IATA World Financial Symposium 22nd Sept 2016

L IA N EC IO 1 SP DIT UE E S IS

I N T E R N AT I O N A L DA I LY 22 SEPTEMBER 2016

WORLD FINANCIAL SYMPOSIUM

Airlines International Daily is sponsored by:

21-23 September 2016 | Singapore

Welcome

to the IATA World Financial Symposium (WFS) in one of the most vibrant cities on the planet—Singapore. A special thank you to all our sponsors for making the event possible and for actively supporting the cause of sustained financial health for our industry.

The heart of the WFS Sustained fi nancial health for the airline industry remains at the heart of the World Financial Symposium (WFS), according to Aleks Popovich, IATA’s Senior Vice President, Financial and Distribution Services.

“This is the third World Financial Symposium and it is going from strength to strength,” he says. “It is the only event where fi nance meets with business partners. It is not only about debate but also action.”

The basis for the debate and actions is the Financial Committee’s White Paper.

This is translated into action on standards, tools and policy positions by IATA on behalf of the industry. Progress on defi ned targets is duly reported.

“An example is blocked funds,” says Popovich. “We will report what have we done to unlock funds by lobbying governments and what can be done to prevent these situations occurring in the fi rst place by monitoring countries at risk.”

There are challenges to overcome, Popovich notes. The industry remains volatile and there is a need to not just grow the pie but to rebalance the value chain, which is a strategic priority.

The various tracks at WFS will deal with the many other issues affecting the industry’s fi nancial standing, from complex tax issues to emerging trends in agent credit risk and how to simplify the back office. Such new technologies as blockchain will also be on the agenda.

“It will be comprehensive but there will be great detail and insight too,” concludes Popovich. “And most importantly, that insight will lead to deliverable results.”

K E E P U P T O DAT E W I T H A L L T H I N G S A I R L I N E S R E L AT E D AT A I R L I N E S . I ATA . O R G

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21-23 February, 2017 LEGAL SYMPOSIUM

WASHINGTON DC

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3 I ATA W O R L D F I N A N C I A L S Y M P O S I U M

Some 60% of finance’s time is spent processing transactions

High performing finance High performing financial organizations will be the key theme at WFS

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study by McKinsey showed that the top quartile of airlines produces on average a return three times greater than those in the bottom quartile.

A great team and strategy obviously plays a major role.

The direction must be clear, the culture strong and the leadership confident. A focused, motivated, and coordinated team must be fully aligned with achieving the strategic goals.

The question being asked at WFS is how does the finance department play its part in this success and ensure the airline as a whole is a high performing organization?

“At the moment, about 60% of finance’s time is spent processing transactions,” informs Aleks Popovich, IATA’s

Senior Vice President, Financial and Distribution Services. “So just 40% of the time is spent helping to manage the business.

That has to change and transaction processing has to be reduced by half at least. Because if 60% remains the norm, the CEO of an airline will rightly look beyond finance for a co-pilot in achieving high performance.

“For finance to step up, it has to take on the role of a value manager,” he continues. “That means being part of the executive team and having a hand in all the big decisions. It means focusing on sustained financial health and it means providing insight for the decision maker. Finance must be able to look forward as well as look back.”

What are the characteristics of a high performing financial organization?

Michael Doersam, Senior Vice President, Group Finance, Emirates: A high performing financial organization is closely aligned with the commercial units of the company and their business plans. It is part of the company’s strategy process and provides input to it. Its set-up provides for a far more forwardlooking support compared with some years ago. The basic financial services functions, like Accounts Payable, Revenue Accounting or Payroll Services, are organized in the most effective way and at high quality standards.

High performing financial organizations are very flexible and adaptable to new business needs or changing markets. Hierarchy structures are more flat, team members are more empowered and informed about the company’s goals and how to support them. Job profiles in general are more diversified compared with the past as the portfolio of tasks of such financial organizations has grown over time.

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Welcome reception photos

V is a H ea d of M ercha nt Sa les and So lution s V ip in Ka lra

(From left) Michael Clay Product Specialist at ATPCO and Darwin Regehr Product Manager Airlines Reporting Corporation

(Left) Nepal Airlines Director of Finance Department Ganesh Chand (Right) Nepal Airlines Deputy Director Revenue Division CA Dipendra Subedi

Tony Tyler , former Director General of IATA

(From left) Indra airline Business Consultant Margaret Martinez and Indra Revenue Account Consultant Juan Prats

lines l Ko ppes , VP Air (From lef t) Ma rce and Ha md i n ye Ad at l ve and Tra tor Treasu ry Sa rikaya , Direc Ha hn Air Lines. at nt me ge Ma na

(From left) IATA Regional VP Asia Pacifi c Conrad Clifford, IATA Director General Alexandre de Juniac; Deutsche Bank Director US MNC Coverage APAC, Runi Irnandari.

IATA VP People Performance & Development Department Anton Grove and Deutsche Bank Director US MNC Coverage APAC Runi Irnandari .

of phe Kato , Head (From left) Christo , Lance Blockley IATA at es vic Ser Card , g and Eckart Reiche MD of RFI Consultin at Wirecard es Sal ine Airl of Head

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5 I ATA W O R L D F I N A N C I A L S Y M P O S I U M

Analytics and consulting services for global airlines

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irlines operate on wafer-thin margins in a highly competitive and dynamic marketplace.

