There are probably few airline chief executives in the world who, when given the chance, would choose to compare their carrier to a relaxed ball game favoured by French retirees.
But that is just how chief executive Carlos Munoz likes to explain how Volotea's business model differs from the traditional low-cost carriers in Europe, pointing out: "You guys are playing football and we are playing petanque" – a game similar to bowls that originated in Provence.
While Munoz’s analogy is light-hearted in tone, it does sum up a key reason why this small Spanish carrier has managed to grow and thrive in a European market that is becoming increasingly dominated by large low-cost and legacy carrier groups – it has shied away from direct competition and instead created its own niche markets, often entirely from scratch.
Tom Campbell
A look at the maps outlining its network, which hang in the carrier's Barcelona headquarters, is a good way of illustrating this strategy.
Coloured markers representing the budget carrier’s 12 bases and major markets are pinned to less-familiar points primarily in regional France, Spain and Italy. Cities such as Bordeaux, Nantes, Verona and Toulouse loom large as bases, while many of Europe's capitals – which would normally feature prominently in an airline's network – are noticeably absent.
Munoz sees this not as a failure but rather a "validation" of his belief that smaller markets have historically been left behind in the race to connect Europe's largest cities.
"Small and mid-sized cities in Europe need to be better-connected among themselves," he tells FlightGlobal, explaining: "If you are from London you can fly just about everywhere in the world. If you are from Barcelona, Vueling are actually flying to more places than from London. If you are from Nantes – our largest base – you can go to a handful, 15, 20 destinations. But not 200, or 100 or even 50."
Of the EU's approximately 510 million inhabitants, Munoz says the "fortunate" 110 million who live in or near major capital cities such as London, Madrid or Paris have access to a rich global network of airline connections, while the remaining 400 million have far less choice.
Volotea's success to date has come from using smaller narrowbodies – initially Boeing 717s with the later addition of Airbus A319s – to link those European cities with low-frequency flights on a seasonal basis.
Munoz says that of the almost 300 routes the carrier is operating this summer, 220 did not exist before Volotea started flights in 2012 – something of which he is immensely proud.
The airline will have a fleet of 32 aircraft this summer – 17 717s and 13 A319s along with two leased aircraft, including an A320. It has added new bases in Athens, Bilbao and Marseilles – the Greek capital being its first outside its core markets of France, Spain and Italy.
BUSINESS MODEL
According to Munoz, the origins of the Volotea business model date back to his time as chief executive of Vueling more than a decade ago. Along with Lazaro Ros, Vueling's then-chief commercial officer, Munoz was seeking to understand why the Spanish budget carrier "didn’t make money" on its thinner routes, especially those that did not touch major markets.
Munoz concluded that serving those "smaller markets" with "smaller flows" on city pairs that proved "much more seasonal" would require an entirely different business, one Vueling was ill-placed to provide, with its strategy of competing head-on with the legacy airlines for market share.
It would be years later, in 2007, when he and Ros had left Vueling after floating it on the country's stock market, that the theory could be put into practice.
Munoz subsequently built up a team of experienced executives to manage the start-up and worked to secure Spanish and US investors to finance it.
Munoz describes the creation of Volotea as a team effort, giving credit to Ros and Marco Comani, the airline's chief strategy officer, among others, for developing a model that he sees as hard to define in the context of a traditional low-cost airline.
Tom Campbell
Volotea's approach to identifying potential routes is "data driven", Munoz says, with several models being used to calculate the passenger trips per day each way (PDEW) between a given city pair.
An important resource of information has proven to be the airports Volotea serves, which provide detailed data on their local markets.
"We combine that more scientific or statistical analysis with the local knowledge of our partners, the airports. Not that they wouldn’t do that with EasyJet, or Ryanair, or Air France, or Vueling, or Iberia, but none of those companies have got enough time or care enough about those markets like we do," he says.
Using a combination of lower ticket prices as an incentive and a focus on building brand loyalty, Munoz says Volotea has been able to stimulate markets.
He points out that during his time running Vueling, to stimulate a given market by 200% was considered to be a good result. Volotea, by contrast, consistently expands markets by three, four or five times, he adds. Then there are the "outliers", which have grown by 40 times since their launch.
