Airlines 2019-02

2019 – 02

airlines.iata.org

AIRLINES.

DEALING WITH DRONES Improved decision-making, better enforcement, and stiffer penalties are needed to stop rogue operators

2019 – 02

CEO Interviews Lufthansa, Hawaiian | E-commerce Clicking into gear | IATA Opinion Rebalancing the value chain | New Revenue Streams Sell the travel experience | 60 seconds with... the CEO of HK Air Cargo

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THE GROUND.

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WE MAKE IT

FLY

No matter how busy the flight, your passengers will feel like they’re in a world of their own thanks to our beautifully designed Airspace cabins.

HD in-flight entertainment throughout, quieter, and with soothing LED ambient lighting, Airspace delivers first class comfort for every passenger. And not only is it available across our newest widebody fleet, it’s also being rolled out across our single aisle A320 family too.

Tranquility. We make it fly.

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“DYNAMIC FUTURE OF ADD

PRICING

”

FOR AIRLINES White Paper

DYNAMIC PRICING Its Role in Digital Retail Thinking

By Alan Dunne CIO, Datalex

Get your copy today

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Airlines.

Contents 2019 – 02

Comment

24 The fabric of society

7 Alexandre de Juniac, IATA Director General and CEO

29

Peter Ingram, Hawaiian Airlines CEO, explains the carrier’s role in the social and economic prosperity of Hawaii

Proudly building a sustainable future for aviation

Dossier 18 Jeffrey N. Shane, IATA General Counsel

29 Dealing with drones

Re-balancing the Value Chain

As airspace changes, so too must the industry adapt to incoming challenges

Digest 10 IATA and industry update

Features

Mexico City airport challenges, New Zealand looks forward, positive start to 2019 for passenger growth, SpiceJet joins IATA, Innovation Award winner

34 Selling a travel experience

16 Data: In numbers

38 From click to ship

7

Carriers must be prepared and proactive when it comes to utilizing new revenue streams in the most effective manner

38

Airlines safety performance 2018

CEO Interviews

By taking the right steps, airlines can play a leading role in the expanding growth of the e-commerce market

20 The spirit of aviation

Lufthansa Chairman and CEO Carsten Spohr on the importance of bringing personal service back up the agenda

IATA Corporate Communications Vice President Anthony Concil Creative Direction Richard McCausland Assistant Director Chris Goater www.iata.org Editorial Editor Graham Newton Head of content production DeeDee Doke Assistant editor Patrick Appleton Senior designer Gary Hill Picture editor Claire Echavarry Production Production manager Jane Easterman +44 (0)20 7880 6248 jane.easterman@redactive.co.uk Publishing director Aaron Nicholls

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Sixty Seconds with...

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

Follow IATA on Twitter @IATA and join our LinkedIn group

For Airlines. subscription requests, or change of address notifications, email Airlinesint@iata.org We welcome feedback and content ideas

42 Jevey Zhang, CEO of Hong Kong Air Cargo

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

The paper in this magazine is elemental chlorine free (ECF), manufactured within ISO 4001 environmental management standards and is sourced from sustainable managed forests.

All of this publication’s content is subject to copyright, design rights and trademarks of Airlines. and third parties.

To access Airlines. content online visit www.airlines.iata.org

Subscribe to the Airlines. fortnightly email - register your details at www.iata.org/optin Published by Redactive Media Group, Level 5, 78 Chamber Street, London, E1 8BL +44 (0)20 7880 6200 www.redactive.co.uk

Recycle your magazine’s plastic wrap – check your local LDPE facilities to find out how.

2019 – 02 Airlines

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Comment: Director General and CEO, IATA

Proudly building a sustainable future for aviation Managing the aviation industry’s contribution to climate change is a priority

ILLUSTRATION: SAM KERR

I

ATA marked its 74th anniversary on April 19. Our founding members gave their association a very clear mission: “To promote safe, regular, and economical air transport for the benefit of the people of the world, to foster air commerce, and to study the problems connected therewith.”

It is unlikely that anybody present at IATA’s founding in Havana, Cuba all those years ago could have foreseen the amazing growth and technological advancements in civil aviation that followed. But they did have a prescient understanding that the development of air transport would have a positive impact on people. And they were absolutely right.

Aviation has evolved to be an essential part of modern life for many—so much so that life without the freedom that flying enables is nearly unthinkable.

All indications are that the demand to fly will double over the next two decades. Much of that will be from the developing world. The rapidly expanding middle class will want the same opportunities to explore our planet that are taken for granted in developed markets.

Aviation’s license to fulfill these opportunities, however, is under acute pressure in Europe. In Sweden a term has even been invented—Flygskam—to shame those who travel by plane with the goal of limiting flying.

This conclusion would be tragic. Flying is freedom.

Confining people’s horizons to train distances or boat speeds back-steps on a century of worldwide progress. Relying on airlines.iata.org

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virtual meetings to make global connections ignores the feelings and sensations that make us human. And denying our natural inclinations to explore and experience would mean that we can never fully appreciate the amazing people and places that make up the world in which we live.

Avoiding climate calamity will force change in how we live.

But there is no shame in experiencing our world through flight. Our world is a better place because aviation has turned our big planet into a connected community. That is something of which we should be proud!

That’s why a sustainable future for aviation is the focus of our industry agenda. We demand that governments are more pro-active on the biggest opportunity to quickly and dramatically reduce aviation’s carbon footprint—the commercialization of sustainable aviation fuels. In parallel, we continuously challenge ourselves as an industry to drive efficiencies and develop cleaner technologies. And we are working holistically with policy-makers to ensure that the benefits and opportunities of a connected world are sustainably available to future generations.

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Alexandre de Juniac: Director General and CEO, IATA 2019 – 02 Airlines

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The devastation felt following a natural disaster is unthinkable. Answering the mayday call, cargo airlines are delivering relief aid to help those hit hardest by Cyclone Idai in Mozambique. With the city of Beira reachable almost solely by air and sea due to the nearly 3000 sq. km. of flooded land, aviation has again shown how it can affect lives positively, even in the most challenging situations.

IMAGE: GETTY

The Big Picture

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2019 – 02 Airlines

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Digest Mexico City three-airport system poses “a major challenge” The decision to cancel a proposed state-of-the-art mega airport in favour of a three-airport system for Mexico City is a “major commercial and technical” challenge, the International Air Transport Association (IATA) has said.

Mexico’s president Andres Manuel Lopez Obrador cancelled construction of the New Mexico City International Airport (NAIM), which was one-third completed, following a public informal referendum launched just before he assumed office in October 2018.

The current airport in the Mexican capital has capacity issues. In 2018, 48 million passengers used a structure designed to serve 32 million. The cancelled airport had a design capacity

“Safe and efficient air connectivity is critical to the Mexican economy and national development,” de Juniac said.

“Implementing a three-airport solution presents major technical and commercial challenges.

“It is imperative that the government and industry stakeholders work together to find the best way forward.”

