Airlines International Aug/Sept 2017

AIRLINES INTERNATIONAL AUG-SEPT 2017 - ISSUE 69

ISSUE 69 AUG-SEPT 2017

A NEW PLAYER ON AVIATION’S RADAR The evolution of drones could reshape the management of airspace CEO INTERVIEWS: Singapore Airlines, MIAT Mongolian Airlines, Air Tahiti

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SPECIAL REPORT: The future of the airline industry

THE ROAD TO CLARITY: The rise of 'claim farms' highlights that revisions to EU261 are vital

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THE GROUND.

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Airlines International

CONTENTS COMMENT

SPECIAL REPORT

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9 Alexandre de Juniac Governments need policies that support aviation’s contribution

22 The future of the airline industry A new report highlights the opportunities and challenges facing aviation up to 2035

to tourism

AGENDA

FEATURES

12 IATA and industry update Resolutions passed at AGM; Laptop ban decision welcomed but concerns remain; Slot issues in Mexico; Aviation in Russia

34 Constructive technology The evolution of Unmanned Aircraft Systems could provide new opportunities for airlines 42 EU261: The road to clarity The proliferation of ‘claim farms’ in Europe highlights that legislation must be revised according to market realities

CEO INTERVIEWS 16 Responding to structural change Goh Choon Phong, Singapore Airlines CEO, says the airline has addressed market shifts with a major transformation

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22

SOAPBOX 46 David Scowsill The President and CEO of the World Travel and Tourism Council (WTTC) discusses the sector’s future

36 All things being equal Air Tahiti Nui Chairman and CEO, Michel Monvoisin, says profits in the aviation value chain are still unevenly distributed

Editorial Editor Graham Newton Head of content production DeeDee Doke Assistant editor Peter Lennox Senior designer Gary Hill Middleweight designer Will Williams Picture editor Claire Echavarry Production Production manager Jane Easterman +44 (0)20 7880 6248 jane.easterman@redactive.co.uk Publishing director Aaron Nicholls

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44 Financial forecasts The latest IATA projections for 2017

28 The shape of things to come Tamir Tumurbaatar, President and CEO of MIAT Mongolian Airlines, discusses the changes looming on the airline’s horizon

IATA Corporate Communications Vice President Anthony Concil Creative Direction Richard McCausland Assistant Director Chris Goater www.iata.org

DATA

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

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Comment • Alexandre de Juniac • Director General and CEO, IATA

The summer travel rush is a good opportunity to remind governments that the economic impact of tourism is $7.6 trillion

RECOGNIZING AVIATION’S WORTH

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ndications are that this summer travel season in the Northern Hemisphere could see a record number of travelers. Anyone who has flown in recent weeks will have seen airports that are more crowded than usual. And empty seats in aircraft are rarer than usual.

Travel is always met with high anticipation. And that is particularly true for leisure travelers. Families are making their way to see relatives or enjoy a well-deserved vacation.

Excited 20-somethings have their backpacks ready for their first exotic trips. Tour groups are kitted-out for ambitious five-countries-in-seven-days itineraries. And school children on class trips prepare for brand new world experiences.

Aviation is the business of freedom. And you feel that most at this time of the year.

The economic contribution of aviation is also at its most visible. The travel and tourism industry impacts about 10% of global output, according to the World Travel and Tourism Council. Full planes also mean full hotels, bustling shopping areas, busy attractions and heavily booked restaurants. It’s no wonder that cities and countries compete vigorously to attract this economically stimulating tourist spend.

So it is mystery why governments put so many blockers in the way of the industry. Over half the number of tourists arrive by air. Yet we face an infrastructure crisis: lack of capacity and high costs for airports and air navigation services threaten to choke growth. The Henley and Partners 2017 Visa Restrictions Index notes it has become more difficult for travelers of 48 nations to visit other countries.

Short-sighted tourism taxes imposed by many governments make travel more costly for the very visitors that they seek to attract. And little, if any, of what is collected

is actually allocated to enhancing the tourism proposition.

Take a step back and the irony is becomes clear. Governments crave the jobs and economic growth that tourism brings. But very few have implemented a coordinated policy framework to maximize the opportunities of travel and tourism’s potent economic stimulus.

A successful trip needs a delicate coincidence of many factors—infrastructure capacity, airline seat availability, hotel accommodation; and restaurants, attractions and other services that meet the traveler’s needs. And all must be within a price range that fits differing budgets. All of these need to come together to make a destination successful.

That does not come without effort. But not many governments do the math on what one less day spent in a city or one less trip taken means to the local employers and jobs that depend on tourists.

With that in mind, the summer travel rush is a good opportunity to remind governments that the economic impact of tourism is $7.6 trillion. And if they want to get their slice of the growth that will come as the number of air passengers grows from four billion this year to 7.2 billion 2035, governments must work in partnership with the industry—building policies to support success and jobs. There is a lot at stake. So we shouldn’t be shy in explaining our needs!

Happy travels to all. •

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Alexandre de Juniac

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The Big Picture

THRIVING ADDIS EMBARKS ON A NEW ERA A

ddis Ababa is a city transforming.

For over a decade, Ethiopia’s GDP has been growing over 10% annually.

According to the World Bank, the percentage of Ethiopians living in extreme poverty has dropped dramatically. And for over 50

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years the city has been a unifying point for Africa as host to the African Union (AU).

Looking to the future, a light rail commuter system is helping the city to improve productivity. It will be a crucial element in the city’s future development with all estimates pointing towards the population doubling to over eight million residents by 2040.

Behind most economic successes there is usually also an aviation success story.

The Ethiopian air transport market has grown dramatically in recent years. The country’s origin-to-destination air traffic has grown from 1 million passengers in 2006, to 2.8 million in 2016.

One of the big advantages for Addis is that Ethiopia is an early adopter of the Yamoussoukro Decision 1999. The Ethiopian economy benefits from some of the best intra-Africa connectivity—Ethiopia is now the fourth-best connected country on the continent, up from 11th in 2007.

Word seems to be spreading. At a recent AU Summit held in Addis, some 20 African nations signed up to the creation of a single air transport market for Africa, with its launch expected in 2018.

There is a good base to build from. Aviation accounts for 6.8 million jobs and $73 billion of GDP on the continent. But with only 77 million passengers annually African aviation accounts for just 2.3% of the global total.

Aviation’s development is helping Africa’s 1.2 billion inhabitants grow more prosperous.

And market liberalization will only accelerate the process. • AIRLINES INTERNATIONAL

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Agenda

Upcoming events...

AGENDA

World Financial Symposium 25-28 September Dublin, Ireland

Global Sustainable Aviation Summit 3-4 October Geneva, Switzerland

Resolutions passed on key aviation priorities Security

said de Juniac. “And the time is right for change.

“Air cargo demand is picking up.

“There are new business opportunities with internet commerce, and the global distribution of time and temperature sensitive cargo, especially pharmaceutical products.”

IATA called for greater collaboration between government and industry stakeholders to keep aviation

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secure—protecting passengers and crew—while minimizing disruption.

Discussing the resolution passed at IATA’s 73rd AGM, Alexandre de Juniac, IATA’s Director General and CEO, said aviation is a target for terrorists “intent on destroying the freedom at the heart of our business.”

“Information sharing among governments and with the industry is the key to staying a step ahead of emerging threats,” he added.

Nick Careen, IATA’s Senior Vice President, Airport, Passenger, Cargo and Security, emphasized the importance of the resolution in light of a ban on laptops in the cabin, which was implemented without industry engagement.

“There was no real coordination with the industry, which made it difficult for everybody involved. Now we are working together on effective alternative measures,” he added.

Cargo modernization The AGM also called for the accelerated modernization of

Sustainable aviation fuels (SAF)

cargo processes in a resolution in line with the Simplifying the Business (StB) Cargo vision.

This resolution specifically urged all air cargo stakeholders to work together for the adoption of modern standards that facilitate safe, secure, efficient operations, and to improve the industry’s value proposition with technology, enabling customers to track and monitor shipments in real time.

