Airlines International - June/AGM 2015

AIRLINES INTERNATIONAL JUNE AGM 2015 - ISSUE 56

INTERNATIONAL ISSUE 56 JUNE AGM 2015

The AGM issue

SPECIAL REPORT

CEO INTERVIEWS

Brazil – flying against the tide

American Airlines, Lufthansa, Virgin Atlantic

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Airlines International

CONTENTS COMMENT

SPECIAL REPORT

54

11 Tony Tyler The IATA AGM is a unique stage on which the industry can demonstrate the value of global connectivity

28 Flying against the tide Brazil needs to support its aviation industry with global best practises

FEATURES

AGENDA

40 The need for speed Regulations must match the pace of development in RPAS

14 Industry and IATA update Going global in Brazil; standard invoicing; pilot mental health; Nepal help; ATFM promotion

42 Pulling in the same direction The manufacturer-airline relationship is crucial to both parties

70TH ANNIVERSARY 20 The IATA AGM’s key role in bringing airlines together

52 A golden opportunity Paperless operations need cooperation to boost efficiency

CEO INTERVIEWS 22 Patience is a virtue American Airlines’ CEO, Doug Parker, says that airline mergers pay off in the end

52

42

56 The latest industry statistics

SOAPBOX

46 Turning the tide Virgin Atlantic’s CEO, Craig Kreeger, describes his plans to transform the airline

Editorial Contributing editor Graham Newton Art director Mark Parry Picture editor Claire Echavarry Production Production manager Jane Easterman +44 (0)20 7880 6240 jane.easterman@redactive.co.uk Content and account director Melody Bartlett Publishing director Aaron Nicholls www.airlines.iata.org

54 Overcoming hurdles IATA’s Fast Travel program has progressed but hurdles remain

DATA

34 Working day and night Lufthansa’s CEO, Carsten Spohr, talks about the way forward for the group

IATA Corporate Communications Director Anthony Concil Creative direction Richard McCausland

9

58 Violeta Bulc The industry must speak with a single voice

Advertising Business development manager Nigel Collard +44 (0)20 7324 2763 nigel.collard@redactive.co.uk We welcome feedback, content ideas and distribution requests at airlinesint@iata.org

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

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

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

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

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Comment • Tony Tyler • Director General and CEO, IATA

“It is, of course, people—the 2.3 million employed by airlines around the world—who make possible all that aviation does”

THE FASCINATION OF FLYING P eople are fascinated with flying. Open almost any newspaper or news site and chances are there is a story having something to do with the aviation industry. That is not that surprising for a lot of reasons.

To start with, powered flight represents an amazing technological achievement that has captured the imagination.

The technical capability to cover great distances, irrespective of the terrain, and at high speeds has made aviation into a major economic catalyst.

At nearly $800 billion, the global annual revenue of the airline industry accounts for about 1% of global GDP. Add in the value of tourism and the contribution triples to some $2.4 trillion. The $6.4 trillion of goods carried as cargo— nearly one-third of global trade—is an impressive measure of the value of connectivity, but it vastly underestimates the vital enabling role that aviation plays in modern business.

The Nepal earthquake highlighted another facet of aviation that receives less attention than it deserves. It’s a lifeline.

The world depends on aviation to carry emergency responders, medical supplies and equipment to those in need when disaster occurs. Less dramatic but equally critical are services to remote and island communities. With a few kilometers of runway—or even just a float plane jetty— almost anywhere can be connected to everywhere.

Above all, flying is personal experience for the 3.5 billion passengers who will board aircraft this year. It provides the freedom to bridge enormous distances. That creates opportunities to build business links, re-kindle family ties or broaden horizons by exploring our world. Experiences— good and not-so-good—are shared among friends, in specialist chat rooms and through literature of all kinds.

Flying is a common-interest topic about which many are passionate.

It is, of course, people—the 2.3 million employed by airlines around the world—who make possible all that aviation does. The vast majority of these are the unsung heroes who go about the business of competing to be fi rst choice for travelers and shippers. That spirit of competition extends right up to the industry’s leaders, who struggle every day to ensure the success of their business and the livelihoods of those that it employs.

Once a year airlines come together at the most senior level for the IATA Annual General Meeting. This year in Miami (7–9 June), we will celebrate 70 years of working together through IATA. That cooperation has yielded enormous benefits in aviation’s development—starting with safety and extending through all the commercial standards that are the cornerstone of the global air transport system.

The media will be watching. The AGM is a unique stage on which we can demonstrate the value of global connectivity, highlight our many challenges, and explain how we are working together to address them. We should not be shy in demanding Smarter Regulation, a tax regime that does not debilitate the industry, and infrastructure that can accommodate the growing thirst for connectivity.

The AGM is an opportunity to say confidently and clearly what is on the collective mind of the industry. And it is a key platform to launch united efforts to build for an even safer, more efficient and sustainable future—a future in which we are all flying better. Together!

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The Big Picture

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TAKE YOUR MEDICINE IMAGE: REUTERS

T

ime- and temperature-sensitive pharmaceuticals make a big difference to our world. Vaccines, for example, are among the most cost-effective health interventions ever developed. According to the Gates Foundation, immunization has led to the eradication of smallpox, a 74% reduction in childhood deaths from measles over the past decade, and the near-eradication of polio.

However, the action being taken is still not enough. The World Health Organisation (WHO) estimates that more than 20 million children are

under-vaccinated and remain at risk of being infected by vaccinepreventable diseases.

According to the WHO’s Global Vaccine Action Plan 2011–20, as new vaccines become available and underutilised ones are administered more widely, supply and logistics systems will have an even greater need for innovative solutions.

Airlines—the obvious transportation mode of choice for timeand temperature-sensitive medicines—have taken up this

AIRLINES INTERNATIONAL

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Airlines International

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challenge, and continue to invest heavily in new technologies and processes to ensure this need is met.

A case in point is IATA’s Center of Excellence for Independent Validators in Pharmaceutical Logistics (CEIV Pharma), which provides the air cargo value chain with the requisite tools to support the pharmaceutical industry. CEIV Pharma is a standardized, global certification program that trains people for, and conducts consistent, on-site assessments. At the same time, it provides the expertise

needed to cold chain transport pharmaceutical products worldwide.

The program also identifies and recognizes the best pharmaceutical shippers by certifying and then registering them on a public website.

Several companies achieved CEIV Pharma certification in 2014, and the number of organizations seeking certification is expected to accelerate in 2015 and beyond.

The aim is to help deliver life-saving vaccines and medicines swiftly to the point of greatest need. • JUN-JUL 2015

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Airlines International

Upcoming events...

AGENDA Going global in Brazil Aviation Day Africa 23-24 June Nairobi, Kenya

136th Slot Conference 23-25 June Vancouver, Canada

IATA has urged the National Congress of Brazil to observe global best practices should it undertake an amendment of Brazil’s laws regarding air crew duty and flight time requirements.

IATA emphasized that duty and flight time, as with other aviation-related activities, should be aligned with the well-established provisions of ICAO, which provides global standards and guidance for the regulation of fatigue management based on scientific principles. This ensures proper flight crew rest and optimal performance.

Should governments wish to intervene further, programs such as the Fatigue Risk Management System (FRMS), supported

by Safety Management System (SMS) protocols, maintain safety in an efficient operating framework.

“Safety is the number one priority of the airline industry,” said Peter Cerda, IATA’s Regional Vice President for the Americas.

“Current regulations regarding flight crew duty times are based on extensive research, industry experience and best practices. The changes proposed will not improve safety, but will make Brazil less competitive.” •

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Invoicing to the same standard IATA has launched an initiative to extend electronic invoicing. “We want all invoices in the air transport industry to be electronic and using the same standard,” said Nick Coote, Director Strategic Development IATA Financial Exchange.

To help drive this ambitious transformation, which is supported by the Financial Committee, IATA has launched SIS (Simplified Interline Settlement) E-invoicing Mobilization to bring new suppliers, as well as airlines, onto the SIS electronic platform.

The focus is on major industry participants that directly affect airline operating costs, followed by billings between these suppliers—airports bill airlines but

they also bill other users of airport facilities.

In due course, attention will turn to billings from smaller or more specialized suppliers to airlines.

According to Coote, the mobilization initiative came about following the successful introduction of e-invoicing into the settlement systems. Having successfully transformed interline billing, an even bigger opportunity awaited. “The logic was that, if we can do it for everything that happens between airlines, why can’t we expand this to all of the other invoices that come into airlines, so that all of our suppliers are using the same formats and the same standards?” Coote asks.

For industry suppliers, the benefit of participating is a single system and invoice standard for every airline or customer that is participating in an IATA settlement system. “This saves suppliers a lot of effort—they only have to do one migration project and they can talk to everyone,” Coote says.

With true e-invoicing, invoices can be processed automatically, with automatic accounting and even automatic reconciliation against purchase orders or contract data. SIS e-invoicing is run on a cost-recovery basis.

“The overall objective is that we want to make the entire air transport industry SIS-e-invoicing” Coote says. •

AIRLINES INTERNATIONAL

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Airlines International

www.iata.org/events World Financial Symposium 13-17 September Barcelona, Spain

Global Sustainable Aviation Summit 29-30 September Geneva, Switzerland

World Passenger Symposium 20-22 October Hamburg, Germany

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

Pilot mental health

IMAGE: SHUTTERSTOCK

Trade cooperation IATA has signed a Memorandum of Understanding (MoU) with the United Nations Economic Commission for Europe (UNECE) to strengthen support to developing countries seeking to implement the World Trade Organization (WTO) Trade Facilitation Agreement.

The MoU will help countries to reduce transport costs by up to 10% through more efficient facilitation, making them more competitive in the global economy.

“The air cargo industry ships around 35% of global trade by value,” said Tony Tyler, IATA’s Director General and CEO. “For up to 90% of the transport time, the goods may be on the ground waiting to be processed.

“Aligning regulation and procedures with global standards and best practices has the potential to deliver major efficiency gains.

That’s the aim of the WTO Trade Facilitation Agreement, which presents a great opportunity for our industry to reduce these delays and costs, particularly in developing countries,” he said.

“Together with UNECE, we will work with developing countries to simplify their procedures and enhance their facilities.” •

While the physical wellbeing of commercial pilots is systematically verified—they must pass a medical based on ICAO standards and recommended practices and have yearly check-ups—mental health is not so easily established.

ICAO’s Manual of Civil Aviation Medicine, published in 2012, suggests that medical reviews should include questions about “psychiatric disorders or inappropriate use of psychoactive substances”. The manual lays out questions for medical examiners to ask on a variety of subjects, including depression, anxiety and use of alcohol and drugs.

But that same manual asserts that psychological tests of aircrew are “rarely of value” and not “reliable” in predicting mental disorders.

It’s a view backed by health experts. A working group of the Aerospace Medical Association (AsMA) came to a similar conclusion following a 2012 JetBlue incident, for example. “AsMA does not recommend an extensive psychiatric evaluation as part of the routine pilot aeromedical assessment,” it concluded in its report, which found

such tests to be neither productive nor cost-effective.

Claude Thibeault, IATA’s Medical Advisor, believes that “the approach to reducing mental health risk needs to be multi-layered.”

That multi-layered approach includes pre-screening in the hiring stage and a number of ongoing monitoring opportunities, some structured, some ad-hoc. Various support mechanisms, from medical assistance to peer networks, underpin the strategy.

Thibeault affirms that self-reporting or colleague intervention will be paramount to any successful initiative to combat mental health issues. The crux of the matter, he says, is creating a non-punitive environment that encourages self-reporting without unnecessary recrimination.

