IATA Airlines International Dec-Jan 2017

AIRLINES INTERNATIONAL DEC- JAN 2017 - ISSUE 65

ISSUE 65 DEC-JAN 2017

CEO INTERVIEWS: SWISS, Interjet, flydubai SPECIAL REPORT: Japan's aviation industry and the 2020 Olympics

SPEED OF CHANGE Innovation is no longer a choice – airlines need to move fast to keep up with digitalization

CLIMATE CHANGE: Implications of global carbon offset scheme

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PERFORMANCE | EXECUTION | TECHNOLOGY

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CONTENTS COMMENT

SPECIAL REPORT

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20 Time to deliver Japan’s aviation industry is experiencing tectonic shifts in the market as it heads toward the 2020 Olympic Games

7 Alexandre de Juniac The new year: a time of hope for the airline industry

AGENDA 10 IATA and Industry Update Profitability set to continue; passenger numbers set to double; preparing India for aviation’s benefits; bag tracking to save airlines $3 billion

FEATURES

CEO INTERVIEWS

40 Living in a different world Digitalization is forcing a major shift in business models. But can airlines move quickly enough?

16 Work to be done Thomas Klühr, CEO of SWISS, says that despite the good work done by the airline and the industry, the toughest challenges are still to come

32 Time to roll the sleeves up The ICAO agreement is the first step on the road to aviation’s long-term environmental target

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28 Heading in a new direction Interjet’s CEO, José Luis Garza Alvarez, discusses the potential of the dynamic and fast-growing Mexican market

Editorial Editor Graham Newton Sub editor Vanessa Townsend Senior designer Gary Hill Picture editor Claire Echavarry Production Production manager Jane Easterman +44 (0)20 7880 6248 jane.easterman@redactive.co.uk Publishing director Aaron Nicholls

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DATA 44-45 IATA 20-Year Air Passenger Forecast

34 Dancing to their own beat Ghaith Al Ghaith, CEO of flydubai, explains his vision for the airline and the importance of challenging conventions in the industry

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

42 Flight delayed by political inaction European governments must resolve an infrastructure crisis to reap the benefits of air connectivity

SOAPBOX 46 Sachin Goel Is it time for airline ticket sales to be reinvented?

Advertising Business development manager Nigel Collard +44 (0)20 7324 2763 nigel.collard@redactive.co.uk We welcome feedback, content ideas.

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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.

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

We must clear the way for the success of the business of freedom by reminding governments of aviation’s benefits

HOPEFUL TIMES AHEAD

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he start of a new year is always a time of hope. That is particularly true for airlines who are concluding a very good 2016. The last quarter saw the strongest demand for air cargo in years. And overall airlines are reporting a record aggregate profit at the global level. This is all good momentum to carry us into 2017.

It would be naïve, however, to ignore the shocks of the last year. The political landscape shifted dramatically and unpredictably with a clear desire for change. But, whether it is the Brexit vote or the result of the US Presidential election, exactly how the forces for change will play out remain unclear.

Terrorism is top of mind. Aviation was a direct target.

Two airports were attacked. ISIS claims to have downed one aircraft. Another narrowly escaped disaster. And attacks on popular tourist destinations have rattled the confidence of travelers.

An OPEC agreement late in the year appears likely to see oil prices rise. We don’t know by exactly how much.

But nobody is forecasting prices anywhere near the record levels of the 2011–2014 period.

I am looking to 2017 with optimism. Important changes in how airlines do business have made them more resilient to shocks. A rise in the oil price will make a challenging business even more difficult. But we are still forecasting that airlines will earn nearly $30 billion in 2017. That will more than cover the industry’s cost of capital, meaning that the industry is finally on a trajectory of normal profitably.

Flying in the holiday season is always a great reminder of how important aviation is to people—real people

reconnecting with families or friends, taking time for a leisurely break or off on an exploratory venture.

For some, it is a once-a-year special event. Others may be seasoned road warriors concluding the year with some personal travel. Many fall in between. Planes are full of people with different travel profi les—but all are taking advantage of aviation’s unique selling point. That is the ability to cover vast geographies in minimal time. It is a unique freedom enjoyed only since the 20th century.

Aviation is the business of freedom. In 2017, we expect some 4 billion travelers to take advantage of it. And more than 50 million tonnes of cargo—global trade—will get to market by air in the coming year. It is a freedom that we must defend against the growing protectionist rhetoric, which is gaining popularity and geographic scope.

We must clear the way for the success of the business of freedom by reminding governments of aviation’s benefits, the policies that it needs to be successful; and the importance of keeping borders open for trade and welcoming to people.

I wish all of Airlines International readers a prosperous, connected, and exciting 2017. •

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Alexandre de Juniac

DEC-JAN 2017

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The Big Picture

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LIVING ON THE EDGE U

shuaia’s waterfront carries a sign declaring ‘Fin del Mundo’ (End of the World). Known as the world’s southernmost city, Argentina’s Ushuaia is a staging post for the vast majority of Antarctic tourists.

It is aviation connectivity that brings this vital trade to Ushuaia. The city’s 60,000strong community benefits from visitors to

shops, restaurants, and hotels, providing the income and jobs that helps Ushuaia to thrive.

Air transport’s importance can be seen in the license application of Pacific Ocean, a small private airline managed by the London Supply Group that wants to begin commercial service with Ushuaia as its base.

In fact, aviation has become a priority for Argentina in general. The country is begin-

ning to upgrade infrastructure that is badly in need of modernization. And Transport Minister Guillermo Dietrich has declared that there “are many airlines interested” in flying in Argentina.

Ushuaia’s reliance on aviation and Antarctic tourism is also a reminder of how air connectivity brings greater understanding and international cooperation.

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Antarctica—one of the most desolate regions on Earth—is just 600 or so miles away.

The continent has a unique environment and plays a prominent role in global climate change debate. Lars-Eric Lindblad, who led what is considered to be the first educational cruise to the region in 1966, noted: “You can’t protect what you don’t know.” Aviation is fundamental to making that knowledge accessible.

Antarctica is recognized as a global commons along with the atmosphere, the high seas, and outer space.

These are all areas that lie outside the political reach of any one State and are guided by the principle of the common heritage of humankind.

The continent is governed by the Antarctic Treaty System, a labyrinthine arrangement

developed to smooth relations between those countries with interests and territorial claims in the region. Some 29 states are consultative parties to the treaty.

Antarctica could therefore become a fiercely contested region or stand as an example of the collaboration and collective understanding that international visits—made possible by air travel—will inevitably generate.

IMAGE: POLA DAMONTE VIA GETTY IMAGES

End of the world: Ushuaia in Argentina is reliant on aviation bringing in the Antarctic tourists

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Agenda

Upcoming events...

AGENDA

Direct Data Solutions Forum 14-15 February Sao Paulo, Brazil

Legal Symposium 21-23 February Washington DC, USA

Profitability set to continue

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IATA’s latest industry forecast estimates a $35.6 billion profit in 2016 and a $29.8 billion profit in 2017.

“We need to put this into perspective,” said Alexandre de Juniac, IATA’s Director General and CEO. “Record profits for airlines means earning more than our cost of capital.

For most other businesses, that would be considered a normal level of return to investors. We should also recognize that

profits are not evenly spread across the globe with the strongest performance concentrated in North America.”

The 2017 profit will be the eighth consecutive year that airlines have been in the black, underlining the resilience the industry has developed to withstand external shocks. Nevertheless, the per passenger profit margin is still slim, at $7.54.

Oil prices are likely to be the biggest

challenge in the next 12 months. The price per barrel of Brent is expected to average $55, more than $10 higher than 2016. This will push the cost of jet fuel to about $65 per barrel. Even so, fuel is now less than 20% of industry cost, well down from a peak of over 33% in 2012–2013.

Demand will slow in 2017, down to 5.1% from 2016’s 5.9%. Capacity will continue to outstrip demand, growing 5.6%. This will push load factors down to 79.8%.

World GDP expansion of 2.5% is a positive note, however. This will help stabilize yields, which have fallen every year since 2012. There is also cause for optimism in air cargo.

Alongside a break in falling yields, demand will increase a moderate 3.5%, leading to more than 55 million tonnes being carried for revenues close to $50 billion.

“Governments do not make aviation’s work easy,” said de Juniac. “The global tax bill has ballooned to $123 billion. Over 60% of countries put visa barriers in the way of travel. And the total number of ticket taxes exceeds 230. Billions of dollars are wasted in direct costs and lost productivity as a result of inefficient infrastructure. These are only some of the hurdles that confront airlines.

Our aim is to work in partnership to help governments better understand and fully maximize the social and economic benefits of efficient global air links.” •

2017 Regional Analysis

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North America Airlines are projected to make net post-tax profits of $18.1 billion.

The net margin for the region’s carriers is expected to be 8.5% with an average profit of $19.58 per passenger. Capacity offered by the region’s carriers is expected to grow 2.6%, slightly outpacing expected demand growth of 2.5%.

Europe Airlines based in Europe are expected to post an aggregate net profit of $5.6 billion, a 2.9% net profit margin and a per passenger profit of $5.65. Capacity is expected to grow 4.3%. Demand will grow 4.0%.

Asia-Pacific Airlines in the Asia-Pacific region are expected to generate a net profit of $6.3 billion for a net margin of 2.9%. On a per passenger basis, average profits are anticipated to be $4.44. Capacity offered by the region’s carriers is forecast to grow 7.6%, ahead of a forecast growth in demand of 7.0%.

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Airlines International

www.iata.org/events FACES 13 March Abu Dhabi, United Arab Emirates

World Cargo Symposium 14-16 March Abu Dhabi, UAE

Safety and Flight Ops Conference 24-26 April Seoul, Rep. of Korea

Wings of Change 2-3 May Miami, United States

The right price tag for Heathrow

Innovative thinking needed on taxes and charges Speaking at IATA’s Global Media Day, IATA’s Director General and CEO, Alexandre de Juniac, called for governments to review the impact of high costs from taxes and charges on aviation.

By value, airlines deliver a third of goods traded internationally. They support some $2.7 trillion in GDP and about 69 million jobs. But de Juniac warned that high taxes and charges dampen demand, which carries an economic cost.

