís: I don’t even think I would call it competing. We’re such a small airline in the North Atlantic. Moving from 0.1% market share to 0.2% market share is great for us and nobody notices. So we’re taking an opportunistic approach to the North Atlantic. We know we’re not gonna compete with the joint ventures.

Cranky: Well, you’re you’re still competing for customers though. The customers have to choose you, so how do you compete for them? How do you convince the customers to fly with you?

Luís: First, we have an attractive geographical position. We are the closest to the North Atlantic anyway, so the shortest flight. We have the most modern, efficient aircraft in all of Europe right now which also plays a role. We have a strong on-board culture with people and gastronomy and so on, and we have a stopover program with which you can leverage. If Lisbon or Portugal is not your final destination, you still can spend 10 days there at no extra cost, and then take your flight to Paris or Rome or Frankfurt. The combination of that plus being a small player, taking opportunistic opportunities it’s enough for us.

Then don’t forget, we’re starting, for instance, the LA route. And Porto – Boston. These are places where we have very strong Portuguese-origin communities. They are quite large and they are very loyal to their country’s airline, which is great…. I know the headlines saying that it’s difficult to get into the US right now at the border and so on and so forth, but the bookings we’re looking at over the near future, for 6 months ahead, they say, keep doing what you’re doing.

Cranky: What percentage of your North Atlantic traffic goes beyond Portugal?

Luís: Most of it goes beyond Portugal from the North Atlantic. I remember looking at those numbers about a year ago. It’s 75% to 80% right now. We’re a very small country, right? So people stop there, they take advantage of being there, but then they move into the bigger cities. So it’s ok as long as they fly with us, it’s fine.

Cranky: Is it mostly around the Mediterranean or do you see people going back to Northern Europe as well?

Luís: Both, both. There is no clear pattern.

Cranky: How much of your traffic is European origin versus American origin?

Luís: Most of it is still European-origin because we are relatively known in Europe, not in North America. Only with the Portuguese communities [in the US]. Other than that, we start being noticeable little by little, but that’s enough.

Luís: Let’s not forget that until the end of this calendar year, we’re still under a restructuring plan that the Portuguese government had to sign up with Brussels a few years ago because of COVID survival. So even if we wanted to have more aircraft right now, we could not, because we are committed to that deal with the European Union. And then you have unfortunately the situation of the Lisbon airport, which is totally constrained. There are no more slots for people to fly into. It’s a double edged sword. It protects us, but at the same time stops us from growing.

Cranky: Is Porto something that you think can really grow much? Obviously you have the Boston flight starting, but do you think there’s a lot of opportunity there, or is it really Lisbon is your best?

Luís: I think it can, although the airport doesn’t have that much capacity that people claim that it has. You start to see time slots where it’s already full. There is a bigger content story up north there than in Lisbon. Lisbon is Lisbon in itself. It’s the capital, but, in Porto, the whole area is, it’s in itself, a lot of history, very nice to see a lot of culture, and then you have the Douro River valley and the vineyards to look into and then you have Northern Spain. So the thing with Porto is that you have to assume or to make sure you’re there for the long term. It’s not gonna happen overnight. It’s a market right now very much dominated by low-cost airlines, but we are little-by-little moving up the ladder and reclaiming that traffic back. So I think there are opportunities there as well.

Cranky: So if Lisbon is full, effectively, where can you grow when the restructuring agreement ends? Where do you see the opportunity?

Luís: Well, we can upgauge in Lisbon. That’s not gonna bring much, but it’s still it’s significant. We can grow in Porto and we can grow in Faro and the Atlantic islands, Madeira and Azores. It’s not gonna be that efficient growth, but it’s the one that you have available, so you do that.

Cranky: Obviously there’s been a lot of talk about airline groups in Europe that might be interested in buying some or all of the airline at some point, Air France or who knows. What is your opinion on that? Is that a good thing for the airline? Do you think it would create more opportunity?

