Airlines International June-July 2017 by Redactive Media Group

AIRLINES INTERNATIONAL JUN- JUL 2017 - ISSUE 68

ISSUE 68 JUN-JUL 2017

THE AGM ISSUE

CEO INTERVIEWS: Aeromexico, British Airways, UPS Airlines

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SPECIAL REPORT: What would anti-globalization policies mean for aviation?

A SILK ROAD IN THE SKY? The air transport industry is developing fast in Central Asia

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The Airbus Widebody Family featuring the new Airspace cabin

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Airlines International

CONTENTS COMMENT

SPECIAL REPORT

9 Alexandre de Juniac Social media is a powerful tool, which brings opportunities and challenges to airlines

26 The business of freedom Increasing protectionist rhetoric puts the beneﬁts of air connectivity at risk

AGENDA

FEATURES

12 IATA and industry update EU regulation warning; Punctuality rules being challenged; GTAC beneﬁts; Laptop ban ‘not sustainable’

46 Silk Road in the sky? Aviation is developing fast in Central Asia but challenges remain. Joe Bates investigates 50 The cost of going green Martin Rivers explores the challenges in making sustainable aviation fuels viable

CEO INTERVIEWS 20 The long game Aeromexico CEO Andres Conesa says patience was vital in the airline’s turnaround and is a key to success for any carrier

DATA 32

32 Digital in his DNA British Airways CEO Alex Cruz says he is preparing the airline for disruptive innovation, no matter where or how that originates

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

52 Taxes and charges in aviation Industry ﬁgures and IATA achievements in ﬁghting against unreasonable charges

SOAPBOX 54 Henrik Hololei The evolving threat of terrorism is forcing the EU to rethink security strategies

40 An advocate for free trade President of UPS Airlines, Brendan Canavan, says greater efficiency will allow the airline to respond to continued growth

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

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

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JUNE-JULY 2017

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

Social media is a highly accurate lightning rod in attracting the attention of companies to areas of concern to their customers

AIRLINES LIVE IN THE PUBLIC SPOTLIGHT

f anyone had any doubt about the power and global impact of social media, the incident with United Airlines on 9 April cleared it up. This and other recent incidents have also reinforced another truth: the world is absolutely fascinated with anything to do with aviation and air travel. As a result, airlines live in the public spotlight. There’s good reason for that. Aviation is an important industry that has a real impact on an ever-increasing number of people. This year about four billion passengers are expected to board aircraft. And, as a matter of course, the vast majority will be social media-enabled with their smart phone. As we see with incidents large and small, companies are not only listening to what their customers are saying online; they are using what they learn to help them respond appropriately. And on those rare occasions when, for whatever reason, events escalate to a social media tsunami, companies come under tremendous public pressure to make things right. There are a few lessons. It should be reassuring to regulators that such a potent force exists to serve the consumer interest. Social media is not a replacement for a well-thought out consumer rights regime aligned with smarter regulation principles and global standards. But it’s a highly accurate lightning rod in attracting the attention of companies to areas of concern to their customers. For airlines, that’s also a powerful tool. Social media links them directly with their customers and empowers them with real-time knowledge. As we have seen, the cutting-edge of social media is sharp. So it must be handled with great care and sensitivity.

Greater public attention through social media on examples of poor consumer experience also creates the temptation for policy-makers to rush towards regulatory solutions. But the old legal adage that hard cases make bad law comes with a warning worth heeding in such cases. Our industry’s commitment to working with governments on smarter regulation is vitally important. Industry input and a rigorous cost-beneﬁt analysis must not be shortcircuited by the immediacy of the social media age. A rallying call is also part of the learning. Of course, any business should be held accountable when it has not lived up to legitimate public expectations. But as an industry we must also not be shy about touting aviation’s successes. I call aviation the business of freedom. And that is not a theoretical or poetical naming. Airlines perform a vital function in our world—linking people, facilitating business, delivering vital cargo, keeping global supply chains running, and so much more. Our work creates opportunities for people to lead better lives. The IATA Annual General Meeting and World Air Transport Summit is an opportunity for the industry to unite, review successes and address challenges. I look forward to seeing you there or following the event through the coverage on www.iata.org. •

Alexandre de Juniac

JUNE-JULY 2017

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The Big Picture

READY TO WELCOME THE WORLD

s recently as 20 years ago the remote Brazilian town of Jericoacoara had no roads or electricity. The northernmost town in the state of Ceara, it is located around 300 kilometers west of the city of Fortaleza. It has gradually become more modernized—electricity was ﬁnally installed in 1998—yet the ﬁshing community is still a world away from the hustle and bustle of Rio de Janeiro or Sao Paulo. Over the past decade though, visitor numbers have risen. The town has become popular with tourists, its beautiful

IMAGE: GETTY IMAGES

beaches and warm sea water making it perfect for windsurfing and kitesurfing. Visitors typically fly into Fortaleza airport, before taking a bus to Jericoacoara, which takes just over seven hours. The importance of connectivity to remote communities such as Jericoacoara is invaluable. As the largest country in South America—and the fifth largest in the world—the sheer vastness of Brazil poses huge challenges in this regard, as natives and tourists alike seek to explore the country’s fascinating sub-cultures. As well as tourism, vital services—such as the delivery of medicines—rely on strong transport links. For some cities served by aviation in Brazil, the only alternative to domestic air travel would be a five-day boat ride. But while more than 120 Brazilian cities receive airline services, work still needs to be done. Funding of smaller, more remote airports has traditionally been a challenge but the industry is hopeful the Development Plan for Regional Aviation will be implemented. The improved transport links this plan facilitates will be vital as the country aims to recover from a period of economic uncertainty. Brazil also needs to loosen its tight regulatory grip on the air industry which has complicated the expansion of the airlines and overcomplicated their operations in the country. The importance of connecting remote communities is mirrored worldwide. For many islands, such as Fiji, access to the rest of the world is only possible by air. Also in northern towns of Canada, and some remote communities in Africa—where road infrastructure barely exists and would uneconomical to develop—aviation provides access to vital services such as health care. For Jericoacoara, a new era beckons. The town’s new airport will connect it to the world—and create opportunities for the town’s economic fortunes to prosper. AIRLINES INTERNATIONAL

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Airlines International

JUNE-JULY 2017

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Agenda

Upcoming events...

AGENDA

140th Slot Conference 13-15 June Kuala Lumpur, Malaysia

IATA CIO Forum 4-5 July London, United Kingdom

Don’t repeat Europe’s mistakes IATA has urged countries considering passenger rights regulations to use smarter regulation practices as the base and focus on ICAO and IATA principles. The infamous European regulation on passenger rights—EU 261—has over a decade of history. It includes disproportionate levels of compensation, places burdens on airlines for delays and cancellations outside their control, and confuses passengers with its complexity. “At the end of the day EU 261 has added costs to airline operations, said Chaitan Jain,

IATA Assistant Director, Government and Industry Affairs. “But it has failed as an extra incentive to airlines simply because so many of the delays and cancellations are beyond their control. “So it would be difficult to make the argument that EU 261 has really protected passengers.” In a speech to the World Travel and Tourism Council (WTTC), Alexandre de Juniac, IATA’s Director General and CEO, took the argument further: “Too often we end up with governments using a sledgehammer to crack a nut.

FDX delivers insight Flight Data eXchange (FDX) can identify systemic issues and trends by using a massive collection of aggregated de-identiﬁed ﬂight data,

provided by participating airlines. The program also allows airlines to benchmark their safety performance against the

“The result is messy and leaves little of value on the table. We have been ﬁghting Europe’s ill-conceived passenger rights regulation—and more recently, the European Travel Package Directive—for over a decade.”

Instead of copying the EU’s “misguided” regulations, de Juniac urged governments to take input from the industry while focusing on a regulatory framework conducive to competitiveness and growth. •

industry, identify existing safety risks, and risks at potential new destinations. FDX—which is part of IATA’s Global Aviation Data Management (GADM) program—has 57 contributing airlines and data from more than two million flights has been de-identified and processed. As an industry tool, the current focus is on analysing five areas: misconfigured take-off, mid-air collision risk, loss of control risk, controlled flight into terrain risk, and approach and landing risk. More areas of focus will be added as FDX expands.

“FDX identiﬁes issues that are systemic, and IATA can then work on mitigation strategies, including advocating for changes or investments. And, backed by data that demonstrates a common problem, we can bring convincing arguments,” said Bruno Ochin, Manager, IATA Flight Data Analysis. FDX has already shown its worth in Latin America. The system highlighted an area of airspace that posed a “latent risk” of a mid-air collision—IATA was able to approach the relevant state, and airspace modiﬁcations were made to reduce the risk to an acceptable level. “The more carriers participate, the more valuable FDX becomes,” added Ochin, urging more airlines to take part. •

IMAGE: ISTOCK

The more carriers participate, the more valuable FDX becomes AIRLINES INTERNATIONAL

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Airlines International

www.iata.org/events Aviation Day Peru 31 August Lima, Peru

Maintenance Cost Conference 13-15 September Panama City, Panama

e-Cargo Conference 19-21 September Geneva, Switzerland

Punctuality rules being challenged in Brazil and China IATA is challenging punctuality rules that will affect the slot allocation process in Brazil and China. IATA will be seeking to further engage with Brazil’s ANAC (National Civil Aviation Agency) after a number of airlines were told they have lost slots at Sao

If governments deviate from the WSG, it means an airline could lose a slot in one country while retaining it at the other end of the route. •

GTAC– advocating as one Simpler visa facilitation and improved infrastructure are at the top of the Global Travel Association Coalition (GTAC) agenda. IATA is one of eight global bodies that make up the coalition, which enables the travel and tourism industry to speak with a united voice on key issues. “Speaking with one voice is the most effective way to be heard clearly,” said

Paulo-Guarulhos International Airport, due to not meeting the punctuality targets. IATA is also seeking clarity with the Civil Aviation Administration of China regarding the implementation of punctuality rules, set to come into force in July. IATA has maintained punctuality should not be directly aligned to slot allocation. The Worldwide Slot Guidelines (WSG) already incorporate various means to address poor performance.