“That is why IATA spends a lot of time fighting taxes and charges,” he said. “And sometimes enlightened government policies are the result. When the Cartagena [Colombia] airport fee was reduced from $92 to $38 in 2015, international passengers increased 30%.”

Given the price sensitivity of customers and that airlines are predicted to make just $7.54 per passenger in 2017, every aviation tax or charge is extremely important. But many governments are still short-sighted in their policies.

Middle East Middle Eastern airlines are forecast to generate a net profit of $300 million for a net margin of 0.5% and an average profit per passenger of $1.56. Capacity expansion is forecast at 10.1%, while expected demand growth is 9.0%.

Australia plans to increase its passenger movement charge to AUD$60.

O The Maldives plans to add $25 to its airport development fee without committing to use the money to develop its infrastructure.

O Germany will add EUR50 cents to its departure tax that already collects EUR1 billion per year.

O Norway introduced a new passenger tax in 2016 and will increase the cost in 2017.

O Sweden is considering a $47 passenger tax.

The United Kingdom continues to increase its air passenger duty in line with inflation despite evidence that it has cost the economy £16 billion.

O The United Arab Emirates and Qatar are risking their success with $700 million in new costs.

“Global connectivity promotes prosperity,” said de Juniac. “But it is a constant battle to get governments to see the long-term value of aviation.” • O

Latin America Latin American airlines are expected to post a net profit of $200 million. Profit per passenger is expected to be $0.76 with a net profit margin of 0.7%. Capacity offered by the region’s carriers is forecast to grow 4.8%, which is ahead of expected demand growth of 4.0%.

IATA supported the UK government’s conclusion that Heathrow needs a new runway.

But it warned that the price must be right. That means giving passengers value for money and not expecting them to pay for benefits that will only be enjoyed by those traveling after the runway becomes operational. How the cost of the runway is allocated to different stakeholders will be crucial. For instance, the government should take separate responsibility for all surface access funding, for both road and rail.

“We are convinced that the new runway will be environmentally sustainable and look forward to a dialogue with stakeholders on how this can be achieved,” said Alexandre de Juniac, IATA’s Director General and CEO. “But the new runway must not be so encumbered with draconian operational restrictions and costs on its use that its potential economic value is destroyed. That would short-change travelers and the UK economy.

“The next step needs a big community effort,” he added. “Airlines, the airport, the regulator and the government must work very hard together to ensure the success of the new runway. Above all, that means keeping costs at competitive levels.” •

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How the cost of the runway is allocated to different stakeholders will be crucial

Africa Carriers in Africa will lose $800 million.

For each passenger flown, this amounts to an average loss of $9.97. Capacity is expected to grow 4.7%, ahead of 4.5% demand growth.

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Agenda

Sustainable fuels must be a priority

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IATA welcomed the European Commission’s revision of the Renewable Energy Directive (RED) to incentivize sustainable fuels, but urged policymakers to prioritize their use for air transport.

While road transport has increasing options to move toward electrification, aviation must continue with liquid fuel at the present time. Therefore, there is a strong case for sustainable fuel policies to prioritize air transport to boost supply and reduce costs.

“Aviation is on a path towards carbon-neutral growth and ultimately to reduce emissions in half,” said Michael Gill, IATA’s Director, Aviation Environment.

“Sustainable fuels are an essential element of our carbon-cutting strategy, with the prospect of an 80% decrease in carbon compared with traditional jet fuel.

Policies to incentivize the production of such fuels have been successful in the US and elsewhere. Europe has an opportunity to take the lead in sustainable fuel production if the revised RED contains the right measures.”

The European Commission’s stated aim is for Europe to become the leader in renewable energy and the revision of the RED offers a unique opportunity for Europe to demonstrate what can be achieved when policy-makers and industry combine for a coordinated approach to climate action and business innovation.

“Airlines are absolutely committed to the highest sustainability standards for alternative fuels, to ensure no interference with biodiversity, food production, or clean water resources,” said Gill. “We are ready and willing to invest in these fuels.” •

Global passenger numbers to double In its latest 20-Year Air Passenger Forecast, IATA expects 7.2 billion passengers to travel in 2035, a near doubling of the 3.8 billion air travelers in 2016. The prediction is based on a 3.7% annual Compound Average Growth Rate (CAGR).

“People want to fly,” said Alexandre de

7.2 billion

IATA expects passengers to travel in 2035, a near doubling of the 3.8 billion air travelers in 2016

Juniac, IATA’s Director General and CEO. “Demand for air travel over the next two decades is set to double. Enabling people and nations to trade, explore, and share the benefits of innovation and economic prosperity makes our world a better place.”

The forecast for passenger growth confirms that the biggest driver of demand will be the Asia-Pacific region. It is expected to be the source of more than half the new passengers over the next 20 years.

China will displace the US as the world’s largest aviation market in about 2024. India will displace the United Kingdom for third place in 2025, while Indonesia enters the top ten at the expense of Italy. Growth will also increasingly be driven within developing markets. Over the past decade the developing world’s share of total passenger traffic has risen from 24% to nearly 40%, and this trend is set to continue. •

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Partnership to strengthen security Aviation’s security challenges are many; overflying conflict zones, landside security at airports, insider threats, cyber security, harmonization of passenger name record and advance passenger information requirements, and airport checkpoints.

Speaking at the 25th AVSEC World conference in Kuala Lumpur, Alexandre de Juniac, IATA’s Director General and CEO, said partnership between the industry and government was the means to provide durable solutions to these challenges.

“Security is fundamentally a government responsibility,” he said. “But making flying ever safer and more secure is engrained in the DNA of all air transport stakeholders.

Governments and industry are working together to strengthen our defenses with integrated solutions in the face of evolving security threats,” said de Juniac.

In September 2016, a UN Security Council Resolution noted that, “terrorist groups are

actively seeking ways to defeat or circumvent aviation security.” The resolution affirmed that “all states have a responsibility to protect the security of citizens and nationals of all nations against terrorist attacks on air services operating within their territory.”

Four principles should guide the cooperative security efforts of government and aviation: O Risk-based measures to ensure that limited resources are applied where the threats are greatest.

O Information sharing among governments and with the industry to enable effective risk-assessments.

O The implementation of global standards in security systems worldwide to support effective collaboration between all parties in all locations.

O Capacity building supporting the mutual recognition of standards to improve effectiveness and efficiency.

De Juniac also emphasized the necessity of speed in keeping the industry secure. “Speed is of the essence,” he said. “Threats emerge quickly. And they evolve fast. The four principles will help us to address the threats and challenges we face, but only if we move quickly enough.” •

Bag tracking to save airlines $3 billion The global deployment of Radio Frequency Identification (RFID) technology, which can accurately track passengers’ baggage in real time across key points in the journey, can enable the air transport industry to save more than $3 billion over the next seven years.

Global IT provider SITA and IATA revealed that the highly accurate tracking rates of RFID technology could reduce the number of mishandled bags by as much as 25% by 2022, mainly through efficient tracking.

In particular, RFID will address mishandling during transfer from one flight to another by ensuring that airports, airlines, and ground handlers are able to keep track of bags at every step of the journey.

The technology supports IATA’s Resolution 753 that requires airlines to track each item of checked baggage, at key points in the journey, by 2018.

Jim Peters, Chief Technology Officer at SITA, said: “The airline industry is at the brink of a revolution in baggage tracking.

Deploying RFID globally will increase accuracy and reduce mishandling rates. This is a win-win situation—passengers will be happier, operations will run smoother, and airlines will save billions of dollars.”

Andrew Price, Head of Global Baggage Operations at IATA

agreed. “Over the past few years, we have seen more work to help airlines introduce and reap the benefits of RFID technology through better oversight of their baggage operations,” he said.

“The advances in the technology and the immense benefits it brings to the airline industry have prompted IATA to revisit and fully explore the benefits of RFID today.”

The SITA/IATA business case

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shows that RFID capabilities can be deployed for as little as 10 cents per passenger on average while generating expected savings of more than 20 cents per passenger. With some big airlines and airports already introducing RFID technology, combined with the fact that it is compatible with existing barcode technology, adoption of RFID across all airports could provide a positive return for airlines, both in cost savings and passenger satisfaction.

SITA’s and IATA’s assumptions are based on RFID being deployed in 722 airports (representing 95% of passenger numbers globally) over a six-year period between 2016 and 2021 while the savings are calculated over seven years. The figures for 2016 take into account the RFID infrastructure already deployed or about to be deployed at multiple induction points on the baggage journey. • DEC-JAN 2017

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Agenda

Preparing India for aviation’s benefits

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India’s air transport sector supports 8 million jobs and contributes $72 billion in GDP. By 2026, the country will become the third largest aviation market with 278 million passengers. And less than a decade later, IATA expects that number to rise to 442 million passengers.

“Realizing that growth means that we will need to accommodate the potential of 322

million new passengers in just two decades,” said Alexandre de Juniac, IATA’s Director General and CEO. “That will be a real challenge.”

De Juniac congratulated India on publishing its first-ever Civil Aviation Policy which contains some encouraging elements, such as developments on open-skies, code-sharing, and foreign direct investment (FDI). In fact, allowing FDI of 100% in an

Indian airline places India among the most progressive states in this respect.

But de Juniac also noted concerns, including the privatization of airports. “A private sector mindset can add value to airport projects with efficiency, cost effectiveness, and entrepreneurial spirit. But we need a stronger regulatory framework than exists today to ensure that there is a balance struck between commercial and national interests.”

Airlines operating in India have faced huge costs increases. This is in part due to the up to 46% concession fee that the private airport operators have to pay to the government. At the same time, the Airport Economic Regulatory Authority (AERA) has been unable to preserve its independence sufficiently and has not been able to implement its own tariff orders, such as the one to reduce Delhi’s charges by 96%.

Airlines also face an onerous tax burden in India, including the imposition of service tax to services rendered outside of India, in contravention of international principles established by governments through ICAO. •

ONE order for passengers Popovich, IATA’s Senior Vice President, Financial and Distribution Services. “With ONE Order, the only thing that passengers will need to be instantly recognized is their order number. It will greatly simplify the passenger experience and remove one of the hassles of travel—trying to find the correct document or number when dealing with an itinerary change or a travel disruption.”

