Airlines 2018-03

2018 – 03

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AIRLINES.

WEATHERING THE STORM Weather reporting is entering a new phase, promising safety and operational benefits

2018 – 03

CEO Interviews Cathay Pacific, New Zealand | IATA Opinion Government cooperation | Slots Dealing with capacity issues | Airport privatization Private ownership has more questions than answers

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01/08/2018 08:14

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05/07/2018 10:58

Airlines.

Contents 2018 – 03

Comment

24 A thirst for culture

5 Alexandre de Juniac, Director General

Christopher Luxon, Air New Zealand CEO, discusses the challenges of aviation and why hospitality is key to the carrier

Urgent solutions from governments and ANSPs needed to address flight delays 17 IATA Opinion: Peter Cerda, Regional Vice President for the Americas

Dossier

Politics in Latin America must work together with aviation for mutual benefit

Airport privatization can only be pursued if consumer benefits are kept to the fore

Digest

Features

8 IATA and industry update

36 Striking the right deal

Thailand to address infrastructure, Heathrow runway financing, RED II decision 'disappointing', Airlines' profit

World Slot Guidelines' strategic review will further strengthen the allocation of ever-scarcer airport capacity

31 In everyone's interest

31

3

14 Data: In numbers

40 Fair weather ahead

World Air Transport Statistics 2017

Weather reporting is advancing rapidly, with the new phase set to bring more safety and operational benefits

CEO Interviews 18 Nothing succeeds like success

Cathay Pacific CEO, Rupert Hogg says the expansion of Hong Kong airport will aid the airline's opportunities for growth

IATA Corporate Communications Vice President Anthony Concil Creative Direction Richard McCausland Assistant Director Chris Goater www.iata.org Editorial Editor Graham Newton Head of content production DeeDee Doke Assistant editor Patrick Appleton Senior designer Gary Hill Picture editor Claire Echavarry Production Production manager Jane Easterman +44 (0)20 7880 6248 jane.easterman@redactive.co.uk Publishing director Aaron Nicholls

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60 Seconds with...

18

Advertising Business development manager Nigel Collard +44 (0)20 7324 2763 nigel.collard@redactive.co.uk

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36

42 Yvonne Manzi Makolo, CEO of RwandAir

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2018 – 03 Airlines

01/08/2018 08:15

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05/07/2018 11:00

Comment: Director General and CEO, IATA

Progress on delays is urgent Precious minutes continue to be wasted for all travelers due to unacceptable delays—governments and key ANSPs must address the problem, and quickly

ILLUSTRATION: SAM KERR

T

he summer season in the northern hemisphere is peak travel time. It puts a huge amount of stress on the global system which is struggling to cope with 4 billion passengers.

A clear example of that stress is being felt by air travelers in Europe. Eurocontrol predicts that air traffic control delays on the Continent will be over 14 million minutes this year. But this is almost certainly an under-estimate. So far this year, delays are running at double 2017 levels.

Put another way, 14 million minutes equals 27 years of delays.

It is a challenge to calculate the full consequences of that. But however you calculate it, the total impact will likely be underestimated because who knows what might have happened if those precious minutes had not been wasted.

There is no switch to flip that would make the system perform better immediately. However the components of the solution are no secret. Upgrading technology, reforming work practices, empowering a network manager and enforcing stronger performance penalties are the formula that we need.

But Europe’s national politicians have failed for decades to take the action needed.

In the last year, IATA has agreed with Poland, France, Italy, Bulgaria and Spain to develop national airspace strategies that we hope will deliver progress that others can follow. We are eager to turn these agreements to work together into concrete results. A key area of progress is for Air Navigation Service Providers (ANSPs) to plan and deploy human and technological assets and investment appropriately. Lack of resources is not the problem: as flights across Europe have increased, so has the airlines.iata.org

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revenue for ANSPs. Eurocontrol calculates that they have made an average 9.6% EBIT in recent years. Contrast that with an expected 6.4% EBIT margin generated by European carriers this year.

Unfortunately, key ANSPs have either under-invested in staff, not deployed them where and when they are most needed, or not made the necessary technological investments to increase capacity. It is not right that ANSPs—and their government owners—sit on a growing cash pile while passengers suffer.

The need for progress is urgent. The number of travelers is set to double over the next two decades which means that the problem grows bigger with each year. And unless we pick up the pace of reform, the economy of the future—in Europe and around the world—will be severely handicapped because the system will simply not be able to handle the demand for the connectivity that powers growth and development.

So the next time you hear the dreaded air traffic control delay announcement consider using the time to write to your local government representative to ask them to do better. And encourage your friends to do the same. Without change, paralysis awaits.

5

Alexandre de Juniac: Director General and CEO, IATA 2018 – 03 Airlines

01/08/2018 08:15

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01/08/2018 08:16

Aviation showed its true worth with an important role in the Tham Luang cave rescue.

Heavy rains had flooded the cave, leaving 12 Thai boys and their football coach stranded, but rescue teams from all over the world flew into assist the operation. The amazing global effort helped save all 13 stranded in the cave, with helicopters also helping transport some of the boys to hospital.

The Big Picture

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7

2018 – 03 Airlines

01/08/2018 08:16

Digest Thailand committed to addressing infrastructure challenges The International Air Transport Association (IATA) has called for an aviation infrastructure masterplan to take priority in Thailand, following a meeting between government and aviation officials in Bangkok.

Chaired by Thailand’s Minister for Transport Arkhom Termpittayapaisith, the Joint Aviation Industry Stakeholders Meeting with IATA on June 14 discussed how to strengthen industry engagement to maximize the benefits of the anticipated growth of Thailand’s aviation sector.

Conrad Clifford, IATA’s Regional Vice President for Asia-Pacific said that the industry must work together with the Thai government to deal with the expected challenges of industry growth

adjust existing masterplans while also taking into consideration other factors including the potential impact of high-speed rail and wider adoption of technology solutions.

Plans to address the soft tarmac at Suvarnabhumi Airport were also discussed, with Minister Termpittayapaisith calling it a ‘major concern’. He said the Thai government was ‘committed’ to working with IATA to address the issue instantly, which Clifford welcomed.

The MOT-IATA Joint Aviation Industry Stakeholders will meet every quarter to review the progress of the key industry priorities identified. The next meeting is planned for the fourth quarter of 2018.

IMAGES: GETTY/ISTOCK/SHUTTERSTOCK

8

in the country, which is expected to be among the top 10 passenger markets in the world by 2036.

“We had a very positive meeting with the Honorable Minister Termpittayapaisith and his team,” said Clifford. “It was recognized that a collaborative approach is needed to overcome the challenges of handling the anticipated growth of air travel to and through Thailand.

“The top priority is to develop a cohesive aviation infrastructure masterplan for the airports in the greater Bangkok area—Don Mueang, Survarnabhumi and U-Tapao.

Incorporating industry input will be key.”

The meeting resulted in the establishment of an Airport Consultative Committee (ACC), which will review and

Airlines 2018 – 03

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airlines.iata.org

01/08/2018 08:17

Digest

“Achieving Africa’s potential will not happen by chance. This MoU will ensure that global standards and best practices form the backbone of Africa’s aviation growth.” Alexandre de Juniac (see story p9, below)

Tighter economic regulations needed at Australia’s airports The International Air Transport Association (IATA) has voiced its concerns over Australian airport charges, calling for a strengthening of economic regulations in the region.

IATA is currently working with Airlines for Australia and New Zealand and the Board of Airline Representatives Australia to provide input to the Productivity Review on Economic Regulation of Airport Services this year.

“At a time when we have an infrastructure crisis globally, Australia has a good story to tell,” said Alexandre de Juniac, IATA’s Director General and CEO in a keynote address to the Australasian Aviation Press Club (AAPC).

“The plans for a new airport at Badgerys Creek are encouraging, as are efforts for cooperation between civil and military authorities to more efficiently use airspace. But

we need to take a serious look at airport charges.

“Last year the Australian Competition and Consumer Commission raised concerns about the effectiveness of Australia’s price monitoring regulatory regime for airport charges.

“They were not convinced that it does enough to constrain the market power of Australia’s main airports. We agree with the ACCC’s view.”

De Juniac also explained that while traveling by air has become cheaper in the past decade, airlines and travelers have not seen proportionate decreases in airport costs.

“The difference is that airlines operate in a competitive environment while airports have much more market power,” he said.

“We must find an effective regulatory solution to ensure that Australia is well served with competitive infrastructure.”

IATA AND AFRAA JOIN FORCES IATA and The African Airline Association (AFRAA) have signed a memorandum of understanding (MoU) to further enhance future cooperation.