By way of example, he points to Venice-Mykonos, a route not previously serviced. "It wasn't that people in Venice didn't know Mykonos," he says, rather: "Before Volotea, it turns out you didn't have a direct flight so you had to either fly to Athens or take a ferry [or] take a flight to Rome to connect to get to Mykonos."
The annual traffic between the two points at the start was 400 people; within four years, Volotea had grown that to 20,000, he says.
Nevertheless, operating to a highly seasonal model, with operations that peak in the summer and fall away in the winter, is "not the easiest thing in the world" to manage, Munoz admits.
"The biggest thing is the size of the aircraft in that model, with a lot of effort to adapt the cost base to that seasonality, which means you adapt all the deals in handling, in maintenance, in leasing, in all the things you can and where you can," he explains.
Where possible the airline strives for "simplicity", or as Munoz puts it: “Playing [the] cards as simply as we can."
While leasing-in capacity during the summer gives Volotea some flexibility, inevitably the airline parks aircraft during the winter. Munoz notes that during the low season there are "other opportunities with the Airbus fleet" that Volotea is exploring.
In those early years Munoz says the company was innovating "a lot – and by innovating I don't mean we are launching cars without drivers or rockets to Mars, but within aviation we are still innovating a lot because we are putting in a lot of routes that did not exist before".
Munoz admits that the carrier experienced its fair share of "failures" in its early years, as management got to grips with the new model. Of the 90 routes Volotea opened in its first year, 40 were closed within 12-24 months, he concedes.
"There are markets that for whatever reason [failed], either because the numbers showed too high or they were a one-off [failure]. We need to learn from that – in this company making a mistake is not a problem, but not learning from that [mistake] quickly, that is a problem."
RIVAL CHALLENGE
Munoz does not express concerns about rival airlines venturing into Volotea's markets, noting that attempts to do so would be "both hard and unappealing".
He suggests that the likes of EasyJet and Ryanair probably have "better things to do" than cloning Volotea's many twice-weekly leisure routes, while the aircraft sizes they typically operate and the seasonality factor would make them uneconomical.
He believes that over time more of Volotea's routes will become year-round and will support larger aircraft, but says the larger budget carriers will probably still have bigger markets to focus on as consolidation in Europe continues to play out.
Munoz insists he actually prefers not having to compete with other airlines, having had plenty of experience of that during his days at Vueling, which he describes as "so much rock and roll". Volotea, by contrast, is like "classical music, this is much more harmonious".
FLEET
The seasonality of Volotea’s business model and the thin routes it was planning to serve meant that the carrier could not emulate Vueling and operate a fleet of A320s, Munoz says.
"You can’t do that in this market. If you do that it is guaranteed that you are not going to be around for a few months," he states.
Instead, Munoz and his team searched for a smaller aircraft, ideally with between 120 and 125 seats. He recalls that back in 2011 there were only "two good planes" to consider with such a layout – the Bombardier CRJ1000 and the Embraer E195.
Volotea looked set to join the ranks of Europe's regional jet operators until "totally by chance" an opportunity to acquire a larger narrowbody came along.
Following Southwest’s acquisition of fellow US budget carrier AirTran in 2011, the combined airline decided to ditch the latter's fleet of 717s in favour of the 737.
As a result, Munoz says Boeing was all of a sudden very "long" on the 717 models it owned and "so we talked to Boeing and basically six months later we had the fleet of 717s".
Munoz states the aircraft has proven to be "pretty solid" for Volotea and would have continued to serve as its preferred fleet type. But in 2015, Delta Air Lines' increased interest in the narrowbody convinced the Barcelona-headquartered carrier to change course.
In that year, he explains, the US carrier acquired a "lot of planes" from Southwest, and Volotea found itself competing directly with the "mighty Delta" for more 717s.
"It was challenging to compete with them to source those planes," he recalls.
Once again, as luck would have it, Volotea was able to benefit from wider trends within the industry. As increasing airport congestion forced European low-cost carriers to upgauge their fleets, Volotea found a ready supply of A319s coming off lease.