Full adoption of ONE Order is a multi-year, multi-stage process that will engage many participants in the travel value chain including airlines, travel agents, global distribution systems, passenger service system suppliers, and airline e-commerce platforms and others. •

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The Passenger Services Conference (PSC) has adopted a Resolution on a standard for IATA’s ONE Order initiative.

Leveraging the data communication advances from the New Distribution Capability, ONE Order will modernize and simplify airline order management, including the delivery, fulfilment, and accounting processes related to airline products and services.

For passengers, ONE Order will mean the gradual disappearance of multiple reservation records in favor of one document and a single order number.

“ONE Order will eliminate the need for passengers to juggle different reference numbers and documents along their journeys,” said Aleks AIRLINES INTERNATIONAL

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In this interview • Swissness • Diversity • Digitalization

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CEO interview

WORK TO BE DONE Thomas Klühr, CEO of SWISS, tells Graham Newton that despite the good work done by the airline and the industry, the toughest challenges are still to come

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How is the airline performing?

SWISS is performing quite well. We won’t have a record year like we did in 2015 but it will nevertheless be one of the best years the airline has ever had. We’re expecting an EBIT margin of around 8%.

This is despite a very challenging market. There is still a huge pressure on yields, the Swiss Franc is strong and there have been terrorist incidents throughout Europe.

Overall, though, the industry has achieved a degree of stability and at SWISS we have been very determined to lower costs. We have lots of cost-cutting measures in place and the new aircraft in our fleet are also providing benefits.

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IMAGE: GETTY

What is the thinking behind the re-branding?

It is getting harder and harder to distinguish your brand in the market.

That is why we decided to concentrate on our Swissness. We are the only airline that can really take advantage of that. It is the little things that make the difference because the customer picks up on those things, so concentrating on that and incorporating Swissness is our focus.

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CEO interview

Passengers waiting to board a SWISS aircraft in Zurich

How closely do you work with Lufthansa and Star Alliance?

The collaboration with the Lufthansa group is important and very close because SWISS competes against global brands. So, it is vital to find synergies within the group airlines, to harmonize and to use common standards. If you take our networks, for example, we found that there were cases of SWISS and Lufthansa flights leaving to the same destination within 10 minutes. It makes sense to manage that better. It is also much smarter when buying new aircraft to follow many of the same specifications because it is cost-efficient both initially and in the long run.

But it’s also necessary for SWISS to remain Swiss. We need to maintain our brand and serve our market. So, our new long-haul aircraft will continue to offer our customers a First Class [cabin]. Lufthansa isn’t offering that option on all aircraft but we felt it was important for the Swiss market.

As for Star Alliance, we continue to collaborate although, naturally, it isn’t as close a relationship as we have within the Lufthansa Group.

Consolidation and digitalization are equally vital. The airlines that properly serve their customers through the analysis and use of big data will be the winners.

What difference will the Bombardier C series make to your operations?

The C Series is crucial to our operations. It is the perfect aircraft for us for many reasons.

For a start, the 120-250-seat market from Geneva and Zurich is huge.

Also, the C Series is a really quiet aircraft, about 50% less noisy to the human ear compared with similar aircraft. Fuel consumption and unit costs are up to 25% lower. So we will certainly increase our competitiveness. But it’s about more than that. It’s also about comfort and the passenger experience. The feedback we have been getting from our customers so far is very positive.

Of course, it’s a challenge to introduce a

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new aircraft to the fleet and it is something SWISS will concentrate on for the rest of 2016 and into 2017.

What is SWISS doing to encourage diversity?

Diversity is important to SWISS and the Lufthansa Group, and we have several initiatives that encourage diversity. But this an area where there is always room for improvement.

At SWISS, about 50% of our employees are flight attendants. As you can imagine, there’s huge diversity already among that group but we want to expand it. It can’t be done overnight, however, it is a step-by-step process.

We’re introducing new working models, supporting childcare facilities and so forth to ensure everybody has an opportunity.

I’m proud to say we have equal pay but, as I say, there is always more to be done.

How important is cargo to your bottom line and is e-freight important to a sustainable future?

SWISS WorldCargo makes a strong contribution to the SWISS bottom line and, without it, we

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CEO interview

The Single European Sky seems as elusive as ever. How damaging is this to your airline and the environment?

We cannot be satisfied with the speed of progress of the Single European Sky. We know that it is a long political process and to achieve SES will take time. But what I don’t understand is why we aren’t getting support from other interested parties. SES would mean huge savings for the environment, for example. The industry must carry on lobbying politicians to achieve SES, even if it must do it alone.

And, speaking for SWISS, it would mean huge cost savings for us too.

What are you looking for from a European aviation policy?

I think it’s vital that European airlines receive support from the European Union. Other airlines are supported by their governments.

So, we need an aviation policy that supports the airlines and enables fair competition with airlines from other regions.

The infrastructure issue in Europe is particularly challenging. There is a risk that Europe won’t be able to participate in the growth of the industry because of the lack of capacity at its airports. There are very few development projects in Europe, especially at key hubs, and we’re still not sure if we are going to get some of the developments that are planned like the third runways at Munich and Heathrow. And even if they do go ahead, how long will they take?

IMAGE: MICHAEL BUHOLZER/AFP/GETTY IMAGES

wouldn’t achieve an 8% EBIT margin.

Digitalization will increase that contribution. It is a major topic. We are making progress with the e-air waybill and other initiatives. But, as with diversity and many of the other areas, this is just a start. There is still a lot of work to be done.

50%

At SWISS, about 50% of our employees are flight attendants. There’s huge diversity already among that group but we want to expand it.

Thomas Klühr I think people are underestimating this issue.

The global carbon offsetting scheme has been agreed at the ICAO Assembly. What does it mean for the industry?

We are aware of our environmental responsibility and have been lobbying for a climate agreement of this kind within our industry for years. The ICAO offsetting scheme will enable airlines to invest in sustainable carbon reduction projects.

It is a historic agreement and therefore also a compromise between states. But I am convinced that the agreement will provide a stable framework for future global measurements within our industry.

Looking at the industry in general, what trends do you see and what will be vital to success?

Consolidation and digitalization are equally vital. The airlines that properly serve their customers through the analysis and use of big data will be the winners. Personalized services will become more and more important.

These two areas will be important drivers for the industry looking ahead. •

2016 – today Chief Executive Officer, Swiss International Air Lines 2013 – 2015 Member of the Board Finance & Hub Munich, Lufthansa German Airlines 2011 – 2013 Member of the Board Munich & Direct Services, Lufthansa German Airlines 2007 – 2011 Group Representative & Head of Hub Management Munich, Lufthansa German Airlines 19

2001 – 2007 Head of Controlling, Lufthansa Passenger Airlines 1998 – 2001 Head of Planning and Reporting at Sales Controlling, Lufthansa Passenger Airlines 1996 – 1998 Business Manager & Controller, Lufthansa City Center GmbH 1990 – 1996 Various positions at Lufthansa, Lufthansa German Airlines

It is getting harder and harder to distinguish your brand in the market. That is why we decided to concentrate on our Swissness. We are the only airline that can really take advantage of that.

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In this report • Airport development • 2020 Olympics • Tourism

Japan’s aviation industry is experiencing tectonic shifts in the market as it heads toward the 2020 Olympic Games.

Geoff Tudor and Graham Newton report

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TIME TO DELIVER

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P

roject Sky Canvas will decorate the sky with shooting stars as the 2020 Olympic Games in Tokyo gets underway. A micro-satellite in orbit will fire tiny particles into the atmosphere that can be directed at will. As they fall to Earth they burn up, becoming shooting stars visible in a 200km radius.

Japan’s gaze needs to be turned upward.

The benefits of aviation—in Japan, air travel supports more than 1 million jobs and close to $83 billion in GDP—have been stifled by high costs and a constrained operating environment. The economy continues to stumble, made worse by the appreciation of the yen.

But new airport projects, a reinvention of airspace surrounding Tokyo, and fresh entrants could all make their mark. Airlines may fi nally have an opportunity to deliver all that they promise.

IMAGES: GETTY

Three-hour window ‘The Future of Haneda Airport’ plan has reached its halfway point but there is still much to do to i mprove i nternationa l competitiveness. Tokyo’s two airports— Haneda (near the city center) and Narita (in neighboring Chiba prefecture)—do not together serve as many international destinations as other major airports in the Asia region.

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The ‘Love Sport Tokyo 2020’ segment during the Closing Ceremony of the Rio 2016 Olympic Games

The two biggest challenges for aviation in the run up and during the 2020 Olympics in Tokyo are security and increased passenger traffic Seoul’s Gimpo and Incheon together serve 131 international cities compared with the Tokyo pair’s 92, for example.

Between 1978 and 2010, Haneda was used almost exclusively for domestic flights. But an international scheduled service has now restarted and demand has grown rapidly. To serve that demand, the Japan Civil Aviation Bureau (JCAB) will use Haneda’s existing four runways to route aircraft over parts of the densely-populated Tokyo Metropolitan area during a three-hour window in late afternoon.

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In 2015, The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) launched a two-phase process to explain the plan and the necessity for its implementation to representatives of local cities and townships within the areas likely to be affected by overfl ights. Further discussion and briefi ngs in 2016, to strengthen support for the new measures, have produced no significant objections.

In the next two years (2017–19), there should be tangible development of the capacity expansion policy, leading up to the implementation of the plan by 2020. This will accommodate an extra 39,000 international fl ight movements, bringing the annual total to 486,000 from the present 447,000.

Conrad Clifford, IATA’s Regional Vice President for Asia-Pacific, says the two biggest challenges for aviation in the run up and during the 2020 Olympic Games in Tokyo are security and increased passenger traffic.

“IATA has been working with airports, airlines, and the Japan Civil Aviation Bureau on Smart Security initiatives that include new technologies and processes that will enhance security and improve operations while providing a better passenger experience,” he says. “Similarly, IATA has been promoting the use of Fast Travel projects like mobile boarding passes and home printed bag tags that will reduce the passenger processing time. This will effectively allow airports to handle increased passenger numbers within the same terminal building.”

Narita Airport has established the Narita Airport Olympic and Paralympic

The MLIT Haneda plan does not propose major changes to the current airspace architecture involving Yokota.

There is, however, a lot of work being done in air traffic management. The Collaborative Actions for Renovation of Air Traffic Systems (CARATS) program is a major overhaul, along the lines of SESAR and NextGen. By 2025, CARATS aims to double capacity in congested airspace and cut emissions 10% per fl ight.

