2019 – 01
airlines.iata.org
AIRLINES.
STRENGTHENING THE DEFENCES Understanding the scale of Frequent Flyer Program fraud in the airline industry is the first step toward a structured response
2019 – 01
CEO Interviews KLM, Etihad Airways | IATA Opinion Economic impact of trade wars | Blockchain Key to the future? | CORSIA A greener era of aviation begins | 60 Seconds With... Air Dolomiti CEO Joerg Eberhart
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Airlines.
Contents 2019 – 01
Comment
24 Size and speed
9 Alexandre de Juniac, Director General
The US government shutdown showed aviation can’t be held hostage to politics
34
Pieter Elbers, KLM CEO, says creating a strategy with agility is important for the carrier’s future sustainability
19 IATA Opinion: Brian Pearce, Chief Economist
Dossier
Air cargo braced for slowdown as trade wars begin to cause border friction
Challenges remain for the operational application of the technology
Digest
Features
12 IATA and industry update
34 Strengthening the defences
FastTravel ticketing expands in China, IATA Pay test success, India growth still possible despite Navi Mumbai delays
Before airlines can provide a structured response against Frequent Flyer Program fraud, understanding is key
16 Data: In numbers
38 CORSIA takes center stage
29 Blockchain of trust
29
Industry economic performance 2018
CEO Interviews
7
As the reporting of CO2 emissions becomes mandatory, promoting the program is vital for a greener industry
20 Making the first move
Etihad Group CEO, Tony Douglas on how airlines must be prepared to deal with volatile operating environments
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
airlines.iata.org
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60 Seconds with... 42 Joerg Eberhart, CEO of Air Dolomiti
20
Advertising Business development manager Nigel Collard +44 (0)20 7324 2763 nigel.collard@redactive.co.uk
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2019 – 01 Airlines
27/02/2019 18:15
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Comment: Director General and CEO, IATA
In defence of our freedoms As the recent US government shutdown illustrated, the economic and social benefits that aviation offers nations cannot be held hostage to politics
ILLUSTRATION: SAM KERR
T
en missing air traffic controllers. If the press reports are accurate, that’s all it took to end the partial government shutdown in the United States that had dragged on without resolution for five weeks. Now, an argument can be made that the world’s largest aviation system should have sufficient staffing resources to manage through 10 controllers who call in sick, without bringing operations at New York’s LaGuardia airport to a crawl. And we all owe a big thanks to the thousands of dedicated air traffic controllers and others who kept the US aviation system functioning safely and securely under extreme circumstances for more than a month. The bigger point, however, is that the US government shutdown did not end because of compromise that resolved political differences. It ended when it became evident that people’s reliance on effective air connectivity was at risk. The safety of the system was not at issue. But rising air traffic delays and cancellations posed a real risk to the economic and social well-being of the country. In other words, it took an imminent crisis of air connectivity to remind decision makers that aviation is far too important to be held hostage to political disagreements. The numbers bear this out. Aviation supports 6.5 million US jobs and contributes over $778 billion to the nation’s GDP, when the benefits of aviation-supported tourism are included. Aviation’s contribution to the US is but a fraction of its total impact. Globally, aviation supports over 65 million jobs with an economic impact of $2.7 trillion, airlines.iata.org
09_Airlines 2019-01_DG Comment.indd 9
equivalent to 3.6% of global GDP. A third of global trade by value moves by air. The intangibles are as important as the economic impact. Aviation is the Business of Freedom because it liberates us from the constraints of geography and distance. Aviation reunites families and friends, and enables journeys of learning and discovery. As an example, estimates are that more than 1 million international students travel to the US for their higher education. Such a scale was neither conceivable nor possible before air transport. Aviation enables us to lead better lives and makes the world a better place. We need to state this loudly and frequently. That means we must all become stronger voices for the Business of Freedom. The potential impact of 10 air traffic controllers on the US aviation system may have ended this US government shutdown. But each and every day policymakers make decisions that touch on aviation. And we need to make sure that—whether in crisis or not—the vital importance of the Business of Freedom is top of mind.
9
Alexandre de Juniac: Director General and CEO, IATA 2019 – 01 Airlines
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10
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IMAGE: GETTY
In the year of the pig. Airlines in China played another key role in connecting families across the country for Chinese New Year, demonstrating the benefits of aviation in creating a more connected world. The latest figures from IATA show that the Asian nation is expected to become the world's largest civil aviation market by 2024-25, with air passenger traffic volumes set to hit 1.6bn by 2037.
The Big Picture
Airlines 2019 – 01
27/02/2019 16:03
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Digest IATA helps China move paperless Fast Travel beyond domestic flights Large airports and airlines have had the ability to guarantee paperless Fast Travel for domestic flights in China. However, due to the relatively complicated process and a large number of entities involved, passengers have not been able to enjoy the paperless—Electronic Boarding Pass (EBP)—convenience for international, Hong Kong, Macao, and Taiwan flights. Working with China’s Civil Aviation Administration, and following the rapid growth in the number of passengers on those international flights, IATA Beijing Office have trialed a Fast Travel process with Shanghai Pudong Airport (PVG) and Cathay Pacific Airways (CX) Pudong Station. IATA Beijing Office approached other visiting airlines such as Emirates and
save a third of the processing time. For business travelers who do not have checked baggage or are time sensitive, this can be even quicker. As the demand for self-service and improved travel experience among international passengers grows, and with the increasing support of the Border Control department of Pudong Airport for EBPs, more airlines will take active part in this process, and more international passengers will be able to enjoy the paperless convenience. According to IATA Beijing Office, a comprehensive roll-out of the use of EBPs will not only save about RMB2.6bn ($0.39bn) in operating costs for China’s Civil Aviation industry, but will also greatly enhance the travel experience of passengers.
IMAGES: GETTY/ISTOCK/SHUTTERSTOCK
12
Lufthansa, but CX was the most mature airline in terms of system setting and travel document verification. Hong Kong, Macao and Taiwan flights share the same passenger departure process as international ones, so were included in the pilot. Receiving strong support and cooperation from China’s Border Control, Customs, Security and other airport joint inspection units, all parties overcame difficulties including repeated equipment displacement, system adjustment, and on-site testing. With a QR Code EBP (mobile, personal ID or biometrics in the future) obtained from off-site check-in, Cathay Pacific passengers can complete the border control, security check and boarding procedures at the Pudong T2 terminal in just 10 minutes, which can
Airlines 2019 – 01
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Digest
“One of IATA’s strategic objectives is to support airlines’ financial sustainability including controlling costs.” Aleks Popovich, IATA’s Senior Vice President, Financial and Distribution Services
IATA Pay test passes off successfully A faster ticketing payment process has completed its first successful live test. IATA said the industry-supported “IATA Pay” initiative offers a cheaper payment option to the alternatives, increased security, instantaneous payment and a simpler all-round transaction. IATA has been working on developing a solution for the sector that enables airlines to make the method available for use on their websites. Using the European Commission’s Payment Services Directive, and the UK’s Open Banking regulation, the payment method facilitates direct debit transactions between the customer and merchant, improving security and speed. “Today’s consumers, and especially millennials, have expectations of multiple payment options including mobile and peer-to-peer,” said Aleks Popovich, IATA’s Senior Vice President of
YEAR-END FIGURES SHOW 3.5% INCREASE IN FREIGHT DEMAND International Air Transport Association (IATA) statistics show annual freight demand, measured in freight tonne kilometers (FTKs), grew 3.5% compared to 2017. The growth is significantly lower than the 9.7% recorded in 2017, which IATA said was an “extraordinary” result. Capacity, measured in available freight tonne kilometers (AFTKs), outstripped annual growth in demand. It rose 5.4% in 2018. The annual growth of international e-commerce was a positive factor for the year, but IATA Director General and CEO Alexandre de Juniac said the current economic climate and political tensions continue to affect demand.