Alexandre de Juniac at WTTC’s AGM. “Aviation and tourism depend on borders that are open to people and to trade. “But the current political rhetoric— denying the beneﬁts of globalization and pointing to a future of protectionism and more restricted borders—is growing in force. And that could put limits on the broad beneﬁts that that a sustainable travel and tourism sector generates. So we must make our point strongly.”

Aviation law changes in Mexico cause concern

If their targets are achieved, tourism will account for $130 billion of Japan’s GDP

IATA is advocating against new legislation in Mexico that affects compensation rights and baggage charges, among other issues. In April, modiﬁcations to the Civil Aviation Law were fast-tracked through the Senate and require the signature of the Mexican president to become law. IATA worked with government authorities, CANAERO, member airlines and other stakeholders to inﬂuence the outcome, as there are several areas that pose concern for the air transport industry. The new law includes

changes to compensation requirements for delays and cancellations, the use of non-sequential flight coupons, free baggage allowance, right of repentance up to 24 hours prior to flight, and free infant travel on all flights. IATA will continue its constructive engagement with the relevant authorities to ensure that the new law does as little damage to the air industry in Mexico as possible and push public awareness about the negative, unintended consequences of unorthodox consumer rights legislation. •

Discussing the travel industry’s role in facilitating economic growth, de Juniac highlighted Japan’s tourism targets. The country expects visitor numbers to grow from 24 million last year to 60 million in 2030. “If their targets are achieved, tourism will account for $130 billion of Japan’s GDP,” he said. “The biggest enablers of this phenomenal growth are at the top of the GTAC agenda—easier visa facilitation and infrastructure improvements. “These are critical for growth, as are the other GTAC items— environmental sustainability and investment in people.” • JUNE-JULY 2017

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Agenda

IATA is continuing dialogue with governments individually and through ICAO to ﬁnd sustainable alternatives to the current laptop ban. The ban—which was implemented with little notice or coordination with the industry—applies to certain ﬂights departing the Middle East and North Africa. Amid rumors that the ban could be extended, IATA Director General and CEO Alexandre de Juniac has called on the relevant governments to urgently seek alternatives. “The responses of Canada, the EU and Australia to the same intelligence demonstrate that a ban on large electronic devices in the cabin is not the only way forward,” he said. “Indeed we believe that it is not sustainable in the long run.” •

Artificial barriers holding back industry in Brazil 14

Artiﬁcial barriers continue to hold back the aviation industry in Brazil, IATA has said. The Importance of Air Transport in Brazil study—conducted by Oxford Economics on behalf of IATA—has shown aviation and aviation-induced tourism supports 1.1 million jobs in Brazil and contributes $32.9bn to GDP. However, this equates to just 1.4% of GDP overall. Peter Cerda, IATA’s Regional Vice President for the Americas, says that by adopting new policies, Brazil could reap even larger dividends from aviation. The lack of progress in the country’s aviation infrastructure is handicapping growth and detracting from the customer experience. The complicated nature of Brazil’s entry visa requirements also affects visitor numbers, while unorthodox fuel policies increase operating costs by $560 million annually. “Removing the artiﬁcial barriers that are holding back the industry in Brazil is paramount,” added Cerda. “Air transport contributes 3% of GDP in Chile, 3% in Ecuador and 2.1% in Colombia. At just 1.4% of GDP in Brazil, there is considerable room for improvement.” •

Laptop cabin ban ‘not sustainable’

Air accident reports should be ‘complete, accessible and timely’ IATA has called for a signiﬁcant improvement in the air accident investigation process. A recent study showed that reports were available for just 30% of accidents in the last decade. Speaking at the IATA Safety and Flight Operations Conference in Seoul, IATA Director General and CEO Alexandre de Juniac highlighted the importance of detailed, accurate reports so the industry can learn from accidents—and prevent them happening again.

“The investigation process is one of our most important learning tools when building global standards. “However, a recent study showed that of the approximately 1,000 accidents over the last decade, accident reports were available for only around 300 of them. And of those, many had room for improvement. “To learn from an accident, we need reports that are complete, accessible and timely.” •

A recent study showed that of the approximately 1,000 accidents over the last decade, accident reports were available for only around 300 of them De Juniac said global standards must be applied in air accident investigations, and that greater cooperation between aviation stakeholders is needed. “Global standards exist, but they are not being applied universally,” de Juniac said.

AIRLINES INTERNATIONAL

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Airlines International

MC99 comes into force in Indonesia Montreal Convention 1999 (MC99) legislation has come into force in Indonesia. MC99 establishes airline liability in the case of death or injury, of delays to passengers, and in instances of damage or loss of baggage and cargo. Indonesia formally ratiﬁed implementation in March, and MC99 came into force on 19 May. Russia will also join MC99 after President Vladimir Putin signed a bill agreeing to its implementation in March. Legislation is expected to come into force in July. •

Legal action over passenger tax at Colombian airport The Air Transport Association Colombia (ATAC) has ﬁled a legal suit against the Civil Aviation Authority of Colombia (CAA) in a bid to halt a proposed per-passenger tax at José María Córdova International Airport in Medellin. The proposed tax (US $1.71 per passenger) is to pay for the construction of a tunnel to connect the city of Rio Negro to the airport, which is the second largest in Colombia. The tunnel is not for the exclusive use of airport passengers. •

Global Training Partners honored

The IATA Training 2017 Premier Circle winners have been announced. The winners (in alphabetical order): Aircargo Training Center of Japan Airport College, France Alhind Academy, India Dangerous Goods Management, Holland Etihad Airways, United Arab Emirates Kadosh Training Services, Mauritius Louis Preston, Sri Lanka Qatar Aeronautical College, Qatar Sichuan Southwest College of Civil Aviation, China Turkish Airlines Aviation Academy, Turkey

Self-tagging allowed in Republic of Korea Air passengers in the Republic of Korea can now self-tag their hold baggage. Self-tagging is allowed with immediate effect for all airlines, on domestic and international flights.

JUNE-JULY 2017

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Advertising Feature

WELCOME TO MEXICO

CANCÚN, QUINTANA ROO

uintana Roo is one of the most important states for tourism in Mexico. About 40% of international tourists who visit Mexico are welcomed by the state of Quintana Roo, with most of its visitors coming from the United States, Canada and the United Kingdom. International arrivals, in conjunction with domestic tourists, make up over 11 million visitors to the destination. The Mexican state has over 96,000 hotel rooms and three international airports in Cancún, Cozumel and Chetumal. Cancún, located in the northern part of Quintana Roo, is a multifaceted destination with over 36,000 hotel rooms, quality tourism infrastructure, and an international airport that welcomed almost 28 million passengers in 2016. Cancun is known all over the world for: spectacular beaches, breathtaking turquoise waters, Mayan culture, water sports, adventure, ecotourism, international cuisine, beautiful golf courses, impressive spa

offerings, luxury shopping malls, bustling nightlife, and much more. Through the expansion of its already robust tourism offerings, Cancun continues to offer its visitors unique travel experiences. Due to its privileged geographical location, Cancun has extensive aerial connectivity that links the destination with many countries around the world. The Cancun International Airport is considered the second-most important in Mexico, but receives the largest number of international passengers in the country. Accommodation options range from luxurious AAA Five Diamond hotels to more affordable options, with European or allinclusive plans. A choice of family-friendly or adults-only properties are available, either in the hotel zone or downtown Cancun. The destination also boasts abundant meeting facilities and the appropriate infrastructure to accommodate large groups, conventions, congresses and exhibitions. •

CANCUN CONVENTION & VISITORS BUREAU CancunICC International Convention Center. Cancún, Quintana Roo, 77500, México. Tel: (52) (998) 881.27.45 www.cancun.travel FB: @CancunTravel Twitter: @cancuncvb The vast culinary offerings attract many tourists and have led to the creation of culinary festivals such as the Holbox Gastronomic Festival and the CancunRiviera Maya Wine & Food Festival. Cancun is also home to several AAA Five Diamond Award-winning restaurants. Some of the top tourist attractions in Cancun include: Cancun Underwater Museum of Art (MUSA). The Maya Museum.

AIRLINES INTERNATIONAL

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Advertising Feature

ISLA COZUMEL, QUINTANA ROO

ISLA MUJERES:

Fishing town with great natural wealth, Mayan history and Caribbean culture. Perfect for water activities like diving, snorkeling, boat rides, ziplining over the sea, sport ﬁshing, and much more. Landmarks: Manchones reef, Cave of the Sleeping Sharks, El Farito, and Garrafon Park. ISLA HOLBOX:

A natural paradise of tranquility that is home to small and charming hotels. Unique experiences like swimming with whale sharks (May–September) and bird watching. Landmarks: Bird Island, Yalahau Lagoon and Passion Island.

The National Reef Park of Cozumel is a must for diving. The park boasts a wide variety of activities to choose from such as: snorkeling, kayaking, surfi ng, windsurfi ng, kitesurfing, paddleboarding, and many more water sports. Also available are ATVs, jeep tours, hiking, rappelling, trekking, ziplining, tennis, horse riding and golf. Seafood is the main delicacy in Cozumel. The traditional Mayan cuisine from the Yucatan Peninsula, Cozumel is the perfect place to enjoy its vast variety of delicious dishes. •

FIDEICOMISO DE PROMOCIÓN TURISTICA DE COZUMEL & RIVIERA MAYA

Theme parks The islands: Isla Mujeres and Holbox.

Cozumel Island is now among the top ten destinations for diving worldwide thanks to its exceptional marine life, advanced diving and certiﬁed diving instructors, and resorts and hotels which are dedicated completely to this activity.

IMAGE:

ozumel, the third largest island of Mexico is a paradise where white beaches, fantastic sunsets, tradition, flavor and joy come together. With more than 50 hotels with 4,000 hotel rooms the island offers a range of hotels and world class resorts; international renowned brands, all-inclusives, boutique hotels, rustic villas and cabins. The International Airport of Cozumel has direct fl ights from different cities in USA, Canada and Mexico. There are also fl ights from Cancun via Cozumel airlift. Cozumel is an important port of call, more than 1,100 cruise ships arrive to the island every year. Fifty per cent of Cozumel is a protected natural reserve, in order to preserve the flora and fauna that thrives in its green landscapes. The island is surrounded by the spectacular Mesoamerican Reef, with gorgeous coral formations, and is home to exuberant and colorful fish. This island is world-famous due to its coral reefs and possesses an international reputation for diving, which began when Jacques Cousteau came to visit for the fi rst time in 1962.