De Juniac warned that aviation plays a significant role in Mexico’s economic and social development, contributing $38 billion to the economy and supporting 1.4 million jobs.

The IATA Director General and CEO said the cancellation “puts at risk” 200,000 future jobs and a boost to the economy of $20 billion annually by 2035.

IMAGES: GETTY/ISTOCK/SHUTTERSTOCK

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of 120 million. With passenger traffic expected to grow by 3.6% annually over the next two decades, a capacity crisis is looming.

Instead, the Mexican government has proposed a three-airport system for the city: continued operation of the current Mexico City International Airport, increased use of Toluca Airport and conversion of the Santa Lucia Airbase for civilian use.

Accepting the decision, IATA Director General and CEO Alexandre de Juniac said that although the move was “disappointing” to the industry, moving forward together with the government on the next steps is vital to make a success of the project.

Airlines 2019 – 02

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Digest

SPICEJET JOINS IATA SpiceJet has joined the International Air Transport Association, becoming the first Indian low-cost carrier to do so. IATA’s current Indian carriers include Air India, Jet Airways, Jet Lite and Vistara.

Events

Unilode wins IATA Innovation Award Unilode Aviation Solutions has been announced as the winner of the 2019 IATA Air Cargo Innovation Award.

The air freight company won for its Bluetooth-based tracking solution for unit load devices (ULDs), receiving the award at the International Air Transport Association’s 13th World Cargo Symposium in Singapore.

Unilode’s concept will see ULDs fitted with Bluetooth trackers—instead of external solutions fitted to the air cargo itself—which transmit updates on location, temperature and humidity.

“Unilode is extremely proud to have won the IATA Air Cargo Innovation Award with its digital transformation program, which will improve control, visibility, transparency, accuracy and safety in the air cargo supply

Below the belt: Air cargo demand is suffering from lower consumer confidence

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May to June 2019

chain,” said Benoît Dumont, Unilode’s CEO. Congratulating the company, IATA’s Global Head of Cargo Glyn Hughes said innovation “holds the key to industry development, sustainability and success.”

“It’s important to recognize the individuals and companies that are driving change,” said Hughes.

Launched in 2014, the IATA Innovation Award aims to encourage and promote original thinking in the air freight industry, with the successful company receiving $20,000 to develop their invention.

An independent jury of industry experts, academics and CEOs evaluated 56 entries from across the air transport sector, assessing each individually on the concept, its potential value and the prospect of future success as a revolutionary tool in aviation.

FREIGHT DEMAND HITS THREE-YEAR LOW IN JANUARY Air freight demand fell in January, the latest year-on-year figures from the International Air Transport Association (IATA) show.

Measured in freight tonne kilometers (FTKs), demand decreased by 1.8% in January, compared to the same period in 2018. It is the worst performance in three years.

Meanwhile, capacity— measured in available freight tonne kilometers (AFTKs)— outstripped demand for the 11th month in a row, growing by 4.0% year-on-year.

Cargo demand continues to face significant challenges, including a weakening in global economic activity and lower consumer confidence.

In addition, the Purchasing Managers Index for manufacturing and export orders has indicated falling global export orders for the past four months.

Regional performance saw North America and Africa post year-on-year demand growth in January.

Latin America held flat, while Asia-Pacific, Europe and the Middle East all contracted.

CNS Partnership Conference 5-7 May Miami, USA Global Sustainable Aviation Forum 13 May Montreal, Canada Aviation Fuel Forum 21-23 May Athens, Greece

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IGHC Conference 26-29 May Madrid, Spain IATA Annual General Meeting 1-3 June Seoul, South Korea Cabin Safety Conference 11-13 June Istanbul, Turkey 144th Slot Conference 18-20 June Cape Town, South Africa Business Travel Summit 19-20 June Geneva, Switzerland Aviation Data Symposium 25-27 June Athens, Greece

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Digest

“We recognize aviation is entering a period of significant change and disruption.”

Richard Cross, Manager of Strategic Policy and Innovation, New Zealand Transport Ministry

Looking ahead in New Zealand

14

For a small island country consisting of just under five million people, New Zealand punches above its weight in terms of air transport.

Recognizing New Zealand’s reliance on air transport, the government has taken a forward-looking position on preparing for the future by consulting with industry for the next 20 years and beyond.

During 2018 the Ministry of Transport participated in a Future Trends workshop with IATA, covering potential scenarios and emerging themes over the next few

decades, including looking at the findings of the Future of the Airline Industry study commissioned by IATA’s Industry Affairs Committee (IAC).

“We recognize aviation is entering a period of significant change and disruption,” said Richard Cross, Manager of Strategic Policy and Innovation at the New Zealand Ministry of Transport. “The Government is keen to position New Zealand as a location for developing innovative aviation technologies.”

The Civil Aviation Authority’s New Southern Sky program has laid the framework to realize safety, social, economic and environmental benefits by integrating emerging technologies into the New Zealand aviation system.

This includes plans for a wide-ranging modernization of air navigation and airspace practices, with data at the core.

On the horizon: New Zealand is looking ahead to the next 20 years and beyond of aviation

Passenger demand begins positively in 2019 The International Air Transport Association (IATA) has welcomed a “positive” start to the year for airlines.

Global passenger traffic—measured in revenue passenger kilometers (RPKs)—rose 6.5% year-on-year in January, the fastest growth in six months.

Capacity—measured in available seat kilometers—increased by 6.4%, edging load factor up 0.1 percentage point to 79.6%.

International passenger demand grew 6.0% compared to January 2018, up 0.7% from December’s year-on-year figure of 5.3%, as Europe led the way for a fourth consecutive month.

All regions recorded demand growth, with capacity increasing 5.8% and load factor climbing 0.2 percentage point to 79.8%.

Positive start: Traveler demand has begun the year with strong figures

Airlines 2019 – 02

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2019 has started on a positive note, but there are indications of weakening business confidence in developed economies.” Alexandre de Juniac, IATA Director General and CEO airlines.iata.org

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Digest

REGIONAL VICE PRESIDENT APPOINTED FOR NORTH ASIA

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The European Commission is “rewarding failure” with the latest set of targets for Air Traffic Management (ATM) in Europe.

Commenting on the targets, IATA Regional Vice President for Europe, Rafael Schvartzman said they do not do nearly enough to drive ambition and reward best practice within the industry.

“The lack of an efficient ATM system is damaging the EU economy and continually inconveniences passengers,” said Schvartzman.

“The Commission is rewarding failure when it should be pushing for excellence.”

Delays doubled in 2018, with the average en-route delay per flight almost four times the Single European Sky target at 1.73 minutes.

IATA said the RP3 targets compound such problems by rewarding non-performing Air Navigation Service Providers.

AIRLINES’ PROFITABILITY SQUEEZE LESSENS IN Q4 The squeezing of industry-wide airline profitability moderated in the final quarter of 2018, according to the latest data.

IATA’s Airlines Financial Monitor said the economic pressure has lessened slightly, with North American carriers experiencing much smaller declines in EBIT margin compared to Q2 and Q3.