Council to work with government organizations in preparing for the Games.

One aim is to eliminate bottlenecks. “We will designate special traffic lines for Olympic teams, streamline the existing baggage handling facilities, promote off-airport check-in, and implement Fast Travel procedures to reduce passengers’ waiting times,” says Hideharu Miyamoto, Corporate Management and Planning at Narita Airport Corporation.

In line with accessibility guidelines and the Japanese Government’s Universal Design project, Narita is investigating the practicality of separate traffic lines for groups in wheelchairs. It will also ensure that there are no steps in corridors, that elevators are installed at necessary locations, that toilets are upgraded to comply with Universal Design concepts, and that information signage is visible even to the partially sighted.

“In the long run, Tokyo will need more runways—a fi fth at Haneda or a third at Narita,” says Yoshiharu Ueki, President of Japan Airlines. In the short run, airspace must be adapted to accommodate the increase in traffic.

Traditional experience Narita is consulting with the relevant parties for construction of a new runway, says

IMAGES: GETTY/ISTOCK

Invisible curtain Although it is not included in the plans directly, the sumo wrestler in the room is the huge block of Japanese airspace controlled by the US Air Force’s Yokota air base, 60km northwest of Haneda. This airspace covers areas over metropolitan and Greater Tokyo as well as eight prefectures.

Military airspace covers an area up to an altitude of 7,000m at its northern edge and from about 2,450m to 4,880m in its southern boundary over Tokyo. Like an enormous yet invisible curtain, it forces flights bound for western Japan and Korea to make detours around Tokyo Bay so that they gain enough height to fly above the Yokota control zone.

For years, the Tokyo Metropolitan Government has been demanding the return of this airspace to Japanese authority, but to no avail.

Preparing for the 2020 Olympics

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Getting a taste for Japan

Hideharu Miyamoto, Director, Corporate Management and Planning at Narita Airport Corporation. Additionally, the airport is expanding hourly capacity to 72 aircraft movements; reconfiguring the high-speed exit taxiways on Runways A and B; and exploring options for the extension of the existing runway.

“We are also carefully explaining the ramifications of relaxing the restrictions on night operations to local residents,” Miyamoto reveals.

On the ground, the airport is actively pursuing IATA’s Fast Travel initiatives to give its passengers a smoother experience. And since March 2015, the Narita Transit Program has provided passengers in transit at Narita Airport with traditional Japanese hospitality and service.

“The goal is to plant in their minds a desire to return to Japan and promote tourism in the

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LCCs in Japan

beverages, and other items during their stays in Japan.

The panel also projected 60 million foreign visitors in 2030, spending ¥15 trillion.

The largest sources of visitors to Japan are East Asian countries, including China, South Korea, Taiwan, and Hong Kong. The number of Chinese visitors to Japan more than doubled to 5 million in 2015, and 2016 figures up to the end of September show a further 30% increase.

The majority of these visitors use air transport to get to Japan.

Factors behind the growth include eased visa requirements; the encouragement of foreign low cost carriers; and new air routes, such as the reopening of direct Madrid-Tokyo service by Iberia in October 2016.

But European visitors are far from the norm and, generally, there is a lack of non-Asian visitors. Also, outside major centres, the regional distribution of tourists was thin. About 60% of visitors are concentrated in

IMAGE: GETTY

local area around Narita Airport,” says Miyamoto. “And to further enrich the airport experience both landside and airside, a variety of exhibits and participatory activities introduce aspects of traditional Japanese culture, such as calligraphy, woodblock printing, and kimono wearing.”

Four apps—a multi-language translation app, a tourist information app, a terminal

The Japanese government started to pay serious attention to inbound tourism in 2003 with the creation of the Japan Tourism Agency (JTA) and the launch of the Visit Japan campaign, says Geoff Tudor. The campaign has clearly worked. The JTA, the tourism arm of the Ministry of Land, Infrastructure, Transport and Tourism (MLIT), expects foreign visitors to Japan to reach a record high of 24 million in 2016.

This is about 22% up on the 2015 total, which, in turn, was a remarkable 47.3% increase on 2014, when 13.41 million foreign visitors landed in Japan.

The inbound total now exceeds the number of Japanese traveling overseas.

In March 2016, based on the ongoing trends, the government announced its intention to double the annual number of visitors by 2020 to 40 million.

According to a panel on tourism established by the Japanese Government, these foreign visitors will spend ¥8 trillion on accommodation, food,

10%

According to various reports, LCCs account for about 10% of the Japanese domestic market.

Vanilla Air is reported to have A321s and longer international flights on the company’s radar.

Important destinations such as Jakarta, Kuala Lumpur, and Singapore are out of reach from Japan using current narrowbodies, but the 737 MAX and the A321neo (new engine option) will bring these crucial destinations within the scope of LCCs. AIRLINES INTERNATIONAL

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Tokyo, Osaka, and Kyoto. But the government intends to encourage tourist travel to local areas with attractive cultural and historic features.

As an example, the government will promote the Tohoku region—the scenic northeast of the main island of Honshu—that was badly hit by the 2011 earthquake. The target is to increase the number of annual international visitors to the area to 1.5 million in 2020, three times the 2015 total of 500,000. Japan Airlines is offering foreign travelers special Tohoku discount fares for destinations in the region.

One challenge for inbound tourism is the scarcity of hotel rooms and Airbnb-style accommodation, known in Japan as minpaku or private stay. At present, this kind of accommodation is restricted to special zones and government legislation is needed for its expansion.

JTA Commissioner, Akihiko Tamura, said in October 2015 that this would soon be the subject of a bill in parliament.

Japanese carriers are playing their part in the inbound boom.

In the 2015 financial year (FY), All Nippon Airways (ANA), Japan’s biggest airline, carried some 1.3 million inbound travelers on its domestic flights, a 29% increase on the previous year.

“For the first half of FY2016, inbound passengers on ANA’s international flights rose 10% and now are about 27% of our total international passenger numbers,” says ANA spokeswoman Maho Ito. ANA offers many web-based services to inbound travelers, including tourist and cultural information, such as ANA’s Tastes of Japan and Cool Japan.

Japan Airlines is also seeing an increase in foreign inbound passengers. In the first half of FY2016, the number of passengers from outside the country on JAL domestic flights was 8% up on the same period in FY2015. JAL offers domestic discount fares to overseas passengers, which are available to customers of fellow oneworld alliance members.

Peach, the first made-in-

Kansai International Airport—built on an artificial island in Osaka Bay—will also be developed Japan low-cost carrier, says that its passenger ratio between Japanese and foreigners on its international flights is 30:70, with foreigners in the majority—and the number of foreigners using Peach’s domestic flights is steadily increasing.

Peach has ordered 10 Airbus A320neo (new engine option) aircraft and three A320ceo (current engine option) aircraft, valued at $1.4 billion. The carrier eventually plans to expand its fleet to 100 aircraft, according to CEO, Shinichi Inoue. It will set up a base at Sendai airport in 2017 and at Sapporo’s Shin-Chitose airport in 2018, Inoue notes.

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guide and fl ight information app, and a voice guidance app for terminal navigation—make Narita easier to use and there’s also a digital sign system that helps arriving passengers find the best means of transport to reach their destinations and how long it will take.

Airport privatization In Osaka, VINCI Airports took over the operation of Kansai International Airport and Itami, the high-yield, downtown airport in April 2016. The 44-year concession was achieved with the cooperation of ORIX, a Japanese company that, like VINCI, took 40% of the deal with the remaining 20% of the new Kansai Airports company shared out among multiple stakeholders.

Emmanuel Menanteau, co-CEO of VINCI Airports, says the potential for growth was the key factor in bidding for the concession.

“But also, we manage 35 airports worldwide

IMAGES: ISTOCK

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and already have a presence in Asia. So, Japan made perfect sense from a company strategy point of view.”

Menanteau says the aim is to create synergies between the two airports, running them as one system rather than two separate facilities as was previously the case. There have been calls for the government to shut down Itami and force domestic traffic to Kansai, especially if the Maglev train is extended from Tokyo to downtown Osaka. But it seems that is not on the agenda. Itami is extremely successful, says Menanteau, and will be renovated in time for the 2020 Olympics.

Kansai—built on an artificial island in

Airport development

Other Japanese airports are moving forward with expansion plans. Central Japan International Airport (Chubu) plans to open an LCC-dedicated terminal in 2019, for example.

In Hokkaido, Sapporo’s Shin-Chitose Airport will enlarge its international terminal and bolster the commercial opportunities. Terminal capacity will reach 3.5 million passengers when the upgrade is completed in 2019.

Adjacent to the international terminal will be a 180-room hotel, open in time for the 2020 Tokyo Olympics.

Osaka Bay—will also be developed. There will be an extension of Terminal 2 opening soon and capacity there will eventually be doubled.

At both airports, retail and security will be improved. With 35% of traffic at Kansai carried by low-cost carriers (LCC), a figure that is creeping up month-on-month, VINCI will pay particular attention to the needs of this market segment.

“One of our key strategies for the airports going forward is a complete revision of pricing,” Menanteau informs. “Part of this will be specific pricing relating to new routes and new airlines. We want to enable traffic development. Kansai is expensive due to the original cost of construction but we want to attract airlines. The first priority is to connect Kansai with Asia and, after that, we will look at other regions.”

The improvements in Osaka can’t come too soon for the airlines. Vinoop Goel, IATA’s Asia-Pacific Regional Director of Airport, Passenger, Cargo & Security Department, admits there are “high expectations” from the new operators of Kansai Airports.

“While IATA understands the government’s push for the privatization of Japanese airports to bring expertise in airport operation and management, there needs to be appropriate safeguards in place through effective service and economic regulation,” he says. “The objective should be to allow for investments while ensuring efficient service levels at low costs for all users. In the end, Japanese airports should provide a cost-efficient environment for airlines to operate in and to/from Japan.”

Goel stresses Kansai must make every effort to be competitive. Japan’s aviation market is mature, and therefore growing slowly, and US-Asia traffic is starting to overfly Japan.

