Airline Profits - Volume I - Issue 2 - April 2015

Volume I—Issue 2

A Magazine for Aviation Leaders & Influencers

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FEATURED

Is your Vision Load Factor improving or hurting your bottom line?

More articles inside...

Open Skies: What Will It Take to Compete Effectively?

Release date: April 2015

Will You Be Leveraging AIMA 2015 in Ethiopia?

Re-thinking the Airline Business: Can this Be Delayed Any Longer?

Volume I—Issue 2

April 2015

Airline Profits

Contents 6

Editorial: Let’s Make Aviation Safer and Safer!

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Profile: An Overview of Airline Profits Magazine

18

Perspective: Open Sk ies: W hat W ill It Tak e to Compete Effectively?

26

Performance: Vision Load Factor : Is this Improving or Hurting Your Bottom Line?

30

Platform: W ill Y ou B e Lever agin g AIMA 2015 in Ethiopia?

34

Paradigm: Re-thinking the Airline Business: Can This Be Delayed Any Longer?

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HEAD OF PROGRAMS: Kofi Sonokpon kofi.sonokpon@airlineprofits.com

PUBLISHED BY: Airline Profits Publications CP 53506 CSP Norgate Saint-Laurent, QC, Canada H4L 5J9 info@airlineprofits.com

All rights reserved. No part of this publication may be reproduced, duplicated, stored in any retrieval system or transmitted in any form by any means without prior written permission of the Publishers.

Airline Profits is r elea sed bi-monthly in February, April, June, August, October and December.

Airline Profits is a va ila ble in mu ltiple fo r ma ts: o nline, mo bile, digital and print. The online and mobile versions are free to all aviation and non-aviation subscribers.

Digital and print formats are chargeable based on an annual subscription.

For more information about the various subscription packages offered, visit www.airlineprofits.com

Airline Profits is a tr a dem a r k o f Ma ckso n Av ia tio n. ©2015 Airline Profits ISSN 2368-7800 (Print) ISSN 2368-7819 (Online)

www.airlineprofits.com SPECIAL CREDITS:

Lorne Bromley ● Nathalie Nyangono ● Naomi & Johanna Sonokpon

Airline Profits

April 2015

Volume I—Issue 2

Editorial Let’s Make Aviation Safer and Safer!

Kofi Sonokpon editor@airlineprofits.com

One of the followers of Airline Profits on Twitter, recently engaged us directly with the following post: “Profits vs. Safety”. Our comment was as follows: “Profits and Safety go hand in hand. When it comes to airline business, no money may easily translate into no safety.” And one would add that the reverse is also true: “no safety may also translate into no money.” It is therefore on the basis of this strong correlation between airline profits and airline safety that, we find it appropriate to open this second issue of Airline Profits on a safety note.

Since the dawn of civilization, human beings have coveted one particular thing: the possibility of flying. Even with the progressive advent of other means of transportation, the desire for freedom like the one birds enjoy in the open and boundless skies had always haunted the spirit of countless generations. Fortunately, a spark of hope sprung from the heroic courage, dedication and perseverance of the Wright Brothers. Indeed from 1903 to this day in 2015, we can say that the little spark of hope stemming from just a few seconds of flight has inspired hundreds of other inventors, provided employment and business opportunities to millions of people around the world.

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When it comes to airline business, no money may easily translate into no safety.

And one would add that the reverse is also true: no safety may also translate into no money.

And above all that, aviation had paved the way for countless of genuine and lasting relationships between people. The world that we live in has shrunk thanks to air transportation.

been done to improve safety records worldwide, some tragic events such as the recent crash of

the Airbus A320 operated by Germanwings suggest that there is still a great deal to be accom-

While safety is the number one priority of aviation and much has

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plished in that regard.

Photo Credit: Envato Photodune

Many speculations have appeared in the news about the possible causes of the accident. However, it would have been more appropriate to let the duly assigned investigators do their work, report on their findings and make appropriate recommendations.

This is the place to extend our sincere condolences to the families who have lost a dear member in this tragedy that should not have happened.

It is our collective responsibility as aviation leaders and influencers to make whatever little contribution we can toward the continuous betterment of aviation as a whole and that of commercial air transport in particular.

As the journey of aviation continues, we should all bear in mind that it is our collective responsibility as aviation leaders and influencers to make whatever little contribution we can toward the continuous betterment of aviation as a whole and that of commercial air transport in particular. Together, let us become resolved to make aviation safer and safer, in order to prevent this kind of tragedy from occurring again.

