Airlines International Oct_Nov 2015

AIRLINES INTERNATIONAL O C T- N O V 2 0 1 5 - I S S U E 5 8

INTERNATIONAL ISSUE 58 OCT-NOV 2015

CYBER SECURITY

How the industry is responding to the growing risk of online attacks

PROTECTING WILDLIFE Cooperating to combat illegal trade

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CEO INTERVIEWS

China Airlines, Vueling and Ural Airlines

ONE ORDER

Re-imagining the order management process

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NOW’S THE PERFECT TIME TO EXTEND YOUR SUCCESS.

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Airlines International

CONTENTS COMMENT

48 Decisive leadership Sergei Skuratov, Director General, Ural Airlines, says the decision-making process is vital

10

9 Tony Tyler The Rugby World Cup underlines aviation’s numerous benefits

SPECIAL REPORT

AGENDA

30 One Order NDC is allowing airlines to re-imagine the order management process

12 Industry and IATA update Climate solutions and airport expansion debates are all developments the industry has seen in the last two months.

FEATURES

70TH ANNIVERSARY

42 Stopping the online threat How the industry is responding to the growing threat of cyberattacks

20 Negotiation with airports about slots at congested airports has been a feature of partnership thru IATA since its beginning.

CEO INTERVIEWS 22 Patience is the key to China Airlines’ success Sun Huang-Hsiang, Chairman of China Airlines, discusses the carrier’s approach to its product and his vision for the future

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46

52 The latest industry statistics

SOAPBOX 54 Donald H. Stedman The background to the recommendation to ban infl ight smoking

IATA Corporate Communications Vice president Anthony Concil Creative direction Richard McCausland Manager Chris Goater

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

Editorial Managing editor Robert Coppinger Editor Graham Newton Art director Mark Parry Picture editor Claire Echavarry

We welcome feedback, content ideas and distribution requests at airlinesint@iata.org

Publishing director Aaron Nicholls www.airlines.iata.org

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DATA

36 The last word in cost control Vueling CEO, Alex Cruz, believes that Vueling is the fi nal chapter in the LCC revolution

Production Production manager Jane Easterman +44 (0)20 7880 6240 jane.easterman@redactive.co.uk

46 Fighting the illegal wildlife trade Supporting the work of enforcement agencies is the best way to combat the illegal trade in wildlife

Follow IATA on Twitter @IATA and join our LinkedIn group Published by Redactive Media Group, 17 Britton Street, London EC1M 5TP, UK +44 (0)20 7880 6200 www.redactive.co.uk

Printed by Precision Colour Printing Airlines International ISSN 1360-6387 The opinions expressed in this publication are those of the individual authors or advertisers and do not necessarily reflect those of Redactive, IATA or its members. The mention of specific companies or products in articles or advertisements contained herein does not imply that they are endorsed or recommended by IATA or Redactive.

The paper in this magazine is elemental chlorine free (ECF), manufactured within ISO14001 environmental management standards and is sourced from sustainable managed forests.

Airlines International is available free for iPad and Android devices Download from the Apple and Google Play stores http://tinyurl.com/qaxuc5j OCT-NOV 2015

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Comment • Tony Tyler • Director General and CEO, IATA

“To win at either you need a critical combination.

For rugby, it’s the mix of forwards and backs.”

AVIATION’S FRONT ROW I am a rugby fan. It’s no secret that I am a proud supporter of the sport. With the 2015 Rugby World Cup (RWC) being hosted in England—not all that far from Geneva where I am based—I am enjoying attending a few of the matches as the tournament unfolds.

You will be forgiven for wondering why an article on aviation is beginning with a declaration of allegiance to rugby. But, as I was reflecting on my experiences of the tournament so far many links to aviation became inescapable.

The first is quite blatantly obvious: if you are a fan it is far better when you are there. Of course, for the players, it is absolutely necessary. And air transport is the only practical means to make that happen for the majority in both groups.

The second link derives from that. Like aviation, the RWC is an economic catalyst. During the tournament’s six week duration over 460,000 international fans are expected to make their way to the UK. Ernst and Young estimate that they will directly spend GBP870 million and add GBP2.2 billion to the UK’s economy. That figure, of course, becomes even more impressive when extrapolated for the 3.5 billion travelers expected this year.

The third link is that both are team efforts. To win at either you need a critical combination. For rugby, it’s the mix of forwards and backs. In aviation, it’s a more complicated ecosystem, including airlines, airports, air navigation service providers, manufacturers, and many more. But, the basic principle is the same. Success only happens when you think and act as a team.

The recent ATAG Global Sustainable Aviation Summit has rallied the aviation team toward a united approach to managing our environmental impact. Unity across the value chain is a key factor in keeping aviation at the forefront of

industries addressing the climate challenge. And the momentum bodes well for this to remain the case as we move towards the ICAO Assembly in 2016. Solid crossindustry teamwork sends a powerful signal to governments that aviation is serious about its climate change commitments and eager for them to agree on a global market-based measure.

I’ll close with one final thought on what winning means.

As I write this, the RWC championship is still up for grabs.

It’s sure to be an exciting fight to the finish. But, already we can confidently say that there will be lots of winners.

To start, the 2.3 million ticket holders will have a thrill to remember for a lifetime. Communities across England will be more prosperous—in the short term by visitor spending and in the long term by the cultural enrichment from having hosted the world. And the millions watching from near and far will all gain from values that team sports demonstrate in action.

I am an unabashed supporter of rugby and an even bigger proponent for the role of aviation. Each of the 100,000 flights that arrive safely each day make our world more prosperous. Aviation is an unsung hero: supporting global events, facilitating the exchange of ideas across continents, making it possible to do business in global supply chains, and reuniting families and friends over enormous distances.

As we fete the Rugby World Champions—whichever team that will be—let’s also take a moment to celebrate the aviation industry’s role in helping to create that special moment and all the streams of value that come with it. •

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The Big Picture

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BACKDROP TO THE US PRESIDENTIAL NOMINATIONS AIRLINES INTERNATIONAL

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T

he late President Ronald Reagan’s Boeing 707 Air Force One was the backdrop for a Republican party presidential candidate debate broadcast on television by news network CNN to an estimated 36 million viewers on 16 September. The vast continent sized country that is the United States means aviation is crucial for any candidate, Republican or from the Democratic party, seeking support in the quadrennial national plebiscite for the presidency.

In the summer of 2016, members of the US Republican and Democratic parties will convene in their national conventions in Philadelphia, PA, and Cleveland, OH, respectively, to select their candidate to run in the presidential elections taking place later in the year. Air transport will then again play a crucial role in bringing in most of the participants to the two conventions. Delegates from all 50 US states and from American dependencies and territories such as Puerto Rico and the Virgin Islands will attend. Convention delegates are expected to cast their votes based on the performance of the candidates during the “Primary” season, which traditionally kicks off in February. In the meantime, the race to

be their party’s choice is keeping plenty of candidates busy.

Once selected, presidential candidates will get plenty of air miles under their belt. Although commercial aviation is unlikely to be used by the main players, aviation will play a major role in bringing in activists, support staff, and interested parties to key events.

While there is no requirement to campaign in all 50 states, the Electoral College system means presidential candidates must win on a stateby-state basis rather than by achieving a simple majority or plurality of the national electorate. This encourages candidates to visit as many states as possible.

The presidential election will take place on 8 November 2016. Whatever the outcome, it is hoped that aviation will form a cornerstone of policy. The last two State of the Union speeches have barely mentioned the industry. What will happen between 2016 and 2020 is the next president will receive two Boeing 747-8 Intercontinental aircraft to replace the Boeing 747-200B, known as VC-25, that have acted as Air Force One for the head of state and their vice-president. •

IMAGE: PA

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Airlines International

Upcoming events...

AGENDA

World Passenger Symposium 20-22 October Hamburg, Germany

24th AVSEC World Conference 26-28 October Dublin, Ireland

Margins still low

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Search begins for Tyler’s successor The search has begun for the new IATA Director General and CEO, following the announcement that the association’s DG and CEO, Tony Tyler, is stepping down in June 2016.

Taking up the position four years ago in 2011, Tyler is to make the most of his final 10 months with a particular focus on safety and sustainability. Before joining IATA in 2011, he was Chief Executive of Cathay Pacific Airways in Hong Kong, in which capacity he also served on the IATA Board of Governors, including as its Chairman from June 2009 to June 2010.

“I have spent almost 40 years in aviation and the time will come to pass the baton on upon the conclusion of my contract,” said Tyler. “In the meantime, it is full steam ahead with our vital work, especially our safety and sustainability agenda.”

Remaining fully committed to leading IATA until his successor is appointed in June next year, Tyler continued: “I am proud of what the IATA team is achieving during my term of office. I greatly appreciate the support I receive from the Board of Governors and the membership at large, and from my colleagues. After five years as Director General and CEO of IATA, I believe it will be time for me to retire and leave the organization. It is a great privilege and responsibility.”

His successor will be appointed at the next IATA Annual General Meeting in Dublin in June 2016, according to Andrés Conesa, CEO of Aeroméxico and Chairman of the IATA Board of Governors.

He added: “Tony Tyler is a very effective leader of IATA, who is achieving much in his role as Director General and CEO. I regret that he will be leaving the Association, but respect his decision to retire next year after a long and successful career in aviation. In the meantime, the Board will continue to guide and support Tony and his team in their mission to deliver a safe, efficient, and sustainable airline industry.”•

Airlines continue to post relatively low, single figure, profit margins compared to other industries and putting the industry on a firmer financial footing is the goal with the help of four strategic themes.

Speaking at the second World Financial Symposium in Barcelona, Tony Tyler, IATA Director General and CEO, set out the four strategic themes that are guiding the association’s activities for achieving a firmer financial footing for the industry.

The four themes are, smarter regulation, rebalancing the value chain, innovation and efficient processes.

For Tyler, two areas of smarter regulation are consumer protection and fuel costs. Consumer protection is seeing a proliferation of prescriptive, unharmonized passenger rights regimes that create difficulties for industry and confusion among customers.

In response, IATA has launched the Change the Debate campaign to demonstrate to legislators that over regulation is counter productive.

Smarter regulation for fuel costs are competitive fuel markets, transparency in the price structure and for the longer term, incentives for large-scale biofuel production.