“Excluding pilots with a history of mental health issues from flying has a potentially detrimental effect on overall safety, as there is evidence this will further stigmatise mental health and drive the issue underground with pilots flying untreated or unmonitored,” he concludes. •

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IATA launches Standard Safety Assessment program IATA has officially launched the IATA Standard Safety Assessment (ISSA) for airlines not eligible for the IATA Operational Safety Audit (IOSA).

ISSA is a voluntary safety audit program aligned with global best practices and created primarily for airlines that operate aircraft with a lower maximum take-off weight (MTOW) than the 5,700 kg (12,566 lb) threshold for participation in IOSA. It should be emphasized that ISSA is not a

substitute for IOSA which remains a requirement for IATA membership.

“There is a clear need to ensure operators of all types of equipment have robust safety infrastructure in place, validated by an operational safety evaluation,” said Tony Tyler, IATA’s Director General and CEO. “ISSA, which is based on ICAO provisions, enables the industry to address the need for a global operational safety standard for operators that are not eligible for IOSA.” • JUN-JUL 2015

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Agenda

New training for pilots IATA and the European Aviation Safety Agency (EASA) and the International Air Transport Association (IATA) have announced the publication of new training requirements for airline pilots to prevent loss of control situations.

The Upset Prevention and Recovery Training (UPRT) requirements aim to improve safety standards by mitigating loss of control in-flight (LOC-I) accidents. The requirements are based on ICAO standards and recommended practices and have been developed by EASA in consultation with leading industry experts. All European airlines and commercial business jet operators are required to implement these provisions by April 2016.

“A number of accidents in recent years have demonstrated that Loss of Control remains a major area of concern for regulators and should be tackled with the

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highest priority,” said Patrick Ky, EASA Executive Director.

“Although LOC-I events are rare, 97% of the LOC-I accidents over the past five years involved fatalities to passengers or crew,” added Tony Tyler, IATA’s Director General

The Upset Prevention and Recovery Training (UPRT) requirements aim to improve safety and CEO. “Partnering with EASA on this important initiative based on global standards and best practices will reduce the likelihood of such events in future.”

IATA through its Pilot Training Task Force is developing detailed guidance material in support of the implementation of the provisions by its European members. •

IATA promotes ATFM IATA has engaged Airbus ProSky to help educate Asia-Pacific stakeholders on cross-border air traffic flow management (ATFM) implementation.

The efforts to increase collaboration come at a time when air traffic in the region is expected to increase 5.7% annually over the next 10 years, with more than 50% of new routes connecting to the region, according to an Airbus forecast.

The project output will be a robust implementation plan for cross-border ATFM in the region, which will guide stakeholders along the same path, resulting in an integrated and seamless approach to ATFM. “This project complements the excellent work by many organizations and States throughout Asia-Pacific to progress ATFM within the region, and will ultimately provide a global model for the implementation of cross-border ATFM within a seamless airspace block,” stated Blair Cowles, IATA’s Regional Director, Safety and Flight Operations, Asia Pacific.•

IMAGE: GETTY

Airlines offer assistance to Nepal Air connectivity is absolutely crucial to relief efforts after natural disasters.

The Nepalese earthquake in late April is no different.

An array of airlines have offered assistance to those affected. Help includes flying people out of the danger area, ensuring medical supplies reach those who need it most, and extensive fundraising efforts.

United Airlines, for example, will provide up to $50,000 to match donations to partner organizations from United customers and employees. The airline will also provide a one-time mileage bonus to MileagePlus members who donate. United will contribute up to 5 million miles for this initiative.

Airlines from China, the United Arab Emirates and India as well as Turkish, Lufthansa, and UPS also assisted. • AIRLINES INTERNATIONAL

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S E P T E M B E R 2 3 - 2 4 , 2 015 | M I A M I , U S A

An unbeatable Maintenance combo heads to Miami The 11th Maintenance Cost Conference (MCC) and the ďŹ rst World Maintenance Symposium (WMS) join forces this year in Miami, Florida, September 23-24, 2015. Focused on innovative cost reduction and productivity improvement solutions, the MCC highlights best practices and success stories from actual airline case studies. The WMS features plenary sessions, a look at whatâ&#x20AC;&#x2122;s ahead for the MRO segment and a two-track program: Dispatch Reliability and Human Factors, and Cabin Maintenance.

Join us as we tackle the complexities of modern aircraft maintenance in this unbeatable cross-sector event.

Access to this event is complementary for airline staff working in Engineering & Maintenance.

Find out more www.iata.org/mcc-wms

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Agenda

Outlook remains bright Although IATA’s latest 20-year air passenger forecast predicts a slight slowing down in traffic growth—a 4.0% annual increase compared with the previously predicted 4.1%, due largely to the downgrading of Chinese economic forecasts—the outlook for air travel remains strong.

Global air passenger numbers are still set to double over the next 20 years. And even though the brakes are on China’s surge forward in air travel, it will still surpass the United States as the world’s largest domestic aviation market in the early 2020s.

Vietnam will be another of the success stories, set to rise from the 33rd largest domestic market in 2014 to become the 9th largest by 2034, the equivalent of

4.0% annual average

18

growth in global air passenger journeys over the next 20 years

60 million new passengers every year.

Colombia’s domestic market will overtake the British and French domestic markets by 2019 while Brazilian domestic air travel, despite the country’s economic slowdown, will overtake Japan’s home market by 2022 and establish itself in the top three of global domestic aviation markets.

The air passenger forecast considers upside and downside scenarios, driven by a variety of positive and negative economic factors. In the upside scenario, growth averages 5.8% through 2034 and produces 2.1 billion extra people compared with the central forecast.

In the downside scenario, air traffic increases 3.0% per annum resulting in 1 billion fewer travellers. •

2.2x the number of air

passenger journeys in 2034 compared with today

Markets with the biggest changes in passenger numbers Market*

Additional x thousand pax per year by 2034

Annual % growth

China

781,226

5.3%

USA

544,925

3.2%

India

256,418

6.4%

Indonesia

144,248

5.0%

Brazil

135,929

4.4%

UK

115,586

2.4%

Turkey

112,877

4.8%

UAE

101,482

5.8%

Philippines

98,938

6.2%

Vietnam

96,525

7.3%

Individual market totals are calculated from the underlying bi-directional country-pair forecasts.

The individual markets therefore represent the total number of passenger journeys to, from and within a given market.

*

Growth and change in passenger journeys by region* (% and million, 2014-34)

North America 651m 3.3%

Europe 577m 2.6%

Middle East 250m 5.1%

Africa Latin America 328m 4.4%

190m 4.9%

Asia Pacific 1,753m 4.9%

As with the individual market totals, the regional numbers represent the total number of passenger journeys to, from and within a given region. Note that for conceptual reasons, and to avoid double counting, regional totals do not equal the sum of their respective individual markets.

*

Source: IATA

AIRLINES INTERNATIONAL

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The main event The IATA AGM has played a crucial role in bringing airlines together to work for a stronger industry

IMAGES: GETTY

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It is possible to trace commercial aviation’s story through the IATA AGM and the many discussions and resolutions it has generated.

The first AGM was held in October 1945 in Montreal and confirmed Sir William Hildred, then Director General of Civil Aviation in Great Britain, as the first Director General, effective April 1946.

Early resolutions focused on liability and contained declarations concerning such industry-crucial conventions as Warsaw and Rome. The theme was particularly prevalent up to the 1980s and included industry support of several other conventions, including The Hague and Guatemala Protocols, the Montreal Convention and Montreal Protocol 4, and further amendments to the Warsaw Convention.

Although passenger liability issues are still being discussed, there is little doubt that the early work done on this issue has provided a solid framework and a degree of consistency for airlines and passengers.

At the 1964 AGM, one of the most important events was the confirmation of Knut Hammarskjöld as IATA’s second Director General—although he didn’t formally take up the job until April 1966. In proposing a tribute to the outgoing Director General, Sir Hudson Fysh of Qantas observed that delegates “were witnessing the end of an era, because the old originals who had watched the industry develop from the cap and goggle stage to the jets … were at last departing from the scene.”

In 1967, the AGM accepted the proposal to set up a Geneva office. The choice of Geneva was not accidental and assisted airlines in a number of ways. It was the home of several United Nations agencies with which the airline industry was doing business, such as the World Meteorological Organization and the International Telecommunications

When IATA launched its campaign against unfair taxation at the beginning of the 1990s, it identified more than 500 individual taxes on airlines or their passengers

Union. It was also just a short train ride away from a major partner, the Universal Postal Union in Berne.

Additionally, the move, accomplished in the spring of 1968, permitted the consolidation of offices in Paris (the former European regional office) and London (the Clearing House) into Geneva.

By the early 1970s, environmental issues started to come to the attention of airlines and the IATA AGM. Noise and fuel conservation were highlighted, although the latter was more to do with the 1973 oil crisis than carbon emissions. The environment as a major AGM topic first came to the fore in 1990, and was discussed again a year later and again in 1994 and in 1995. It has rarely been far away from the headlines since.

Following the announcements of a four-pillar strategy and three sequential targets at the 2007 and 2009 AGMs respectively, in 2013 airlines used their annual gathering to overwhelmingly agree the implementation of the Aviation CarbonNeutral Growth (CNG2020) Strategy. This was the latest step in the industry’s environmental mitigation efforts that had begun some four decades earlier. It asked governments to establish procedures for a single market-based measure (MBM) and to integrate a single MBM as part of an overall package of measures to achieve CNG2020.

While aviation was leading all industry sectors on environmental mitigation efforts, it was also dealing with more prosaic business issues.

In 1978, a Special General Meeting (SGM) was deemed vital to deal with accusations of price-fixing. Although IATA airlines had the right not to adhere to traffic committee rules, resolutions passed at the SGM started them on the road to complete freedom and fares that responded to competitive needs.

It was perhaps Hammarskjöld’s finest hour. He retired in 1984, replaced by Gunter Eser, the first airline man in charge of IATA, having worked for 30 years at Lufthansa.

The 1980s were marked by a number of battles over taxation and the industry’s position as a ‘cash cow’ for governments.

The debate goes on. When IATA launched its campaign against unfair taxation at the beginning of the 1990s, it identified more than 500 individual taxes on airlines or their passengers. Nevertheless, aviation’s many benefits are finally filtering into political consciousness, and some major taxation battles have been won.

AIRLINES INTERNATIONAL

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Airlines International

At the end of 1992, Gunter Eser was succeeded by Pierre Jeanniot, previously President and Chief Executive Officer of Air Canada.

In 1993, when the industry met in Dallas, airport and airspace congestion first merited their own spot on the AGM agenda. This was not before time. During the summer peak season of 1979, there were several instances of serious air traffic congestion in Western Europe. The region then comprised 25 countries and around 40 air traffic control agencies, and they were in no way integrated.

The surge in non-scheduled traffic was partly to blame, as was a slowdown in the trend for increasing aircraft size. As demand grew, airlines began to favor increasing frequency rather than bigger planes.

The warning signals were there for the whole industry and yet the situation—and a Single European Sky—is still being deliberated. Many a ‘state of the industry’

The 1980s were marked by a number of battles over taxation

100% e-ticketing was achieved in 2008

speech at the AGM has blasted the lack of progress on this topic.

In 1996, the AGM moved from the fall to mid-year. AGMs in the years following recorded their concerns over the Y2K problem. But by 2000, it was clear that computers were not about to turn back time to 1900 or crash irrevocably.

E-commerce and e-enablement emerged as significant debating points. And just four years later, airlines launched Simplifying the Business, to utilize many of the new technologies available.