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Financial and Distribution Services. “IATA Pay responds to these expectations. At the same time, airlines are trying to manage significant card payment costs—$8 billion per year and rising. A large part of this cost is incurred in direct purchases from airline websites. “One of IATA’s strategic objectives is to support airlines’ financial sustainability including controlling costs.” The live test transaction was conducted in partnership with UK-based fintech company ipagoo, and pilot airlines included Cathay Pacific, Scandinavian Airlines and Emirates. Praising the initiative, ipagoo CEO Carlos Sanchez said: “The first Open Banking live transaction for the airline industry will help IATA and its member airlines to achieve their goals of operational and financial efficiency.”
Strong performer: Cargo figures are admirable despite trade tensions
Events March to June 2019
Drones Innovation Weekend 30-31 March Barcelona, Spain Aircraft Recovery Forum 2-3 April Montreal, Canada Safety and Flight Ops Conference 2-4 April Barcelona, Spain
13
Global Training Partners Conference 10-12 April New Delhi, India Aviation Day Romania 12 April Bucharest, Romania CNS Partnership Conference 5-7 May Miami, USA Aviation Fuel Forum 21-23 May Athens, Greece IGHC Conference 26-29 May Madrid, Spain Cabin Safety Conference 11-13 June Istanbul, Turkey
2019 – 01 Airlines
27/02/2019 18:40
Digest
IATA launches data tool to tackle turbulence
14
The International Air Transport Association (IATA) has launched a data tool that will help airlines collaborate in real-time during flights to avoid turbulence. Turbulence Aware augments an airline’s ability to forecast and avoid turbulence by pooling and sharing data generated by participating airlines as it happens. Until now, airlines have relied on pilots and weather advisories to battle turbulence and its impact on flight operations, but such tools have limitations due to report inconsistencies. Pilots have no standardized scale available to them when reporting an incident, other than ‘light’, ‘moderate’ or
‘severe’, but this is highly subjective due to pilot experience and aircraft size. Turbulence Aware will collect data from multiple contributing airlines— under rigorous quality control—before consolidating the data into a single, anonymized, objective source database which is accessible to participants. The data is then turned into actionable information when fed into an airline’s dispatch or airborne alerting systems. It is the first global, real-time, detailed and objective information for pilots and operations professionals to manage turbulence, with carriers such as Delta Air Lines and Aer Lingus already signed up.
Smooth ride: Turbulence Aware will help airlines avoid bumpy journeys in the future
Financial Monitor: airline profits hit again in Q3 Higher input costs in 2018 affect airlines’ bottom line, according to the latest analysis from IATA. EBIT margins fell from 14.2% in 2017 to 10.7% last year, a decline on Q2 year-on-year results. Passenger yields continue to come under pressure as well, although yields in the less price-sensitive premium cabin have trended upwards recently. Global airline share prices fell by almost 10% in December, hitting levels last seen in 2016. Shares fell 20% in 2018, reflecting the broader volatility in the global equity market. IATA said investor concerns influenced the underperformance of airline shares last year, as rising costs on airline financial performance shook the industry.
In the red: Airline profits fell as a result of broader volatility in the global equity market
Airlines 2019 – 01
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There are clear signs that growth is moderating in line with the slowing global economy. Trade tensions, protective tariffs and Brexit are all uncertainties that overhang the industry.”Alexandre de Juniac, IATA Director General and CEO airlines.iata.org
27/02/2019 16:04
Digest
“Digital transformation means we have to unlearn the recipe that made this industry successful in the past.”
1bn
Eric Leopold, IATA’s Transformation Director, Financial and Distribution Services
India’s government has set a target of 1 billion passengers travelling to, from or within the country by 2040.
DE JUNIAC: INDIA HAS POTENTIAL DESPITE NAVI MUMBAI DELAYS India’s proposed Navi Mumbai airport is unlikely to be ready on time, said the IATA Director General and CEO. Speaking at the Global Aviation Summit in Mumbai, Alexandre de Juniac warned that the mid-2020 deadline for completion was beginning to look increasingly unlikely with construction not yet begun. “Constructing an airport in five years itself is ambitious,” said de Juniac, adding that such a process is not one “that can be hurried.” He added that for India to sustain its current growth—which has been double-digit for four years—it must invest in infrastructure, and quickly. Despite the warnings, de Juniac was positive that the government’s target of 1 billion passengers by 2040 can be achieved if India makes concerted efforts to improve infrastructure, and lower costs on fuel and taxes.
PASSENGER NUMBERS UP IN 2018, BUT TRADE TENSIONS CONTINUE TO CONCERN Trade tensions continue creating some uncertainty to cause uncertainty to this positive outlook.” despite rising numbers in the International results saw passenger growth market, the passenger traffic rise 6.3% International Air Transport in 2018, a drop from 8.6% Association (IATA) has said. the year before. Capacity The latest figures from the increased by 5.7% year-onIATA year-end results show that year and passenger load demand, measured in revenue factor edged up 0.4% to passenger kilometers (RPKs), 81.2%. India and China helped increased by 6.5% in 2018. domestic travel climb 7.0%, a Although the figure was less flat rate compared to 2017. than the 2017 annual growth of 8.0%, IATA International Domestic said it was another 12 months of above-trend growth with capacity climbing 6.1% and passenger load factor at a record 81.9%. However, IATA Director General and CEO Alexandre de Juniac, commenting on the results said: “2018 was another year of strong passenger demand. Nevertheless, slowing growth in the second half of 2018, coupled with concerns over Passenger load factor trade tensions, are
81.2%
15
83.0%
LEOPOLD CALLS ON AIRLINES TO “UNLEARN” FOR DIGITAL TRANSFORMATION Airlines must “unlearn” the methods which made the industry successful in the past, according to IATA's Eric Leopold. The FDS Transformation Director said carriers must move from legacy services to a full digital offering to give customers
the experience they expect. “Digital transformation means we have to ‘unlearn’ the recipe that made this industry successful in past decades,” he said. Leopold pointed to seamless online shopping experiences as proof that disruption from digital
players means customers have raised expectations when booking flights.He said processes such as automation, new distribution and payment capabilities, and even a change in business model are all “transformation horizons” that should be under consideration.
2019 – 01 Airlines
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Data
In numbers ECONOMIC PERFORMANCE 2018
Financial performance by post-tax profit $ and revenue %. The strongest financial performance is being delivered by airlines in North America. Total industry net post-tax profit will be $35.5 billion next year.
Africa
Asia
Middle East
Latin America
North America
Europe
-2.1%
3.8%
1.2%
1.6%
6.0%
3.4%
Profit: £-0.3bn
Profit: $10.4bn
Profit: $0.8bn
Profit: $0.7bn
Profit: $16.6bn
Profit: $7.4bn
16
1% of world GDP to be spent on air transport in 2019, totaling $919 billion RPK growth, which has been running well above trend helped by the economic upturn, is forecast to remain strong in 2019.