RIVIERA MAYA TOURISM BOARD Plaza Paseo Cobá Playa del Carmen, Quintana Roo, Mexico 77710 Tel: (52) (984) 206 3150 Places to visit in Cozumel:

Chankanaab Beach Adventure Park. San Gervasio Archeological Site. Punta Sur Eco Beach Park the largest ecological reserve in Cozumel. Attractions:

Historic Celarain Lighthouse. Navigation and cultural museum. Bird watching. Mangroves. Coastal dunes and crocodiles. Colombian Lagoon, turtle-watching. Island Museum. www.cozumel.travel FB: @IslaCozumel Twitter: @VisitCozumel JUNE-JULY 2017

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Advertising Feature

PUERTO MORELOS, QUINTANA ROO

uerto Morelos is a picturesque ﬁshing village with a unique, tranquil and bohemian ambiance. It is located about 20 miles from Cancun and less than 10 miles south from Cancun International Airport. The destination is home to more than 5,000 rooms with a wide array of lodging options including hostels, cabins, rental apartments, boutique hotels and all-inclusive resorts. Puerto Morelos is known for its natural attractions such as mangroves, lush jungles

and crystal-clear cenotes. Off the coast, guests can ﬁ nd the Puerto Morelos National Reef Park, a place of unequalled underwater beauty that is perfect for snorkeling and diving. The proximity of the reef to the beach characterizes the area, with the soft tides and low waves ideal conditions for sailing and riding kayaks and catamarans. Horseback-riding, bird-watching, hiking, ziplining, rappelling, cycling, and activities on four wheelers and ATVs complement the

attractive activity offerings of the destination. Another must-see in the destination is the Cenote Route, the longest underground river system in the world. Visitors can experience adventure tourism in some of the most beautiful cenotes, including: Zapote, Siete Bocas, Kin Há, La Noria, Las Mojarras, Chilam Balam, Verde Lucero, and Boca del Puma. Polo and sport fishing have a predominant place in Puerto Morelos. Year after year some of the most important international competitions and events take place here, such as the International Sport Fishing Tournament. The competition brings participants from all over the world to fish the cerulean waters of the Mexican Caribbean. In Puerto Morelos, guests can enjoy a wide variety of regional and international cuisine – particularly freshly-caught fish and seafood. • CANCUN CONVENTION & VISITORS BUREAU CancunICC International Convention Center, Cancún Quintana Roo, 77500, México. Tel: (52) (998) 881.27.45 www.cancun.travel FB: @CancunTravel Twitter: @cancuncvb Dining and shopping

Establishments are small but cozy. They are mostly waterfront restaurants or located in main streets where visitors can ﬁnd local handicrafts, products and souvenirs. Some of the must-see/must-do spots in the destination, include: The Cenote Route. Crococun Zoo & Interactive Animal Adventure. The Botanical Garden. Selvatica Adventure Park. Mexico Lindo Cooking School. AIRLINES INTERNATIONAL

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Advertising Feature

RIVIERA MAYA, QUINTANA ROO

IMAGE:

FIDEICOMISO DE PROMOCIÓN TURISTICA DE COZUMEL & RIVIERA MAYA

iviera Maya is located in the state of Quintana Roo, from the south of Puerto Morelos to Punta Herrero. The Riviera Maya district contains the cities of Playa del Carmen and Tulum, and several towns and villages, each offering visitors a unique experience. Nature gives Riviera Maya its unique touch—this is the principal attraction of the district, with amazing biodiversity both on land and in sea. Riviera Maya boasts 43,969 hotel rooms, with more than 400 hotels. With millions of visitors every year from all over the world, Riviera Maya has an incredible amount of culture and history. Ecological action is taken to preserve the beauty of the area, with innovative work undertaken to maintain a sustainable Riviera Maya, and through responsible tourism. Riviera Maya is the ideal place to experience adventure in its eco parks, discover the history in its archaeological sites of Tulum, Cobá and Muyil, relax in world-famous spas, live an unforgettable evening in a nightclub, enjoy

incredible cuisine, or simply sunbathe and refresh in the marine breeze at the Caribbean. •

galleries, handIcraft stores and unique opportunities for extraordinary souvenirs.

RIVIERA MAYA TOURISM BOARD Plaza Paseo Cobá Playa del Carmen, Quintana Roo, Mexico 77710 Tel: (52) (984) 206 3150

Tulum: The top visited site by international tourists. It is the only Mayan city built right next to the sea in the whole Caribbean. The archaeological site of Tulum is one of the most iconic places of Riviera Maya. There are a wide range of hotel options, most of them inspired by the sea and the natural beauty of the region. There are several beaches in Tulum, however Playa Paraíso is considered one of the most beautiful of the zone and is just 15 minutes away from the town.

Places to visit:

Playa del Carmen: An incredible city filled with life, culture and glamour, Playa del Carmen is located at the heart of the Riviera Maya and offers the charismatic 5th Avenue, just a few steps away from the beach. Strolling the 5th Avenue you’ll find delicious restaurants with dishes typical from the region, Mexican cuisine, as well as international gastronomy. At Playa del Carmen you’ll also find shopping malls such as Quinta Alegría, Calle Corazón and Paseo del Carmen, where you will find prestigious international brands. There are also art

Main events:

The OHL Classic at Mayakoba is the only PGA Tour golf event in Mexico. Riviera Maya Jazz Festival. www.rivieramaya.com FB: @RivieraMaya Twitter: @RivieraMaya JUNE-JULY 2017

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In this interview • Joint ventures • Fleet changes • New Mexico City airport

Aeromexico Chief Executive Officer, Andres Conesa, says patience was vital in the airline’s turnaround and is a key to success for any carrier

THE LONG GAME 20

AIRLINES INTERNATIONAL

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CEO interview

How is 2017 looking for the airline? We had a difficult start to the year. There was the economic challenge of the exchange rate and the uncertainty about the change in the US administration. Nobody knew how things would evolve. But the year is starting to get better, the summer looks good, and we’re confident we’re going to have a good year. What are the factors in the year starting to take a positive turn? The change in the US administration was the main challenge we faced. We didn’t know how it would affect the relationship between the two countries. But actually, there are plenty of positives. The peso has improved as a result so the exchange rate is better. That leaves us to predict a far better year than we anticipated at the outset. Of course, there is the recent increase in oil prices but that has affected everybody. How is the joint venture with Delta developing? We are very enthusiastic about this relationship. Delta and Aeromexico have been partners for many years and started SkyTeam together. But this particular deal goes back to 2011 when Delta took a small percentage in Aeromexico. That equity stake has now increased to 49%. Additionally, we are working on a unique joint venture (JV) because it involves narrowbody aircraft. Normally, JVs have been across the North Atlantic or across the Pacific and involved widebody aircraft. It’s interesting to be working on something that is the fi rst in its class. The deal is going to be good for the consumers, good for the airlines and their employees, and good for the two countries.

What does it mean for SkyTeam and alliance partners? Alliances are still important. They provide a good value proposition for consumers and airlines. As an airline, an alliance makes it easier to have codeshares, to share frequent ﬂyer programs, to provide lounge access. A JV represents the next logical step in this approach, especially when you consider the many ownership limitations that exist in aviation. Even a JV isn’t easy though. It’s hard to make the case with regulators that it’s good JUNE-JULY 2017

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for the consumer even when the benefits are clear. That’s why you don’t have too many JVs out there. But, for us, it was an obvious move. Delta is our most important partner in our most important market, so it made sense to go to a JV. It is different relationship than we have with other SkyTeam partners but those partners are still important. Where do you see growth for Aeromexico in the future? The airline now has its largest-ever widebody fleet. By the end of 2017, we will have 15 Boeing 787s. On top of that, we have been working on simplifying our fleet for more than a decade. Ten years ago, we had eight different types of aircraft. By the end of the year, we will have just three types of aircraft. We will have Embraer regional jets, 737s and 787s. Up-gauging the fleet and flying the planes more, together with the simplification, means the airline will have much better productivity. Mexico is still underdeveloped in terms of air travel. There is a growing middle class and there are real opportunities for growth. Infrastructure is a challenge but, by having the widebody fleet, we can strengthen in the markets where we already fly. So, London is going to a daily service, as is Paris, Amsterdam, and Tokyo. Madrid will be served 12 times a week rather than 10 times a week. And there is a plan to open up a new destination in Asia on top of Tokyo, Shanghai and Seoul.

IMAGE: GETTY

What are your hopes for the new Mexico City airport? We are working very closely with the authorities to not only make it the most beautiful in the region but the most efficient in terms of operation too. The new airport will have connection times that are best in class. The authorities have been open to what we are saying, and they have listened. As an airline, we are the ones that will be using the facilities so it is right that we have input. We appreciate that building an airport is not easy. But I understand the project is on time and we are expecting it to be ready at the end of the second quarter, 2020. The new airport shares the same airspace as the current airport so it will be a case of closing one and turning the switch to open the other. So, we need to be very prepared for that transition.

The IATA AGM in Cancun will provide an opportunity to showcase aviation in Mexico

We appreciate that building an airport is not easy. But I understand the project is on time and we are expecting it to be ready at the end of the second quarter, 2020 Once the new airport opens, it will be much better for our consumers. We will ﬁnally have a world-class airport. The current one has been operating for more than 60 years and is outdated. What do you see as the main challenges or trends regionally? I think that we’ll see that consolidation continues. A decade or so ago, there wasn’t an Avianca group, and LAN and TAM were separate. This trend of working together to provide better value for consumers will continue. We will have less players but stronger players. The outlook for the next couple of years is more promising than it has been and Aeromexico will look to expand its network throughout Central and South America.