The first milestone of the Simplifying the Business program was recognized at the 2008 AGM with the achievement of 100% e-ticketing

By then, IATA was being led by Giovanni Bisignani, a former Alitalia CEO who also brought the experience of starting an online travel portal (Opodo).

The first milestone of the Simplifying the Business program was recognized at the 2008 AGM with the achievement of 100% e-ticketing. Three years later, security was given a technological makeover, with the Checkpoint of the Future on display at the Singapore AGM. This has since morphed into a partnership with Airports Council International entitled Smart Security and promises not only robust, risk-based security assessments but also improved throughput of passengers.

Meanwhile, the industry’s safety efforts had been enhanced by the launch of the IOSA Safety Operational Audit in 2003, the successful completion of which became a condition of membership in 2009, following a 2006 AGM resolution. The industry’s safety figures point to the success of this and many other safety initiatives.

Tony Tyler, former CEO of Hong Kong-based Cathay Pacific took on the leadership of IATA shortly after the 2011 AGM. His tenure, and AGM content, has centered on partnerships with the industry value chain, aviation benefits, and fulfilling customer needs.

Aside from steering airlines to their groundbreaking commitment to CNG2020, under Tyler’s leadership the importance of new technology culminated in the 69th AGM resolution reaffirming support for the New Distribution Capability (NDC)

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initiative. This will develop an open, XML-based distribution standard for data exchange between airlines and travel agents.

NDC will allow consumers to benefit from choices based on enriched content, and the ability to compare and transact airline offers in a transparent fashion.

Other recent resolutions have concerned the unintended consequences of poorly thought-out regulation. In 2012, for example, IATA members unanimously endorsed a set of core principles for governments to consider when adopting consumer protection regulation. This was followed a year later by a declaration on the rules regarding unruly passengers.

Future AGMs will, no doubt, be equally responsive to the industry’s needs.

Aviation’s main event will continue to attract the biggest names tackling the biggest topics.• JUN-JUL 2015

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In this interview • Leadership • Mergers • Competition

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American Airlines’ CEO, Doug Parker, says airline mergers are not easy, but do pay off in the end.

Perry Flint reports

How does the leadership dynamic at AA work?

We’re big on teams and we operate as a team. The result is what I think is the best team in the business. And what I am really happy about over the past year and a half is how well the team has come together. If you walked into the airline now—unless you knew—you would not be able to tell who is ex-US Airways or originally American. Everyone’s committed to working together and we’re having fun doing it.

How is the airline performing?

We announced earnings of $1.2 billion for the fi rst quarter.

For an airline, making $1 billion in three months is not something we are used to. It’s by far the best quarter in American Airlines’ long history. So we’re very happy with the fi nancial performance. As a result, we’ve been able to invest more in the company, and invest more in our people.

Is there anything operationally that you would like to highlight?

In April, the Federal Aviation Administration (FAA) moved us on to a single operating certificate, which is a big piece of the integration and really shows the focus the team has had.

We started this process with the FAA prior to the [December 2013] merger with US Airways. The schedule back then was to have a single operating certificate on April 8, 2015 and we got it done on April 8, 2015. It’s a really remarkable achievement; but we’ve got an operating team that is world-class and they dedicated themselves to getting it done.

More broadly, integrating two airlines is not an easy thing in and of itself, but then to try and operate while you’re doing that—you have two separate reservation systems, in most cases two separate work groups, facilities are separated. Our team is doing it very, very well. If you look at our operating

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CEO interview

IMAGE: MAGE: PA

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metrics, we look like an average airline, kind of middle of the pack. That’s not where we want to be long-term, but given the work we are doing on integration, I think the team is doing an exceptional job.

You recently combined the AA and US Airways loyalty programs. What would the next major step be?

Combining the loyalty programs went really well. There was no disruption whatsoever, so we are proud of that.

We still have a lot of work ahead, but steps such as that and the single operating certificate give us a lot of confidence that we are on the right path.

The next step is the biggest of them all: getting to one reservations system. The reservations system affects customers, it affects airplanes. And airlines have had

varying degrees of success in putting those together.

Our migration is going to be between now and the end of the year. We are using American’s reservations system so only the US employees need to learn it. We are making it easier by putting a graphical user interface on top of the system that looks like the one they are using already so they don’t have to actually learn a full new system, and we’re migrating the reservations over a 90-day period.

All those things will mitigate the risk. But it’s still a huge project.

Has the merger achieved everything that you hoped for?

We couldn’t be more pleased with how the teams are coming together, with the product we are producing, and with the fi nancial results. All of those things are JUN-JUL 2015

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CEO interview

We couldn’t be more pleased with how the teams are coming together, with the product we are producing, and with the financial results

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doing everything we’d hoped for—and more. We are pleased with where we are at this point in the process, but we are not finished. We’re confident, but well aware of what lies ahead.

Has the US market become more competitive in the wake of the major mergers?

Prior to our merger, there were two airlines that could take people virtually anywhere they wanted to fly. Those airlines were United Airlines and Delta Air Lines and their respective alliances. Neither American nor US Airways could do that as well as those carriers. By combining, we can. So we’ve created a third competitor to those two global carriers.

What we are left with is a highly competitive market, with three large global network carriers that compete against each other intensely all over the US and the world, complemented, of course, by Southwest Airlines and airlines such as JetBlue and Alaska, and by the ultra-low cost carriers such as Allegiant, Spirit, and Frontier.

It’s an extremely competitive business, and I think it is much better for consumers because the main thing—the reason this consolidation made sense for airlines—is it’s a network business and a large network is what customers want. They don’t want to split their frequent-flyer miles across a couple of airlines if they don’t have to. So they get that convenience but they also have the ability

to fly on LCCs in certain markets. What we have is a different mix but an intensely competitive mix.

What will persuade governments that cross-border mergers can be benefi cial for the customer?

To be honest, I’m not sure that it’s a huge deal. We at American certainly aren’t pounding the table saying that we need to get this put in place or that the restrictions should be lifted. Alliances allow us to get our customers to the places that we are not able to fly, and we are very proud to be a founding member of oneworld.

And Open Skies helps us to fly to more places that we want to fly to on our own, so I don’t know that there is a compelling reason for cross-border mergers that would create a tremendous amount of value at any rate.

Do you think that the US government understands the value of aviation?

I think it’s under-appreciated by our government but I think appreciation is growing.

A lot of this is our industry’s fault. We were so dysfunctional for so long that the government couldn’t help but feel the need to regulate, to do their best to try to take care of our customers and to control us.

As we are more able to stand on our own two feet and make it a real business that’s competitive and therefore

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Prepare for departures from the norm.

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CEO interview

cares a lot about customer service—new airplanes, all of the things we are doing at AA— then there is less of a need for the government to regulate.

I also think we don’t spend a lot of time educating people on the value of what we provide because we are not very well organized.

We’ve gotten better about that. Airlines For America does a nice job of helping us as a group get together. IATA does so as well internationally and helps us here in the United States.

But we’re still under-appreciated as a business. Obviously, we couldn’t have global commerce if it wasn’t for the airline industry. I’m not sure how much that is appreciated. It feels sometimes as though we are treated like a public utility. I lay that on us, not the government. They do that because they can, it’s what their constituents ask for, because over time we have not done a very good job of providing those things for customers. But that’s changing and as it is, the appreciation for what we do is changing as well.

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How important will the Boeing 787 be to your network and bottom line— and are you happy with the relationships you have with airframe and engine manufacturers?

We are happy with the relationships. They are responsive to our needs and put out good products. We are particularly excited about adding the 787 to our fleet. It’s a key part of our fleet modernization program, which is enormous. We’re adding nearly 100 airplanes this year after a similar number last year— almost two airplanes a week. And we’re retiring older aircraft at about the same number so there is not much fleet growth but

We’re adding nearly 100 airplanes and retiring older aircraft at about the same number so there is not much fleet growth but a huge modernization program a huge modernization program, which makes a big difference to our products and to our customers.

A lot of what I described is MD-80s going away and new 737s coming in, but adding something such as the 787, which can open up new markets, is more efficient, and is customer-friendly, is what we’re excited about.

When you look at where fuel prices are today, do you think about delaying the retirement of your MD-80s?

No. We are retiring them as quickly as we can.

As soon as a new airplane comes in, an MD-80 goes out. While the economics may not be the same as when the decision was made, from a customer, product, and feel—with what we are trying to accomplish those airplanes aren’t part of the new American. They did a lot for us over a long period but they need to retire.

Will ICAO reach consensus on a global emissions trading scheme?

We support the ICAO effort because we want to avoid getting caught up in a patchwork of regulations. We’d like to see everyone come to consensus. American is interested in working that out along with IATA and other airlines to get that process in the right spot. •

Doug Parker 2013: CEO of American Airlines, following the US Airways/ American merger 2005: Chairman and CEO of US Airways, following the America West Airlines/US Airways merger 2001: President and CEO of America West Airlines 1995: Joins America West Airlines 1991: Joins Northwest Airlines to serve as Vice President and Assistant Treasurer as well as Vice President of Financial Planning and Analysis.

1986: Joins American Airlines and holds a number of financial management positions Education: Bachelor of Arts in economics from Albion College, US, in 1984 and Master of Business Administration from Vanderbilt University, US, in 1986

Doug Parker: with his team: everyone’s committed to working together and having fun doing it

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In this report • Taxation • Regulation• Global standards

FLYING AGAINST

THE TIDE Brazil must support its aviation industry with global best practises, writes Graham Newton

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viation’s importance to Brazil cannot be overstated. A country that hosted the soccer World Cup in 2014, and that will turn its attention to the Olympics next year, is well acquainted with the need to facilitate international fl ights—not to mention the domestic services that enable connectivity in such a large nation.

Add to this the core figures. Air transport contributes $17 billion

A

that any new tax would be exempted by bilateral agreements and the rule of reciprocity.

“Last year, 12 airlines were notified by the Brazilian IRS for non-payment of tax and evasion of funds for 2012,” says Ebner. “Furthermore, there is some indication that IRS will audit other airlines in the second half of 2015.”

(2.3%) of Brazil’s GDP, supports 837,000 jobs directly and indirectly, and pays around $1.76 in tax.

With Brazil’s overheated economy cooling down, these benefits are particularly pertinent. It is estimated, for example, that a 10% improvement in connectivity would generate approximately $660 million extra in long-run GDP for the Brazilian economy.

Canada provides an example of what could be achieved. Air transport contributes $20 billion to its GDP, and air travel-stimulated tourism generates almost double the amount of money achieved in Brazil.

But rather than promoting air transport, Brazil is increasingly taking a heavy-handed legal and regulatory approach to the industry. An antidumping law illustrates the argument. Airlines are subject to a 75% import tax for Chinese-made plates and silverware used onboard, even though they are used on the aircraft only and never sold or imported to Brazil.

Better known, but equally complicated, is the high cost of fuel in Brazil, the supply of which is controlled by state-owned Petrobras. The problem is that fuel is priced as if it were imported, even though 75% is produced domestically.

Brazilian carriers face a double whammy, as their fuel is subject to a local value-added tax known as ICMS. State authorities have some leeway on the tax, and local airlines have been working with them to reduce it. Nevertheless, David Neeleman, Chairman and CEO of Azul Linhas Aéreas Brasileiras, has called state taxes a “concern”.

“We are having talks with various governors about reducing state taxes and we are negotiating deals that say that if we serve more cities in the state then they will lower the tax,” says Neeleman. “It’s working, and so in many states we have lower bills now. We’re down to 4% in some.”

IMAGES: ISTOCK

According to Carlos Ebner, IATA’s Country Director for Brazil, global standards are being ignored in favor of well-intentioned but shortsighted national legislation. Consumer protection agencies, the government, and the judiciary are combining to influence, pass, and interpret laws that threaten to curtail aviation’s potential.