In addition, movements of airline share prices were largely muted in February, an underperformance on the global equity index at industry-wide and regional level. Base fare yields enjoyed a modest rise overall— excluding ancillaries and

surcharges—although downward trends remain.

Airlines recovered some of the rise in fuel and other costs in the less price-sensitive premium cabin yields, and Q1 guidance has overall yields sitting positively in the US. The Financial Monitor found both oil and jet fuel prices at higher prices for the second month in a row in February, averaging at $64 and $80 per barrel, respectively.

IATA said the oil price outlook remains uncertain due to sanctions in Venezuela and Iran, Organization of the Petroleum Exporting Countries supply cuts, and rising US shale production.

Oil price per barrel

Jet fuel price per barrel

15

$80

EUROPEAN UNION “REWARDING FAILURE” IN AIR TRAFFIC MANAGEMENT

$64

Delays doubled in 2018, with the average en-route delay per flight almost four times the Single European Sky target at 1.73 minutes.

1.73 minutes

The International Air Transport Association (IATA) has appointed Ma Tao (pictured) as Regional Vice President for North Asia. He succeeds Baojian Zhang, who stepped down in November after 24 years of service at IATA.

Fuel prices monitoring - February

IATA LAUNCHES DIVERSITY & INCLUSION AWARDS Sponsored by Qatar Airways, the IATA Diversity & Inclusion awards include three categories aimed at different areas of the aviation sector—Inspirational Role Model Award (senior females

over 30), Young High Flyer Award (females under 40) and a Diversity and Inclusion Team Award open to all IATA airline members.

Nominations for the IATA Diversity & Inclusion Awards are

open until March 31. The accolades will be awarded annually, beginning at IATA’s 75th Annual General Meeting and World Air Transport Summit in Seoul, South Korea in June.

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Data

In numbers 2018 AIRLINE SAFETY PERFORMANCE

2019 has so far been a challenging year for airline safety. Airlines will not compromise on safety and it will always be our number one priority.

Evidence for the industry’s commitment to safety lies in the overall 5-year accident trend, which continues to improve.

4,300,000

16

2018 saw 4.3 billion passengers fly safely on 46.1 million flights The all accident rate (measured in accidents per 1 million flights) was 1.35, which was the equivalent of one accident for every 740,000 flights. This was an improvement over the all accident rate of 1.79 for the previous five-year period (2013-2017), but a decline compared to 2017’s record performance of 1.11.

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Accident Overview: The all accident rate (measured in accidents per 1 million flights) was 1.35, which was the equivalent of one accident for every 740,000 flights. This was an improvement over the all accident rate of 1.79 for the previous five-year period (2013-2017), but a decline compared to 2017’s record performance of 1.11.

2013

Yearly flights (millions)* Total accidents Fatal accidents Fatalities**

Average 2013-2017

2014

2015

2016

2017

2018

36.3

36.5

36.9

39.0

41.3

46.1

38.0

87

77

67

64

46

62

68.0

14

12

4

8

6

11

8.8

178

641

136

198

19

523

49.3

*Flight information provided by Ascend FlightGlobal. Flight numbers are updated with the most accurate counts available at the time of production of this document. Numbers may vary slightly when compared to previous releases of this document. **Fatality figures provided by Ascend FlightGlobal

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Data (Source: IATA)

All Accident Rate - Industry vs. IATA: The All Accident rate is calculated as the number of accidents per million sectors. This is the most comprehensive of the accident rates calculated by IATA.

IOSA Registered Carriers vs. non-IOSA: The accident rate for IOSA-registered airlines is more than 3 times lower than that for non-IOSA-registered airlines between 2011 and 2015.

Accidents per million flights 2.50

Accidents per million flights 4.50 Industry IATA member airline

2.00

Industry IOSA Non-IOSA

4.00 3.50 3.00

1.50 2.50 2.00 1.00 1.50 1.00

0.50

0.50 0.00

0.00 2013

2014

2015

2016

2017

2018

2013

2014

2015

2016

2017

2018

0,000

17

Non-IOSA

24% of all accidents

45% of fatal accidents

2018

2018

In 2018, the all accident rate for airlines on the IOSA registry was more than two times lower than that of non-IOSA airlines

The world turboprop hull loss rate was 0.60 per million flights, which was an improvement over 1.23 in 2017 and also over the 5-year rate (2013-2017) of 1.83.

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IOSA

0.98

2.16

IATA defines an accident as an event where ALL of the following criteria are satisfied: Person(s) have boarded the aircraft with the intention of flight (either flight crew or passengers).

The intention of the flight is limited to normal commercial aviation activities, specifically scheduled/ charter passenger or cargo service. Executive jet operations, training, maintenance/test flights are all excluded.

The aircraft is turbine powered and has a certificated Maximum Take-Off Weight (MTOW) of at least 5,700KG (12,540 lbs.).

The aircraft has sustained major structural damage exceeding $ 1 million or 10% of the aircraft’s hull reserve value, whichever is lower, or has been declared a hull loss.

2019 – 02 Airlines

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IATA Opinion: Jeffrey N. Shane

Rebalancing the value chain The IATA-CFM agreement will do more than make for a healthier maintenance, repair, and overhaul sector writes Jeffrey N. Shane, IATA’s General Counsel

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n July 2018, IATA and CFM, the engine manufacturing partnership of GE Aviation and Safran Aircraft Engines, announced a breakthrough agreement that will ensure beneficial competition in the aftermarket for the maintenance, repair, and overhaul of CFM’s engines.

The agreement was the product of 18 months of negotiations, after IATA filed a formal complaint on behalf of its member airlines with the European Commission in March 2016.

Airlines had complained that CFM was preventing the use of less expensive, non-CFM parts for repair and maintenance, even when those parts were explicitly approved by regulatory authorities as equivalent to CFM’s own products.

Airlines also maintained that CFM was unjustifiably limiting the repairs that third-party repair shops could undertake. CFM strenuously denied these allegations but agreed to negotiate a resolution.

The agreement and important new Conduct Policies that it contains came into effect on 28 February 2019. The agreement will be in force for seven years and addresses most of the practices that IATA’s members had complained about. It includes a multi-layered enforcement mechanism with the possibility of penalties and damages where the Conduct Policies are found to have been violated (through arbitration proceedings).

In addition, it: ensures that the Conduct Policies will be applicable not only to CFM-56 engines but also to all other engines produced by CFM and GE Aviation includes beneficiaries other than airlines. Engine repair Airlines 2019 – 02

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shops, third-party parts manufacturers, lessors, and IATA itself are all entitled to enforce the agreement does not include anything that diminishes in any way the rights and remedies otherwise available to airlines. Airlines retain the ability to pursue complaints through other available tribunals if they choose to—unless, of course, they opt for enforcement mechanism provided in the agreement.

The real significance of the agreement transcends its details, however, and even the engine maintenance aftermarket. It demonstrates that the airline industry, working through IATA and using the legal tools at our disposal, can finally begin to rebalance a value chain that has been tipped for much too long in favor of the larger suppliers of equipment and services.