With Delta, we have an opportunity to provide better connectivity for the region. Mexico is a great bridge between Central and South America and the United States, and particularly the west coast of the United States. That’s what we’ll be working on. Is the re-emergence of Cuba changing the regional map? Aeromexico has a significant presence in Cuba. We had a good market connecting US passengers because we fly direct from many different Mexican cities. When Cuba’s relationship with the United States was re-established, there is no doubt that capacity in the market increased. But that market has stabilized for the moment, and we are confident that the market will hold steady and even grow for us. So, Cuba’s re-emergence had an impact at the beginning but it is less important now. What are the main lessons you’ve learned during your time as Aeromexico CEO? There are many lessons learned! I will highlight three important ones. First, it is very important to be flexible. Conditions

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Havana, Cuba. Aeromexico has a significant presence in the country

always change, be it exchange rates, oil prices or a downturn in the local or global economy. You have to manage your fleet and manage your risks. But always be prepared to adjust your thinking. Don’t expect the world to adjust to you. Second, people are extremely important. In aviation, there are many specialists and so they rarely leave the industry. It is crucial for an airline to attract the best talent it can. Third, you need patience. You cannot think that a strategy will bring immediate benefits. It takes 5–10 years at least. As mentioned, we have been working on our fleet for over a decade and it isn’t fi nished yet. But if you have a good plan, then keep going and you will reap the benefits in the end. Aeromexico was nearly bankrupt 10–12 years ago. We are in good shape now, but there is still a long way to go. You have to play the long game.

continue. The industry must work with governments to enhance security to combat the threats that are emerging, for example. Then there are new issues, such as the restrictions to travel. That will certainly be on the agenda. And I hope we also discuss Mexico. This is a great time for the AGM to be in Cancun and it provides a great opportunity for us to showcase our country. Mexico is very relevant to aviation. There are 120 million people in the country and it is a very young population, with an average age of 26. It is a well-educated population too. More than 100,000 new engineers graduate every year. And the truth is the economic relationship with the United States could not be stronger. Trade between the countries is worth $600 billion per year. That equates to about $1 million a second. The United States, in fact, exports more to Mexico than to China, Japan, and Germany combined. Overall, it’s important that we convey the message that airlines want to be part of the solution, and that the aviation industry can continue to contribute to growth and development. •

IMAGES: GETTY

It is a well-educated population too. More than 100,000 new engineers graduate every year in Mexico

What needs to be discussed at the IATA AGM in Cancun? IATA has a broad agenda. Safety, security, and sustainability discussions must

Andres Conesa 2015-2016 Chairman of IATA’s Board of Governors 2013 President of ALTA (Latin American and Caribbean Air Transport Association) 2013 Chairman of the Board of CANAERO (Cámara Nacional de Aerotransportes) 2008 Joined IATA’s Board of Governors 2005 Appointed CEO of Aeromexico; Became member of SkyTeam board Pre-Aeromexico Chairman of the Board of CINTRA. Also held several positions in the Mexican public administration including Deputy Undersecretary of Public Credit, General Director for International Financial Affairs and General Director for Economic Policy at the Ministry of Finance

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In this report • Globalization threats • Brexit impact • Trump administration

Increasing protectionist rhetoric puts the benefits of air connectivity at risk AIRLINES INTERNATIONAL

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n the wake of the Great Depression in the 1930s, protectionism ran riot as many countries sought to ringfence their national economy and employment levels. The United States’ response, for example, was to tighten its monetary policy and increase its import taxes. The result of such activity around the world was a decline in overall international trade of about 66% between 1929 and 1934, according to the US Department of State’s Office of the Historian. Despite the obvious lesson, many observers are now seeing echoes of the 1930s’ beggar-thy-neighbor outlook in the decisions and policies of several governments around the world. Trade restrictions The US-inspired ban on large electronic items being carried in the cabin on select fl ights from certain airports has the potential for severe commercial distortions, for example. At the same time, US tourism is already feeling the effects of the proposed US travel ban. Travel search engine, Hopper, says that fl ight search demand from international origins to the US dropped 17% overall between Trump’s inauguration and the announcement of the travel ban, compared with the fi nal weeks of the Obama administration. Demand to the US fell in 94 of 122 origin countries where Hopper has significant data. It could get worse. A visa row between the European Union and the US is overshadowing the summer peak season. The US requires visas for citizens of four East European countries and Cyprus. But the EU is insisting that all its members should be

Airlines based in Britain can operate flights from, say, France to Germany without the aircraft ever touching down at a British airport. They can operate within Italy between Milan and Naples treated equally and therefore these five nations should also enjoy the benefits of the visa-waiver program. The Trump administration’s focus on improving infrastructure, reducing regulatory complexity, and moderating taxes are positives for the industry. But many other policies have been categorized as antiglobalization. On the campaign trail, a significant tariff on Chinese imports was mooted and the administration has already announced its intention to renegotiate the North American Free Trade Agreement. The US withdrawal from the Trans-Pacific Partnership has already been pushed through. In Europe, the United Kingdom’s exit from the European Union and the popularity of nationalist politicians elsewhere on the continent seemingly mirrors this development. Richard Corbett, a UK Member of the European Parliament, highlights the fact the UK has the largest aviation network in Europe, and the third largest in the world. “This is not simply a matter of convenient travel—it is a vital economic sector, creating a million jobs, bringing in tax revenues, and facilitating JUNE-JULY 2017

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business links for our exporters,” he notes. “Airlines based in Britain can operate ﬂ ights from, say, France to Germany without the aircraft ever touching down at a British airport. “They can operate within Italy between Milan and Naples. easyJet, now the UK’s largest airline, wouldn’t even exist if it hadn’t been for the EU.” Corbett notes other complexities arising from Brexit, including Britain’s membership of the European Aviation Safety Agency (EASA). Leaving the EU will mean leaving the agency, unless Britain can negotiate otherwise. Maintaining membership, however, means accepting EU law, something the UK Government has pledged not to let happen. In addition, there will be a need to reconﬁgure immigration at UK airports, where there will presumably no longer be an EU channel. “Besides passengers, there are consequences for freight,” Corbett adds. “If we leave the Customs Union, customs formalities and

checks will add complexity and cost.” Heathrow is the UK’s largest airport as well as a major hub for international airlines and so both airport and airlines could be especially affected. Trade restrictions The World Trade Organization’s (WTO) World Trade Statistical Review 2016 shows that between mid-October 2015 and

In the US, optimists point to potential tax cuts and additional government spending boosting GDP growth. A stronger US would have a ripple effect on the world economy mid-May 2016, WTO members applied 154 new trade-restrictive measures. This equates to 22 measures per month, up from 15 measures per month in the previous corresponding period. Trade-restrictive measures include new import or export tariffs—or increases in these tariffs—as well as the establishment of more complex customs procedures and other measures. Although there were also trade-facilitating measures in the October 2015–May 2016 period, their application was lower than the pace of removal of previous restrictions. In other words, trade-restrictive measures

restrictive measures still in place today stands at 2,127.” Roberto Azevêdo, the WTO’s Director General, told the UK’s Financial Times: “At this point in time what we don’t need is the slamming of the door on trade. Quite the contrary, we need to get trade going.”

are increasing. During the latest WTO review period, the overall stockpile of restrictive measures grew 11%. The review states that of “the 2,835 traderestrictive measures recorded for WTO members since 2008, only 708, or 25%, had been removed by mid-May 2016. The rate by which WTO members have been eliminating trade restrictions remains too low to make a dent in the stockpile. The total number of

markets, and ideas through air transport cannot be realized. “I believe aviation is the business of freedom,” he continues. “It liberates people to live better lives. So we are deeply concerned with political developments pointing to a future of more restricted borders and protectionism. These deny the benefits of globalization to which aviation has made an enabling contribution.” Aviation supports some 63 million jobs and $2.7 trillion in economic generation—figures that will grow to more than 99 million jobs and close to $6 trillion in economic generation by 2034, if aviation can grow unhindered by restrictive government policies. Moreover, aviation’s encouragement of free trade helps make products cheaper and provides consumers with more choice, thereby stimulating broader economic growth. It’s not just jobs and revenues that aviation makes possible. From connecting remote communities and delivering urgently needed medicines in times of crises, to enabling visits to family and friends and facilitating world tours by the latest music sensation, air transport makes the modern world tick. IATA lobbies vociferously about the benefits of aviation. The next few years may well reveal the extent to which policy makers are listening.

Stockpile of trade-restrictive measures initiated since October 2008 By mid-October 2010

By mid-May 2016

15%

25%

708

546

2,835

measures

85%

464

measures

75%

2,127

● EFFECTIVELY ELIMINATED MEASURES ● STOCKPILE OF RESTRICTIVE MEASURES N Note: The stockpile of trade-restrictive measures also includes trade remedy actions. Source: WTO Secretariat.

Aviation benefits That sentiment is echoed by IATA’s Director General and CEO, Alexandre de Juniac. “We seek borders that are open to people and to trade,” he says. “Without that, the positive impact of connecting people, goods,

On the bright side In the US, optimists point to potential tax cuts and additional government spending boosting GDP growth. A stronger US would

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have a ripple effect on the world economy. And Sean Spicer, the White House Press Secretary, has hinted that curtailing air connectivity is not on the agenda. In February 2017, referring to Norwegian Air’s plan to purchase more than 100 Boeing aircraft and to hire more US workers, he noted that “there is a huge economic benefit that lies in that deal right now.” Norwegian’s business model has been the topic of fierce debate in the US and so this show of support was seen as significant. Brian Havel, Distinguished Research Professor of Law, Director of the International and Comparative Law Program, and Director of the International Aviation Law Institute at DePaul University’s College of Law, confirms that he sees “no indication of any reconsideration of Open Skies policy” in the US. He is more circumspect about the prospects for European aviation following Brexit, however. “It would be in the UK’s interest to maintain as much of their current arrangements as possible, and I believe something could readily be negotiated to that effect with the US,” he says. “The more challenging negotiation will be with the EU and that is a difficult dynamic to predict. The relationship between the UK and the EU is likely to be quite strained over the next two years, which can complicate even the most straightforward negotiation. “The EU may also wish to use aviation as a bargaining chip to achieve concessions in other sectors.” A worst-case scenario is the UK leaving the EU’s single aviation market and its corresponding treaties—such as the Open Skies agreements with the US and Canada—with no replacements in place when Brexit happens, or after the expiry of any transitional periods. Watson Farley and Williams Partner, Jeremy Robinson, who specializes in EU and UK competition law across all sectors, most notably aviation, says that although this isn’t a likely scenario, “plainly it is one to be conscious of.” “In that situation, UK-EU aviation connectivity may be reduced, in some cases quite significantly, as traffic rights may depend on how far prior UK-EU Member State bilateral agreements remain in force and workable once Regulation 1008/2008 no longer applies in the UK,” he suggests. “Airlines are generally in a good position to adapt to changes in traffic flows by moving capacity to other routes. As need be, some ownership restructuring can be undertaken.” Robinson believes that air transport’s dif-