Taxation woes Taxation, in one form or another, is a major issue. A case in point is a 1988 change in tax legislation that is only now proving a headache for airlines, as a desire for extra funds galvanizes the government.

A major audit in 2012 by the Brazilian IRS has left international airlines facing unexpected tax liabilities—in excess of $10 million for the 2012 financial year.

In line with normal practise, some airline accountants had not amended declarations to acknowledge the change, because it was believed

29

The cargo story IATA, together with related stakeholders and with the support of civil aviation authorities, is working to develop the air cargo sector in Brazil in a number of ways.

Secure Freight is one initiative being driven forward by industry collaboration, and the first trial is expected to start soon. An e-freight project is also under way, with Brazil’s two main cargo gateways having implemented the electronic air waybill (e-AWB). A third airport is expected to be e-AWB-enabled in the coming months.

Nevertheless, Brazilian bureaucracy continues to be a challenge sector for air cargo.

Only a strong collaborative approach will help reduce the clearance time for Brazil’s annual 900,000 tonnes of cargo, for example.

IATA Brazil sees the development of cargo as a priority and has participated in various forums, highlighting international best practises and pushing local authorities to embrace the new vision for air cargo.

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In this report • Taxation • Regulation • Global standards

Aviation contribution to Brazilian GDP

2.3% Regional development

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A proposed regional development plan in Brazil would make $100 million available in subsidies to carriers to start up regional service.

Around 120 Brazilian cities receive regular airline services, according to the Brazilian Civil Aviation Agency, ANAC, but greater connectivity would assist regions in sharing the economic potential of the country.

Naturally enough, Paulo Cesar Silva, President and CEO of local manufacturer Embraer Commercial Aviation, is excited by the prospect. “It’s an initiative that can be an important tool for

Ground handling is a prime example where monopoly providers could hike rates. IATA is calling for areas such as this to be safeguarded through robust independent economic regulation and price caps; transparency; strong independent oversight by ANAC; and airline engagement through effective consultation.

The issue of airport slots is likely to be more challenging. Brazil’s Slots Regulation 338 continues to be a point of discussion as ANAC works on the implementation practicalities of its proposed process for Fuel accounts monitoring regularity and punctuality. for up to IATA has voiced disappointment at the inclusion of such punctuality clauses linked to historic determination, and continues to discuss the realities of implementing such clauses with the government and authorities. of airline costs IATA’s Ebner notes that the slot allocation proin Brazil cess is a planning tool that starts six months prior to the season start, whereas punctuality is a daily operational issue affected by any number of factors. And, he adds, most of these factors are not inducing economic growth,” he directly attributable to the airline. says. “Similar initiatives proved “The best thing would be for ANAC to follow effective in other countries. This international best practise in this area, which is plan will not only help stimulate the IATA’s Worldwide Slot Guidelines,” he says. “If aeronautical sector, but also boost Brazil slot regulations differ from those of other the economy as a whole, bringing countries, lack of harmonization could penalize benefits to all of society.

Brazilian air travelers. Airlines could cancel “It’s important to use resources flights proactively to protect slots, and they could efficiently and to maximize the manage services differently.” budget for the plan,” continues Should there be instances of repeated poor Cesar. “Embraer believes that the performance, the WSG recommends that each program can generate new airport have a Slot Performance Committee demand for regional jets from to address the issue and to provide slot-monidomestic carriers. This could be toring activities. potentially positive for us but it’s hard to predict how significant that International standards increment could be.”

Brazil is also flying in the face of international

40%

But São Paulo, the big guy on the block, still taxes fuel for domestic flights at 25%. “We don’t have much leverage there,” he continues. “All it means is we are tankering fuel on Sao Paulo flights and we try to fill up as little as possible in São Paulo. So nobody wins.”

As it stands, Brazil is one of the most expensive places in the world for fuel, and accounts for 40% of airline costs versus the 30% global average.

Airport privatization and slots Much else will affect Brazilian aviation in the years ahead. Airport privatization has generally been welcomed as a potential means to improve the infrastructure. Some major airports have been through the process, and it is likely more airports will be opened up for auction early next year. Following some concerns in the first tranche of privatization, IATA is working closely with ANAC, the Brazilian Civil Aviation Ministry, to ensure the program adheres to ICAO principles.

Though much of the privatization process has been clear—for example, it established an agreed formula for tariffs based on Brazilian CPI and a productivity factor—some essential areas are not yet covered by contractual limitations.

standards in other areas. Proposed amendments to Brazil’s laws regarding air crew duty and flight time requirements jar with global best practise.

Duty and flight time, as with other aviationrelated activities, should be aligned with the well-established provisions of ICAO. “Safety is the number one priority of the airline industry,” says Peter Cerda, IATA’s Regional Vice President for the Americas. “Current regulations regarding flight crew duty times are based on extensive research, industry experience and best practises.

The changes proposed will not improve safety, but will make Brazil less competitive on the global stage.”

Passenger rights are also a concern for their uniquely Brazilian approach. The problem has been described as “legislating airline behavior from the bench”. Even though Brazil has signed Montreal Convention 1999 (MC99), there have been numerous compensation awards in the small courts in excess of the limits set by the convention.

There are two other aspects to passenger rights in which the country is shunning global norms: baggage allowances and conditions of carriage.

In Brazil, airline charges can be applied only to excess baggage. For domestic travel, one 23kg bag is free while for international travel it’s two 23kg bags. There is no provision for airlines to respond creatively to those passengers who want to travel with only hand baggage.

Meanwhile, airlines are being asked to give greater visibility to conditions of carriage. There is also a proposal to include a “right of

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ADVERTISEMENT FEATURE

Brazil still important to upstream investors as new bidding round nears Low oil prices should not deter upstream companies from participating in Brazil’s 13th oil and gas licensing round this year, but they will likely be more choosy in their bidding, according to the director-general of the country’s national petroleum agency, ANP. “Companies say Brazil is important for them and they will participate, but in a very selective way,” Magda Chambriard said following a presentation that detailed the bidding round to the Brazil-Texas Chamber of Commerce in Houston.

Brazil’s first oil and gas licensing event in two years, the 13th bidding round will launch next month when companies can register, pay a participation fee and obtain data packages between June 12 and August 18.

Bids will be submitted October 7 in Rio de Janeiro.

In the round, Brazil is offering 269 blocks in 10 basins in an 125,000 sq-km area spanning the country’s far north to extreme south. It will feature concessions both onshore and offshore, including natural gas, mature basins both on- and offshore, high-potential offshore areas and new frontiers offshore.

Braga also said Brazil plans to hold a bidding round at least every two years and added the Sergipe-Alagoas Basin, along its northeast Atlantic coast, is the most important area being offered in the 13th round.

Brazil’s state-led Petrobras in the last couple of years has made “a continuous series of large, ultra-light oil discoveries in deep and ultra-deep waters” of the basin, she said. “In this area we do expect very, very good oil that could help us improve efficiency in our refineries.”

“It makes our blend much

better,” Chambriard added.

“We welcome the oil from this area.”

The bulk of the round’s offerings are sited in the onshore Potiguar and Reconcavo basins, also along the northeast Atlantic coast, which showcase 71 and 85 blocks respectively in mature areas. These are aimed at small and medium-sized operators, and carry “very low risk,” Chambriard said.

Potiguar already has 85 different production oil fields that produce around 66,000 b/d, while Reconcavo was the country’s first productive basin with a discovery dating back to 1939, she said. There, 78 production fields produce a total 41,000 b/d.

In addition, 51 blocks are offered in the Pelotas Basin along Brazil’s southern coast near Uruguay where international oil companies are working in the Punta Del Este Basin.

For further information: www.platts.com/jetfuel-iata Web: www.platts.com E-mail: support@platts.com

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In this report • Taxation • Regulation • Global standards

repentance”, which gives passengers the option to cancel their booking close to the departure date, which would clearly affect airline revenue optimization. “This is being discussed following an IATA presentation to ANAC, and we expect to have a resolution by the end of 2015 or the beginning of 2016,” Ebner suggests.

Forecast rise in international passenger traffic, 2014-19

Raising the profile Despite these many challenges, Brazilian aviation has achieved a great deal in recent years, most notably in innovative business models and consolidation that have brought capacity discipline, growth and sustainability. The potential is still enormous.

Indeed, ANAC’s direction is toward a more deregulated agenda to increase competitiveness. But to overcome the unintended consequences of poorly thought-out regulation, aviation will need to raise its profile, highlighting the advantages and opportunities it offers.

The Brazilian Airline Association (ABEAR) has been taking a lead in promoting the benefits of aviation through the media, and IATA has been supporting these initiatives. ABEAR is also working on a second front to improve aviation’s offering, seeking to raise the limit on foreign capital investment in domestic airlines from 20% to 49%. There is even a bill in Congress that would raise this to 100%, although in both cases there is a provision limiting the rights of voting for foreign capital.

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4.8%

Forecast rise in international freight traffic, 2014-18

4.8%

“Brazil is at a crossroads,” assesses Cerda. “A healthy aviation industry would bring tremendous benefits to the country. But for that to occur, all stakeholders need to work together to deliver smarter regulation that ensures safety and sustainability for the country’s airlines.

Aviation simply cannot deliver maximum value to the economy in countries that do not observe global best practises.” •

The outside view Luis Rezende, CEO Volvo Cars Brasil, agrees that aviation is vital to Brazil’s success. “Recent investments in the renewal and expansion of airports show that the government recognizes the importance of aviation. The process of privatization helped modernize an infrastructure that was too aged. But as a frequent user of airports in Brazil and abroad, I can say that we still have a long way to go.

“Aviation has always been important for a country of continental dimensions such as Brazil,” he continues. “But in recent years it has become one of the

A bill in Congress seeks to raise foreign capital investment in domestic airlines to

49% fastest growing modes of transportation, which reflects on its relevance to the economy. Higher demand generated greater competition between companies in the sector, a greater choice of routes for the consumer and, as a result, greater business opportunities in various sectors, including tourism.”

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In this interview • Safety • Consolidation • Brand

WORKING 34

DAY AND NIGHT Tony Concil talks to Lufthansa CEO, Carsten Spohr, about the Germanwings tragedy and the way forward for the Lufthansa Group

Our thoughts are with the friends and families of those involved in the Germanwings tragedy. What went through your mind when you heard what happened?

Every airline CEO tries to prepare himself to deal with a terrible accident. Although the magnitude of what happened on 24 March was enormous.

At Lufthansa, we have always prided ourselves on the fact that safety is in our DNA. We knew very early on after the accident that it had not been in our hands to anticipate what had happened and, if you look at the photos of the days immediately after the accident, you

can sense that we were in shock. The emotional impact was clear in our faces. It was the saddest tragedy in Lufthansa’s 60-year history. Of course, we needed to stay focused on the issues at hand. And we did. The airline’s responsibility is to take care of the families and friends of the victims. Doing the right thing with respect to them continues to guide us.

What does the Gemanwings tragedy mean for the Lufthansa Group, going forward?

It proves once again that there is no such thing as 100% safety in fl ight. This has relevance for the entire industry.

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The amazing safety record of our industry is not a given. We have to work hard at it every day and night. The tragedy should act as a reminder of that for everybody. And every accident must be used as an opportunity to improve safety. It’s our joint responsibility now to see what we can do better.

Turning to broader issues, do you think consolidation in Europe has gone as far as it can go?

The top five carriers in the US represent about 90% of the market. In Europe, the top five carriers cover less than half of that. Clearly there is room for more consolidation in

Europe. And I believe that there is also a need for more consolidation and that it will eventually happen.

