Hope flickers in Mongolia
Eznis Airways planning expansion, says Anglo-Canadian boss
While most chief executives around Asia are cutting back at their airlines any which way they can to stem losses, Glenn Pickard is plotting expansion for Mongolia’s Eznis Airways.
Right now though times are tough, he readily admitted. “Year-on-year the first quarter is down 37% in traffic carried, that’s very, very significant for us. We had a very good third quarter last year, then in October we went right off the cliff with everybody else, it was a disaster for traffic,” he said.
||‘[Our people] are tremendously eager to learn, there’s a great thirst ‘or knowledge'
Anglo-Canadian Pickard and his team of eager young Mongolian managers have been squeezing the balance sheet for savings and pushing the 178 employees hard. “We have probably got the operating cost down by 3%-5% and we have probably got another 2%-3% to go. We might be into the summer season before we get [it right],” he said.
“We have done things gradually rather than a big slash and burn programme,” said Pickard, a veteran of small airlines in Britain and North America.
Indeed, as the Spring sunshine finally warms Ulaanbaatar after another deep-freeze winter, hope flickers for Eznis. “When we’ve spoken to the tourist camps and tour operators we’ve been told by a few of them to expect more traffic than last year. That’s a very positive surprise,” said Pickard.
Next year holds promise. “Our position is we are somewhere around the bottom. We believe the effects of the recession are going to start to tail off in Mongolia and that the first quarter of 2010, on a year-over-year basis, will be positive.”
Pickard appears unruffled by these tough times, projecting calm and always ready with a smile. His quiet confidence reflects more than three decades in the industry and a faith in his Mongolian managers. “It’s very positive with the people. They are tremendously eager to learn. There’s a great thirst for knowledge,” he said.
They need to be. The learning curve will remain steep as expansion unfolds. Until now Eznis has earned its crust within Mongolia. It has a monopoly on 11 domestic routes since flag carrier, MIAT Mongolian Airlines, quit to focus on international routes.
Scheduled operations have generated 75% of revenue with the balance coming from charter operations. Less than 2% of revenue is earned from cargo, the rest comes from passengers.
Eznis aims to replicate its domestic success regionally, initially targeting 12 million people in neighbouring regions of China and Russia. Irkutsk and Ulan-Ude in Siberia are pencilled in for services starting this summer. Hailar in China is also planned. These routes will be served thrice-weekly. Also on the agenda are Hohot and Urumqi. “That will keep us busy for 2009 and the first half of 2010,” said Pickard.
Early in the next decade Pickard thinks Eznis may be in a position to add Tianjin and Harbin in China, plus Seoul in Korea and a port in Kazakhstan. “Then there is the Shanghais, the Hongkongs, the Hainans and the Japanese destinations,” he said.
It is not the worst time to be thinking of expanding; fuel prices are low, aircraft are cheaper and an economic recovery is believed to be just around the corner in China. The problem is raising money amid the smithereens of the credit crunch.
For now, Eznis will still depend on its owner Newcom, one of Mongolia’s leading conglomerates with interests in communications, energy and transportation. However that could change. “It could be another carrier, institutional investors, private equity, we don’t have a specific objection to any of those [taking control],” said Pickard.
Just which way Eznis will go partly will be dictated by plans for adding capacity, starting with 50-seat turboprops, which will replace at least one of three Saab 340Bs forming the Eznis fleet.
“It depends if we go into one, two or three aircraft. If we took on $25 million of debt, we’d probably be looking for $8-$10 million of equity. We’re getting ready to look for partners, our five-year business plan is close to being completed,” explained Pickard.
The likely choice will be the ATR-42-500 although Pickard was impressed by the MA60 on a recent visit to China. “A big advantage to the 500 is that in Mongolia nothing is at sea level, the lowest altitude airport we go into is 4,000 feet. The -500 has a very good single-engine profile into those airports, it performs very well on a single-engine,” he said.
Plans see at least one ATR painting on the Eznis orange livery later this year. Another ATR could join the fleet in 2010.
Early next decade, Eznis will be looking for jets from Bombardier and Embraer to narrowbodies from Airbus and Boeing to reach destinations further afield.
Eznis could end up running a lot faster if the long-mooted privatization of MIAT goes ahead. Newcom, owner of Eznis, can probably come up with the money to make a bid for MIAT.
It will have to bid hard to thwart MIAT falling into the hands of competitors.