Under the MoU, IATA and AFRAA will exchange information, expertise, and capabilities and work jointly to enhance safety, promote regional air connectivity, encourage data exchange and improve security.

Also covered by the MoU is the intended liberation of airline funds by advising

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governments on best practices to clear backlogs.

Alexandre de Juniac, IATA’s Director General and CEO said: “This MoU will strengthen IATA’s already close relationship with AFRAA and help ensure that global standards and best practices form the backbone of Africa’s aviation growth.”

The MoU paves the way for further development in African. Aviation supports 6.8 million jobs and creates $72.5 billion of economic activity on the continent.

Events

September to October

International Aviation Summit 3-4 September New Delhi, India Airs@t Forum 11-12 September Siem Reap, Cambodia AIR Hackathon 14-16 September Geneva, Switzerland

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Global Fraud Prevention 17-18 September Madrid, Spain World Financial Symposium 17-20 September Madrid, Spain Digital Cargo Conference 18-19 September Geneva, Switzerland AirportIS Forum 19 September Guangzhou, China Central America Aviation Day 19-20 September San Jose, Costa Rica AVSEC World Day 1 October Athens, Greece

Connecting the continent: IATA and AFRAA's link-up will benefit the whole of Africa

Global Airport & Passenger Symposium 2-4 October Athens, Greece

2018 – 03 Airlines

01/08/2018 08:17

Digest

Disappointing: Use of sustainable aviation fuels suffered a blow with RED II

IATA: RED II decision a ‘lost opportunity’

10

IATA has expressed its disappointment at the result of the European Union’s Renewable Energy Directive (RED II) Negotiations on Support for Sustainable Aviation Fuels (SAF).

An agreement was reached on June 14 between the European Commission, the European Parliament and the EU Council (EU member states), but despite the regulatory framework including a binding renewable energy target of at least 32% by 2030 IATA said more government support is needed to encourage SAF production.

“IATA, on behalf of its 290 global airline members, is disappointed in the outcome of the RED II trilogue,” said

Rafael Schvartzman, IATA’s Regional Vice President for Europe. “A major opportunity has been lost for Europe to create a regulatory framework to encourage the production of sustainable aviation fuels (SAF).”

Schvartzman said that most experts had pointed toward a multiplier of 2 for SAF within RED II as being beneficial, but the deal set the multiplier at 1.2 within Europe.

The IATA Regional Vice President for Europe said that although the outcome was disappointing, the aviation industry will continue to invest in SAF and other measures to help reduce carbon and create a sustainable future for air travel.

Passenger demand continues to grow in May International Air Transport Association (IATA) Director General and CEO Alexandre de Juniac has welcomed “solid” global passenger traffic results growth in May.

On demand: Passenger numbers continue to grow across the globe

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Demand, measured in revenue passenger kilometers (RPKs), rose 6.1% compared to May 2017 and provided slight growth from 6.0% experienced in April of this year.

In the breakdown, international passenger traffic demand rose 5.8% in May, up from 4.6% the previous month.

All regions recorded growth, with Asia-Pacific leading the way with an 8.0% rise in RPKs. Domestic demand also rose, hitting 6.6% in May compared to 12 months previous. This was led mostly due to growth in China and India, although it suffered a 2.0% fall from 8.6% year-on-year growth in April.

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01/08/2018 10:42

Digest

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Airlines are expected to achieve a collective net profit of $33.8 billion on revenues of $834 billion in 2018, a net margin of 4.1%.

$33.8billion

“A major opportunity has been lost for Europe to create a regulatory framework to encourage the production of sustainable aviation fuels (SAF).” Rafael Schvartzman (see story p10, left)

Airline profits enjoy ninth year ‘in the black’ $ Airlines are expected to achieve a collective net profit of $33.8 billion on revenues of $834 billion in 2018, a net margin of 4.1%.

This is despite rising costs, including fuel, labor, and interest rates. Overall unit costs are forecast to rise 5.2% this year, after a 1.2% increase in 2017; a significant acceleration.

Indeed, profits at the operating level, though still high by past standards, have been trending slowly downwards since early 2016 as a result of accelerating costs.

“The industry’s financial foundations are strong, with a nine-year run in the black that began in 2010,” said Alexandre de Juniac, IATA’s Director General and CEO. “And the return on invested capital will exceed the cost of capital for a fourth consecutive year. At long last, normal profits are becoming normal. This enables airlines to fund growth, create jobs, strengthen balance sheets and reward our investors.”

In 2018, the return on invested capital is expected to be 8.5%.

“Aviation spreads prosperity and enriches the human spirit,” said de Juniac. “That truth lays the foundation for a very important message. The world is better off when borders are open. And our hard work as an industry has primed aviation to be an even stronger catalyst for an ever more inclusive globalization.

“Every day, goods, people, investment and ideas are connected using aviation’s network. That supports 63 million jobs and improves life for all.”

11

Air freight demand—measured in freight tonne kilometers (FTKs)—was up 4.2% in May, which was a slowdown compared to the 5.2% annual growth achieved in April. Available freight capacity (AFTKs) grew by 6.2% year-on-year in May, making it the fourth consecutive month in which capacity outstripped demand.

IATA’s mid-year industry outlook has revised 2018 freight growth to 4.0%, down from the previously forecasted 4.5% in December 2017.

6.2%

2018 – 03 Airlines

01/08/2018 08:17

AIRLINES AN ‘EASY TARGET’ FOR CARIBBEAN TAXATION

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Excessive taxes across the Caribbean aviation industry are counter-productive, according to Peter Cerda, International Air Transport Association (IATA) Regional Vice President, The Americas.

“While there is no denying the budgetary challenges facing many governments in the region, imposing heavy fees and taxes on aviation and air travel negatively affects levels of tourism and business travel—the very things required for a vibrant economy,” said Cerda.

Speaking in Barbados at Aviation Day Caribbean, organized by IATA, the

Caribbean Development Bank and the Latin American and Caribbean Air Transport Association, Cerda called on governments to work together with the industry to help aviation deliver greater benefits to the region.

“Too many of the region’s governments still see air travel as a luxury—and an easy target for taxation,” he said, while also pointing out that typically, such taxes are not invested to improve aviation infrastructure, but rather to boost the coffers of state treasuries.

An IATA report has shown that in one Caribbean state, 70% of

the average one-way fare is made up of taxes and charges, with the figure in 10 other markets in the region sitting at 30%.

“The Caribbean region is well-positioned to increase the benefits that aviation can deliver,” Cerda said. “But this can only occur in partnership with governments that recognize that the true value of aviation in its connectivity, not fees and taxes.”

70% An IATA report has shown that in one Caribbean state, 70% of the average one-way fare is made up of taxes and charges, with the figure in 10 other markets in the region sitting at 30%.

30%

ICAO APPROVAL OF CORSIA STANDARDS PRAISED The aviation industry has hailed the Council of the International Civil Aviation Organization (ICAO) after it delivered a key step in implementing the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).

At a meeting in Montreal, Canada, the ICAO Council approved a set of standards and recommended practices—

Airlines 2018 – 03

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including technical rules on how to measure and report emissions—to ensure that airlines comply with CORSIA. Reacting positively to the news, Michael Gill, Executive Director of the cross-industry Air Transport Action Group (ATAG), said: “This now allows Governments and industry to make final preparations for implementation before the CO2 emissions

monitoring and reporting obligations commence in January 2019. The ICAO Council is to be commended for their fast progress on this important technical work.”

Gill also pushed ICAO to quickly turn to the additional decisions required to operationalize CORSIA’s carbon offsetting provisions, which are set to take effect in 2021.

2021

Digest

Gill also pushed ICAO to turn to the additional decisions required to operationalize CORSIA's carbon offsetting provisions, which are set to take effect in 2021.

airlines.iata.org

01/08/2018 08:17

Digest

IATA draws up strategy for ATM delays

Caution urged over Heathrow runway financing global air transport network”, but he emphasized that the deal should not be subsidized by airlines or travelers.

“It would be a shame if, having waited so long for the fruits of expansion, the UK were to shoot itself in the foot by creating an overpriced, uncompetitive airport,” he said.

Further planning approval is needed from Parliament before detailed procedures can be put in place, but Schvartzman is also hopeful that the opportunity for vital night flights will be a conditional part of any future plan.

IATA has devised a four-point plan to address Air Traffic Managements delays after data from Eurocontrol showed that the first half of 2018 saw ATM delays double to 47,000 minutes per day, a 133% jump from the same period in 2017.

IMAGE: HEATHROW AIRPORT

The International Air Transport Association’s (IATA) Regional Vice President for Europe Rafael Schvartzman has welcomed the approval of Heathrow Airport’s expansion, but signaled a warning about its financing.