136bn Governments gain substantially from $136 billion of tax in 2019. That’s equal to 44% of the industry’s GVA. Airlines 2019 – 01
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The cost of using airport and air navigation infrastructure has risen some 60% since the year 2000. airlines.iata.org
27/02/2019 18:40
Data (Source: IATA)
Rewarding investors: Estimated return on invested capital in 2019 will be 8.6%, adequately rewarding equity owners for the fifth consecutive year. % of invested capital 12.0
61%
Return on capital (ROIC) Cost of capital (WACC) 10.0
8.0
The average return fare (before surcharges and tax) of $324 in 2019 is forecast to be 61% lower than in 1998, after adjusting for inflation.
6.0
4.0
2.0
0.0 2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
21,000 Unique city-pair connections
The number of unique city-pair connections has exceeded 21,000 this year, more than double the connectivity by air 20 years ago. 17
Aircraft fleet:
Fuel spend:
Labor costs:
This year commercial airlines are expected to take delivery of over 1,780 new aircraft, an industry investment of around $80 billion.
In 2019, it is forecast the airline industry’s fuel bill will rise to $200 billion, which will represent 24.2% of average operating costs.
The estimated total employment by airlines will exceed 2.9 million in 2019, a gain of 2.2% compared to 2018.
2018 2019 expected forecast Aircraft fleet Available seats, million Scheduled flights, million
29,754
30,968
4.5
4.8
2018 2019 expected forecast
2018 2019 expected forecast
Fuel spend, $billion
180
200
Labor costs, $ billion
185
198
Fuel use, billion liters
355
368
Employment, million
2.88
2.94
38.1
39.8
Fuel efficiency, liter fuel, per 100ATK
22.5
22.2
Productivity, ATK per employee
Passenger load factor, %ASKs
81.9%
82.1%
CO2, million tons
895
927
Unit labor cost, $ per ATK
Freight load factor, %AFTKs
49.3%
49.3%
Fuel price, $ per barrel
87.6
81.3
GVA per employee, $
airlines.iata.org
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519,489 534,588 0.123
0.126
100,251 104,511
2019 – 01 Airlines
27/02/2019 18:16
partner of choice to streamline your supply chain.
ajw-group.com
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27/02/2019 12:36
IATA Opinion: Brian Pearce
Freight at risk from trade wars
ILLUSTRATION: SAM KERR
There may be a bumpy road ahead for air cargo as geopolitical tensions give rise to border friction, writes Brian Pearce, IATA’s Chief Economist
A
chart. Weak export orders point to a further near-term decline of trade in manufactured goods. World trade forecasts for 2019 have started to be revised down and now stand at around 3.5%, but that may not be the end of downward revisions. The reason for this halt in trade growth is not because of weakening demand in the major economies. At the end of last year domestic demand and the global economy continued to expand at a good rate. The fall in trade looks like the growing impact of border frictions. The cross-border trade environment has certainly deteriorated, with tariffs imposed on US-China trade and further increases threatened. There is a serious risk of trade disputes with other regions. These explicit barriers to trade come after a decade of soft protectionism that combined with other factors to halt the rapid growth in world trade. Whereas trade and air cargo volumes grew for decades at twice the pace of GDP, as supply chains and globalization extended, for the past decade trade has barely grown in line with the global economy. At this stage it is not clear whether trade disputes will be resolved or escalate. What we have seen so far suggests our December forecast is now too strong The arithmetic also points to a downward revision of our FTK growth forecast because there was no growth over the 3-6 months up to the end of 2018. To keep our December forecast of an average 3.7% growth in 2019, FTKs would have to expand by more than 7% between January and December. To produce an average 2019 growth rate of 2% would take a 4% rise during the year which, in the current climate, looks the best we can expect. A new forecast for global air FTK growth, which builds on this analysis, will be released at the World Cargo Symposium.
airlines.iata.org
2019 – 01 Airlines
ir cargo, measured by freight tonne kilometers (FTKs) flown, grew 3.5% in 2018. That was considerably slower growth than the 9.7% expansion of 2017. In fact, by the end of last year the earlier expansion had slowed to a halt and the level of FTKs flown in December was 0.5% lower than volumes the previous year. A key issue for the industry is whether these end year results are an indication of how 2019 is going to turn out. The shape of air cargo demand over the past two-and-a-half years has been determined to a large extent by a typical business inventory restocking cycle. Businesses were caught out by the strength of the economic upturn in late-2006, as China unexpectedly boosted its economy followed by tax cuts in the US. As a result, inventories fell to uncomfortably low levels relative to sales. Shippers then turned to air cargo to rapidly restock. Accordingly, air cargo’s share of world trade increased from late-2016 until mid-2017. As inventories reached higher levels shippers started to switch back to slower, cheaper modes of transport. Air cargo lost market share from mid-2017 until late-2018. This was a classic inventory stock cycle, which the industry has seen over past decades.We expected normal trends to resume thereafter. But the modal shift story has changed to one of overall world trade weakness. Our December forecast for 2019 of 3.7% average growth in freight tonne kilometers flown was based on growth in overall world trade of 4%. That acceleration in world trade growth, from 3.2% last year, now looks highly optimistic given that trade stopped growing at the end of last year as can be seen in the
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19
27/02/2019 16:05
CEO Interview
Making the first move Tony Douglas, Group Chief Executive Officer, Etihad Aviation Group, says airlines must be ready to act at short notice to deal with a volatile operating environment WORDS: GRAHAM NEWTON
20
I
IMAGES: GETTY/ISTOCK
ncluding its network of 55 codeshare partners, Etihad’s reach extends to more than 400 destinations. But the Abu Dhabi-based carrier is intent on remaining nimble enough to seize new opportunities in a dynamic market. New strategies and new products are the order of the day.
having to be agile and mutable, ready to make fast decisions and to adapt at very short notice. This is the new reality, and you will see more and more major players who compete in the global market having to change or alter their operating model.
Do you expect a positive 2019 for the airline?
What are your plans for the airline over the next few years?
We have built careful assumptions into what we predict for development in 2019 and forecast a year of cautious expansion in international travel and for the international market. The continued transformation of Etihad has instilled a renewed sense of confidence both internally and externally with our customers and partners. This year has started off as a period of correction for us, and we are looking forward to steady and controlled year-on-year growth from 2020, keeping a very close track on the underlining GDP growth of the emirate of Abu Dhabi. As a major enabler of commerce and tourism, we are intrinsically linked, as per our mandate, to the continued success of Abu Dhabi. The airline is evolving to meet the opportunities and challenges of an industry and world in a state of constant flux, and this means
At Etihad we are focused on optimizing our network and fleet based on these ever-changing commercial realities, as and when they present themselves. We are transforming the fleet to meet our requirements. We continue to receive more fuel-efficient, technologically-advanced aircraft, such as the Boeing 787 Dreamliner, while we phase out older types, which will bring long-term benefits to our operating results. Fleet rationalization will give us a sharpness of focus, to not only develop our guest proposition but also our training, the way service delivery is executed, and the way in which our ‘Choose Well’ brand refresh can be connected to every part of the guest experience. We have an amazing range of products on offer, which can be tailored to each customer,
Airlines 2019 – 01
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airlines.iata.org
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CEO Interview
We continue to lead change in the region and have been successful in moving away from being seen exclusively as an uber-luxury airline to become a fully inclusive full-service airline 21
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2019 â&#x20AC;&#x201C; 01 Airlines
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whether it’s a family flying with children in economy, who benefit from a dedicated Flying Nanny and product and retail choices which meet their exact needs, or a guest staying in The Residence on board our Airbus A380 fleet, which is still the most exclusive and bespoke flying experience on a commercial airline. With regards our global network, the main focus will be a push for greater point-to-point traffic from existing and emerging markets to and from Abu Dhabi. We continue to be a major connector through the hub to major points around the world, recently adding Baku and Barcelona to the network. While we continue to seek new growth opportunities, we have removed loss-making routes from the network. We are a commercial enterprise, and to operate consistently unprofitable services simply makes no business sense. If we see an opportunity however, we will act fast to evaluate and act accordingly, and there are exciting new developments on the horizon. In 2019, focus will be on quality revenue and the increased yields associated with that to ensure we are the right size and in the right shape to grow. Do you see your business model changing?