Airline Profits

April 2015

Volume I—Issue 2

“ Really a first class publication.

My heartiest congratulations. ― E. Terry Jaramillo President & CEO, vonJet Aviation Group

Airline Profits

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@AirlineProfits

Airline Profits

April 2015

Volume I—Issue 2

Profile An Overview of Airline Profits Magazine

Dear reader, In the first issue of Airline Profits, you got acquainted with your editor. In this second issue, we understand that you would appreciate having an overview of the magazine. And that is what we are going to do in the next few lines, by answering three specific questions, namely: 1. Why Airline Profits? 2. What does Airline Profits include? 3. How can you benefit from Airline Profits?

Before we get started, we would like to sincerely thank you for your interest in our publication.

By reading these lines, maybe you are one of the hundreds of people who read the first edition of Airline Profits. You may even be one of those who went ahead to express your support by subscribing to the magazine. Or else, you are one of those who made a point to share some valuable feedback to endorse or encourage us to keep it up.

In any case, your taking action has fueled our passion, energized and challenged us to keep our commitment to maintain a bimonthly publication that meets and ultimately exceeds your ex-

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Your taking action has fueled our passion, energized and challenged us to keep our commitment to maintain a bimonthly publication that meets and ultimately exceeds your expectations. To you, we say a heartfelt thank you! pectations. After several months of hard work, we are very grateful to know that you are one of the readers from all continents who have welcomed Airline Profits into your home, your office or on your computer or on your mobile device. To you, we say a heartfelt thank you!

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Let’s now continue with the overview of your magazine by addressing the first question highlighted earlier.

WHY Airline Profits?

As you may already know, the tremendous, global, economic impact of air travel will reach some ten trillions of dollars in 2015, when you combine the collective direct, indirect and induced economic impact of passenger and cargo airlines. And this statement holds true even when air carriers barely make any profits for themselves.

Airline Profits

According to IATA, the average profit margin worldwide is currently floating around three percent (3%). And one would suggest that the anticipated record collective US $25 billion in profits this year is very negligible compared to the airline industry’s contribution to the global gross domestic product (GDP), which IATA estimated to about one percent (1%). This is without considering the massive billiondollar losses airlines have repor-

April 2015

ted over one century of existence.

Therefore, there was a need for a publication like Airline Profits,

which will focus on raising profit awareness and promoting a more profitable airline industry, or said differently financially healthier airlines around the globe.

At the time of this writing, there are close to 60 aviation magazines listed worldwide and none of them focuses specifically on

Volume I—Issue 2

Airline Profits

April 2015

Volume I—Issue 2

Profile airline profitability. The quest of Airline Profits is therefore to fill that important gap, by tackling

one of the major challenges airlines have faced since 1914, when the first airline, namely the StPetersburg-Tampa Airboat Line,

It is a bi-monthly publication that is released six times a year in February, April, June, August, October and December under the international standard serial numbers (ISSN) 2368-7800 for its print version and 2368-7819 for its online version.

you are interested in being one of our guests, simply visit our website at: www.airlineprofits.com/guest for more details.

Airline Profits Blog

started operations.

Airline Profits Webinar Series WHAT does Airline Profits inIn addition to the magazine, we will be holding regular webcasts,

clude?

Besides the magazine and the webinar series, we will also be launching our blog soon. You could then revisit articles published in the magazine and share

As it name suggests, the core of Airline Profits is centered on the basic

profitability

which

is

equation,

Revenue – Costs =

Profits. Therefore, any factor that

could potentially influence that formula will be of interest to our publication.

Airline Profits Magazine

Editorially speaking, the magazine is organized around five pillars or the 5 P’s, besides the editorial section, namely: Profile, Perspective, Performance, Philosophy or Paradigm and Product or Platform. Airline Profits is available in different formats: online and digital (PDF) through (www.airlineprofits.com) and also in print.

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The quest of Airline Profits is to fill that important gap, by tackling one of the major challenges airlines have faced since 1914, when the first airline, namely the StPetersburg-Tampa Airboat Line, started operations. the Airline Profits Webinar Series, to cover specific topics of interest as well as featuring guest

your comments and feedback with us or interact with other fellow readers worldwide.

experts whose knowledge and experience can benefit the airline community.