The British government won the House of Commons vote in favour of the National Policy Statement on airports by 415 votes to 119, a majority of 296, to pave the way for construction of a new £14 billion runway.

Schvartzman described the news—which opens the way to the expansion of Heathrow Airport— as a “momentous day for the

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The points include: Modernizing the infrastructure and ensuring implementation of the Single European Sky ATM Research (SESAR); Reforming outdated work practices; Empowering the European Network Manager to plan the network accordingly for travelers; Ensuring failing ANSPs are properly penalised.

2018 – 03 Airlines

01/08/2018 08:17

Data

In numbers

W O R L D A I R T R A N S P O R T S TAT I S T I C S 2 0 1 7 R E V I E W

Top Passenger Countries by Region, 2017: Year-on-year growth continued globally, most notably in China and the United Kingdom where a combined 850 million people enjoyed the benefits of aviation.

Growth

Growth

Growth

4%

13.2%

4.2%

11%

3.1%

5.9%

Africa: South Africa 24.5m

Asia/Pacific: People’s Republic of China 605.5m

Middle East: Saudi Arabia 60.1m

Europe: United Kingdom 244.1m

Latin America and Caribbean: Brazil 88.1m

North America: United States753.4m

Growth

Growth

Growth

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20,000 In 2017, airlines connected a record number of cities worldwide, providing regular services to more than 20,000 city pairs. This is a doubling of service since 1995, and the cost of air travel for consumers has also halved since.

World scheduled cargo traffic: 2017 saw Available Freight Tonne Kilometres rising to more than 500 million and Freight and Mail Tonne-Kilometres experiencing an 11% year-on-year growth.

CARGO TRAFFIC Freight Tonnes Carried (thousands)

ALL CARGO OPERATIONS 2017

% Change

MIXED OPERATIONS 2017

% Change

TOTAL 2017

% Change

34,514

7.5

27,370

8.4

61,885

7.9

Freight and Mail Tonne-Kilometres (millions)

133,199

8.9

121,596

11.0

254,795

9.9

Available Freight Tonne Kilometres (millions)

198,303

5.7

315,010

5.0

513,314

5.3

67.2%

1.9

38.6%

2.1

49.6%

2.1

Freight Load Factor

Note: All–cargo operations refer to traffic carried out by dedicated cargo aircraft. Mixed operations refer to traffic operated by aircraft that transport both passengers and cargo.

Airlines 2018 – 03

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airlines.iata.org

01/08/2018 10:43

Data

Oil prices rose, but affected regions unevenly.

38bn

2017 was a year of two halves for crude oil and jet fuel prices, with the first six months seeing lower prices. Prices ended the year around 20% higher than at the beginning, with a weak US dollar helping to offset rising prices for most.

130 US dollar terms Brazil Russia India

120

Supported by strong demand and a healthy global economic backdrop, the airline industry generated an estimated net post-tax profit of $38 billion in 2017–a new record high.

This is the third consecutive year of strong financial performance.

China Euro Mexico S. Africa

110

100

90

80

70 Jan-2017

Apr-2017

Jul-2017

Oct-2017

In 2000, the average citizen flew just once every 43 months. The time between trips by 2017 was lower by nearly half, at only 22 months.

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city pairs Top airlines: ranked by passenger traffic: Scheduled Passengers–Kilometres Flown INTERNATIONAL

DOMESTIC

TOTAL

Rank

Airline

Millions

Rank

Airline

Millions

Rank

Airline

Millions

1

Emirates

288,886

1

American Airlines

204,103

1

American Airlines

323,968

2

Ryanair

157,114

2

Southwest Airlines

200,558

2

Delta Air Lines

316,378

3

Lufthansa

147,168

3

Delta Air Lines

182,204

3

United Airlines

310,859

4

United Airlines

146,582

4

United Airlines

164,277

4

Emirates

288,886

5

Qatar Airways

143,930

5

China Southern Airlines

120,548

5

Southwest Airlines

207,672

6

British Airways

142,804

6

China Eastern Airlines

94,382

6

China Southern Airlines

177,458

7

Delta Air Lines

134,175

7

Air China

81,022

7

Ryanair

157,114

8

Air France

133,877

8

JetBlue

60,237

8

Lufthansa

152,214

9

American Airlines

119,865

9

Alaska Airlines

54,190

9

China Eastern Airlines

150,916

10

Turkish Airlines

114,063

10

Hainan Airlines

52,898

10

Air China

146,961

Note: The data presented in the Passenger Traffic Ranking is sourced directly from airlines, the US Department of Transportation, or estimated by IATA. The data refers to total scheduled traffic, excluding non–scheduled (or “charter”) traffic that does not have pre–established schedules.

airlines.iata.org

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2018 – 03 Airlines

01/08/2018 08:18

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05/07/2018 11:02

IATA Opinion: Peter Cerda

Politics must support aviation Peter Cerda, IATA’s Regional Vice President for the Americas, says the changing political landscape is an opportunity for governments to recognise aviation’s positive economic contribution and further strengthen safety initiatives across the region

ILLUSTRATION: SAM KERR

F

our key presidential elections will dictate how aviation fares in the years ahead in Caribbean and Latin America.

Mexico, Colombia and Costa Rica have already chosen new leaders and elections are forthcoming in Brazil. Given the potential political swings, these elections could result in governments that provide the industry with a supportive political framework or over-regulate it to the detriment of airlines, consumers, and economies.

There are reasons to be hopeful. Chile and Argentina have administrations that understand aviation’s catalytic effect on the economy. As an example, our Director General and CEO, Alexandre de Juniac, met with Chile’s President Piñera and it was agreed to review the concession contract at Santiago airport. And in Argentina, the Macri administration has recognized aviation’s value after many years of neglect under previous governments.

These encouraging moves are reflected in the overall health of aviation in the Caribbean and Latin America. Regional carriers are growing, as is international traffic into the region.

But optimism for the future must be tempered. Because airlines absolutely need governments that are willing to work collaboratively with the industry to maximise the many benefits that would accrue from a successful air transport sector.

Infrastructure is probably the single biggest constraint on the industry. Lima is saturated, so is Bogota, Havana, and Santiago.

And the construction of Mexico City’s much-needed new airport is challenged by the country’s newly-elected president.

There also needs to be a major shift away from heavy-handed airlines.iata.org

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consumer-related regulations. Too often in the region we have seen the unilateral implementation of non-global standards.

We need governments in Brazil, Colombia, and Mexico, to name a few, to work closely with the industry to ensure the right reforms are put into place, ensuring passengers benefit while permitting airlines to continue to grow. Costs are far too high.

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Reform the regulations

The region continues to be an expensive one to operate in terms of charges, fees, and taxation. The underlying reason for much of this is cash-strapped governments looking for a quick windfall. If a longer-term view held sway, Argentina, Brazil, and most of the Caribbean, would reap the rewards aviation brings.

To end on a positive note, safety—always our top priority—is a role model for how governments and the industry can work together for the good of everybody. There have been no jet fatalities for IATA’s Operational Safety Audit (IOSA)-registered airlines in the region in the past eight years. Governments and the industry have played their part in that, working together.

And we look forward to an even safer industry following the signing of a Memorandum of Understanding between IATA and our strong partner, the Latin American and Caribbean Air Transport Association (ALTA), under which ALTA will help to promote the IATA Standard Safety Assessment (ISSA) across the Caribbean and Latin America.

With the bedrock of safety confirmed, the industry is set to flourish. It is now up to governments—no matter which ones are elected—to build on that foundation and support aviation’s ability to connect people and trade.

2018 – 03 Airlines

01/08/2018 08:18

CEO Interview

Nothing succeeds like success Rupert Hogg, CEO, Cathay Pacific Airways, tells Graham Newton that the carrier’s transformation program is on track to achieve sustainable long-term performance

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INTERVIEW BY: GRAHAM NEWTON

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airlines.iata.org

01/08/2018 08:19

CEO Interview

T

he third runway at Hong Kong International Airport and associated infrastructure will support Cathay Pacific’s efforts to take advantage of the growth opportunities on its doorstep. But like all airlines, it must ensure it has the staff and technologies in place to handle demand.

IMAGES: GETTY IMAGES

Is the transformation program proceeding as planned?

We’re halfway through our transformation program and it is showing encouraging results.

We delivered a profitable second half in 2017, which means we are certainly progressing in the right direction.

We have all the components of a great brand and experience and our transformation is about delivering strong and sustainable long-term performance. We are focused on three specific areas. The first is the customer and specifically what the customer values. That’s based on real insight because we have better knowledge of the customer now. There is a new dining proposition that is based directly on customer feedback, for example. Also, there is Wi-Fi being put on all our long-haul aircraft. And we’ve invested heavily in award-winning lounges.