Rebalancing the value chain will require air traffic control and airport charges to be set at a level by government regulators that enable airlines to satisfy the demand on that route.

For innovation, Tyler gave the example of NDC, a way of the industry using internet-based data standards for greater transparency and access to an airline’s services when using a travel website or agent.

The fourth theme, efficient processes, also has IT at its heart with e-ticketing, bar-code boarding passes and electronic air waybills for cargo.

For financial settlements, a new generation IATA Settlement System that will be implemented over a number of years promises fast cash flow management, increased security, lower costs and new payment methods with a choice of agent accreditation models.

“In 2014, the IATA Settlement Systems settled $388.1 billion in industry funds with a net unrecovered rate on gross sales at or below 0.059% with an on-time rate at 99.987%,” said Tyler. •

AIRLINES INTERNATIONAL

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Airlines International

www.iata.org/events Alternative Fuels Symposium 5-6 November Cancun, Mexico

e-Cargo Workshop Asia 5-6 November Singapore

World Cargo Symposium 15-17 March Berlin, Germany

ISTOCK

Passengers want airlines to know their preferences, global survey says

29th IGHC Ground Handling Conference 15-18 May Toronto, Canada

The IATA Global Passenger Survey – conducted with support from PwC – will be released at the World Passenger Symposium in October.

It achieved approximately 7,000 responses in its 2015 edition (representing a 30% increase compared with the 2014 survey), drawn from regions across the globe and targeted through various online and offline channels.

Over the years, the GPS survey has identified the opportunity to personalize the modern travel experience. This year nearly 45% of business travelers highlighted the need for carriers to store their preferred selections, automatically selecting their preferred flights and seats to improve the overall booking process.

Although 69% of interviewed passengers used electronic boarding passes on mobile last year, the majority of holdouts view electronic boarding passes as less secure and more complex when compared to their paper counterparts. These findings highlight a need for increased awareness and education to continue the momentum of the “self-regulating journey” especially when it comes to boarding.

The in-flight passenger experience continues to focus on connectivity, where 36% of respondents stated they are willing to pay for Internet access on board. Additionally, 71% of survey respondents would be interested in selecting or ordering their meals via the entertainment system.•

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Strong interest for NDC Corporate travel buyers collectively spending more than $1.9 billion per year for flights have a strong desire to learn more about the New Distribution Capability (NDC) XML data transmission standard, according to an IATA survey..

The 17 corporate travel buyers from across five continents said they are interested in NDC because they hoped it would be available for mobile devices, be a userfriendly format, and compliant with company rules. The travel buyers responded to the survey, conducted by business travel specialist Festive Road, as part of a study for IATA. “Current processes make it difficult for travelers and corporate buyers to easily compare airline ancillary products and the full service options across multiple airlines,” said Aleks Popovich, IATA Senior Vice President, Financial and Distribution

Services (see picture). “The NDC Standard will address many of these concerns. While IATA has no role in the commercial decisions of individual airlines, the opportunity here is that the NDC Standard

will enable a more transparent shopping experience, without negatively impacting corporate travel policies and controls.” The study also identified six “pain points,” which impact buyers’ effectiveness in travel management. Those pain points are: a lack of accurate, concise data, a reduced sense of leverage while costs rise, concerns with suppliers directly communicating with travelers, and challenges with fare and ticketing rules.

“NDC does not directly relieve all of the pain points, cited by the travel buyers, but it is clear that their vision of NDC’s potential aligns well with the goals of the program,” Popovich added. “We have a tremendous opportunity to increase our outreach to the corporate travel buyer community and engage their indirect supply chain to facilitate greater understanding and reap the benefits of NDC.”• OCT-NOV 2015

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Agenda

GETTY

Fears for third runway at Heathrow

French government defies own airport commission results 14

IATA’s Director General and CEO, Tony Tyler, has urged the French Government to reconsider its decision to allow the operator of ParisCharles de Gaulle and Paris-Orly airports to continue increasing airport charges for each year from 2016 to 2020 inclusive..

The government’s decision contrasts with its own commission, the Airport Consultative Commission, which concluded that the public interest would be best served by having annual decreases in charges to airlines over the 2016–2020 period. IATA demonstrated during the consultation process that a yearly decrease in airport charges would improve the attractiveness of France’s major hubs and that this would serve the interests of all involved, air travelers, airport development partners, and airport users.

“Connectivity is critical to modern economies,” said Tyler. “France is no exception. And making it more expensive at a time when improving competitiveness is a fundamental concern just does not add up. With this decision air travelers will have to reach deeper into their wallets to travel to, from and within France. In parallel, every business that in any way relies on global markets takes a hit as well. I urge the government to reconsider.”•

The UK Airport Commission, led by Sir Howard Davies, concluded that only a third runway at Heathrow will deliver “significantly enhanced connectivity and substantial long-term economic and strategic benefits for the UK as a whole.”.

IATA’s Director General and CEO, Tony Tyler, speaking at the UK Runways conference in London said IATA supported Heathrow expansion but expressed “some serious reservations about the conditions that are attached to this conclusion.

A particular concern is noise. ICAO’s Balanced Approach to noise management has proven successful for several years but the Commission report puts forward proposals for a new GBP1 billion community compensation fund and a new aviation noise levy. The Commission argues that the compensation fund will be paid by the airport while the new aviation noise levy will be paid by airport users.

But Tyler warns that “the truth of the matter is that the GBP1 billion would also be paid by users.”

“Quite frankly it is putting the cart before the horse,” he said. “The airport, the airlines and the local community need to agree on the desired outcomes first and then agree what measures are needed to achieve them and at what cost.”

The Commission also recommends a noise envelope be set to limit the level of noise and suggests that the total number of people affected by noise be capped at today’s levels. Tyler says if that were to happen, planning authorities would have to take responsibility to prevent new housing from being built in areas exposed to aircraft noise. Otherwise, “it will be a case of one step forward, two steps back.” •

Leadership lessons begin online An online Leadership Program consisting of three modules for a 12-week course is now on offer from the IATA Training and Development Institute (ITDI) in collaboration with Harvard Business Publishing.

The first module includes topics such as emotional intelligence and how to be a more effective leader. The second module deals with

operational excellence, while the third deals with the global nature of the business. Students learn form real-life examples.

Practical elements of the course can be tailored to participants’ own organizations. The course is open for registration and set to start on 2 November 2015.

“Leadership will be a vital skill for aviation sustainability,” said Victor de Barrena, ITDI

Director. “The aim is to instill a mindset in the participants that has a focus on delivery and results. The program teaches how to set realistic goals that drive what you want to achieve as a business. It looks at accountability, transparency, global standards, and global best practices.”

According to de Barrena, leaders must be able to operate in an

environment that requires an organization aligned across regions and cultures, internally and externally. “It will need more than 50 million extra workers by the mid-2030s if growth trends continue. Leaders are required to organize and inspire those workers. [The course] addresses core competencies. It will create value for airlines and for the industry in general.”•

AIRLINES INTERNATIONAL

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Agenda

Asia-Pacific led revenue and passengers in 2014 The regional ranking (based on total passengers carried on scheduled services by airlines registered in that region) is:

In 2014, Asia Pacific led the world by flying 1.1 billion passengers, an increase of 8% on 2013, and the region’s revenue represented 42% of total international revenue passenger kilometers.

Europe was the region with the next largest market share at 26.3% and North America close behind with 25.3%. Latin America and the Caribbean trailed behind at 7.7%. This market data comes from the 59th edition of the IATA World Air Transport Statistics. It also shows that US airlines still lead in total schedule passengers with Delta Air Lines and Southwest Airlines first and second, respectively.

“A billion more people boarded aircraft last year than did a decade ago. Much of that growth has been in the AsiaPacific region. The industry’s 2014 performance shows

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Indonesia benefits from WSG Indonesia is seeing the benefits of following the Worldwide Slot Guidelines (WSG) and airlines flying there are praising the changes they have seen in allocations for good capacity usage.

Over four and a half years, IATA has had regular contact with officials and been discussing WSG with the Indonesian government and running workshops on how the country can benefit from the guidelines use. IATA had been discussing slots with Indonesia because of the industry’s perception that of issues with capacity and slot allocation. The outcome has been a substantial improvement in efficiency and responsiveness.

“It has been a particular success. Our advocacy has paid off and they [Indonesia] really have gone a long way since April to endorse and implement the WSG and the airlines operating into Indonesia have praised the authorities for the move,” said Peter Stanton, IATA’s head of slots.

He added that Indonesia’s authorities coordination is now very good and that the country is seeing the benefits from following global standards. •

%

1.1 bn 873.4 m

%

2

255.9 m 173 m

4

5

3%

76.7 m

2.

7.7 % Middle-East 5.

2%

.3 25

3

Latin America & Caribbean

%

.3 North America

26 Europe

1

841.8 m

Africa

.3 33 Asia-Pacific

Source: IATA

aviation connectivity as a driving force in emerging economies,” said Tony Tyler, IATA Director General and CEO. Overall, airlines carried 3.3 billion passengers on scheduled services, an increase of 5.3% against 2013. •

passengers

6

Ranking

Nations must act IATA has co-signed an open letter calling on governments to act to help the industry reduce its carbon footprint following the publication of a report that shows that aviation is achieving its green goals.

The letter was organized by the Air Transport Action Group (ATAG) which has also produced the report, Aviation Climate Solutions, and was signed by Boeing, Airbus, Rolls-Royce, Honeywell, Pratt & Whitney and other aircraft and engine manufacturers.

According to ATAG’s report, aviation is more than meeting its goal of a 1.5% improvement in fuel efficiency per year. One of the technical developments that has aided this efficiency is wing tip devices that reduce drag on the wing improving fuel burn. Fuel efficiency is one of the goals set out by the industry in 2008 as part of its climate action framework to achieve carbon neutral growth by

2050. The report was made public at ATAG’s Global Sustainable Aviation Summit, the same event at which in 2008 the framework was announced.

The end goal for the industry is to stabilize net carbon emissions through carbon-neutral growth from 2020 and to halve net carbon emissions by that year, compared to 2005. One marketbased measure (MBM) expected to contribute greatly is a global offsetting scheme.

