Airlines 2020-03

airlines.iata.org

76th Annual General Meeting 24 November 2020

THE AGM ISSUE

2020 – 03

CEO Interviews KLM, Malaysia Airlines, Avianca | IATA Opinion Future benefits for aviation | Cabin conditions Viral inflight transmission is rare | Passenger experience Taking onboard new biodiversity measures

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A different animal for a different world • Rightsize your fleet • Match capacity with demand • Rebuild business profitability • Achieve true sustainability #E2Pro #E2 rofitH Hunter te te E2 E 2Pr ProfitHuntter.com

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Airlines.

Contents 2020 – 03

Comment

26 Preparing for a sustainable future

7 Alexandre de Juniac, Director General

Despite new COVID-19 outbreaks, aviation’s future is looking brighter

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Izham Ismail, Group CEO of Malaysia Airlines, on the aviation value chain 32 Navigating for the crisis

31 IATA Opinion: Peter Cerda, IATA’s Regional Vice President

Anko van der Werff, CEO Avianca, on navigating through the pandemic

The spirit of cooperation must be continued for aviation and the Latin American region to thrive

Features 18 Inflight transmission

Viral transmission in the cabin is rare

Digest

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8 IATA and industry update

19 IATA General Counsel

Distributing COVID-19 vaccine safely, Preventing job losses, Weather reporting, Support for industry workers

Jeffrey N. Shane on his retirement 22 Passenger experience

Taking onboard new biosafety measures 16 Data: In numbers

Industry performance in 2020

36 Finance

CEO Interviews

IATA’s Financial Settlement Systems take center stage

14 From more to better

KLM CEO Pieter Elbers says the airline’s focus is on building back better

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 Production editor Vanessa Townsend 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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Advertising Business development manager Fred Dubery +44 (0)20 7880 7661 nigel.collard@redactive.co.uk

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60 Seconds with...

38 Greg Foran, CEO of Air New Zealand

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2020 – 03 Airlines

23/11/2020 09:27

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10/11/2020 12:02 10/09/20 12:37

Comment: Director General and CEO, IATA

Turning darkness to dawn Despite new COVID-19 outbreaks, there is hope for passenger travel, with blanket testing on the horizon and governments offering continued relief measures

ILLUSTRATION: SAM KERR

L

et’s hope the old saying that “the darkest hour is just before the dawn” applies to aviation, because it’s difficult to see how our situation can get much grimmer. The numbers speak for themselves.

In September, total traffic was down 73% compared to September 2019, little changed from August’s performance. International traffic has been stalled at around -90% for the past three months.

This isn’t because people don’t want to fly. Recovery is continuing in domestic markets where travel restrictions have been lifted, and we saw an uptick during the summer when travel to traditional holiday destinations (briefly) became possible.

But new outbreaks of COVID-19, particularly in Europe and the US, are having a hugely negative impact, driving governments toward ever more draconian measures. And even before these latest outbreaks, quarantines made travel virtually impossible.

Cargo is a bright spot: we are within ten percentage points to pre-crisis demand levels. Shortage of capacity, more than lack of demand, likely is holding back a full recovery. But while a surging cargo business may be enough to carry some carriers through the crisis, it cannot sustain the entire industry.

Total passenger traffic is now expected to be down 66% for the full year, with December demand down 68%. Our most recent analysis is that industry revenues will fall 46% in 2021 compared to the 2019 figure of $838 billion. And as of the end of October, the median airline had around 8.5 months of cash left at current cash burn rates. The bottom line is that under these conditions, industry cannot slash costs sufficiently to avoid bankruptcies and more job losses in 2021.

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So we need to change the conditions. That means convincing governments that they can safely unlock borders without quarantines. And the key to that is to introduce a globally aligned regime of passenger testing. Testing needs to be fast, highly accurate, easy to do, scalable, and –very important—affordable.

Our surveys tell us that a majority of travelers accept predeparture testing and are willing to undergo it if it means avoiding quarantine. We anticipate that the Council of the International Civil Aviation Organization will include testing as a way to reduce risk in its Phase 2 CART report expected in November.

Because it’s too much to expect a big bang reopening of a critical mass of international markets, governments need to step up with additional relief measures that do not add debt to already over-burdened airline balance sheets.

A globally aligned testing regime and continued relief measures until testing arrives is how we can turn the darkest hour to dawn. I’m an optimist, and I hope governments will take these sensible steps. Because we cannot bear the economic and social costs of a world in which air connectivity is lost. People want and need to travel. Once the freedom to fly becomes possible again, I believe we all will be surprised by the brightness of the new day.

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Alexandre de Juniac: Director General and CEO, IATA 2020 – 03 Airlines

23/11/2020 08:28

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Passenger traffic dropped 90% at the peak of the coronavirus pandemic. Airports became ghost towns and aviation’s ability to connect the world for social, cultural, and economic gain was lost. Airports Council International (ACI) World and IATA called for testing as a means to safely re-establish global connectivity and for non-debt generating financial support.

The Big Picture

Airlines 2020 – 03

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Digest Distributing COVID-19 vaccine safely IATA guidance will ensure that the air cargo industry is ready to support the large-scale handling, transport, and distribution of a COVID-19 vaccine.

IATA’s Guidance for Vaccine and Pharmaceutical Logistics and Distribution provides recommendations for governments and the logistics supply chain to handle the largest and most complex global logistics operation ever undertaken.

Reflecting the complexity of the challenge, the guidance was produced with the support of a broad range of partners, including ICAO, the International Federation of Freight Forwarders Associations (FIATA), the International Federation of Pharmaceutical Manufacturers and

The industry needs to ensure it has the requisite: Capacity and connectivity: Governments must re-establish air connectivity to ensure adequate capacity for vaccine distribution.

Facilities and infrastructure: Some refrigerants are classified as a dangerous goods and volumes are regulated which adds a layer of complexity.

Border management: Priorities for border processes include introducing fast-track procedures for overflight and landing permits for operations carrying the COVID-19 vaccine and potential tariff relief.

Security: Vaccines are highly valuable commodities. Arrangements must be in place to ensure that shipments remain secure. The huge volume of vaccine shipments will require early planning to ensure that existing processes are scalable.

IMAGES: GETTY/ISTOCK

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Associations (IFPMA), the Pan American Health Organization (PAHO), the UK Civil Aviation Authority, World Bank, the World Customs Organization (WCO), and the World Trade Organization (WTO).

“Delivering billions of doses of a vaccine that must be transported and stored in a deep-frozen state to the entire world efficiently will involve hugely complex logistical challenges across the supply chain,” said IATA’s Director General and CEO, Alexandre de Juniac.

“Though the immediate challenge is the implementation of COVID-19 testing measures to re-open borders without quarantine, we must be prepared for when a vaccine is ready.

This guidance material is an important part of those preparations.”

Airlines 2020 – 03

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airlines.iata.org

23/11/2020 08:31

Digest

“COVID-19 has devastated African economies and brought air connectivity across the continent to a virtual standstill.”

Action needed to prevent a jobs catastrophe IATA and the International Transport Workers’ Federation (ITF) issued a joint statement calling for urgent government intervention to prevent an employment catastrophe in the aviation industry.

Estimates from the Air Transport Action Group suggest some 4.8 million aviation workers’ jobs are at risk as a result of air travel demand falling more than 75% in August 2020 compared with August 2019. The impact of travel restrictions and quarantine measures have effectively closed down the aviation industry, grounding planes, and leaving infrastructure and aircraft manufacturing capacity idle.

IATA and the ITF have called on governments to provide continued financial support for the aviation industry, and safely re-open borders

without quarantine with a globally harmonized system of pre-departure COVID-19 testing.

“Aviation faces an unprecedented employment catastrophe,” said Alexandre de Juniac, IATA’s Director General and CEO. “Airlines have cut costs to the bone but have just 8.5 months of cash left under current conditions. Tens of thousands of jobs have already been lost, and unless governments provide more financial relief these are likely to increase to the hundreds of thousands.”

Stephen Cotton, ITF’s General Secretary, said: “By the end of the year, almost 80% of wage replacement schemes will run out. Without urgent intervention from governments, we will witness the biggest jobs crisis the industry has ever seen.”

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“The recovery time has lengthened with 2019 traffic levels only likely to return in late 2023,” Albakri continued. “The economic consequences are severe. Africa’s airlines will lose $6 billion in passenger revenues this year. Millions of jobs and livelihoods are at risk, not just in travel and tourism, but across the entire economic value chain and aviation’s contribution to Africa’s GDP will fall by $37 billion. For Africa’s economic revival, it is essential to re-open markets using a single, common set of guidelines, processes and criteria.”

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“By the end of the year, almost 80% of wage replacement schemes will run out.”

ADOPTING CART GUIDANCE CRUCIAL TO AFRICAN ECONOMIC RECOVERY IATA is urging Africa’s health and transport authorities to accelerate and expand the harmonized implementation of ICAO’s Council Aviation Recovery Task Force’s (CART) guidance for the safe resumption of air travel and tourism during the COVID-19 pandemic.

“COVID-19 has devastated African economies and brought air connectivity across the continent to a virtual standstill,” said Muhammad Albakri, IATA’s Regional Vice President for Africa and the Middle East speaking at the 2020 African Aviation Industry Group (AAIG) Aeropolitical Forum.

