When did TAROM start its operations?
Last year we have celebrated forty-five years since we took the name of Tarom but the history of Tarom started much before, in 1920, with the first European Franco-Romanian airline. Tarom is still a national airline.
What have been the main changes that have taken place in Tarom after 1990?
From the point of view of the structure and organization there were not too many changes. Before 1989 Tarom was included in the civil department, which is taking care of the entire civil aviation activities in Romania, based on the centralized system which used to be in the former communists or socialists countries. After that the civil aviation department was split into two companies, each of them having its specific field of activities. Tarom was separated also. Our activities are linked with the air transportation. Airports have also been detached and dealing only with the airport organization. The Civil Aviation Authority was also disassociated. So we have started to be what we should normally be. We are a commercial company, although the main shareholder with almost 97% - for the time being - is still the State, represented by the Ministry of Transports. SIF Muntenia owns the rest of the shares.
One of the main changes that are going to take place in TAROM is its privatization...
There is a program in Romania under the World Bank supervision - the PSAL program - within which are included about 64 companies separated into two groups. The first group of four companies is formed by Tarom, Alro, Alrom and Sidex. The remaining sixty companies form a different group. Within this program the Government of Romania, through the Ministries and the SOF, hire financial advisors who will prepare the companies for privatization.
Tarom, through the Ministry of Transports, was the first one that signed a contract under this program with a financial advisor. Actually, this is a consortium led by ABN-Amro Bank and composed of three companies ABN, MSAJ - an Aviation consulting company from the USA, Price-Waterhouse as auditors and Musat & Associates. The agreement was signed at the end of January and the procedure for the evaluation of the company started on February 1st, 2000. This is the first stage of the privatization program that will end at the beginning of May 2000. This phase will last for 14 weeks. At the end of this phase they will present a report to the Government through the Ministry of Transportation with the value of the company and the ways they think Tarom can be privatized. The Government will have one or two weeks to analyze it and then they will decide with which procedures they will agree. If they will agree with any of them they will start the second phase -privatization - for which they have allocated fifteen weeks. Actually it is a very tight program.
Does Tarom have any saying about who you would like to be your partner or by whom you would like to be purchased?
The privatization is a problem of our shareholders. We in the company are only the executive side. Our main target is just for Tarom to be accepted into one of the alliances. If this will be followed by the privatization it will be much better. We have to speed up the process. The privatization process is a problem that interests the shareholders. However Tarom is interested in the privatization but from its point of view we are more focused to be ready to be accepted in one of the alliances.
I would presume that you are looking for European groups?
For the time being we are looking for European partners or groups because we are living in this space here which is a common space for everybody. This year the "Open Sky" policy will be applied also in Europe and we should be part of it.
What are you looking for in an alliance? What can they bring to you and what can TAROM bring to these large carriers?
First of allTarom is not into getting any benefits from our potential partners in any of the alliances. As I have mentioned before we will widen the market and through their operations we will have access to many more destinations than the ones we are serving for the time being. Being accepted in one of the alliances we will also help us enter into this global system. If we will not be there we will become a regional operator and that is not our goal.
Have you started conversations with any of these groups?
We have had a lot of discussions with all the leaders of the groups, with companies or airlines which are part of these alliances, but we have no firm commitment from their side. In aviation things are changing quite rapidly and some of the changes are also surprising people in our business. It happened with Austrian airlines last year when they moved from the Swiss Air Group to Lufthansa when no one was expecting them to do so.
If we speak about LOT - the Polish Airlines - British Airways was looking to take over some of their shares. Then Lufthansa intended to take part in the LOT privatization process, but finally Swiss Air jumped in there and they have succeeded to take over.
We have to analyze all the potential partners and the possibilities for Tarom to be accepted in one of them based on their network and their interest in the areas here. If you analyze all these, one by one, you will see that Lufthansa took over Austrian Airlines for their routes and I do not think there will be any more interested in Eastern Europe for the time being. They have Vienna, which is a strong hub, and Munich, which they intend to develop in the near future, so they do not need any more partners. They are not looking to extend and have another hub close to Vienna.
If we talk about British Airway that is another big partner in one of the biggest alliances. They are showing some interest in Malev and have made a verbal commitment to Olympic Airways. Their management program succeeded, so now the management is provided by British Airways and through one of their affiliates they have about 25% from Olympic Airways. I do not see any reason for them to take Malev, then Olympic and then to come back to us who are just in the middle between those two hubs. Of course this is not excluded. This is just my opinion based on some personal judgements.
If you are looking at the Swiss Air Group, they are involved in the LOT privatization for the time being. They might be one of the potentials companies who will accept Tarom in their group of airlines based on their appetite for buying shares since its native to their way of thinking.
KLM-Alitalia from my point of view could be one of the most probable ones to purchase Tarom because they have this north-south axis. They have KLM and some other small partners in the west of their axis, but they do not have anything in Eastern Europe. For them I think it would be a benefit to get something in this area here. On top of that we have a very good cooperation with Alitalia - a code-sharing program for our flights to Rome, Milan and we also operate in Parma. Apart from these three destinations we also have other four destinations we operate in Italy meaning that there are some guidelines which can conduct us to think that KLM and Alitalia could be one of the partners. | Another one is Air France, but they are a very strange animal because they do not have a real strategy for the future. I did not see anything coming out from their side. They are living as we used to live during our centralized system before. Now they have made this alliance with Delta. This means that Air France might not be so much interested about Tarom now even though we have started a code-share program at the end of this month. This is because they have a good connection with Malev and it does not matter if there is going to be a direct flight from Delta side or will be Malev operating under the code-share program. It is just too close.