“Air cargo processes are stuck in another century,

While offsetting is critical to managing emissions in the short-term, in the long-term we rely on clean technology improvements, such as SAF, to achieve our goals

The AGM also called for governments to implement policies that will accelerate the use of sustainable aviation fuels (SAF) with financing incentives, and support for demonstration plants and broad research.

Airlines are working with governments to implement the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) global CO2 emissions agreement.

“While offsetting is critical to managing emissions in the short-term, in the longterm we rely on clean technology improvements, such as SAF, to achieve our goals,” said de Juniac “SAF are an integral part of our comprehensive strategy—but they are not being produced in enough quantity at a competitive cost.”

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Airlines International

www.iata.org/events Cargo Events 2017 3-5 October Barcelona, Spain

World Passenger Symposium 24-26 October Barcelona, Spain

Aviation Data Sympoisum 15-16 November Miami, USA

IATA calls for caution on infrastructure privatizaton

In the Director General’s Report on the Global Air Transport Industry to the 73rd IATA AGM in Cancun, Alexandre de Juniac called on governments to be cautious when considering infrastructure privatization.

“An infrastructure crisis is looming. Many parts of the world can barely cope with demand today. And plans are not ambitious enough to accommodate the 7.2 billion passengers we expect in 20 years’ time,” said de Juniac.

“Governments have a responsibility to provide sufficient capacity, with service quality aligned to user expectations and at an affordable cost. But governments should

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IATA supports fight against trafficking IATA and its member airlines will work to identify how to help combat human trafficking.

IATA’s commitment follows keynote addresses by CNN and the UN Office on Drugs and Crime at the IATA AGM. “The practice is despicable,” said IATA Director General and CEO Alexandre de Juniac. “Airlines are helping to combat this individually. Over the next year, we will explore what we can do together.” •

be cautious when considering privatization.”

According to de Juniac, there is no regulatory structure that has been able to support a long-term privatization success story.

“The concessionaire makes money. The government gets its cut. The airlines pay the bill—usually a big one.

“Privatized infrastructure must balance the needs of the community for an airport that drives economic growth, and the needs of investors for a sustainable return. Finding the right solution is an important piece of work that needs government and industry collaboration.” •

Singapore Airlines CEO becomes IATA Chairman

US decision on laptop ban welcomed but concerns remain IATA has welcomed the decision to enhance security measures as an alternative to banning laptops in-cabin on all flights to the United States—but concerns remain over implementation of the measures.

The requirements announced by the US Department of Homeland Security (DHS) include heightened screening of personal electronic devices, increasing security protocols around aircraft and in passenger areas, and deploying advanced technology.

But challenges remain over issues such as the timeline—airports have just four months to implement the changes.

“It is unsure that sufficient quantities of some of the equipment required can be secured,” said IATA Director General and CEO Alexandre de Juniac.

“And even if it is, training staff to use it properly could well take more time than has been granted.”

IATA also called for more clarity on how the security measures will be paid for.

“As we have always said, governments should not start a special security tab when their citizens step into airports or onto planes,” de Juniac added.

“Dialogue among governments and with the industry has never been more critical. Airlines cannot meet these requirements alone. The scope is beyond what any private company could do.” •

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Singapore Airlines CEO Goh Choon Phong has taken over as Chairman of the IATA Board of Governors.

Goh will serve a one-year term, and succeeds Willie Walsh, CEO of International Airlines Group.

Walsh will continue to serve on the Board of Governors and the Chair Committee. • AUG-SEPT 2017

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Agenda

Slot issues in Mexico Mexico City’s new airport is planned to be one of the world’s biggest when it opens its doors in 2020. But plans to align Mexico with the Worldwide Slot Guidelines (WSG) have not gained industry confidence.

While Mexico’s civil aviation authority (DGAC) and Mexico City Airport have agreed a gradual WSG implementation, the implementation plan remains unclear.

IATA has urged the authorities to accelerate WSG adoption.

This follows an investigation by the Mexican Federal Competition Commission (COFECE), which cited a lack of transparency in the slot allocation process.

In particular, COFECE found that market entry is made difficult by current processes and that government flights can obstruct normal operations. COFECE also recommended a new study to determine the real capacity of Mexico City Airport. •

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Safety audit MoUs agreed with Australia and Estonia IATA signed agreements with Australia and Estonia on the use of the IATA Operational Safety Audit (IOSA) to complement government safety oversight.

Australia’s Civil Aviation Authority (CASA) will use information from the IOSA Audit Reports in assessing authorization of foreign registered aircraft into, out of and within Australia.

Australia is the first country in the Asia-Pacific region to use IOSA as part of its safety oversight of airlines.

The Estonian CAA, meanwhile, will use IOSA results for Estonian operators to complement their regulatory safety oversight activities.

It is the third MoU on this subject to be signed IATA in the EU, after agreements with the European Aviation Safety Agency (EASA) and the Finnish Civil Aviation Authority (TraFi). •

Efficiency improvements in Mongolia reap rewards IATA has welcomed the implementation of PerformanceBased Navigation (PBN) by the Mongolian Civil Aviation Authority.

PBN optimizes aircraft efficiency, improves safety and reduces emissions.

IATA’s initial estimates show that Mongolia’s PBN implementation will result in annual reductions of 240,000 nautical miles, 24,000 flight minutes, and 2,250 tons of fuel burn.

As a next step, IATA supports the introduction of a User Preferred Route (UPR) system. Airlines could then use optimized flexible routes based on factors like forecasted winds and aircraft performance. Finally—with the improvement of surveillance capability— IATA hopes the CAA of Mongolia can reduce longitudinal separation, which would increase airspace capacity. •

Aviation in Latin America at a crossroads Latin America has all the necessary elements to become an aviation success story. But many of the region’s governments are yet to fully recognize aviation’s contribution to social and economic development.

Competitive and efficient airlines, a growing middle class, favorable demographics, and a geography that necessitates travel by air will all contribute to air traffic doubling in the region by 2034.

However, underdeveloped infrastructure and onerous regulation could curtail connectivity and leave $42 billion of unrealized economic benefits on the table.

The region’s infrastructure problems are illustrated at Jorge Chávez International Airport in Lima, Peru. A terminal designed for 10 million passengers per year is handling 17 million passengers.

And in Argentina, archaic air traffic management in Buenos Aires and the surrounding area is causing unnecessary delays.

“For airlines to play their vital role of linking communities and economies globally, governments need to play their part, ensuring sufficient capacity, quality alignment with airline needs, and affordable costs,” said Peter Cerda, IATA’s Regional Vice President for the Americas.

Brazil, on the other hand, is host to the region’s most obstructionist regulation. An idiosyncratic fuel policy adds $660 million to the airline bill every year and rules punish carriers for delays and cancellations outside of their control.

“Any regulatory framework benefits from a transparent consultative process between governments and industry,” Cerda added. •

$42 billion Underdeveloped infrastructure and onerous regulation could curtail connectivity and leave $42 billion of unrealized economic benefits on the table

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Bangkok runway issues require urgent solution IATA has highlighted an urgent need to address soft tarmac spots at Suvarnabhumi Airport (BKK), Bangkok, Thailand.

Temporary remedial repairs have been carried out on the runway tarmac, but reported incidents are steadily increasing.

IATA has also urged urgent solutions to alleviate demand pressure on infrastructure. BKK’s terminal was designed for 45 million passengers, but serves over 54

million per year. It is also growing by 10% annually.

Meanwhile. fuelled by the booming low cost sector, traffic at Bangkok’s other airport, Don Muang (DMK), grew by 21.34% in 2016.

To accommodate demand, IATA urges the government of Thailand to focus on maximizing DMK and BKK, rather than developing a third airport for commercial services. That would include urgently realizing terminal expansion plans at BKK. •

South Korea refund policy ‘will lead to higher prices’ IATA is joining forces across the aviation sector to combat a new refund policy in South Korea that is misaligned with global standards.