At 15 years old, Etihad is maturing on the international stage. We are accessing opportunities, including the prospects of joining an alliance or developing our own network to provide greater global reach through joint venture business alliances, or any other mechanism that achieves the original ambition of building a network with as big a global footprint as possible without carrying the liabilities we’ve had to in the past. We move into the future as a world-leading and sustainable business built on innovation and a pioneering spirit. We continue to compete in a regional and global marketplace with longestablished players, making us a challenger brand by nature. That means being ready to be think differently when it comes to our profile, growth and visibility, both regionally and internationally. Airlines 2019 – 01
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18,513
CEO Interview
Every week, Etihad places its EY code on 18,513 weekly flights beyond its own network with its codeshare airline partners
Have equity partnerships proved to be a viable way forward?
We were involved in an equity alliance strategy and the passage of time has proved that, in some cases, it did not work for us as planned—a case in point being our involvement in Alitalia and airberlin. With others we enjoyed more success. That said, it is a strategy we do not intend to repeat. Being a shareholder, often without full control, but providing financial and human resource assistance in an environment where you cannot derive fair and reasonable benefit, simply does not work. I think there is a valuable learning point from it but the thesis that suggests Etihad just goes it alone is one that is equally flawed. Moving forward, global network coverage requires us to join a number of “clubs.” We will not be too prescriptive as to precisely which club we should be entering into in the next stage of our journey. I use the plural as I think the world of alliancing has actually moved on in recent years. So joining an alliance is not on the cards?
Our evaluations may well see us choose to join an alliance, be it one of today’s established groupings or whatever evolves tomorrow as the next generation of alliances or joint ventures. However, whatever option we choose, we will participate as an active, forward-thinking leader as opposed to a passive follower. Etihad’s growth on the world stage will require that as another key pillar of our strategy moving forward. As our industry continues to evolve, we are exploring new approaches and alternatives to conventional bilateral partnerships. We do of course have many very successful codeshare agreements already in place. Every week, Etihad places its EY code on 18,513 weekly flights beyond our own network with our codeshare partners. These have fed millions of passengers into our hub Abu Dhabi (more than 8.5 million in the past two years), representing an important share of total passenger traffic and revenue (more than $6 billion over the last five years). Most importantly, they have created a wider choice for air travelers around the world. airlines.iata.org
27/02/2019 16:06
CEO Interview
market, and getting closer to our customers. We are taking advantage of new technologies by betting heavily on digitization and streamlining our freighter operations and service delivery. All of these have combined to create a more efficient enterprise that delivers a better value proposition to our partners and clients.
Is the customer experience all about technology?
Digitization is absolutely crucial to how we will fulfill our customer proposition. We’ve already put disproportionate effort into that space. Being able to present it through a smart app is quite frankly the easy part. Once we know exactly how each customer on each flight has been ticketed, being able to provide the service onboard is not difficult. How you connect one end to the other through global distribution systems, how ticketing is confirmed and paid for, and how that gets into an order fulfillment cycle is a digital revolution and an innovative approach to these things is going to require our every focus and effort. As part of our Digital 2020 plan, we are developing our capabilities in four main areas of the business including a sophisticated hub for data science; new digital touch points, including a completely redesigned website platform with an advanced open-tech booking engine; an offer management platform with a merchandizing engine based on business rules that can be created within minutes and increasingly replaced by machine learning and artificial intelligence; and new marketing platforms to manage the digital guest experience and generate personalized messages and offers. Is cargo important to your bottom line and what improvements would you like to see in the cargo sector in general?
Yes. Cargo is a hugely important and essential commercial and operational function of the Etihad Aviation Group, as with other successful areas of the group such as our MRO division and Etihad Airways Engineering. Both are enjoying an upward growth curve, reporting robust performance and results. Beyond the passenger business, Etihad Cargo is a major catalyst in the development of Abu Dhabi’s ambitious logistics strategy. The last 12 months have seen Etihad Cargo implement a major transformation. We’ve had to define and play to our strengths while introducing new ideas, redefining our commercial approach to airlines.iata.org
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8.5m Etihad’s codeshares have fed millions of passengers into our hub Abu Dhabi (more than 8.5 million in the past two years), an important share of total passenger traffic and revenue (more than $6bn over the last five years)
What opportunities and challenges do you see in your region?
We continue to lead change in the region and have been successful in moving away from being seen exclusively as an uber-luxury airline to become a fully inclusive full-service airline. Our customers can expect greater personalization with a strong focus on the inflight retail offering, the unbundling of services and fares, and the installation of new seating products such as Economy Space on much of the widebody fleet. We will also take advantage of this critical mass to introduce smarter seating on the short-haul A320 and A321 fleet beginning in the second quarter of 2019. It is critical that Etihad continues to be seen as a true flag carrier, supporting Abu Dhabi’s economic vision 2030. But the regional market itself has been relatively flat and shrinking over the last couple of years, so we are unlikely to see the significant growth enjoyed until recently.
23
How will the airline encourage diversity?
We have an unwavering commitment to create a culture of inclusion. A Leadership Development program has been created for employees, managers and leaders to enhance our behavioral competencies and values as we increase inclusive leadership at all levels of Etihad. Great emphasis is placed on supporting diverse talent to maximize their engagement, contribution, and advancement, as well as creating targeted development programs to accelerate the advancement of women. In addition, we are establishing a framework for gender diversity at all levels and throughout all divisions of the group. We are proud to have 150 nationalities working in harmony at Etihad. 2019 – 01 Airlines
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CEO Interview
Size and speed Graham Newton talks to Pieter Elbers, President and CEO, KLM, about the need to combine market size with agility in a competitive aviation environment WORDS: GRAHAM NEWTON
24
K
LM turns 100 years’ old in October 2019. Arguably, some of the most important developments in the airline’s rich history have occurred recently; from the merger with Air France to the revamp of its product in line with a digital strategy. But operating with a home base in Europe and sustainability expectations are challenges.
IMAGES: ALAMY/© KLM
What were the reasons behind your successful 2018?
We put together a new team in 2014 and the work that has been done since then is finally coming together. The airline has a comprehensive strategy for moving forward and it is finally bearing fruit. The strategy is all about being customercentric. There has been significant improvement across our product offering, such as catering, the digital experience, flat beds in business class, and a new lounge at Amsterdam Schiphol. But more crucially it is about how we interact with the customer and we are developing a good track record with that. Surveys have consistently given us a very high ranking. At the same time, we are pursuing operational efficiency across the board. That is a combination of cost reduction and shrewd investment. The fleet is being renewed, for example, and the new aircraft will reduce fuel burn, fuel cost and emissions. Airlines 2019 – 01
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CEO Interview
“KLM wants to be known as the most innovative airline in the world in terms of the customer experience” airlines.iata.org
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CEO Interview
Are there still improvements / synergies to be made within the Air France KLM group or do you feel the merger has achieved maximum efficiency?