It will, however, be challenging—particularly when we speak about consolidation across political borders. National ownership of airlines is still very prevalent. If you go east from Vienna, with a few exceptions in Hong Kong, Korea, Japan or Australia, you don’t really fi nd airlines outside the control or ownership of governments.

Privatization is the prerequisite for consolidation. For various reasons, governments hang on to their airline investments. It may be national pride or because aviation plays

Carsten Spohr: The amazing safety record of our industry is not a given

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CEO interview

a role in the national strategy. Some are very successful. Others struggle.

Eventually, governments have to realize that this is a business that is best run on commercial principles. And I expect that we will see regional consolidation spreading slowly, rather than a dramatic change in a short timeframe.

Spohr: In a cost-only market we cannot be competitive

Lufthansa has built a group of airlines and related businesses. What are the benefits of this structure?

Our strategy is based on three pillars: our fullservice airlines operating out of our quality hubs in Frankfurt, Munich, Zurich, and Vienna; our point-to-point service in Europe, which we will consolidate under the brand of Eurowings; and our non-aviation businesses, where we have leading market positions, for example, in MRO and catering.

The aim is to optimize each of these three pillars according to the needs of our customers.

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So there is a focus on quality services at the hubs, to make Lufthansa the first European five-star carrier; a focus on improving our point-to-point services outside of these four hubs; and a focus on expanding the global coverage of our non-aviation market leaders.

The reason we have chosen Lufthansa to be the five-star carrier is that, while we are proud to have more than one primary brand in the group, we have invested heavily in Lufthansa in recent years across all product lines. We see the five-star rating as a reflection of this investment.

How do you accommodate the different character of each airline?

The Lufthansa Group is more than merely a rationale of numbers. Each brand engages the emotions of customers, employees and shareholders in a unique way.

Some functions in the group have been centralized, but the closer you move to the individual brands, the more things are decentralized. There is ‘Swissness’ in Swiss and a strong hospitality element in Austrian. In Lufthansa, the German strive for perfection is evident.

The strategy is to keep these brands alive and enhance their attributes in the future.

How can the industry—and Lufthansa— move toward sustainable profitability?

I have always been convinced that sustainable profitability comes from a balance in the customer-employee-shareholder triangle.

When we say we want to be the number-one choice, we want to be the number-one choice for all three groups.

The Lufthansa Group is more than merely a rationale of numbers.

Each brand engages the emotions of customers, employees and shareholders in a unique way Lufthansa has been around for quite a long time on single-digit profit margins only, but without bankruptcies or Chapter 11. And I would say that short-term profitability should not be confused with long-term success. But as an industry, we at least need to earn the cost of capital, and it is true that not many airlines have been able to achieve that. It shows that the industry is not in a healthy state.

Should people expect airlines to reduce fares because the price of oil has fallen?

The euro is weak and we pay fuel in dollars.

But the time when costs drove pricing are long gone. The market sets the price. So let’s see how the market responds to the lower oil price.

You have had a tough time with your pilot unions over the past year. How do you bring pilots into your vision for the airline?

When I talk to pilots individually, they have a very keen sense of consideration between

their privileges and their perspectives. Add to this the fact that our pilots are closely attached to Lufthansa, and that fuels my optimism for a long-term resolution to our labor confl ict.

You compete globally, but operate from Europe. How easy is it to do business in Europe?

Europe is a mature society. It gives us a great quality of living. That comes with a price. Of course we need to compete on costs. Many of the changes that we have accomplished have been focused on cost efficiency. But i n a cost-on ly m a rket we c a n not b e competitive. Successful European companies leverage the European lifestyle. Look at the car manufacturers.

We need to create a similar upside for aviation. At the company level, we are doing that with our brand strategy.

There is a government element as well.

Aviation’s role as an economic catalyst is present wherever the industry exists. This is most visible in developing markets. Regulators in Europe find it harder to see aviation’s benefits. There is plenty of attention from regulators on customer service issues. At the same time, necessary infrastructure improvements are often ignored.

Is there sufficient focus on infrastructure in Europe?

Europe has huge cost issues with its airports and with its air traffic management system.

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Oman Airports

Duqm Airport

Muscat International Airport

Salalah Airport

Sohar Airport

Oman Airports Management Company (OAMC) is a private

company owned by the governmental of Oman. It路s responsible

for the management and operation of Muscat International Airport, Salalah, Duqm and Sohar Airports.

The infrastructure of the airports such as the terminal buildings,

cargo buildings, runways, aprons and car parking is directly under OAMC路s

management.

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12/05/2015 14:03

CEO interview

I am optimistic that we will eventually fly across Europe with a Single European Sky (SES) as efficiently as we enjoy borderless travel on the ground, because of the Schengen Agreement. Achieving the SES will need a lot of patience but there is no real reason why it cannot be achieved.

Building new terminals, and additional runways in particular, are a very different challenge. Issues of noise and air quality are public concerns that are difficult for politicians to overcome. Of course, resolving both of these issues will make European airlines stronger competitors. And we have a history of solving such challenges.

Is the European industry good at getting politicians to understand the value of aviation?

We have obviously not been able to get governments or the public to understand the multiplying effects of aviation. Other countries have. As an industry, we should speak with one voice about the benefits of aviation. IATA and other associations should play a more active role. Some jobs are better led collectively with the support of individual companies.

38

If you could fix one thing that affects your business, what would it be?

On an abstract level, I would like to see an answer to the question of whether this industry will be served by privately owned or government-controlled entities.

On an operational level, I would fi x the problem of why aircraft are not able to fly in straight lines between A and B. Every day, we are wasting time, fuel and money and unnecessarily emitting CO2. This has to stop!

Where will the next great frontier be for technology?

Actually, compared with what has been achieved in the past decade, I think we will see far smaller steps in technology in the years ahead. I don’t think the next big leap in technology will happen during my career as an airline CEO. Does being a former pilot, as well as the CEO, give you a special insight?

Actually, I am an engineer and the tradition in Germany is that technological companies have CEOs with an engineering background.

Every CEO needs to be able to manage at an abstract level. Being a pilot helps me to get on top of the operational details when required.

That ability gives comfort to investors and the management team. And it creates credibility among staff.

How would you describe your management style?

I try not to hide my excitement about the industry and my company. I hope that comes across in the way I manage. I can’t imagine having that same excitement in another industry. •

Being a pilot helps me to get on top of the operational details when required

Carsten Spohr 2014: Chairman of the Executive Board and CEO of Deutsche Lufthansa AG, responsible for 117,000 employees in the Lufthansa Group 2011: CEO of Lufthansa German Airlines 2007: CEO and Chairman of the Executive Board of Lufthansa Cargo 2004: Appointed to the Management Board of Lufthansa Passenger Airlines 2000: Vice President, Alliances and Cooperations, Lufthansa 1998: Responsible for Lufthansa’s regional partnerships in Europe 1995: Personal Assistant to the CEO and Chairman of Lufthansa Education: Degree in engineering from Karlsruhe University, Germany. Qualified as a commercial pilot from Lufthansa Flight Training.

Holds a Captain’s license for the Airbus A320 family

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12/05/2015 14:04

In this feature • Drones • Regulation • Safety

THE

NEED FOR SPEED

Regulations must match the pace of development in remotely piloted aircraft systems

40

n April 28, 2015, the pilot of Virgin America fl ight 769 from New York to Dallas reported a quadcopter— a drone or remotely piloted aircraft system (RPAS)—rising above it as it approached Love Field.

The plane landed safely, but RPAS incidents are a growing concern for commercial aviation.

There was a Class A incident at Heathrow in July last year, for example, meaning a near collision. The drone came close to an A320 while flying at 700 feet. And in January 2015, Dubai suspended operations for a time—at significant cost to the airlines and with major inconvenience to passengers—owing to an unknown drone operating in the vicinity.

The RPAS sector is growing fast and covers everything from high street toys to sophisticated military machinery. Its uses are equally varied and include leisure, advertising and search and rescue.

O

“The technology is developing quickly, and we could see remote aircraft the same size as a Boeing 737 being operated commercially in our skies within 10 years,” says Jim McAuslan, General Secretary of the British Airlines Pilots’ Association.

How the development of RPAS integrates into commercial air traffic management is, therefore, a question that must be answered quickly and comprehensively.

Areas of concern There are four main areas of concern: safety, airspace access and equity; spectrum requirements; and security.

As ever, it is safety that tops the list. As the aforementioned incidents highlight, the biggest issue is the individual user flying a drone close to an airport. Clearly, the tremendous capabilities of shop-bought kits, and the lack of awareness of their operators, make regulating this aspect a priority.

“But how do we go about that?” asks Rob Eagles, IATA’s Director of ATM Infrastructure. “Some countries have simply banned their sale, but that isn’t what we want. We need to fi nd some way of designing, publishing, and enforcing rules for the individual RPAS user. We must be nimble and we must be quick on this particular topic.”

Educational efforts are being made, with information leaflets and videos promoting responsible use. “Unless there are clear and

enforceable rules, we have a false sense of security,” says Eagles.

The IATA Director accepts this may mean local police forces needing to be aware of aviation law, “which just goes to show how complex this situation is”.

At the other end of the scale, sophisticated larger vehicles—some of them military—will also need to be accommodated within an RPAS regulatory framework. The difficulties here are in knowing and integrating the ATM and aircraft technologies involved, and responding to the capabilities of the craft.

Not done correctly, this would introduce inefficiencies into an already congested civil aviation ATM system.

The IATA Operations Committee is making RPAS a high priority, but is taking a specific interest in the human factor considerations that must be given to piloting a large aircraft remotely as opposed to physically being located in the cockpit—especially when flying in congested airspace.

As to the other areas of concern, airspace access and equity deal with how to integrate RPAS into the ATM system while ensuring users have a fair allocation of airspace at their

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Remotely Piloted Aircraft Systems

41

disposal. So while small users may not get priority over the needs of commercial airlines, they nevertheless should have the opportunity to fly their vehicles as often, and for as long, as is appropriate at a suitable location.

Spectrum limits, meanwhile, are a technical issue, dealing with the bandwidth used by RPAS. This should not affect frequencies already in use or needed by civil aviation.

And the security concern is clear. “RPAS could be used maliciously to target an aircraft or airport,” says Eagles. “We have to understand that and develop appropriate and effective, enforceable rules and regulations as well as countermeasures.”

A basis for progress Aware of the growing interest in the unmanned vehicles sector, more than 20 countries have defi ned RPAS regulations, including the United States.

The US Federal Aviation Administration (FAA) has proposed that drones can only be flown during daylight hours, below 500 feet, and at 100 mph or less. They must also be at least five miles away from an airport. In addition, pilots would have to maintain constant

Aware of the growing interest in the unmanned vehicles sector, more than 20 countries have defined RPAS regulations, including the United States

visual contact with the drone and would be required to hold a new FAA certificate.

Eagles says this provides a good basis for progress, containing the key criteria that would make for an effective global standard: line of sight, a height limit, and a minimum distance from airports.

Certification processes would be applied to RPAS above a certain weight—which is approximately aligned with the vehicle’s capability. At the moment, this differs from country to country. In Canada, for example, it is 35kg while in the United Kingdom it is 20kg.

Alongside certification, standards must be developed to cover communications, radio

frequency spectrum limits, separation standards, navigational capabilities and much more.

It is a long list.

IATA is working on the RPAS panel at ICAO to develop the requisite standards and recommended procedures. In the meantime, ICAO has issued RPAS guidelines and urged countries to consider these when designing a regulatory response to the sector.