The Korea Fair Trade Commission (KFTC) intends to require airlines to provide a full ticket refund—and not charge a cancellation fee—if a passenger chooses to cancel their flight 90 days or more before their departure date.

The new policy would not cover administrative costs incurred by the airline when the flight was booked. But it would exempt some deeply discounted tickets.

“Essentially, it removes non-refundable tickets from the market. For sure this will limit choice. And it will likely lead to higher prices,” said Vinoop Goel, IATA’s Regional Director, Airport, Passenger, Cargo and Security, Asia Pacific. •

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Clarity needed over India tax changes IATA is asking the Indian authorities to clarify the impact on aviation of the new Goods and Services Tax (GST) scheme that came into force on 1 July.

The new scheme taxes economy travel at 5%, premium travel at 12% and air cargo at 18%. It is

unclear how ancillary purchases or journeys involving several classes would be taxed.

“We are still seeking clarification on significant information gaps,” said Amitabh Khosla, IATA’s Country Director, India.

“And we are urging the government to follow

global standards. Levying GST on cargo export services by air, for example, contradicts standard GST principles.” •

10%

BKK’s terminal was designed for 45 million passengers, but currently serves over 54 million per year. And it is growing by 10% annually

Russia urged to apply global standards

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Air transport in Russia is on an “upward curve” but government must apply global standards to maximize aviation’s benefits, IATA has said.

Strong demand for connectivity is evident in over 12% growth this year in passenger traffic, and robust growth in air freight. Latest estimates also show that aviation and aviation-enabled tourism support 1.1 million jobs and 1.6% of Russian GDP. However, IATA believes aviation’s economic and social benefits could be further strengthened.

IATA calls on Russia to: Ratify Montreal Protocol 2014 (MP14)—a global treaty that gives greater powers to prosecute unruly passenger behavior Volunteer for the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) Ensure the benefits of the recently-ratified Montreal Convention 99 treaty are felt “To write the next chapter in the successful development of Russian aviation, the country must continue to align with global standards and best practices,” said Alexandre de Juniac, IATA’s Director General and CEO. “Ratification of MP14 and volunteering to join the CORSIA agreement would send a powerful signal that Russia is taking a leadership position in global aviation affairs.” • AUG-SEPT 2017

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In this interview • Transformation • Growth potential • Cargo operations

RESPONDING TO

STRUCTURAL CHANGE

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Goh Choon Phong, Singapore Airlines CEO, says the airline has addressed fundamental shifts in the aviation market with a major transformation of its own. Graham Newton reports

Are you expecting 2017 to be a challenging year?

There is no doubt that 2017 will be a tough year, primarily because of overcapacity in the market.

Whenever demand falls below supply it creates pressure in the market. Yields have been falling both on long-haul and regional routes.

Clearly, there has been growing competition from low-cost carriers, the Gulf carriers, and, more recently, the Chinese carriers.

We were aware of this trend six or seven years ago and we determined that there would be a structural change in the market that wouldn’t go away. We knew that we must react to the change, to go beyond our traditional focus of selling tickets in the premium sector.

What changes have you made and what changes do you intend to make over the next few years?

Over the past five or six years we have focused on creating new engines of growth for the Group in three broad areas: new traffic segments, new geographies, and new business initiatives.

With growing demand for budget travel, we decided to set up Scoot and then merge Scoot and Tigerair into a single entity. The aim was to have a selection of vehicles that

would enable us to cover all segments of the market. There is a regional and long-haul lowfare carrier in Scoot, a regional full-service carrier in SilkAir, and, of course, a long-haul, full-service carrier in Singapore Airlines.

This is what we call our portfolio strategy, and it essentially gives us the flexibility and nimbleness that we need to adjust to demand in a highly dynamic market.

We can switch vehicles according to market needs and we have several examples of that happening already. Athens moving from Singapore Airlines to Scoot is a case in point.

From a geographical standpoint, Singapore is a relatively small market and we were seeing growth in parts of the world that we were not able to participate in. This is why we set up Vistara in India together with Tata Sons, as well as NokScoot in Thailand with Nok Air. These joint ventures enable us to tap into new traffic flows in promising growth markets.

And to tap into new revenue sources that go beyond ticket sales, we decided to look at adjacent businesses where we still had a degree of core competency. An example of that is the Airbus Asia Training Centre for pilot training.

We set that up with Airbus about a year ago and we already have 40 clients. It has

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CEO Interview

We are examining every aspect of our operations to see how we can do things differently, in network and fleet, products and services, and organisation structure

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CEO Interview

experienced very fast growth, and we continue to explore other opportunities of this nature to develop new revenue streams.

What role is your transformation office playing in implementing these changes?

All of these developments over the past five or six years have put us in a good position and provided a strong foundation to enable us to move to the next phase of our transformation, which is now underway.

We have been carrying out a comprehensive review that leaves no stone unturned, cutting across all divisions of the company. We are examining every aspect of our operations to see how we can do things differently, in network and fleet, products and services, and organisation structure, for example. It is about identifying new revenue-generation sources for the Group. It is also about how we can improve our processes to make us more efficient, and it is about fundamentally re-basing our cost structure, going beyond the traditional ad hoc approach to cost reduction.

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A dedicated Transformation Office has been set up with full-time staff. The team is leading the project and reports directly to me. There is also direct involvement from the Board.

Obviously, it is a multi-year project but already we have great feedback and some innovative ideas, and the staff are energised.

the information relevant to the touchpoint we can ensure a consistent and speedy service.

We started on this path five or six years ago and we are seeing the benefits.

All this isn’t to say we are moving away from interacting with the customer. Just the opposite.

We don’t want staff to be spending time searching for and validating the right information.

We want them to have the relevant information at their fingertips. That will free up more of their time to interact with the customer.

Is Star Alliance still relevant given your plans and the structural changes in the industry?

Yes, there is still value in Star Alliance. Look at the airlines with which we have chosen to develop deeper ties. They are mostly our Star Alliance partners.

The alliance is a great platform for deeper

discussions. As well as the joint venture with Lufthansa, we have strong commercial cooperation with Air New Zealand and SAS. Outside of Star, we also have a deep partnership with Virgin Australia.

Why did you decide to re-integrate SIA Cargo back into the airline?

In 2001, Singapore Airlines Cargo was corporatized. At that time, about 60% of our cargo was being flown on freighters, the remainder flown in the bellyhold of passenger aircraft. The sector and the business were growing rapidly.

But the demand pattern changed. Maritime shipping became a lot cheaper relative to air freight and manufacturers adjusted their production cycles to allow for the extended transportation times. And, even then, there was overcapacity in the market forcing yields down.

Again, we spotted the trend early and from a peak of 17 freighters in 2006–2007, we have reduced the fleet to just seven freighters today. We knew it would be a structural change in the market rather than a temporary dip, and we recognised that the new passenger aircraft coming onto the market had ample bellyhold capacity.

Now, about 30% of our cargo is flown on freighters with 70% in bellyhold. So that’s more or less a complete reversal of the situation when we corporatized our cargo operations. It’s the right time to re-integrate cargo operations.

And there are other considerations too, such as not having to deal with separate AOC requirements, and the cost efficiency of consolidating the support functions.

We decided to look at adjacent businesses where we still had a degree of core competency. An example of that is the Airbus Asia Training Centre for pilot training

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What do you think will be the wisest investments for your airline?

It is not just about saving money, of course.

The airline will continue to invest in its products and services for the benefit of the customer. Our customers will always be at the centre of everything we do.

We are buying new aircraft, which bring improved operational efficiency. The Airbus A350 is not a big aircraft but it has fantastic fuel efficiency. It means we can operate the aircraft into smaller markets in Europe, such as Stockholm. There will be new opportunities for growth. We ordered 67 A350-900s in total, making us the biggest customer for the aircraft.

Our new A380s will also have completely revamped business class and first class products.

These are being redesigned from scratch and we believe the seating ideas we have come up with will be very well received by our customers.