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6 I ATA W O R L D F I N A N C I A L S Y M P O S I U M

Transparency in payment methods Keeping with the pace of change

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IATA has established a special technical advisory group that aims to develop a framework pertaining to alternative payment methods, so that airlines and others in the air travel value chain can be reassured about new payment methods, such as virtual credit cards, wholesale cards and e-wallets, that are coming onto the market.

“There has been an evolution in payment methods, but now the change is happening quite rapidly with the emergence of virtual credit cards,” states Juan Antonio Rodriguez, IATA Director Operations, Financial and Distribution Services.

“These new payment methods are seen as good for their users and a lot of excitement has been generated among the travel agent community, as well as among the global distribution systems, which see this as a new business opportunity for them,” agreed Aleks Popovich, IATA Senior Vice President Financial and Distribution Services.

However, there may be significant differences in cost to the airline, depending on the form of payment. “That may be okay, because you are getting good value. But the question for each individual

airline would be ‘is this the most efficient, cost effective and safe source of payment for me to collect from my distribution network and how can I choose the payment methods I am willing to accept? Because after all, I’m getting the bill,’” says Popovich.

“It is important that the industry looks closely at these new payment methods, and that IATA working with stakeholders sets a framework for airlines and travel agents to have transparency and choice, and develops a certification process that follows key principles,” says Rodriguez.

Some of the principles that IATA is promoting include ensuring that the new payment methods are secure, that they are robust and provide adequate protection, and that there is more transparency and visibility about costs and conditions. Each airline should have the opportunity to identify these alternative payments in the system and the upfront ability to consent to such fees and conditions.

The technical advisory group—whose members consist of six airlines, six travel agency groups and three GDS companies—aims to issue its first set of guidelines by March 2017.

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That the air transport business is highly volatile is well understood. But as airlines have transformed themselves over the past decade or so, it is no longer a matter of coping with the boom and bust cycles, but about market dynamics and responding to ever-changing customer requirements.

“In today’s market environment one of the key challenges is the speed and variety of change, either through competition, technology, availability of data, new products and services or external market factors like currency fluctuations, oil price movements or events impacting consumer behaviours,” says Michael Doersam, Senior Vice President, Group Finance, Emirates.

Doersam also cites the issue of blocked funds in certain countries that continues to hamper the industry as a challenge that needs to be solved quickly.

“The timely repatriation of funds is an increasing challenge for a large number of airlines that requires the full support of IATA to manage at an industry level. Quick reactions to currency movements or restrictions, for example, are required to maintain profitability on certain routes, similar to the need for quick enhancements to financial systems to accommodate new business solutions.”

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2016

INDUSTRY FACTS AND FIGURES Expected industry profit:

$39.4 billion

5.6%

$10.42 per passenger

Expected total industry revenue:

$709

billion

PASSENGER TRAFFIC AND CAPACITY GROWTH:

6.2% VS. 6.8%

Fuel will cost $127 billion, 19.7% of total expenditure, based on $45/barrel (Brent)

NewGen ISS moves forward

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he IATA Billing and Settlement Plans (BSP) date back to 1971 and have served the industry well. In 2015, they successfully processed more than $230 billion. And for every $100,000 processed, there’s a delay with just two dollars.

But rules for the IATA Settlement Systems (ISS) were established in an era of paper ticket stock, brick-and-mortar travel agencies, limited payment methods and a highly regulated airline industry. These rules no longer address the diverse and complex needs and risks of airlines and travel agents today.

Accordingly, the IATA Passenger Agency Conference (PAConf) has adopted resolutions supporting the development of the New Generation of ISS (NewGen ISS).

“NewGen ISS will ensure that IATA’s Passenger Agency Program continues to deliver enormous value to airlines and travel agents by providing more flexibility and options with greater financial security,” said Aleks Popovich, IATA Senior Vice President, Financial and Distribution Services.

NewGen ISS will modernize the processes behind BSPs in several meaningful ways. Responding to the growing trend toward e-wallet solutions, IATA has developed IATA EasyPay, an optional pay-as-you-go solution for travel agents. This is designed to be used in addition to the traditional credit and cash payment methods.

Airlines will need to capture IATA EasyPay’s alternative form of payment, but Cathay Pacific’s Barry Tse informs this represents “only a minor change in the Cathay Pacific/Dragonair passenger revenue accounting system.”

The value proposition for travel

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agents under NewGen ISS will be further enhanced by the creation of different categories of accreditation, to reflect that not all travel agencies are the same. “Agents will be able to choose the accreditation model most applicable to their business, and then convert across models as their business evolves,” said Popovich.

As added value, IATA is working with brokers to introduce a global default insurance program. It is anticipated that this will present a cost effective and flexible alternative to bank guarantees and other types of security.

“We believe that the industry will be positively affected by NewGen ISS since all participants will receive benefits,” said Lufthansa’s Paul Hoestermann.

“We hope for an improved, agile new Agency Program with a modern structure, efficient processes, and ultimately reduced costs.”

Cathay’s Tse concurs. “NewGen ISS increases the flexibility of how agents pay airlines and makes it easier for a travel agent to participate in a BSP.” The PAConf also agreed to continue the development of the fourth pillar of NewGen ISS; a new risk management framework to enable safer selling and mitigate default losses in the BSP. A joint travel agent and airline working group was established to define a proposal by early next year. The related Resolution text will then proceed to the PAConf for voting in 2017.

“We are taking a working-together approach to this important pillar of NewGen ISS to respond to travel agent requirements for flexibility while creating a structure that enables safer selling and greater protection of ticket funds,” said Popovich.

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