The merger has done very well in many respects and we have successfully integrated a number of key functions, such as revenue management. We are now taking the next step and developing the merger across the Atlantic where we are working with Delta Air Lines and taking steps to include Virgin Atlantic. It is the backbone of what we are trying to do as a group. It gives us great synergies on the commercial front, great synergies in purchasing and operational efficiency, and it enables us to develop best practice in customer service and the digital experience. Of course, there is always room for improvement.
1919 KLM is the world’s oldest airline still operating under its original name. In fact, we had the “Royal” tag even before the first flight. We will be 100 years old in October 2019 and throughout that time there has been a very strong connection with our home country
26 Are the partnerships affecting your ability to respond quickly to the market and making the KLM decision-making process more complicated?
The truth is you need both size and speed. You need size for economies of scale and to have a compelling seat offer, for example. All the reasons why size matters in the airline business still hold true. But in the modern market, an airline must also be quick to adapt to new circumstances. Here, the Air France KLM group is an asset because it allows us to learn, to test, and to exchange best practice. In other words, we have a very strong platform that provides plenty of options for the correct market response. But it is not just about airline-to-airline partnerships any more. There are some very important partnerships being formed with technology companies and these will also help airline agility. KLM is making some important steps in this regard. Is the transformation to a digital airline difficult to implement?
KLM wants to be known as the most innovative airline in the world in terms of the customer experience. We are very active on social media Airlines 2019 – 01
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Biofuels: Our partners need to use their expertise to improve the availability of sustainable fuel at a competitive price
platforms, we have a number of digital products, and all that is going well. But, a few years ago, we were lacking digital innovation internally. So, we didn’t always have the right structure to support customer-facing opportunities. We’ve started to address this. Thousands of iPads have been handed out and we’ve introduced new e-learning techniques and so forth to help staff be able to help customers. But the difficulty is you have to keep the shop open even while you are rebuilding the shop. That is the challenge with implementing new processes. Thousands of flights must still leave safely, punctually, and the customer experience must still be excellent—all while you are working hard to change the way you work. Scalability is another challenge. There has to be operational reliability in everything you do. But it is possible to do both. You can grow and change at the same time. Is Amsterdam Schiphol airport aligned with your strategy?
We are the second most punctual global airline. That is an achievement as 2017 wasn’t a good year. There were queues all over the airport as a airlines.iata.org
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CEO Interview
lot of flights were delayed. But we worked together with the airport in 2018 to address the problems. We both wanted Amsterdam Schiphol to get back to being the most convenient airport in the world. Every year, there are some 500,000 flight movements at Schiphol even though the passengers are housed under one roof. It is a unique concept. The delays are part of a European problem. Can Europe solve its congestion crisis at key hubs and in key airspace areas?
It is true that the lack of capacity is a big problem. Take a look at the statistics about the average delay in Europe and it’s obvious that this a problem that is only going to get worse. We need to make a breakthrough and we need to make it quickly. From an airline perspective, it is absurd that we have had a single European currency for many years, but we can’t organize a Single European Sky (SES). The extra capacity provided by SES is absolutely essential right now. I have to say, though, that this is not about what should be in the European Aviation Policy or whether the SES performance targets are strong enough. This can no longer be a paper exercise. We need to take action. It is about execution, not more discussion. What more can be done to improve the take-up of sustainable aviation fuels?
This is one question that I don’t have the answer to. KLM is one of the biggest buyers and users of sustainable fuels. Yet the amount of sustainable fuel we use overall is still marginal compared with normal jet fuel. We are exploring opportunities to see where more effort can be made. But KLM is not an oil company or a sustainable fuel company. Our professional partners need to use their expertise to improve the availability of sustainable fuel at a competitive price. Aside from the industry’s emissions goals, there is a plan in the Netherlands to cut CO2 emissions and aviation is a big part of that. And it is worth playing our part because aviation contributes $35 airlines.iata.org
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billion in GDP and supports about 350,000 jobs. Cutting emissions is necessary if we are to grow that economic impact. Where must air cargo improve and, in particular, is it efficient enough to respond to the demands of e-commerce?
Air France KLM cargo has undergone a serious reconfiguration in recent years. There has been a significant downsizing in the freighter fleet and from 35 freighters based at Amsterdam, we are now down to just four. Our strategy now is about using belly capacity. Actually, in terms of absolute capacity we haven’t lost that much because the new Boeing 777s have a lot more space than the old 747s. But we’re more interested in different types of cargo now, such as pharmaceuticals and perishables. We don’t need the capabilities of a freighter for those types of cargoes. All this naturally makes us a more e-commerce-savvy cargo operation. In fact, thanks to the new systems and processes we have implemented, e-commerce is fully embedded in our cargo operation. And the extensive long-haul network adds to our offering. What does 100 years of KLM mean to you?
KLM is the world’s oldest airline still operating under its original name. In fact, we had the “Royal” tag even before the first flight. We will be 100 years old in October 2019 and throughout that time there has been a very strong connection with our home country. KLM is the third largest private employer in the Netherlands with some 30,000 staff. Not only is KLM an integral part of Dutch society but also it symbolizes the spirit of the country, which is known for its pioneers and explorers. And we have great teams that wear our brand with pride and represent KLM and the Netherlands across the globe. The 100-year celebration is a chance to give new impetus to these important qualities and set the airline on a course for another 100 years of flying.