“A global offsetting scheme would be our preferred MBM. Offsetting is important because it is a legitimate means for the industry to achieve carbon neutral growth. It makes sense for aviation, while it continues to take every step it can for itself, to encourage reductions in other business sectors where the scope for emissions cuts is greater,” said Tony Tyler, IATA’s Director General and CEO. •

AIRLINES INTERNATIONAL

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Agenda

Yields under pressure from fuel price

Alaska goes all Platinum for its Fast Travel status Alaska Airlines has attained Platinum status for Fast Travel implementation, only the fifth airline to do so.

The Platinum award recognizes carriers that offer four or more Fast Travel-compliant options to at least 80% of their passengers.

For 2015, IATA is targeting Fast Travel access for at least 35% of global passengers and by 2020, 80% of air travelers should be offered a complete suite of self-service options based on industry standards.

The IATA Fast Travel program is responding to passenger demand for a more seamless travel experience and more control through six time-saving, self-service options. They are: self-check-in and, or automatic check-in, bags ready-to-go, document check, flight re-booking, self-boarding, and bag recovery.

“I congratulate Alaska Airlines on attaining Platinum status. The IATA Global Passenger Survey confirms that passengers want to do more things for themselves and Alaska is certainly an early responder to that trend,” said Paul Behan, IATA Director Passenger.

“By offering Fast Travel options to 81.92% of its customers, Alaska has shown a deep understanding and commitment to meeting the changing desires of air travelers.” •

Yields (cents/RPM)

Passenger yields remain weak worldwide, reflecting lower fuel related costs 17.5

540

17.0

520

16.5

500

16.0

480

15.5

460

15.0

440

14.5

420

14.0

2011

2012

2013

2014

2015

Fare (US$/passenger)

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While profitability has been good for North American airlines, yields are under pressure as the fuel price remains lower, according to the latest IATA financial data.

In July, US passenger yields were down 5% year-on-year. The continuing combination of more capacity, higher demand, lower fuel costs, and reduced fares are putting yields under pressure. In US dollars, average global fares were down 13% in the first five months of the year. Lower fares have led to an increase in economy class leisure travel. At constant exchange rates, global air fares were down 6% during the first five months of 2015, compared with January to May 2014.

With this increase in leisure travel, passenger loads improved slightly and this growth in demand outstripped the capacity uplift. Growth in seats was moderate in July as new aircraft deliveries decreased, falling behind the increase in passengers.

But, carriers in all regions did experience capacity expansion. There was an overall 0.8% increase in passenger capacity in July, compared with June. However, growth in seats slowed to a 7% annualized rate in July, which is slower than the ongoing rise in demand. This should help sustain loads and aircraft utilization rates if it continues” •

400

US airlines yeilds, seasonally adjusted Global return av. fare, seasonally adjusted Global return av. fare, US$ constant exchange rate (Jan 2011), seasonally adjusted Source: IATA/Airlines for America

Gazpromneft-Aero has highest fuel quality IATA has confirmed green status, the highest level of aviation fuel supply quality, at two Gazpromneft-Aero refueling stations, in Bogashevo Airport in Tomsk (Russia) and Manas Airport in Bishkek (Kyrgyzstan).

IATA specialists assessed the fuel quality monitoring system, compliance with fuel filtration and storage technology, laboratory operations, equipment and the standard of refueling training, as part of an annual assessment. To date, Gazpromneft-Aero is the first Russian refueling company to have achieved the highest IATA status for eight of its refueling stations in key international airports of Russia and the Commonwealth of Independent States. Vladimir Egorov, CEO of

Gazpromneft-Aero, said: “Our priority has been to encourage the implementation of international standards in the supply of aviation-fuel in Russia. Cooperation with IATA enables us to introduce modern standards of aviation fuel supply at our stations and share our knowledge and expertise within the industry.” •

AIRLINES INTERNATIONAL

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For external quality assurance on passenger and cargo interline billings

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RESPONDING

DEMAND

TO The value from congested airport slot agreements has been a benefit of partnership thru IATA almost since its very beginning.

20

An optimized network is the prize for any airline that successfully negotiates slots at

slots. That slot access is a response to congestion that has arisen because of the success of passenger travel and the slower development in airport infrastructure.

Held in every June and November, the Slot Conference generally attracts nearly 1,000 delegates from over 270 airlines, and slot coordinators from more than 170 airports.

The conference held in June deals with the forthcoming northern hemisphere winter

delays to an acceptable level more widely.

The IATA member airlines and the community of airport coordinators from across the globe jointly produce the WSG. Another facet to the value gained by partnership thru IATA. The WSG is now the industry standard recognized by most regulatory authorities for the management and allocation of airport capacity. In some instances, this text has been

the semi-annual IATA Slots Conference, an event that goes back to the early history of the association.

From 1947, under the auspices of IATA, airlines met regularly to discuss their timetables planned for the following season, the purpose of which was to offer customers improved interline connections, better handling arrangements, and a wider choice in destinations.

Originally, this coordination was national carriers agreeing their timetables, but with the growth in airlines and governments’ competition laws, today, airports and airlines are meeting twice a year to agree access to

schedules that are during the southern hemisphere’s summer. The November conference deals with the northern hemisphere summer schedules, which for the southern hemisphere is winter.

The process that determines who agrees to what slots during the conferences has been steered by IATA’s Worldwide Slot Guidelines (WSG) since it was first issued in 1976. Adherence to the WSG is the fairest way to balance the growth in air travel and restricted airport access. The guidelines emerged from a process to deal with congestion at a few major airports in the early 1960s and a need to reduce anticipated

incorporated into local regulations and national law. Another example of incorporating the WSG is IATA’s work with Mexico’s General Directorate of Civil Aviation and the Mexico City Airport Group to ensure slots at Mexico City International Airport are optimized and best practices implemented in accordance with the guidelines.

Mexico’s Ministry of Communications and Transportation and IATA signed a Memorandum of Understanding in June, which includes the WSG slot assistance.

International passenger market 400 RPKs’ seasonally adjusted RPK’s actual

Monthly RPKs billion

350

300

250

200

150

07

Source: IATA

08

09

10

11

12

13

14

15

Corner stones The guidelines implement a process built on four cornerstones; certainty of access, guarantee of flexibility, sustainability of costs, and transparency of allocation.

Certainty of access means airlines, new and established, can be confident that any slots obtained will be there when aircraft enter into service or a fledgling carrier wants to begin operations. Flexibility means airlines can adjust schedules to react to operational disruptions and match demand throughout the year.

Sustainability of costs is securing landing and take-off slots with a price that makes the operation financially viable while transparency of allocation ensures slots are allocated to airlines and other aircraft operators in a neutral, transparent, and non-discriminatory way. The WSG states that the slot coordinators be functionally and financially independent of any single interested party. In the 1970s, a national

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70th Anniversary

292 TOTAL AIRPORTS

176 EUROPE

15

NORTH ASIA

23

24

MIDDLE EAST AND AFRICA

54

ASIA PACIFIC

THE AMERICAS

Counting congested airports worldwide by region (Level 2 and 3) Source: IATA

carrier would be the coordinator for a nation’s hub and competitors had to inform that government airline about their schedules. The evolution of the slot process reflects the liberalization of the industry.

Independent coordinators, acting as a go between for the slot allocations, became more common in the 1990s. It was in that decade that slot regulations also became supranational in nature with the EU adopting its own rules, which were subsequently amended in 2004 to better reflect the WSG. Partnership has driven this process bringing value thru a commonality of approach.

The EU has proposed changes to the ‘80-20 rule,’ so it becomes ‘85-15’. IATA opposed this, as an airline failing to operate no more than 15% of their allocated slots to their coordinated timings would likely be forced to fly empty aircraft when demand is not there.

Using a slot 80% of the time should not mean that airlines lose it, or to be precise lose the historical precedence for those particular slots in the next equivalent season.

For the time being, the EU proposal is stuck in the rule making process because of member state differences. It is a debate that may return as much of Europe needs slot coordination because the continent has 97 of the world’s 170 fully slot-coordinated airports.

Doing deals For slot allocation, airports worldwide are categorized as either level one, a noncoordinated airport, meaning slots are not necessary; level two, a schedules facilitated airport, where there is potential for congestion at some periods of the day, week or season; or level three, a fully coordinated airport that is sufficiently congested to need all slots coordinated.

The decision to implement slot management at a given airport needs to be determined by the responsible regulatory authority following a thorough demand and capacity analysis and consultation with airlines and other stakeholders.

Airports level can change and the WSG provides guidance for the process that should be followed before the category alters. An important part of this process is the demand and capacity analysis. This can involve airspace and airport simulation software like the US Government’s Federal Aviation Administration’s Simmod or commercial applications such as Total AirportSim or Jeppesen’s Total Airspace and Airport Modeller. These types of software provide graphical representation of the airport and its traffic along with data analysis of aircraft travel times and delay statistics.

The number of slot-coordinated airports is expected to grow and IATA is working with the Malaysian, Colombian, and Brazilian governments to promote WSG policies and principles. The Chinese slot management system also needs to be more closely aligned with the WSG. Whether it is a route on the top of the world or through a high population density area, carriers can swop slots. Slot leasing is another option for an airline that may wish to reduce its slot pairs for a temporary period. Slot coordination must not be a solution to the problem of airport capacity.

It is only an interim solution to manage congested infrastructure until the longerterm solution of expanding airport capacity is implemented.

For the time being, airport coordination and Slots Conferences are essential for that value in network growth.•

21

Slots conference discussions can appear like speed dating, including a big clock

The process that determines who agrees to what slots during the conferences has been steered by IATA’s Worldwide Slot Guidelines OCT-NOV 2015

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In this interview • Cargo • Longhaul • LCCs

22

IMAGES: GETTY/REUTERS

Sun Huang-Hsiang, Chairman of China Airlines, discusses with Tony Concil the carrier’s new approach to its product and his vision for the future

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CEO interview

PATIENCE IS THE KEY TO CHINA AIRLINES’ SUCCESS Sun Huang-Hsiang: expecting the airline to end the year in good shape

These are good times for the industry in general but how is China Airlines performing?