And we will continue to invest in IT systems to help our staff across all touchpoints. We want them to be able to serve customers in a personalized and proactive manner.

To do that, they need the right information at the right touchpoint. Not every touchpoint needs every available bit of data but by making

The airline will continue to invest in its products and services for the benefit of the customer.

Our customers will always be at the centre of everything we do

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CEO Interview

Goh Choon Phong 2017-present Chairman of Board of Governors, IATA 2011-present CEO, Singapore Airlines 2014-2015 Director, Virgin Australia 2010 Executive Vice President, Marketing and the Regions, Singapore Airlines 2006-2010 President, Singapore Airlines Cargo 20

1990-2006 Several positions at Singapore Airlines including Senior VicePresident Finance and Senior Vice-President IT

Now, about 30% of our cargo is flown on freighters with 70% in bellyhold. So that’s more or less a complete reversal of the situation when we corporatized our cargo operations

Growth potential is something we want to tap into. It’s the reason why we went into India. By 2023 it is predicted to be among the three biggest markets in the world What do you see as the positive and negative aviation trends in the Asia-Pacific region?

Asia-Pacific continues to see good traffic growth.

However, there has been a significant amount of capacity coming into the market. It is probably too early to make a call on whether demand and supply will balance out in the near future.

Having said that, of course the growth potential is something we want to tap into. It’s the reason why we went into India. There is massive potential there and by 2023 it is predicted to be among the three biggest markets in the world.

Do the governments in developing markets understand the advantages aviation brings?

Aviation obviously desires an operating environment without unnecessary taxation.

India, for example, has a fuel tax and there are some high airport charges. It is curtailing an industry that brings enormous benefits to the economy. It doesn’t make sense.

More generally, the infrastructure issue is important. Many airports in the region are reaching saturation but we are not seeing enough forward planning to cater to the growth in a timely fashion.

You won an award in 2016 for Global Innovation. What are the ideas or technologies in aviation that excite you most?

The award was for a team effort. Innovation has always been and will always be an important aspect of Singapore Airlines. We have to try new things. The use of data and

data analytics has the potential to be truly disruptive. We need to understand how to use it in a manner that incorporates intelligence so you have something that’s predictive and able to personalize offers to our customers.

What skills does a modern airline CEO need?

The skills needed to be an airline CEO depend on the circumstances of the particular airline.

I think every airline has needed a CEO with different strengths at different times.

For Singapore Airlines right now, because of the massive structural changes I have highlighted, it was important to be willing and able to make fundamental changes.

Remember though, one person, no matter how capable, cannot bring about successful large-scale changes. That requires a team working together, from frontline staff through to the boardroom.

Everybody involved must accept the need for change and be prepared to lead that change.

That is the only way to make it work and to make fundamental changes to the business.

What do you hope to achieve in your time as IATA Chairman?

There are three main areas emerging at the moment. We must ensure our efforts on the environmental front continue to be successful.

And we must continue to improve airlines’ operating efficiency.

We also need to look closely at what else we can do to make f lying a more seamless experience for our customers. •

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In this report • Drivers of change • Airports of the future • Privacy and trust

ure ine t u F 5 irl The the A 203 of ustry an I nd l b e l in a wil enti nion s s es mpa ation d co liber e an l de airlin leve at ustry ind

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Special Report

THE

FUT UR EO FT

A IND IRLIN HE UST E RY op A ne po w r e fac rtunit port ing ies h av and ighlig iat ion cha hts th up lleng e to 20 es 35

T

he Future of the Airline I ndust r y 2035 study commissioned by IATA’s Industry Affairs Committee a i ms to help a i rl i ne management anticipate the key risks and opportunities that their businesses could face between now and 2035.

Carried out by the School of International Futures, the study looks at how external forces—from geopolitics to technological innovation and environmental concerns—could shape aviation’s future.

“This is about taking a long-term view on the value of aviation,” says Simon Ralph, IATA’s Director of External Affairs. “And it should help us to

23

engage with governments to achieve smarter regulation to deliver that value.

“A smarter regulation framework for aviation won’t happen overnight. This study will help us to start conversations today about what we will need in 10 and 20 years’ time.”

Four scenarios The Future of the Airline Industry 2035 establishes 11 themes affecting air traffic demand: geopolitics, data, Africa and Asia-Pacific, government, security and borders, privacy and trust, business models, economy, values and communities, environment, and technology.

These are explored in the context of four potential scenarios; new frontiers, AUG-SEPT 2017

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Special Report

sustainable future, resource wars, and platforms. The scenarios envisage different outcomes for the world.

One explores the eastward shift of power, another sees the world prospering through successful sustainability, a third predicts a war over resources and the fi nal scenario assesses a world dominated by elite agendas.

All present challenges and opportunities for the airline industry. The study purposely makes these scenarios extreme and accepts that the more likely future will combine elements of all four. But pushing boundaries provides a wider perspective.

“It allowed us to consider a variety of implications for the industry and to set out the industry-level recommendations to combat or support those implications,” says Ralph.

Whatever the scenario, for example, the fallout from geopolitical tensions necessitates global institutions, such as ICAO, and global standards remain relevant. A recommendation stemming from this development is that IATA engages early with such emerging institutions as the New Development Bank to influence aviation policy in the years ahead.

In other words, the future of aviation will not be

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influenced by Ministries of Transport alone. “We need to instigate relationship-building dialogues with a multitude of other government departments beyond transportation, such as a ministry of finance,” reveals Ralph. “The study shows that the interests of a variety of stakeholders will cross in the years ahead, so it’s important to fi nd common ground. We need to get everybody around the same table.”

No last word Perhaps the only true “known” in the study is that 2035 will be different. The Future of the Airline Industry 2035 is nevertheless an essential companion in deliberations at airline and industry level. Most importantly, it can help guide airline strategy by introducing the many elements that must be considered in the longer term.

“We hope that the material will spur new thoughts and catalyze new ideas,” Ralph notes. “We will update the study when new drivers of change enter the scene, or when ones that we have underestimated surprise us, as I am sure they will. There is no last word on the future.” •

A discussion on how individual themes and scenarios could interact will run over the next few issues of Airlines International

A smarter regulation framework for aviation won’t happen overnight. This study will help us to start conversations today about what we will need in 10 and 20 years’ time

The Future of the Airline Industry 2035 is available from the IATA website.

The study shows that the interests of a variety of stakeholders will cross, so it’s important to find common ground. We need to get everybody around the same table AIRLINES INTERNATIONAL

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Starting the discussion on…

Airports of the future Airports are not certain to expand into cities in their own right, so-called aerotropoles, with their own hinterland of associated businesses. It may be that they shrink as the cost of human resources rises and technology improvements allow increasing automation in the name of efficiency, and possibly safety.

Of course, it is equally possible that rather than being eliminated, human resources could be redeployed to improve the flight and airport experience and capitalize on passenger flows, extending the airport shopping experience to a range of other facilities.

Ensuring airline needs are considered with all airport planning is the key recommendation emerging from the Future of the Airline Industry 2035 study. It is also recommended that IATA uses the strategic

review of the Worldwide Slot Guidelines to improve the efficient use of capacity and guard against proposed revenue commitment from airlines and the market allocation of slots.

“As we have seen across the world, airports are no longer just a point of departure; they are leisure facilities that offer dining, shopping, and much more,” says Claudia Sender, Senior Vice President of Clients, LATAM Airlines Group. “Technology is also playing an increasingly important role, enabling the streamlining of airport processes and an increase in automation, which provides passengers with more leisure time.

“These tendencies, combined with increasing passenger traffic and investment in infrastructure, would indicate that airports will likely get bigger, not smaller.”

Starting the discussion on…

Privacy and trust

The Future of the Airline Industry 2035 study argues that airlines could be deeply affected by drivers of change that may as yet be under the radar.

Privacy and trust, for example, refers to the tension between the potential offered by big data and other forms of technology development—in terms of how people and devices are monitored and marketed to—and the threat of fraud, cyber-terrorism and espionage.