“Kansai airport has seen a huge influx of Chinese travelers and that can allow it to lower unit costs, but it also needs to invest in facilities and new technology to ease overcrowding,” he suggests. •

Japan in 2035

Aviation’s economic impact is predicted to be:

Source: InterVISTAS

325 $115 1.4 MILLION PASSENGERS

BILLION IN GDP

MILLION JOBS

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In this interview • Value proposition • Dynamic market • Cooperation

Interjet’s CEO, José Luis Garza Alvarez, discusses the potential of the Mexican market.

Jason Sinclair reports

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NEW DIRECTION

HEADING IN A What does Interjet do differently compared with other carriers?

Interjet is a hybrid low-cost carrier (LCC) with a unique customer value proposition. Even globally, it is very hard to fi nd another carrier that is reducing the number of seats on their aircraft to improve passenger comfort. But that is what we are doing.

While everyone is trying to increase density as much as they can, we are going in a different direction. I believe in customer service, it is in our DNA. So far, it has worked. Investment bankers in New York always tell me everyone is happy with more legroom and not having to pay extra for extras, but we are leaving a lot of money on the table. They say we should reduce legroom, add seats, and charge for everything. This is the trend.

But our model is a good value proposition.

I hope we can continue balancing high quality with a reasonable price. The pressure is always there at the board level. Right now, the demand is strong enough to support our model.

Perhaps I’m a bit old-fashioned in that respect, but I wouldn’t change our service model even a bit. On the contrary I’ve tried to make sure this differentiation is the most valuable asset of our company. We don’t provide luxury but it is a good experience. Today, flying almost anywhere in the world can be painful. It used to be great. There is room to improve the

up to 50kg free, snacks and beverages—nothing extraordinary—but for free. We provide lots of differentiators, particularly with ticketing flexibility. We have choice with three tariff families. I am confident that we can continue this value proposition. I believe that what we are doing makes us a healthier business.

experience from beginning to end, at the airport and in the aircraft.

The industry is not particularly changing anything but just using marketing techniques.

Carriers are dividing up the services and charging separately for them. Some carriers are losing money on selling tickets and only making money on ancillaries. For me, this is completely irrational. I wonder what type of business are they really in?

We focus on our customer with a complete experience. We provide two pieces of luggage,

What inspired you to start the airline?

An airline is a complicated business. But being the CEO is a thrilling job. And it was a magnificent opportunity.

I’ve been running the company for the last 11 years. Our timing was good. There was a good opportunity in 2004–05 and we guessed correctly. At the time, the two legacy airlines in México had tremendous market shares but also tremendous inefficiencies.

Interjet and others entered the market.

Mexicana collapsed, and the weaker airlines at the time, like AeroCalifornia, also failed.

The consolidation in Mexico was hard and painful because there were no mergers and there were bankruptcies and value destruction.

The Mexican market today is very dynamic and is growing fantastically. Like Brazil and other Latin American countries, we had a very large bus system and a very small air transportation system. We realized that we could expand the air transport market and there is still room for growth.

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The Mexican market today is very dynamic and is growing fantastically. Like Brazil and other Latin American countries, we had a very large bus system and a very small air transportation system.

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Is congestion at Mexico City affecting you?

The Mexico City airport is a major limitation.

It is congested and thwarts additional growth.

The shape of the Mexican transportation system must change. As long as this airport does not expand, there will be a limit as to how much capacity the airlines can add. Right now, we cannot increase operations and this is why many airlines are flying larger planes in and out of Mexico City, to increase passengers per operation.

This is why we are flying Airbus 321s. These problems at the airport will continue until the new facility is built.

What will the new Mexico City airport mean to you?

Like many complex projects there are some good and bad aspects. On the positive side, after decades of losing time a new facility will be built. Frankly, it was needed 25 years ago.

There are tremendous technical challenges. The ground where it is going to be

30

built is terrible, but there is no other space available within the Mexico City valley for a new airport. There would have been benefits with a site outside the city, though.

It would have meant that the current airport could continue to operate as a complementary aerodrome.

There are also challenges on the fi nancial side but a recent bond offering was quite successful. As long as Mexico continues to do things right on the macroeconomic side, I believe it will get the necessary funding.

The airport will be very expensive, however, and the public will pay for the cost when they travel. Nobody knows how much the airport will cost or what the airport fees will be, but transportation in Mexico City has proven to be highly inelastic. For example, overnight the airport increased international departure fees 70% and there was little effect on traffic demand.

There are risks on the political side, too.

There will be a new administration in two years. I think the new administration will continue with the project but it will likely put its mark on it and this could delay the opening.

All things considered, it will take longer than the government has said but we will have a world-class airport.

We are concerned about the size and capacity of the new airport. If we grow at a 7% per annum, the new airport will not have room for additional capacity expansion after it opens. And you shouldn’t spend more than

$10 billion on a facility that doesn’t have room for growth. The second and third phases of the airport probably will need to be looked at seriously from the outset.

What is the role of technology in your business?

Technology is paramount. Just consider distribution. Internet direct sales was a dramatic change. In 2004, the leading airlines in Mexico used to sell no more than 4% of their tickets on the web. The rest was through intermediaries.

We believed in the Internet direct sale model and the impact has been fantastic. And e-commerce in aviation is just beginning.

Interjet flies

15

routes between Mexico and the United States

Interjet was the first Latin-American airline to operate a commercial flight with biofuel

Getting in direct contact with the customer using CRM technology and with big data analysis is just getting started.

Our aircraft from the very beginning were digitized. We monitored them with digital technologies and measured on-time performance, safety, and maintenance electronically. This is commonplace now but it was a leap forward at the time.

Do governments recognize the value of aviation?

Not entirely. Governments in the past viewed air transport as an elite form of transportation for the wealthy and prioritized road transport for bus travel. These were times when 3%–5% of the population was using air transport.

Today, air travel is more like a commodity and considering the time saved, efficiency, and safety, it has a much broader customer base. A little more than 30% of Mexican families can afford air transportation. This is huge.

The value of aviation is not just the movement of passengers. It is the economic impact in the communities where there is air transportation. It is an accelerator for development and GDP growth and it brings great technological advances. The labor generated by the industry is a highly trained and technically-savvy workforce generating tremendous value for the country.

On the horizon is the impact of bringing in new aircraft. If you look at Mexico up until the 1990s or 2000s, the fleets were outdated. Now, we have one of the youngest fleets in the world. This contributes to a dynamic workforce of engineers, maintenance bases, and technology behind the scenes at the maintenance facilities. And it has brought a new breed of people to the industry. Mexico is becoming one of the most important countries for aerospace and that is fantastic.

What is the future of aviation in Mexico?

The dynamics will change radically. For decades, Mexico has been afraid of competing with the US carriers and the US market, which is the biggest in the world. This fear is rooted in reality. There are roughly 350 Mexican commercial aircraft in operation, which is a fraction of a single fleet of one of the US majors.

We discovered that the US carriers prefer to have a strong

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IMAGE: SUSANA GONZALEZ/BLOOMBERG VIA GETTY IMAGES

December 2005 – Present day Chief Executive Officer, Interjet. Garza Alvarez has been responsible for the success of Interjet since the beginning. The airline was built from scratch in record time and began operations in December 2005.

During this process he created a complex execution plan as chief coordinator.

José Luis Garza Alvarez examines a jet at Interjet’s maintenance hangar in Toluca, Mexico

partner in Mexico and cooperate in a joint effort, not only cross-border but also globally. Delta and Aeromexico have shown the path. It takes a strong commercial alliance and a strong maintenance alliance.

And maintenance is particularly attractive here. It is not only strong on the productivity side but also inexpensive. What has been done in tech ops in Querétaro is an example of that.

The huge US fleets are better off both in terms of cost and productivity if they have the have the major maintenance performed in Mexico.

The other attractive element here is equity.

Cooperation among alliances have their limits.

If you want to have a deeper integration, you have to have some sort of capital equity investment. It is not just money, it is the talent, management, and best practices that are brought in.

Now that we have an open skies agreement in the US, there is little doubt there will be radical change in Mexico, and the US integration is inevitable. It also makes sense for us to forge alliances with our southern neighbors.

As the airlines in Mexico expand their footprints, it makes sense for some of this expansion to take place in Central and South America.

Tell us a little bit about why you joined IATA? We joined IATA when at the time that we

José Luis Garza Alvarez

Now that we have an open skies agreement in the US, there is little doubt there will be radical change in Mexico, and the US integration is inevitable moved into global alliances. We had to adjust our regional distribution and communication with our customers to a hybrid model. We needed to be able to interconnect our reservation system with others and we recognized the tremendous value of the Billing and Settlement Program (BSP) and the IATA clearing house. It is the worldwide standard and it has brought us tremendous value. From 2006 we have been IOSA-compliant but we were not IATA members until 2015.

What is the future for Interjet?

We aren’t oneworld-focused. We started with our most logical partner, which is Iberia, and with Iberia came British Airways. Iberia is a codeshare and BA is an interline agreement.

Then LAN, a member of oneworld, came into the picture, and also American, our US codeshare partner. I don’t believe we are ready to become a full oneworld member yet but we aren’t ruling it out either. •

1991 Established Garza Alvarez & Associates, a financial services and consulting firm specializing in setting up, developing, and financing new projects, as well as financing and financial services.

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Education 1976: Master’s in Management, The London School of Economics.

1966-90: Bachelors Degree in Political Science and Public Administration, Universidad Iberoamericana, Mexico.

Academic Honors: Graduated Magna Cum Laude and was granted the national award for being one of the best students in Mexico.

Interjet fleet:

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aircraft, 48 Airbus and 22 Superjet 100s

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In the feature • CORSIA • Environmental targets • Carbon offsetting

TIME TO ROLL THE SLEEVES UP The historic International Civil Aviation Organization (ICAO) agreement is the first step on the road to aviation’s long-term environmental target, though the details remain a work in progress

I 32

n early October 2016, ICAO’s 191 member

voluntary for states from 2021 until 2026, at

a mandatory scheme that forces

states agreed to implement a Carbon Offset and Reduction Scheme for International Aviation (CORSIA). The agreement will support the industry’s work to stabilize its emissions with carbon neutral growth.

“The historic significance of this agreement cannot be overestimated,” says Alexandre de Juniac, IATA’s Director General and CEO. “CORSIA is the first global scheme covering an entire industrial sector. The CORSIA agreement has turned years of preparation into an effective solution for airlines to manage their carbon footprint. Aviation is a catalytic driver of social development and economic prosperity—it is the business of freedom making our world a better place.