The first quarter of 2015 was much better than the same period in 2014. Passenger growth was healthy, but for us cargo played a big role. In general, the air cargo market was stronger than it had been in recent years. And the port congestion on the West Coast of the US added another boost to demand for air cargo. Of course, the fall in fuel prices—by about a third—also helped. For us, it meant that costs were down by about 10%.

The strong performance was clear in our revenue figures.

In cargo, first-quarter revenue growth was 15%, but 25% if you take out the fuel surcharge. Passenger revenues were up 1.5% but without the fuel surcharge, it rises to 7-8%.

The second quarter of 2015 was also satisfactory. Looking ahead, we should end the year in good shape. The fuel price will likely stay low and there are no indications that passenger demand will slow. Cargo demand is, however, slowing. In the face of capacity increases, we are expecting more pressure on cargo yields.

23

How important is cargo to your overall operations?

Cargo accounts for about 30% of our revenue. At its peak, it was 45%. Cargo growth has slowed and we have expanded our passenger business. But it is still a very significant part or our success. Having said that, we do recognize that air cargo is in a period of change. We have 21 freighters and three are parked in the desert. Globally, while the business is growing, it is being outpaced by parts of the economy that are growing faster and relying on sea shipping, which costs less than a tenth the price of air cargo.

It’s a difficult business, in need of modernization. Speed is the unique selling point (USP) of air cargo, but it still takes five or six days to move a shipment from end-to-end.

The goods travel quickly. Most of that time is consumed in processing the shipment. Speeding up the process is critical. But to achieve that requires alignment across many stakeholder groups. Achieving e-air waybill, and eventually e-freight, will be a challenge—but one well worth doing to protect our competitive advantage.

OCT-NOV 2015

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CEO interview

How are flights to the Mainland of China doing?

We’ve had direct flights between Taiwan and the Mainland of China since 2008. Passenger numbers increase each year, but I believe that the market from Taiwan to the Mainland is still under-served. You can see if you compare the 10-15 flights a day that Dragonair uses to serve Beijing or Shanghai. We have just four from Taipei to Shanghai. The trunk route market needs more capacity.

We are also limited in that we cannot carry passengers from the Mainland, through Taipei and on to other destinations. There is no similar restriction on passengers originating in Taiwan. Resolving this would create huge opportunities. But we must be patient.

24

Even if you got the right to carry transfer passengers, is Taiwan a good market for long-haul?

Outbound or inbound, long-haul is less than 10% of our business. China Airlines is much more about regional traffic—that is the market we are in.

On long-haul, we are overshadowed by Hong Kong and Seoul. But actually, we are ideally placed to take a share of that market. We are more convenient if a Chinese passenger wants to connect to the west coast of the United States, for example.

It is a chicken-and-egg situation. If we had a bigger catchment area we would fly more long-haul. And if we flew more long-haul, we would attract a bigger catchment area. At the moment, our catchment area is relatively small,

If we had a bigger catchment area we would fly more long-haul. And if we flew more long-haul, we would attract a bigger catchment area and this is why Chinese transfer passengers are so very important for us.

Are you happy with the infrastructure at your home airport?

We are hitting more than 40 million passengers per annum at Taipei’s Taoyuan airport, which is more than the design capacity. Constraints remain, but we must be patient. Some good news is in the offing. Terminal 3 will provide some relief when it starts operations about 2020. T2 is being expanded. And a third runway in 2025 will add even more possibilities.

You have a new onboard product.

What was the inspiration behind that?

The addition of the Boeing 777 to our fleet was an opportunity to develop our product. Taiwan has a lot to offer visitors, and we decided on a concept that would put the best of Taiwan on the aircraft—from the hardware to the uniforms.

We launched it on the Taipei-to-Los Angeles route in December 2014. We have received rewards for the concept, but the most important achievement is a rise in customer perception. Our customers like it. They feel they are in their own personal study.

Sun Huang-Hsiang 1970: Joined China Airlines, gaining experience in marketing, operations, scheduling, and planning and serving as the General Manager for European and American operations.

1996–2008: Leadership roles at five different airlines, including domestic, regional, cargo, and international airlines.

Served as President of Formosa Airlines, Vice President of Mandarin Airlines, an affiliate of China Airlines, and President of TransAsia Airways.

During this period, Sun also served as the CEO for Yangtze River Express, which at the time was a China Airlines joint venture in Mainland China.

2008: Returned to China Airlines as President 2012: Became the Board Chairman of China Airlines.

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CEO interview

We are very excited about the New Distribution Capability being developed through IATA. We have a cutting-edge product, and NDC offers us the flexibility to explain it well.

You are cooperating with Singapore Airlines in Tigerair yet they are also a competitor. How does that work?

On the one hand, they are a friend; on the other, they are a competitor. There is no problem with doing business with a competitor. Competition makes you work harder, become stronger. That makes us a better partner.

26

How do you see the low-cost carrier market developing in Asia-Pacific?

They will take more of the market in the future.

As air services are liberalized, we will see more low-cost carriers (LCCs). Look at what happened with flights between Japan and Taiwan.

That went from 30(2012) to 192 (2015) LCC flights a week once skies were opened in 2011.

So there is room for growth.

The LCC is now a well-known product and it is not difficult for the customer to accept it.

The LCC is here to stay and one of the reasons why we set up our own LCC. What did you learn from setting up your own LCC? We learned a lot. There are totally different USPs. Pricing flexibility is, perhaps, the main lesson. LCCs always adjust their price and they do it very quickly. We have introduced this flexibility and respond much faster to the market now. We have also set up a working group to study LCC practices. There is a lot to learn about managing costs.

Are there too many SkyTeam members in your region?

There are three Chinese airlines in SkyTeam: China Eastern, China Southern, and Xiamen Airlines, plus China Airlines.

But actually, we are working closely together. We increased China-Taiwan frequencies for our passengers more than 50% through SkyTeam, so it is convenient scheduling for the frequent flyer. The joint product is quite strong—there is just one frequent flyer program for all airlines, our passengers can access each other’s lounges and so on. The Chinese business traveler is an important revenue stream for us, and SkyTeam gives us increased access to that stream.

And Korean Air, Vietnam Airlines, and Garuda are all good partners too and we codeshare flights with all of them. It is about pro-

We codeshare flights with Korean Air, Vietnam Airlines, and Garuda. It is about providing choice to customers. If we are part of providing that choice, customers will stay loyal viding choice to customers. If we are part of providing that choice, then customers will stay loyal to us.

What more can be done to improve safety in the region?

We don’t know what happened in the first Malaysia Airlines accident and the second was a crazy act. They are not a reflection on the airline. Other accidents in the region are still under investigation.

But they send a message that we can never be too careful. China Airlines is very proactive about safety and set the standards very high.

So on the Boeing 777, for example, our training is more stringent than legal requirements. We are ahead of government regulations, and we were the first airline in Taiwan to pass the IATA Operational Safety Audit.

You have the role of chairman and yet you are very involved in day-to-day operations?

I returned to the airline in 2008 as President and became Chairman in 2013. It is hard for me to think of myself as just the Chairman.

We have a new President now, and I have to show him the way.

China Airlines is controlled by the government. Does government belong in the industry?

The airline is owned by the China Aviation Development Foundation. The government appoints board members to the Foundation, so to some extent we are controlled by the government. But we are not dictated to. We make our own business decisions.

What is your vision for the airline?

The first thing is to be the best airline out of Taiwan in terms of safety, service quality and market strength. And then we want to be one of the top airlines in the world.

We will take advantage of every opportunity, especially developments in Mainland China-Taiwan relationships. If we got more flights on the trunk routes and were able to fly Chinese transfer passengers, then the potential is huge. That would give us the strength to liberalize other markets. Taiwanese travelers can go to 148 countries visa-free, so it is easy for us to extend our network abroad.

Before, Taiwanese visitors needed a permit and then a visa to travel to China.

Now, it is just a permit, so it is clearly an improving relationship.

What makes a great airline CEO? I’ve been in aviation for 45 years. In the old days, the situation didn’t change much. It was very stable and you could plan 10 years ahead.

Not any more. It is difficult to say what will happen in a few years.

Could you imagine the development of the relationship between the United States and China 10 years ago? Or the rise of the Gulf carriers?

The role of the modern airline CEO is to make the complex simple. And that is very difficult.

You have to be right with every decision, and not be too quick or too slow. It is a very challenging job but it is fun. I enjoy it. •

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02/10/2015 10:06

In this report • NDC • Technology • Ticketing

30

ONE ORDER One Order will allow airlines to create a single reference about each customer’s journey

N

ew Distribution Capability (NDC) has captured the attention of airlines and travel providers around the world, with its promise of content-rich displays through multiple channels.

NDC has also inspired the industry to look more deeply into other out-of-date or unnecessary processes, including order management processes that date back to the era of paper tickets and that were never updated when the industry moved to e-tickets.

AIRLINES INTERNATIONAL

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Special report

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OCT-NOV 2015

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Special report

Three into one

“We have made ourselves artificially different and the systems were built 40 years ago,” says Keith Wallis, Director Global Distribution, Air Canada. “With the advent of e-commerce, we tried to adapt our systems instead of moving to modern systems.”

Sebastien Touraine, Head of Airline Merchandizing at IATA, concurs. “The way we manage the customer booking processes today is a hangover from the old days,” he says. “We

Three distinct elements provide critical information about a passenger’s journey. There needs to be a single reference point

PNR ET

“We need to re-engineer back-office practices and not simply automate a paper trail”

EMD

need to re-engineer back-office practices and not simply automate a paper trail.”

The IATA Simplifying the Business group is championing the concept of “One Order” (see box, left), in which the NDC order record becomes the single truth about each customer’s journey.

32

The One Order story: all change for procedures The ordering and delivery of airline products is not as easy as it should be.

How to deal with the constraints arising from three separate process—PNR, ET and EMD—is being discussed by a specialist One Order group that will deliver its recommendations to the IATA Board of Governors in December 2015. Subject to the Board’s approval, work on developing One Order standards will continue and the aim is to start trials at some point in 2016.

“IATA’s role in this will be to allow systems providers free reign on their architecture definition and to facilitate a shared industry vision and interoperability standards,” says

Touraine. “Some airlines will want to retain their separate PNR and ticketing structures and simply evolve their order management while others will re-design an extended PNR that includes ticketing and EMD information and that fits in with best practices in e-commerce.