133 119
destinations are served by KLM across five continents
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is the number of aircraft in the KLM fleet
KLM became the SkyTeam alliance's
7th full member in September 2004
35,488 employees comprise the airline’s workforce across all divisions
2019 – 01 Airlines
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AeroNexus Delivering Efficiency Through Connectivity • 9.5 hours to 90% of the modern world • Maximize payload (fly more cargo in lieu of more fuel) • Unique, flexible air cargo transfer rights • 40+ airlines serving 40+ destinations worldwide • World’s 6th busiest cargo airport • Fast, efficient hydrant fueling • Full service any aircraft, anytime • Open 24/7, no curfews or closures
www.AnchorageAirport.com IATA.FEB19.028.indd 28
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Dossier: Technology
Dossier
Blockchain of trust
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Blockchain technology is seen as the answer to many operational questions but the application is not without its challenges WORDS: GRAHAM NEWTON
Blockchain is a means of establishing trust. Essentially, the integrity of a data chain is established at every link. And because it is both decentralized and secure, it could apply to any number of aviation operations. But the technology is divisive. Though some see it as the answer to many legacy system ills, others reject the hype and the concept’s seeming complexity. According to Alexander Gorelik, Co-Founder and CTO at VChain—which is working with IAG to streamline airport processes by verifying identity—the truth lies somewhere between the two extremes. airlines.iata.org
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“Putting aside the hype, the majority of blockchain use cases out there would probably be better solved using traditional system architecture,” Gorelik admits. “However, within complex, multistakeholder and trustless environments, blockchain, applied well, really is superior.” Gorelik notes that there is nothing inherently difficult in applying blockchain to such environments, as it is simply a better way of recording and sharing data. It could make siloed flight, operational and terminal data instantly and globally available, for example. Take airport processes, one potential
application of the blockchain concept. “A passenger could be checked and re-checked throughout the airport, on any flight, and only have to present their data once,” suggests Gorelik. “They would glide through the airport without their passport leaving their pocket. Effectively, it’s a full realization of IATA’s One ID concept.” Unlocking value
Blockchain is already in action in aviation. Singapore Airlines is using blockchain in its KrisFlyer program. KrisPay is a digital wallet that helps to 2019 – 01 Airlines
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Dossier: Technology
Nicholas Ionides, Divisional Vice President Public Affairs at Singapore Air
Blockchain maintains transactions in an immutable ledger, thereby establishing accountability and transparency in all transactions 30
Alexander Gorelik, Co-Founder and CTO at VChain
Within complex, multi-stakeholder and trustless environments, blockchain, applied well, really is superior
unlock the value of KrisFlyer miles to enable everyday spend at retail partners. “Blockchain maintains transactions in an immutable ledger, thereby establishing accountability and transparency in all transactions,” says Nicholas Ionides, Divisional Vice President Public Affairs at Singapore Air. “As there are no intermediaries involved, partners can come on board KrisPay quickly at a lower cost and be assured that transactions on KrisPay are secure. We continue to remain open to the use of blockchain in other areas of the business.” Meanwhile, Brussels Airport’s BRUcloud data-sharing platform is enhanced by blockchain’s decentralized nature. Within BRUcloud, a set of collaborative apps aim to make the cargo landside process paperless and futureproof. The Freight Management App, for
example, uses blockchain to provide tamper-proof evidence of the handover of freight between stakeholders. Complex interplay
Such innovation is paving the way for more pervasive blockchain uptake. Smart contracts and the travel grid are two areas that might benefit. Blockchain can ensure the various agreements between multiple entities in aviation—airports, travel agents, ground handlers, caterers etc.— are encoded in smart contracts. Service delivery, including service level agreements, can be verified and payment triggered. “Think of a smart contract as a vending machine,” explains Eric Leopold, IATA’s Director, Transformation, Financial and Distribution Services. “You enter your item number, insert the correct money and the requisite product is delivered. The process is autonomous, and the contract
Blockchain solution assessment diagram Source: IATA Is there a need to store data about transactions?
NO
YES
Is there a need for shared access to create transactions
NO
Blockchain may not be the best solution
YES
Are writers of the transaction data known?
YES
Are there any conflicting interests between the writers?
NO
NO
Many trusted intermediaries offer this as a service
YES YES
NO
Eric Leopold, IATA’s Director, Transformation, Financial and Distribution Services
Do you have complex and evolving requirements?
The travel grid could significantly simplify procure-to-pay endto-end processes
NO
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Your transactions are low frequency and high value
YES
Consider a private or hybrid blockchain
YES
Consider public blockchains
NO
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Dossier
has been pre-defined in the algorithm of the vending machine.” Smart contracts are one of the platforms for another blockchain-inspired IATA initiative, IATA Coin. This is a digital currency that leverages the blockchain technology in IATA Settlement Systems, in particular the IATA Clearing House. IATA Coin has already been used in transactions by airlines. The travel grid, meanwhile, is a blockchain-based network for the entire industry set up by IATA and industry partners. Much as Apple provides a platform for developers to build apps, so the travel grid will facilitate real-time digital interactions between industry partners. “The travel grid could significantly simplify procure-to-pay end-to-end processes, such as managing agreements, monitoring and enforcing delivery, reconciliation, corrections, invoicing, and settlement,” says Leopold. “It allows digital assets to seamlessly float across the value chain unlocking new retailing opportunities, more efficient operations, and a seamless passenger experience.” Challenges remain
There are challenges. Blockchain’s decentralized nature—one of its advantages—is also one of its drawbacks.
Discussion on… GDPR
31
The EU General Data Protection Regulation (GDPR) is seen by some as a driver for blockchain. Alexander Gorelik, Co-Founder and CTO at VChain, says GDPR is an overarching framework of how systems dealing with personal data should be designed and behave. But it is down to the airlines to implement change. GDPR does advocate privacy by design, however. So, systems are built to secure data by
design, rather than built first and data secured separately later. “The aviation industry has to make its own decision to stop storing data in risky centralized data warehouses and explore the ways in which blockchain could help with that,” says Gorelik. “Some airlines are leading the way on privacy by design and are at the frontier of adopting the capabilities to enable the shift.” Gorelik believes airlines must
explore better ways to secure data. Because the aviation industry deals with highly sensitive personal and payment data, and given that airline passengers statistically have a higher-than-average income, it has become a target for hackers, “which explains why we've seen more incidents in this industry recently,” he says. “National flag carriers are even more of a target due to the challenging geo-political climate.”
“Blockchain allows digital assets to float across the value chain unlocking retail opportunities, efficient operations and a seamless passenger experience” airlines.iata.org
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2.8
Dossier: Technology
In late 2018 bitcoin hit about 2.8 transactions per second (/sec) while Vitalik Buterin—founder of decentralized platform Ethereum—announced an improvement that could allow Ethereum to reach 100-150/sec. All this needs to be compared with a Visa transaction rate of 24,000/sec.
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Blockchain explained Blockchain is perhaps best explained as a series of boxes, each with valuable content inside. The first box has multiple locks and one of the keys is thrown into the next box, which in turn is locked and one of its keys is thrown into the third box and so on. In other words, access to any individual box is dependent on the rest of the boxes. So, if a box is taken out, the chain breaks. Aviation areas where blockchain may prove beneficial include: supply chains loyalty programs aircraft maintenance and repair cargo and baggage removing intermediaries financial settlements distribution
In essence, it slows things down and means transaction speeds may not meet the level required. The cryptocurrency transaction rate compared with credit card provider Visa illustrates the point. In late 2018 bitcoin reached about 2.8 transactions per second while Vitalik Buterin, the founder of Ethereum—a decentralized platform— announced a performance improvement could allow Ethereum to reach close to 100-150 transactions per second. All this needs to be compared with a Visa transaction rate of 24,000 per second. Not only can it be slow, but also costly. In 2017, bitcoin transaction fees peaked above $50 per transaction. “The volatility in the transaction fee may be one of the reasons why mass adoption has not happened yet,” admits Leopold. So, is blockchain a force for good or not? The IATA Director is confident that
blockchain could be a transformative technology for the industry. “IATA has been conducting research and development on this technology for the past five years,” Leopold says. “In parallel, several airlines and their partners have been experimenting with the blockchain technology on a variety of use cases. The initial progress is tangible enough to encourage further developments and to look beyond prototypes. “The rise of new technologies often comes hand in hand with hype. To some extent, blockchain is showing signs similar to the start of the internet, and the potential to have a comparable disruptive impact as it gains maturity. “Whereas the promise of the web was to enable sharing of information across the world, the promise of blockchain is to enable the exchange of value and data across digital channels without friction.” airlines.iata.org
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Fraud prevention
3.7m airline miles One travel agent, for example, stole 3.7 million airline miles from clients by telling them their cheap fares didnâ&#x20AC;&#x2122;t generate loyalty bonuses, instead adding the miles to her own account
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Strengthening the defences Understanding the scale of Frequent Flyer Program (FFP) fraud in the airline industry is a first step toward a structured response WORDS: GRAHAM NEWTON
raudulent frequent flyer activity is a major challenge for the aviation industry. It is difficult to spot and the potential cost to airlines is huge. “Many airlines are still unaware of the impact that mileage fraud can have on the airline,” says Sarah Rajkumar, Fraud Prevention Manager, Etihad Guest, Etihad Aviation Group and Vice-Chair of the IATA FFP Fraud Prevention Standards Governance Group. “Miles are money, which is what makes it so attractive and lucrative to fraudsters. Airlines have not yet realized the benefits of investing in a robust fraud prevention system and this has proved very costly to organizations.” As Rajkumar points out, loyalty program credits are currency, similar to cash. With an Economist estimate of 23.8 trillion unredeemed miles in the industry and each mile valued at $0.01, $238 billion is at risk. Already, Cambridge Intelligence has reported that fraudsters have exploited a majority of airline FFPs and that about 80% of frequent flyer fraud is only discovered by pure accident. The schemes are popular with fraudsters because individual accounts are reasonably easy to hack. Moreover, the increase in partner numbers in loyalty programs means there are plenty of choice products for free that can be sold on to others. Compromised accounts can
F
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be used to launder money through the purchase of points. How does it work?