80%

Muhammad Albakri, IATA’s Regional Vice President for Africa and the Middle East

Stephen Cotton, ITF’s General Secretary

Passenger revenues: Air travel is essential to Africa's economic revival

2020 – 03 Airlines

23/11/2020 08:31

Digest

“The crisis is deeper and longer than any of us could have imagined.

And the initial support programs are running out. We must ring the alarm bell again.” Alexandre de Juniac, IATA’s Director General and CEO

Green benefit of Jordan/ Israel airspace accord

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The overflight agreement between the Kingdom of Jordan and State of Israel that allows for flights to cross over both countries’ airspace will shorten flight times and reduce fuel burn and CO2 emissions.

Airlines have historically flown around Israel when flying east/west over Middle East airspace.

The direct routing through Jordanian and Israeli airspace will on average cut 106km eastbound and 118km westbound on flights operating from the Gulf States and Asia to destinations in Europe and North America.

Airspace connection: The overflight agreement between Jordan and Israel will shorten flight times and reduce emissions

Based on the number of eligible departure airports, this will result in a saving of 155 days of flying time per year and an annual reduction in CO2 emissions of approximately 87,000 tonnes. This is the equivalent to nearly 19,000 passenger vehicles being taken off the road for one year.

“The connecting of the airspace between Jordan and Israel is welcome news for travelers, the environment, and the aviation industry during these very difficult times,” said Muhammad Al Bakri, IATA’s Regional Vice President for Africa and the Middle East.

Agreement to improve aircraft weather reporting

Meteorological data: weather reporting will be improved thanks to an agreement between IATA and WMO

Airlines 2020 – 03

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IATA and World Meteorological Organization (WMO) have signed an agreement to increase and improve the automated reporting of meteorological data by commercial aircraft.

The new initiative, called the WMO and IATA Collaborative AMDAR Programme (WICAP), aims to expand the existing WMO Aircraft Meteorological Data Relay (AMDAR) system to ensure coverage over data-sparse areas. It is expected to bring many additional and new partner airlines into the program, which is already supported by approximately 40 airlines and covers several thousand passenger and cargo aircraft.

“One of the many unfortunate aspects of the COVID-19 crisis has been the severe loss—of up to 90%—of aircraft-derived meteorological data as a result of the steep decline in airline operations and passenger flights since March 2020,” said WMO Secretary-General Professor Petteri Taalas. airlines.iata.org

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Digest

ENSURING GREECE REAPS THE BENEFITS OF AVIATION

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Moreover, the slow recovery in air travel means the industry will continue to experience cash burn in 2021, at an average rate of $5-$6 billion per month.

$5-6billion

The Greek government must support efforts for a common travel protocol and promote an enhanced pre-flight COVID-19 testing program, according to IATA, to save aviation and travel and tourism jobs in Greece.

IATA also requested a framework of financial, operational, and regulatory support from the government to preserve the benefits of air connectivity for Greece and strengthen the aviation sector.

SUPPORT FOR INDUSTRY WORKERS IATA estimates that the coronavirus pandemic has put at least 25 million aviationrelated jobs at risk. With pop-up quarantines, lightening lockdowns, and continuing uncertainty that number will only increase. People in aviation are losing jobs and many are suffering from mental health issues.

Aviation Action—launched

by Chris Wild, Head of Airfield Operations at the UK’s Manchester Airport, together with industry colleagues—aims to help those in need worldwide.

The charity consists of a trustee board and two regional advisory boards, all containing a diverse range of individuals, including recruiters, airport personnel, ex-military staff, and early career ambassadors.

Aviation Action is already directly helping over 500 people and is growing rapidly.

“Our aim is to grow through a number of initiatives with industry partners, including airlines, airport operators, and other key organizations such as the Federal Aviation Administration, Civil Aviation Authorities and membership bodies such as Airports Council International, IATA and ICAO,” says Luke Martin, Chair of one of the regional advisory boards.

Discussions have already led to support from many aviation companies. “To further increase momentum and help those in need we would like to encourage airlines and airport operators to get in touch with us,” Martin adds.

Aviation Action supports the full aviation spectrum from

engineering and cabin crew to baggage-loaders, planners and caterers, cargo-specialists, pilots, marshals and more. The primary focus of the charity is to provide peer to peer support as shared experience often makes people feel safer. But professional help is also available.

The charity focuses on early prevention and awareness of mental health but also offers advice on resumés, finance, and interview technique among much else. It has launched an early career mentor scheme for school, college, and university leavers, for example, to help them with their transition into a working career in aviation. A series of webinars offer advice for those entering the industry. Furthering women in aviation and the growing number of diversity groups is also a key strategy.

Support is always structured to an individual’s needs and all services are free with donations contributing to securing the services an individual may require.

AVIATION ACTION’S FIVE KEY AREAS Support 24/7 immediate support Peer support network Professional support network Hardship grants Coaching Professional coaching Recruitment support CV support Interview preparation

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Training Free training resources Webinars Professional training Re-training for reemployment Mentoring Professional mentoring Women in aviation Young people in aviation Military to civil transfer Advice Bespoke advice Topical advice articles

The Charity is also running an industry-wide research survey, State of the Industry – 2020 and Beyond, to enable the charity to focus its support to where it is needed most.

“It is clear there is a significant underlying mental health crisis within the industry, which we have seen evidenced through the early results of our research survey,” concludes Martin.

For more information or to make a donation, visit: www.aviationaction.org

2020 – 03 Airlines

23/11/2020 08:31

Data

In numbers INDUSTRY PERFORMANCE 2020

48%

Based on a sample of 76 airlines, the year-on-year decline in operating costs in Q2 2020 was 48% compared with a 73% decline in operating revenues

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IATA estimates airlines will burn through $77 billion in cash during the second half of 2020, equating to $13 billion/month or $300,000 per minute

30% 8.5 Airlines 2020 – 03

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30% fall in unit costs required to break even in 2021

$1.8tn

The median airline has just 8.5 months of cash remaining at current burn rates

The loss of aviation connectivity will have a dramatic impact on global GDP, threatening $1.8 trillion in economic activity airlines.iata.org

23/11/2020 08:32

Data (Source: IATA)

Costs need to be downsized to match lower revenues: 2021 revenues are estimated to be 50% of pre-crisis expectations Source: IATA Economics, Airline Analyst Industry Revenues (Bn $) Cargo Revenues Passenger and Other Revenues

1,000 900

Aircraft are a major ‘fixed’ cost despite downsizing effort: Deliveries are postponed and retirements will rise sharply Source: IATA Economics, Cirium Ascend

PreCovid-19 revenue forecast

800

2,000

700

1,750

600

1,500 PreCovid-19 revenue forecast

500 400

1,250 1,000

300

750

200

500

100

250

0 2016

Regional Turboprops Narrowbody Jets Widebody Jets

2,250

0 2017

2018

2019

2020E

2021F

2019

2020 pre-COVID

2020E

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1.3m

Some 1.3 million airline jobs are at risk. This would put 3.5 million additional jobs in the aviation sector in jeopardy along with a total of 46 million jobs supported by aviation

Regional Stats: International Passenger Markets in September 2020 vs September 2019

European airlines:

Asia-Pacific airlines:

Middle Eastern airlines:

North American airlines:

Latin American airlines:

African airlines:

-82.5%

-95.8%

-90.2%

-91.3%

-92.2%

-88.5%

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2020 – 03 Airlines

23/11/2020 08:32

CEO Interview

From more to better KLM’s CEO, Pieter Elbers says the airline’s focus is on building back a better airline. Interview by Graham Newton

A

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long with other airlines the world over, the Dutch airline KLM has overcome many challenges and learned numerous lessons from the COVID-19 crisis.

IMAGES: GETTY/ISTOCK/SHUTTERSTOCK

What has been the impact of the pandemic on the airline?

Huge! The impact cannot be overstated. I cannot believe how, in February 2020, what seemed like a local aviation issue in China has grown to have such a global impact on our industry and airline.

For KLM, there were initially some minor adjustments to flights to China, but these adjustments soon spread to the global network.

From March, the network was severely reduced and in April and May we virtually grounded all our 200 aircraft, although we worked hard to operate a number of repatriation flights.

In June, we saw the beginnings of a gradual recovery that picked up in July and August. By then, in Europe, we were flying to 95% of our destinations with about 60% capacity. Load factor was about 50%, which was slightly better than anticipated in April.

But after September the situation deteriorated again, especially in Europe, and long haul wasn’t picking up as expected. We’re now reduced to levels we saw at the start of summer.

We had to let go some 5,000 colleagues at KLM Airlines 2020 – 03

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out of 33,000 which we regret but was necessary under the circumstances.

It has been an incredible and intense rollercoaster ride and the financial impact has been devastating. For the first nine months of the year, Air-France-KLM reported a loss of €3.4 billion ($3.94 billion). KLM lost €1 billion. In the third quarter alone, Air France-KLM went from a near €1 billion profit in 2019 to a €1 billion loss in 2020. That’s a €2 billion swing in a single quarter!

What are the main lessons learned from the crisis?

There is no doubt that this crisis has lasted longer and is deeper than anybody anticipated. When you’re faced with an unfolding crisis, you have to learn as you go along. But you must learn quickly.

Speed is of the essence. We started putting cargo in the cabin very quickly, but perhaps we could have done it even quicker. We also organized repatriation flights to places we had stopped flying to, such as Sydney.