In short, will people be willing to give up increasing amounts of data to capture potential benefits? Data privacy and surveillance will doubtless be major topics as people redefine their relationship with companies, governments, and each other.

“Now that we can measure, monitor and analyze all information that customers provide us about their experience, along with all the operational data associated with our industry, the opportunities for growth are endless,” says Andrew Parker, Group Executive, Government, Industry and International Affairs, Qantas.

“Privacy issues will always be a factor,” he continues. “However, it should not be limiting. Ensuring privacy and sound management of the information our customers provide should be fundamental to the management of the data. Put simply, if we mismanage their

data, they are going to stop providing it. Making sure that we adhere to the best possible management practices for data will ensure that we can continue to receive it and act on the outcomes that this new information points us towards.”

Datalex’s Vice President, Product Strategy, Gianni Cataldo, agrees that for global airline brands, data privacy is the cornerstone of brand trust.

“Despite the anxiety, we find that consumers are willing to share data for a fair exchange,” he says. “For example, payments are a particularly data-sensitive area. As we extend and enhance new forms and methods of payments, we find that consumers will share data if it enables a more seamless, frictionless experience with a brand they trust to treat that data securely.”

Clearly, the critical issue is what constitutes a fair exchange from the consumer perspective.

It cannot be that the retailer alone profits. Those consumers that provide a comprehensive array of data need to benefit in a definable way, perhaps by the offer of a discounted price.

“Customer loyalty and retention will rely on value-driven and personalized offers which require an understanding of fair exchange and commitment to data security,” concludes Cataldo.

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Bombardier, C Series are trademarks of Bombardier Inc. or its subsidiaries. Š2017 Bombardier Inc. All rights reserved.

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In this interview • New aircraft • Sustainability • Innovation

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CEO Interview

THE SHAPE OF THINGS TO COME 29

Tamir Tumurbaatar, President and CEO of MIAT Mongolian Airlines, tells Graham Newton about the massive changes looming on the airline’s horizon Are the business plans you put in place for the airline proving successful?

We have made a small profit for the past two years, which is related to the success of the mid-term business plan that started in 2014.

Until 2012, Mongolia was experiencing double-digit economic growth. But commodity prices dropped and, as we are an extraction economy, our growth understandably levelled out. But prices are starting to go up again, and we are seeing renewed investment in the country. That has sparked a revival in traffic and the fi rst quarter 2017 passenger figures are very positive.

Basically, the mid-term business plan was about cutting unnecessary expenses and enhancing our sales through the expansion of our distribution channels and the development of new products and services.

We joined ARC in 2015, which was a major step forward as that made our seats available in all the major online travel agencies. We also improved our Chinese coverage, which, of course, is a very important market for us.

By 2020, there will be 200 million outbound Chinese tourists. At the moment, there are fewer than one million visitors to Mongolia each year from all countries. So, clearly the potential for increasing inbound traffic from our nearest neighbor is huge.

It must be admitted that the relatively low fuel prices have also been extremely important to our turnaround too. We have to import all our fuel, which means it is a much higher percentage of cost than it is for most airlines.

How will you build on this platform?

We currently operate a fleet of six aircraft and we have four Boeing 737-8 MAX on order to be delivered in 2019 and 2020. These will be used for replacement and expansion.

We are also transitioning our passenger service system to an Amadeus platform, which we think will give us greater flexibility and opportunities in the future.

The link between these two major transformation programs is a desire to improve the customer experience. We want to be a four-

There has to be a balance between exploring new opportunities and ensuring that MIAT remains relevant to the markets it serves AUG-SEPT 2017

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Tamir Tumurbaatar 2015-present President and CEO, MIAT Mongolian Airlines 2013-2015 General Manager, MIAT Mongolian Airlines 2014-2015 Co-founder, Mongolia South China Business Information Center 2011-2013 Senior Commissioner, The Anti-Corruption Agency 30

200 million By 2020, there will be 200 million outbound Chinese tourists. At the moment, there are fewer than 1 million visitors to Mongolia each year from all countries.

So, clearly the potential for increasing inbound traffic from our nearest neighbor is huge

market presence and our brand is known. That will keep us strong.

Then, the expansion of the network will come mainly through partnerships with other airlines. We are still looking at how we might deploy our new aircraft. In Europe, for example, we would want a hub that offers excellent onward connections. The choice of the European hub and the choice of an airline to partner with go hand-in-hand. We will look at all the possibilities.

It will also be prudent to diversify our revenue sources. Previously, 90% of our revenue came

Can niche carriers survive in the modern aviation market?

We are a small airline. We have six aircraft and fly to seven international destinations.

We are 100% state-owned. But we have never had a subsidy from the government. It is never a good idea for politics and business to mix.

That means it is essential for us to find a way to thrive in a competitive market.

One idea is to increase frequency on existing routes. These are routes where we have

We have to renew our IATA Operational Safety Audit and IATA Safety Audit for Ground Operations registrations in 2017 and that must be our main focus.

Safety is far and away the top priority

from passenger transportation and that made us extremely vulnerable to external shocks.

Now, we are developing our ground handling, our maintenance division, and our cargo.

Are you getting the help you need from partners in the aviation value chain?

The airline is getting a lot of support. There is going to be a new Ulaanbaatar International Airport next year, for example. That will be very useful in developing each of the new revenue segments.

Of course, when you factor in the new airport with the new aircraft and the new IT system, you can see that the airline is undergoing a major transition. To ensure we don’t lose sight of our goals, new products and services must be perfectly aligned with the main areas of growth.

The airline must appeal to the corporate sector for routes to Hong Kong and Seoul, where we are already strong and we are working closely with the government to boost tourism to the country. The

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star SkyTrax carrier. But, just as crucial to our long-term plans, we want to achieve that without increasing our overall budget. The emphasis on keeping control of our costs will remain. That discipline must not be lost even when you’re making money.

And always the key to a successful airline is being safe. We have to renew our IATA Operational Safety Audit and IATA Safety Audit for Ground Operations registrations in 2017 and that must be our main focus. Even with all the other work going on, safety is far and away the top priority.

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CEO Interview

A new airport will open in Mongolia’s capital, Ulaanbaatar, next year

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Civil Aviation Authority of Mongolia has also played its part in helping us improve our operational efficiency and reducing greenhouse gas emissions. The implementation of performance-based navigation routes is estimated to provide annual reductions of some 240,000 nautical miles, 24,000 flight minutes, and 2,250 tons of fuel burn compared with the previous infrastructure.

sponsibility to make a contribution to the country and to make air transport affordable so that the country can reap the full benefits of air connectivity.

Is MIAT able to be an actor on the global aviation stage?

We would always like to have more attention.

It is important for smaller carriers to be able to influence global thinking in the industry.

Issues, such as safety, affect us all. And while

we are a small carrier and the Mongolian aviation market is small, this is a big country.

In airspace terms, we are a big player. Our air traffic control is of a global standard and we have no problems in setting up new routes.

Will trends in the industry help or hinder your performance?

I have mixed feelings about trends in the industry. There is real potential in the consolidation and mergers that we see taking place in many other regions. But, as a small, state-owned carrier, it is very hard for us to position ourselves correctly to be able to take advantage of any opportunities. And even in Mongolia we are feeling the impact of low-cost carriers coming in to take market share.

Finding the right strategy with so many challenges is hard.

What is clear to me is that traditional routes, traditional marketing, and traditional processes are not working any more. An airline must be creative and think about the business in new ways. As mentioned, when we look at our European destination we are also thinking about fi nding the right partner.

The strategy must be cohesive and yet explore new avenues all the time. We always work hard to innovate and think creatively. •

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So how far and how fast can the airline grow?

There has to be a balance between exploring new opportunities and ensuring MIAT remains relevant to the markets it serves.

The country’s civil aviation policy is to open up the aviation market step by step. We need to be prepared. But we think we have an advantage in the expertise we have in the Mongolian market. We have been flying here for more than 60 years and the knowledge we have will be hard for a competitor to replicate.