Luís: I think we all agree that this is a business of scale, and we don’t have it. We’re a small airline. We need to get into a bigger group to make sure we benefit from all the advantages that has. If that doesn’t happen, you may hold on to having a business, but it’s gonna be increasingly difficult. And at some point in time, I’m not sure it’s gonna be possible anymore. So I think the privatization process is helpful for everybody. It’s helpful for the airline to benefit from the synergies. It’s helpful for the current shareholders — make sure they have a sustainable business going forward — and the future shareholders as well.

Cranky: So which one is your favorite? *laughs* Which one would you like to purchase you?

Luís: No, I have no… none of them has had the opportunity to submit their ideas and plans, so there’s nothing I can say.

Cranky: Does Star Alliance add much value, or if you’re not a part of the [Atlantic++] joint venture is it not that helpful?

Luís: No, it has. I think the alliances have been sleeping a little bit over the last few years for many reasons, but I think they’re picking up again and it’s a good way to deal with the regulatory constraints that are the cost of doing business that you see coming more and more. So I think we’re very excited with the opportunities with Star. We’re working on very interesting projects, so we get along very well. I think it adds significant value. It’s not as much value as a shareholder, but it’s still worth keep doing that.

Cranky: So it’s not like you’re looking at leaving. You, you’ll want to be in an alliance, right?

Luís: Right, absolutely.

Cranky: I’m curious a little bit about the fleet strategy. You have the A330s, the neos and the ceos, and then you have the 321LRs, not XLRs, right?

Luís: Right.

Cranky: Do you see an opportunity for the XLRs or not really?

Luís: Oh, that’s a good question. We are now looking into the plans beyond 2026 and if you ask me right now, I would rather move even further, 330s and 350s, if anything is available, rather than XLRs. I think the LRs are are doing fine and but the XLR… I’m personally, I still have to be convinced, and I don’t think as an organization we’ve looked enough into the whole thing.

Cranky: Yeah, it has become a much more different aircraft than the LR, so is that really the concern? There’s just not enough need for the range?

Luís: Yeah, and I think from the passenger perspective, sitting for too long on that aircraft, well, it’s not easy. I think, across the Atlantic, Porto to Boston is a good example. It’s OK, fine, but if you start to think beyond that, any more miles to the journey sitting in… it’s not easy. So, but again, this is a personal thing that I cannot give too much consideration for because I’m not representative.

Cranky: But you are interested in the 350? What would you want to do with that? It seems like the 330neo has almost everything you need, no?

Luís: Yeah, but the 350 it’s an even more comfortable aircraft, and I think we can use it to compete in South America, mostly. And in some of the longer North American routes. I think it would be preferable to sit on a 350 doing LA than anything else.

Cranky: Oh interesting.

Luís: But we still have to run the economics properly.

Cranky: Are there other geographies that you’re interested in? I know it’s the Americas, some Africa, but is there much beyond that? And of course within Europe…

Luís: That’s a discussion I think I will leave to the new shareholder, whoever they are. We need to be focused on what we’re doing properly and engaging new adventures.

Cranky: And what about the onboard products? You have flat beds in business, of course, but what are your thoughts on a true premium economy product?

Luís: Premium economy is something that we don’t have yet, but we’re looking into it carefully. There are good experiences and poor experiences and you need to understand what went well and what went wrong in both cases, and once we execute it, we need to execute it properly. I cannot forget that we are operating in a very limited environment as far as airports are concerned, so more than quantity, we need to have quality. And that means we need to offer an increasingly better product to our customers and that probably means taking a very close look into premium economy and things that we need to re-imagine.

Cranky: I’ll just ask one more question. What do you think in Lisbon? Do you think there will be some relief on capacity constraint? Or is Lisbon just not interested in really adding much capacity?

Luís: Well, they would like to, but it’s a physical infrastructure thing. They don’t have the capacity. There’s no physical infrastructure, there’s no runway, there’s no terminal that they can build on to have more capacity. So it is what it is. They have to build a new totally new infrastructure, and that’s something that is just starting. It’s gonna take 10 years.

Cranky: That’s what you think? There’s interest though in trying to do it on the government side? They want more capacity; it’s just not gonna be for a long time?

Luís: Yes.

Cranky: Alright. Well, I appreciate your time. Thank you so much.

Luís: Thank you and thanks for the conversation and I’ll look forward to keep following you.

So, what do you think?