Chief commercial officer of AZAL: Ticket prices aren't always set by airline preferences - INTERVIEW

Azerbaijan Airlines is confidently paving its way to success in the competitive landscape of global aviation.

In an interview with Report, Mr. Jamil Manizade, Chief Commercial Officer of Azerbaijan Airlines (AZAL), discussed the airline's achievements, future plans, and what sets it apart from its competitors.

- Mr. Manizade, Azerbaijan Airlines positions itself as a traditional carrier. What are the key distinctions between your airline and low-cost carriers?

- At AZAL, we align our offerings closely with the best international practices. We provide comfortable flights with a wide range of services included in the ticket price, such as free baggage allowance, check-in, onboard meals, and entertainment programs. Our goal is to ensure that every flight with Azerbaijan Airlines is both enjoyable and memorable.

In contrast, the low-cost airline model deliberately limits the range of services to reduce airfare as much as possible. By excluding most ancillary services, low-cost carriers focus heavily on maximizing the promotion and sale of these add-ons. In some leading global low-cost airlines, ancillary services can account for 40-50% of total revenue. This approach is neither better nor worse than that of traditional airlines — it's simply a different business model.

- However, many passengers complain about the high cost of tickets. How do you explain this?

- Our goal is to strike a balance between offering affordable prices and maintaining the high level of service that our passengers have come to expect. We strive to ensure that every passenger receives the best value for their money, even if the cost of airline tickets may sometimes appear high.

The price of a ticket is influenced by various factors beyond the airline’s direct control. In addition to our investments in fleet maintenance and modernization, we also face fluctuating fuel prices and other operational costs that contribute to the final ticket price.

Unfortunately, the COVID-19 pandemic has had a significant negative impact on the entire aviation industry, leading to increased costs for airlines and, consequently, higher ticket prices. While we are actively working to optimize these costs, we remain committed to maintaining the quality of our service.

To provide passengers with more affordable flight options, we have already taken steps that reflect modern industry trends. The line between low-cost carriers and traditional airlines is becoming increasingly blurred. Nearly all AZAL flights now offer a special fare without free baggage allowance, with stricter conditions for returns and rebooking, making these fares more affordable compared to other fare families.

We should also keep in mind our discount campaigns, which have been actively conducted over the past two years.

Such campaigns are advantageous for both customers and the airline, fostering mutually beneficial cooperation. Passengers have the opportunity to purchase tickets at attractive prices in advance, while the airline benefits from increased publicity and higher flight occupancy.

For instance, during the Black Friday campaign on November 23, 2023, AZAL combined traditional discounts with the promotion of our updated mobile application. On that day alone, thousands of people purchased tickets at discounted prices to 40 destinations. Over 100,000 people visited AZAL's online sales platform, and we sold 11,000 tickets in just one day. This campaign also led to AZAL achieving the top rank in app downloads in the region on both Android and iOS platforms.

As a result of these efforts, the average cost of AZAL air tickets decreased by 18% in the first six months of 2024 compared to the same period in 2023.

We will continue to implement similar campaigns and other initiatives aimed at making our offers even more attractive to our passengers.

- You mentioned the pandemic. How have the pandemic and the post-pandemic period affected the airline?

- The pandemic posed a significant challenge to the airline industry. For a time, most of our aircraft were grounded, and our route network was reduced to just a few flights per day.

In 2021, we began to see a gradual recovery as COVID-19 flight restrictions started to ease.

The year 2022 marked the beginning of the post-pandemic period. The recovery accelerated, coinciding with the airline’s internal transformation. The surge in travel demand, following a prolonged period of restrictions, led to more customers willing to allocate their family budget to travel. However, due to a shortage of pilots, maintenance personnel, and aircraft, airlines were unable to fully meet this demand, resulting in higher flight costs worldwide.

The intense growth in air travel in 2023 and 2024, combined with favourable market trends, has significantly contributed to the airline's successful expansion.

We are now witnessing a gradual cooling of the market, a return to pre-pandemic seasonality, and a stabilization in pricing. These developments create additional opportunities for AZAL.

- Could you provide specific figures to illustrate this growth?

- In 2023 and the first half of 2024, AZAL experienced significant growth in both passenger numbers and route network expansion.

In 2023, AZAL took a proactive approach by opening 31 new destinations across Europe and Asia, setting a record in the company’s history. The optimization of pricing policies and the implementation of digital solutions further supported our efforts to enhance competitiveness.