Shanghai will be the next lounge to be transformed later this year.

The second area is finding new sources of revenue. One aspect is building the network at the macro level. There are still opportunities to serve new or under-served destinations. Five new long-haul routes and four regional routes have been opened or will soon be opened in 2018, following three new destinations in 2017. The pace of growth to European destinations is high.

Our airline is also doing a lot more through new distribution capability (NDC). We’re seeing quantifiable results using NDC. Customers can see the richness of our product.

And it will help us to sell products that meet the travel needs of our customers. airlines.iata.org

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Then there’s cargo, a huge part of our business. And it’s not just general cargo, but also those shipments that need special care, such as pharmaceuticals. We have a state-ofthe-art terminal capable of handling 2.6 million tonnes annually and a young freighter fleet. We need to leverage that platform.

The third area is productivity. Everything we do has got to be done more productively and cost efficiently. This is more than just the normal cost disciplines. It is about redesigning how things work. Rather than looking at how organized the business is, it is looking at how we should actually run the business and how technology can disrupt in an advantageous way.

It’s not possible to keep on squeezing out productivity on existing processes. You need to rethink how you do things.

19

Is the heavy investment in new fleet an important part of the transformation?

We are starting from a good place. We have already taken delivery of 22 A350-900s and we will have eight -1000s by the end of the year.

New aircraft will be arriving one a month on average until the new runway in Hong Kong opens in 2024. It’s not only A350s. We also have the Boeing 777-9x arriving from 2021. And from 2020, we take delivery of 32 A321neos. That upgrades the entire narrowbody fleet. We already have a young, modern fleet and it’s only going to get younger.

Sustainability is very close to our hearts and these aircraft are better on fuel consumption, which means they also emit less. And they give us a great platform to attract customers as they allow us to redesign the cabin and include features that will improve the customer experience in economy. By 2024, there will be new seats on about 70% of our fleet. We are still putting in-flight entertainment on the seatback. With Wi-Fi, there will be an increase in the use of personal devices, but we still see

What is I Can Fly? "I Can Fly" is an educational concept that aims to nurture an enthusiasm for aviation and a spirit of social service among young people. It was launched by Cathay Pacific in 2003 in Hong Kong, and since then more than 3,700 students have already graduated from the initiative.

Leveraging the strengths and resources of Cathay to enhance the development of aviation education in Hong Kong and further afield, the “I Can Fly” program has since opened its doors to ventures involving young people in mainland China and North America.

2018 – 03 Airlines

01/08/2018 08:19

UNIFORMS OF THE

FUTURE GLOBAL LEADER IN

DESIGN - PRODUCTION - LOGISTICS WWW.WEARSKYPRO.COM/CORPORATE

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CEO Interview

How important will the third runway at Hong Kong International Airport be to your growth?

The third runway will be commissioned in late 2024 and with it comes a new terminal. But those developments are just part of a much bigger picture.

In late 2018, a new bridge connecting Macau, Zhuhai and Hong Kong will open and there is also high-speed rail development in the region.

The improvements are part of a plan to have a connected economy in the Greater Bay Area, where the population is bigger than the United Kingdom and the GDP is higher than in the San Francisco Bay Area. Our airport is reinventing itself as a multi-modal hub to serve this region.

Cathay already has its airline code on the Macau ferry and the downtown check-in has been working successfully for years. In terms of international passenger traffic, Hong Kong is the biggest hub in Asia and third biggest in the world, handling about 75 million passengers per year. It’s a fantastic gateway for the Greater Bay Area and Hong Kong will become a superconnected multi-modal airport.

Do alliances still have a place in the modern industry given the increasing prevalence of other forms of cooperation?

First and foremost, alliances are a great proposition for the customer. Customers know they can enjoy the same recognition, and earn and burn, across multiple airlines. So, if you took alliances away, it would certainly mean a degradation in customer service.

But, of course, the industry is very dynamic.

Traffic flows change. That is why you see airlines doing other types of deal and deals beyond the alliance. It is a normal business response. Our work with Air New Zealand, a Star Alliance member, has allowed a long thin route to not only survive but thrive. As for joint ventures (JVs), Cathay has not been a big practitioner, but it is a big believer. JVs provide airlines.iata.org

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75M

the seatback screen as an important interface with the customer.

In terms of international passenger traffic, Hong Kong is the biggest hub in Asia and the third biggest in the world, handling about 75 million passengers per year

an opportunity to coordinate schedules and the product and introduce scalability. We have to be careful in choosing the right partners to ensure we provide our customers with more diverse offerings and choices.

Are you still bullish about growth in the Asia-Pacific region?

We are the gateway to mainland China, which is still growing at an enviable rate and there is more growth in the wider region. There is no doubt that the opportunity for airlines comes from GDP growth within Asia.

Indonesia has a population of 260 million and there are 100 million people in Vietnam.

We can also include India, another huge market. We have a number of destinations there. And for Indians looking to connect to the west coast of the United States, it is just as quick to go via Hong Kong as it is to go via Europe.

But, these opportunities won’t exist if infrastructure doesn’t move in lockstep with the growth in demand. Some governments in this region are ahead of the global curve, but there is still a lot more to be done given the traffic forecasts we are seeing. It’s not that the right thing hasn’t been done, but the right thing must continue to be done and accelerated.

There can’t be a limited supply in infrastructure because that will only push up the price of using that infrastructure and that will eventually affect everybody, including the customer. Airlines make a huge investment in fleet and new technologies. Governments should invest in the necessary infrastructure.

21

Will biofuels ever be made available at the right price and the right quantity?

Biofuel is clearly the way to go for the industry and we have a role to play. We were an early investor in a company called Fulcrum, which has just commenced the construction of its first plant in Nevada converting waste. When it gets properly up and running in 2020 it will do 10 million gallons a year. That demonstrates scalability is possible. But biofuels also need to 2018 – 03 Airlines

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05/07/2018 11:03

CEO Interview

International Civil Aviation Organization’s (ICAO) “nobody left behind” principle so it does a lot of external training of aviation professionals in developing countries.

Separately, we’re trying to encourage young people through our “I can fly” program (see panel p19)and we’re seeing the first ones coming through into the company.

Hong Kong expansion: The third runway and terminal will be commissioned in 2024… but those developments are just part of a much bigger picture

What skillset does the modern airline CEO need?

achieve parity in pricing with fossil fuels and preferably be lower. That’s not something an individual carrier or the industry alone can do.

It needs the cooperation of governments and the logistics industry. But it’s the goal we should go for because it is absolutely vital.

IMAGE: HONG KONG INTERNATIONAL AIRPORT

To deal with traffic growth, more staff are needed. But is the industry attractive to potential new recruits?

The issue of training is vital because traffic is going to double. We can attract people as this is an exciting and interesting industry.

We are investing heavily in our future by nurturing young talent in Hong Kong through the use of structured career programs aimed at fresh graduates in general management, IT, engineering, ab initio pilots and various customer service roles.

Our commitment to the industry does not stop at our shores. We support and sponsor the training academy set up by the government and the airport authority. That adheres to the airlines.iata.org

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32 From 2020, we take delivery of 32 A321neos

As a CEO, you need to set a vision and a strategic direction. But this is always a people and customer business. You must be able to motivate and inspire people to serve the customer and to buy-in to the strategic direction. Making complex things simple and relatable is also vital.

But you do need to understand that this is an era with many new business models and in which the speed of technological development is exponential. These two developments are converging to offer new challenges and new solutions. The scale is vast, and you must get a grasp on that.

It is also vital for me to be open-minded. No one can be an expert in everything. We are using blockchain technology to increase efficiency in many areas of our business. We have an excellent team of people driving it. All of us at Cathay work as a team to complement each other’s strengths and capabilities. There are many people from within and outside our organisation who have great ideas and expertise. It is my responsibility to create and provide them an environment in which they are encouraged to raise, foster and develop their ideas, which translate into additional value for our customers, thereby enhancing the value of Cathay Pacific.

23

If you could change one thing overnight, what would it be and why?

It would be to complete the transformation program. Nothing succeeds like success.

Being successful in all three areas of our focus will give the airline a sustainable platform for future development.

2018 – 03 Airlines

01/08/2018 08:19

CEO Interview

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Airlines 2018 – 03

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CEO Interview

A thirst for culture

25

Christopher Luxon, CEO, Air New Zealand, says a financially sound and hospitable approach delivers results WORDS: GRAHAM NEWTON

E

ven as Air New Zealand’s reputation for innovation grows stronger, it is straightforward business principles, including strict cost control, providing the platform for success. CEOs from outside the industry continue to guide the airline forward.

What is behind the airline’s good start to 2018?