“But this is not something that will happen overnight,” warns Touraine. “It will take several years to make One Order the norm. This is on par with other major projects in the industry.

“Remember, we are talking about a total realignment of back-office functions to take advantage of progress in technology. It is not about putting a paper process onto a computer.”

Replicating data Traditionally, at least two elements are involved whenever a customer books a seat on a fl ight. The passenger name record (PNR) is related to the reservations system and is generated at the point of booking. A PNR contains the relevant travel information— including Special Service Requests (SSRs) for free or paid extra service—that needs to be exchanged between the various partners involved in enabling a journey. It transmits data to airport departure control systems and ground handlers, for example.

Ticketing (ET), which provides proof of payment and an entitlement to travel, is a separate part of the process. It is used mainly for accounting purposes, to facilitate fi nancial transactions and reconciliation along the value chain, especially in interline scenarios.

Much of the data in PNRs and ETs is replicated and, as there are two distinct processes, airlines end up performing a reconciliation process in the back office, often manually and at great expense.

More recently, a third element has further complicated matters. Ancillary sales, nowadays handled by the electronic miscellaneous document (EMD), are on the rise and airline merchandizing—likely involving the bundling and unbundling of content—is becoming more complex.

AIRLINES INTERNATIONAL

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“And that complexity only adds to the challenge,” notes Touraine. “We need to merge these three separate processes so the customer has one reference point and all industry partners benefit from a more efficient way of working.”

Three core principles underpin the One Order vision: a customer-oriented architecture; an efficient billing process with real-time synchronization of relevant information between all parties; and simplified airline merchandizing delivery.

Universal access The One Order concept will facilitate universal access to a customer’s information, using a common data dictionary. In turn, that customer information will have a single identifier, facilitating service provision not only for the customer but for the service providers, including travel agents, interline partners, airports’ ground handling agents, catering companies, and third-party resellers.

34

Merging booking and ticketing functions will drive the simplification of product delivery and accounting functions by avoiding redundant data feeds between parties or internal reconciliation. “It will make life easier for the customer to have a single reference, it will complement NDC with a ‘technology refresh’ of the airline ecosystems and it will facilitate the current airline merchandizing trend,” Touraine explains.

The data would provide a complete picture of the customer’s journey, and would inform downstream airport processes or any entities involved in services delivery. As delivery can be tracked, it enables invoices to be generated on completion of services. In other words, there is also instant financial information, an invaluable boon in the dynamic, modern market.

Active markets The benefits of One Order extend far beyond its obvious, positive impact on the customer and airline efficiency, however.

Touraine explains that the project to evolve reservation systems into platforms aligned to the e-commerce world and capable of dealing with the One Order concept will necessarily bring far more competition into the market.

“Dealing with current reservation systems capable of following complex industry processes has been the remit of a few suppliers, but One Order could promote new entrants,” he says. “An industry standard will interest new IT providers, and a more active market could provide savings to airlines.”

Eliminating silos: why One Order is needed The existing process structure, with PNR, ticketing and EMD each creating its own data silo, can be challenging for the principal players in the travel value chain.

For the customer, which reference to use when checking-in or requesting a change to an itinerary isn’t always clear. Aside from the airline PNR, there is the global distribution PNR and an e-ticket number. If all the above could be synchronized to provide a single reference, it would be much easier for the customer.

For airlines, the process simply isn’t scalable. Previous projects merely automated paper processes, a valuable but ultimately limiting concept. An e-ticket and EMD each have a

reliable delivery of the complex merchandizing that airlines wish to sell today can’t be supported this way in the long term,” says Touraine at IATA For travel agents, the difficulty is the lack of consistency in booking flights and ancillaries. Different airline business models necessitate different booking methodologies, a problem made worse by the multifaceted business rules that travel agents have to interpret in both the booking process and fare selection. A modernized single customer order will further facilitate the servicing, tracking and accounting of purchases.

“If you started the airline industry today, would you design in the complexity of processes and systems

maximum of 16 coupons, simply because this was the maximum message size accommodated by industry messaging in the 1970s.

There is no business case to accept such constraints in a fully digital world.

Even booking ancillary products is much the same as inserting an SSR into the PNR to notify specific passenger requirements or services (whether free or payable). “The

that we have?” asks Rob Broere, Vice President PSS–Transition, Emirates.

“What we have has served our industry well, and airlines have led the e-commerce revolution since the 1970s. But our processes and systems are now outdated and behind other industries. They are holding us back from innovating and serving our customers. We need to rethink from the ground up, as otherwise we will never move forward.”

“An industry standard will interest new IT providers, and a more active market could provide savings” There could also be a more active market in interlining. Low-cost carriers (LCCs)—considerd as ticketless carriers—have, broadly speaking, been set up differently from legacy airlines. They use a single electronic customer order record to confirm payment and service delivery data. And because they invested in truly electronic processes from the start, they are unhampered by the legacy, paper-based PNR and ticket reconciliation requirement.

This has played a large part in the lack of LCC interest in interlining with the legacyprocess carriers, as it would have involved

extra cost for them to effectively “retrofit” to a more cumbersome process.

As LCCs mature, however, the prospect of interline agreements is starting to impinge on their strategic decisions. Ryanair now sells tickets through a global distribution system, and CEO Michael O’Leary says this is “a sign of the change and evolution that’s going on.

We expect to appeal to more of the bigger businesses.” He won’t rule out the possibility of a codeshare, admitting he could “see a future where we are doing contract flying.”

But it is not just the LCC-legacy partnership that One Order would make viable.

“Why stop at other airlines?” asks Touraine.

“One Order would assist a wide array of business models, and enable interlining between all carriers and further entities. It would really open up the more complex ancillary products enabled by NDC.” •

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In this interview • Group strategy • Cost control • Techology

Alex Cruz: a long way down the improvement path

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CEO interview

THE LAST WORD IN COST CONTROL

37

Vueling CEO, Alex Cruz, tells Graham Newton that the airline is the final chapter in the LCC revolution

What is the airline’s strategy—how are you positioning the airline in the market?

Vueling is the final step in the low-cost carrier (LCC) revolution that has been taking place for the past 20-30 years. We are a full-service airline offering low fares and operating from a low cost base. Vueling is a $2 billion company, transporting 22 million passengers annually, on 100 aircraft over more than 360 routes throughout Europe, Middle East and Africa.

We have had six years of straight profitability.

The industry has seen a lot of entrants doing new things and bringing in new, lower prices.

Vueling is the last piece of that puzzle. The airline has the same or a lower cost base than

many LCCs, and yet offers a better service and product than many traditional airlines.

This is what all consumers want: better service at lower prices.

Historically, the legacy carriers were clearly very inefficient, and the LCC model came along to exploit that and clearly offered something different. But when we merged with Clickair in 2009, we embarked on a clear strategy to begin improving the product. While we feel we still have a long way to go, we also know we’re a long way along that path now.

That means we serve and appeal to both markets—business and leisure. In fact, 49% of our customers are business travelers. Some routes we fly simply aren’t designed for OCT-NOV 2015

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CEO interview

the business traveler, but on many others we have good frequencies and f ly a number of times daily. That appeals to the business traveler.

Can the airline continue to grow as quickly as it has done over the past few years?

There are many opportunities for growth at Vueling, because we have great flexibility in how we price our ticket. We also have the full product suite at our disposal, from travel agent distribution to new technology to codesharing with other carriers. We are giving customers what they want and if we do that and retain our competitive cost base, we will continue to grow.

You are part of the IAG Group. How influential is IAG on your strategy?

Vueling is where it is today because the airlines that have had shareholding positions have not interfered with its model.

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This is why the IAG deal works for us.

Because it understands that success comes from keeping the asset independent while supporting it to become even better. Vueling’s team is very clear about what needs to be done, and we have no commitment to take part in anything that does not fit in with our strategy.

So it really is the best of both worlds for us. We get the benefit of size that comes from our alignment with IAG, and yet there is no interference with the running of the airline.

There are clear financial targets, of course, but IAG supports whatever strategy we employ to get us there.

And that has rarely been the case with so many other airlines “within an airline.”

Interference in the running of an LCC by a major airline has often resulted in the end of that LCC.

affects our bottom line. And it is keeping control of the bottom line that is the key to the success of short-haul airlines.

What other challenges do you see for the industry as it strives for a sustainable future?

Potentially, the main challenge for the industry over the next few years is dealing with too many seats for not enough passengers. It’s fantastic for customers when that happens, of course, because airlines end up fighting for market share via ticket price reductions.

But if you look at the number of aircraft on order over the next few years, there appears to be a potential for over-capacity, depending on how many of those aircraft are used to replace existing fleets. Obviously, a number of airlines remain committed to maintaining market share and, in particular, serving the main airports. The main hubs are already congested and it will only get worse.

There will be winners and losers in this battle. And, as history has shown, the losers will all come from the group that has the higher cost base. We have a lot of work to do yet at Vueling, but we believe that we will be on the winning side.

Sustainable profitability is our main priority. But that doesn’t mean we will focus on serving secondary airports. We do serve

Alex Cruz 2009: Successfully merged Clickair with Vueling, turning the new Vueling into one of Europe’s most profitable companies 2006: Started Clickair and grew it to 26 A320s and 58 European routes Early career: Began with American Airlines in a variety of management roles in Dallas and then in London. Became a partner at Arthur D. Little. Started an aviation consulting company. Became a partner and leader of the aviation practice at Accenture

It is the best of both worlds. We get the benefit of size that comes from our alignment with IAG, yet there is no interference with running the airline

You have agreements in place with many other airlines. So do you think collaboration, joint ventures or mergers are vital to success?

We have codeshare deals with American Airlines and Qatar Airways as well as the IAG airlines, and we will continue to sign codeshare agreements where they make sense. It works well when we can feed and serve these airlines through our hubs at Barcelona and Rome.

But the deals we have are very much entrylevel agreements. We don’t have any plans to take things further into a joint venture or merger. We are interested in commercial relationships, but we won’t do anything that AIRLINES INTERNATIONAL

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CEO interview

regional cities, but serving secondary airports has never been part of our strategy. We like to fly to the main terminals at the main airports. Business passengers don’t want it any other way.