This theme—rebalancing the value chain—is now one of the airline industry’s, and IATA’s, highest priorities. The episode with CFM has shown what can be achieved. Moreover, it was not a tale of heroes and villains. It was ultimately a collaboration, and it achieved a classic win-win outcome.

CFM has confirmed this view, saying: “CFM expects that the resulting publication of the Conduct Policies and Implementing Measures will facilitate the awareness of CFM’s principles with its customers and support IATA’s intent to expand the application of such policies to other stakeholders in the aerospace industry.”

IATA will indeed do all it can to encourage other participants in the aftermarket for aviation equipment and services to adopt policies similar to those embraced by CFM. We will always prefer collaboration. Where our member airlines are disadvantaged, IATA has an obligation to assist them. airlines.iata.org

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Advertising Feature: justclaims.eu

Watch out flightright—disrupting the passenger claim agency business The next big thing: automating and digitizing the passenger claims handling on behalf of air carriers—not consumers and passengers.

A Frankfurt based startup went live on 1 April 2019 with its service called justclaims.eu.

IATA forecasts that global passenger demand will double until the year 2036.

Most likely, air traffic control as well as airport infrastructure will not keep pace with this rapid development. This will inevitably result in more flight delays and thus claims. With well-informed passengers, the EU Commission as well as claim agencies are on the watch for compensation of up to EUR 600.00 under the EU Passenger Rights regime and increasingly consumer friendly case law. This very jurisprudence is fostering the formation and further emergence of a myriad of claim agencies acting on behalf of delayed passengers.

But this development may come to an end.

With the launch of the online platform www.justclaims.eu, a team of Frankfurt-based aviation attorneys—advocating only the airline industry’s purpose—is tackling the established claim agencies. Whereas a claim agent is demanding up to one third of the collected compensation amount in

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Ulrich Steppler, left, and Katja H. Brecke, Co-Founders and Managing Directors of CHS Claims Handling Solutions GmbH

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commission, the SaaS solution justclaims.eu is aiming at cashing out the full amount to passengers with a justified claim.

“Airlines can regain a lot of loyalty when taking care of a passenger and his or her claim in a timely and satisfying fashion,” says Katja H. Brecke, Managing Director and Co-Founder of the platform. Therefore, justclaims.eu intends to assist the carriers by swiftly registering and handling a claim through automation and digitization. The platform allows for processing an individual claim within only a few minutes, before effecting payment or alternatively rejecting the claim. This should result in enhancing the customer journey and user experience, while that customer’s next ticket is more likely to

be bought with the airline that has not left a passenger stranded. Additionally, digitization will bring a significant cost reduction of the claims handling process to air carriers.

“We believe it is about time for a cultural shift and the airline industry stopped funding claim farmers such as flightright, Airhelp, EUclaim and alike, and offered a seamless digital service and customer experience. This includes the booking, ticketing, check-in and eventually filing a complaint if something goes wrong,” states Ulrich Steppler, Managing Director and Co-Founder of justclaims.eu.

For more information on the platform, visit www.justclaims.eu and www.claims-handling.com

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CEO Interview

The spirit of aviation Lufthansa Chairman and CEO, Carsten Spohr wants to bring emotion back to an industry that should be proud of its performance WORDS: GRAHAM NEWTON

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F

or quality growth to take place, the cooperation of partners across the board, including airports and air navigation service providers is needed, and within the context of sustainability. But the industry’s track record suggests it is achievable.

IMAGES: ISTOCK/GETTY

What are your expectations for 2019?

For a European carrier, there are two sides to the story. Commercially, I am much less pessimistic than some of my peers. Even though there is less growth than in recent years, the market continues to perform well. There will be no major changes in the positive trends we have witnessed.

But operations in Europe are a challenge. In summer 2019, we will do better than we did last year in dealing with delays and congestion, but unfortunately it still won’t be good enough. We can already foresee that the capacity of air navigation services and on the ground won’t be sufficient to deliver the quality level needed to meet passenger expectations.

We will do what we can to alleviate the problems. At Lufthansa, we are increasing the reserve fleet from 22 to 27 aircraft and we are Airlines 2019 – 02

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hiring an additional 600 staff for operational resilience and customer service.

How should the industry tackle the capacity crunch in Europe?

I don’t regard it as a capacity crunch but rather as overcapacity in the market. The industry needs quality growth and not what I call blind growth. Some airlines are not being rational in their business model. Selling tickets for €9 is not a sustainable model for any airline and so that growth also falls outside the remit of environmental responsibility.

Of course, it is true that the Single European Sky has not progressed at all and some key airports haven’t been developed sufficiently.

But I think that the horrendous delays in Europe last summer forced people to wake up.

Airspace needs a new structure and new technology is needed to help air traffic controllers. More automation will help them to handle the growth in air traffic demand.

It is important that we align the tools available to airports and air navigation service providers to improve their ability to handle more flights and more passengers. There has to

In brief: Carsten Spohr Sustained success Spohr has been at Lufthansa since 1994 in a variety of roles, including leading the cargo arm before taking on the Group Chairman and CEO position in 2014

Building a career Born in Wanne-Eickel in the west of Germany, he holds a degree in industrial engineering from the University of Karlsruhe

Leading the way A keen pilot, Spohr holds a Lufthansa Captain's license for the Airbus A320 family of aircraft

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CEO Interview

I would like to see the industry partners join forces to bring back the spirit of aviation. This is a unique industry that does a lot of good and we should all have more pride in what we do 21

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CEO Interview

be synchronized development. A new runway is no help if the airspace above the airport cannot handle additional flights. And there is no point in a better airspace structure if people don’t have room to move in the terminals or miss their flights waiting in the queue in front of security checks. The point is it can’t be growth for growth’s sake. All aviation partners need to be involved in the discussion on how to achieve quality growth.

What would a good European aviation policy look like?

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Aside from dealing with the infrastructure issue, we also need to look at air traffic agreements to make them fairer. The World Trade Organization has done this for many other industries for many years. Aviation needs to adopt the WTO approach to avoid distortions and disparities.

Traffic right agreements need to reflect a good balance between openness and fairness and regard the principle of reciprocity.

1953 Lufthansa traces its history back to 1926, but the creation of a new German flag carrier after WWII saw Luftag founded in Cologne on 6 January 1953. In 1954, Luftag acquired Lufthansa's branding rights, and on 1 April 1955 the rebirth was complete as flights left Hamburg and Munich to start a new era for German aviation Airlines 2019 – 02

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We also need more balanced consumer rights regulations. Often the compensation due is higher than the cost of the ticket. That needs to be addressed. And there is much more that can be done for the environment. Our passengers, our staff, and our shareholders all want even greater environmental efforts.

Do you think the Carbon Offset Reduction Scheme for International Aviation (CORSIA) will help airlines to win the environmental PR battle?

The industry can be very proud of CORSIA. Aviation has acted and done something that other industries are still talking about. It is a great example of what aviation can achieve and sets a good benchmark for our efforts in other areas, like infrastructure.