It’s actually been a great story over the past five or six years. One of the big drivers has been the growth of inbound tourism. New Zealand has proven to be a popular destination and tourism has achieved high single or low double-digit growth for a number of years.

The New Zealand economy has also done well and we have about 8% growth in outbound tourism as well.

Air New Zealand is a company that has good cost control, is innovative, and meets customers’ needs. Our airlines.iata.org

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05/07/2018 11:04

CEO Interview

culture is strong with staff engagement in the top quartile globally. Also, our customer satisfaction is high, and we have dealt with our legacy issues. We view success in cultural, commercial, and customer terms.

What is the strategy going forward?

IMAGES: GETTY IMAGES/SHUTTERSTOCK/AIR NEW ZEALAND

Air New Zealand is a relatively small carrier on the global scale and I’m the third CEO from outside the industry. So, the strategy remains to run the airline like a business and not accept anything that would not be tolerated in any other business. That means being very clear on cost management, clear on a customer focus, and clear on investment.

Air New Zealand has been profitable for the past 17 years and we have paid a dividend in the last 15 years. We are perhaps the only airline with that kind of track record. Some 90% of our costs are benchmarked to external comparators. The commercial engine is working well and enables us to invest in both the customer and cultural pillars of our business. Because it is not just about the financial result. We also want a cultural result.

We have developed a customer service model that constantly gets us top spot in many rankings. And that service comes back to investing in our people. This cannot be a soft strategy. It must be endemic. We benchmark our customer service against Disney and hotel chains, not airlines. There is far more to learn from the hospitality industry.

Is innovation difficult to achieve in a hyper-regulated industry?

No, innovation is easy to do in this industry.

Frankly, aviation is not an innovative industry.

In fact, the lack of innovation is profound.

We introduced the Skycouch a few years ago and it has been a tremendous, well-documented success, as has innovation in our premium economy and business class products. Yet you don’t see other airlines doing something similar.

The reality is customer service in this industry is poor compared with, for example, the hospitality sector. We send people to airlines.iata.org

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1965 TEAL (Tasman Empire Airways Limited) was established by the governments of Australia and New Zealand in 1953. New Zealand took full ownership in 1961, and in 1965 renamed the airline Air New Zealand 27 Disney to find out what new ideas they have in customer service. They are experts in many areas that are relevant to airlines.

One innovation we got from an “outside-in” visit was our Airband for unaccompanied minors. It sends out standard texts at certain points in the journey, such as “we have arrived.”

It takes a lot of stress away from the parents and the customer satisfaction ratings for this service are incredible. And yet other airlines aren’t that interested in unaccompanied minors because they see it as outside normal operations and don’t encourage the business.

We benchmark our customer service against Disney and hotel chains, not airlines. There is far more to learn from the hospitality industry

Are governments finally getting the message about the benefits of aviation?

In this part of the world, the social and economic benefits of aviation are well understood.

People in New Zealand travel broadly.

And Air New Zealand is the most respected company in the country. People want to work here. So, the government understands the contribution we make. In turn, we understand that we must contribute to the country. More of a challenge is achieving those benefits in a sustainable way and that is where we need to work more with governments.

2018 – 03 Airlines

01/08/2018 08:20

CEO Interview

Is airport privatization one of the challenges that requires greater collaboration?

Australia and New Zealand have some of the grossest sinners. High airport prices are compounded by lax regulation. Five of the top six highest-margin airports are here.

Globally, airports have an average EBIT margin of about 53%, but in Australia and New Zealand it’s close to 80%.

Airlines in the region are putting immense pressure on the governments of Australia and New Zealand to think about regulatory reform.

There should be a level playing field so we can have normal commercial conversations, arbitrating to a final offer like they do in Canada, and an end to the dual till.

Another element of sustainability is biofuels.

28 How can aviation achieve the necessary price and quantity?

It’s a real challenge. I’ve reviewed every major project since 2008 and none have scaled up in any meaningful way. It looks like we need to solve this locally by virtue of the feedstock available. In New Zealand, it’s likely to be a woody biomass because of our forests. But, the challenge is how to build the facilities we need because they are prohibitively expensive.

We will continue to monitor biofuels, but the reality is there are no easy solutions. We have focused our environmental efforts on things like fully electric vehicles and making sure the Carbon Offset Reduction Scheme for International Aviation (CORSIA) delivers a good outcome for the country as well as the airline.

Offsetting is going to be our go-to model until we find a way to solve the biofuel challenge.

Can airlines do more about human trafficking?

This is a subject that I am very passionate about.

It is great to see the industry embracing issues such as this. The crime of modern slavery is enabled by aviation and we should be responding.

Air New Zealand has signed up to various agreements and regulations even though we don’t see this crime too often in our country.

Airlines 2018 – 03

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80% Globally, airports have an average EBIT margin of about 53% but in Australia and New Zealand it’s close to 80%

It’s a real challenge.

I’ve reviewed every major Biofuels project since 2008 and none have scaled up in any meaningful way

I’m very keen to see the industry keep pushing on this because we can never do enough.

More broadly, what opportunities and challenges do you see ahead?

The opportunity is clearly the continued growth in air travel in the region. We will explore improving connectivity with China and Latin America and we want to drive further into the Americas. Domestically, there are also plenty of opportunities.

The issue of rising fuel prices is so overplayed.

We know the playbook for this part of the cycle.

It’s pricing action, capacity reduction, strong cost control, and hedging to buy time to adjust. I do think the industry this time around is infinitely more commercial and rational.

The real challenge is disruption. I come from a country that gets 90% of its electricity from renewable sources. Will that kind of innovation lead to electric aircraft? What about vertical take-off and landing? All these disruptive innovations are really interesting to me. airlines.iata.org

01/08/2018 10:43

Advertising Feature: Riskified

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29

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Travel’s Unique Challenges Accurately preventing fraud in travel is particularly challenging. Tight timeframes, no shipping address, international customers, bookings for business and more make it difficult to distinguish good orders from attempted fraud. It’s tempting to choose caution, batten down the hatches and hope for the best, but that’s the wrong choice.

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airlines.iata.org

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At Riskified, we have been helping merchants do just that since 2013.

Our system has processed hundreds of millions of transactions and handled all types of threats for some of the biggest names in the travel industry. We have a proven track record of growing online revenue, reducing overheads, and improving customer experience.

For more information on our service and to get helpful tips on improving your existing fraud management, visit us at www.riskified.com.

2018 – 03 Airlines

01/08/2018 08:21

Advertising Feature: T2RL

Ian Tunnacliffe, Editor-in-Chief, T2RL, Travel Technology Research Ltd

2018

Driving revenue through Passenger Servicing Systems

30

New Architectures in Airline Passenger Systems—delivering incremental revenue and business agility in the digital world The airline’s beating heart— its Passenger Servicing System (PSS) —is also the biggest IT investment it will make.

Almost all business flows through the PSS, so improving its capabilities can mean significant revenue improvements. A PSS contract focused on future flexibility, improved contractual terms and enhanced scope can deliver substantial cost-savings.

Airlines 2018 – 03

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T2RL has been helping airline customers derive significant savings (up to 30%), through the tried-and-tested rigor of its ProcureIT® process since 2005.

“We felt it was a great process and we got to where we wanted to be,” said Kathleen Wayton, CIO, South West Airlines.

T2RL has been bringing industry leaders together in a uniquely collaborative conference for the last five years,

attracting delegates from over 60 airlines and the key technology suppliers.

At PSS 2018 it will present New Architectures in Airline Passenger Systems, exploring ways to cut cost, improve revenue and deliver business agility.

The market for airline commercial systems is more dynamic than ever. Delegates will explore effective airline system procurement processes, with an agenda focused on architectures to enable digital transformation.

They will discover how new architectures in passenger

servicing will deliver enhanced capabilities and exploit the next generation of technology to drive revenue.

“It’s about choosing the right partner for now and for the future, to ensure the right terms, conditions and capabilities for your business model,” said Richard Clarke, CEO, T2RL. To download the conference brochure or to register as a delegate visit PSS2018.com or to talk to us directly about T2RL products and services visit t2rl.com or email: sales@t2rl.com.

airlines.iata.org

01/08/2018 08:21

Dossier: Privatization

Dossier 31

In everyone’s interest Airport privatization is a short-term solution to aviation’s infrastructure crisis that must only be pursued by governments if consumer benefits are kept to the fore WORDS: GRAHAM NEWTON

Infrastructure development is lagging behind air travel demand.

Cash-strapped, slow-moving governments are hard pushed to remedy the situation.