This agreement ensures that the aviation industry’s economic and social contributions are matched with cutting-edge efforts on sustainability. With CORSIA, aviation remains at the forefront of industries in combating climate change.”

which point it becomes mandatory. CORSIA starts from 1 January 2021 because airlines need to assess their emissions for the full 12 months of 2020, making 2021 the fi rst year of compliance.

“And CORSIA is voluntary because that is what it took to get the deal done,” Gill explains matter-of-factly. “As you can imagine, a lot of political negotiations have been going on and making the scheme voluntary was the solution which gained consensus among states—particularly after the successful Paris Agreement last year for other parts of the climate challenge, which is entirely voluntary in nature.”

Gill accepts that the industry was pushing for full mandatory coverage from day one but believes the voluntary agreement may actually prove beneficial in the long run. “It may be better to work with states that have signed up on a voluntary basis and are eager to push forward and fi nd solutions than have

states with reservations to comply,” he says.

In any case, a significant number of states seem eager to participate, with even some small island nations and developing economies showing their commitment by signing up. By early November 2016, 66 states had agreed to take part in the voluntary stages, which means that over 80% of the growth in international aviation will be covered after 2020.

Voluntary scheme W hile the ag reement is being rig htly applauded, Michael Gill, Executive Director of the Air Transport Action Group (ATAG) and Director, Aviation Environment, IATA, stresses that it is just the beginning. “We need to get CORSIA implemented,” he insists.

“And we must continue working on the other pillars of the industry’s environmental strategy to ensure we reach the long-term target of halving 2050 emissions compared with 2005.

Because that target is now coming into focus.”

Under the ICAO agreement, CORSIA is

With CORSIA, aviation remains at the forefront of industries in combating climate change

Simple compliance For airlines, CORSIA compliance comprises monitoring and reporting their carbon emissions and then offsetting a corresponding amount. Some of the fine detail of the monitoring and reporting requirements are still being worked on at ICAO but it is expected that this will be finished during 2017.

Once the scheme kicks in, airlines will comply by purchasing the necessary credits in carbon offsetting projects. Exactly what criteria will validate the offset projects is also being fi nalized in ICAO in the next year but environmental integrity and administrative simplicity will be priorities. The projects will cover a broad spectrum of conservational work and be located across the world.

“For IATA, the challenge ahead is to work with those governments not yet committed to the voluntary scheme,” says Gill. “There are a few notable absentees who need to be convinced of the merits of the scheme.”

IATA also intends to continue its work with the NGO community to ensure the mo-

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Environment

“Because the industry is so ambitious in its environmental goals, we cannot look to CORSIA alone. It will not lead to a sustainable future by itself. Every aspect of our work to reduce carbon emissions remains critical”

from feedstock systems with the

mentum of the ICAO agreement is maintained and all stakeholders are working toward a common cause.

Last, but not least, IATA will be ensuring airline members are ready to comply with CORSIA. Over the next few years, regional workshops will train airlines in CORSIA compliance. At the same time, ICAO will work with governments to prepare them for their enforcement role.

Other pillars With the 2050 target now looming on the horizon, the other three pillars of aviation’s environmental strategy working alongside a global market-based measure—improvements in technology, operations and infrastructure— must not be neglected.

“Because the industry is so ambitious in its environmental goals, we cannot look to CORSIA

alone,” says Gill. “It will not lead to a sustainable future by itself.

Every aspect of our work to reduce carbon emissions remains critical.”

The massive order book for new, environmentally efficient aircraft is one major avenue of improvement. But the big push in the coming years will be the commercialization of sustainable alternative jet fuels. While their success in operational terms has been proven beyond doubt, agreements to use them in the long term are still newsworthy events.

In February 2016, Oslo Airport became the first gateway to supply airlines with alternative fuels for regular daily fl ights, for example. And JetBlue has announced its intention to start using renewable energy sources for fl ights from New York from 2019 in a decade-long agreement. “This is a fi rst of many steps towards a slowly evolving change,” says Robin Hayes, JetBlue’s President and CEO. “With our partner, SG Preston, we are pursuing renewable jet fuel production

ability to lower CO2 emissions by 50% or more per gallon before blending. This is a proactive step to address customer demand and protect our business and the future of our industry.”

United Airlines, Lufthansa, KLM, Cathay Pacific, FedEx and Southwest Airlines are among the other airlines making significant commitments to the future of the industry through alternative fuels.

Meanwhile, Finnair’s Kati Ihamäki, Director of Corporate Responsibility, says climate change mitigation has been an ongoing process at the airline for several years. “We are currently completing the modernization of our long-haul fleet with the new Airbus A350, which is the one of the most energy-efficient aircraft on the market,” Ihamäki informs. “In addition, we are also heavily involved in the Helsinki Green Hub project, which aims at facilitating the future use of biofuels at our Helsinki Airport hub.”

Gill says that it is encouraging to see more and more airlines playing a leadership role in getting this new energy source into daily operation. But breaking the cycle of high price, low demand and low supply will take a renewed collaborative approach across the sector. “We need a smart regulatory framework to create favorable market conditions that would be a win for all parties,” Gill believes.

“The ICAO agreement shows what can be accomplished when we all work together,” he concludes. “The aviation industry understands that sustainability is critical and we won’t leave anything or anyone behind.” •

33

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In this interview • Growth • Efficiency • New routes

I’m comfortable with our growth, to date and in the future. I’m confident that there is still so much more to come from the region.

IMAGES: GETTY

34

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CEO interview

DANCING TO THEIR OWN BEAT Graham Newton spoke to Ghaith Al Ghaith, CEO of flydubai, on the vision for the airline and the importance of challenging conventions in the industry

Is flydubai set to continue its extraordinary growth?

It has been an amazing experience so far. We are in our ninth year since flydubai was founded now and I can still clearly remember the beginning—talking about our plans, about how we were going to grow, and devising the strategy. I am glad that we have achieved everything we set out to do.

I am sure we can continue growing in our market. We serve 59 destinations that were not previously served from Dubai. And we have developed frequencies that few people thought were possible. We are creating something new. The airline is breaking boundaries.

At the moment, only around 3.5% of our seat capacity is to India so there is much more room to grow there. I am also optimistic about the opportunities in Iran. It has huge potential and we’ve only been flying there for just over two years.

That’s why we’ve ordered many more air-

35

craft. We have 55 Boeing 737-800s in our fleet at the moment. At the Dubai Airshow in November 2013 we ordered 75 737 MAX 8s and 11 Next-Generation Boeing 737-800s. In addition, we retain purchase rights for 25 more 737 MAXs. I’m comfortable with our growth, to date and in the future. I’m confident that there is still so much more to come from the region.

How do you decide on your destinations and is Emirates’ network an influence?

At flydubai, we just look for an opportunity.

It is as simple as that. It really doesn’t matter whether Emirates fly there or not. As long we have the right to fly, we look at the potential of a destination and if we think it makes sense for us to fly there, we will.

As mentioned, we have plenty to do in the region, within our flying radius, so there is no need to look further afield for the time being. We’re not interested in long haul as DEC-JAN 2017

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CEO interview

IMAGES: GETTY

36

most people define it and we have no plans to order different aircraft. We will stick with the Boeing 737s.

At the end of November 2016, we started to serve Bangkok twice a day. There is huge demand for Bangkok, for Thailand, and for the region. So connecting with Bangkok made sense. It was an opportunity not to be missed.

How do you keep costs low as you expand?

You just have to be as efficient as you can be.

We have one aircraft type and we put in a big

5,577

It operated 5,577 more flights in the first half of 2016 compared with the same period in 2015

flydubai ordered 111 Boeing 737s in 2013

order in 2013, which kept the price per aircraft low. We only keep our aircraft eight years before moving them on so they are cheap to maintain and fuel efficient. We aim to utilize them 14 hours a day.

We are also lucky that the fuel price is very low at the moment. Fuel accounts for 23.5% of our total operating costs, down from 30.6% last year. And we have reduced our hedging position too.

But there is a part of the equation that many people do not realize. When oil is cheap, it puts pressure on our governments, on our economies, and on us all. Of course, we like having a low fuel price but where a government spending is in deficit you must be wary about how you proceed.

We have unbundled the product as is usual for a low-cost carrier (LCC) but we are openminded about what else we can do to keep costs low or drive new revenue streams. We have an in-flight entertainment system that passengers can choose to pay for, for example, and we have introduced business class. This isn’t the norm for an LCC but, as with our network, we look for an opportunity. We respond to our passengers and our market.

What are the main challenges facing flydubai?

We live in a much smaller world. Everybody is connected to everybody else, economically and culturally. Airlines have enabled this and they will continue to unite the world.

But that inter-connectivity brings its own

Ghaith Al Ghaith March 2008 – present day Chief Executive Officer of flydubai February 2015 Independent Non-Executive Vice Chairman, Jumeirah International 2009 and 2011 Awarded Aviation CEO of the Year at CEO Middle East Awards August 1995 – March 2008 Executive Vice President of Commercial Operations Worldwide of The Emirates Group October 1994 – August 1995 General Manager of Commercial Operations for Middle East, Africa & CIS, The Emirates Group

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CEO interview

The airline has opened up 59 new routes not previously served from Dubai

Dubai International Airport’s stylish Terminal 3

38

And open skies are not enough on their own either. We must have a relaxation of the visa situation across most of the region. About 80% of the people in Dubai are expatriates and most of our passengers need a visa for the majority of places we fly them to. It would be much easier to for everyone to do business if we could find a solution and make travel easier.

What new technologies do you believe will be the most influential in the years ahead?

We are living in a world that is becoming increasingly technologically-savvy. That means flydubai has to respond to that and provide products that enhance the passenger experience. We are always trying to introduce new ideas and new technology.

But we are quite fortunate. This is not a region that is fi rst in new technologies. So, we have the chance to look at Europe and the United States and spot the trends and see what is working. For me, it boils down to providing access—for the customer to the airline and for the airline to the customer.

I’m also very excited about Wi-Fi and live TV. If we can keep the passenger connected, it not only enhances their travel experience but also enhances our service levels. We can use that connectivity to make our crew and staff more efficient in responding to requests.