And along with speed, you need agility. Cargo in the passenger cabin is an example of that too.

You do things you would never have thought to do before. I am proud of the teams who did these things so quickly.

And of course, all health regulations and initiatives had to be implemented quickly and efficiently. airlines.iata.org

23/11/2020 08:33

CEO Interview

At the beginning of 2020, our priorities were sustainability, digitization, and diversity and inclusion in our sta.

Fortunately, we have the great talent and diversity to meet those goals.

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2020 – 03 Airlines

23/11/2020 08:33

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CEO Interview

Tell us about the airline’s strategy and how you will now approach 2021 and beyond?

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Air France-KLM went from a near €1 billion profit in 2019 to a €1 billion loss in 2020. That’s a €2 billion swing in a single quarter!

Airlines 2020 – 03

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From the start of this crisis, our approach has been very structured. It’s important for the employees and the company because every day brings further news and people begin to feel insecure about their jobs and about the future.

A clear structure provides a basis for people in uncertain times.

Crisis management was our starting point, and we implemented all the local rules of the 70 countries we fly to and also began serious cost-cutting. We did everything a company would and should do in a crisis situation.

We then had to secure a loan and guarantees on bank loans from the Dutch Government to ensure we had a sound financial basis. That is now in place.

The third pillar has been about recovery and speaking with my colleagues and especially my network team on a daily basis to work out the best way forward.

Finally, there is the 2021–2025 period. As time passes, we are more focused on this fourth pillar: restructuring. We have summed up our turnaround strategy as “From more to better.”

Basically, building back a better airline.

Previously, the airline was focused on “more everything”; more passengers, more flights, more aircraft. But now we are concentrating on making things better. A better airline, a better service, extra hygiene measures, a better connection with communities and country, and so on. That’s why, on the product side, we have decided to continue with Premium Economy and to implement direct aisle access in all our Business Classes.

And of course, even more than before, there is a better, deeper commitment to sustainability.

The restructuring plan was submitted to and accepted by the Dutch Government. A commitment from the unions to make a labor contribution during the term of the loan was needed to get it finalized. This will last for the term of the loan, which is expected to be 2025.

This is a big thing to ask of your employees, even in these unprecedented times, but it was one of

the requirements set by the government. If you are asking for taxpayers’ money it is only right that employees contribute too.

KLM is important to the Dutch economy, which is why we receive a loan and guarantees from the government. This puts us under the public spotlight, making it even more important to keep working together internally and to focus on every contribution needed to achieve recovery.

Are governments guilty of not supporting the industry or should airlines have been better prepared given previous crises, such as SARS and the Icelandic Volcanic ash cloud?

Many governments implemented local measures to keep national economies, and airlines, going.

That was a positive step for aviation, but the other side of the coin is that governments all took different measures. And they even had different ideas about safe travel destinations. Even slot waivers, which were adequately addressed by the European Union, took quite a bit of time.

And because everything has been so national in nature, there is a lack of coordination at the global level. Should masks be mandatory, what about keeping the middle seats free, and so forth?

As an industry, we strongly plead for harmonization but perhaps we didn’t say what was needed quickly enough, resulting in governments coming up with their own rules.

Take quarantines. They are extremely negative for passengers. People are not afraid to fly, they’re insecure about being at a destination when the rules are suddenly changed. Speed testing is obviously a helpful solution to these insecurities. It will restore passengers’ and authorities’ confidence in travel and so I’m definitely in favor. Testing will be an essential part of the overall toolkit for safe travel.

Has the crisis affected your views on airline partnerships and joint ventures?

In the depth of this crisis, all carriers had to focus mostly on themselves. We were all dealing with repatriation, with cash flow issues, the balance sheet, and taking care of our customers. airlines.iata.org

23/11/2020 08:33

CEO Interview

If we assume that the recovery will take years, it is the thinner, long-haul routes that will be last to come back. And they wouldn’t come back at all without strong partnerships at big hubs. Look at our Air France-KLM partnership with Virgin and Delta, for example. This was a transatlantic powerhouse before the pandemic. And it is flights such as Amsterdam to Atlanta that will lead us to recovery and the ability to serve longer, thinner routes. The same is true for Delta heading into Europe.

These developments are crucial to traffic recovery, which benefits the consumer and the global economy.

Do you feel the aviation value chain has worked together well or could more be done to promote a unified message?

I think we have been singing from the same hymn sheet. After all, OEMs and many other suppliers are in serious difficulty too. It is all about reinstating the confidence of travelers and everybody has a vested interest in that.

KLM worked even closer with Schiphol on hygiene measures, for example, to make sure travelers feel comfortable. This crisis has shown the interdependency of the value chain. Recovery will be characterized by cooperation.

250,000 At KLM, we repatriated 250,000 Dutch and other Europeans.

We brought in an enormous amount of medical equipment for European hospitals.

How important has the cargo revenue stream been and will you put more emphasis on cargo?

Cargo has always been a crucial part of our business. We were recently recognized as cargo airline of the year 2020 at the World Air Cargo Awards. Unlike the losses seen in the passenger business, cargo revenue in the first nine months of 2020 increased by an impressive €168 million compared with the same period last year.

KLM operates from a small home base to a worldwide network, so cargo is vital. There have been many new cargo initiatives over the last few years, such as our express cargo and pharmaceutical services, both of which started in 2015. These have been important and helped enormously to make us agile.

When the crisis started, we started an air airlines.iata.org

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CO2 In the Netherlands, we have committed to reducing CO2 as part of the loan package from the government.

bridge to China to transport medical equipment and other relief goods. Actually, I did one of the flights myself just to see how we got 1.3 million masks plus other essential personal protection equipment on an aircraft. In total, we brought 50 tons of medical supplies to the Netherlands from Shanghai on this particular flight.

Also, we have converted some Boeing 777s to operate cargo-only flights and that is working very well to destinations that we can’t fly to with passengers due to travel restrictions. The point is you don’t need a huge, dedicated cargo fleet to be in a good position for cargo. It is about agility.

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Have broader aviation issues, such as diversity and sustainability, been lost in the fight for survival?

At the beginning of 2020, our priorities were sustainability, digitization, and diversity and inclusion in our staff. KLM is the second largest employer in the Netherlands, and it needs to reflect our society and it needs to reflect our customers. Fortunately, we have the great talent and diversity to meet those goals.

As for sustainability, it is an essential part of the industry recovery. In the Netherlands, we have committed to reducing CO2 as part of the loan package from the government. I know it is the same for many other carriers.

The silver lining in this crisis is that we have an opportunity to show aviation is a force for good, as former IATA DG Tony Tyler used to say.

Personally, I really do support and believe that!

We can point to what the industry achieved when the crisis spread globally. At KLM, we repatriated 250,000 Dutch and other Europeans.

We brought in an enormous amount of medical equipment for European hospitals.

We have truly demonstrated the benefits of aviation.

2020 – 03 Airlines

23/11/2020 08:33

Passenger Experience

Low risk of viral transmission inflight Inflight COVID-19 transmission is rare, not only due to new measures but thanks to the airflow within aircraft

S

ince the start of 2020 up to October, there have been 44 confirmed or possible cases of COVID-19 associated with a flight. In that period, some 1.2 billion passengers have traveled. That equates to one case for every 27 million travelers. Dr. David Powell, IATA’s Medical Advisor, calls the figures “extremely reassuring.” “Furthermore, the vast majority of published cases occurred before the wearing of face coverings inflight became widespread,” he notes.

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Aligned data

IMAGES: GETTY

Studies by Airbus, Boeing, and Embraer explain the reasons behind the low transmission rate. Though aircraft types vary, detailed simulations confirmed that aircraft airflow systems effectively control the movement of particles in the cabin, limiting the spread of viruses.

High Efficiency Particulate Air (HEPA) filters, the natural barrier of the seatback, the downward flow of air, and high rates of air exchange efficiently reduce the risk of transmission.

HEPA filters, for example, have a more than 99.9% bacteria/ virus removal efficiency rate, ensuring that the air supply entering the cabin is not a pathway for microbes. Air is exchanged 20-30 times per hour on board most aircraft, which compares very favorably with the average office space (average 2-3 times per hour) or schools (average 10-15 times per hour).

Mask wearing adds an extra layer of protection and is now common on most airlines. The Takeoff Guidance issued by ICAO supports this approach. The guidance also adds numerous other layers of protection to keep transmission rates to a minimum.

Manufacturer Studies

The simulations carried out by the three major manufacturers further highlighted the importance of aircraft design in low Airlines 2020 – 03

P18 Transmission_Airlines 2020-03.indd 18

infection rates. An Airbus simulation of the air in an A320 cabin calculated parameters such as air speed, direction, and temperature at 50 million points in the cabin, up to 1,000 times per second. The same tools were then used to model a non-aircraft environment, with several individuals social distancing. The result clearly demonstrated that potential exposure was lower on an aircraft than when staying six feet apart in an office or classroom.

Boeing researchers studied various scenarios, including a coughing passenger with and without a mask seated in various locations, and different on/off variations of overhead air vents.

Embraer research likewise showed that risk of onboard transmission is extremely low, and the actual data on in-fight transmissions that may have occurred supports these findings.

Safety first

The research done on inflight transmission of the coronavirus shows the cooperation and dedication to safety of all involved in air transport, providing undeniable evidence cabin air is safe.