But asking the private sector to develop airport capacity is not the only answer—or necessarily the best answer—for the consumer. airlines.iata.org

31-35_Airlines_2018-03_Dossier.indd 31

Competition is key

Privatization has worked well in the airline industry. As more and more airlines were privatized, competition intensified. Since 2000, air fares have fallen about a third in real terms.

The experience of airport privatization has been completely different, however.

Studies have found that privatized

airports charge more than governmentowned airports and, not surprisingly, have far greater profit margins.

Operational efficiency, in contrast, is comparable to government-owned gateways, which is not what would usually be expected of a privatized entity.

The underlying cause is lack of competition in the airport sector. It means 2018 – 03 Airlines

01/08/2018 08:22

Dossier: Privatization

Successful airport privatizations should: Deliver long-term social and economic benefits for the wider economy Provide effective, efficient capacity and service levels for passengers and cargo to allow sustainable growth Deliver cost effective and fit for purpose investment Provide a passenger experience to suit the markets needs It is in neither parties interest for the other to be unprofitable—there is an inherent mutual interest in the financial success of an airport.

5 out of the top 6 airports in the Skytrax ranking are public (Skytrax) 32

Singapore Changi was corporatized in 2009 and voted Skytrax’s best airport in the world for the sixth year in a row in 2018

2018

that airport privatization to date has come at a cost that is borne by consumers and by airlines. This, in turn jeopardizes aviation’s many benefits from job creation to economic and social development.

A government’s short-term financial gain from the sale of an asset therefore comes at the expense of long-term benefits. Not only that, often privatizations go hand-in-hand with a lack of transparency and insufficient consultation with the industry. This is compounded by regulatory safeguards and provider-biased contractual terms that have not worked as intended.

“We are not against privatization, but we are cautious,” says Hemant Mistry, IATA’s Director, Global Airport Development and Fuel. “Governments Airlines 2018 – 03

31-35_Airlines_2018-03_Dossier.indd 32

should explore all the options available.

And if privatization is the choice then we need to work together to ensure that it follows best practices, especially on governance and regulatory oversight.”

Alternative models

Mistry says a new IATA guidance booklet, Airport Ownership and Regulation

1

Singapore Changi Airport

2

Incheon International Airport

3

Tokyo Haneda International Airport

4

Hong Kong International Airport

5

Hamad International Airport

6

Munich Airport

provides the facts that will help governments to make the right decisions.

The reality is that governments rarely consider the value of alternatives to airport privatization.

“A broad range of ownership operating models exist that can meet a government’s strategic objectives without a transfer of control or

Spotlight on… The consumer interest Airlines are part of an interdependent aviation system that must work like clockwork to get passengers to their destinations on time.

But the good service, affordable fares, and connectivity that passengers demand are threatened by the infrastructure capacity crisis. For

aviation to continue delivering economic and social benefits, passengers must have confidence in the system and the freedom to fly where and when they choose.

Cost and operationally efficient airports are an essential part of that equation.

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2000 Since 2000, air fares have fallen about a third in real terms

Dossier

ownership to the private sector,” says Alexandre de Juniac, IATA’s Director General and CEO. “Globally, many of the most successful airports are operated as corporatized entities of governments.

Governments need to evaluate the pros and cons of different models taking into account interests of all stakeholders, including airlines and customers. The most important thing is that airports meet the needs of customers and airport infrastructure users, at a fair price.”

Airport privatization programs stem from a variety of needs, including getting infrastructure built quickly, improving the airport’s financial sustainability, helping government financing, and enhancing airport management capability.

Accordingly, there are many different types of airport ownership and operational models to address these needs. There is no one-size-fits-all solution.

In other words, there are multiple ways for governments to achieve their strategic objectives without the sale of important airport assets.

Corporatization—in which control of an airport is transferred to a dedicated corporation or airport authority, owned by government—often works well. The separation of regulatory functions and operational responsibility for the airport, and the formation of an independent corporate board underpins operational efficiency and a consumer-centric approach.

Singapore Changi was corporatized in 2009 and voted Skytrax’s best airport in the world for the sixth year in a row in 2018. The Changi Airport Group is successfully expanding the airport, is able to borrow independently from government, and leverages its specialist airport management expertise internationally through a range of service, management, and concession contracts.

Alexandre de Juniac, IATA’s Director General and CEO

“The most important thing is that airports meet the needs of customers and airport infrastructure users, at a fair price” 33

Dr. Matthias Zieschang, Fraport AG executive board member for finance

“Our know-how has been instrumental in enabling the existing facilities to handle growing traffic and customer-service demands” Indeed, service and management contracts are other alternatives to privatization, allowing a government to access specialist help and reduce costs. These arrangements range in complexity from expertise in a particular aspect of airport work to full operational responsibility.

Siemens Postal, Parcel and Airport Logistics provides operation and maintenance services for baggage and 2018 – 03 Airlines

01/08/2018 08:23

Dossier: Privatization

34

material handling systems at Dubai International Airport, for example.

It is a performance-based contract with key performance indicators to incentivize efficiency.

“Our focus on customer service and operational excellence played a crucial role in choosing a professional long-term service partner for our baggage and material handling systems,” said Chris Garton, Executive Vice President of Operations at Dubai Airports at the 2015 contract award. “We trust this partnership with Siemens will continue to make a major contribution to our strategic goals.”

Fraport, meanwhile, had a management contract at King Khaled International Airport in Riyadh and King Abdulaziz International Airport in Jeddah from 2008 until 2014. During this time, traffic and cargo throughput grew substantially.

Fraport also delivered a range of consultancy and training services. It provided more than 17,100 man days of consulting to local managers and a total of about 27,500 man days of training.

At the contract’s conclusion in 2014, Dr. Matthias Zieschang, Fraport AG’s executive board member for finance, said: “Our know-how has been instrumental in guiding the Saudi hubs through an ambitious expansion phase,

Equally important is the understanding that models are only sustainable if they are flexible and able to address the dynamics of an air travel market that is always subject to disruption and change.

Hemant Mistry, IATA’s Director, Global Airport Development and Fuel

“If privatization is the choice then we need to work together to ensure that it follows best practices, especially on governance and regulatory oversight” while simultaneously enabling the existing facilities to handle growing traffic and customer-service demands.”

Other options for governments to consider is alternative financing models and the selling of a minority stake.

The key in all cases is clear and transparent government objectives that guide the design of the ownership model. Each model has its pros and cons, but a robust evidence set should support the preferred option.

Best practice

If a government still determines a need to privatize via asset divestiture or introducing a long-term concession contract for operation of the airport, then best practice must be followed.

This includes: A focus on long-term socio-economic benefits; Clear bid evaluation guidelines; Concession contract guidelines; and A need for stakeholder consultation and regulatory safeguards.

There is a wealth of literature available on public-private partnership, including airport-specific advice, such as is on the World Bank website. Generally, four stages are identified: project identification and selection; project preparation, appraisal, and structuring; transaction management; and project implementation.

It is recommended that governments take advice on the key terms of a concession contract required to safeguard public value; ensure continuity of service

There are multiple ways for governments to achieve their strategic objectives without the sale of important airport assets Airlines 2018 – 03

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01/08/2018 08:23

Dossier

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Share of airports with scheduled traffic by ownership structure by region, 2016, percent

With private sector involvement Fully public owned

Source: Airport Privatization, IATA AGM 2018

1%

2%

99%

98%

5%

12%

26%

31%

14%

95% 88%

86%

35 74%

46% Almost half (46%) of the world’s 100 busiest airports have some form of private involvement Source: Airport Privatization, IATA AGM 2018

World

Europe

Latin America

Asia Pacific

69%

Africa

Most importantly, though, privatized airports need the correct regulation.

“Efficient and economical air transport contributes directly to a community’s prosperity,” says de Juniac. “Poorly thought-out airport privatizations put this at risk. The balancing role of effective and strong economic regulation is essential.”

IATA’s guidance booklet recommends that the development of the regulatory framework is undertaken in parallel with an assessment of the airport’s market power and the decision about which ownership model to pursue. There is higher risk of abuse of market power from privatized operators as their action will be focused on shareholder benefits as opposed to consumer and wider economic benefits.

The work of a regulatory think tank has been an essential pillar in IATA’s work to ensure credible regulatory solutions that avoid abuse of market power from both privately owned and public airports.

Independence is a key component in all regulatory solutions. Economic oversight should be clearly independent from ownership and operations of the airport function and from the state entity that handles private involvement in airports.

The roles and responsibilities should have no conflict of interest and be clearly defined. The interests of the traveling

Expectations for performance improvement to be set in consultation with airport users and the consumers; Periodic monitoring of airport privatization through public consultation, with corrective action taken to ensure benefits are realized for the passengers, for airlines, and for cargo consumers.