The airline is innovative in its use of technology—so what is the next big technological breakthrough for airlines?

We are a young company. The average age of the staff is just 28. It is a youthful, energetic culture that embraces technology. It is part of our DNA. So we tend to be the first ones in implementing new technology within our industry.

We were the fi rst airline to accept payment through Apple Pay, for example, and the fi rst to support smartwatch technology. We are constantly looking to use new technology in the way we offer our products and services.

There are multiple areas where the next big breakthrough may happen. We are really in-

40

terested in what is happening in distribution, and Vueling is very close to IATA’s New Distribution Capability initiative. Distribution costs are high, and so we’re keen to explore innovative ways to reduce those costs. But there are many other areas where new technology will play a key role.

Is your use of technology about keeping costs down or customer service?

There is a clear opportunity to support both through technology. And one feeds the other.

Our main aim at Vueling is to remove cost from the business. I think that is the key to survival in this business. It’s an uncomfortable truth, but sustainability in short-haul is about having the lowest cost base possible.

And investment in technology is the most cost-efficient way to increase customer service. It’s the only way to add to your services or product suite while keeping your cost base at the same level or driving it even lower.

Are you happy with the infrastructure you use—airports and air traffic control?

N o —a s a g e n e r a l e v a lu at i o n of t h e infrastructure we use, Vueling isn’t happy.

We have a good relationship with all of the airports we use, but there is a lot of work to be done to make many of them significantly more efficient. I do think that most airports now understand the need for better engagement with airlines, and that we share the same path for growth. In that sense, I

I look forward to the Single European Sky (SESAR)—or, indeed, any initiative that will help improve the tools for managing air traffic in Europe remain cautiously optimistic about planned airport infrastructure.

Unfortunately, I can’t say the same about air traffic control, particularly if we compare our European skies with the United States.

We have had a big homework project hanging over us for years—the Single European Sky (SES). It is a complex project that touches on just about every facet of the industry, from air traffic control to politics. But clearly, the way we manage and dispatch fl ights is still not as efficient as it should be. So I look forward to SES—or, indeed, any initiative that will help improve the tools for managing air traffic in Europe.

With both sectors, aside from a few exceptions, cost is also an issue. At airports and for air traffic control, costs often appear to be uncompetitive for the volume rates that are managed. Some partners are working with us. AENA, for example, has recognized the value in reducing charges and is committed to further reductions. But other

infrastructure providers must commit themselves to reducing costs.

Are you optimistic that ICAO will be successful in efforts towards a global market-based measure for carbon emissions?

ICAO—along with IATA—is doing a good job in leading the industry toward a global marketbased measure for carbon emissions. Airlines are aligned on what needs to be done.

But it is a tricky subject. There is no getting away from the fact that airlines create emissions. However, IATA has done well to provide airlines with targets and the framework to achieve those targets. I’m very optimistic that we will achieve our goal of halving emissions by 2050.

What do you hope to achieve by joining IATA? Our main reason for joining IATA is to lower costs. We’ve already reduced our BSP costs, and we plan to engage with the other IATA products and services that will prov ide us w ith add itiona l cost base reductions. If IATA champions cost reduction further in our industry, greater passenger figures and, therefore, economic development will be guaranteed.

All of Vueling’s managers are aware of this, and are looking to see where IATA can help in their respective areas. •

AIRLINES INTERNATIONAL

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02/10/2015 16:24

E-JETS

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In this feature • Risk management • Technology • Data sharing

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STOPPING THE

ONLINE THREAT Charles Tyler examines the industry’s response to the growing risk of cyberattacks

AIRLINES INTERNATIONAL

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Cybersecurity

yberattacks are an evolving threat from which all parties in the aviation industry—airlines, airport operators, air navigation service providers and manufacturers—need to protect themselves.

But cybersecurity remains a nebulous concept that is often misunderstood. The problem is that cyberattacks come in many different guises through many different media.

Simple phishing or spam emails allow Trojans into the system, while a more aggressive spam bombardment of a network causes a distributed denial of service, effectively shutting down the network. Then there is the theft of login passwords, the theft of funds, and even bribery and ransom.

“It is difficult to explain something that you cannot see,” says Adam Troczynski, IATA’s Manager, Aviation Security. “There is no clear defi nition of cybersecurity in ICAO Annex 17 or in any other international regulatory framework or guidance, and although

C

we see that the problem is growing it is difficult to pin down exactly what we need to be guarding against. While certain business sectors such as banking may have had more experience of cybercrime, aviation industry specificity needs to be considered.”

Targeted attacks However nebulous it may be, cybersecurity is something that aviation needs to get to grips with sooner rather than later. Increasingly sophisticated and integrated IT systems have been put in place by airlines to improve operating efficiency. The heavy reliance on these systems leaves the industry vulnerable to online hackers.

During the fi rst half of 2015, at least five airlines, two airport operators and one civil aviation authority have been publicly reported as victims of online attacks.

At this stage, the intent of many of the cyberattacks on the industry is not clear. Most do not appear to be targeted or have any particular motive. But there is a concern that a future wave of attacks could be much more

damaging. Given that hackers can spend weeks or months operating undetected within a victim’s network before striking, some airlines could already be at significant risk.

Troczynski makes a distinction between inf light cybersecurity issues and the general cybersecurity issues facing airlines as a whole.

The safety of the aircraft is of ultimate importance and cannot be compromised. Work to ensure that all aircraft systems remain safe from potential attacks includes working with the manufacturers of inflight entertainment systems and Wi-Fi providers. With an eenabled aircraft, the system network becomes a part of the aircraft itself—for example where maintenance issues are being handled remotely from a desk on the ground.

As for more general threats, there are three areas to consider surrounding the protection of data and systems: 1 Data integrity—ensuring that data is correct has not been corrupted; 2 Data and systems availability—ensuring that data and systems are available when and where they are required; 3 Data confidentiality—ensuring that data is stored securely.

The challenge is aligning the different priorities of different departments. Passenger data availability is vital for the operations departments to work efficiently, for example, but is not a particular issue for aviation safety, especially if aircraft and their passengers are safe on the ground.

IATA action: protection for all stakeholders IATA processes almost $400 billion of payment settlements between agents and airlines every year, and started to develop a comprehensive cybersecurity program three years ago. In October 2014, IATA obtained ISO27001 certifi cation for all its fi nancial services, and the organization is committed to continue developing and enhancing protection.

But just defending IATA systems is not enough. The organization connects to thousands of agencies and airlines and each has different security policies, so it also needs to implement better cyber threat intelligence across the aviation value chain.

Last year, IATA launched the Aviation Cyber Security Toolkit to provide a general overview of the subject; an enhanced and updated second version is now being developed. While intended primarily for airlines, it is also applicable to airports, ground handlers, and others in the industry. The publication is an important part of IATA’s program to assist airlines to develop robust cybersecurity strategies.

Additionally, IATA is working on the following projects to help

protect the industry against cyberattacks: • Advocating and participating in appropriate coordination and information security sharing between the airline industry and government authorities. A-ISAC is an example of this.

• Developing a new line of cybersecurity services for smaller airlines that don’t have in-house expertise. IATA is partnering with security consulting companies, and plans to resell services at a more competitive price than smaller airlines would be able to obtain directly.

• Partnering with the Blavatnik Interdisciplinary Cyber Research Center at the University of Tel Aviv to establish a cybersecurity executive education program.

This will be developed as a training program specifi cally for the aviation industry, and will target various departments in an airline to enable them to better asses the risks to their respective systems.

• Providing a three-year schedule of aviation security training in conjunction with Centre en sûreté Alerte at its newly established Airpole training facility in Sherbrooke, Quebec. The syllabus will include aviation cybersecurity.

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OCT-NOV 2015

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Cybersecurity

Similarly, data confidentiality is not a great concern for certain aspects of operations, which thrive on sharing information, but is a massive issue to the departments holding passengers’ personal information and fi nancial data.

Risk management approach Cybersecurity threats are not so different from other physical security threats, suggests Troczynski, and should be considered and assessed as risks right across the organization.

Where there is a connected network, there is a potential threat. What is different about cybersecurity is the availability of the means to execute attacks. “The tools are available on the Internet and all you need is a computer, a network, an intention, and the skills,” says Troczynski. “Risk assessment needs to take into account which is easier—hacking into an organization’s computer network or building a complex explosive device.”

He says that best practice points airlines toward a risk management process that ben-

44

efits most from a top-down approach. Top management needs to be aware of and understand the challenge of cyber-security, but also needs to be able to balance the risks to each department and allocate resources where they are most needed.

Sharing information But sharing information about cyberattacks is one of the greatest defense mechanisms for the industry as a whole.

Stephen Darnley, IATA’s Corporate Treasurer, takes the analogy of a Roman centurion.

“On his own he was fearsome, but not invincible,” he explains. “However, when a group of centurions came together and closed shields to create the ‘tortoise formation’ they became a formidable defensive structure. It is the same with airlines: individually, they will be at risk, but sharing information will help to protect the entire industry. We have seen the banking industry and other industries starting to do

this, and international police forces have long known the power of sharing information.” ation.”

Government support would also make it more difficult for hackers to operate. “GovernGovernments need to adopt threat-based, d, riskmanaged and outcome-focused frameworks meworks that are balanced against industry capabilities pabilities and sustainability,” notes Tony Tyler, r, IATA’s Director General and CEO. “This iss a much better way to address evolving threats ats than prescriptive measures that are nott able to adapt to the constantly shifting cyberr arena.”

Plan of action Though airlines recognize the value of acting together, there are understandable concerns over privacy. The whole question of data security, and the sensitivity surrounding ing passenger data, make the issue challenging. ging.

But, ultimately, sharing intelligencee is vital in the fight against cyber criminals. als. “We believe that data sharing is an important tant part of a security program,” says Dan Glass, ss, Chief Information Security Officer with American merican Airlines. “That is why we are a founding ounding member of the Aviation Information Sharing Analysis Center (A-ISAC). A-ISAC is a public and private partnership created to share cybersecurity intelligence between those in the aviation industry and other industry ISACs.” IATA is already engaging with the A-ISAC and envisages the establishment of other regional intelligence sharing-services in Europe and later in Asia-Pacific. It has access to the issues that these regions are discussing and, as other regional ISACs are developed, IATA will be able to liaise between them.