This is the place to suggest that if

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Airline Profits on Social Media Last but not least, you can also follow Airline Profits on major

From Who to Where Reading Devices

Source

Readers Around the World

Top 10 Countries Canada

22%

United Arab Emirates

3%

United States

20%

Switzerland

3%

France

5%

Togo

3%

United Kingdom

4%

French Polynesia

2%

India

4%

Germany

2%

Airline Profits

April 2015

Volume I—Issue 2

Airline Profits

April 2015

Volume I—Issue 2

Profile social media platforms, such as:

or the online versions of the mag-

LinkedIn,

azine as well as through the

Facebook,

Twitter, Pinterest

Google+, and

YouTube.

HOW can you benefit from Airline Profits?

There are essentially three different ways that you can take advantage of Airline Profits, namely: as a Reader, as an Advertiser or as a Sponsor.

Subscribing to Airline Profits We are offering two categories of readership through a series of individual and corporate packages. The individual subscriptions include the Bronze, Silver, Gold, Platinum packages. Whereas the corporate subscriptions cover the VIP, Executive and Enterprise

webinar series.

Sponsoring Airline Profits As a Sponsor of Airline Profits, you will be featured in our webi-

For the print and digital versions

nar series as well as the various

we offer two options: full-page

formats of the magazine: print,

and half-page placements.

digital, online and mobile.

For the online version and webi-

We offer four levels of sponsor-

nar series, we can also accommo-

ship: Bronze, Silver, Gold and

date two types: Image banners of

Platinum.

different orientations and sizes and Video ads.

Editorially speaking, the magazine is organized around five pillars or the 5 P’s, besides the editorial section, namely: Profile, Perspective, Performance, Philosophy or Paradigm and Product or Platform.

packages. You can find more information at: www.airlineprofits.com/ subscribe Advertising in Airline Profits As an Advertiser with Airline Profits, you can place an ad in the print and digital version and/

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For more information about advertising with Airline Profits magazine, simply visit: www.airlineprofits.com/ advertise. You can also email us at marketing@airlineprofits.com and we will be glad to send you a proposal for your review and decision.

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For more information about sponsoring Airline Profits magazine, simply visit www.airlineprofits.com/sponsor.

You can also email us at sponsor@airlineprofits.com and we will be glad to send you a proposal for your review and decision.

Opportunity

“Every adversity, every failure, every heartache carries with the seed of an equal or greater benefit.”

— Napoleon Hill

Airline Profits

April 2015

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“ The time is always right to do the right thing. ― Martin Luther King, Jr.

Airline Profits

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@AirlineProfits

Data analytics in real time from information streaming through sensors connected to aircraft mechanical and electronic components is producing opportunities for new products and services.

For industrial manufacturers of physical assets, new revenue streams from the Internet of Things is revolutionizing the industry.

Our research shows that airlines can become more profitable and cut costs by integrating digital transformation and data analytics into all their business functions.

Airlines that traditionally operate on razor thin profit margins are extracting new revenue models from data analytics integration.

For more information and access to comprehensive reports on data integration in the airline and MRO industries, simply visit our website.

www.thedataminingcompany.com

Airline Profits

April 2015

Volume I—Issue 2

Perspective Open Skies: What Will It Take to Compete Effectively?

As you certainly know, a coalition of US carriers, namely American Airlines (American), Delta Airlines (Delta) and United Airlines (United), recently submitted a white paper to the Government of the USA. The 55page document as of January 28, 2015 was intended to present to the Obama Administration the need to address subsidized competition from state-owned airlines in Qatar and the United Arab Emirates (UAE).

This coalition which formed a partnership for open and fair skies is calling for a level playing field for all.

Highlights from the White Paper Referring to the executive summary, it took two years to investigate and gather evidence to support their case and to conclude that Emirates Airline, Etihad Airways and Qatar Airways have received $42 billion in quantifiable subsidies and other unfair benefits from their respective governments in the last decade alone. In the report, the US airlines have cited numerous references to justify their allegations about the unfair competitive threat they are facing. They also claimed that the three Gulf carriers are taking passengers away from them and are distorting the

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Open skies agreements are a win-win proposition for all parties, despite the unfair advantage the US airlines have had and will continue to have over their competitors in the global marketplace. global air transport market due to excessive capacity.

Furthermore, American, Delta and United highlighted the fact that as privately owned companies with limited financial means, they run the risk of being forced to exit transatlantic and trans-

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transpacific routes. Consequently, a significant number of jobs are at risk of being lost in the

USA; on average over 800 jobs for every round-trip they may have to forego.