For privatization to be successful, the interests of consumers, airlines, investors and economies must be balanced. A resolution unanimously adopted at IATA’s 74th AGM in Sydney called for: Governments to protect consumer interests by establishing robust regulatory safeguards to ensure cost efficiency in charges and improvements in investments and service levels ;

Middle East

Strong regulation

A call to arms… Balancing for success

North America

and appropriate investment in the airport; and be realistic on the timescales required to complete a transaction.

“The one thing governments must not do is simply accept the highest bidder as happened in Brazil,” says IATA’s Mistry.

“They have to take a broader view and focus on what is best for the economy and the consumer in the long term.

Airports are a key link in the chain that attracts trade and tourism to a country.”

public must be respected and investor confidence in the market supported. The designated regulatory body should be able to set charges and a regulatory framework that allows it to fulfil its duties.

Aviation needs airports that serve the passenger. Only then can aviation’s many benefits take hold. “It is wrong to assume that the private sector has all the answers,” de Juniac concludes.

“Airlines have had to endure many disappointments. Airports are critical infrastructure. It is important that governments take a long-term view focusing on solutions that will deliver the best economic and social benefits.”

2018 – 03 Airlines

01/08/2018 10:44

Slots

Striking the right deal 36

A strategic review of IATA’s Worldwide Slot Guidelines will strengthen the allocation of ever-scarcer airport capacity WORDS: GRAHAM NEWTON

A

irport capacity has become a major issue as air traffic demand continues to soar.

Infrastructure isn’t being built quickly enough, creating problems for passengers and cargo.

There is no substitute for the physical expansion of airports to resolve this crisis. But there is a need to manage scarce capacity with a fair, neutral, and transparent system until sufficient capacity can be built. For that, IATA’s Worldwide Slot Guidelines (WSG) is critical.

Despite airport capacity constraints, the WSG has enabled growth in all parts of the world.

There were more than 2,000 new routes established at European slot-coordinated

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Slots

300 In a worst-case scenario, there could be more than 300 slot-coordinated airports in 10 years’ time

airports between 2010 and 2017, for example, enabling an extra 155 million passengers to travel.

Importantly, new entrants—including low-cost carriers (LCC)—have thrived under the WSG. According to Eurocontrol, LCC flights grew 61% between 2007 and 2016. The top airports for LCCs in Europe in terms of movements are Barcelona, Dusseldorf, London Gatwick, and Stansted—all level 3 airports (the most congested).

Similar new entrant growth is seen in other regions. “In the past five years, HKExpress has opened a dozen new routes out of Hong Kong’s essentially full airport that had no competition or only one incumbent carrier, with the effect of making all of these destinations available to far more travelers through lower fares and increased competition,” says Stephen Milstrey, Manager Network Planning and Scheduling, HKExpress. “The historic determination guidelines in the WSG enabled this by allowing us to slowly convert generally unusable, short series of slots into valuable, full-season slots.”

Full to the brim

Despite the success of the WSG, there have been calls for a airlines.iata.org

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radical shake-up of the system and some regulators have experimented with potential alternatives.

In large part, this has been brought on by the increasing severity of the capacity crunch. In a worst-case scenario, there could be more than 300 slot-coordinated airports in 10 years’ time. Major hubs are full to the brim and the slot pool is empty.

Regulators are thus concerned about how to develop the process to ensure new entrants can continue to compete. Coupled with this is a desire to improve the monitoring of slots, so that incumbents do not abuse the WSG process.

In addressing these concerns, it is critical that a global system is maintained. If the system descended into individual airports pursuing their own allocation criteria, the resulting patchwork would certainly confuse and constrict the network. Coordination is the key. A take-off slot at airport A only has value if there is a corresponding landing slot available at the other congested airport B at the right time.

“As a global industry, aviation always does better with global solutions to global problems,” says Lara Maughan, IATA’s Head of Worldwide Airport Slots.

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2018 – 03 Airlines

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Slots

Schedule optimization

38

The WSG maintains value even when there is nothing left in the slot pool.

Slot mobility—swapping or transferring slots to other airlines in a secondary process—allows airlines to optimize schedules to meet consumer demand with speed and agility. The majority of secondary slot exchanges take place for no monetary compensation as they allow the carriers involved in the exchanges to optimize their operation.

Even at the so-called super-congested airports, airlines can eventually get access through the WSG; Aeromexico, Air Astana, Hainan Airlines, Philippine Airlines, and Vietnam Airlines have all started operating at Heathrow in the last few years.

And once they’ve entered the market, carriers

Lara Maughan, IATA’s Head of Worldwide Airport Slots

“If governments and airports resorted to local and unique solutions, it would cripple airlines’ efforts to provide their customers with the services they want, to the places they want to fly, when they want to fly, and at a price they want to pay” Airlines 2018 – 03

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Alternatives to the WSG Many alternatives to the WSG are being proposed but each has its challenges. Experience continues to point the industry back to the WSG.

forcing consumer prices up. Even more perverse is the impact auctions could have on infrastructure development. Those receiving the auction revenue would have a huge incentive to limit capacity and maintain the huge value of the slots.

Peak/off-peak pricing means airlines wanting to operate in the most congested periods pay more for using the scarce infrastructure and so it encourages airlines to use the off-peak periods—in theory.

It doesn’t work for many reasons.

Market demand dictates schedules, for example, not airport pricing models.

Also, airlines must utilize their fleet to the full and can’t avoid peak flying. Most importantly, there still needs to be a mechanism to distribute the capacity available to the airlines. International Civil Aviation Organization (ICAO) guidance shows that peak/off-peak charges have been ineffective in prompting airlines to reschedule flights to less congested airports.

Administrative allocation through slot coordination remains the best option. Following the WSG ensures transparency, certainty, consistency, and non-discrimination and is globally harmonized.

It involves an independent and neutral coordinator reviewing the equivalent season's operations. Where airlines have been able to achieve 80% usage of each slot, they retain it through historic precedence. New requests for slots are considered against the capacity available and at least 50% of new slots are prioritized for new entrant airlines.

Slot auctions are a market-based measure designed to achieve efficiency in allocation. But a recent Chinese experiment at Guangzhou Baiyun and Shanghai Pudong hasn’t been repeated.

The money involved would not be sustainable in the long term. And it would favor larger carriers, potentially reducing the industry to a few globally dominant carriers and destroying the low-cost carrier business model. That would certainly limit industry growth and the many benefits it brings. It is worth noting that auctions in other sectors, such as television, mobile telephone rights and even airport concessions, have led to overbidding,

Using the WSG means airlines can enter new markets without additional entry costs; scarce capacity is not wasted, with airports achieving 98% utilization; airlines operate to markets where consumer demand exists. There is no incentive to operate empty routes, and slots are not route specific, so airlines can match slot to demand; there is no favoring of certain airlines, business models or the ability to pay; reliability and stability in schedules is balanced with the need to promote competition and access to new airlines.

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Slots

200

can grow, as demonstrated by HKExpress at Hong Kong International Airport. It has grown from a fleet of five aircraft to more than 20 in a short period (2013–2018).

There are 200 slot coordinated airports, with 90% following IATA’s World Slot Guidelines

Strategic review

Though research and analysis has shown that the WSG is enabling consumer choice and competition, there is always room to improve. The WSG have evolved over decades and Maughan sees a need to further improve and clarify the process. With this in mind, IATA launched a strategic review of the WSG in July 2016.

To ensure the views of all stakeholders are taken into account, the review is being undertaken in conjunction with Airports Council International (ACI) and the Worldwide Airport Coordinators Group (WWACG).

“We cannot solve the capacity crisis with the WSG, only ensure all available capacity is allocated fairly,” says Maughan. “Making sure the WSG is as good as it can be is why we’re focusing on the strategic review.”

The scope, timelines, project details, and management have been established and agreed by the three parties. Initial conclusions and recommendations will be presented to the Strategic Review Management Group by November 2018 with the review completed in 2019. Some early ideas might even make it into the January 2019 edition of the WSG. And regulators will be kept in the loop at all times.

The review is composed of four task forces (see panel right). Clarification on performance monitoring, a greater focus on transparency and independence, and the possibility of a revamped new entrant rule are likely to be areas of especial interest.

The timelines and process details that are involved in slot allocation will also be airlines.iata.org

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The Task Forces Four task forces comprise the strategic review of the WSG: Slot performance monitoring. The aim is to increase the overall performance of the network by enhancing the monitoring of slots and ensuring that slots are being used correctly.

1

Access. Encouraging access for new entrants is the goal, most likely through the tweaking of the new entrant rule and a better understanding of available capacity through additional requirements for transparency.

2

Historic Determination.

Timelines will be examined to see if they meet the demands of an increasingly dynamic industry while also accounting for an airline need for certainty so that tickets can be sold in advance.