Are you happy with the infrastructure at Al Maktoum International Airport? And how will you use the two Dubai airports?

We’re already using Al Maktoum International

IMAGE: GETTY IMAGES

challenges. Primarily, even though we are connected—and want to be more connected— we can’t control everything. So, we cannot dictate what other governments do and what their aviation policies might be.

If we are to continue doing our job well, we need open skies across the region. The United Arab Emirates (UAE) has open skies, of course, but that is not the case for most countries in our region.

4.9 million In the first six months of 2016, flydubai passenger numbers rose to 4.9 million; 16.5% up compared with the same period in 2015

flydubai became an IATA member in March 2016 (DWC) quite extensively. We’re really happy with it. It’s a great facility and we are able to operate efficiently. Our turnaround times are excellent, for example. The development there is exciting and it will be our main airport for the foreseeable future.

But we’re also using Dubai International Airport (DXB) and that is an excellent facility too. In fact, I can envisage a future when we might concentrate on DXB again. It very much depends on the scenario and we will continue to monitor things closely. But it is easy to see how Emirates might grow to dominate capacity at DWC and at that point it might make sense for flydubai to be based at DXB. It is a possibility, nothing more than that.

The scenario could play out in a number of different ways.

Are you confident that the airspace challenges in the region will be solved?

I have complete confidence in our government and regulator to ensure the infrastructure in the sky matches that on the ground. There are challenges but, as usual, the UAE will move a lot faster than anybody expects.

This is a productive, forward-looking region. We will solve the airspace challenge.

After all, it has not stopped us so far.

What makes a good airline CEO? To be successful anywhere or in any job, you need to get the best out of your team and make the most of the culture and environment you are in. If you can align that with a vision of how the business should progress, it will continue to reach new heights. •

AIRLINES INTERNATIONAL

CEO FlyDubai__Airlines International 38

14/12/2016 11:21

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CEO FlyDubai__Airlines International 39

14/12/2016 11:21

In the feature • Digitization • Futureproofing • Artificial intelligence

LIVING IN A DIFFERENT WORLD

40

Digitalization is forcing a paradigm shift in business models. But can airlines move quickly enough?

A

lexandre de Juniac, IATA’s Director General and CEO, has already made clear his focus on improving the industry’s speed of innovation.

“I value speed,” he says. “Our world is changing very rapidly. Each day brings something new—at times it’s a challenge, other times it’s an opportunity. The key to success is being able to respond quickly. My experience in the air transport industry has been that we often struggle with speed, and, as a result, innovation can suffer.”

There are good reasons why the industry must innovate faster. Aidan Brogan, Datalex’s CEO, says competitive advantage will only flow to those that act first. “We are entering the most transformative wave of digital disruption where an evolving supply chain will compete to distribute optimized and profitable offers, and meet the customer expectation for connected, tailored, and relevant engagement.

“A digital transformation is about building

the flexibility and agility needed to manage a rapidly evolving aviation value chain,” he adds.

“The airline needs to relentlessly broaden its technology capabilities, and scale its data and infrastructure to meet that challenge.”

In one sense, then, the fundamental for success hasn’t changed. Customer service is still the name of the game. But serving them well now necessitates a fast-moving, adaptive business model. Customers are demanding

“That took time and money.

Now, thanks to cloud computing, if necessary, we could do tests multiple times a day and for a few hundred dollars.

Cloud computing is a major tool.”

innovation, be it buying a coffee or booking an airline seat.

And the demand for innovation in customer service will only accelerate. “The rate of change is increasing across all industries, and especially a customer-facing industry like aviation,” says Tim Grosser, IATA’s Head of Digital Transformation. “The way to communicate with customers is continuously changing. If you don’t innovate, your current or future competitor will. Innovation is not a choice. The mindset must be to move faster.”

The problem can be boiled down to basic math. At best, only one in 10 ideas will bear fruit and so it is essential to find that one idea as quickly as possible.

Structured process Grosser suggests airlines need a structured process to move from idea to evaluation to implementation. Rather than focus purely

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Innovation

on creating new ideas, airlines must also plan and control the execution of the innovation project portfolio. An idea without realization is just an idea, not innovation. The key is to define the problem that needs solving and then focus on the scope of the solution required.

Accepting failure and understanding global trends are essential. “The failure of ideas is part of the process, and brings you one step closer to finding that successful idea,” Grosser notes. “But you must focus on where you want to innovate by looking at the big challenges, which have the big payout. Also, look at new technologies and see where they are providing new opportunities.”

Partnerships throughout the process increase the chances of a positive outcome.

Already, many airlines are partnering with technology providers, universities, and startups to brainstorm potential new products and test their viability.

This needn’t be a costly affair. “Not so many years ago, developing a new, technology-based product would have involved lots of resources, such as buying a server and setting it up,” says Grosser. “That took time and money.

Now, thanks to cloud computing, if necessary, we could do tests multiple times a day and for a few hundred dollars. Cloud computing is a major tool for speeding up innovation.”

At October’s World Passenger Symposium, Dr Jassim Haji, Director of Information Technology at Gulf Air, revealed that the implementation of cloud technology has enabled the airline to reduce the number of physical servers 35%, amounting to a 24% cost saving in capital expenditure. These cost savings enable more investment into innovation.

And there are other methods too. No longer is it necessary to develop a product and put it out to market before you truly know whether your customers are interested. Old-style marketing and focus groups might have eventually provided an acceptable insight before. But these days, a simple icon for people to click through for more information will tell you if people are interested and if that product is worth developing. Valuable data can be at a company’s fingertips within hours. Leading tech firms use such approaches to take an idea to a minimal viable product in just three months. Airlines are not yet at that speed but it provides a guideline for the industry’s aspirations.

“Being quick and being accurate are not competing goals,” explains Grosser. “They can coexist quite happily. Being smart in innovation leads not only to speed but to a better product.”

“If you don’t innovate, your current or future competitor will.

Innovation is not a choice. The mindset must be to move faster.”

In short, it is much easier now for airlines to experiment or change direction.

Artificial intelligence Personalization is a key area where the speed of innovation will be crucial. Just as everybody wants a coffee made to their exact specifications, so too will the travel experience become even more customized.

An emerging trend in this regard is artificial intelligence. “This is becoming a mature concept and airlines should be looking at it closely for future development,” says Grosser.

“Algorithms are capable of learning. A spelling mistake when you type in a search engine is a simple version of this. It will ask ‘did you mean this’ and it will probably be right because it has learned over time. So, for airlines, if the passenger books A, B, and C then most likely she will want D. That’s an opportunity to offer it now!”

Mobile is the main channel for personalization and seems set to stay that way as it corresponds with larger, global trends. Rob Webb, Chief Information and Technology Officer, Etihad, says the global traveler’s digital experience is a key factor in purchas-

ing decisions and mobile is working. “I wish I had invested a lot more money in mobile a lot faster,” he notes.

Many other aspects of airline distribution and operations could benefit from timely innovation. Fortunately, many airlines are beginning to invest heavily and innovation has become a main driver of business.

IATA’s Simplify the Business (StB) program is assisting. It has partnered with a Silicon Valley incubation firm, Plug and Play, to drive innovation across the industry. In 2016, StB focused on reinventing the baggage process, the future of payments, digital identity, and collaboration via open application program interfaces. This program assists both large and small airlines by pooling resources and collectively focusing on the major problems.

“Tectonic changes are underway,” stresses Neetan Chopra, SVP, Emirates Group IT. “Digital business models have a completely different form. We are used to steady growth but these new digital artisans live in an exponential world. It is not about doing digital, it is about being digital. It is about action.

Ideas should be shared but for a business it is about execution and speed.” •

41

Futureproofing innovation An airline is a highly complex business encompassing selling, servicing, and operational logistics. And it must cooperate with global business partners that are challenged with complex international macro-environments.

Hariharan Subramanium, Vice President, Reservation and Departure Control Systems, Sabre, says it’s challenging to increase the rate of innovation in this type of environment, but “data-driven technology is the key to unlocking the personalized, end-to-end customer experience that the traveler desires, and the airline wants to deliver. This way, those three different business competencies work in rhythm to turn an enterprise-wide

challenge into a customer-pleasing differentiator for the airline.”

A cutting-edge technology infrastructure can futureproof the work. Airlines can adapt by using cloud and mobile technology to scale up now and in the future.

“We consider short, medium, and long-term value for customers from our innovations,” says Subramanium. “For example, we use co-designing and a community model to stay aligned with long-term customer strategies. When launching new solutions, we work with alpha and beta partners to ensure that we deliver the business benefits that solve the most significant problems faced by the airline industry.”

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In this feature • Single European Sky • Infrastructure • Cooperation

FLIGHT

DELAYED

BY POLITICAL INACTION

European governments must find the resolve to help aviation overcome an infrastructure crisis if they are to reap the full benefits of air connectivity

42

Alexandre de Juniac, IATA’s Director General and CEO, says he fears the industry is heading for “an infrastructure crisis.”

Congestion is already an established reality in Europe. The number of slot-coordinated airports is a good indicator, de Juniac notes.

“This tells us where there is not sufficient capacity to meet demand,” he says. “At present, airport slots are allocated at some 175 airports worldwide, 102 of them in Europe.

Capacity issues are not limited to Europe, but clearly Europe faces a huge shortfall in both air traffic management (ATM) and airports.

“Inadequate infrastructure negatively impacts the passenger experience in the form of fl ight delays, longer routes, and inefficient schedules,” he continues. “Then there is the cost to economies of lost business opportunities, employment, and social development.”

Eurocontrol’s latest estimate is that by 2035 a “most-likely” scenario will see 12% of demand go unaccommodated, corresponding to 1.9 million flights or 120 million passenger roundtrips.

Given that aviation is a critical catalyst for

economic and social development, supporting close to 12 million European jobs and $900 million in economic impact, the need to avoid a European infrastructure crisis is critical.

Inefficient skies More runways and terminals can only help so much. European skies are inefficient and, says de Juniac, “the Single European Sky (SES) initiative is failing.”

Average fl ights are nearly 50km longer than they need to be and delays average around 10 minutes per fl ight. An IATAcommissioned study by SEO Economic Research estimated that these inefficiencies, if unchecked, will grow in the next couple of decades to eventually cost the European economy €245 billion and 1 million unrealized jobs.