Work continues elsewhere. The FAA has just announced the Pathfi nder program on the subject, and NASA is compiling a potential infrastructure for the United States. In Europe, the SESAR Joint Undertaking is examining how to integrate RPAS into SESAR. “The industry is involved in many of these initiatives,” says Eagles. “It’s critical that we work together with the authorities in shaping the operating environment.

“There has been enormous investment in RPAS by major technology companies and venture capitalists,” he says. “And the vehicles are being manufactured at an incredible rate.

So we can’t keep doing this on a case-by-case basis and create a patchwork of regulations.

There need to be clear guidelines that can followed globally.” • JUN-JUL 2015

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21/05/2015 15:51

In this feature • Negotiation • Profitability • Customer engagement

PULLING IN THE The manufacturerairline relationship is crucial to the success of both parties, writes Rick Adams

42

A

ccording to Aengus Kelly, CEO and Executive Director of aircraft leasing and fi nance company Aercap, “the single biggest issue between the aircraft manufacturers (OEMs) and the airlines is ordering too many airplanes—everything else is noise and irrelevant”.

“If you have too much capacity, it doesn’t matter if you’re flying a Boeing 787 or an Airbus A350,” he says. “If you’re flying from nowhere to nowhere with no one on board, you’re not going to make any money.”

Kelly believes too many airlines are fi xated

This is not necessarily an over-order in the number of aircraft but, more likely, in the delivery timetable. “You might be able to take 50 airplanes, but whether you can take them over four years is very different from whether you can take them over 10 years,” says Kelly.

“And if you take them over 10 years, the pricing gets out of whack because of OEM escalation clauses.”

The crux of the dilemma is lack of negotiating experience. Most airlines will sit down to negotiate a transaction with an OEM every five or six years. The person on the other side

on massive growth plans. While this looks impressive on the day of the deal, they may soon realize they have over-ordered.

of the table is doing it every day.

“Unsurprisingly, there’s one winner 90% of the time; that’s what you would expect,” says Kelly. “The focus on ownership costs of the airplane pales into insignifi cance against the amount of cash you will burn if you have an airplane that you don’t have the traffic to fi ll, or that you have to sell for deeply discounted prices.”

There are about 40 airlines in the world that operate more than 100 aircraft, and another 50 operators with fleets of 50-100. In the past year, orders of 50 or more aircraft

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OEM relationship

IMAGE: GETTY

SAME DIRECTION have been placed with Airbus and/or Boeing by 10 airlines and three leasing companies.

Kelly is confident that the airplanes on order will all be delivered. “But will they be delivered in the timeframe that they were originally ordered?” he asks. “No, I don’t think they will. There are deferral discussions going on all the time with the OEMs.” Philippine Airlines (PAL) recently deferred the delivery of some of its Airbus order, following an assessment of market requirements.

Jaime Bautista, PAL President and Chief Operating Officer, described it as “a win-win

industry. “There’s a certain amount of profitability in the aviation complex,” he says. “If the OEMs get more than their fair share, then someone else is giving up more than their fair share. The instrument that transfers that wealth is an airplane, and you’re either paying too much or you’re buying too many of them.

“A lot of airlines have done very well and they’ve been very smart and very aggressive at the right times,” he says. “But the numbers speak for themselves in the profits of the two parts of the aviation chain. Most of the time, the relationship between the

for both PAL and Airbus. We were able to get what we want and they were able to get what they want.”

In 2015, PAL will take delivery of five A321s, down from the original target of 10. The remaining 33 aircraft ordered from Airbus are scheduled for delivery through 2024, and not 2020 as originally planned.

OEMs and the airlines is fi ne. But the root of the problems, when they do occur, is over-ordering.”

New aircraft program delays also affect the relationship from a fi nancial standpoint.

“We’re seeing more cancellations recently than ever before,” says a report from AirInsight. Nearly 14% of Airbus and Boeing orders were cancelled in 2014. Late programs have included the Airbus A380 and A350XWB, the Boeing 787, and the Bombardier CSeries.

“With delays in deliveries and OEMs not meeting contractual obligations, it is much

Profitability balance While the PAL case may be a win-win, Kelly thinks the relative profitability of OEMs and airlines reflects an inherent imbalance in the

Most airlines will sit down to negotiate a transaction with an OEM every five or six years, whereas the person on the other side of the table is doing it every day

43

JUN-JUL 2015

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OEM relationship

1,627 new aircraft were delivered in 2014.

The in-service fleet that year numbered 26,051

About 40 airlines in the world that operate more than 100 aircraft and another 50 operators with fleets of 50-100

easier for an airline to recapture progress payments made to OEMs,” says the report.

Late entry into service can create significant issues around the fleet plan. Aercap had a customer that had Boeing 767s on lease from the company, which was planning on changing to Boeing 787s when the 767 lease expired.

But the 787 program was delayed. As a result, the customer had to extend the 767 leases for another 12 months.

Kelly admits “you’ve got to pay a big number if you want it for 12 months, because I could move the airplane to someone else for five or six years”.

Degrees of difficulty Numerous other elements feed into the OEMairline dynamic. Different degrees of difficulty in the relationship could be fostered by a problem with the seat manufacturer or a problem with some buyer-furnished equipment products. In such a situation, airlines do not have the commonality that they want in the layout of the passenger cabins and this, in turn, could raise costs or alter scheduling plans.

Then there’s the question of maintenance, repair and overhaul. When new aircraft are delivered, larger airlines usually have the sophisticated maintenance and technical teams needed to manage advanced technology models. For a smaller airline, it’s far more of a challenge. The consequences are significant.

“It’s the same as a bad debt for a bank—if the dispatch reliability is running at 92% then you have 8% losses,” says Kelly.

The various after-sales packages now available can seriously affect the dynamic between the two partners.

Vicious circle Airbus Senior Manager, Martin Fendt, says “it’s a big, big operation for the OEM” to maintain relationships with the customers and make sure their aircraft are performing exactly as expected. “It starts with development of a new aircraft—industry focus groups, understanding what the market wants within the capability of the supply chain, technology readiness levels,” he says. “Then we thoroughly demonstrate and validate everything we had promised to deliver for the airlines once the design was frozen.”

This is followed by in-service introduction, where any issues are closely monitored and ironed out. “As the aircraft enters service,

inevitably there are teething things, and that’s why we have people at every stage to take onboard all that feedback from the operator as a centering service, and then to liaise internally with the program or customer service or the sales team to make entering service as smooth as possible.”

Paulo Cesar Silva, President and CEO, Embraer Commercial Aviation, says his company also does everything it can to understand the requirements of its clients. “We are in business to sell aircraft, but we also need to understand our customers and how their aircraft will be deployed.”

Silva says the advent of new technology is driving new designs. But the company is careful not to over-spec an airplane, and

All manufacturers are under pressure to lower costs associated with maintenance tasks and spares inventories

45

believes in incorporating technology only when it adds value. “The obsession with cost may sound repetitive, but you need only look at the drop in real passenger fares over the years to understand that airlines need to find ways to cut costs, to carry the proliferation of lower-yield traffic,” he says.

“For the past few years, carriers have been overhauling their operations—outsourcing, automating, simplifying. As they replace their ageing fleets, it’s only natural that new aircraft deliver even lower costs. Unfortunately, that low yield-low cost dynamic is something of a vicious circle.”

All manufacturers are under pressure to lower costs associated with maintenance tasks and spares inventories, according to Silva.

“We’ve responded to this in a number of ways, including our spares pool program that minimizes up-front investment in high-value repairable items,” he says. “The program saves on repair and inventory carrying costs, reduces warehouse space, and virtually eliminates the need for repair management resources.”

“We’re continuously engaging with our customers to know what is working, and what isn’t, with the airplanes. We’re keenly aware of how the airplanes are performing operationally and, of course, fi nancially.” • JUN-JUL 2015

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In this interview • Profitability • APD • Innovation

AIRLINES INTERNATIONAL

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CEO interview

TURNING THE TIDE

47

Virgin Atlantic CEO Craig Kreeger is on a mission to transform the airline, despite the many challenges facing aviation, and the UK industry in particular. Graham Newton reports

You’ve successfully returned the airline to profit, as promised. What made that transition possible?

A variety of factors were involved. Most importantly of all, our people continued to do a great job for our customers. Even as we were working behind the scenes to change a number of elements and put a new strategy in place, we stayed focused on the delivery of customer service.

Forming the relationship with Delta was also key.

It gives us great access to customers in the United States and it works for Virgin customers, too. From the UK point of sale, we now offer a range of US destinations through our codeshare with Delta. At JFK, for example, from day one of the agreement, Virgin customers could choose from 44 connecting destinations. We’ve recently increased services to Miami and Boston to give them even greater choice.

We also have reciprocal frequent-flyer programs.

Then there was the general improvement in the global economy—and particularly in the United Kingdom and United States. That has helped a lot.

And finally we controlled cost. Virgin Atlantic’s recovery really started when we focused on those costs that did not touch the delivery of our customer services. New aircraft played a big part in this. We took our first Boeing 787 in 2014, and we will have nine delivered this year. Within three years, more than half of our fleet will be Boeing 787s.

How has the Delta tie-up affected Virgin Atlantic strategy, given the airline’s previous independence?

Delta is a different brand, but one that complements the core of the Virgin Atlantic ethos very well.

We are both focused on the company as a family, for example. Delta is known for the recognition of its people and has a very engaged workforce. Virgin Atlantic sees aviation in the same way. And that translates to both companies having a joy in taking care of their customers.

That makes us a very effective team. Delta customers now have every incentive to try Virgin Atlantic, and vice versa.

JUN-JUL 2015

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CEO interview

48

What happened with your subsidiary airline, Little Red? Little Red was a good experiment. We learned a lot. It had a phenomenal customer reaction and all the customer satisfaction ratings were very high. But ultimately, it was simply not attracting enough customers to feed into our network.

That is disappointing—and especially so for travellers in Manchester, Aberdeen and Glasgow. But we are always trying to do new things. That is part of being Virgin.

What difference will the Boeing 787 make to your product, your network and your bottom line?

It is a fantastic aircraft from a customer perspective. It has good, spacious seating, more humidity, bigger windows. We are thrilled with it.

At the moment, it is replacing the A340-600 one for one. So we’re not thinking about new services with the aircraft as much as replacing older models. The 787 is already on New York and Boston services, and this year it will also fly the longer routes to Los Angeles and Hong Kong.

Fuel savings are about 32% compared with the older A340 models. That isn’t the total economics of the aircraft, because obviously there are fewer seats. But the fuel saving alone makes it compelling from a cost and environmental point of view.

Aviation must share the responsibility for not getting the message across about the benefits of the industry. It is too easy to simply point the finger at governments

Taxation continues to be a problem for airlines. How will the Air Passenger Duty (APD) problem resolve itself, given Scotland’s (and Wales’) determination to reduce/abolish it?

It is disappointing that the UK government— through its actions and not necessarily through its words—fails to acknowledge the real benefits that aviation brings to the UK, economically and socially.

APD is a symptom of that. There is no doubt that it acts as a constraint. Its impact on commerce is not fully appreciated by the government. At least Scotland has seen the damage it is doing, and is working to reduce and then abolish APD. But that also makes me nervous. It makes no sense to have a high APD in one country and then across the border a low APD or no APD at all. We have to be consistent, because the problems that could occur are apparent.

Why the lack of a coherent aviation policy in the UK? Aviation must share the responsibility for not getting the message across about the benefits of the industry. It is too easy to simply point the fi nger at governments.