We are a small market but our strategy is looking at how to develop the regions and not just Ulaanbaatar. Mongolia is a landlocked country between Russia and China. We need to help the country develop its economy.

Because although the airline may be small in world terms, in Mongolia we are one of the major companies. That means we have a re-

The Civil Aviation Authority of Mongolia has also played its part in helping us improve our operational efficiency and reducing greenhouse gas emissions

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MARKET-EXPERT CLOSER TO CENTRAL EUROPE Ivana Bohucka, Airlines strategy director, Pelikan.sk Four countries, one market: Together with Vienna Airport, the online travel agency Pelikan.sk ensures a perfect connection between Slovakia, the Czech Republic, Hungary and Austria. And both business and leisure travellers trust their regional market expertise and know-how, and reap the beneďŹ ts of this unique offer: Vienna Airport is within easy reach and the perfect gateway between Central Europe and the world.

viennaairport.com/closerto

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08/08/2017 11:12

In the feature • Safety • Drone use around the world • Airspace regulation

CONSTRUCTIVE TECHNOLOGY The evolution of Unmanned Aircraft Systems could provide new opportunities for airlines if the industry embraces this new technology

34

U

nmanned Aircraft Systems (UAS), commonly called drones, have been identified as a disruptive technology.

Their increasing ability to provide new commercial services and operations will cut across the aviation business.

Rob Eagles, IATA’s Director, Air Traffic Management and Infrastructure, says “aviation should embrace the changes engendered” by UAS. “UAS operations are based more on automatic and autonomous operations,” he continues. “Likewise, the future UAS Traffic Management (UTM) systems. This is very different from today’s traditional tactical air traffic control operations.

Therefore, the UTM environment could be viewed as a development and proving ground for new thinking, new technology, and a new concept of operations.”

Evolving ATM New entrants to the aviation market—Google, Space X, Facebook, and Amazon, for example— are already operating at all altitudes, from low to high. As their businesses expand, their operations will converge quickly with civil aviation. The traffic management system needs to be able to accommodate all parties.

“There are significant benefits to be had from work on UTM,” Eagles suggests. “The

amount of investment, energy, and focus in this developing sector could help move manned aviation forward.”

This potential transformation of airspace will touch on a number of areas. UTM will doubtless include such evolving technological capabilities as aircraft-to-aircraft communication and data exchange. This will provide new opportunities for traffic management, separation standards, and airspace planning.

In short, the development of UAS and UTM

There are significant benefits to be had from work on UTM. The amount of investment, energy, and focus in this sector could help move manned aviation forward

systems could help drive the safety bar higher.

One critical factor to support advancements in UAS and UTM is the ease with which technical and performance data can be obtained.

It is relatively cheap and quick to operate UAS compared with manned aviation. That means regulatory authorities and relevant partners in the aviation value chain can have quicker access to more operational data to help prove concepts and certify operations.

New business models UTM could also provide the spark for new business models among air navigation service providers (ANSPs).

As the UAS package delivery market, which operates at low altitude, is moving so quickly, many countries may well forego developing a UTM framework through traditional channels.

The pace of potential expansion may instead persuade authorities to leave UTM provision to third party, privatized providers. The success or otherwise of such an approach will doubtless have implications for ANSP business models—and airspace users’ costs— going forward.

Whatever transpires, Eagles insists that airlines (manned aviation) must be involved in the UTM development. “Otherwise, there will be another layer of complexity for all airspace users to deal with,” he says. “But there

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Unmanned Aircraft Systems

UAS operations and UTM is developing new thinking and while safety and efficiency are always the primary concern, the opportunity to reshape the future for all airspace users, manned or unmanned, is readily apparent

is great potential in the established airspace users and new airspace users coming together in partnership to find the right solutions.

“The manned aviation industry has many years of experience, and scars, related to advancing aviation operations,” he adds. “This knowledge is priceless and can be used to challenge how we do things in aviation today to benefit everyone in the future.”

UTM building blocks What a good UTM framework would look like is still the subject of debate.

The US and Europe are actively testing and designing UTM systems. Additionally, work is advancing quickly in Japan and Singapore.

It’s clear that UTM capabilities will be implemented incrementally over the next few years.

“We need the EU to be in the driving seat and have a safe drone services market up and running by 2019,” Transport Commissioner Violeta Bulc has noted. “The EU needs to take a leading role worldwide in developing the right framework for this market to flourish.”

Airbus sees the work initiated in Europe as promising. “The European Commission’s U-Space vision is a welcome step forward in paving the way for the development of an EU drone services market,” says Mathias Thomsen, General Manager for Urban Air Mobility at Airbus. “We encourage authorities

to opt for a framework where urban air mobility services offer integrated interfaces with manned aviation that rely on a very high level of automation, connectivity and digitization for both the drone and the U-Space system.”

In Australia, Minister for Infrastructure and Transport Darren Chester says the Australian Government is committed to “fostering an environment that ensures the safety of commercial and privately-owned aircraft, drone operators, and other people and property, while facilitating growth and innovation in the use of drones in Australia.”

He notes that Civil Aviation Safety Authority regulations should support the potential of drone operations to improve productivity, reduce costs and improve workplace safety across a range of industries and applications.

“We want to gain an understanding of how registration, education and training, geofencing and shielding capabilities could impact on both commercial and recreational drone operations within Australia,” Chester says.

Many discussions take a holistic approach to future airspace regulatory and operational requirements, with UTM assumed to operate in conjunction with civil airspace.

There are those, however, who argue such integration is unlikely to be necessary. As certain UAS operations—deliveries at low altitude perhaps—will seldom, if ever, share

the skies with manned aircraft, the suggestion is that a flight plan, predefined corridors, and the bare minimum of regulation would be enough to cope.

In any case, Eagles explains that there may be unexpected consequences for those responsible for managing and overseeing UTM. The economic and political context for future UTM operations may be completely different.

Third-party oversight providers and competition might be both possible and practical.

35

Inclusive message Eagles says IATA’s is a positive, inclusive message. UAS operations and UTM are developing new thinking and—while safety and efficiency are always the primary concern—the opportunity to reshape the future for all airspace users, manned or unmanned, is readily apparent.

“It is essential that we ensure safe airspace operation and integration occurs where unmanned and manned systems overlap,” he says. “To do this, we need new concepts of operation capable of accommodating diverse operations that most probably will be introduced at a previously unseen pace in aviation.

“Most importantly, the number of UAS fl ights in the future means we need a clear structure in place to manage them that doesn’t negatively impact other airspace users or jeopardize safety in any way.” • AUG-SEPT 2017

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In this interview • Economics • Infrastructure • Tourism

We are state-owned and it is good to know government understands and supports the work that we do in connecting the country to the world

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AIRLINES INTERNATIONAL

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CEO Interview

ALL THINGS BEING EQUAL

37

Air Tahiti Nui Chairman and CEO, Michel Monvoisin, says that profits in the aviation value chain are still unevenly distributed

What is the secret behind the airline’s positive performance in recent years?

We are doing well. We have seen continuous growth since 2013; and 2015 was a particularly good year. After years of surprises, shocks, and downturns for the industry, that’s good news. It’s giving us some reserve cash to invest and that will help us in the future. And it will help French Polynesia too as we are the fl ag carrier and a vital part of the economy.

The current Tahitian Government and President have been in place for four years, giving us the stability we need. It is no coincidence that we have been doing well in that time. The lower fuel price and tourism growth have played an important part too.

But before that, we had a particularly turbulent time locally. There were 11 Presidents in 10 years.

We are state-owned and it is good to know that government understands and supports the work that we do in connecting the country to the world. But we have to be sustainable in

our own right and we’ve been able to post double-digit profit in the last three years. It is a unique business model and so we do face unique challenges.

What changes are you making as part of your future strategy?

We are moving our fleet to the Boeing 787-9.

The fi rst one will be delivered in November 2018. That is going to be a massive change for us. It will be like having a whole new airline.