They concluded by urging the US

Photo Credit: Envato Photodune

Government to take steps to address the flow of subsidized Gulf carrier capacity to the United States.

terminate the agreements with a one-year written notice.

Indeed, the agreements the USA

Now, having set the stage, let's review the case. The first thing to point out is the fact that when the USA were negotiating these open skies agreements with the Gulf States between 1999 and 2002, the latter were not yet in a position to take advantage of them.

For instance, as rightfully pointed out in the white paper, Etihad

signed with Qatar and the UAE were intended to open new markets for the U.S carriers and to

promote competition and consumer choice. And the USA Government have reserved the right to request consultations with the other parties and can unilaterally

Airline Profits

Putting Things into Perspective

April 2015

Airways did not even exist at the time and Emirates Airline and Qatar Airways were in their infancy. Besides, they did not offer services to the USA. Therefore, it is apparent as far as economy, demography and infrastructures are concerned that the USA and the US carriers had an unfair advantage over their Gulf counterparts at the time the open skies agreements were signed.

And objectively speaking, the above conclusion applies to the vast majority of the 114 open

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April 2015

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Perspective skies agreements the USA have signed to-date. However, given the positive impacts, whether direct, indirect, induced or catalytic, that the liberalization of air services have had on the global economy, it would be better to focus on and appreciate the benefits rather than criticizing some perceived disadvantages. So far, open skies agreements have proven at large to be a win-win proposition. For instances, the findings of separate teams of economic researchers tend to support this position. For reference, you may consider The Economic Impact of Air Service Liberalization, a report, published in 2006

by InterVISTAS-ga2 and sponsored by worldwide aviation stakeholders, including the Airport Council International (ACI), the Air Transport Action Group (ATAG), Boeing, General Electric (GE), IATA, Pratt & Whitney, the European-American Business Council, the Pacific Asia Travel Association (PATA), the USASEAN Business Council, US Chamber of Commerce and the World Travel and Tourism Council. You may also consider The Impact of Gulf Carrier Competition on US Airlines, a more recent work, published in 2014 by a team of five US economists.

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In light of that, the request by American Airlines, Delta Air Lines and United Airlines to reconsider the agreements seems not only over one decade late, but also very awkward. The reason is plain and simple: the open skies agreements were negotiated and signed in their favor.

As a matter of fact, the US negotiators did not anticipate that other nations and their carriers would be able to compete effectively against the giant US Carriers.

As a distant observer, one can state without taking sides that the playing field appears to be more levelled for all parties now than it was when these open skies agreements were signed, about a decade ago. Therefore, one can conclude that open skies agreements are a win-win proposition for all parties, despite the unfair advantage the US airlines have had and will continue to have over their competitors in the global marketplace.

Boeing and Airbus are doing a great deal at selling. So to put it nicely: if one cannot blame the sellers and prevent them from selling, one should also not blame the buyers and prevent them from buying.

And it is doubtful to imagine that these airlines themselves had thought otherwise until recently.

As far as open skies are concerned, one can objectively state that Emirates Airline, Etihad Airways and Qatar Airways are in their turn taking advantage of the existing agreements.

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Addressing Right Way

Overcapacity

the

The second thing to point out is about overcapacity. While it is true that overcapacity is harmful to airline profitability in general, American, Delta and United are obviously looking at this issue

Photo Credit: Envato Photodune

from a wrong perspective. Every-

sellers and prevent them from

one knows that Emirates, Etihad

selling, one should also not

and Qatar are not aircraft manu-

blame the buyers and prevent

facturers, they have been acquir-

them from buying. That is simp-

ing their airplanes from Boeing

ly a matter of following the same

and Airbus. If they are buying

Golden-rule principle that con-

airplanes in large quantity, it is

tributed to turning America into

not just because they can afford

a great nation.

them, it also because the respective sales teams at Boeing and Airbus are doing a great deal at selling them. So to put it nicely: if one cannot blame the

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Now before you get a notion that maybe this is a biased view of the situation, let us consider the real challenge that the US carriers face and how they can meet that effectively. And for that, let us

April 2015

refer back to the white paper once more.

The real challenges that the US Airlines face American, Delta and United pointed out on one hand that Emirates, Etihad and Qatar are taking passengers away from them. On the other hand, they are anticipating that more than 800 jobs will be lost in the USA for each round-trip service lost to their Gulf counterparts.