A further boost for intelligence sharing was the December 2014 signing of the Civil Aviation Cybersecurity Action Plan by IATA, ICAO, Airports Council International, Civil Air Navigation Services Organisation, and the International Coordinating Committee of Aerospace Industries Associations.

The goal of the Action Plan is to ensure that all industry stakeholders and governments

Bug bounty: using hacking skills for good With an acute shortage of specialist trained cybersecurity personnel, an increasing number of companies are offering “bug bounty” programs. These are usually clearly stated on company websites and basically offer a reward to any hackers who can

highlight vulnerabilities in an organization’s IT systems.

Recently, two hackers revealed a system weakness to United Airlines and were each rewarded with a million frequent-flyer miles under the airline’s bug bounty program, which started in May.

“Individually, airlines will be at risk, but sharing information will help to protect the entire industry.

International police forces have long known the power of sharing information” promote a coherent and consistent approach to cybersecurity. All of the partners are working towards developing recommendations to be presented at the 39th ICAO Assembly next year.

“As one of the most complex and integrated systems of information and communications technology in the world, the global aviation system is an attractive target for a large-scale cyberattack, or for a targeted attack on some of its most vital elements,” concludes Tyler.

“While we cannot eliminate cyber risk, we must manage it. This can of course be done, but it will require a deeper collaboration between authorities, industries and the academic world through an effective information sharing program that will leverage the collective power of the key players in the aviation industry.” •

AIRLINES INTERNATIONAL

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In this feature • Illegal trade • Regulations• Partnership

A

IMAGES: CORBIS/GETTY

viation is committed to playing its part in stopping the trade in illegal wildlife, estimated to be worth up to $10 billion annually.

Transnational criminal gangs are exploiting the increasingly interconnected air transport system to traffic these types of products. Although the duty for capturing and prosecuting these criminals rests with national enforcement authorities, airline staff can provide an important source of additional intelligence.

Individual airlines like Cathay Pacific and Etihad Airways have teamed with specialist conservation organizations to train frontline airline staff in identifying and reporting suspicious passengers, baggage, and cargo. Kenya Airways is taking part in the “Wildlife Friendly Skies” program, together with Freeland, a counter-trafficking organization.

Others have developed awareness programs through the videos shown on the inflight entertainment systems, magazine articles, and posters warning passengers of the dangers of buying and carrying illegal wildlife.

But, as the traffickers know, individual airline actions can be by-passed by seeking alternative

46

An industry approach that supports the work of enforcement agencies is the best way to combat the illegal trade in wildlife

FIGHTING THE ILLEGAL WILDLIFE TRADE AIRLINES INTERNATIONAL

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Wildlife trafficking

airlines, routes or transport modes. A multistakeholder approach is needed to combat this illegal trade on a global scale.

Industry initiatives There are several programs ongoing at an industry level that demonstrate airlines’ willingness to support enforcement agencies in this important work.

In June 2015, IATA signed a Memorandum of Understanding with the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) to cooperate on reducing illegal trade in wildlife and their products, as well as on ensuring the safe and secure transport of legally traded wildlife.

“We live in an interconnected world where the great benefits of global air transport are also being abused by criminals to transport illegally traded wildlife,” noted John E Scanlon, the Secretary General of CITES, at the signing. “IATA and its member airlines can play a critical role in assisting customs and other enforcement agencies by gathering valuable intelligence of suspicious activities and raising awareness among customers, passengers, and staff of the devastating impacts of this illegal trade.”

IATA is also partnering with the US Agency for International Development (USAID) in its Reducing Opportunities for Unlawful Transport of Endangered Species (ROUTES) initiative. The Association is working with the other ROUTES Core Group members to develop recommendations to improve awareness training, information sharing, and standards and recommended practices.

Then there is the United for Wildlife (UFW) Foundation, comprising seven conservation organizations, which was formed in 2013 under the auspices of the Duke of Cambridge. There are three airline representatives on the UFW Transport Task Force; Sir Tim Clark, CEO of Emirates, Mbuvi Ngunze, CEO of Kenya Airways, and IATA’s Director General and CEO, Tony Tyler.

The aim of the Task Force is to promote practical action that the transport sector can take to help stop the trafficking of illegal wildlife. The airline representatives are providing expertise on how industry processes can best be adapted to identify and report illegal wildlife trafficking, supporting enforcement agencies in their work.

Supporting enforcement IATA has also formed its own task force to identify and review wildlife conservation issues with industry relevance. Work began in January 2015 and has already resulted in draft guidance on the carriage of prohibited wildlife by passengers for adoption by airlines.

And in August, Kenya Airways hosted a training workshop in Nairobi, supported by the International Airline Training Fund (IATF). The training was provided by the Freeland Foundation and focused on providing airline and airport staff with the skills and knowledge to identify and report illegal trafficking in wildlife and associated products. It included an overview of the impact of trafficking on Kenyan wildlife and tourism, and a demonstration of how to use animals to fi nd animals (sniffer dogs trained to detect ivory and rhino horn).

A total of 202 participants attended the workshops, including over 100 Kenya Airways staff (aircrew, check-in, customer services,

cargo and security agents, and safety managers). Airport security staff were also involved as were representatives from the Kenyan Wildlife Service, local conservation organizations, the United Nations Environment Program (UNEP), the US Embassy, INTERPOL, ground handlers, police, and customs and immigration. Follow-up workshops are planned to focus on job-specific awareness training.

“Airline staff spend more time with passengers, their baggage, and cargo shipments than customs officers,” says Jon Godson, IATA’s Assistant Director, Aviation Environment. “They can provide a key source of intelligence for the enforcement agencies.”

A positive start There are already many practical examples of airline support in this regard. In late October 2014, two passengers embarked on a journey from Mozambique to Vietnam via South Africa and the Gulf. An airline employee became suspicious and the passengers’ bags were checked at a transit stop at Johannesburg’s Joha O. R. Tambo International Airpo Airport. The result was the seizure of 18 rhino ho horns weighing 41kg, the largest such seizure in South Africa.

Similarly, a convoluted trip ffrom Angola to Cambodia by a group of 16 people peo was interrupted at Hong Kong due to aircraft air technical problems. The bags were offloaded for a customs inspection and an e extraordinary 790kg of ivory was found acros across 32 suitcases.

The illegal ivory trade is worth wor up to $188 million per year according to UNEP. U Perhaps the strongest example, exam however, is the 2010 arrest of Anson Wong, W a notorious trafficker of illegal wildlife wild products, after an airline employee reported rep suspicious behavior.

Extraordinary attempts to smuggle s wildlife illegally will doubtless co continue. They will probably be more sophi sophisticated than the man caught trying to smuggle sm a marmoset in his hair or the woma woman apprehended with 75 baby pythons on her person.

Airlines have to stand ready.• ready.

47

OCT-NOV 2015

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In this interview • Growth • Funding • Infrastructure

48

AIRLINES INTERNATIONAL

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IMAGES: FAME STUDIO

CEO interview

The airline now carries more than 5 million passengers. What is your strategy to continue growing?

The 5 million passengers we carried in 2014 was 17% growth compared with 2013. In 2015, we are planning to serve about 5.5 million

and scheduled fl ights. The fleet effectiveness is more or less the same in both cases. By doing so, we reduce the cost of maintenance and become more flexible in the face of market fluctuations.

Second, Ural Airlines has a really diversified

passengers, a 5%-6% improvement on last year.

However, it should be understood that in general there is a decline in Russian civil aviation volume. It is the business line we have chosen that helps us to retain an upward dynamic.

Our business model is made up of three major points. First, Ural Airlines uses a single type aircraft fleet, suitable for both charter

portfolio. We carry out our business independently from any market segment. This helps to minimize losses and rearrange our activity quite quickly.

In the fourth quarter of 2014, there was a drastic change in the ruble exchange rate and a decrease in international sales. At the same time, the domestic demand had greatly increased. We had a chance to redirect our fleet to domestic routes. So, while the

49

DECISIVE

LEADERSHIP Sergei Skuratov, Director General, Ural Airlines, says the decision-making process is vital. Interview by Graham Newton

OCT-NOV 2015

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CEO interview

4.5m international passenger turnover decreased 10%-15%, domestic turnover increased 37%.

Third, Ural Airlines is one of few Russian airlines using a multi-hub system. This approach follows from the second point: the airline does not depend on one single airport and its traffic.

Of course, we have two major hubs, in Moscow (Domodedovo) and Ekaterinburg (Koltsovo), but we also have hubs in four other cities. From each of these cities we are developing non-stop fl ights to different Russian regions, CIS countries and beyond, thus obtaining additional traffic.

I believe that an opportunity for further growth lies in the development of new hubs.

What are the main challenges you are facing and how do you propose to

50

overcome them?

Today, all airlines have one and the same challenge, which is expensive funding.

Unfortunately, the cost of lending resources, essential for airlines, is very high in Russia.

The thing is that our business is very seasonal.

The airline is profitable in the high season in summer, makes payments towards its loans, and gets new ones.

A second challenge is the low mobility of the population, hampering rapid development.

The number of fl ights per person in Russia is too small, about three times lower than Europe and the United States. I see a lot of potential in Russia, but we have to increase the mobility of the population.

It has been a challenge in the past to achieve global standards in the region. What more can be done?

I respectfully disagree with you. In fact, almost all leading Russian airlines, which together transport over 90% of passenger traffic in Russia, are IATA members and comply with IATA standards. So, in my view, there is hardly a significant problem in achieving global standards.

Of course, the sky is the limit and there are new challenges ahead. I think the IATA Operational Safety Audit standards should be implemented on the governmental level as certification and oversight requirements.

Effective fuel consumption by Russian airlines also requires prompt efforts by both airlines and aviation authorities. This means implementing best practice to achieve

passengers carried in 2013

40% increases recently in passenger traffic year-on-year shortened routes, shortened approaches and intelligent landing systems.

Ground handling also needs improvements: at least two handling companies should be at each airport to provide competition, and alternative fuel farms need to be developed alongside the passenger and baggage transfer technologies that are common at most major international airport hubs. I am pretty sure that such cooperation would bring mutual advantages for all stakeholders.