But we can always do more. We still don’t fly in straight lines and follow air corridors from the 1960s. And we burn even more fuel and cause unnecessary emissions because of endless holding patterns and queues on the taxiways waiting to get to the runway for take-off.

Is the airline-airport relationship good enough?

In general, the airline-airport relationship is a major challenge. An airport is driven by volume.

Basically, the more passengers it handles, the more money it gets. But airlines should be more concerned with yields and quality growth. We are driven by different business needs.

There is also a structural problem with privatization. Most airports are monopolies and the regulations accompanying privatization aren’t strong enough.

The relationship between individual airlines and airports can be excellent but at an industry level there has to be a better understanding.

What are the advantages of being an airline group and do you see consolidation as a positive trend in the airline industry?

It’s obvious that for a healthier industry we need fewer players. Look at what has happened in the airlines.iata.org

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CEO Interview

North American market. But maintaining the individual or national identity of airlines is still very important for many reasons. This is where an airline group helps because within the structure there is room for individual brands.

And those individual brands in turn help the airline group to have both size and speed. Giving the power to local management means they have the freedom to act, they make their own decisions. But at the same time the airline group as a whole brings economies of scale, it reduces cost, improves the customer offer, and has more political influence.

Lufthansa has a big recruitment campaign in 2019. How will you use this to tackle the issue of diversity?

There is some wonderful technology in this industry, but the difference is always made by people. It therefore makes sense to encourage diversity in staff to ensure that customer service and management benefit to the maximum extent. Airlines in general are doing a good job.

They should be confident of that fact.

Working for an airline is attractive to all sorts of people, including millennials. They want to know the purpose of the industry in which they are working. And aviation has a great answer. It makes the world a smaller place and brings the social and economic benefits that implies.

I often recommend watching the movie Living in the Age of Aeroplanes to job candidates and junior staff members. This movie makes it so obvious how fascinating aviation is. All I can say is that the Lufthansa application pipeline is full.

Does technology have a role to play in improving the customer experience?

There’s no doubt that technology is incredibly important. At Lufthansa, we have spent hundreds of millions of dollars on the digital experience and billions on the aircraft themselves. But even speaking as an engineer, I have to admit it is about people. Technology just allows people to make more of a difference. airlines.iata.org

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600

€9

We are hiring an additional 600 staff for operational resilience and customer service

Selling tickets for €9 is not a sustainable model for any airline and so that growth also falls outside the remit of environmental responsibility

It’s obvious that for a healthier industry we need fewer players, but maintaining the national identity of airlines is still important 23

What do you see as the biggest opportunities and challenges for aviation in the years ahead?

There is wonderful technology in aviation, but the difference is always made by people

The greatest opportunity is what the industry does. It brings people together and enriches lives.

There is also plenty of scope for improving the efficiency of how we do this, as we have talked about earlier.

In terms of challenges, I think I have to talk about environmental responsibility again. The point is we have to prove we can do all of these things I have mentioned while taking care of the environment. Although we have done a lot of work, we are only just seeing the beginning of this challenge.

If you could change one thing about the industry tomorrow, what would it be and why?

I would like to see the industry partners join forces to bring back the spirit of aviation. This is a unique industry that does a lot of good and we should all have more pride in what we do. Rather than let politicians talk about limiting the industry we should be talking about the limitless potential of the industry to have a positive impact on the world.

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CEO Interview

The fabric of society Peter Ingram, Hawaiian Airlines CEO, on how the social and economic benefits that the carrier brings to the state of Hawaii is the result of hard work and careful planning WORDS: GRAHAM NEWTON

brighter future, but local infrastructure must keep pace with the carrier’s ambitions.

How will you build on an eventful year in 2018?

I’m proud of how my 7,200-plus colleagues overcame a trying operational environment in 2018, managing the challenges of natural disasters, higher fuel prices and capacity pressures to once again deliver one of the best financial performances in the industry while maintaining our leading punctuality.

We entered a new phase in our ongoing fleet renewal in early 2019 by retiring our final Boeing 767 aircraft. As the year progresses, we will welcome more Airbus A321neos, which will allow us to continue opening new mid-size markets while keeping costs down and freeing our A330-200s for more long-haul missions.

This year, we will also lock down uniquely Hawaiian elements for the interior features of the Boeing 787-9s we will begin flying in 2021.

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Will the A321neo and the Boeing 787 make a big difference to the airline’s strategy and cost structure?

H

awaii’s chain of islands and Pacific location is both a challenge and an opportunity for Hawaiian Airlines. It must mix short and long-haul services to connect passengers and cargo to the world. New partnerships and new aircraft promise an even

Airlines 2019 – 02

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They are both exceptional aircraft with distinct attributes ideally suited for our medium-andlong haul transpacific missions. We are currently flying 11 narrowbody Airbus A321neos, which we began inducting in late 2017, to serve mid-size US West Coast-to-Hawaii markets.

We plan to have 18 A321neos by 2020.

Choosing the Boeing 787 Dreamliner was a long-term decision as we look at our future network needs in places like Boston, New York, airlines.iata.org

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CEO Interview

“Short and long-haul services provide a bridge to the world for both passengers and cargo”

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Tokyo, Australia and beyond. It combines excellent comfort for our guests with fantastic operational performance.

Many 787 design elements provide a more enjoyable environment for our guests, including the extra-large windows, the higher ceilings, larger overhead baggage bins, and the composite airframe, which will allow us to pressurize the cabin to the equivalent of a much lower altitude.

Customers of the 787 have said this makes them feel less tired and jetlagged.

Like the A321neo, it is also an ultra-efficient aircraft with low fuel burn, which reduces emissions and helps us keep fares affordable.

Why the partnership with Japan Airlines? What will it bring to the passenger and the airline?

The connections between Hawaii and Japan are

26 long and deep. The passion for each other’s

IMAGES: ISTOCK/GETTY

culture is strong and enduring. In 2010, we became the first US carrier to start Haneda service and have been the only US airline to have uninterrupted service since that time.

Japan Airlines and Hawaiian Airlines are well-matched premium brands focused on exceptional customer service. Our proposed joint venture will expand our codeshare and frequent flyer partnership, enhancing our value proposition for guests flying between Japan and Hawaii.

Hawaiian Airlines guests would enjoy enhanced access to 34 new destinations throughout Japan, including Nagoya and Okinawa, and other Asian countries. Japan Airlines customers, in turn, will have access to our neighbor island networks as well as our non-stop flights to Honolulu from Haneda and Sapporo.

Is it difficult to manage an island-hopping operation alongside long-haul, full-service flights, especially given the different OEMs involved in your fleet?

We are not new to operating a mixed fleet, having flown the Airbus A330s (and now A321neos), along with our Boeing 717s (and the retired 767s) Airlines 2019 – 02

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CEO Interview

I’m proud of how our 7,200 staff overcame a trying operational environment in 2018, managing challenging natural disasters, high fuel prices and capacity pressures to achieve one of the industry’s best performances

for quite some time. So, we are set up for it. They are the best aircraft for our various network needs and our guest preferences. There are, on average, 202 flights every day between the six main islands in our archipelago. Coordinating aircraft and staffing schedules, allocating resources and choreographing connections for our neighbor island and transpacific networks is a daily challenge, but also what makes our business so exciting.