These are serious issues that need

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Perspective to be effectively addressed. However, reconsidering or terminating the open skies agreements appear to be a wrong way to tackle those issues.

The notion of taking passengers away suggests the following implications. The first and comforting one is that these passengers are not being taken away by force: they are willingly going, by choice to the competition. And the second and more important suggestion is that the US carriers have a very good idea of who these customers are. In that case their issue is half solved. All they need to do is to ask these customers why they are going away to the competition and what they can do to not only bring them back, but also to keep them?

By the same token, their conclusion suggests that they know which jobs are at risk. All they need to do is to ask the holders of these jobs what they can do differently, individually and collectively, to satisfy or better to delight their current customers as well as past customers that they can manage to bring back.

In final analysis, it is apparent that if American Airlines, Delta Air Lines and United Airlines were ready to devote the same

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amount of energy, money and the two-year’s time that went into the preparation of their white paper, to work with their current and past customers and their employees to find adequate alternatives, which can allow them to boldly step up to the competition from Emirates Airline, Etihad Airways and Qatar Airways, chances are they would not have commissioned this white paper in the first place. And provided they were not ready and willing

compete effectively in the global marketplace is not inadequate reactions, such as: requesting the amendment of open skies agreements or their possible termination, singling out passenger advocates and Hollywood celebrities or staining the reputation of the competition like what had been reported in the news over the past few months. What is required for an airline to compete effectively in an open-skies environment is first and foremost:

Provided they were not ready to take these simple steps in working with their customers and employees before calling on the US Government, then even closing the skies would certainly not make them more competitive in the global marketplace. to take these simple steps in working with their customers and employees before calling on the US Government, then even closing the skies would certainly not make them more competitive in the global marketplace.

In conclusion, what it will take to

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plain, down-to-earth common sense. Yet, before you yield to the temptation of jumping to conclusions that maybe the leaders of the US legacy carriers have a deficit of common sense, keep in mind what a fellow American had so cleverly said: common sense is not common practice.

Imagination

“Logic can get you from A to B. Imagination will take you everywhere. ” — Albert Einstein

Airline Profits

April 2015

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“ The truth of the matter is that you always know the right thing to do. The hard part is doing it.

― Gen. H. Norman Schwarzkopf

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Airline Profits

April 2015

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Performance Vision Load Factor: Is this Improving or Hurting Your Bottom Line?

As you can imagine, the notion of Vision Load Factor (VLF) was derived from that of passenger load factor, very well known to the airline industry. While passenger load factor applies to a flight, vision load factor pertains to an organization. The passenger load factor of a given flight is determined by the number of revenue passengers divided by the total number of seats available on that flight. The higher the load factor, the more profitable that flight will potentially be.

When it comes to an organization, we can assume a vision to be the ultimate destination that organization would like to reach.

In that case, you can compare your organization to a virtual airplane on route to the destination specified in your vision statement.

As an airline, you can entice customers to buy tickets and fly with you, but you cannot lawfully force them to do so. Likewise, as a leader of an organization, you would expect your staff members to buy into your organizational vision, but you cannot force them to. And this is based on the assumption that you yourself have

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Your Vision Load Factor is defined as the number of staff members who have effectively bought into your vision divided by the total number of staff members within your organization. bought into the vision in the first place, in case you are not a founder of that organization.

Therefore, we can define the vision load factor of your organization as the number of virtual seats effectively filled divided by the number of total virtual seats

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you have available in your organization. Plainly stated, this would be the number of staff members who have effectively bought into your vision divided by the total number of staff members within your organization. In other words, your vision load factor represents the proportion

Photo Credit: Envato Photodune

of your staff members who are

sustainably profitable your or-

and have bought into their vision

truly on board with you. For ex-

ganization can be.

statement. That assumption is far

ample, when your vision states that you want to be the number

What

is

Your

Vision

Load

for that very reason many organi-

Factor?

one in customer service, these people not only believe you can, but more importantly are willingly ready to do whatever it takes,

on a daily basis, to make that

zations are running well below Now, the key question that comes to mind is: what is your

obvious that the higher your vision load factor (VLF), the more

take for granted that their staff know

From that standpoint, it becomes

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their true potential and don’t even realize it.

organization’s vision load factor?