Indeed, the priority on safety is no different during the COVID-19 outbreak. A recent IATA study found that 86% of recent travelers felt that the industry’s COVID-19 measures were keeping them safe and were well-implemented.

Alexandre de Juniac, IATA’s Director General and CEO, accepts that there is no “single silver-bullet measure” that will make air travel 100% safe in the age of COVID-19. “But the combination of measures that are being put in place is reassuring travelers the world over that COVID-19 has not defeated their freedom to fly,” he says. “Nothing is completely risk-free. But with just 44 published cases of potential inflight COVID-19 transmission among 1.2 billion travelers, the risk of contracting the virus on board appears to be in the same category as being struck by lightning.” airlines.iata.org

23/11/2020 08:34

IATA General Counsel

Go for it!

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WORDS: GRAHAM NEWTON

Jeffrey N. Shane, IATA’s former General Counsel, put aviation on the road to liberalization during his previous roles. As he retires, he cautions governments not to stray from this path

J

effrey N. Shane’s career spanned five separate stints at the US Department of Transportation (DOT), several countries, and notable industry firsts.

His retirement on 30 June 2020 was welldeserved. But Shane admits that, with hindsight, he wouldn’t have chosen this moment to step down from his role as IATA’s General Counsel.

“My heart is still in the industry and I would have liked to see it back to a more solid footing,” he says. “But my retirement date was set almost a year in advance.”

Shane is under no illusions about the enormous challenges ahead for air transport.

He points to the decimation of the capital base and the slow return of demand as just two of the

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more obvious issues. “But for creative people, it is the opportunity to implement innovative and world-leading solutions,” he notes.

And that is something Shane knows a thing or two about.

More competition

IATA’s former General Counsel didn’t start out with the intention to change the industry.

He was working in Thailand when the Carter Administration deregulated the domestic US market in 1978 and the news largely passed him by. As a specialist in international law, it was not his prime concern.

Even when he returned to the US DOT in 1979 as Assistant General Counsel in International Law, it was only of peripheral interest when he

“I got a reply the next day with a single note in the margin, saying go for it” 2020 – 03 Airlines

23/11/2020 08:35

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became involved in aviation bilateral negotiations.

It was apparent, however, that the basic idea was to introduce more competition into aviation markets and Shane was happy to take that line.

Gradually, aviation began to take center stage in his career and in 1985 Shane was put in charge of US bilateral negotiations. “These are tough whether you are talking about nuclear disarmament or a route to Zurich,” he says. “The same dynamics are at play.”

At that stage, the basic problem was that airlines were afraid of losing market share.

Heavily regulated markets had been the norm for so long that a limited access mindset had become entrenched. And it was still generally accepted that most cities wouldn’t have direct services to other continents and travelers would have to connect through certain gateway cities.

Even though Shane was employed to pursue a basically traditional approach, he was beginning to see things differently. The numbers supported him. Aviation liberalization in the United States was leading to growth and, for airlines, a smaller share of a large pie was worth more than a larger share of a small pie.

Slowly but surely, he worked to change the airline mindset from one focused on the relationship with governments—as they held the key to new routes or potential competition coming in on existing routes—to one concentrated on the customer.

Shane’s position also put him into direct contact with local Chambers of Commerce throughout the United States. That provided direct evidence of the impact air connectivity had on businesses, the economy, and job creation.

“At one point, Swissair were pushing for a service into Atlanta, but it wasn’t possible because the United States was having a few aviation business issues in Switzerland,” Shane explains. “The people in Atlanta weren’t happy because they understood the value of the connection and they weren’t concerned about the flag on the tail of the aircraft.”

When Shane became Assistant Secretary at Airlines 2020 – 03

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120

IATA General Counsel

There are now more than 120 open skies agreements in the United States alone and many more than that around the world

the DOT—a position appointed by the President and approved by the Senate—it gave him the authority to make some bigger decisions and aviation liberalization topped his agenda.

As Shane recalls: “I had an excellent boss, Sam Skinner, who also wanted to accomplish things.

I explained to him that I believed air transport liberalization worked, that it created jobs, boosted the economy, and even gave airlines greater opportunities for sustainable success. I sent him a memo saying this could be a great time to break the mold, fully expecting the memo to take the usual course—which is to say a delayed and predictable response that advises a meeting or a workgroup to study the matter further.

“But I got a reply the next day with a single note in the margin, saying, go for it.”

Fundamental change

The result was the Underserved Cities Program.

Airlines were still sceptical, but airports and cities were fully supportive.

The program represented a fundamental change for aviation even though Shane modestly describes it as “an idea whose time had come.”

With bilateral negotiations, when a foreign carrier wanted to fly into a country, the almost universal policy was to wait until such a time as the host country wanted something in return. In other words, the reply was “let’s wait and see.”

Shane’s efforts meant the United States at least was going to say “welcome!”

KLM’s was the first application, to fly to Baltimore. Shane remembers attending the first flight and was amazed to see a Boeing 747 in the KLM livery, a direct result of his memo. “Because Baltimore had also just opened up a new interstate highway that went straight to the airport, I said in my speech that Baltimore now had a highway to Europe,” says Shane. “That got put on billboards.”

The Underserved Cities Program expanded rapidly, and the positivity encouraged Shane to go further. Open Skies was born. Regulated prices, schedules, and types of aircraft were all to be confined to the history books. Now, these airlines.iata.org

23/11/2020 08:35

IATA General Counsel

would be commercial airline decisions, made according to demand. Open Skies was finalized in 1992 and the US agreement with the Netherlands was an industry first.

IMAGES: SHUTTERSTOCK

Weathering storms

There are now more than 120 open skies agreements in the United States alone and many more than that around the world. It has become an accepted strategy and Shane believes it has allowed airlines to weather more storms than they would have in a regulated market.

It would get airlines through the industry restart too, but Shane is concerned that the global zeitgeist means governments are backing away from liberalization in a post-COVID world.

The United States, for example, was quick to give its carriers financial relief. Access to the money was governed by a table of specified flights, however. “It was almost channelling the spirit of the Aeronautics Board, which we discontinued in 1984,” quips Shane.

Though the authorities are now easing the requirements, the move hints at both the importance that airlines have to the economic recovery and the desire of governments to control that process. But the two are not necessarily compatible, warns Shane.

“Connectivity must be restored in a sensible manner that allows airlines to respond to demand,” he suggests.

Around the world, air service is being encouraged or permitted to certain markets and Shane says it may take some time before airlines are completely free to devise a network of their choosing.

He also notes that many governments got equity in return for financial relief and are now invested in airlines in every sense of the word.

That may lead to a desire to protect their assets, a move that isn’t consistent with open skies.

Single entity

Shane also sees efforts to ease ownership restrictions being put on the backburner. To be a US carrier you must be substantially owned airlines.iata.org

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by US citizens and that is true for many countries around the world.

Shane’s solution in the 1990s naturally followed on from open skies; antitrust immunity.

Though early movers Delta and KLM couldn’t be a single entity it was possible to largely replicate that structure through antitrust. Shane signed that first antitrust order.

“At first, we said they had to compete on routes where they were already competing, but it became clear that wasn’t necessary,” he notes.

“For consumers to benefit, the airlines had to be able to operate as a single entity.”

The move eventually led to the establishment of alliances and the many benefits for consumers.

Though many of the impediments to ownership rules have been circumvented, Shane sees work in this area plateauing at best.

And, for now, cabotage rights are a long way off.

There is little appetite from governments to have foreign carriers operating domestic services.

Despite these obstacles, Shane is optimistic about the future. “I don’t know what the future will hold but I do know people have an instinctive desire to travel,” he says. “Virtual meetings haven’t shown people that there is nothing that can replicate a face-to-face encounter.”

He stresses that this does not mean that the industry will get back to business-as-usual at some point in the future. Rather, new people and new initiatives will form a fresh approach to air travel. “Aviation has grown enormously and there is far more interest in the industry now,” says Shane. “That is attracting good people and I am fascinated by that. I saw it at IATA. There is diversity and there is quality.”

The industry is also moving toward greater transparency in its marketing. Many travelers still don’t know what aircraft they will be flying on, what food they will eat or what entertainment will be available. New Distribution Capability is the start of the journey toward solving these issues. “This is an industry on the cusp of great change,” he concludes.

But it may need a new Jeffery N. Shane to push those changes through.

“Connectivity must be restored in a sensible manner that allows airlines to respond to demand”

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“Virtual meetings haven’t shown people that there is no need to travel but rather that there is nothing that can replicate a face-to-face encounter” 2020 – 03 Airlines

23/11/2020 08:35

Passenger Experience

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“Already we have measures in place to ensure safe journeys through ICAO’s CART recommendations. And trials around the world are helping us to demonstrate that we have effective testing technology that can be efficiently integrated into the travel process.”

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airlines.iata.org

23/11/2020 08:36

Passenger Experience

Welcoming a new passenger experience The passenger journey must accommodate new biosafety measures without losing sight of its seamless goal WORDS: GRAHAM NEWTON

IMAGES: GETTY/SHUTTERSTOCK

A

ir traffic demand has failed to pick up as a second wave of COVID-19 infections flood the world. Pre-pandemic traffic levels won’t be seen until 2024.

Airports once congested now stand all but empty. Shops are closed, amenities unused.

But aviation will return to power the world economy once again. The challenge for the industry is maintaining a positive passenger experience in the light of new realities.