Is Honolulu airport aligned with your growth plans?

Honolulu’s Daniel K. Inouye International Airport remains our core hub, and we are eager to see the completion of the airport’s ongoing expansion to add gate capacity in Terminal 1, from which we operate most of our flights.

As we expand our airport footprint, we are focused on making travel effortless by investing in both guest-facing and internal systems and infrastructure to enhance the travel experience from the moment our guests purchase a ticket to when they arrive on our islands and return home.

This includes ongoing improvements to our airport operations such as the recent lobby expansion in Honolulu and a new bag scanning program, but also the integration of online chat and messaging into our customer contact channels, and a new mobile application we launched last month.

Honolulu airport is not everything we would hope for today, but we believe the plans in place to improve capacity and the passenger experience can put our airline and our guests in a much better position over the next couple of years.

Beyond O‘ahu, Kahului Airport on Maui has become a valuable second hub for us, especially as we have increased non-stop flights from the US West Coast to Maui, as well as Kaua‘i and the Island of Hawaii.

How important is the airline to Hawaii’s economy?

We are very proud of the essential role we play in supporting economic activity in Hawaii. airlines.iata.org

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CEO Interview

Tourism, as the state’s dominant industry, creates and supports most jobs, and we are the number one carrier in terms of domestic and international passengers transported to, from and within the islands.

Locally, the absence of surface transportation between the islands means that we serve a much broader slice of the population than you’d see elsewhere.

Our neighbor island schedule is built to offer convenience to our visitors and community, with the first flights departing Honolulu as early as 5am and returning as late as 11pm.

We carry patients going to see their doctors, a mechanic called to fix a tractor, and it’s very easy for a Hilo resident to make a lunch business meeting in Honolulu and still be home for dinner with the family.

Last year, we started an all-cargo operation between the islands, hiring approximately 75 full-time employees and investing in new aircraft to complement our existing Boeing 717 cargo service.

This means that we can now more seamlessly move containerized cargo from our larger jet planes into the turbo-prop ATR-72s. We are currently flying two and plan to have four by the end of the year.

Our new cargo facility with vast refrigerated space enables our island customers to ship perishable items without worrying about spoilage. No one thinks about how that gallon of milk got on the supermarket shelf or how the Hawaiian papayas got to New York—or how critical blood supply reached the hospital on time—but the chances are very good that we had a role in it.

It is also important to note that while other airlines serve Hawaii, Hawaiian Airlines is the only national or international carrier based in Hawaii.

As a result, while other carriers may employ ground staff in the state, we are unique in employing pilots, flight attendants and management staff here in Hawaii, contributing to the community and the tax base. airlines.iata.org

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Is aviation winning the environmental battle or is there a lot more work to do?

1929 Hawaiian Airlines was founded in 1929 as Inter-Island Airways

64 41

aircraft make up the Hawaiian Airlines fleet

destinations served by Hawaiian Airlines across three continents

14 Hawaiian Airlines has been the number one carrier in the US for on-time performance for the past 15 years

The industry is taking steps in the right direction, but we can always do more.

As an airline headquartered in a beautiful island chain in the middle of the Pacific, we are mindful of our environmental impact, which we seek to minimize through our constant investment in efficient aircraft and engines, where we can realize the most impact.

We have numerous recycling, energy conservation and fuel reduction initiatives, including single-engine taxiing and the use of gate-provided electricity to more cleanly power our aircraft while on the ground. We also recently conducted demonstration flights to Honolulu from Brisbane and Auckland using a series of gate-to-gate operational best practices outlined by the Asia and Pacific Initiative to Reduce Emissions (ASPIRE)—strategies that we seek to use on every flight whenever possible.

As a destination airline, we partner with local nonprofits and other businesses that share our commitment to protecting our fragile natural resources, including native species and our reefs. More broadly, we fully support the Carbon Offset Reduction Scheme for International Aviation’s goal to establish a cap on international aviation emissions.

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You’ve been at Hawaiian for many years.

Does a CEO need a solid background in the airline before taking the helm?

I think it depends on the CEO and the situation.

Certainly, ours is a complex industry, and prior experience in aviation before stepping into the CEO role is very valuable.

At the same time, I can imagine a situation where bringing in an executive with perspectives from a different industry can provide new thinking. What’s most important, I suppose, is that the CEO and the rest of the management team complement one another, such that an industry-veteran CEO avails him or herself to non-airline perspectives and an outsider CEO has counsel from industry veterans.

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Dossier: Drones

Dossier 29

Dealing with drones London Gatwick’s drone disruption highlighted how much damage can be done by a single rogue drone. An improved decision-making process, better enforcement, and stiffer penalties are needed to stop rogue operators WORDS: GRAHAM NEWTON

In late December 2018, operations at London’s Gatwick Airport were badly disrupted by rogue drone sightings. Over a couple of days, some 140,000 passengers and 1,000 flights were affected, the biggest interruption in services since the Icelandic volcano incident in 2010.

The military were called in and Gatwick quickly invested several million pounds on military-grade counter-UAS (unmanned aircraft system) capability. airlines.iata.org

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The United Kingdom was also quick to improve its drone regulations.

Early movers

The question of how aviation should deal with drones in the long term remains, however. The number of drones taking to the skies is predicted to grow exponentially as the technology improves and they become commercially viable for all manner of uses from deliveries to security to humanitarian

aid. One estimate suggests 45 million drones will be taking to the skies by 2020.

And, of course, there is the added complication of rogue drones. Any control system has to account for good and bad actors.

A UAS Traffic Management (UTM) framework is a suite of services that provides a framework for the good actors to be integrated into civil airspace.

Registration, geofencing and authorization are all vital though each 2019 – 02 Airlines

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Boeing estimates the UAM market to be worth $500 billion by 2040.

30

$500billion

Dossier: Drones

facet has its challenges.

Registration is a means of electronic ID so there must be a common database or a way of effortlessly sharing information.

Nationally that is far easier to achieve than internationally, especially as Europe’s stringent data protection rules come to the fore.

Geofencing—preventing a drone from flying in certain locations—is done by manufacturers but there is no central repository of information for them to consult. Prison locations are not usually included in aviation-related documents, for example. Moreover, geofencing ignores context. A drone might be allowed in a particular airspace during daylight hours but not be allowed there at night or there may be a one-off event to avoid.

This means authorization—express permission to fly in a specific location— needs to be given in real time so there must be excellent communications with the drone as it may be allowed to supersede geofencing restrictions.

Drawing lines

But not everybody is convinced the industry is getting it 100% right. UTM is currently a nebulous concept and the plethora of national frameworks illustrates the potential confusion this could cause the industry. In short, there is no agreement on what UTM means never mind what it should comprise and the standards it should follow.