In addition to hacking individual accounts, there are a number of methods used to trick FFPs. One travel agent, for example, stole 3.7 million airline miles from clients by telling them their cheap fares didn’t generate loyalty bonuses, instead adding the miles to her own account. Some 135 flights for herself and her family valued at well over $100,000 were booked before the scam was discovered. Another method uses a phishing email that appears to come from the FFP. People are easily fooled by this as they take little notice of what the email address is and don’t suspect a scam asking them to log in to their account for a special offer. Emails about bank account details set off alarm bells but one from an FFP can fall below the personal radar. And one click is all it takes for login details to be stolen. According to Barracuda Networks, it can be so effective that 90% of people are deceived. “Methods that the fraudsters use are varied and innovative,” agrees Etihad’s Rajkumar. “If you put a stop to one type of fraud, they will come up with another kind. The methods used now are sophisticated and advanced. Social engineering, machine learning, and artificial intelligence are just a few examples. Different methods, tools and skills are used, and it is a constant game of one-upmanship going on between the fraudsters and those trying to prevent fraud.”
35
Paper exercise
Whatever the type of attack—other methods include infected shared computers and fake call center attendants—FFP fraud is hard to spot. From the user point of view, few people check their loyalty points daily. And from an airline 2019 – 01 Airlines
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Fraud prevention
Card fraud
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The cost of “card not present” fraud—where the buyer does not physically present a credit or debit card for inspection—is estimated to cost airlines close to $1 billion every year. Airlines, unfortunately, have solid experience with this type of activity. IATA Resolution 890, for example, says a travel agent should not complete transactions with a CVV2 mismatch—the security number on the back of the card. Some card issuers will not send an approval with a CVV mismatch, but unfortunately this is not a policy card schemes endorse globally. Technology, system checks, and the appropriate algorithms do much to make card fraud as difficult as possible but the battle to keep the hacker at bay is a constant one.
standpoint, it may be that hackers get enough information to prove they are the real users. It’s hard to determine what might constitute unusual activity. These days, people accumulate a mass of loyalty points through a variety of conduits and not just an airline booking. And the travel patterns of many FFP members are inconsistent, ebbing and flowing with business needs. Furthermore, FFP fraud might be seen by some as a paper exercise. According to some, since airlines are effectively giving away unsold seats to frequent flyers, the real cost to them is minimal. Points can be given back to the victim and the password to the account changed. Pursuing the fraudulent passenger can be more trouble than it is worth, especially if multiple jurisdictions are involved. The reality is different, of course. Especially with so many partners offering potential purchases through FFPs, airlines could be forced to pay significant amounts of money. And there could be legal comebacks against the airline too if it is found to be negligent. Some have speculated that the data breach at British Airways could lead to a fine and potentially cost the airline a maximum of 4% of global revenues due to stringent new European data rules. Cathay Pacific is also embroiled in a data breach crisis. How to respond
Red flags in FFP activity Tickets purchased for people other than the account holder Multiple accounts accessed from a single device Access or changes to an account from an unrecognized device Use of miles is significantly different from past activity Large amounts of miles added after a previously consistent history
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FFP fraud prevention is as much to do with the boardroom as it is with technical gurus. “Fraud is a management issue and should be treated as such,” says Rajkumar. Investing in solutions that improve over time will ensure that the airline is prepared for future fraud trends that are sure to come.” Eyal Raab, Senior Vice President at fraud prevention solution provider, Riskified, agrees, though stresses that choosing the right technology also makes a difference. “It’s all about finding the right balance,” says Raab. “Fraud isn’t going away. What management has to decide is how they want to approach preventing fraud and approving orders.”
Raab suggests that while fraud is an issue, fear of fraud is worse. Airlines should first focus on maximizing revenue and then look to fraud rather than vice versa. Benchmarking
In 2016, the Industry Fraud Prevention (IFP) project was established by IATA. The IFP began laying the foundation for fraud detection and loss reduction, supporting airlines and establishing best practices and standards in all aspects of fraud prevention. Crucially, the work has enabled benchmarking to improve industry performance. Although aviation is one of the most exposed to fraud by the nature of its transactions and loyalty schemes, it is difficult to measure performance because there are no globally-agreed metrics. The indications are that there is a huge disparity in fraud prevention performance between airlines, making the need for coordinated action obvious. Airlines have been working through IATA to provide recommendations in card and FFP fraud prevention. These best practices were validated at the October 2018 Passenger Standards Conference as IATA Recommended Practices for the benefit of the entire industry. IATA is also facilitating airline cooperation with international law enforcement agencies, particularly as fraudulent activities occasionally turn out to be related to other crimes, such as human trafficking, drug smuggling, and terrorism. “We also cooperate with a range of Strategic Partners to ensure the best available tools and services are being promoted,” says Anca Dolocan, IATA’s Portfolio Manager, Card and Fraud Services. “It takes a network to defeat a network. This is what IATA is aiming to build to ensure the fraudsters get less and less efficient in attacking our industry. “Each airline should plan their strategy individually and coordinate with peers and IATA for the best possible solutions. Only by working together, machines and humans, can sustainable progress be built.” airlines.iata.org
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Environment
CORSIA takes center stage The reporting of emissions became mandatory for nearly all carriers from January 2019 WORDS: GRAHAM NEWTON
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FRED+ An explainer FRED+ is a platform developed to support and facilitate CO2 emissions reporting for aircraft operators and states subject to CORSIA. FRED+ facilitates CORSIA emissions reporting in accordance with ICAO requirements by pairing operators directly with their state authorities for safe and secure reporting of emissions data. Users have access to analytical dashboards and reports that provide aircraft operators with insights on fuel, emissions and operational efficiency.