The Single European Sky project aims to deliver a threefold increase in capacity, improve safety by a factor of 10, reduce aviation’s environmental impact 10%, and cut costs by 50%.

But national interests are prevailing over

common sense and watered down performance targets are doing little to help. During 2015, there were 14 million minutes of delays and 2016 is set to fi nish higher. That makes it likely that European Commission delay targets will be missed by more than 70%.

“SES is blocked and a new approach is desperately needed,” says Peter Curran, Assistant Director for ATM at IATA. “The system simply won’t manage the demand put on it in 5 or 10 years’ time. The Network Manager estimates an additional 13,000 daily flights by 2035.”

IATA argues for a fundamental redesign of the way European airspace is managed to enable greater flexibility in flight profiles and a reduction in fuel, emissions, and delays.

National Airspace Strategies (NAS) have been identified as the best way forward.

Simply, these entail a national level program that sets out the case for modernization, including working arrangements and immediate priorities.

NAS principles include: • Industry inclusive governance with all key

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Infrastructure

A fully modernized and reformed airspace in 2035 would provide:

1.3%

more hotel beds to aid the tourism industry

Up to

2.2%

faster expansion of trade in services

stakeholders developing and monitoring performance • Business continuity that addresses service resilience to failures, the ability to recovery when failures do occur, and contingency arrangements • Integration with the wider network and alignment between national approaches “European passengers deserve a better system, one that works without unreasonable delays and costs,” Curran insists. “Brussels can’t drive the SES on its own. If we want to realize €245 billion and 1 million European jobs in 2035, then we need a commitment to change at the national level.”

De Juniac concludes that providing infrastructure is the responsibility of governments.

And experience shows that the best results come when consultation with users keeps their needs in focus as the developments take place.

“No matter how much or how quickly we innovate our processes, there is no getting around the need to be both smart and quick in growing airport and airspace capacity,” he adds. •

1.3%

more employment in knowledgeintensive industries

5.5%

more patent applications and 4.7% greater research spend

Tipping point Olivier Jankovec, Director General at ACI Europe, agrees that there is “no question” that Europe is headed for an infrastructure crisis. European governments must ask themselves when the tipping point will be reached and what they can do to minimize the damage, he suggests.

But “there is little of the political vision or appetite for grand projects as there was in the past,” he warns.

Without sufficient air transport infrastructure, there would be a significant impact on one of the central pillars of the European Union—freedom of movement. Speaking earlier this year, Carolyn McCall, easyJet’s CEO suggested that “when economists actually looked into this they concluded that 75% of intra-European passenger journeys currently made by air would not be made if travelers had to use rail or road. And, of course the number would be even higher for long haul air travel.”

The Task Force at the European Observatory on Airport Capacity and Quality has made some lukewarm recommendations, such as creating a repository of Master Plans in the Network Manager. It also recommends taking a holistic view of the capacity crunch and tasking “the Network Manager with assessing key national and airport plans periodically against forecast needs, identifying bottlenecks and challenging Member States to fill or otherwise manage identified capacity shortfalls.”

But Jankovec’s view is backed up by figures produced by Eurocontrol, which found in its last Challenges of Growth study that airport expansion plans are increasingly rare, with just 17% capacity expansion planned up to 2035. IATA’s latest 20-year passenger forecast puts European growth at 2.5%, annually, equating to an additional 570 million passengers a year. In 2035, the total European market will be 1.5 billion passengers.

Jankovec does see some hope in partnership. All stakeholders—airlines, airports, and governments— must play their part in driving forward a solution.

“The key thing that all those parties want is efficiency, that’s the common ground and that’s the foundation,” he continues. “Fundamentally, if you support the Single European Sky, then supporting infrastructure development on the ground is a logical, aligned position. SES proposes to triple airspace capacity in Europe—but if you don’t have matching airport capacity on the ground, then the problem of congestion or inefficiency doesn’t go away. It simply moves to another part of the air transport supply chain. It’s the same with air traffic rights liberalization.

These are only meaningful when there is adequate capacity for new entrants to access the market.

“We are all in this together,” he adds. “There isn’t a magic, instant solution. It takes time and gradual degrees of cooperation.”

43

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Data

IATA 20-YEAR AIR PASSENGER FORECAST Country pairs with the biggest changes in passenger numbers (International only) Country pair

44

The five fastest-growing markets in terms of additional passengers per year over the forecast period will be CHINA (817 million new passengers for a total of 1.3 billion) US (484 million new passengers for a total of 1.1 billion) INDIA (322 million new passengers for a total of 442 million) INDONESIA (135 million new passengers for a total of 242 million) VIETNAM (112 million new passengers for a total of 150 million)

Growth and change in passenger journeys by region (% and million, 2015-2035) North America

535m 2.8%

Latin America

345m 3.8%

Additional x thousand pax per year by 2035

Annual % growth

1

UAE - India

20,319

6.3%

2

Mexico - US

18,858

3.0%

3

Korea - China

17,704

4.0%

4

Malaysia - Indonesia

16,560

6.7%

5

China - Taiwan

15,791

4.2%

6

Saudi Arabia - UAE

14,532

7.7%

7

Thailand - China

13,610

3.9%

8

Hong Kong, SAR Chinese Taipei

13,275

5.5%

9

Canada - US

13,084

2.2%

10

Singapore - Indonesia

12,800

5.7%

Europe Middle East

570m 2.5%

245m 4.8% Africa

192m 5.1%

Asia Pacific

1,836m 4.7%

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7,200,000,000 Data

is the number of global air passengers predicted by 2035, nearly doubling 2016’s 3.8 billion Brexit Scenarios – UK air passenger market (Million O-D Passengers) 320 ‘Soft’ Brexit

300

Population Change Top 10 growing and contracting nations to 2035

Moderate case

280

‘Hard’ Brexit

260 240 220

India

200 2016

273.6m

Nigeria

111.8m

2018

2020

2022

2024

2026

2028

2030

2032

2034

2035

Alternative scenarios for passenger traffic (Global passengers O-D basis, billion) 10

Pakistan

9

73.2m

8

Constant policies scenerio

7

A pick-up in protectionism

45

DR Congo

60.2m

Ethiopia

52m

A relaxing of regulations

6 5

USA

49m

Indonesia

4

47.1m

3

Tanzania

41.5m

2 2015

Egypt

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

34.1m Uganda

Breakdown of global passenger market

32.1m

(% of global O-D passengers)

Within developing markets

70%

Within advanced markets

60%

Belarus Romania Serbia Bulgaria Germany Poland Spain Ukraine Russia Japan

-0.8m -0.8m -0.9m -1.0m -1.2m -1.5m -1.6m -5.5m -7.9m -9.6m

Between advanced and developing markets

50% 40% 30% 20% 10%

2035

2034

2033

2032

2031

2030

2029

2028

2027

2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

0%

To find out more, go to www.iata.org/ passenger-forecast

DEC-JAN 2017

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14/12/2016 16:14

Soapbox

LOCK IN CUSTOMERS AND LOCK OUT Is it time for airline ticket sales to be reinvented?

F 46

Sachin Goel, Founder and CEO, Optiontown

or too long, air travel has been, and still is, an impulsive one-time purchase. As such, it is often based on the strongest influences at the booking moment—a slightly lower fare, a timing that seems 30 minutes more convenient, a new product, a new brand, a new gimmick.

Frequent flyer programs try to address this. But consider the mobile phone industry: how often does a subscriber switch telephone service providers? Rarely, if ever!

Imagine locking in your customers to blocks of 5, 10, 20 fl ights or more. Imagine not having to win customers’ loyalty on a trip-by-trip basis. Imagine securing up-front revenues, improving cash flow.

Many airlines, including British Airways and Vistara, the Singapore Airlines-TATA joint venture, have launched a disruptive innovation: Flight Pass. It helps in minimizing the cost, time and effort invested in the fl ight booking process. Compared to static, restrictive older airline coupon booklets, the new fl ight subscription can be customized by customers and revenue managed by airlines. So, a perfect win-win for both.

Flight Pass subscription is like selling corporate deals to consumers, who aggregate their future demand.

Subscription brings long-term sales commitment by defi nition and creates loyalty as a by-product. Flight Pass subscription co-exists in parallel with loyalty programs, indeed offering better deals to loyal customers.

Don’t you think Flight Pass subscription offers the perfect formula for incremental revenues and to lock-in customers and lock-out competition? Let’s compare with single ticket transaction model. In subscription, the customer can lock-in a price for a number of trips and self-defi ne all the terms like number of destinations, peak or off-peak travel periods, the lead-time for booking, the names of multiple passengers, and so forth.

Airlines can fully revenue manage the subscription pricing; the price per fl ight offered depends upon the conditions chosen by the customer and is dynamically calculated by subscription revenue management algorithms based on pre-determined rules fed by the airline. Subscription increases customers’ willingness to pay as they tend to pay more for greater freedom and premium features, flexibility, and convenience.

But because they self-selected, they are happy with their decision and do not feel pressured. The customer may then freely book fl ights as per their desire, according to their rules. If the customer needs to step outside the self-imposed rules, then a nominal fee may apply for the same, driving additional revenues. Customers fly more once they get into subscription model as it is easier to book and fly. The subscription model allows airline to reduce number of low fare promotions required as customers are locked in. Let your competitors enter into low price battles while you increase your yields and revenues at the same time! A subscription model also generates additional profits from partially utilized credits or underutilized premium features.

The benefits of a fl ight subscription can be shared with friends and family effortlessly. All the included members can use as many fl ight credits as they want without any pre-fi xed limit. Thus, the subscription can be used by corporate and business travelers, by those who travel regularly to specific destinations, by families for leisure trips or by students, and many other customer segments.

A light touch implementation with no capital expenditure and no IT development always sounds too good to be true. It is time to re-think the fundamental paradigm. Risk fi ghting for every single ticket sale or build subscribers paying you hundreds or thousands of dollars per month for years to come. •

AIRLINES INTERNATIONAL

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21-23 February, 2017 LEGAL SYMPOSIUM

WASHINGTON DC

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AN ALLIANCE ON THIS SCALE ACHIEVES BIG THINGS.

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Watch our progress at EngineAlliance.com.

A DIFFERENT SCALE ALTOGETHER.

Engine Alliance, LLC, a joint company of General Electric Co. and Pratt & Whitney

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