Between midOctober 2015 and midMay 2016, WTO members applied 154 new traderestrictive measures Air transport contributes $680 billion to GDP in the US (2014 figure) Aviation supports 63 million jobs worldwide Airlines deliver 56 million tonnes of goods to market. 56m By value, about a third of all goods traded internationally

ﬁculty is that it fosters globalization while maintaining a protectionist structure for itself. “Against that background, the great achievement of the EU’s aviation policy has been to create an open aviation area within the EU, then extend that, piecemeal, to the EU’s near neighbors and agree Open Skies arrangements with more distant partners such as the US and Canada,” he says. “The best position is for the existing arrangements to continue and be deepened, until one day, aviation can operate as a genuinely global industry. “From today’s perspective, it does not appear to be advantageous for the UK to have to renegotiate air services agreements, particularly with the EU. “That said, if the UK’s liberalizing aviation policy instincts can be spread further around the world, that will be positive, but we will not know that for many years.” Liberal policies Robinson accepts that a reversion to protectionism generally may dampen the appetite for liberal aviation policies, if not start to reverse them. “Also, concerns in parts of some societies about large-scale population migration could conceivably translate later into a policy objective to control how easily people move, and aviation does of course facilitate the movement of people,” he says. But he insists these are theoretical constructs only. “I do not currently think there is a direct link between protectionism generally and a possible reversion to more protectionist aviation policies,” he says. “Perhaps the opposite—the clear advantages to economies from air connectivity should be a powerful argument to governments tempted to put short-term political gain before long-term beneﬁt.” Havel is equally adamant that “globalization is an extraordinarily difficult process to deter.” “There may be a curtailment or even backsliding in some places, but overall I expect that the world decades from now will be much more integrated than it is now,” he concludes. “Were globalization to be scaled back, the consequences for aviation would likely be severe. “Instead, I expect that aviation will continue to see growth in those markets where demographics and economics would predict it, subject to occasional downturns related to business cycles and fuel costs.” •

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In this interview • Brand development • Technology • Customer experience

DNA DIGITAL IN HIS

British Airways CEO Alex Cruz says he is preparing the airline for disruptive innovation, no matter where or how that originates. Graham Newton reports Is British Airways where you want it to be? I’m happy with the airline’s performance in comparison with some of its peers in the market. But I’m not happy that we’re still a long way from realizing our full potential. The aim is to transform the airline into the best in the world. We have the tools, we have the people. But we’re not yet where we need to be. To get there we have to continue enhancing our internal processes and effectiveness. We want to be smarter together, leaner together, and faster together. There is a lot of value that remains locked within BA. We need a platform that will allow the airline to address the many issues facing it.

IMAGES: GETTY

What is the strategy to give British Airways that platform? Our strategy is built on four pillars;

customer, operations, efficiency, and people. All underpinned by digital and technology. For example, there are a number of network themes brewing, all of which are very relevant. To begin with, we acknowledge that there are now successful long-haul, low-cost carrier (LCC) operations. That means we must continue leveraging our strength in the US market to compete across the North Atlantic while we continue to become more efficient. Distinct summer and winter schedules is another theme. A process which started last year, we introduced new leisure destinations from Heathrow successfully. So, this year we will increase frequencies and destinations in the summer. In addition, we have some ﬂexibility with the Embraers at London City that will allow us to better utilize the UK’s regional airports, including Bristol, Birmingham, and Manchester. It’s

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We want to be smarter together, leaner together, and faster together. There is a lot of value that remains locked within BA. We need a platform that will allow the airline to address the many issues facing it.

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CEO interview

not a huge volume and we’re not going to base

We have to be effective and continue to

aircraft at those airports yet. But we will continue with this strategy, extending the BA product and brand to a few more regional airports.

roll out new products because we must compete against premium carriers as well as against LCCs. But BA is not short of innovators. The airline brought the ﬂatbed in business class to the market, for example. That spirit has not been lost but, clearly, it needs to surface quicker and more often. Because, in the modern market, the ideas of three or four years ago are no longer valid. We have to facilitate our innovative spirit by evaluating ideas quicker. Give an answer, even if the answer is no. Manage expectations, but don’t sit on ideas. The company is always listening.

How important is fleet development to competing successfully? British Airways is a large airline with a large fleet. That means fleet renewal is a constant process. This year is quite unusual in that we have only one Boeing 787-900 arriving. But we also have Airbus A350-1000s, Boeing 787-10s and A320neos on order. We’re really eager for these aircraft to arrive although that won’t start to happen until 2018. They’re vital for reducing operating cos ts a nd i mprov i n g env i ron ment a l performance. It’s likely that some of our 747-400s will make way for the new aircraft. Although two-thirds of our 747-400 fleet have been refurbished and they look like new to our customers, the fact is that many of them will reach the end of their service life over the coming years. You have an entrepreneurial background. Can you drive through the change required at a traditional, legacy airline quickly enough? I spent 10 years at American Airlines before Clickair and Vueling so I have been exposed to a big airline. It’s true, though, that BA must drive through innovation and improve the time to market for new products. But that is a challenge for all the 45,000 people working at the airline.

What technologies do you see as important going forward? There is tremendous interest in New Distribution Capability. We’re already seeing beneﬁts and we’re keen to explore where that capability can take us. Then there are technologies that are enabling us to i mprove such a reas as on-ti me performance and engineering. We are testing an electric pushback vehicle at Heathrow and designing new handling procedures around this technology with our local teams that will revolutionize the narrowbody turnaround time. But new technology is really about the customer experience and that experience has to start before you even know you want to travel. As a channel, mobile is taking more of our time and investment, even in the inspirational area. A new BA app has been developed that will be fully rolled out by

Alex Cruz 2016 Appointed Chairman and CEO of British Airways 2013 Joined the International Airline Group (IAG) Management Committee as CEO of Vueling after IAG acquires the low-cost airline 2009 Became Chairman and CEO of Vueling after merging it with Barcelona-based airline Clickair, which he founded 2006 Founded Clickair 2005 Joined Accenture as its head of aviation Early career: Began professional career at American Airlines. Spent half his 10 years at the group with its travel technology arm, Sabre, in London, working with a range of European airlines. Became a partner at Arthur D Little before setting up his own aviation consulting firm in 2002

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the end of the year. It will contain functions not seen in an airline app before. We’re also developing a lot of technology around our Avios program. The number of partnerships and ways for customers to accumulate and spend miles is increasing all the time. Then there’s a lot of obvious technology, such as self-service boarding and self-service lounge access. At Terminal 5 at Heathrow, for domestic ﬂ ights you can now go from your car to your aircraft seat using fully automated processes. And again, we will roll out this ability in the months and years ahead. Technology is the basis of the pillars of our business plan. Is partnership the only way forward for an airline? All forms of partnership—be it a codeshare, a joint venture, an alliance, an equity stake or a full merger—will always play a part in our industry’s future. It is up to each airline to evaluate the value behind the degree of partnership being explored. BA has all types of partnerships. We have an equity stake in Comair in South Africa, we are part of oneworld, and we are owned by the International Airlines Group (IAG). All these types of partnerships are valid and relevant, and we will continue to see them being implemented across the industry. Of course, consolidation in Europe has not happened at the same level that it has happened in North America as regulations are different, but I suspect the industry will continue to

IMAGE: PA

Cruz believes all of BA’s partnerships—including the oneworld alliance—are valid and relevant

look at all options available. IAG provides the perfect platform for growth in this respect.

Boeing 787-900 This year is quite unusual in that we have only one Boeing 787-900 arriving. But we also have Airbus A350-1000s, Boeing 787-10s and A320neos on order.

Where would you like to see British Airways in 5–10 years’ time? BA will be a smarter, leaner, faster airline. I would want us to be seen as the most transformed airline and the best fit for the market. We will have responded to customer needs and be the best prepared for any disruption. Those disruptions might be big or they might be small. They might even come from within BA and/or IAG. The airline has been a disruptor in the past. It has been the first to take many products to the market, particularly among the legacy carriers. We will still fly, there will be seats, and you will get many services on long-haul. But what will be important is the ability to respond to the ideas that are being developed by entrepreneurs in garages today. Is there enough fresh CEO talent to help you drive through innovative, even disruptive, changes at the industry level? I did my thesis on the application of digital technologies for small and medium companies back in 1990. I often feel that “digital” is in my DNA. I have a cartoon on my desk where I am explaining to three robots that they “just don’t get digital.” But remember, I started with American Airlines so I had an injection of legacy too. I understand the challenges and I’m privileged to have the opportunity to take BA to the next level. It is about knowing what is mission critical and then moving beyond that. The fact is, by its nature, we don’t know what disruption is coming or when. But I do know that the innovation being seen in consumer technology today will affect bigbrand companies. Airline experience is still important for a CEO. It’s good to know about pilots, cabin crew, and operations; the intricacies of our industry ticket distribution; and the complexity of airspace issues as well as many other aspects of aviation. But I’m sure there are many CEOs out there who could be effective, especially once they combine their understanding of other business elements with industry knowledge. It is about being relevant, particularly in the digital space. Our industry is being challenged out of its comfort zone by many younger new entrants. And not just airlines! Acknowledging this reality together will help us understand how to be better prepared and respond faster. •