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T
he numbers show what the Carbon Offset Reduction Scheme for International Aviation (CORSIA) will achieve. Through CORSIA, international aviation will need to mitigate, on average, 164 million tonnes of CO2 each year. This figure will continue to grow as additional countries decide to participate in ICAO’s scheme. The Philippines and Uganda are the latest countries to volunteer and the expectation is that, by 2035, CORSIA offsetting requirements will reach 336 million tonnes annually. In total, CORSIA will mitigate around 2.5 billion tonnes of CO2 between 2021 and 2035. This level of offsetting is far more than any regional scheme can achieve. In comparison, the inclusion of aviation in the European Union Emissions Trading Scheme led to a total saving of 193.4 million tonnes of CO2 in eight years. “Carbon-neutral growth is an effort by aviation to acknowledge that many countries want to continue their aviation development— to ensure trade and tourism into the future— but that we need to balance that with climate action,” informs Michael Gill, Executive
Director of the cross-industry Air Transport Action Group (ATAG) and IATA’s Director Aviation Environment. “CORSIA allows us to keep feeding economic activity and also mitigate our emissions.” Time to report
Though offsetting under CORSIA only starts in 2021, the mandatory monitoring, reporting, and verification (MRV) of emissions data from international flights began on 1 January 2019. All operators with annual emissions greater than 10,000 tonnes of CO2 must comply, effectively taking in all but the smallest international airlines. The MRV standards were adopted in June 2018 by the ICAO Council and countries are required to bring their regulations into full compliance with these standards, as stipulated by the Chicago Convention. The monitoring of emissions under CORSIA is based on the fuel consumption of each flight, as CO2 emissions are directly related to fuel burn. To minimize the administrative costs and burden of CORSIA, however, small operators and operators, with few operations subject to offsetting, may use the ICAO CO2 Estimation
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Environment
The monitoring of emissions under CORSIA is based on the fuel consumption of each flight, as CO2 emissions are directly related to fuel burn
336m tonnes
By 2035, CORSIA offsetting requirements will reach 336 million tonnes annually
39
All operators with annual emissions greater than 10,000 tonnes of CO2 must comply, effectively taking in all but the smallest international airlines
2.5bn CORSIA will mitigate around 2.5 billion tonnes of CO2 between 2021 and 2035
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Environment
and Reporting Tool (CERT). IATA, meanwhile, has developed the FRED+ platform to support and facilitate CO2 emissions reporting for aircraft operators and states subject to CORSIA. FRED+ went live on 1 January 2019 and will: simplify CORSIA emissions reporting and reduce the administrative burden provide valuable insights on fuel efficiency and emissions performance, including benchmark reports, customizable dashboards, and on-demand business intelligence ensure confidentiality, data security, and processing integrity enable the application of global standards with all operators being subject to the exact same reporting requirements and processes FRED+ is available to all airlines, IATA and non-IATA members, at no cost. However measured, all annual emissions reports need to be verified by an independent third-party, prior to submission. Verification bodies will be accredited to ISO 14065 and CORSIA-specific requirements. ICAO will publish the total verified emissions from individual airlines and total emissions by country-pairs.
CORSIA: the better alternative to green taxes CORSIA
GREEN TAXES
Type of measure: Carbon pricing instrument Environmental impact: Binding defined target and measurable benefits Scope: Global (emissions from international aviation) Transparency: Financing of GHG mitigation projects. List of projects used for CORSIA will be published Side effects: Many of the projects will bring social, environmental or economic benefits relevant to sustainable development and support the local communities
Type of measure: Carbon pricing instrument Environmental impact: No defined target and benefits not measurable Scope: National or subnational Transparency: No traceability of revenues; no guarantee they are used for environmental purposes Side effects: Negative impacts on local economies through reduction in trade and tourism. Makes air transport less affordable
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What next?
Many countries have already taken measures to fully enact ICAO standards in their national regulatory framework. When CORSIA was adopted by the ICAO Assembly in 2016, states realized how important it is to have a common set of rules for a global scheme. Unfortunately, while China and the European Union have also begun the implementation of CORSIA, they have left significant differences between their regulatory requirements and Annex 16, volume IV. Such differences could result in market distortions and, says Gill, “IATA calls on all ICAO member states to fully implement the standards agreed in ICAO.” From 2021, the increase in emissions on flights between volunteering states will have to be offset by operators through approved climate airlines.iata.org
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The importance of addressing climate change means governments and aviation must live up to their commitment to make implementing CORSIA a success
projects. It is expected that in 2019, ICAO will initiate the assessment of carbon offsetting programs against agreed criteria, to determine which ones can be used to comply with CORSIA’s offsetting requirements. The evaluation of the programs will be conducted by a group of experts nominated by governments. From 2027, all international flights will be subject to offsetting requirements. The few exceptions include flights to and from Least Developed Countries (LDCs), Small Island Developing States (SIDS), Landlocked Developing Countries (LLDCs), and those countries that represent a small share of international aviation activities. Any of these countries can participate on a voluntary basis, however. “The importance of addressing climate change means governments and aviation must live up to their commitment to make the implementation of CORSIA a success,” concludes Gill. “Governments must take all necessary measures to implement harmonized requirements. And airlines must be in a position to comply with CORSIA’s reporting requirements. ICAO and IATA will continue to play a key role in providing support and capacity-building.” 2019 – 01 Airlines
27/02/2019 18:20
60 seconds with...
Joerg Eberhart, Air Dolomiti President and CEO
Our new image maintains an Italian spirit, with links to the Lufthansa brand Can you tell us about the airline’s ambitious expansion plans?
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We have just announced the growth plan for Air Dolomiti, which will start in 2019. It makes us very proud because we will grow from 12 to 26 aircraft. The new 14 aircraft will join the fleet gradually, with completion scheduled for 2023. It is a big step as more aircrafts will enable the company to cover more European destinations within the Lufthansa Group’s network. A new image has also been launched that maintains an Italian spirit but has a strong link to the Lufthansa Group’s brand. Will you be able to recruit enough staff for your needs?
Our recruitment process started last year and it will continue throughout 2019. Air Dolomiti will open up the door to hundreds of new hires both of flight crew and ground support personnel. In particular, for flying personnel, we planned a cutting-edge program that has never been done before in Italy: the creation of an Air Dolomiti Flying Academy where new pilots will be trained, in cooperation with Lufthansa Aviation Training and the European Flight Academy (EFA). Air Dolomiti will finance it in part, offering scholarships to allow the cadets to take on a training curriculum. Italy is a nation with huge potential, and I hope that our idea is received with enthusiasm. Is infrastructure in Germany and Italy suited to your needs?
The infrastructure is already at a very good level but there is always room for improvement in Italy as well as in Germany. We hope that new investments will be decided shortly in order to enlarge and innovate the existing infrastructures and support economic growth in the airline sector. In northern Italy especially, there is real potential for premium offers and the optimized intermodality of rail and air services. Airlines 2019 – 01
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In brief… Air Dolomiti
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destinations across As a subsidiary of Lufthansa, the airline currently serves 18 routes to and from Italy Operating out of Munich countries Airport, Air Dolomiti has enjoyed a period of sustained expansion to become one of the German base’s largest carriers by volume of traffic Air Dolomiti was founded in 1991, building a cutting edge fleet through renewal policies
What are the advantages of being part of an airline group?
Certainly, Air Dolomiti benefits from this situation for many reasons. We are the only Italian airline in the Lufthansa Group and operating under our own brand allows us to build strong ties with the country in which we are based. Verona and the main Italian cities are connected to the world thanks to the Lufthansa Group’s main hubs in Munich and Frankfurt. And, of course, there are great advantages deriving from the Group’s support in operational, administrative and financial areas. Air Dolomiti is in a position to combine the strength, stability, and high standards of Lufthansa with Italian creativity, flexibility and problem-solving capability. How do you pass your time on a flight? Do you work, enjoy the experience or catch up on some rest?
A little bit of both depending on the length of the flight. I usually prefer working or enjoying the vast selection of digital news content in the Air Dolomiti onboard entertainment. airlines.iata.org
27/02/2019 16:10
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27/02/2019 12:48
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27/02/2019 12:49