Biosafety must be balanced against the still-appropriate aim of making the journey as seamless as possible.

The harmonized implementation of ICAO Take-Off guidance and close cooperation with the public and travel and tourism industries is essential.

George Casey, Chair and CEO, Vantage Airport Group—which has 10 airports worldwide in its portfolio—agrees that all partners in the aviation value chain must work together.

“Partnership and collaboration amongst all entities that touch the passenger journey—from airlines and airports to concession managers and regulatory agencies—is more important than ever,” he says. “Strong partnerships and smart

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use of new technologies can promote transparency, communication, and a better understanding of our shared customer. We need to remove barriers between traditionally siloed partners by sharing information and data.”

Familiar technologies

Some of the contactless measures being worked on by the industry will be familiar. From kiosks to bots to baggage drop-off, passengers have begun to use many of these technologies.

Already commonplace, for example, is biometric identification. The face recognition algorithm will need to be fine-tuned to accurately verify passengers wearing face masks, but suppliers are working on this. Facial recognition is applicable to many travel processes and can accelerate throughput rates at critical touchpoints.

Mobile technologies are also coming to the fore. Smartphones will take on even greater importance as they can carry all the necessary documentation, including a boarding pass, health declaration, and other ancillary services. This idea also forms part of IATA’s One ID program, an integrated identity management solution.

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Face coverings and sanitization Mask wearing for air travel is now common and mandatory in many countries. In some airports, South Korea’s Incheon International Airport among them, bots are a high-tech alternative to signage that reminds passengers about the requirement.

Sanitization, meanwhile, will be stepped up across all airports and airlines and in many cases will employ new tools and systems.

Future design decisions—from furniture and flooring selections to restroom and hold room layout— are being based on ease and efficacy of cleanliness.

2020 – 03 Airlines

23/11/2020 08:36

Passenger Experience

Baggage drop-off is another element of the journey already heading in the right direction.

Radio frequency identification (RFID) tags enable constant monitoring and will ensure bags reach their destination with minimal human involvement.

Opening skies… Testing to reopen borders

Unfamiliar measures

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Other elements of the passenger journey may not be as readily incorporated, however, having previously been off the radar of most industry initiatives.

Social distancing is a prime example. In this regard, the current low travel numbers might be seen as a boon as they make social distancing possible. But it will become increasingly difficult as demand returns and restrictions likely to remain in place.

Stuttgart Airport and technology supplier Xovis are planning to use 3D sensors to manage social distancing. 3D stereovision sensors manage passenger flow across the airport and work is ongoing to determine how these sensors can be leveraged to manage physical distancing.

One idea is to create heat maps from the data so that queuing can be adjusted as necessary. Riccarda Mark, Senior Expert Airport Quality Monitoring, Stuttgart Airport, explains: “This new technology allows us to better understand how passengers move around the terminal. Among other things, this helps us adjust social distancing floor markers to ensure an even safer process.”

Social distancing will also be tackled through virtual queuing, allocating passengers a particular time or queue number to avoid crowds.

Reconnections

But it is testing that could be the game-changer for international travel. Airports Council International and IATA have teamed up to call for a globally consistent approach to provide governments with the confidence to re-open borders without quarantine. A fast, practical, accurate, low-cost, easy-to-use test supported and paid for by public health authorities is vital.

Airlines 2020 – 03

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Quarantine laws and travel restrictions continue to curtail aviation’s recovery and ability to repower the global economy.

“Quarantine of any length will continue the economic destruction of COVID-19,” says Rafael Schvartzman, IATA’s Regional Vice President for Europe. “Testing must replace, not shorten, quarantine.

And testing costs should be borne by governments, in line with the World Health Organization’s International Health Regulations.”

An IATA survey shows that 88% of air travelers are willing to take a COVID-19 test as part of the travel process, and 84% agree it should be required for all travelers.

There are a number of testing methodologies, each

of which has its pros and cons.

The Rapid Antigen Test (RAT) is perhaps best placed to rebuild confidence and trust in the biosafety of air travel. It meets the goals of being accurate, easy-to-use, fast, and low-cost.

The RAT looks for specific antigens, such as the surface proteins of a virus, instead of a genetic sequence in the sample. It has good sensitivity and excellent specificity, which reduces the risk of false positives.

Importantly, it is easy to administer and generally takes the form of a strip test, somewhat similar to a pregnancy test, with results that are easily readable with minimal instructions. More invasive procedures require staff with medical training, which obviously constrains

capacity and increases costs.

Minimal consumables are required for the RAT—just protective equipment for staff and some medium to transfer the swab from the test subject to the test strip.

In fact, combined with a non-invasive swab, such as saliva, the test could even be self-administered.

The RAT is the fastest of all testing methodologies, typically providing results within 15 minutes, as no specimen treatment is required before it is applied to the testing surface.

Moreover, the RAT is arguably the cheapest of all tests, with a reported range of $5 to $20 across vendors.

Economies of scale can be expected once mass production is achieved among the leading manufacturers.

An IATA survey shows that 88% of air travelers are willing to take a COVID-19 test as part of the travel process, and 84% agree it should be required for all travelers.

84%

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23/11/2020 08:36

IATA’s Director General and CEO Alexandre de Juniac believes millions of travelers want and need to reconnect with family, take a hardearned vacation or support their international business needs.

“We must learn to live with this disease and that includes safely restoring the freedom to travel,” he says. “Already we have measures in place to ensure safe journeys through ICAO’s CART recommendations. And trials around the world are helping us to demonstrate that we have effective testing technology that can be efficiently integrated into the travel process.

We count on ICAO’s leadership to bring governments into agreement on an implementation plan so that aviation can reconnect people and economies. We need to do this with speed. Each day of delay puts more jobs at risk.”

Knock-on effects

Whatever biosafety measures are implemented, there will be knock-on effects across the whole passenger journey.

At the security checkpoint, social distancing and minimal human and baggage contact will be essential. Scanners with target recognition algorithms could provide part of the solution.

Shopping and restaurants will also be transformed. At Dubai Duty Free, a concierge service delivers products to passengers for payment. Goods can also be ordered prior to arrival at the airport.

Something similar may well be the future of food and beverage to prevent crowding and provide a superior service. Seattle-Tacoma International Airport restaurants have adopted a virtual kiosk platform that allows customers to use their smartphone to order and have food delivered to their location. The idea is also in operation at New York’s LaGuardia Terminal B. “Airports that effectively cater to the passenger journey of the future will look beyond bricks and mortar solutions,” explains Casey. “They’ll reconfigure terminal space and use innovative queue management to make better use of the airlines.iata.org

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$5-20

Passenger Experience

RAT is arguably the cheapest of all tests, with a reported range of $5 to $20 across vendors.

Economies of scale can be expected once mass production is achieved among the leading manufacturers.

Airlines reimagine the journey “COVID-19 has touched all of us in some way and it prompted us to fundamentally change the entire travel experience,” says Alaska Airlines CEO Brad Tilden.

The airline is promoting its mobile app for the best journey experience. And all passengers must complete a health agreement during check-in, verifying they haven’t exhibited COVID-19 symptoms in the past 72 hours, come into contact with someone who is symptomatic, and agree to wear a face mask or covering.

Passengers are boarded by row numbers in smaller groups, from the back to the front, to enable appropriate spacing and personal hand sanitizing wipes are available onboard. In all, the airline has enacted nearly 100 policies, procedures, and actions to ensure the biosafety of passengers and staff.

United Airlines, Malaysia Airlines, and Air Canada are among the many other carriers that have instigated fully touchless procedures at key airports.

25

existing footprint, and rely on digital tools, such as apps that facilitate distanced virtual queuing for security screening and boarding.”

The Vantage Airport Group has been in discussion with architecture and design partners to explore post-virus airport design.

“Our latest thinking is on adjusting facility interiors to address human behavior in areas of congregation such as queues, elevators, food courts, and jet bridges, and improving air quality, air flow, and filtration to quickly remove pathogens,” Casey adds. “Terminals of the future will also be upgraded to include use of new credential authentication and biometric technologies to facilitate seamless security screening and access to secure areas without the need for person to person interaction.”

There is little doubt that the post-COVID air journey will be different. Some measures may be temporary, such as face coverings, but others, including modified security checkpoints and food delivery, may find favor for the longer term.

Lower traffic levels will give industry time to test technologies and processes, but collaboration remains key to a seamless passenger experience.

2020 – 03 Airlines

23/11/2020 08:37

CEO Interview

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We knew we had to use the time to re-evaluate our plans and our decision was to restructure

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airlines.iata.org

23/11/2020 08:37

CEO Interview

Preparing for a sustainable future Izham Ismail, Group CEO of Malaysia Airlines, tells Airlines. editor that the aviation value chain must be restructured to help airline resilience WORDS: GRAHAM NEWTON

27

H

aving ridden the storm of the SARS virus nearly two decades previously, Izham Ismail recognized the importance of planning for business continuity.

How did Malaysia Airlines react as the crisis unfolded?

I saw the crisis coming in December 2019 when the virus first appeared in Wuhan. I was Director of Operations when SARS hit in 2003 and it reminded me of that. At that time, we didn’t have a good pandemic plan in place, so we subsequently prepared a manual for such an emergency.

So, in December 2019, I told my team to use the Christmas period to prepare for a crisis. By the first week of January 2020, the airline was on code yellow (out of yellow, amber and red) and we had activated our crisis center.