The 787-9 will be the perfect aircraft for our long, thin routes. It will be particularly important for the Asian market because of its range. Buying the 787-9 shows our maturity as an airline and how far we have come.

The Airbus A340 has served us well. It has been a great aircraft for us. But we’re going to two engines from four and we’ll be far more fuel efficient.

In any case, running a widebody aircraft is complex and we are a small airline. A lot of the work has to be sub-contracted. Of course, AUG-SEPT 2017

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CEO Interview

Aviation is key to bringing tourism to Tahiti and stimulating its economy

38

we always ensure we have fully trained people as well because of our remote location. We have to know how to do things ourselves if need be. That will always be the case.

We make sure we have qualified people across all our departments. There are some ex-pats but largely it is a local workforce all trained to international standards. And the change in aircraft types won’t affect our pilots.

They will be fully trained.

And the other positive step forward will be increasing our codeshares to expand our network. The future is really exciting.

Is the local aviation infrastructure keeping step with your development?

Unfortunately not. Our airport is old and it is expensive. It is an ongoing challenge and we cannot offer the level of service we want to offer.

But the facts are: we fly about 500,000 people a year; we are a €300 million company flying ultra-long range. That is the reality. That isn’t a lot of traffic, we are not a big company, and so even with growth we are not talking big numbers. That makes the argument about needing new infrastructure quite difficult.

Tahiti is in the middle of the South Pacific. You do have to look at the map to appreciate just how isolated we are and how important aviation is to the country

Is the voice of smaller carriers loud enough on the global stage?

It is not so much a question of having a voice, but rather a question of being listened to. I don’t think smaller airlines have the influence they should have. There are questions that are important to an airline like ours. Where an airline AOC is registered, for example, and issues surrounding market entrance and exit are critical.

It would be good to be asked to be more involved at the industry level.

What are the main industry trends affecting Air Tahiti?

The positive trend has to be that airlines are finally achieving the cost of capital. That will attract investors and allow airlines to develop.

We have to be happy about that.

But, we have to accept the other side of the coin. There are low fuel prices, low interest rates, and money is easily available. That encourages new entrants or airlines to take market position by burning cash.

A small airline like Air Tahiti Nui serving a very specific market and entwined with its home country necessarily takes a long-term view for all its decisions.

We work hard to do things right for the country and we are prepared for short-term pain for long-term gain.

But other airlines can come and go. And

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How important is the airline to the prosperity of the country?

Tahiti is in the middle of the South Pacific.

You do have to look at the map to appreciate just how isolated we are and how important aviation is to the country. The shortest route we fly is a five-hour trip to Auckland. And we fly to every continent except Africa.

We are vital to tourism and tourism is vital to the Tahitian economy. But if we want to sell more airline seats then Tahiti needs to build more hotel rooms. We are highly dependent on inbound traffic and there is a structural limitation in our growth, which is the availability of hotel rooms in Tahiti.

I am also Chair of the Tourism Board, so I know the problems we face

and we are all working hard to overcome them.

The government is looking for investors that can help build the right infrastructure. Getting partners to manage hotels and resorts is easy but fi nding the right partner for the initial build is not so easy.

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27 â&#x20AC;&#x201C; 28 September 2017 Dublin - Ireland

SUSTAIN AIRLINE FINANCIAL HEALTH Innovate . Accelerate . Deliver The 4th IATA World Financial Symposium (WFS) will focus on speed, efficient delivery, and industry innovation to support sustained airline financial health. It will be held on September 27-28 at the Convention Center Dublin, Ireland.

WFS will bring more than 700 financial executives and specialists together to share insights and to discuss industry challenges and best practices for aviation financial management.

Join us for invaluable sessions covering a wide range of hot topics: Aircraft Financing / Blocked Funds / Airline Cost Management / E-Fueling / IFRS 16 / Payment / Risk Management / Complex Taxes / FinTech / Total Distribution Costs / Digital Finance / Financial Risk Management

New feature â&#x20AC;&#x201C; Innovation Jam Session: Hear 1st hand from research and innovation centers from outside and inside the aviation industry on new technologies and trends and their impact on your business.

Join us in Dublin!

For more info: http://www.iata.org/events/wfs

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CEO Interview

The shortest route we fly is a 5-hour trip to Auckland.

And we fly to every continent except Africa

Michel Monvoisin 2013-Present President and CEO, Air Tahiti Nui 2010-2013 President, Oceanic Secure Data Conservation (OCSD) 2005-2013 Director General, OFINA SA Financial Institution 1994-2013 Director General, OSB SA 1989-1994 Several positions at Banque SOCREDO, including Head of Marketing and Communications

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1985-1989 Sales and Marketing Manager, Nippon Automoto

IMAGES: ISTOCK

they can go quickly. I don’t think that’s the best way forward for our economy or for industry.

The people on the islands are very sensitive to air fares because air transport offers vital connectivity. But our costs are going up. Labor, airport charges, and many other areas have costs that are going up. It is very difficult under that kind of pressure to be sustainable.

Another ongoing concern is the distribution of profit in the aviation supply chain. I’m not sure that has changed significantly and the better airline financial performance shouldn’t disguise that fact. Our partners always do a little better than the airlines and yet we’re the ones facing the end customer.

Are you particularly concerned about low-cost carrier competition?

LCC competition in one of our neighbors, Hawaii, is crazy. It shows what could happen here in time.

Low-cost carriers are a challenge and, for us, that challenge will only increase. Some of them are investing heavily to take market position.

Our long, thin routes protect us to a degree

because not many airlines are interested in those. The reason they aren’t interested is because they are hard to operate profitability.

We know that only too well. But the proof of our strategy is that we are still here!

Will safety across oceanic airspace be improved thanks to the new tracking standard?

The airport has implemented automatic dependence surveillance – broadcast (ADS-B).

We will have Boeing 787s with highly developed avionics on board and we have asked Boeing to ensure we have the best equipment available.

We simply must be able to track an aircraft everywhere it goes. We are pushing the authorities and the manufacturers and suppliers to give us the tools we need. We have smartphones that can tell us exactly where we are in most places. The fact that we can’t do that with an aircraft is astonishing. We have to have tracking everywhere.

Without exception. It’s the right thing to do for our passengers. •

We fly about 500,000 people a year; we are a €300 million company flying ultra-long range.

That is the reality

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Skypro__Airlines International 41

08/08/2017 11:13

Regulation

EU261: THE ROAD TO T 42

he revision of EU261—the European legislation that deals with passenger rights in the event of denied boarding, flight delays or cancellations—remains politically deadlocked.

Spain and the United Kingdom continue to argue about whether Gibraltar Airport should be included within the scope of European legislation. Though Brexit may or may not resolve this issue, the revision of Regulation 261/2004 and several other legislations are blocked at European Council level.

The upsurge in court cases attempting to clarify the current legislation highlights the need for this deadlock to be broken, given that the main aim of the revision is to clarify elements that are open to interpretation.

Claims agencies are stepping in to exploit the situation. These agencies, or claim farms, take on a passenger’s compensation battle should a flight be delayed or cancelled.

The European Commission has issued guidance to air passengers on the activities of these agencies.

The EU advises that passengers should always contact the carrier fi rst. National enforcement bodies and alternative dispute resolution services can also help passengers should a compensation claim be disputed by an airline.

“Passengers deserve good information about their rights,” says Rafael Schvartzman, IATA’s Regional Vice President for Europe. “This guid-

ance clarifies important issues both for airlines and their passengers on the activities of claim farms, particularly warning against those that resort to fraudulent practices.”

Dubious practices include submitting claims without asking for the passenger’s permission and unsolicited telemarketing.

IATA advises that passengers should only deal with a claim agency that is transparent about its charges, has a clear power of attorney, and has a robust data privacy policy. Travel agencies and tour operators must not transmit

Dubious practices include submitting claims without asking for the passenger’s permission and unsolicited telemarketing

passengers’ personal data to claim farms.