“There are many discussions about UTM technology and systems,” agrees Ruby Sayyed, IATA’s Head of ATM Advocacy. “Our main concern is to have a harmonized approach for UTM— which is IATA’s key focus for 2019—and for the various initiatives we are driving, including our Think Tank Meeting. We are also working with ICAO.” Ken Dunlap, Managing Partner at Catalyst-Go—which studies issues surrounding autonomous vehicles— agrees that the airline industry would be better served by laying down principles on which the UTM proposals can build.

Discussion on… The UTM race The race is on to establish a UTM in many countries. Swiss air navigation service provider, skyguide, is one of the early movers in establishing a UTM framework. Together with AirMap, it has successfully demonstrated what Europe terms U-Space. The demonstration saw dozens of drones performing a wide variety of commercial tasks across the entire country.

Tests have shown that Switzerland’s existing mobile phone infrastructure is suitable for the safe performance of drone flights. In essence, the exchange of data between drones and U-Space providers is sufficiently stable using the existing infrastructure meaning nothing new or costly is required.

Demonstrations in Germany have

concluded much the same thing.

German ANSP, DFS, and Deutsche Telekom conducted various tests including a search mission for a missing person and an aerial patrol of a pipeline.

Many other countries are developing their own versions of UTM. Japan, for example, is building a system through the Japan UTM Consortium. A flight information management system (FIMS) provides overall control while service providers sit between the FIMS and the operators. Implementation is slated for the 2020s. China, meanwhile, has specified the use of civil UAS Operation Management System with several unmanned aircraft cloud system (UACS) providers providing the link to the operators.

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45m

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One estimate suggests 45 million drones will be taking to the skies by 2020 “The industry must draw distinct lines as to what it is willing to accept and not accept in UTM schemes that seek reserving airspace for drone-only operations, placing drones in the same the airspace as aircraft, and requiring resources from traditional air traffic control (ATC),” he suggests. “The industry also has unique expertise in defining standards for equipage for communicating with ATC, redundancy in flight control systems, and pilot qualifications that need to be embedded in any UTM discussions. So far, we haven’t seen these lines drawn and that’s worrying.”

Dunlap believes ensuring UTM is future-proof is critical. A new generation of drones relying on full autonomy is taking to the skies. These vehicles use machine perception systems and machine learning to sense their environment and guide themselves.

“In this regard, the industry will need to place even greater emphasis on avionics redundancy requirements, and an entirely new area, standards for machine learning,” he says. “This discussion must include insisting on standards for the datasets drone manufacturers use to train airlines.iata.org

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140,000 Rogue drone sightings at London’s Gatwick Airport caused disruptions affecting 140,000 passengers in December 2018 vehicle systems to conduct sense and avoid operations and even recover in the event of malfunction. The industry must also insist on transparency into the functioning of these systems so that other airspace users have a degree of comfort in these technologies. These are new areas that the industry traditionally hasn’t faced, but they are critically important for the next generation of air vehicles to coexist with commercial operations.”

Counter-UAS

Whether UTM should integrate a specific counter-UAS capability to deal with

rogue drones, intentional or otherwise, is also being debated.

German air navigation service provider (ANSP), DFS, has developed an interface between its UTM and drone detection systems to prevent disruptions caused by rogue drones. A catch-andcarry drone threw a net over the disruptive drone in a demonstration and took it to the ground.

But Dunlap says that tying counterUAS to a UTM framework “might well be a mistake.” By definition, intentional rogue drones are not part of safe and responsible operations. Counter-UAS, 2019 – 02 Airlines

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Dossier: Drones

Airbus estimates that every hour, in 2035 the skies above Paris will consist of:

Ruby Sayyed, IATA’s Head of ATM Advocacy

“Our main concern is to have a harmonized approach for UTM— which is IATA’s key focus for 2019”

156 aircraft (up from 80 in 2018) 2,500 urban air mobility vehicles (up from 0 in 2018) 16,667 delivery drones (up from 0 in 2018) 58 inspection drones (up from 1 in 2018) 44 hobby drones (up from 12 in 2018)

32 Ken Dunlap, Managing Partner at Catalyst-Go

“The industry must draw distinct lines as to what it will or will not accept in UTM schemes that seek reserving airspace for drone-only operations”

Ben Marcus, Co-Founder and Chairman of AirMap

“Integration with UTM intelligence is necessary in order to differentiate between lawful and unlawful drone operations” Airlines 2019 – 02

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therefore, must find these machines at very low altitudes amid much background clutter. “Equally unappealing are transponders vulnerable to rogue operators deactivating or circumventing them,” says Dunlap.

“These significant deficiencies combined with the expense of integrating two systems argue against a combined counter-UAS/UTM model.”

Layered counter-UAS measures may be a preferred option. These leverage education, stricter law enforcement, available detection technologies, and assessment of aviation’s unique vulnerabilities. In such a system, the public understands the dangers drones present to commercial aviation through community engagement. Legal authorities apply penalties against all rogue drone operators and not just the most egregious violators.

Counter-UAS should embrace “crowd sourcing tech and reward members of

the public who report on rogue operators,” says Dunlap. “Protection efforts should focus on ‘crown jewel’ infrastructure and not the unattainable goal of “we must protect everything.”

These layers are implementable today and robust enough for tomorrow’s threat which will look nothing like what we see in the sky today.”

Ben Marcus, Co-Founder and Chairman of AirMap, agrees that counter-UAS capability is merely a last resort against criminals. But a comprehensive UTM framework that includes registration and proper regulation should minimize the risk, especially against careless operators.

Most drones come complete with geofencing with updates available to ensure up-to-the-minute compliance with national regulations, for example.

Of course, intentionally bad actors will unlock geofencing measures and spoof their location. But counter-UAS airlines.iata.org

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Dossier

combined with UTM that has access to registration means drones can be remotely identified If they are not registered. Or they can be Identified as unofficially operating beyond their geofencing limits.

Counter-UAS technology identifies all manned and unmanned aircraft operations within controlled airspace,” Marcus concludes. “Integration with UTM intelligence is necessary in order to differentiate between lawful and unlawful drone operations and take appropriate intervention steps.”

Protecting manned aviation

For its part, IATA has released guidelines for the protection of manned aviation from drones.

A radio-frequency (RF) signal analyzer, for example, can detect, monitor, and analyze all relevant radio frequencies being used to operate the UAS. Combined with a direction finder it can be used to locate the UAS operator.

Optical tracking, such as thermal tracking cameras, or acoustic technologies can also be employed to find rogue drones.

Signals can then be selectively jammed or UAS interceptors sent. GPS/GNSS jammers and spoofing should not be used as anti-UAS measures, however, as they can interfere with the operations of

Discussion on… Guiding the ATM future Even though there are many hurdles to overcome, UTM could prove a game-changer for air traffic management (ATM) beyond its ability to integrate drone flights into civil airspace.

It could be the catalyst for change in the ATM mindset.