A government should serve the public, and so the industry must persuade the public that aviation provides value. That would put the pressure on governments. Having said that, it is difficult—especially in the UK at the moment, which is still following a policy of austerity. In such times, a tax is a tempting proposition from the government perspective.

Where next for infrastructure development in the southeast of England? Do you support any particular solution, and are you hopeful of getting anything done on this front?

A strong, robust hub for a key city is a more viable proposition than spread-out airports offering point-to-point services.

I have long said that the UK needs a big hub. And all the evidence, especially from customer purchasing trends, suggests that it should be Heathrow. I don’t know if that would be best for Virgin Atlantic but I think it would be best for the UK and for UK travelers. Unfortunately, I can’t see a new runway happening for at least 15-20 years. I am hopeful, rather than optimistic, that we will get the infrastructure we need.

AIRLINES INTERNATIONAL

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12/05/2015 14:06

CEO interview

You have a strong presence in the US, especially with the Delta partnership. Are you happy with EU-US cooperation?

I would like to see better coordination between the US and the EU. There is no doubt that they take very different approaches to aviation, but both should be supporting a competitive market that provides customer choice and value.

Ownership issues, emissions trading, passenger rights regulation and NextGen/single European sky—It all needs joined-up thinking.

At least the US administration does understand the value inherent in aviation.

But both parties must work harder to get the benefits to the end customer.

How conscious are you of the Virgin brand in your strategy? Can you be ‘fun/offbeat’ and still have a good safety culture?

50

I love the Virgin brand, and experienced it as a customer long before I joined the company.

In the end, a brand is about delivery, and delivery is about your people. That is how a brand is created and sustained. We encourage our people to have personality and fun when they deliver customer service.

But that can easily be done while also being safe and efficient. The focus on safety at this airline is total.

As mentioned, I knew the Virgin brand before I joined, but I didn’t know about the safety culture. I’m very happy with what I found. There is a great safety culture and a great customer service culture here.

You’re very innovative in the use of technology—on the passenger side and even in MRO. Is technology the foundation of a profitable airline?

Actually, Virgin was known for innovation long before it was all about technology.

But technology is a cornerstone of aviation, from engines to reservation systems. It is a huge element now, and its importance will only grow in the future.

At Virgin, we ask “how can we provide better customer service?” and “how can we give our people the information and tools that help them achieve better customer service?”

Answering those questions means that technology cuts across all aspects of our business, from the passenger to maintenance, repair and overhaul.

In the end, a brand is about delivery, and delivery is about your people. That is how a brand is created and sustained. We encourage our people to have personality and fun when they deliver customer service How important is IATA’s role in the industry to Virgin?

Virgin Atlantic is a medium-sized airline, and it is good to know IATA can act as our voice on key issues. We don’t have the resources or the platform to make our voice heard on the global level. We rely on IATA for that.

We need it to continue working with the EU, for example, to ensure that it understands the benefits of aviation and doesn’t regulate in a way that prevents those benefits from being fully realised.

We have suffered too long from what I call “lowest common denominator regulation”.

We must get away from that.

Mobility legislation provides a great example. The care of passengers with reduced mobility (PRMs) now rests with the airport. We think it is very clear that the service these passengers receive has declined since that has happened. It was a differentiating ability for us, and it benefited PRMs enormously.

IATA has a key role in ensuring regulations such as this don’t keep on happening.

Craig Kreeger February 2013: Joins Virgin Atlantic as CEO 2010: Senior Vice President, Customer Experience, American Airlines 2004: Senior Vice President, International, AA 1998: Vice President, Passenger Sales, AA 1995: Vice President, Revenue Management, AA 1992: Managing Director, Banking Division, AA 1985: Joins AA as a Financial Analyst Education: Graduated from UCLA in the US with an MBA in Economics

How have you developed your leadership style over the past two years?

It is helpful to have an airline background, or be an experienced CEO. You need to be able to understand the challenges associated with putting into place an airline strategy. It is not easy.

My focus is on honesty and transparency.

I do what I say I will do—and when I say I will do it. My personal energy is spent on communicating, showing management is not removed from the day-to-day business and we can, therefore, make good decisions.

We have to demonstrate this approach though our actions, to gain credibility.

That philosophy has helped to get the airline to where we are now, and it will be a key element in our long-term success. •

AIRLINES INTERNATIONAL

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In this feature • Operations • RFID • Transition

52

A GOLDEN OPPORTUNITY T

he idea is a simple one: to have all necessary maintenance documentation available electronically, with major parts tagged to support the process.

Moreover, the technology, such as data warehousing and radio frequency identification (RFID), is already available. And the business case is compelling.

The move would ensure all aircraft major parts have back-to-birth records that show compliance with the necessary regulations and quality controls at all times, for example.

This would protect the asset value of the part—and indeed of an entire aircraft—effectively advertising it as “one careful owner”.

Safety would also win. No expiration date would be missed, and any overhaul or repair would be done only by a qualified person/ organization. Every single part could be checked, negating the need for the still-extant statistical sampling.

“Imagine e-versions of the documentation,” says Chris Markou, IATA’s Head, Operational Cost Management. “You would always get one master copy of a manual or records linked to

a part. Paper copies have multiple versions and take time to update. An e-record would mean easy access at the front line and no need to go back to the desk to get a paper.

Everything can be sent/accessed instantly, even in remote areas.”

Challenges ahead But despite having the technology and the business case in place, paperless operations remain a challenge for the industry.

As with all major projects, there are myriad reasons for the slow take-up to date. In terms of e-records, one hurdle is the fact that many authorities do not have regulations in place to accept an e-signature, or even e-documents.

As Markou explains: “Many regulators still require paper originals. We heavily question digital signatures, but we never question a scribbled signature on a piece of paper. We need worldwide acceptance of e-records.”

Then there are straightforward operational issues. Both Delta and Qantas, for example, have been involved in paperless operations for the best part of a decade but are still some

Paperless operations offer significant efficiency gains if the industry vision is underpinned by partnerships, global standards, and deadlines

way from describing it as a mature project.

Mobility has been a major obstacle.

“It’s only been in more recent years that mobile devices, and more sophisticated software and hardware, have made digital documentation more usable for our purposes,” says Joe McDermott, Managing Director, Line Maintenance for Delta.

Daniel Spiritosanto, Fleet Manager Boeing, Qantas Engineering, concurs. He says the next step for the Australian carrier is to improve mobility, especially for line maintenance areas. In essence, this means having all the maintenance data and functionality required of its maintenance information system (MIS) optimized for access through mobile devices such as iPads or tablets. Until that happens, he notes, the current processes are similar to those in place for paper task cards “The technology is available for some functions, but we are a little way away from having applications integrated and optimized such that workforce efficiency is maximized,” says Spiritosanto.

AIRLINES INTERNATIONAL

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Paperless operations

The airline story Qantas’ paperless operations journey began in 2007 when the carrier reviewed the market for a new MIS to replace the existing COBOLbased MIS written in the 1980s.

“Due to the complexity, significant effort and cost of replacing an MIS, airlines look for investment that will see them through 15-plus years of operation,” says Spiritosanto. “As a result, Qantas was looking for new technology that could not only meet the airline’s existing requirements, but also support the business into the future.”

The airline eventually selected a product known as Maintenix, and timed the new MIS to support the introduction of the A380. Rollout was extended across all fleet types, and was in universal use at Qantas by March 2013.

“Fundamentally, most maintenance records are now electronic, with only a small proportion still in hard copy to support the processes of outsourced maintenance providers as well as provide business continuity for limited system outage events,” says Spiritosanto. “Virtually all maintenance records created since the introduction of Maintenix are electronic, and therefore data is available to be accessed when needed.”

Even contract maintenance recorded on paper is subsequently uploaded and attached to the Maintenix task card, and faults are logged electronically.

Though the airline’s heavy maintenance department always prints tasks—because it is still easier to walk around aircraft with paperwork in hand to do the job—the airline has come a long way.

And the concept of starting small is one that Spiritosanto thoroughly recommends.

“The initial implementation of electronic signatures was for a single, small fleet. This enabled the approach to be tested over a relatively small footprint to prove the technology and processes,” he says. “Acceptance of the change by the wider community was facilitated through this approach.”

Delta’s McDermott underscores this point.

“A lot of challenges have been in the early scoping and planning phases,” he says. “We wanted to make sure that when it got to the testing phases, it was going to do what we knew and thought it could do. That way, the testing phases could be spent troubleshooting the unforeseen.”

McDermott also promotes the value of

getting staff buy-in. “We were quick to involve our frontline maintenance technicians for their input and feedback. It’s the way we do things at Delta, and there were several valuable insights that were incorporated into the process that we likely would have missed without their involvement,” he says.

RFID takes center stage An element linked to paperless operations is e-tags, which would enhance the ability to track and verify aircraft parts from cradle to grave, commonly referred to as back-to-birth.

RFID is the technology behind the initiative.

Although this is commonplace, the RFID employed for e-tags may not be as straightforward as existing practises.

tags offer. “We missed an aviation standard for bar-coding, when even supermarkets use it. We should not miss the chance to make e-tags transferable and interoperable” he says.

If e-tags could be made to work and to have complete interoperability, the efficiency gains could be enormous. Allied to erecords, they would provide a complete history of life-limited parts, improving safety and asset value.

Further efficiency gains would be made by having the correct inventory. Understanding the exact state of play with regards to parts would enable airlines to hold the right-sized inventory at all times and forecast future needs, creating a more efficient supply chain.

Transition roadmap To further help airlines achieve paperless operations, a transition roadmap, compiled

To help airlines achieve paperless operations, a transition roadmap will drive the industry from paper records to an electronic process The complexity of the operational environment is many orders of magnitude greater than using RFID in a warehouse, Markou suggests. It may not be a case of one-sizefits-all. Line maintenance operations simply need tags to act as identifiers to link into their databases, while in component maintenance, tags may need to contain the whole maintenance history of a part.

Working with manufacturers will be crucial. Every A350 delivered today is equipped with many of its components tagged, for instance. But if OEMs or airlines start to develop their own standards, Markou believes the industry could miss forever the golden opportunity in efficiency that these

by IATA following stakeholder input, will drive the industry from potentially incomplete paper records to an entirely electronic process.

The roadmap will include provision for the regulatory framework for acceptance of erecords and the definition of those e-records.

Increasing the awareness of new technologies will also be vital. IATA will act as the facilitator to industry groups, and arbitrate or develop consensus as required.

IATA will also help to determine e-tag standards in an objective matter, as well as ensure their transferability and interoperability. IATA’s Engineering and Maintenance Group—part of the Operations Committee— has agreed to a 2020 deadline for all aircraft parts produced or overhauled to be tagged electronically.

Starting the same year, all aircraft manufacturers should be able to deliver all aircraft records electronically. These records should flow seamlessly into the airline’s maintenance information system, enabling the airline to update the records electronically in the future.

The challenge now is to ensure that the resources and implementation plans of all stakeholders are sufficient to meet the deadline. ICAO will be kept fully engaged in this process, to facilitate the transferability of e-records across national boundaries.

To further the collaboration, airlines that get new technology will review it to provide input on what goes right or wrong. The industry players could then address problems together and learn from each other. •

53

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In this feature • Fast Travel • Education • Customer choice

T

he Fast Travel program—part of IATA’s Simplifying the Business (StB) initiative—provides self-service options in six areas of a passenger’s journey prior to boarding the aircraft. In doing so, it creates more choice for the passenger and a better travel experience.

Of the six projects within the IATA Fast Travel Program, the three considered to be most important are self-check-in, self-fl ight rebooking, and self-bag tagging.