Because our priority was customers going to and from China, we even started a project called Feed China that involved converting some passenger aircraft into cargo.

Business was still okay. In fact, in January we were 4% ahead of budgeted net income after tax (NIAT) and if that had continued we would have airlines.iata.org

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“The personal biosafety measures may be temporary but using digital services and better sanitization in the airport and on the aircraft will become the new norm”

been breaking even in early 2021. The long-term business plan we were following prior to COVID was 18% ahead of schedule.

Then Malaysia issued what we call a Movement Control Order (MCO) which started to close borders. By late March we had lost 96% of capacity although we had an obligation as a national carrier to operate key destinations. We continued to serve the nation and our network by maintaining domestic and international connectivity mostly to facilitate essential movements. We mounted rescue and repatriation flights worldwide to bring citizens back to their home countries despite the difficulty organising these with governments and embassies. We also ensured global supply chains are maintained for the most timesensitive supplies via our cargo arm, MABkargo.

By April, we had to take drastic measures to cut costs as we knew that cash was an issue. It wasn’t easy as we were already lean, operating 106 aircraft with just 12,500 people. We offered unpaid leave and induced salary cut of between 10-50% among employees in order to sustain the company’s cash flow. This is to protect those in the lower income bracket, and to avoid possible job cuts in our effort to trim costs further.

2020 – 03 Airlines

23/11/2020 08:38

CEO Interview

The measures were able to sustain us for a few months. But, of course, you reach a point where you realize that it can’t continue.

What is your strategy to regain your financial strength in the years ahead?

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We knew we had to use the time to re-evaluate our plans and our decision was to restructure.

Creditor negotiations are tough but more than 50% have helped us. I hope in time 100% will see what we are seeing and help us to achieve our goals.

The airline group cannot be fully dependent on point A to B air travel. We need to be a global travel group that provides travel services across a multitude of platforms, particularly digital. We must diversify and there will need to be more verticals.

We are already exploring the cargo and retail businesses and want to get involved beyond the normal industry boundaries. The group’s offering could encompass far more than aviation-related products.

In terms of the airline, we will retain the premium brand and look to regain market share in domestic and ASEAN markets. Flexibility is essential. Customers will be very selective in future. They will be cautious about booking and so the airline has introduced flexible options that give customers the confidence to book. We want to talk to our customers regularly rather than on a transactional basis.

Aircraft utilization and configuration is another area we are looking at. Petronas, the Malaysian oil company, moves around 30-40 people regularly but they charter a 737 due the distances involved. Even so, it needs to make a few stopovers. Removing seats means we can do some of the longer trips with just one stop. It’s much better for them and us.

Partnerships among airlines will be key too as they also provide flexibility for the customer.

And they will help airlines to mitigate shocks, especially if they are regional in nature. So, we are looking at developing partnerships across the board.

Airlines 2020 – 03

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Petronas, the Malaysian oil company, moves around 30-40 people regularly but they charter a 737 due the distances involved. Removing seats means we can do some of the longer trips with just one stop

30-40

Business turnaround Turnaround of the business will be anchored on delivering the following five key strategic pillars: 1. The establishment of a premium and profitable APAC network carrier 2. The reset of the domestic and ASEAN short-haul business 3. Driving deeper commercial partnerships with both airline and non-airline players 4. Diversifying revenue by accelerating portfolio growth in businesses such as cargo, MRO, and ground handling 5. Embracing the digital agenda as a cornerstone for the business

And as we look ahead, we are factoring into our plans a major crisis once every 10 years.

Aviation always has a crisis to contend with, from economic shocks to volcanic ash clouds to pandemics. Every airline should be prepared.

Of course, it is a tough road ahead. This is the mother of all crises. I was Director of Operations when we had the tragedies of MH17 and MH370 and in terms of the impact on demand the COVID outbreak is far greater.

But the spirit in the airline is excellent. We will come out of this stronger.

How confident are you that demand for air travel will return in the Asia-Pacific region in the short term?

The pre-COVID marketplace was growing strongly, about 5% per annum, so I think the market will rebound. We are already seeing that in travel to China and other North Asian destinations. But it will take time. The domestic and ASEAN market will be first but international routes will take a lot longer.

It is difficult to judge as we are seeing a resurgence of infection and governments are implementing travel restrictions again.

Looking back over your management of the crisis, is there anything you would have done differently now you know the extent and duration of the pandemic?

Cash is the master of any business and so I would establish better fences around the company to absorb shocks. But I would also invest more in digital and more in reskilling my staff. The mindset needs to be prepared for a digital leap. airlines.iata.org

23/11/2020 08:38

CEO Interview

From March until October 2020, over 33,000 tonnes of medical equipment and disaster-relief provisions, which includes ventilators, surgical gloves, sterile isolation gowns and protection suits with goggles for various organisations were transported on 1,067 flights via Passenger-toCargo (P2C) aircraft and Cargo in Cabin (CIC).

But our network was designed with a passenger focus and a few years back we reduced our freighter fleet. But the network should have considered the bellyhold capacity. We will do that going forward. We have to cater to both passenger and cargo markets. It’s especially important for us with our links to China. There are so many small shipments thanks to Alibaba.

As with the passenger market, air cargo in Asia-Pacific will probably bounce back faster and sooner than other regions and we’re helped by plenty of open skies agreements. And, generally speaking, the economic signs are encouraging.

IMAGES: SHUTTERSTOCK/ISTOCK

Should governments have been more supportive to aviation during the crisis?

The aviation industry is a critical catalyst in supporting not only the growth of economies during bullish times but also the recovery of markets during a crisis such as the one we are currently facing.

Airlines are typically large employers with links to many high-value industries, such as aerospace and various trade sectors. In times of crisis, having adequate support from the government will be paramount to resuscitating the airline industry and will also go a long way to supporting the jump start of a nation’s economy.

Government support can come in many forms, including ensuring that the aviation eco-system, such as market capacity, is healthy and sustainable.

Do you believe the biosafety measures are temporary or will they become a regular part of the travel experience?

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2050

How important has cargo been to the airline and will it take on greater importance in the future?

“We have made a strong commitment with our oneworld partners to net zero carbon emissions by 2050”

We are on the cusp of a new world regarding air travel. Masks won’t be necessary forever, but passengers will be more aware of hygiene in general. I think passengers will look and say, “is this aircraft clean, is my seat clean?” And they will demand contactless activities.

The personal biosafety measures may be temporary but using digital services and better sanitization in the airport and on the aircraft will become the new norm.

Where will you prioritize investment in terms of technology?

Ultraviolet cleaning is something we are looking into that could be very important.

The shopping experience is another area I am keen to explore with the best digital service. If we can create better customer loyalty it gives you a great base to recover and to shape a sustainable business.

But there hasn’t been time to fully evaluate everything because we are too busy dealing with the day-to-day at the moment. Thinking about the longer term is a luxury.

Obviously, though, technology will be vital to success. Generally, we are looking at four key areas: a digital travel platform, ground operations, aircraft operations, and improving workforce productivity.

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With the day-to-day so important, can the industry meet its environmental goals?

We have made a strong commitment with our oneworld partners to net zero carbon emissions by 2050. Actually, the airline had a new sustainability program that was about to launch when COVID hit but it was put on hold.

But we have more than 40 initiatives ongoing, including looking at new fuel-efficient aircraft to reduce our carbon footprint. We are also equipping buildings with solar panels that will offset more than 50,000 tonnes of CO2 by 2050.

And we are working with Petronas on biofuels and focusing on the airport too.

Once we get our restructuring done, sustainability is the first thing we will turn to.

2020 – 03 Airlines

23/11/2020 08:38

Advertising Feature: Hexaware

The new normal for airports A new Hexaware whitepaper takes an in-depth look at potential changes to airport processes in the post-COVID world

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The COVID-19 pandemic caused a devastating drop in aviation traffic with more than 90% of flights grounded as the virus hit its peak.

Passenger health and safety—alongside an awareness that congestion may again become a factor in the future—dictates airports must adopt the new normal as soon as possible.

A Hexaware whitepaper [see bit.ly/ HexawareNewNormal] suggests that all stakeholders in the value chain must become more responsive and efficient. It is no longer possible to compartmentalize the various journey elements and providers. Rather, a single, unified experience must be the goal.

Industry standards and data sharing will be vital to contactless processes. Travel authorizations and customs procedures will be managed digitally from booking right through to arrival and return. Data exchanges between passengers, authorities and service providers will allow checks to be made in advance of the journey, with changes communicated to all relevant parties in real time. This optional pre-clearance approach

$97bn

The COVID-19 outbreak will cause a $97 billion drop in total airport revenues.

Source: Airports Council International World (ACI World): https://aci.aero/about-aci/priorities/health/covid-19/

Airlines 2020 – 03

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will be reassuring for passengers and enables a risk-based assessment of the physical checks required.

A digital travel document, for example, will assert the passenger identity, health status, passport details, visa Information, border control processing, and current and past travel journey details all in one place.

Greater Orlando Aviation Authority, together with British Airways and US Custom and Border Protection (CBP) have trialed a US government exit and airline boarding check in one step. British Airways boarded flights of almost 240 customers in around 15 minutes.