Lufthansa might say they are interested in Tarom, but then United, which is one of the major partner in the alliance could say they do not need it because they are operating via London or some other destinations and there is no reason to duplicate efforts. It is quite a complex decision to be taken by someone from an alliance.
Aviation is not so easy. You have to understand and to be understood. But despite of its complexities, from my point of view it is one of the best businesses.
How did you manage to reduce the previous losses which will lead to end up this year with profits?
I can say that we have also reduced some loses but the process is much deeper than coming from red and going to black in our balance. At the end of 1989 Tarom had quite an old fleet and the main target of our management at that time was too renew the fleet. We built up a long-term plan and we also built up a strategy on how to renew the fleet. First we have been focused on replacing the older planes flying long flights. At that time we were flying with Boeing 707. They were aircraft that are no longer accepted, not only by the passengers, but also by the international regulators such as IATA. This was our first priority for which we have signed an agreement and we bought Airbus 18-10 for our long haul flights.
The second priority was to replace the medium hold airplanes: the Tupolev 54 and the BAC 1-11. We signed an agreement with Boeing and we bought Boeing 737's and the program with Boeing is still going on for other deliveries. In the years to come want to replace also the airplanes for domestic and regional operations. For this reason we have signed an agreement with ATR and replacing all Antonov 84 with ATR 42-500's. For the time being we can say we have renewed all our fleet.
We have one of the youngest fleets in the region with only modern airplanes. We are not using any of the old ones anymore. Based on this we also had to change some policies regarding our marketing. We reoriented some of our flights to destinations with big potential and we built our network to be able to attract as much as we can, taking into consideration also the competition, which is quite high, and tough. Everybody is looking to get as much of the market as they can. As an example, British Airways stopped flying to Bucharest for more than ten years and they started again in 1997 when they jumped in with 10 flights per week. This means they have realized there is potential here. KLM came here three years ago and they have now 14 flights per week. Alitalia, which also stopped flying for almost ten years, came back and have daily flights. Now they came with this code-share agreement so that we have more than 25 flights altogether per week to different destinations in Italy. Air France also increased its frequency. All this means that the potential is right here and we have to take the biggest piece of this market or otherwise it will be a disaster. To do that you have to be prepared, to have a new fleet, a new marketing concept and, first of all, to increase the quality of the services. We also have to have the support from the rest of the service providers: the airport, the handling company, the catering, duty free and so on. Tarom is looking forward to get involved in all these activities as much as possible in order to get some benefits.
The idea is to take care ourselves about our core business, which is the transportation itself, but also to get involved in other activities in order to obtain some benefits from the activities those companies provide. The second is to control or just plainly to know what is happening in those companies and to control the services they are providing.
Can you give us a few statistics about TAROM?
We are operating 21 airplanes. We have about 2.950 employees. Last year we exceeded one million passengers. We are operating 43 destinations on three continents: Europe, North America and Asia. The turnover for last year (1999) was around US$ 180-190 million. For this year we are expecting it to be more than US$ 210 million. We are looking to increase the number of passengers around 20% compared with 1999. This will be done by increasing the frequency of flights, opening new destinations, consolidate the already existing ones and based on our marketing policy. Last year we have budgeted an increase of 10% and had an increase of 12% comparing with 1998. If nothing will happen in the area, like Kosovo, I can assure you we will achieve this 20% based at least on the first three months of operation. Most of our passengers originated in Romania or in the stations abroad but we also have passengers who are on transit who are using Bucharest as a hub. 80% have as destination Bucharest or one of the points where we are operating to and from, and the remaining 20% are transit passengers.
What are your short terms future plans?
Just to be accepted in one of the alliances. This is the main target, and we hope this year it will be achieved. Otherwise it will be very difficult in the future when the Open Skies policy will be applied in Europe and we will have to face even more competition. We need full support from everybody. Aviation is very sensitive to any economic or political changes. In some cases, such as when the Kosovo war started we were very negatively influenced.
Do you have any final message you would like to transmit to our readers?
It is time to have an experience with Tarom and see that we are no longer an old company with an old mentality. The companies in this part of the world used to be considered on the bottom places regarding quality services or the mentality of the people working in the company. Our company is now considered to be one of the best. Our cabin crew is providing quite a good service. If anybody will experience Tarom once, they will come back for sure. We have a better product than KLM or Air France regarding the quality of services on board. Lufthansa does not have a better service than ours. Our business class is one of the best in Europe because we have introduced the system of only two abreast in the business class, we are offering much better space, much better comfort for business people.
But it is quite difficult to change the mentality not only of the people who are flying but also of the travel agents. Sometimes we are offering much better conditions also regarding the tariffs because we are keen to penetrate other markets. From my point of view I am very confident that the aviation in Romania will develop, specially taking into consideration the percentage of the people in Romania who are travelling which it still is about 2.5% and the worldwide percentage is 10%. But we are constrained by the economical situation and the visa restrictions. As soon as these are waved many more people will travel. And I believe the present situation will improve rapidly. |
TAROM 