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Aviation in Latin America

1.0m

Jobs supported by the air transport sector

$38bn

Gross value added contribution to GDP in 2014

2.9%

MEXICO

GDP supported by air transport and foreign tourists arriving by air

190,000 Jobs supported by the air transport sector

$3bn

Gross value added contribution to GDP in 2014

3.0% GDP supported by air transport and foreign tourists arriving by air

ECUADOR

280,000 Jobs supported by the air transport sector

$4.4bn

Gross value added contribution to GDP in 2014

2.1%

GDP supported by air transport and foreign tourists arriving by air

PERU

CHILE 190,000 Jobs supported by the air transport sector

$7.8bn

Gross value added contribution to GDP in 2014

3.0%

GDP supported by air transport and foreign tourists arriving by air

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Aviation in Latin America

AVIATIONâ&#x20AC;&#x2122;S IMPACT IN

DOMINICAN REPUBLIC 420,000

LATIN AMERICA

Jobs supported by the air transport sector

$7.4bn

Gross value added contribution to GDP in 2014

11.5% GDP supported by air transport and foreign tourists arriving by air

COLOMBIA 460,000 Jobs supported by the air transport sector

$7.9bn

Gross value added contribution to GDP in 2014

2.1% GDP supported by air transport and foreign tourists arriving by air

BRAZIL

1.1m Jobs supported by the air transport sector

$32.9bn 300,000 Jobs supported by the air transport sector

$9.6bn

Gross value added contribution to GDP in 2014

1.4% GDP supported by air transport and foreign tourists arriving by air

Gross value added contribution to GDP in 2014

1.7% GDP supported by air transport and foreign tourists arriving by air

ARGENTINA JUNE-JULY 2017

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In this interview • Cargo • Growth strategy • Drones

ADVOCATE FOR FREE TRADE

AIRLINES INTERNATIONAL

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CEO interview

President of UPS Airlines, Brendan Canavan, tells Graham Newton how greater efficiency will allow the airline to respond to continued growth How is the airline performing? UPS Airlines, and the company as a whole, are performing well. Peak season, the month leading up to Christmas, is the most critical time of year for us. We had another successful peak in 2016, delivering a record 712 million packages, a 16% increase from the previous year. The airline is a key part of that success, particularly the ďŹ nal week before Christmas as volume shifts from ground transportation to air shipment. Our customers enjoyed high service levels last peak.

You have a number of new aircraft on order. What is your growth strategy? The 747-8s are part of a larger strategic plan at UPS to invest in capital assets that facilitate growth. The -8s add both capacity for our customers and improve our operational efficiency. They can carry 19% more payload than our current 747s and are 16% more fuel efficient. Adding those 14 aircraft to the network, with options for 14 more, will

The demand is definitely there. In the fourth quarter, UPSâ&#x20AC;&#x2122;s international segment, where the new 747s will be deployed, grew by more than 7%, leading the industry JUNE-JULY 2017

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CEO interview

Brendan Canavan 2014: Appointed President of UPS 2012-14: President of UPS Asia Pacific 2007-2012: President, UPS’s North-East District in Europe, based in Brussels 2003: Appointed UPS Metro Chicago District Manager

1998-2003: Promoted several times at UPS, first to Operations Manager in Illinois, then to Upstate New York District Manager Early career: Began UPS career in 1981 as part-time package loader. Promoted to management following graduation from Villanova University. Prior to 1998 worked in UPS’s Corporate Marketing function.

UPS shares the FAA’s focus on safety and security when it comes to establishing new regulatory environments for commercial drone usage. As we work on the FAA’s DAC, we will continue to be a strong voice for regulations that put public safety and security first

have a cascading effect on network capacity, reassigning 747-400s and MD-11s displaced by the new 747s to other domestic and international routes. The demand is deﬁnitely there. In the fourth quarter, UPS’s international segment, where the new 747s will be deployed, grew by more than 7%, leading the industry. Are you concerned that increasing protectionist rhetoric from governments around the world will dampen demand? UPS has been and continues to be a strong advocate for free trade. Free and open trade drives business and economic prosperity, and connecting global communities improves lives. While large, multilateral agreements have become politicized recently, UPS will continue to look for opportunities to support lowering barriers to trade. New entrants may also affect the market. What are your views of Amazon and the like and their impact on customer expectations? First, it’s important to note that Amazon is a good customer. And it’s not unusual for large

c u s to m e rs to h a n d l e s o m e of t h e i r transportation needs in-house. UPS is in a very competitive business, and we continue to research, develop, and implement new solutions to make our customers successful. A good example of this is regular Saturday delivery, which UPS is rolling out in many markets across the United States this year. In some cases, that will shave two days off of time in transit, so that’s good for customers. A lot of new navigational techniques have been tested at Louisville. What have been the benefits? UPS has used Louisville, our home base, as a laboratory to validate the beneﬁts of Continuous Descent Operations (CDOs). The value for UPS, operating primarily at night, is being a good neighbor and reducing airport noise. We have taken those lessons and applied them at several airports, especially in Europe, to reduce the noise impact of our operations. While UPS supports the privatization of air traffic control, we continue to work with the Federal Aviation Administration (FAA) to modernize the current system. UPS is

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4949

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20%

The most significant trend we see globally is continued growth. In the fourth quarter, 2016, exports from the Asia region were up almost 20%, intra-Europe shipments increased more than 10%

one of the lead airlines in developing and implementing Data Comm technology that replaces voice transmissions between the cockpit and air traffic control with text messaging. Controller Pilot Data Link Communication has been used for oceanic fl ights, but not in US airspace. With UPS’s help, the technology has been implemented at 55 airports across the United States for departure clearances, and development is underway for use in enroute communications. Are you concerned that Lithium-ion batteries are still not being labelled or handled correctly? UPS works hard to educate customers on properly packing and shipping high-energy items like lithium-ion batteries. However, we believe in a multi-layered approach to safety. That’s why UPS, in collaboration with our pilots, designed and brought to market fi re-resistant containers (FRC) and fire containment covers (FCC). Both the FRCs and FCCs can contain a fi re of up to 1,200 degrees for up to four hours, giving pilots facing an infl ight fi re time to safely land the aircraft. We have several thousand in use today, and are adding more every week. UPS has committed that all future containers we purchase will be made from fi re-resistant materials.

Drones are a hot topic. How should they be regulated? Captain Houston Mills, UPS Airlines’ Director of Safety, is a member of the FAA’s Drone Advisory Committee (DAC), allowing him to offer a unique perspective, both representing a company that sees the commercial potential in drones, and as a licensed commercial pilot who understands the imperative for safe operations. UPS shares the FAA’s focus on safety and security when it comes to establishing new regulatory environments for commercial drone

usage. As we work on the FAA’s DAC, we will continue to be a strong voice for regulations that put public safety and security ﬁ rst. We agree with the FAA’s belief that commercial drone use has real potential in several business applications, particularly humanitarian aid relief and deliveries to rural areas. Using a battery-electric vehicle and drone f rom m a nu fac tu rer Work horse, U PS successfully tested a drone launched from the top of a UPS package car recently. The drone autonomously delivered a package to a home and then returned to the vehicle while the delivery driver continued along the route to make a separate delivery. In this groundbreaking test, UPS demonstrated the business opportunity for utilizing drones to help reduce miles driven, and create demonstrable operating efficiencies.

IMAGE: GETTY

CEO interview

What other technologies do you see as vital not only to your future but to the future of the industry? UPS is making a significant investment in the automation of our facilities, using the lessons learned at Worldport, our main air hub in Louisville, Kentucky, which automated more than 15 years ago. The company will complete about 70 automated package and hub projects globally over the next five years. We also see the potential for drone use, integrated with our package cars. Drones are poised to provide real benefits in efficiency and “stop economics”, especially in rural areas, where UPS drivers often have longer distances between delivery stops. UPS believes there are promising potential uses for drones to create operational efficiencies within the logistics industry. That said, technology like drones can’t ever replace our uniformed service providers, who offer a level of service and human interaction that our customers tell us they value, respect, and trust. A human touch is a key differentiator in many situations. Looking at the global picture, what do you see as the main trends and challenges affecting cargo? The most significant trend we see globally is continued growth. In the fourth quarter, 2016, exports from the Asia region were up almost 20%, intra-Europe shipments increased more than 10%. With investments like UPS’s new 747-8 freighters, and a $2 billion capital investment underway in Europe, UPS is well-positioned for success in the future. •

AIRLINES INTERNATIONAL

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Vt m_«t _k ¶² t Èm t mÀ ² F À¨« ¾t kt t¼t ¨t ¨ t m t È«¬²Ŋ ¼t«À p_ÀŅ ¶« ²_ t ²tp ²t_ t¿¨t«²¬ ¨¶²¬ _ ²¬ ¨_¬¬ _ p t t« À ² m«t_² ¼_² ¼t ¶ « ¬ ¶² ¬ ² _² t _ mt ² t ¼t¬ _¼ _² ¨« t¬¬ _ ¬Ŋ Vt _«t _¾_«t ² _² ¶« ptt¨ ¾Ŭ ¾ ² t p¶¬²«À _¬ _ ¾tp ¶¬ ² _ ² t ²«¶¬² ¬ t ² t _ « _ « t¬ « _ ¼t« ² t ¾ « pŊ Vt ¾ «t _ pt²t« tp ¶« ¨_² Ŋ Vt ¾ ² _² kÀ ¨« ¼ ² t ¼t¬ m«t¾¬Ņ ¾t _«t _ ¬ ¨« ¼ ² t t Èm t mÀ ² t _ « t m ¨_ t¬Ņ _ ¾ ² t ² m¶¬ ¾ _² ¬ ¬² ¨ «²_ ²ń ¨« ¼ p ² t « ¨_¬¬t t«¬ ¾ ² ² t kt¬² É ² t¿¨t« t mtŊ

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40-44_CEO UPS__Airlines International 45

10/05/2017 13:11

In this report • Growth • Infrastructure • New routes

Aviation is developing fast in Central Asia but challenges remain. Joe Bates investigates