Don’t be surprised if you are not in a position to tell accurately what it is. We won’t be surprised either, because we assume that the vast majority of organizations

happen.

from the truth in most cases. And

April 2015

One thing is certain, you cannot figure out your vision load factor overnight. However, in our opinion that is an accurate measure of your effectiveness as a leader of a given organization.

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Airline Profits

April 2015

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Performance To paraphrase Simon Sinek, the author of the magnificent book Start with Why, “There are leaders and those who lead. Those who lead inspire people to action.”

Referring to Visio n Lo ad Facto r: Measuring Effectiveness of Leadership, while profitability and other financial ratios are often used to establish how well an organization and its leaders are doing, it is no exaggeration to say that these metrics only give a partial and superficial view of effectiveness.

Vision Load Factor (VLF) is intended to allow you to take a deeper look into the soul and spirit of your organization. That

in turn will enable you to determine whether your daily actions equate to sowing genuine seeds of

effectiveness

ground.

on

fertile

Vision Load Factor is intended to allow you to take a deeper look into the soul and spirit of your organization. That in turn will enable you to determine whether your daily actions equate to sowing genuine seeds of effectiveness on fertile ground.

There is a lot to be said on the subject, but our space here is limited. Therefore, we invite you to claim your free copy of Vision Lo ad Facto r: Measuring Eff ectiveness of Lead ership at www.airlineprofits.com/vision-load-factor.

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Initiative

“Initiative is doing the right thing without being told.”

— Victor Hugo

Airline Profits

April 2015

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Airline Profits

April 2015

Volume I—Issue 2

Platform Will You Be Leveraging AIMA 2015 in Ethiopia?

On September 22-24 2015 will be held the first Airport Infrastructures and MRO aviation meetings (AIMA) in Addis Ababa, the capital of Ethiopia.

Co-supported by Ethiopia Airlines, boasting the new spirit of Africa, and the Ethiopian Airports Enterprise, the meetings are supported by the African Airlines Association (AFRAA) and the Pan African Chamber of Commerce and Industry (PACCI).

AIMA Africa is organized by BCI Aerospace, a premier producer of high profile international aviation conventions, including the renowned Toulouse and Montreal Aeromarts, the Seattle Aerospace & Defence Supplier Summits as well as the MRO Meetings South East Asia and many more.

The launch of AIMA Africa, a series of biennial conferences and tradeshows, was officially announced by Stephane Castet, CEO of BCI Aerospace during a press conference held at the Hilton Addis Ababa on February 12, 2015.

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This first edition is anticipated to host some 400 participants representing about 250 companies from nearly 30 countries. Paris Airport (ADPI) and Royal Air Maroc are some of the big players who will be attending this event.

This first edition is anticipated to host some 400 participants representing about 250 companies from nearly 30 countries.

Paris Airport (ADPI) and Royal Air Maroc are some of the big players who will be attending this event.

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AIMA Africa offers a high value opportunity by combining an international tradeshow with high level conferences and prearranged one-to-one, business-tobusiness (B2B) meetings.

Photo Credit: BCI Aerospace

The meetings will focus on three main areas of interest: airport infrastructures, maintenance, repair and overhaul (MRO) and aviation training.

In a nutshell, AIMA Africa presents a unique platform for learning, prospecting, showcasing products and services and establishing new business partnership or strengthening existing ones.

AIMA Africa presents a unique platform for learning, prospecting, showcasing products and services and establishing new business partnership or strengthening existing ones.

As a media partner of AIMA Africa, Airline Profits invite you to take advantage of this special opportunity to grow your business. You can get more information about the event by visiting the official website www.bciaerospace.com/ethiopia or by contacting the Event Manager, Mrs. Marie François via email at mfrancois@advbe.com or by phone at +33-5-3209-2001.

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April 2015

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“ The right thing to do never

requires any subterfuge, it is always simple and direct. ― Calvin Coolidge

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Airline Profits

April 2015

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Paradigm Re-thinking the Airline Business: Can This Be Delayed Any Longer?

About a decade ago, IATA, the trade association that represents over 250 airlines worldwide, embarked on a journey to streamline the airline business on a global scale, by launching a program called Simplifying the Business (StB).

This very large scope, ambitious and worldwide initiative, which introduced the now widely used electronic tickets (e-tickets), bar-coded boarding passes and customer self-registration kiosks, was intended to make the industry leaner and more cost-effective while improving the overall airline customer experience.