Predictive analytics Other new technologies that will have a significant impact in the post-pandemic world include predictive analytics. With demand likely to be dynamic in the months and years ahead, optimizing workforce and equipment, accelerating the aircraft turnaround time, and reducing operational and capital expenditure will be vital.

Video analytics in aircraft turnaround operations and mobile solutions are coming into play and will help inform future developments. Autonomous vehicles and equipment will add to the efficiency. The entire turnaround process will be transformed as fueling, catering, cleaning and pushback all become automated to a greater or lesser degree.

The digital twin concept, meanwhile, is an

advanced computer simulation using a virtual replica airport.

Artificial intelligence (AI) algorithms will bring real-time operations to life for all stakeholders. Taking data from across the entire aviation value chain will enable airports to visualize, simulate and predict what will happen next. Such predictions will then be used to optimize resources in real time and facilitate quality decision making.

Connected airports will drive new data lakes, with every device feeding in over 5G. Software Defined Networks will collate and analyze the data to streamline airport operations and the passenger journey. There will even be collaboration across the entire ecosystem of connected airports.

The heavy reliance on data, connectivity and automation will make cyber disruption a major concern. And delay in the roll-out or development of critical technologies may create opportunities for those looking to compromise the system.

Nevertheless, the one certainty is that the future passenger journey will be completely self-serviced, seamless, and automated on all touchpoints from start-to-finish. The airport of tomorrow will be just one node in an interconnected world.

Read a full version of this free whitepaper to download at https://bit.ly/HexawareNewNormal

airlines.iata.org

23/11/2020 08:38

Peter Cerda: IATA Opinion

Future benefits for aviation Peter Cerda, IATA’s Regional Vice President for the Americas, says the spirit of cooperation must be continued for aviation and the Latin American region to thrive

ILLUSTRATION: SAM KERR

T

he COVID-19 pandemic has had a devastating effect on Latin America and the Caribbean. Many airlines in the region were struggling to make a profit even before the crisis. They made a loss overall in 2019 and the original forecast for 2020 showed a per passenger profit of just $0.45. And as the region was the last to be hit by the COVID outbreak it will also be the last to come out of it.

Managing the public health crisis is the top priority for governments. But the longer aviation in Latin America remains grounded, the more precarious the situation will become—not just for airlines but for all the businesses that depend on efficient connectivity.

Avianca and LATAM have already filed for Chapter 11 bankruptcy protection in the United States to restructure, and Avianca Peru and Ecuador’s TAME will cease operations altogether. With average cash reserves for just two months, other airlines may not survive this crisis unless government relief and support are provided.

Some governments in the region, especially Brazil and Colombia, were quick in providing financial relief, but many others have not yet enabled any meaningful assistance.

Aviation fulfills an essential role in the socio-economic development of the region. Unlike other continents, we do not have any viable alternative modes of transport than can provide the essential connectivity for both people and goods.

And all economies in the region are reliant on tourism and foreign trade. Agriculture and fisheries need air cargo to export their perishable goods to consumers in other parts of the world. airlines.iata.org

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Without aviation, tourists will not be able to explore the islands of the Caribbean nor visit historical sites like Machu Pichu.

COVID-19 has thrown aviation into survival mode overnight. But, as with any crisis, it should create an opportunity to reflect on the past and see what we can improve for the future. The governments in the region should now realize the importance of this sector for their individual economies and for the wellbeing of their people. A case in point is continuing cargo flights that have been a lifeline in bringing in essential supplies to fight the pandemic.

It is our hope that as we rebuild this industry, the current spirit of cooperation with governments in the region will allow for the removal of roadblocks that have in the past stifled the successful development of this sector and often hindered the provision of a good passenger experience. After all, before COVID-19, aviation in Latin America and the Caribbean supported 7.2 million jobs, handled 4.1 million tonnes of air cargo per year, provided connectivity to 385 cities across the region and links to a further 160 cities in other parts of the world, and contributed $167 billion to the region’s GDP. We are doing our best to ensure that aviation continues to be an important socio-economic enabler, connecting people from the Rio Grande to Tierra del Fuego within the continent and to the rest of the world.

31

Before COVID-19, aviation in Latin America and the Caribbean supported 7.2m jobs 2020 – 03 Airlines

23/11/2020 08:39

CEO Interview

Navigating the crisis Anko van der Werff, CEO Avianca, reveals details of the airline's Chapter 11 filing and his plans to restructure Avianca through the COVID-19 pandemic WORDS: GRAHAM NEWTON

A

fter travel bans across the Latin American region forced Avianca to ground its fleet, the Colombian airline sought Chapter 11 bankruptcy protection as a necessary step going forward.

32 Why did you feel it necessary to file for Chapter 11?

IMAGES: GETTY/ISTOCK

We did so to protect our business as we continue to navigate the effects of the COVID-19 pandemic and to comprehensively address our debt and other commitments.

We have seen firsthand the unprecedented challenges and distressing effects that the pandemic is creating for the global airline sector and the broader travel industry. The filing was necessitated by the unforeseeable impact of the COVID-19 pandemic, which has resulted in a 90% decline in global passenger traffic.

We believe that a reorganization under Chapter 11 is the best path forward, because this process is a well-established legal process in the United States and is recognized by other countries around the world. The process is a temporary one that, according to US law, allows companies to reorganize their operations and complete financial restructurings under the supervision of the United States court system.

How does the reorganization fit in with the Avianca 2021 strategy?

Last year, we successfully launched the Avianca 2021 plan, and throughout 2019 and in the first two months of 2020, the company had achieved Airlines 2020 – 03

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significant positive results from this plan.

Though there continues to be uncertainties ahead due to COVID-19, we are confident that we can continue to execute our Avianca 2021 plan, optimize our capital structure and fleet, and emerge as a better, more efficient airline. airlines.iata.org

23/11/2020 08:40

CEO Interview

“We are still pretty cautious but at the same time we are planning additional destinations” airlines.iata.org

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33

2019 – 06 Airlines

23/11/2020 08:40

CEO Interview

checking where our customers want to go and whether we need to adjust our network.

People are willing to fly. In the domestic markets we have a good load factor, between 70%–80%, but there are still have plenty of restrictions from authorities regarding how much we can fly. Hopefully, next year there will be more flexibility for airlines and passengers.

34

Many airlines in the world are undertaking some form of financial restructuring, many with the direct support of their governments. This shows the critical role that aviation plays in the world.

The aviation sector is essential to the economic development of countries, because it directly contributes to economies by moving passengers, essential goods, and cargo.

We all understand that this crisis was a surprise for governments too and that the priority was public health. But now it is time to think about the recovery and to help the critical sectors that boost economies.

For Avianca, we have already got approval for our financial restructure and have made our first debt payments thanks to current and new investors. We are not dependent on government participation.

Is there anything you would change about your management of the crisis?

If we look back, we never thought this crisis would last as long as it has. So, it is essential to keep focused and keep on thinking differently.

At Avianca, we have done plenty of good things: Daily “town halls”, keeping our people close, successfully approaching our unions and so forth.

But clearly all of us would have liked to know at the beginning of the crisis that it would last this long.

You are being quite aggressive in the number of destinations you are flying on your restart.

Do you see lots of demand for air travel in Latin America right now?

We have to consider the context. Pre-COVID, we had 130 routes but now we’re down to 64, less than half. Overall, we are at 10-15% of capacity because of frequency reductions. So, actually, we are still pretty cautious but at the same time we are planning additional destinations and more frequencies to our network over the next few months. We are also Airlines 2020 – 03

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350

Should governments have been more supportive to aviation during the crisis?

Cargo has always been important for us and in the pandemic has taken on an even greater relevance.

We have flown more than 350 “Preighters” (passenger aircraft with cargo only), and more than 50 Special Flights on our passenger fleet

How do you think aviation will develop in the years ahead? What will be the main changes to the industry?

First, none of us knows how long it will take demand to recover. But what we do know, and what we need to work on as an industry, is lowering cost. More importantly, we must make our costs as flexible as we can and adjust our services to the new reality. That must be done across the value chain, from fleet to labor to onboard products, and of course we must deliver as much as possible through digital solutions.

The strong restrictions in all countries regarding the reactivation of domestic and international commercial flights, the fear and uncertainty of travelers, and the economic effects, are reflected in the absence of significant passenger demand. And that is framed in a sector with high financial pressure.

All this has necessarily led the airlines to reduce their capacity, but the big picture is that we are restructuring and making the way we operate and serve customers far more flexible.

Will cargo continue to be an important revenue stream?

Cargo has always been important for us and in the pandemic has taken on an even greater relevance. We have flown more than 350 “Preighters” (passenger aircraft with cargo only), and more than 50 Special Flights on our passenger fleet, making history by reaching new destinations such as China and Amsterdam, generating important revenue.

Avianca Cargo has quickly adapted to new market conditions and has managed to deliver airlines.iata.org

23/11/2020 08:41

CEO Interview

positive results despite the reduced belly cargo capacity caused by the coronavirus outbreak.

We expect this to keep growing and strengthening in the near future.

We are boosting the freighter and passenger network and more passenger planes carrying cargo ramps up our growth. Avianca Cargo is a key business unit and will continue supporting the passenger business.

Will biosafety become a regular part of the passenger travel experience?

I think similar to what happened after 9-11 we will likely see some of the measures stick. And whether is for a long period of time or forever, that needs to be seen.