The first of the type arrived in March 2016 and the total has risen to 13 this year, with the most recent arrivals coming from EasyJet. Volotea is now gradually switching from a mixed fleet to solely operate A319s, with the final 717s expected to leave by 2021.
Tom Campbell
Munoz says it took some time for Volotea to adapt to a 150-seat aircraft, having only had 125 seats on the 717, adding that it was "too large" for some of its smaller markets.
The solution has been to deploy the aircraft in "mature markets" such as Volotea’s main bases of Nantes and Bordeaux, where those "extra 25 seats have proved to be very good after five years".
Six years on from its launch, Munoz says "we will never know, and I am actually sort glad we will never know" if a 150-seater would have been too large for the carrier to handle in its early years, adding: "We say we would have eaten them with potatoes in Spanish." He also wonders what the airline would have looked like had it started out with regional jets, if the 717s had not come along.
So will Volotea ever grow to operating 180-seat jets or larger? "Probably not," says Munoz, adding that the 150-seat A319 is "here to stay".
EXPANSION PLANS
Munoz meanwhile estimates that there are at least 500-600 route pairs Volotea could operate across Europe, more than double its current network.
Even in its core markets, he sees potential opportunities for further growth. Spain, he points out, represents just 6-7% of the carrier's total business despite its being headquartered in Barcelona – a market unserved by Volotea.
The carrier does not stick rigidly to national borders, which Munoz says would be like "tying our hands". Instead, Volotea goes where it sees demand, meaning that "all of continental Europe is our playground".
One market that seems noticeably absent from Volotea’s network is Germany, with only Munich being served.
Munoz remarks that there has been "a lot of change" in the German market recently, with "many players getting into it", such as Ryanair and EasyJet, following the demise of Air Berlin, while Lufthansa continues "doing what they are doing so well".
He suggests Volotea will likely move into the market in the long term, noting that there are "a lot of opportunities".
Elsewhere, the carrier could open bases "over time" in markets such as Croatia, Austria, Germany and Portugal. North Africa too could be served at some point in the future. The airline's new base at Athens holds the prospect of expanding Volotea's presence further into southeastern Europe and the Mediterranean.
Despite being one of Europe's largest markets, the UK offers little prospect for route development, Munoz says. The carrier operated seasonal services from Southampton to Ibiza and Majorca in 2017 but decided to halt the service after one year.
Not only is the country already "so well served" by rival airlines, uncertainty created by Brexit has proven to be a "huge curve-ball".
Munoz confides that it would require the "worst outcome of the hardest Brexit" for the UK to lose enough connectivity to become a potential growth market for Volotea, given how well it is currently served.
Overall, the airline's traffic breaks down as 35% visiting friends and relatives, 15% travelling for business and the rest leisure-orientated.
Passenger numbers reached 3.8 million in 2016 and 4.8 million in 2017. The carrier estimates it will carry between 5.7 million and 6 million passengers this year.
OWNERSHIP
Meanwhile, the future ownership of Volotea and a possible public float of the privately owned airline have been regularly speculated on.
The airline’s investor base remains the same as the day it was founded, with US-based CCMP Capital Partners holding 49% of voting rights; Axis and Corpfin Capital a further 25%; while Volotea's two founders Munoz and Ros, along with managers and friends and family, hold the remaining 26%.
Munoz says he expects the airline to secure new investors as Spanish and US shareholders seek to exit the business, noting: "We will change our investor base over the next few months."
Morgan Stanley is leading the search for new investors. Munoz says he and co-founder Lazaro Ros intend to retain their joint 26% holding in the airline, adding that he sees further opportunity for the airline to grow its business.
Once new private investors have been secured, Volotea will seek to pursue an initial public offering within three to four years, describing it as a "natural evolution" for the airline.
Munoz recalls that the carrier "came very close" to a public float in 2016, but worsening economic conditions and the volatility caused by events such as the UK's Brexit vote that year convinced him to shelve the plan.
Volotea has been "profitable" since 2014, adds Munoz without disclosing further details, but does say he expects it to generate a turnover of €360 million ($431 million) this year.
The carrier's search for new investors is expected to play out over the coming months, but whatever the result, Munoz's continued involvement suggests that Volotea's unique strategy is unlikely to change.
Source: Cirium Dashboard