3

Level 2 airports. Guidelines for this interim level of airports need more teeth so a valid process is in place before these airports become congested.

4

examined in light of today’s dynamic market and new technologies.

“As the global coordinators association, with many years of experience managing the slot process at the world’s busiest airports, our members have an excellent overview of the different challenges and issues from different parts of the globe,” says Eric Herbane, COHOR (French Airport Coordination) and WWACG Chair. “We contribute this expertise and experience in defining the best possible processes for the future WSG and therefore fully support the strategic review.”

Herbane stresses that independent coordination is a key principle of the WSG, to ensure a neutral, fair and transparent approach is maintained, and while there are areas of the WSG that need review and enhancement, “broadly the policy and process work.”

“The WSG is essential,” Maughan reiterates.

“If governments and airports resorted to local and unique solutions, it would cripple airlines’ efforts to provide their customers with the services their want, to the places they want to fly, when they want to fly, and at a price they want to pay.

“IATA is fully committed to the WSG and its ability to support the growth of the aviation industry and certainly not reluctant to ensuring the review delivers meaningful outcomes.”

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2018 – 03 Airlines

01/08/2018 10:44

Weather

Fair weather ahead Weather reporting is entering a new phase, promising safety and operational benefits WORDS: GRAHAM NEWTON

40

C

hanging weather patterns are a staple of news headlines. Fierce winds, heavy rains, and extended droughts vie with extreme temperatures for top billing.

But while generalizations are easy to make, forecasters still struggle to come up with the specifics that may affect any one journey. The industry need for more detailed and timely weather information grows stronger. More flights, tighter schedules, and a continuing focus on safety means airlines yearn for a constant feed of relevant data.

IATA’s Meteorological (MET) Project has two main objectives: mitigate the impact of turbulence on flights; and improve weather forecasting accuracy on a regional and global basis to assist flight planning activities.

Dangerous

There are different types of turbulence. Clear Air Turbulence (CAT) is the most common form, usually experienced when transiting a

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96% of respondents wanted more accurate, real-time information about turbulence, its location, and severity

fast-moving jet stream to more sedate air. In rare cases, turbulence can be a dangerous weather phenomenon. While the last fatality was 21 years ago, it still causes multiple crew and passenger injuries on an annual basis. Aside from injuries, turbulence can cause structural damage to aircraft as well as force flights to divert or delay. In all, the cost to airlines can be significant, in the hundreds of millions of dollars range.

Kris Hutchings, WestJet’s Manager, Cabin Safety and Quality, agrees that turbulence is a threat every day. “It remains one of our primary focuses of injury prevention due to occurrences of cabin crew and guests getting injured as a result of unanticipated turbulence,” he says.

According to figures from Professor Paul Williams at the UK’s Reading University, CAT is getting worse due to an increase in CO2 levels.

Light, moderate, and severe turbulence at cruising altitudes on transatlantic flights in winter, for example, show a respective 59%, 94%, and 149% increase compared with similar results on other flight routes and in other seasons.

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Weather

Global database

The real-time database will launch in 2019.

It will be created by a contracted third-party vendor with airlines, original equipment manufacturers, data service providers, software developers, and various weather information providers all involved in the project.

Functionality will revolve around receiving turbulence data reports from airlines’ operational control centers, aggregating the reports, de-identifying the airlines, and making the reports ready for operational consumption.

The initial data sources are generated in-flight by aircraft experiencing turbulence.

Advances in cockpit avionics technology means an aircraft is now able to calculate a turbulence metric value using an algorithm hosted within the aircraft’s avionics. This algorithm uses

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Better forecasts: A collaborative approach The industry’s focus has also turned to improved weather forecasting in general. Work with the World Meteorological Organization (WMO) has been going on for some time. Some 40 global airlines collaborate with the WMO on the Aircraft Meteorological Data Relay (AMDAR) program, sending wind, temperature, and humidity data from airborne aircraft.

After satellite-based observations, this is the most important source of data for forecasting weather globally. There are areas of the globe which are data sparse, however, and have limited or no

aircraft observations. “The more airlines that join this program, the faster critical mass can be achieved from a global coverage perspective,” says Gilberto López Meyer, IATA’s Senior Vice President, Safety and Flight Operations. “This will ultimately improve weather forecasts to both airlines and the world’s population.”

Getting improved weather information to pilots will be vital. Kris Hutchings, WestJet’s Manager, Cabin Safety and Quality, notes that WestJet is always looking for best practices, new technologies, and tools to improve the accuracy and

reliability of information that it uses to make decisions. “As the AMDAR program evolves we will continue to update our internal processes to utilize this information,” he says.

IATA’s research has shown that the options available for introducing weather information to the cockpit—both ingoing and outgoing—are increasing rapidly while the costs of investing in such solutions are reducing. Some airlines have decided to enable airborne turbulence recording and subsequent transmission of those reports to the ground on a minimal budget.

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40 global airlines collaborate with the World Meteorological Organization on the Aircraft Meteorological Data Relay program, sending temperature, wind and humidity data from airborne aircraft. measured aircraft data such as speed, roll, pitch, and other parameters to calculate.

The global repository of real time turbulence reports will then be accessed by participating airlines via application program interfaces or publish/subscribe protocols, allowing them to receive the real time location and severity of atmospheric turbulence.

Ultimately, real time, in-situ turbulence reports will be shared among aircraft in flight and their respective dispatch and flight operations departments.

PHOTOGRAPHY: ALAMY

“We conclude that, all other things being equal, climate change will lead to bumpier flights later this century,” he says. “Flight paths may become more convoluted to avoid stronger and more frequent patches of turbulence, in which case journey times will lengthen and jet fuel consumption will increase.”

Predicting turbulence has therefore become a critical issue. Charts, radar, and PIREPS (pilot reports of weather conditions in flight) are less than perfect tools, however. As it stands, CAT cannot be seen, detected on radar, or accurately forecast, leaving some to opine that predicting turbulence is still more of an art than a science.

Not surprisingly, an IATA industry survey revealed that 96% of respondents wanted more accurate, real-time information about turbulence, its location, and severity.

As Gilberto López Meyer, IATA’s Senior Vice President, Safety and Flight Operations succinctly puts it: “The industry can do better.”

To answer this requirement, IATA is developing a global database of turbulence reports to provide airlines with an enhanced situational awareness tool.

2018 – 03 Airlines

01/08/2018 08:24

60 seconds with...

Yvonne Manzi Makolo CEO RwandAir

“There has to be a deliberate attempt to help solve gender inequality” What is your priority at the airline?

Managing growth is the main issue. We are a small airline but

42 growing fast. We received two Airbus A330s in 2016 and fly to London and Brussels. We serve 26 destinations in total, 22 of which are in Africa. And we hope to open Guangzhou and New York routes next year.

There are good reasons for these long-haul flights. London, for example, is our second biggest market for tourists. There is also a lot of cargo on this route.

RwandAir is a key pillar of the country’s economy. Rwanda is landlocked and so we must build aviation capacity. There is a direct link between the growth of the airline and the growth of the economy. So, Rwanda is growing fast too. Kigali, for example, is third in Africa in the number of international conferences hosted.

What more can be done to improve intra-African connectivity?

One of the reasons that Kigali is so successful in hosting international conferences is that it’s very easy to get a visa for Rwanda. They are available on arrival.

More progressive visa regimes are essential for intra-African connectivity. We also need airspace reform and more liberal air service agreements. Even when you get rights to fly somewhere in Africa, they can be very limited. More countries on the continent need to realize the benefits of aviation. A continental free trade agreement may help move matters forward.

In brief… Makolo

26 23

As the flag carrier of Rwanda, RwandAir currently serves 26 destinations across destinations in 23 countries, across three continents Operating out of Kigali, countries RwandAir's motto is ‘fly the dream of Africa’ and it has one of the youngest and modern fleets on the continent RwandAir was founded in 2002 under the name Rwandair Express, before registering its current trademark in 2009

the country are women. So, seeing how few women there are currently in aviation senior management globally was a shock for me.

This is a fundamental issue. We need to understand what it is that is blocking women from entering or progressing in the industry. Raising awareness alone is not enough. There has be a deliberate attempt to find a solution to gender inequality. We need concrete action.

How do you pass the time on a long-haul flight?

I like to relax. I have a tough time sleeping and I find I don’t work too well either. A long-haul flight for me means a chance to catch up on some reading, watch some movies, and listen to some music.

What can be done to get more women into aviation?

Rwanda has the highest percentage of women in Parliament in the world: 64%. And the heads of many of the big institutions in Airlines 2018 – 03

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Window or aisle?

Window every time. I like to see where I am going. airlines.iata.org

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