Are you happy with the infrastructure you use—airports and air traffic control? Where do you want to see improvements?

Over the past few years, a lot of improvement has been made in the ground infrastructure of air transport. Our hubs, Domodedovo and K olts ovo, p er fe c t ly comply w it h a l l international quality standards.

But we are a long way still from ideal conditions. There are airports in Russia, even in big cities, that still do not operate 24 hours a day. Moreover, some Russian airports have runways with a low-quality tarmac.

Unfortunately, the problems I have mentioned do strongly influence our develop-

ment, because airlines face objective limits when planning the schedules, aircraft turnaround times and so forth. I can also say with certainty that we do not have enough high-quality maintenance and repair organizations (MRO).

In January 2015, Ural Airlines opened its own Aircraft Maintenance Center. This complex is certified in compliance with all international standards, and we can provide any kind of maintenance for most aircraft types.

Before, it used to be pretty difficult to fi nd a suitable MRO to perform C-check. We had to take an aircraft off the schedule, ferry it to Hungary, the Czech Republic or the United

The number of flights per person in Russia is too small, about three times lower than Europe and the United States. I see a lot of potential, but we have to increase the mobility of the population

AIRLINES INTERNATIONAL

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CEO interview

35

A320 family aircraft in the fleet Sergei Skuratov 1993: Took charge of Ural Airlines

2016

– anticipated first delivery of A330s for long-haul

1987: Sverdlovsk United Air Squadron Commander 1984: Appointed to a managerial position as the Head of Flight Safety Inspectorate at the Ural Civil Aviation Authority 1978: Graduated from the Civil Aviation Academy (Leningrad) as an Engineer Pilot. Completed all phases of a pilot’s career on the Antonov-24, Antonov-26, Ilyushin-18, Tupolev-154, and Ilyushin-86

Arab Emirates and perform all necessary maintenance checks there. It was cost-intensive.

The situation was the same with pilot training, until we opened our own pilot training center with a full fl ight simulator.

As an Entrepreneur of the Year recipient, what management rules do you follow?

It is true that last year I was the winner in the Transport category for the Ernst & Young Entrepreneur of the Year Awards. The contest itself consisted of several stages, including a questionnaire and personal interview. I was just myself so I’m not sure I can claim any special management rules or strategies.

I am a professional pilot, and trained to take vital decisions. In business, as in the cockpit, decisions must be taken promptly. However, it’s important to understand that aviation is a very complicated and hard business. Our profitability is about 3-5%, so any strategic failure leads to a total business loss.

It is the same situation when flying an aircraft: the wrong maneuver could cause an accident.

Consequently, any decision must be thoroughly analyzed and optimized. Probably,

In business, as in the cockpit, decisions must be taken promptly.

However, any decision must be thoroughly analyzed and optimized this is my main rule and strategy for managing an airline business.

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1950: Born in in Sverdlovsk to a family of aviators Other: Honored Pilot of the Russian Federation, Honored Transport Worker of the Russian Federation, awarded a Badge of Excellence in Air Transport, an Order of Honour, and an Order of Friendship

Are airline CEOs generally good business leaders? After all, the industry as a whole struggles to makes profits.

First of all, I am pretty sure these people are crazy fanatics. They must be totally in love with the sky to deal with the aviation business. I think there is hardly a layman in this industry.

Let’s consider: the profit is minimal, it is a very complicated and specific business requiring huge capital assets for a startup, and the risks are rather high.

Trading is easier, with its minimal investments and risks, and actually trading is less complicated in general. • OCT-NOV 2015

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Airlines International

INDUSTRY DATA Traffic capacity growth on international markets International air travel rose 7.1% in August compared to August 2014. The result confirms the strong recent trend in air travel, despite some weakness in parts of the global economy. In August, air freight volumes stabilized after two months of falls, with growth of 0.2%. The outlook for air cargo remains mixed however, with Asia-Pacific and the US still in decline, while Europe shows signs of recovery.

40

Revenue passenger kilometers (RPKs)

% change over year

30 20

Available seat kilometers (ASKs)

10

Freight tonne kilometers (FTKs) Available freight tonne kilometers (AFTKs)

0 -10 -20 -30

52

2010

2011

2012

2013

2014

2015

Source: IATA

Airline share prices

Premium traffic growth, selected routes

Airline share prices fell 5% in August compared to July, dragged down by the fall in the broader market, which was down 6% over the month.

Markets were especially impacted by developments in China, which experienced its largest one-day fall in August since 2007.

Premium traffic rose 8.5% in July, although the figures were slightly flattered by the timing of Ramadan compared to last year. Growth in the Asia-Pacific market has slowed in response to adverse economic conditions while European markets have shown some positive uplift.

Premium traffic growth

160

Share of total premium traffic

Jul 2015 vs Jul 2014

YTD 2015 vs YTD 2014

Within Europe

21.5

14.0

6.4

Within Far East

13.5

3.8

7.2

North Atlantic

17.3

8.0

4.1

Europe-Far East

9.6

6.2

2.8

North and Mid Pacific

6.0

3.0

2.7

8.5

4.0

Route area

US$ based index (100=2007)

140 120 100 80 60 40 20 0

08

09

10

World Airlines Asia Pacific Airlines Source: Thomson Reuters Datastream

11

12

13

14

15

European Airlines US Airlines

Total international

Source: IATA Premium Monitor

AIRLINES INTERNATIONAL

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Data

84.7%

Business confidence

All-time record passenger load factor, recorded in August 2015.

Payload capacity added International freight load factors deteriorated by 3.2 percentage points over the fi rst seven months of 2015. The capacity challenge is exacerbated by the deliveries of passenger aircraft. In 2015, for every one tonne of hull capacity added by a wide body freighter, three tonnes will be added by wide body passenger aircraft.

The July survey revealed that input costs are expected to continue to decline, but at a slower rate than earlier in the year (mostly on an assumption that oil is unlikely to fall much further). Passenger and cargo yields are also in decline, again refl ecting the fall in fuel costs.

Expected change in input costs, next 12 months

10

y

Increase No change Decrease

y

Increase No change Decrease

9 Belly

8 7 Freight tonnes (000's)

17.1

Freighter 51.4

6

31.4

5 4

Expected change in passenger yields, next 12 months

3 2

26.1

1

43.5

0 2010

2011

2012

2013

2014

2015E

30.4

Source: Netherlands CPB, IATA

Expected change in cargo yields, next 12 months

Widebody aircraft deliveries by airline region Deliveries of wide body freighter capacity have in most years been matched by the retiring of older wide body freighter aircraft. In aggregate terms, however, there has been an increase in wide body freighter capacity. Since the second quarter of 2015, the number of aircraft due for delivery in 2016 has decreased by 24, of which 16 were scheduled for Asia.

17.2 44.8 37.9

430 Other 380

North America

Number of aircraft

Top 10 Fastest-Growing Air Freight Routes (July)

Europe

280

Asia Pacific

230 180 130 80 30 -20

2008

Source: Ascend

2009

2010

Increase No change Decrease

Source: IATA Business Confi dence Index (July)

Middle East

330

y

53

2011

2012

2013

2014

2015

1 Middle East – North America

22.9%

2 North – South America

20.5%

3 Africa – Middle East

12.6%

4 Europe – Middle East

9.8%

5 Within Europe

8.1%

6 Middle East – Asia

8.0%

7 North – Central America

6.0%

8 Europe – South America

5.3%

9 Asia – Southwest Pacific

4.1%

10 Within Central America

2.0%

2016 Source: IATA Cargo Chartbook, Q3

OCT-NOV 2015

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Soapbox

54

FIGHTING SECONDHAND SMOKE

Air quality in the aircraft cabin took a massive step forward 30 years ago with the recommendation to ban inflight smoking

I

n 1986, aircraft had an ashtray in every arm rest. But that same year, the US Committee on Airliner Cabin Air Quality unanimously recommended that smoking Donald H. be banned on aircraft because of the health hazards.

Stedman is John The committee was formed under US Public Law Evans Professor in 98-466, a contract between The National Academy of the Department of Chemistry and Sciences and the Federal Aviation Administration (FAA).

Biochemistry at the Its 11 volunteer members were medical doctors, an engiUniversity of Denver, neer, environmental specialists and scientists. It produced Colorado a 300-page report, The Airliner Cabin Environment: Air Quality and Safety, which covered all kinds of concerns from cosmic rays to smoke, air pressure to humidity, pollutants to ozone.

Next year will be the 30th anniversary of the recommendation, which allowed the airline industry to lead the world’s public attitude to second-hand tobacco smoke.

Today’s aircraft have ash trays only on the toilet doors, where the flight attendants can ensure that any smoking materials can be safely extinguished.

The committee learned more about aircraft ventilation, construction, and safety than most had ever imagined. For instance, we discovered that pressurized air escaped from new aircraft through tiny leaks and pinholes. What was unexpected was that, after a few months, these leaks and pinholes sealed themselves, as escaping tar and nicotine from cigarette smoke froze in the low, high-altitude temperatures.

We also discovered that while the FAA was concerned about the welfare of pilots, it assumed the welfare of the fl ight attendants was the responsibility of the Federal Occupational Health and Safety Administration (OSHA).

It turned out, however, that OSHA assumed that the FAA was the federal agency solely responsible for their welfare.

Congress responded to the recommendation to ban smoking by temporarily banning it on domestic fl ights of two hours or shorter. This had odd consequences because of the prevailing westerly wind patterns: a fl ight from Denver to Chicago would be non-smoking, while smoking was allowed Chicago to Denver because of headwinds.

The airlines mostly readjusted to a fl ight distance limit.

After the two-year temporary ban, it was reported that constituent mail to Congress was 99:1 in favor of a nationwide ban which, over the years, has become worldwide.

In 1990, the United States extended the infl ight smoking ban to domestic fl ights of six hours or less. A couple of years later, ICAO passed a resolution urging its member States to go completely smoke-free by 1 July 1996. The deadline slipped a little, but most European airlines were smoke-free by 1998. President Clinton signed the Wendell H. Ford Aviation Investment and Reform Act into law in 2000, making all fl ights to and from the United States smoke-free. • www.sign.du.edu

AIRLINES INTERNATIONAL

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