64

Pre-COVID, we had 130 routes but now we’re down to 64

The pandemic marks a turning point that will permanently change the experience of travelers across the whole journey, from sales to the onboard service. Therefore, as long as there is no vaccine for COVID-19, the biosecurity measures and protocols established by all the local governments will be rigorously and strictly maintained.

In fact, this situation will lead to an unprecedented transformation of the industry with the acceleration of digital services and travel autonomy throughout the traveler’s journey. The value chain must rethink the passenger experience and make it more personal and autonomous. Ensuring the tranquility and safety of passengers in each moment of their journey will be structured into the new service experience that airlines will offer. Technology will play an even greater role than the one it plays today.

At Avianca, we have strengthened our digital channels to make the travel experience easier and safer. Our passengers are benefitting from a new version of our website and our app, as well as self-management channels like “Vianca” in Facebook Messenger.

35

Is there a danger that other aviation priorities, such as the environment, will be forgotten as airlines struggle to survive?

“We believe that a reorganization under Chapter 11 is the best path forward, because this process is a well-established legal process in the US and is recognized by other countries around the world” airlines.iata.org

P32-35 CEO-Avianca_Airlines 2020-03.indd 35

At Avianca, environmental sustainability is more than just a slogan. We are committed to continually improve how we manage the impact associated with our operations through initiatives that create value. To ensure that our flights impact the environment as little as possible, our aircraft have a low noise footprint and we have reduced fuel consumption by up to 15% and the generation of nitrous oxide emissions by 30%. We are proud to be in the top five leading airlines in the Dow Jones Sustainability Index at the end of 2019.

The industry leaders have an obligation to make sure other priorities are not forgotten as a result of this pandemic.

2020 – 03 Airlines

23/11/2020 08:41

Finance

Financial Settlement Systems take center stage 36

IATA’s financial settlement systems are essential to the industry’s cash flow in normal times, mission critical in these troubled times WORDS: GRAHAM NEWTON

Airlines 2020 – 03

P36-37 Finance_Airlines 2020-03.indd 36

I

n 2019, IATA’s financial settlement systems managed $450 billion of the industry’s money. Transactions were handled so safely and efficiently that the systems went largely unnoticed.

“But when the coronavirus pandemic started to spread, the systems suddenly took center stage,” says Aleks Popovich, IATA’s Senior Vice President, Customer, Financial and Digital Services. “Cash became the lifeblood of the industry and keeping it flowing was critical to survival.”

Processes in reverse

Sustaining cash flow was easier said than done, however. The cost of the financial settlement systems needed to be cut, essential staff couldn’t get into the office, and processes had effectively reversed with money flowing from airlines to agents as consumers awaited refunds.

Flexibility became the name of the game as the volume of transactions fell through the floor.

This was particularly the case with the Billing and Settlement Plan (BSP), which facilitates and simplifies the selling, reporting, and remittance procedures of IATA-accredited travel agents.

The opposite happened in the Cargo Account Settlement System (CASS), which plays a similar role on the cargo side of the business.

Reflecting the collapse in the passenger business in the face of COVID-19-related border closures that applied to travelers but not cargo, volumes moving through the CASS were greater

than those processed

by BSP for the first time.

As airlines reeled from the impact of COVID-19, IATA immediately began working to reduce its operational costs and it is estimated some $20 million has been taken out of the year’s operational expenses through staff related cost and IT spend, and asking data processing centers for financial relief. Global Distribution Systems were likewise involved in important discussions and played their part in supporting financial liquidity for airlines.

Meanwhile, thorough risk assessments had to be carried out to ensure agent and airline needs were balanced and confidence in the systems maintained. Due diligence even had to be done on the 60-plus clearing banks used to process funds to rule out any future surprises.

Prior to COVID-19, the exposure to participants in the BSP was largely with the agents. A package of measures giving flexibility to agents was therefore quickly put in place to alleviate any problems they faced, including extending grace periods for payments and financial reviews, and a re-assessment of bank guarantee calculation formulas to adapt to the current level of sales. In many countries, it was simply impossible for agents to physically visit a bank to complete required documentation.

But by March 2020, it was clear that airline risk had come to the fore as carriers struggled to

airlines.iata.org

23/11/2020 08:41

Finance

IMAGE: GETTY

15 As of October 2020, 15 airlines have been suspended from IATA financial settlement systems

airlines.iata.org

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survive with far more cash going out the door in the form of refunds than was coming in through new ticket sales. “We worked with all IATA members in the BSP to do a risk assessment,” notes Popovich. “We needed to know how long each airline could survive. But we kept flexibility to the top of the agenda so perhaps a letter from a government was accepted in lieu of a cash security. There were many examples of such discretion based on risk assessment and it meant we actually provided a better service than simple reliance on cash securities.”

Airlines also had to work out how to get cash back to the agents so they could refund consumers. The level of this activity was beyond the usual parameters. In the second quarter alone, IATA estimated that airlines faced a $35 billion refund liability. A Reverse Settlement process was implemented in a matter of days as the weekly settlement cycle could not be altered. By end October, IATA had managed around 100, 000 negative sales transactions worldwide, amounting to over $6 billion that has been settled to agencies through the settlement systems.

IATA supported airlines throughout the process to clear their refund positions as quickly as possible even though cash was in short supply. “The airlines recognized their obligation to keep the industry moving,” Popovich continues. “They have worked hard to process all requested refunds, which is good news for agents and consumers.”

IATA had an extensive business contingency plan that included staff working from home coupled with a crisis support team to redeploy staff within IATA to critical financial settlement system operations. The plan also included increasing the speed of communication. Daily bulletins were issued to the industry on BSP and CASS performance and a treasury dashboard was created for airline CFOs and their representatives, so they had the tools to keep updated in real time.

The way the virus spread also played a part.

The China BSP was affected first, followed by Asia, Europe, Africa and Middle East, and the Americas. In effect, the coping strategy was road-tested by the China BSP from China and was fine-tuned as the crisis worsened.

Lessons learned

Managing the financial settlement systems through the coronavirus pandemic is still an evolving process but already lessons learned are being incorporated to further build the resilience of the BSP and associated services.

A case in point is a refined risk management service for the agency community. Rather than blanket measures, agencies can now take advantage of a targeted approach that aims to provide flexibility to agents. The change in rules would normally have been proposed at the next annual financial conference but the idea was put to a remote vote, passed and implemented in a matter of months.

Other work is ongoing. IATA estimated that without further government financial relief the median airline has about 8.5 months of cash left as of October 2020 so assessments continue to take place. Airlines that have filed for Chapter 11 or similar restructuring are contacted regularly to protect all BSP members.

“The bottom line is that the systems held up,” says Popovich. “We had excellent contingency plans in place. And even though we have cut costs and introduced greater flexibility, safety and efficiency have not been compromised.

Everybody is still getting their money on time.

Moreover, we are committed to keeping charges at the same minimal level even when the industry has fully restarted.

“But perhaps the biggest takeaway is that the collaborative work we have undertaken has created customer loyalty beyond the crisis,” he adds. “It was really gratifying to see that, even in the midst of the worst crisis in aviation history, a customer-centric strategy held sway.”

37

2020 – 03 Airlines

23/11/2020 08:42

60 seconds with...

Greg Foran Air New Zealand’s CEO

“We’re using this time to develop our plans as we emerge from this crisis” How badly has the airline been affected by the pandemic?

38

Air New Zealand has one of the strongest domestic networks in the world at the moment and it's been pleasing to see that build to around 75% of pre-COVID-19 levels. It goes without saying that this has been one of the most challenging years in the airline's 80 year history but we have taken actions to ensure we emerge competitively from this crisis.

Have any of your strategic priorities changed as a result?

100% of our focus continues to be on keeping our people and our customers safe. We do not expect that things will return as they were and so are building our business to deal with the new abnormal. A good example of this would be in the digital space where we expect customers will look for even more self-service and control of their journey going forward.

In brief…

Air New Zealand

$1.5m

customer carbon offsetting programme Air New Zealand's FlyNeutral contributed voluntary customer carbon towards permanent native offsetting programme forestry projects FlyNeutral has helped across New Zealand contribute $1.5 million towards permanent native forestry projects across New Zealand Air New Zealand was incorporated in 1940 and is registered in New Zealand and Australia

How important is it that post-virus traveler processes are harmonized globally?

Is there anything more that should be done to help the industry by governments or other partners?

New Zealand initially got on top of COVID-19 much more quickly than lots of other countries, but we need the world’s economy to be moving as well—no country operates in a silo. It is advantageous if everyone follows the same protocol, however it is likely that for some time we will need to be flexible.

Partnering closely is critically important so key decisions need to be made collectively between us all. Operating in silos can create a sub-optimal solution that will see increased costs and poorer service levels, resulting in dissatisfaction for many parties.

Do you remain optimistic about aviation's long-term future?

Do you think any of the changes we are seeing in processes and schedules are permanent?

It continues to be hard to determine forward-looking demand with any degree of certainty. The development of a vaccine or other mechanisms to help control the virus are increasingly feeling like the only solution to open up borders.

Airlines 2020 – 03

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Yes. Airlines are vital when you reside in a country like New Zealand surrounded by a large expanse of water. Not every country in the world faces the same geographical challenges, so it will be different dependent on where you live. But I am very confident that our koru [Air New Zealand logo] will continue to grace the skies for many years to come. airlines.iata.org

23/11/2020 08:42

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