Considering the significant economic and environmental impacts these changes have had on not only the airline industry but also outside the industry, which represent several billions of dollars in cost savings, the Simplifying the Business program was undoubtedly the right thing to do.

Now, despite the apparent success of the StB initiative, the airline industry is still far from becoming sustainably profitable.

While some may argue that 2014 and 2015 are two consecutive years of huge profits for airlines, thanks mainly to lower oil prices, it is worthwhile to bear in mind that the anticipated cumulative profits of US $44 billion over

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Considering its vision to drive a safe, secure and profitable air transport industry, IATA should initiate another large scope program for Rethinking the Airline Business, as it begins its eighth decade of existence. these two years represent only a fraction of the huge losses airlines have reported over the past hundred years of existence.

As highlighted in the first issue of Airline Profits, the first aviation magazine to promote a more profitable airline industry, it is

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high time for the airlines leaders to come together and discuss some challenging questions. The main point that needs to be tabled and address is: what is preventing the airline industry from generating more revenues and becoming sustainably profitable?

Photo Credit: Envato Photodune

Given the leadership role that IATA had assumed in transforming the industry since its inception in Havana, Cuba in 1945 and considering its vision “to be the force for value creation and innovation driving a safe, secure and profitable air transport industry that sustainably connects and enriches our world�, the organization should initiate another large scope program for Rethinking the Airline Business, as it begins its eighth decade of existence. The main objective of

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such an initiative will be to effectively address the chronic lack of profitability across the airline industry.

The Urgent Need to Act Swiftly The current state of affairs dictates the urgency of such an initiative. This is even more pertinent and pressing considering the recent acrimonious move by some US and European legacy carriers to block the stiff competition from the Gulf airlines.

April 2015

These actions, which are not necessarily in favor of airline passengers nor in the best interest of the airline industry, can potentially push commercial aviation backwards and ultimately harm the global economy. Furthermore, they run counter to the spirit of working better, together that IATA would normally boast about.

Although many experts would suggest that airline business models differ from one another

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Airline Profits

April 2015

Volume I—Issue 2

Paradigm and had evolved over time, a closer look does indicate that the core of the airline business has remained as it was since 1914.

It is a matter of public record, that the very first airline, the St. Petersburg-Tampa Airboat Line (founded by Percival E. Fansler) ceased operations in less than five months. However, Fansler’s vision was forward-thinking and strong enough to inspire, germinate and grow into a worldwide industry. And the fundamental assumption and key elements inherent to his business model have since been replicated over and over throughout the world.

As a matter of fact, even though airline passengers have been grouped into two main segments: leisure vs. business travelers, the very reason why people travel by air seems to have remained a rich and untapped goldmine. Instead, carriers have mainly clung on to low pricing, auctions and subsidies, which is exactly the same combination that Fansler has initially used.

By so doing, airlines have literally locked and check-mated themselves in what some marketing experts would call a bargaining corner, where it is hard

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to generate substantial profits, due to stiff competition on pricing. It is worth mentioning that the so-called premium carriers have not done any different. Any objective airline analyst would recognize that there is really not much of a differentiation out there in the marketplace: airlines, in general, are playing copycat with each other as far as passenger services are concerned.

Therefore, it is critical to come to the realization that the airline business needs a drastic turnaround at its core.

This is also the opportunity to emphasize once again the need for the airline community to work together at addressing the lack of profits in the airline industry, instead of trying, in a stealthy yet vain attempt, to tear each other down.

Airlines have literally locked and check-mated themselves in what some marketing experts would call a bargaining corner, where it is hard to generate substantial profits, due to stiff competition on pricing.

The intent here is not to offer a one-size-fits all solution. It is rather to raise a red flag and draw the attention of aviation leaders and influencers to the fact that after a century of existence, the airline industry is financially sick, despite the recent wave of airline profits.

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Figuratively speaking, they are all in the same boat. Thus, they would do well to work together and come up with creative solutions, so as to grow the airline industry pie, so to speak. That pie would be big enough for each of them to get fair share of and grow sustainably profitable.

Time

“Recognizing that perhaps time is our most precious asset.

And that it is the most perishable asset that the Creator grants as every day may mark the most successful turning point in our lives.”

— Kofi Sonokpon

Airline Profits

April 2015

Volume I—Issue 2

“ When one door closes, another opens; but we often look so long

and so regretfully upon the closed door that we do not see the one which has opened for us. ― Alexander Graham Bell

Airline Profits

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