The latter is a continuing issue in the European Union. Baggage tags have to have two green stripes on them for intra-European or

54

OVERCOMING HURDLES

IATA’s Fast Travel program continues to move forward, but hurdles to speedy implementation remain, reports Charles Tyler

AIRLINES INTERNATIONAL

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Fast Travel

All in all, Fast Travel is steadily moving ahead and is on target to meet IATA’s vision of having 80% of global passengers being offered a complete range of self-service applications by 2020

international fl ights originating from an EU airport. In this way, customs officials can easily see that a bag started its journey within the European Union.

“In March 2015, we trialed a new scheme and discussions are ongoing with the EU for approval,” says Paul Behan, IATA’s Head of Passenger Experience.

He explains that the new system has monochrome bag tags: those originating from EU airports have the main body of the tag black, with the details reversed out in white, while fl ights from other airports have the details printed in black on white.

The United States had already largely resolved the problem. The Transportation Security Administration (TSA) has approved all forms of tagging (whether home-printed, e-tags or others), making self-tagging a reality across North America.

But an airline agent still has to accept the bags for a visual inspection and check that the tags are correct before activating the bag.

Regulatory hurdles While the EU announcement is a positive step, specific stumbling blocks to some Fast Travel initiatives remain.

A case in point is Indian regulation concerning electronic boarding passes, says Behan.

“Indian regulations require the airport agent to put a red stamp on a paper boarding pass, so airlines have to produce a paper version at the airport for any passengers with an eboarding pass,” he says.

“We are working with the Indian authorities to see how this can be changed. Airlines are promoting a provision to the regulations so that when the electronic barcode is scanned it validates it at the airline level, which provides better information than you get under today’s system.”

Beyond regulations, resource allocation continues to restrict development. “The main issue in implementing Fast Travel is the time it takes for airports to install the equipment, which can make the time to market long in some cases,” says Stephanie Smitt Lindberg, Vice President, Customer Journey, SAS. SAS has found, however, that airports have become increasingly willing to install selfservice equipment. “We have noticed an attitude shift at airports recently,” Lindberg says. “We previously had to buy our own equipment, such as turnstiles, and install this at the airports. Nowadays, the airports are

educate guests on the new process,” he says.

“We have trialed self-boarding in Honolulu with mixed results, whereas in Japan, I watched a Japanese airline self-board a Boeing 777 in minutes—largely because its customers understood the process perfectly.

“We are in the process of changing not only the functionality but also the look and feel of our airport lobby spaces, in direct response to technology advancements and self-service,” says Ranoa. “We believe self-service will allow Hawaiian Airlines to alleviate some of the stress and provide the guests with a process that is easy and intuitive.

“Of course, we understand that we still have to assist our guests in knowing what to expect, and we try to make our self-service applications very intuitive and easy to use.

We are consistently looking at ways to interact with guests earlier in the process, so that they are comfortable with the experience.

installing the infrastructure so that all airlines can share it.”

Communication is key for the guests, and we understand that.”

Good education Aside from airports, Lindberg points out that in some countries there is a resistance from passengers to adopt the self-service approach.

But equally, she says, some staff still need to be educated on the benefits of self-service.

“Our shift towards more self-service has driven efficiency, and I expect we will see job descriptions changing and staff will be able to assist with other things than taking boarding passes,” says Lindberg. “For example, they may be required to service passengers that need special help along the way.”

Brett Ranoa, Senior Director, Customer Service Administration at Hawaiian Airlines, which was the fi rst North American carrier to achieve IATA Platinum status for Fast Travel, agrees. “Historically, the airline busi-

International limits One vast market that is progressing well with the implementation of self-service is China.

IATA’s Behan says that for domestic passengers, the implementation of self-service applications has been very progressive, and that self-tagging of bags is already being offered.

However, challenges remain for international fl ights to and from China, where there are still limitations on what passengers can do for themselves. IATA is working with the Chinese authorities to implement clear standards and procedures.

All in all, Fast Travel is steadily moving ahead and is on target to meet IATA’s vision of having 80% of global passengers being offered a complete range of self-service applications by 2020.

“IATA’s Fast Travel program allows the entire industry to follow the standards and best practises that allow travelers to reap benefits from technology, regardless of what airline they are flying or where they are in the world,” says Hawaiian’s Ranoa.

“We believe that self-service gives our guests the ability to choose a form factor in which they are comfortable,” he says. “Some of our guests enjoy the one-on-one experience with our ticketing agents, but over 70% prefer to use technology, which allows them to move seamlessly through the airport and on to the boarding gate.”•

ness has had the same customer service model since the 1980s—very transactional,” he says.

“Our focus on the customer service experience is to now to have agents roaming, greeting, and assisting guests in the lobby. We also believe that our commitment to Fast Travel will bring a consistent, reliable, and efficient check-in guest experience.”

Ranoa also thinks that education of passengers is key to getting more to discover the benefits of self-service, and admits the United States has lagged behind in some respects in this area. “Here in the US, we are late-adopters to self-boarding, and it takes time to help

55

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Airlines International

INDUSTRY DATA Traffic capacity growth on international markets Global air travel rose by a strong 7.0% in March compared with a year ago. The acceleration reflects the impact of the Lunar New Year celebrations extending into March, compared with 2014, when the holiday fell a month earlier. In contrast, cargo volumes moderated in March with a small 1.6% rise, following a 12.2% rise in February, which was boosted by the Lunar New Year.

40

Revenue passenger kilometers (RPKs)

% change over year

30 20

Available seat kilometers (ASKs)

10

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

0 -10 -20 -30

56

2010

2011

2012

2013

2014

2015

Source: IATA

Airline share prices (US$)

Premium traffic growth, selected routes

Airline share prices fell 1.5% in April compared with March, but are still up 23% on a year ago. Declines in fuel costs, which had boosted airline shares in late 2014, are being offset by the strengthening US dollar.

Premium travel on international markets rose 4.4% in March, compared with March 2014. This marked an acceleration in the growth rate compared with Februaryâ&#x20AC;&#x2122;s 2.3% rise. The primary driver of the March improvement was growth within Europe.

US$ based index (100 =2007)

Premium traffic growth Share of total premium traffic

Mar 2015 vs Mar 2014

YTD 2015 vs YTD 2014

Within Europe

14.3

7.8

3.0

100

North Atlantic

12.7

3.3

2.9

80

Within Far East

20.1

12.2

9.0

Europe-Far East

8.8

2.1

1.9

Europe-Middle East

4.8

7.8

8.0

North and Mid Pacific

5.2

3.2

2.9

4.4

3.1

160

Route area

140 120

60 40 20 0

08

09

10

11

12

13

14

15

World Airlines

European Airlines

Asia Pacific Airlines

US Airlines

Source: Thomson Reuters Datastream

Total international Source: IATA Premium Monitor

AIRLINES INTERNATIONAL

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Data

6.141 billion

World Air Transport Statistics (WATS)

Global revenue passenger kilometers flown in 2014

Crude oil and US$ There has been a notable decline in crude oil prices in mid and late 2014, by about $50/bbl. But because of the increase in the US dollar, non-US carriers may not be able to realise the full benefi t of the fall in fuel prices, and in some cases could experience an increase in US-dollar denominated costs.

Crude oil price (Brent) 150

US trade-weighted value of us dollar against major currencies

The 59th edition of WATS has just been published, with the most comprehensive overview of trends in global aviation.

For more information, go to www.iata.org/wats Share of total air passengers by region, 2014 2.3

100

25.3 33.2

120

5.2

90

7.7 $/barrel

26.3 90

80

70

60

Share of total air freight flows by region, 2014 2.0 16.6 57

60

30

38.9

13.2

Source: Thomson Reuters Datastream

3.6 22.7

Jet fuel price currency comparison The strength of the US dollar has meant that non-US carriers are seeing a smaller benefi t from the fall in fuel costs. In US dollar terms, jet fuel prices are currently around 40% lower than they were near the end of 2014, which represents an $85 billion fall in fuel costs. For non-US carriers, the fall in jet fuel prices in euro terms is about 25% , representing a smaller $50 billion saving in fuel costs.

US$ per barrel

Euros per barrel

North America

Europe

Middle East

Asia Pacific

Latin America

Africa

Source: WATS, 59th edition

200 180

2014 top 10 airlines ranked by passengers total scheduled ('000s)

-40% or -$50/b $85bn fall in fuel costs

160

$/barrel

140 120 100 80

-25% or -$30/b $50bn fall in fuel costs

60 40 20

1.

Delta Air Lines

2.

Southwest Airlines

120,087

3.

China Southern Airlines

100,683

4.

United Airlines

90,439

5.

American Airlines

87,830

6.

Ryanair

86,370

7.

China Eastern Airlines

66,174

8.

easyJet

62,309

9.

Lufthansa

59,850

10. Air China

2008

Source: Platts Oanda

2009

2010

2011

2012

2013

2014

129,433

54,577

2015 Source:WATS, 59th edition

JUN-JUL 2015

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Soapbox

TOWARD AN EFFECTIVE AVIATION STRATEGY The industry must speak with a single voice if regulators are to apply an effective aviation strategy

58

A

viation plays a fundamental role in the European Union (EU) economy, contributing €88 billion to the EU GDP. It is vital for tourism, people-topeople contacts, business, and for the regional and social Violeta Bulc is the EU Commissioner for cohesion of the Union.

Transport It is also essential for connecting Europe with the rest of the world. About 27,000 flights pass through Europe every day. They represent 26% of the world market. In short, aviation matters. And because it matters, it is a top priority for 2015.

Despite being one of the most integrated aviation regions in the world, heading, with our neighbours, towards a market of one billion inhabitants with common rules, a truly unified vision for the sector is missing. We are now in the process of building it, and, I hope, making it into an effective strategy tackling several strategic issues.

I would like to have a dynamic, positive and innovative strategy to boost international and regional competitiveness. In my view, engagement is the only way to reach a level playing field and fair competition. But to engage we need leverage, and to gain leverage we need a common voice.

Today, we are a single market only from the point of view of airlines in Europe, but not for those outside. Aviation relations with third countries are mostly handled by our 28 Member States. A discussion on a legal framework that would allow addressing major aviation regions and trading partners with a common approach is, more than ever, imperative.

Other regions put aviation at the centre of their economic strategies. Fierce global competition, paired with a relative loss of capacity at EU hub airports, risks leaving the EU on the edge of the aviation world market.

Capacity constraints are another major concern to be faced

swiftly. Building the right capacity fosters growth, with a positive impact on employment in aviation.

The new strategy should also take into account common priorities in terms of regulation, such as the revision of certain safety standards, as well as new rules—for the market development of civil drones, for example. Despite the concerns about safety, security and privacy, this is an opportunity that Europe must not miss.

The European aviation community gathered in Riga in March 2015 and established some basic principles that can be supported by signing the Riga Declaration.

Shared priorities for infrastructure development, and a specific strategy to bolster competition, are also crucial for the future of aviation. Matching the demands for more routes and better connections with those for lower costs and lower environmental impact is a major challenge for airlines in Europe. We need to create a more competitive and integrated aviation market that makes the most out of regional connectivity. Needless to say, innovation has an important role to play here as well.

We won’t stand a chance of delivering an effective strategy if we don’t work together: European institutions, Member States, regulators, the industry and its employees.

We all have a common interest in ensuring long-term, high-quality and sustainable services, and in remaining a major aviation region in the world.

It has already started: the fi rst step to define the new aviation strategy is gathering the opinions and ideas of the entire aviation ecosystem in a public consultation that will be open until 10 June 2015. We’ll take it from there.

But I am confident the fi nal result will pave the way for European aviation success. • http://ec.europa.eu/transport

AIRLINES INTERNATIONAL

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