AIRLINES INTERNATIONAL

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Central Asia

IMAGES: GETTY

ith traffic on the rise, new route launches, growing airlines, and one of the newest airports in the world in Tajikistan, there is no doubting that these are good times for aviation in Central Asia. A quick look at the traffic figures for the region over the last decade shows that all five Central Asian nations—Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, and Turkmenistan—have experienced a significant upturn in passenger numbers, although last year was a tough one for all due to geopolitical issues. Indeed, Air Astana, a top carrier in the region, saw its passenger revenues drop 20%, leading President and CEO, Peter Foster, to describe it as the airline’s most difficult year since the start of the global fi nancial crisis in 2008. He notes that although the fall in oil prices benefited global aviation, it hit Kazakhstan’s oil-dependent economy hard, which, combined with a price decline in other commodities such as minerals and metals, had a significant effect on Air Astana. “All our markets suffered and the Kazakh currency pretty much halved in value between late 2015 and 2016,” says Foster. “Obviously, a huge amount of our revenue is in the local currency, so it was a very challenging year.” He is, however, optimistic that 2017 will be much improved and has been encouraged by “significantly better revenues” in the fi rst quarter of the year and the fact that oil prices are on the rise again, currently trading at around $50 to $55 a barrel compared with around $35 to $40 this time last year. Kazakhstan, like all Central Asian former Soviet republics, still enjoys strong links with Russia, and these economic and social ties are largely fueling traffic growth across the entire region, with many Uzbeks, Tajiks, and Kyrgyz working in Russia and the former CIS states. IATA’s data shows that Kazakhstan leads the way in terms of aviation growth. This isn’t surprising as it has the most diversified national economy, is home to Air Astana, and boasts the region’s most developed airports system. And the good news is that things can only get better—Kazakhstan’s status as the world’s largest landlocked country, and the ninth biggest nation on the planet, means that aviation is key to the future development and prosperity of the country. “Aviation is a priority for the region because its size and geography often makes road journeys impossible or impractical,” says Jordan Karamalakov, IATA’s Country Manager for

Kazakhstan, Kyrgyzstan, Uzbekistan, and Tajikistan. “Aviation connects people, and supports education and business. It has a brilliant future here. You don’t have to be Nostradamus to predict that passenger numbers will go up in the years ahead, although the increase is more likely to be slow and stable rather than a volcano-style eruption.” Strong growth Twelve years ago, Air Astana enjoyed annual revenues of $150–$200 million. Today, this figure is closer to $800 million and has been as high as $1 billion. Its fleet today primarily comprises A320s, B757s, B767s, and Embraer 190s and will grow shortly as it has fi rm orders for an additional eight A321neos and the B787, which Foster insists is still on the airline’s radar. The airline, which effectively became Kazakhstan’s national flag carrier when Air Ka-

Aviation connects people, and supports education and business. It has a brilliant future here zakhstan went bankrupt in 2004, counts Kazakhstan’s sovereig n wealth fund, Samruk-Kazyna (51%), and BAE Systems (49%) as its shareholders. Kazakh citizens going on holiday, visiting family and friends or working and studying abroad account for the bulk of Air Astana’s passengers. Foreign nationals working in the oil and mining sectors, and others employed in more mainstream industries, such as insurance and banking, also use the carrier. International tourism is still very much in its infancy but Foster expects this to grow in the future, especially from Organisation for Economic Co-operation and Development (OECD) countries, as its citizens can travel visa-free to Kazakhstan for up to 30 days. Transfer traffic is also on the increase as the airline moves away from its former strategy of being entirely focused on point-topoint traffic. “We changed our philosophy around four years ago and now transfer traffic accounts for about 10% of our business,” explains Foster, noting that the airline’s transit revenues doubled in size last year despite the overall decline in revenues.

He attributes the growth in transfer traffic to “offering a good product”, Air Astana’s growing reputation in the market, an efficient cost base that allows it to put good value fares into the market, and Kazakhstan’s geographical location that makes it a logical place to ﬂy via when travelling between Asia and Europe or northern Russia and South East Asia. Air Astana doesn’t have it all its own way in Kazakhstan though. The country is served by three other Kazakh carriers—SamrukKazyna subsidiary, Qazaq Air, and the privately-owned Bek Air and SCAT Airlines—as well as a number of international airlines. It means that the country’s two biggest gateways, Almaty and Astana, are the region’s best connected. Kazakhstan is also the only country in the region to sign an agreement with EU member states to bring all existing bilateral air service agreements in line with EU law. And it is the only Central Asian country to have a partprivatised airport system. Its biggest gateway, Almaty, is operated by a 100% Dutch-owned joint stock company whileKaraganda’s SaryArka Airport and a couple of others are privately owned and operated.

Transformation Astana is Kazakhstan’s second largest airport and according to IATA’s Karamalakov “has a brilliant new terminal” that will open in June and more than double its capacity to 8.2 million passengers per annum. Air Astana’s Foster enthuses: “It is being built to international speciﬁcations and will transform the airport by offering plenty of gates, plenty of lounge space, plenty of retail, and plenty of check-in space and baggage facilities. When it opens, people that use it are suddenly going to wake up to the fact that Kazakhstan has a world-class airport.” His former Cathay Paciﬁc and Air Astana colleague, Paolo Ricciotti, is chairman of Astana International Airport. Ricciotti’s connections, Foster says, ensured that that the airline “was fully involved at all times” with the design of the new $193 million complex. Ricciotti, who saw his airport handle 3.5 million passengers (+3%) in 2016, believes that the new 47,000m2 terminal will boost Astana’s appeal as a transfer hub. He says: “Our key goal is to become the hub of Central Asia by making Astana the region’s main connecting point between cities around the world, and we believe that the new terJUNE-JULY 2017

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Central Asia

Central Asia In 2015, Turkmenistan opened a new $2.3 billion airport at Ashgabat capable of handling up to 17 million passengers yearly. A complicated visa regime means the country only welcomed 105,000 tourists in 2015, however, so the great potential of the new airport is not being realized. In Tajikistan, Dushanbe Airport is set for growth after opening a new terminal, installing a new air navigation system, and starting work on a new $17.5 million cargo complex. The fast-growing Khujand International Airport is next on the agenda to be expanded. The country hopes to attract more tourists and has implemented e-visa applications. Airport fees and fuel prices remain high, however. In Kyrgyzstan, NEC Corporation has signed a contract to install ILS technology and VHF Omni-directional Radio Range/Distance Measuring Equipment at Manas International Airport in a move funded by an ¥800 million ($7.12 million) official development assistance (ODA) loan from the Japan International Cooperation Agency (JICA). Though all airlines remain on the EU list of banned carriers due to insufficient oversight, Air Manas was IOSA audited in May 2017 and Avia Traffic has started preparations for such an audit. The Kyrgyz Government has implemented a visa-free regime with over 40 countries and follows an “open sky policy”. In Uzbekistan, a terminal with the capacity to handle 1,500 passengers per hour is planned for Tashkent International Airport and is set to open in 2020/2021. Uzbekistan Airways, an IATA member, was the first carrier to introduce the B787 in Central Asia and has a modern maintenance base. There is a network of 11 country airports and in Navoi the only all cargo airport in the region, developed in conjunction with Korean Air, has opened.

IMAGES: GETTY

Origin to destination passengers (to, from and within) KAZAKHSTAN

+178%

2006: 2,587,707 2016: 7,205,813 UZBEKISTAN

+63%

2006: 1,924,371 2016: 3,128,917 KYRGYZSTAN

+488%

2006: 450,579 2016: 2,649,867 TAJIKISTAN

+267%

2006: 527,678 2016: 1,936,579 TURKMENISTAN

+417%

2006: 365,664 2016: 1,888,719

Source: IATA PaxIS+ minal will help us achieve that. We can’t compete with routes which connect two main cities. Paris and Hong Kong, for example, are served by several direct fl ights. But we can compete on routes from main cities to secondary ones that do not justify a direct fl ight.” He cites Hong Kong to Minsk or Ashgabat, Omsk, Baku and Tashkent as examples of where Astana could fit into the equation. None are served direct from the region and Ricciotti says that Astana presents the best possible opportunity in terms of flying times. Transit passengers only account for about 5% of the airport’s passengers today, although interna-

tional traffic accounts for 35% of the traffic after a number of new route launches in 2016, which included a new KLM service to Amsterdam. LOT Polish Airlines, Finnair, Air China, Ural Airlines and Wizz Air will join Astana International Airport’s growing list of international airlines this year. Challenges and opportunities As good as things are for Kazakhstan there is always room for improvement, and some experts feel that the lack of competition in the ground handling market, the need for greater transparency over airport charges, and the high price of jet fuel are three key areas where improvements can be made. The latter is because all the airlines, with the exception of Air Astana and SCAT, are forced to buy their fuel from the solitary fuel supplier at each airport—the monopoly situation has resulted in substantial mark-ups. With the exception of a new entrant into the market at Astana International Airport, the lack of ground handling competition in Kazakhstan and across the region’s airports is also seen as a big issue. “There is certainly room for improvement here in terms of the quality of service offered and equipment used,” says Karamalakov. “There is also a dramatic need to improve staff training to raise standards to internationallyaccepted levels.” He says at least three airlines terminated services to Kazakhstan based on factors such as fuel prices and the cost of ground handling. Air Astana’s Foster agrees with him about both the high fuel prices and lack of ground handling options in Kazakhstan, but is quick to point out his airline is unaffected by these issues. It is self-handling and has negotiated its own deal with the Kazakh government that allows it to buy its fuel direct from refineries. Existing legislation forbids Air Astana from providing ground handling operations to any other airline. It is something that the airline would be interested in though, feeling that it could “offer an extremely high standard of service” if the law was changed. But Foster also points out that traffic levels at other airports make it difficult to support the case for multiple ground handlers just yet. Central Asia may never become a “super region” like Asia-Pacific and boast some of the world’s biggest and best-known airport hubs and airlines. However, with steady growth it will defi nitely become a significant aviation market and, perhaps, one day, be as famous for aviation as it is for being part of the old Silk Road trading route. •

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49_Ad__Airlines International 49

10/05/2017 11:58

In the feature • Biofuel production • Economic challenges • IATA’s approach

THE CO$T OF GOING GREEN

Martin Rivers explores the challenges in making sustainable aviation fuels viable

aving pledged to pursue carbonneutral growth from 2020, airlines are committed to reducing the environmental cost of flying even as they gear up for decades of continued growth in air transport. A key tool in achieving this is the Carbon Offsetting and Reduction Scheme for

including sustainable aviation fuels, commonly referred to as biofuels. “A ﬁnished sustainable alternative jet fuel still produces the same amount of CO2 (carbon dioxide) as a regular fossil kerosene [when combusted]”, explains Robert Boyd, IATA’s Manager, Environment-Alternative Fuels. “But the environmental improvement is in the

from plant crops to forest residuals to municipal waste—and it is easy to see why sustainable fuels are considered one of the industry’s best bets for an eco-friendly future.