As a result, passenger traffic increased by an impressive 30% in 2023 compared to 2022, reaching a record high of 2.9 million passengers. International flights saw particularly rapid growth, with a 46% increase, totalling 2.2 million passengers.

In the first half of 2024, the flight load factor reached 80%, which is 7% higher than in the same period in 2023. Additionally, as mentioned earlier, the average ticket price decreased by 18% compared to the previous year. The total seat capacity offered by AZAL in the first half of 2024 was nearly 50% higher than the year before.

- What challenges have emerged as a result of the sharp increase in volumes and the opening of new destinations?

- Rapid growth presents challenges for any airline, and AZAL is no exception.

One of the primary challenges has been a shortage of aircraft. To address this, we utilized wet leasing, which involves leasing aircraft along with crew, maintenance, and insurance. This approach allowed us to quickly expand our fleet and meet demand while maintaining our service and safety standards. Although wet leasing is costly and has drawn some criticism from passengers, it enabled us to achieve growth ahead of the arrival of new Boeing and Airbus aircraft in 2025-2026 and to increase our market share on many strategically important routes.

Another challenge is the limited capacity of Heydar Aliyev International Airport. Efforts are actively underway to address this issue. When the Terminal 1 was designed, the current volume of traffic was difficult to foresee. While we can continue to operate with the existing infrastructure in the short term, modernization will be essential for medium- and long-term development.

We also face intense competition. Currently, our share of Azerbaijan’s international transportation market is less than half. The entry of 17 low-cost carriers and discounters has intensified competitive pressure. Today, nearly 90% of AZAL's route network faces competition from carriers based in other countries. Passengers always have alternatives – the airline understands this well and is committed to competing for each customer. To remain competitive, we need to offer more comfortable services and attractive pricing.

- What role does Azerbaijan’s favourable geographical location play in your strategy?

- Thank you for this question. This is indeed one of the key factors in our strategy. While Azerbaijan is well-known for its natural resources, the strategic importance of its geographical location for the aviation industry is often overlooked. Positioned at the crossroads of Europe and Asia, Baku offers a more attractive transfer hub compared to our main competitors, Istanbul and Dubai. This advantage significantly expands our opportunities.

One important indicator is the origin-destination flight duration time, which measures the total time spent in flight between two points with a connection. Routes via Baku are typically shorter and more efficient compared to alternatives, making them more profitable.

Today, transfer passengers, for whom Azerbaijan is neither a departure nor a destination point, account for 20% of our total traffic. This increase is due to both geopolitical factors and the initiative-taking efforts of our sales team to penetrate major source markets.

It is important to note that, contrary to widespread belief, having a large share of transfer passengers is not an end in itself. For AZAL, it is a crucial strategy due to the relatively small size of the domestic market, which comprises just 10 million people. Even with the growth of inbound tourism, rapid expansion requires us to enter and capture foreign markets. However, relying too heavily on foreign markets can be risky due to their volatility compared to the more stable economic environment of Azerbaijan.

AZAL’s success over the next 5-10 years will depend on finding the right balance between direct and transfer passenger traffic.

- Could you then share Azerbaijan Airlines' development plans with us?

- We have set ambitious goals: by 2030, we plan to more than double our passenger traffic, expand our route network to 80 destinations, and solidify our position as a regional leader in the aviation industry.

Currently, AZAL operates 25 aircraft of various types for regular passenger service, with an average age of 11 years. Additionally, as mentioned earlier, we have temporarily leased 3 Airbus A320 aircraft to boost passenger traffic.

According to our Strategic Development Plan, by 2030, the airline's fleet will be streamlined to just 2-3 aircraft types, with the average age reduced to 5-6 years — a positive indicator for the industry. This approach will significantly lower costs associated with aircraft maintenance and personnel training.

We have already signed contracts for the supply of new Airbus Neo family aircraft and wide-body Boeing 787 Dreamliner.

Our route network will be actively expanded towards Asia, with a particular focus on China, Kazakhstan, and Uzbekistan.

- What key steps are you taking to achieve these goals?

- I have already touched upon this topic a little in my answer regarding the country’s advantageous geographical location. The airline is adopting a hub-and-spoke model, focusing on creating efficient connections for transfer passengers.