“Airlines are in a strongly competitive market, and good customer service is vital,” says Schvartzman. “If something goes wrong with a fl ight, airlines have a strong commercial incentive to put it right. A claim agency cannot recreate the relationship between the airline and the passenger.

“Moreover, using a third-party service can result in substantial costs that eat away at the compensation payment. We fully agree with the European Commission that a passenger’s fi rst contact should always be with their airline.”

Major overhaul Curing the claim agency problem, however, will not happen through European Commission guidance alone. The existing passenger rights regime in Europe needs an overhaul.

“A major reason for the proliferation of these agencies is that the EU261 passenger rights legislation is complex, often misunderstood, and inconsistently applied,” Schvartzman suggests. “We hope that the political deadlock which is currently blocking the revision of EU261 is resolved so that the much-needed clarification of the regulation can proceed, to the benefit of everyone in Europe.”

IATA has welcomed proposals included in the revision for several reasons. Firstly, the revision re-balances passenger rights with

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Regulation

CLARITY The rise of ‘claim farms’ in Europe highlights that legislation must be revised according to market realities

airline obligations: higher trigger points are introduced so that the flight length determines the length of the delay after which compensation needs to be paid to the passenger. This is to the advantage of all as airlines are given time to fi x a problem and operate a fl ight instead of choosing to cancel it. The revision would also clarify the list of extraordinary circumstances, the limitation of care and assistance, the right of redress for air carriers, and contingency planning in the case of massive disruption.

Most importantly, the revision gives additional rights to passengers, such as care after two hours for all flights, better and timelier information, the possibility to correct a spelling mistake, and transparency requirements for cabin and checked luggage.

There are some industry concerns, however. The partial ban of the No Show policy may jeopardize the freedom of pricing, and making the fi nal destination as the end point for a delay calculation instead of calculating delays per fl ight could seriously affect interlining.

The European Commission view The changes proposed for the provisions relating to care and assistance in EU261 originate from the European Court of Justice’s rulings or are meant to clarify or simplify them. Introducing a single time threshold of two hours for the right to care for flights of all distances is a case in point.

The proposal also explicitly introduces the right to compensation in cases of long delays.

However, the time threshold after which the right to compensation arises is proposed to be increased from three hours to five, nine or 12 hours depending on the length of journey.

This allows airlines to take into account the practical problems encountered by air carriers when addressing the causes of delays at remote airports. It is accepted that if the airline is not given a reasonable time period to deal with the causes of a fl ight delay, there might be a fi nancial incentive to cancel the flight. For passengers, a cancellation is always worse than a delay, and rerouting is always subject to availability of seats on other flights.

“Air passenger rights are a great achievement for the EU citizens and significantly contributed to improving air transport in the EU,” says Jean-Louis Colson, Head of Unit, Social Aspects and Passenger Rights, European Commission.

“The rules on passenger rights provide minimum protection for citizens and in doing so facilitate mobility. They also help create a level playing field for transport operators and also aim to a high quality in Europe which gives our industry a good reputation with international passengers.

“We are aware that this regulation has certain shortcomings and needs to be modernized. I hope the Commission’s proposed revision to the regulation can be adopted soon by the colegislators. Before the new regulation is in force, we count on the airlines’ efforts for a correct application of air passenger rights.”

The Commission referred to EU261 in its Communication on an Aviation Strategy for Europe, urging the European Parliament and the Council to swiftly adopt the proposed revisions to the regulation.

Until that happens, new judgements from the European Court of Justice will undoubtedly keep on coming.

Though the European Commission has published guidelines on the application of the rules included in EU261, taking into account case law, these guidelines are not binding. They have been welcomed by all stakeholders but do not replace the much-needed revision. •

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AUG-SEPT 2017

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Data

Source: Economic Performance of the Airline Industry 2017 Mid-Year Report

2.9%

Global GDP growth predicted to reach 2.9%, the highest since 2011

7.4%

Passenger demand (RPK) is expected to grow by 7.4%

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$7.69

Profits per passenger:

275 million

This equates to an extra 275 million passengers, bringing the forecast number of passengers in 2017 to 4.1 billion

80.6%

Demand is keeping ahead of capacity increases, pushing average load factor to 80.6%

$687 billion

Cost increases in fuel, labor, and maintenance accelerated in the first quarter, 2017. In total, industry expenses will hit $687 billion this year, a $44 billion increase on 2016

$31,400,000,000

LATEST IATA FINANCIAL FORECASTS FOR 2017

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Data

$353

The 2017 average return airfare is expected to be $353 (2016 dollars), which is 64% below 1996 levels after adjusting for inflation

Profit for the airline industry on revenues of $743 billion

1,850

Airlines are expected to take delivery of some 1,850 new aircraft in 2017, around half of which will replace older and less fuel-efficient aircraft

5.2%

The global spend on tourism enabled by air transport is expected to grow by 5.2% in 2017 to $685 billion

7.5% Cargo sector set to post growth of 7.5%.

Total cargo carried expected to reach 58.2 million tonnes

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Performance by region: Almost half the industry profit is generated by North American carriers Region North America

Net profit $15.4 billion

Region Latin America

Europe

$7.4billion

Middle East

Asia-Pacific

$7.4billion

Africa

Net profit $0.8 billion $0.4 billion $-0.1 billion AUG-SEPT 2017

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09/08/2017 12:07

Soapbox

THE FUTURE OF TRAVEL AND TOURISM Industry stakeholders must come together and ensure travel continues to improve lives and be a force for peace and security 46

David Scowsill, President and CEO, World Travel and Tourism Council (WTTC)

O

ur world in 2017 is uncertain, vulnerable, and unpredictable. Despite this, Travel and Tourism (T&T) growth has remained at about 4% a year.

Disruption has been part of the sector’s DNA for the past 20 years, and the sector has emerged stronger and more resilient for it.

Low cost carriers, TripAdvisor, online hotel aggregators, the sharing economy —these new business models and approaches have changed the landscape of T&T forever.

But throughout this time, all sectors of the industry have weathered their storms, survived, pivoted their business models, and thrived. In the last decade, no large brand name has gone bankrupt, even with the competitive pressures and impacts of the global fi nancial crisis.

This ability to adapt to market forces, respond to consumer demand and adopt new technologies is what I believe ensures the future of T&T, as the sector has to face up to the macro level challenges of our time, be they terrorism, climate change or the fourth industrial revolution.

Artificial intelligence, machine learning and robotics will certainly impact jobs in the sector over time. While certain jobs might become redundant, others will be created. It is the people that ultimately define the experience, whether you are travelling for business or leisure.

Meanwhile, virtual reality and augmented reality will enhance the sector rather than compete with it. At the moment T&T is just playing with the technology, but the opportunities — be it children learning in a classroom; training tourism workers to spot potential terrorists; engineers learning how to diagnose problems and replace

fan blades on jet engines; or a terminally ill person visiting the world from their bed — are huge.

As for the online communications debate, this has been raging for 20 years. While platforms such as Skype, WhatsApp, WeChat, Twitter, Facebook, and video conferencing facilitate connectivity, people still want to travel to see the world.

Business travel will increase as the human contact required for deal-making will never disappear. More of the approach work can be done using technology to ensure that face-to-face meetings achieve what is desired.

However, much as the sector is able to grow off the back of technological developments and opportunities, this won’t resort to anything if T&T does not firmly establish its credentials as a force for good in the world.

We know that the economic and social impact of the sector is significant in all corners of globe. But we also know that there is still a lot of work to be done to ensure that T&T growth really is inclusive and environmentally sustainable.

The UN’s Sustainable Development Goals provide a great framework for making and monitoring change. I urge all players in T&T to engage with the SDGs and show how their activities are aligned with them.

As I step down from the WTTC, I call upon the whole T&T sector—from the CEOs I have represented to the government ministers I have worked with, to the 1.2 billion tourists who travel each year—to come together to ensure that travel, be it for business or leisure, continues to improve lives, protect the planet, and be a force for peace, security, and understanding in an ever more uncertain world. •

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