International Aviation (CORSIA)—a global market-based mechanism that will help airlines to effectively cap net emissions at 2020 levels. For every ton of carbon emitted above the 2020 baseline, airlines will invest in UN-approved carbon-offsets. CORSIA is just one component in a basket of long-term measures to meet the industry’s aspirational 2050 target. By that time, the industry aims to reduce its net emissions to half of 2005 levels. The other three are infrastructural improvements, operational advancements, and technological development,

process of producing that fuel. If the feedstock is in a plant material, for example, then producing that feedstock involves drawing CO2 out of the atmosphere.” This reduced carbon footprint across the lifecycle of a sustainable fuel means that emissions savings of up to 80% are achievable when compared with the extraction, reﬁnement, and delivery of fossil fuels. Factor in the myriad of potential sources of biomass feedstocks—ranging

4% of global road transport fuel is derived from biomaterial, a ﬁgure that falls further in the aviation industry, where stringent safety requirements slow the uptake of experimental technologies. Inevitably,

Immature supple chains However, in a commercial sense, alternative fuel development remains in its infancy. Just

Alaska Airlines began trialing sustainable fuels on commercial services in 2011, using a 20% blend derived from cooking oil on dozens of flights AIRLINES INTERNATIONAL

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Environment

immature supply chains mean that sustainable fuels have lower economies of scale and thus higher costs than fossils fuels. “The current levels of alternative fuels being used in aviation remain relatively small in absolute terms,” admits Michael Gill, Director Aviation Environment at IATA. “But it’s about how far we’ve come in a relatively short space of time. A decade ago we’d never even had a test flight with alternative fuels. And yet here we are today with 5,000 commercial flights having used them, and regular commercial operations on alternative fuels at a number of airports around the world. “When you compare that with the journey that conventional fuel has taken, we’ve actually achieved quite a lot in a very short space of time.” IATA has a two-pronged approach to developing the fledgling sector. Advocacy work raises awareness among policymakers and spurs commercial partners “to be ambitious and brave” with their investments. At the same time, IATA is contributing to ICAO Committee on Aviation Environment Protection (CAEP) working groups—including the Alternative Fuels Task Force, which is establishing universal criteria for sustainability standards deemed eligible under CORSIA. The latter point is crucial because the firstgeneration of biofuels attracted criticism for the unforeseen consequences arising from their harvesting. This included direct environmental harm such as deforestation for crop-growing—which releases huge volumes of carbon into the environment—and indirect social harm, such as impacting food security and water supplies. Boyd confirms that robust standards are already taking shape, with all the Sustainable Aviation Fuel Users Group’s (SAFUG) 28 airline members pledging to only use alternative fuels that comply with the Roundtable for Sustainable Biomaterial (RSB)—the goldstandard for sustainability criteria. “The voluntary certification bodies are very good,” he says. “They do a very thorough lifecycle analysis where they really critique strictly what carbon gets used in the production from the very start right through to the finished fuel.” Forest residuals One prominent member of SAFUG is Alaska Airlines. The Seattle-based carrier began trialing sustainable fuels on commercial services in 2011, using a 20% blend derived from cooking oil on dozens of flights. More

The first test flight with biojet fuel was performed in 2008 by Virgin Atlantic Aviation is targeting a reduction in net CO2 emissions of 50% by 2050, relative to 2005 levels Indonesia has introduced an alternative jet fuel mandate of 2% commencing in 2018, rising to 5% by 2025 trials were operated last summer with an alcohol-to-jet biofuel made from non-edible ﬁeld corn. And in November 2016, the company began testing a biofuel derived from forest residuals—the limbs, stumps, and branches left over from timber harvests—as part of a publicly-funded project led by Washington State University. Alaska Airlines has also teamed up with Boeing and the Port of Seattle for an infrastructure feasibility study aimed at minimizing transportation and delivery costs. The airline acknowledges that its earliest sustainable fuels were six times more expensive per gallon than kerosene. While that pricing gap has narrowed in more recent trials, estimates still put it at between two and three times the cost of conventional fuel. “There’s really just not a commercial supply of biofuel,” explains Carol Sim, Environmental Affairs Director at Alaska Airlines. “On the ﬂights that we have done it’s been batch-scale production—not commercial production— which drives higher costs. If you can produce fuel to scale, the economies are going to be much better.” Minimizing transport lines is critical for environmental as well as commercial reasons,

so the Boeing project focuses on locallysourced feedstock from the Pacific North West and drop-in solutions at Seattle Tacoma International Airport. IATA’s Gill describes the supply-chain problem as a chicken-and-egg situation: affordable fuel hinges on the availability of pre-existing infrastructure, yet stakeholders are reluctant to invest heavily until they see proof of commercial viability. The problem is compounded by high technicalcompliance costs and historically low crude oil prices, both of which dampen the short-term financial case for switching to alternative fuels. “I’m sure individual airlines factor that into their commercial decisions,” Gill acknowledges. “But many leaders in the industry genuinely see the long-term advantage of moving towards the use of alternative fuels. Of course, it’s not going to happen next year, but I think we are going to see significant uptake within a midterm perspective.” Clean blends Experts are also discovering unexpected benefits from biofuels in both the operational and environmental spectrums. Airlines have found that they can fly farther on the same amount of fuel, for example, thanks to the higher energy density of “cleaner” blends. NASA, meanwhile, has published a report demonstrating that sustainable fuels produce less soot than fossil fuels when burnt on commercial flights—limiting the formation of aircraft contrails. If airlines invest smartly, environmental protection can also go hand-in-hand with socio-economic development. Gill highlights the “ancillary benefits” for communities when municipal waste becomes a feedstock, while Sim raises the prospect of opening shuttered mills for residuals processing. With airlines already sold on the idea of sustainable fuels, it is now up to governments around the world to incentivize the sector’s growth through policy instruments. On that front, too, there is cause for optimism. “Policymakers are starting to understand a couple of things,” concludes Boyd. “One is that aviation doesn’t have the same alternatives that the ground transport sector has, like electrification. And, secondly, you can establish some terrific economic benefits for your country when you start to become a producer of fuel—rather than an importer. So, if governments do provide an incentive, they also get a reward.” •

JUNE-JULY 2017

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Data

TA XE$ &CHARGE$

IN AVIATION Airlines and passengers are estimated to have paid $125.9 billion for the use of airport and air navigation services in 2016 52

$125.9 billion Airlines and their customers estimated to have generated

$117 billion

in tax revenues in 2016.

This is an increase on the

$118.9 billion estimated to have been paid in 2015

45%

Equivalent of of the industryâ&#x20AC;&#x2122;s GVA (Gross Value Added, the firm-level equivalent to GDP), paid to governments

Ecuador: Achieved adjustment of jet fuel prices worth $17 million annually

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Data

PORTUGAL: Proposal for new ‘green tax’ withdrawn by government. Would have cost 30 million annually

NETHERLANDS: Achieved a 7% reduction in Amsterdam Schiphol’s airport charges for 2017, saving $49 million

SUCCESSFUL

IATA

CAMPAIGNS AROUND THE WORLD

Total cost reductions achieved in 2016-2017:

Airport charges: $225m ANSP charges: $615m Fuel fees: $79m Industry taxation: $375m

Total: $1.294bn

ITALY: Proposal to introduce a new municipal tax of 2.00 for each passenger departing any Italian airport on an international or domestic flight was defeated. Tax would have burdened industry by $156 million annually

JAPAN: Avoided an 11% increase in fuel supply facilities at Narita airport, saving an estimated $44 million up to 2020

SRI LANKA: Helped prevent the introduction of a new passenger data charge that would have cost the industry $24 million annually JUNE-JULY 2017

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Soapbox

COLLABORATION KEY TO AVIATION SECURITY EFFORTS The evolving threat of terrorism is forcing the EU to rethink security strategies, proportionality and adopting a risk-based approach are vital

Henrik Hololei Director-General for Mobility and Transport, European Commission

e live in challenging times. The threat of terrorism is ever-present and perhaps now, more than ever, this threat is at the forefront of our minds. Civil aviation has long been a desirable target for terrorism. The capability, technical knowledge, and the evil creativity of terrorists in trying to fi nd ways of causing havoc is constantly evolving. The challenge for us is to stay one step ahead. The basis of aviation security remains strong, but the complexity of the current situation, coupled with the determination of terrorists, and their willingness to pay the ultimate price, is forcing us to rethink our strategies and to find new ways of tackling the problem. The EU has one of the most advanced aviation security regimes in the world. However, the international dimension of aviation means that acting alone is of limited benefit. Mitigating the risks related to fl ights originating outside the EU is a priority to enhance aviation security. This is reinforced by key initiatives such as the recently adopted United Nations Security Council Resolution on Aviation Security, which stresses the importance of international cooperation, with risk constantly being reviewed in accordance with the evolving threat picture. The EU has developed a risk assessment process that now covers incoming flights from third countries, and is also working to boost capacity for these countries to implement effective aviation security measures. Recent history, however, demonstrates how skilled terrorists have become, such as concealing explosives within electronic devices. We increasingly rely on technology capable of

adequately detecting, preventing and mitigating the evolving threat. This is another area where Europe plays a leading role in terms of policy, through setting standards of detection and stimulating R&D. The complexity of aviation security layers, and the dissuasive eff ect played by the security regime, has resulted in many cases of terrorists diversifying their targets—any public place where people gather is a target. Therefore “aviation security”, or “transport security” are policy areas that cannot be seen in isolation. A coordinated, intelligence-based approach across transport modes, sectors and borders is required—when the terrorist reaches the screening point of the airport, or the entrance to the terminal, it is already too late. In this context, the European Commission is constantly striving to make sure that security is tackled in an effective but proportionate way, protecting our citizens as our first priority while respecting the right of individuals to their freedom. Proportionality and adopting a risk-based approach are key components of our strategy to protect passengers against harm. This also means that seamless cooperation between security and safety experts is crucial to ensure any security measure we contemplate to mitigate a perceived security threat does not jeopardise ﬂight safety, notably during these challenging times. Building trust and conﬁdence between close partners— as well as cooperating closely and efficiently—is essential for the international dimension of aviation security. Let’s all contribute to that, and make sure we continue to enjoy seamless travel experiences and the highest level of security at the same time. •

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