By organizing two "waves" of connections - morning and evening - we can increase volumes through transfer passenger traffic while also providing more travel options for direct passengers traveling to and from Baku. I am sure that domestic aviation enthusiasts have already noticed these “waves” by analysing our schedule. The growing number of foreign passengers in the transit area of Heydar Aliyev International Airport and on our flights speaks for itself.

The hub-and-spoke model allows us to optimize routes, reduce costs, and increase passenger traffic by evenly distributing it across all flights, thereby reducing the number of empty seats. At the same time, flights must be well-coordinated to ensure that passengers can quickly and easily connect at the base airport.

Although the implementation of the hub-and-spoke model is complex, we believe it is key to Azerbaijan Airlines' success in the global market. It optimizes aircraft utilization and improves flight load factors.

- What measures are you taking to renew and expand the fleet to support all these areas of growth?

- The rapid growth of the airline naturally requires significant investment in fleet renewal and expansion. In April 2023, the company signed contracts with Airbus and Boeing for the delivery of new aircraft, which will be arriving over the next few years. I would like to emphasize that the financing for these acquisitions is planned to be covered by the airline’s own funds.

These new aircraft will be equipped with modern technologies designed to enhance passenger comfort and reduce carbon dioxide emissions, aligning with the company's Sustainable Development Strategy.

We are also gradually decommissioning older aircraft to improve the efficiency and environmental sustainability of our fleet.

- What strategies do you use to maintain competitiveness and attract new customers?

- In the dynamic air transportation environment, AZAL bases its operations on several key strategies. We are continuously enhancing the quality of passenger service and customer experience, with the goal of maximizing satisfaction and meeting customer expectations. This includes improving airport services, in-flight catering, expanding loyalty programs, and introducing modern technologies.

To optimize operations and increase efficiency, the company actively leverages modern technologies and innovative solutions. This approach allows us to reduce costs, enhance service quality, and offer passengers more favourable fares.

As mentioned earlier, we also regularly renew our fleet by acquiring modern and efficient aircraft. This not only helps reduce fuel costs and lower CO2 emissions — an especially significant factor in light of COP29 in Baku — but also provides passengers with a more comfortable flying experience.

I would like to make specific mention of our loyalty program. Passengers can earn miles, receive ticket discounts, and enjoy other benefits, which enhance AZAL's appeal and encourage repeat business. We are planning to introduce an updated loyalty program for our frequent flyers in the near future. AZAL has invested in top-tier software and completely revamped the rewards and points accumulation system. Passengers will soon be able to manage their miles through their personal accounts on our website and purchase reward tickets online, eliminating the need to visit our office.

Booking tickets with AZAL has become much easier and faster. Through the AZAL mobile app, passengers can check in for flights and manage reservations anytime, anywhere. The new online check-in system allows passengers to check in up to 48 hours before departure and select their preferred seat in the cabin. We have already introduced automatic ticket refunds via our website, and in the near future, we will be rolling out the option to automatically change the departure date.

In general, we have chosen to take a bet on new technologies and digitalization. In this regard, the role of our direct sales channels — our website and app — cannot be overstated. Today, despite the rapid growth in passenger traffic, online sales are also increasing, now accounting for 39% of total sales. Notably, for domestic flights, with the Baku-Nakhchivan-Baku route as the main direction, this figure reaches 50%.

However, our greatest asset has always been and continues to be the people working at AZAL. Today, our airline is a cohesive team of professionals who are passionate about their work and understand the responsibility they bear for the company's results and future development. We strive to adopt best practices from the world's leading airlines, make data-driven decisions, and invest in our human potential.

- What about the AZAL brand at the international level?

- Undoubtedly, enhancing brand recognition requires a comprehensive approach that involves not only significant investments but also a deep understanding of the global market.

AZAL is one of the few Azerbaijani brands that has gained recognition abroad. For many visitors, their journey to discover our country begins with us, and we take this mission very seriously. This is why we are committed to incorporating national elements into our onboard service. As a vivid illustration, passengers have already had the chance to view our new safety instructions video: https://www.youtube.com/watch?v=OUUST60Qjyc.

There are also several notable examples of winning international awards. Thus, in June 2024, Skytrax awarded us the title of Best Regional Airline in Central Asia and CIS. However, AZAL's brand recognition abroad still has room for growth. We will need to actively invest in enhancing our image.

At the same time, positive reviews and recommendations from travellers will naturally enhance the brand's reputation.