“We do see a convergence between UTM and ATM, and we see transferable technologies and concepts that could be used to manage traffic, manned and unmanned,” says IATA’s Ruby Sayyed. “We anticipate a transformation in ATM motivated not only by UAS but also by higher altitude and commercial space operations.”

And while UTM starts with drones, it won’t stop there. It is an iterative process that will introduce new capabilities, such as urban air mobility (UAM). Boeing estimates the UAM market to be worth $500 billion by 2040 and notes there

are over 100 types of vehicle in development today.

Ben Marcus, Co-Founder and Chairman of AirMap, says UTM is a key component of urban air mobility. “UAM involves high-density, high-tempo, and low-altitude eVTOL (electric vertical take-off and landing) flights that rely on automated and digital airspace management services to support hundreds of thousands of flights per day,”

an aircraft. And it should be noted that loss or disrupted signals can result in the UAS maneuvering unpredictably.

IATA notes that “it is very important to note that in general, any UAS countermeasures which infringe on local laws and regulations or create higher risks and may cause danger to other aviation stakeholders, should be avoided.”

he says. “Critical capabilities that UTM can provide for UAM include strategic and tactical automated separation; 4D trajectory planning; demandcapacity balancing; scheduling, and spacing during take-off and landing. To achieve the anticipated scale of UAM and manage the associated complexity of flying at low-altitude, densely populated areas such as cities, UTM services are essential.”

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States should consider anti-UAS measures that can: support continuous monitoring of UAS activities; detect and record UAS activities in a timely manner and, where capable, geo-locate the operator; and perform effective actions that can be safely, swiftly and legally activated in time to prevent a UAS from entering an area of interest.

“Protection efforts should focus on ‘crown jewel’ infrastructure and not the unattainable goal of we must protect everything” airlines.iata.org

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New Revenue Streams

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New Revenue Streams

Selling a travel experience 35

New revenue streams have become increasingly important but are airlines equipped to discover and optimize them?

WORDS: GRAHAM NEWTON

A

irlines must manage a dynamic environment. Technological changes, regulatory revisions, and market developments all affect decision making and the bottom line on a near-daily basis.

The most crucial shift is the evolution from selling an air ticket to selling a travel experience. In an intensely competitive industry like aviation, it is no longer enough to simply provide a means for the Frankfurt businessperson to visit Seoul or for families to come together for a special occasion.

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Overcoming the traditional ticket-seller mindset and generating the optimal offer has become essential in an increasingly digital marketplace.

“Airlines have traditionally been in the enviable position of having a product—the air ticket—that is driven by necessity,” says Alan Dunne, Chief Innovation Officer at Datalex.

“As airlines continue their evolution into travel retailers, they have started to expand beyond the traditional ancillary products to sell more and more experience-based products.”

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New Revenue Streams

36

Traditional ancillary products comprise such airport services as lounge access, fast track security, or priority boarding and on-board additions, including extra legroom seats, enhanced meal options, and Wi-Fi. But airlines can now go beyond these parameters. Moreover, this is more than simply being an agent for other parts of the supply chain—hotels and hire cars, for example. It might involve specialist pet care or a home-to-home baggage service or anything else that an airline believes might bring value to the travel experience.

“The nature of these products is different, as they are discretionary,” Dunne continues. “There are many aspects involved in making a compelling offer for a discretionary product and the best retailers leverage multiple sources of data to more accurately estimate market demand and optimize offers to provide a competitive advantage.”

Historical ways

Dunne further points out that many airlines are a long way from making a compelling offer with revenue management and pricing systems that have remained broadly unchanged for decades.

Rather than enhance existing frameworks there is a need to unlearn the historical way of doing things.

“It is about re-inventing the business from a customer-centric mindset,” says Eric Leopold, IATA’s Director Transformation, Financial and Distribution Services. “In many cases, legacy processes and supporting systems and technology are holding airlines back. Traditional airlines have added layers of complexity on paper processes.”

A full-service airline may identify a new revenue stream through partnering with a low-cost carrier, for example, interlining on new routes. “But the legacy processes used by the full-service airline may not be compatible with

Should airlines be retailers?

Fast moving The answer is clear, according to Yanik Hoyles, IATA’s Director, Industry Distribution Programs.

“If one believes that the airlines which win are those that listen to the customer, then my conclusion is that airlines need to move to the world of retailing… and do it pretty fast!” he exclaims.

Based on research carried out by IATA and other organizations, there are some key and recurring themes in airline customer feedback.

Great expectations Customers want to see all the features of a product when they shop, and they want to be able to compare “apples with apples”.

They also want to be connected in real time, receive information on the move and are willing to share personal information if they believe they may get a targeted offer in return.

Most people enjoy highly digitized life experiences. In short, customers expect airlines to be retailers. ONE Order and New Distribution Capability (NDC) are gateways to this development.

In many cases, legacy processes and supporting systems and technology are holding airlines back Airlines 2019 – 02

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the processes of the low-cost carrier,” Leopold continues. “Or the airline may wish to offer non-air products or to partner with non-air providers. While it may be possible to do this on their websites, it currently is not possible in legacy distribution systems used in the travel agent channel.”

New capabilities

The question is then about what the industry is doing to counter this impasse. To begin with, there are concepts like Dynamic Offer Creation and Interline on Demand. Dynamic Offer Creation enables airlines to personalize offers based on customers’ preferences while Interline on Demand allows airlines to offer interline journeys between carriers using different booking or ticketing processes.

“These new abilities are addressing the legacy processes that were preventing airlines from taking advantage of new revenue streams,” says Leopold.

Then there is New Distribution Capability (NDC). Its ability to enable rich content offerings through any channel is the beginning of digital retail strategies that will see a rapid shift in revenue and profit source for many airlines.

Air Canada is using NDC to distribute its full suite of products so that the end customer can make transparent and informed decisions. This affords Air Canada with more options to robustly compete for business. The Air Canada NDC Application Programming Interface (API) is free and available to all channels and players.

While the level of transactions through an NDC API are modest, Air Canada has ambitions to grow its NDC transactions to 20% of bookings by 2020. Meanwhile, Hainan Airlines is using TravelSky’s direct connect distribution platform to connect to agents and any other channel to distribute its air and ancillary products.

One Reference

Arguably the biggest breakthrough will be provided by the IATA ONE Order program. ONE Order builds on NDC by combining the offers airlines.iata.org

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New Revenue Streams

$65bn According to a recent IdeaWorksCompany and CarTrawler report, airline ancillary revenue reached $65 billion worldwide in 2018. European airlines lead the way with $22.5 billion in specialized offerings with Asian carriers second at $18.8 billion

50%

AirAsia has invested heavily in digital services and acquired a 50% stake in online travel planning platform, Vidi (formerly Touristly)

chosen by the customer into a single order. In other words, all the data elements contained in the electronic ticket, passenger name record (PNR) and electronic miscellaneous document (EMD) will be merged in ONE Order. The customer will have a single reference number for every element of the journey.

The transition away from e-tickets, PNRs and EMDs toward a single customer order will not happen overnight. Over time, however, the elimination of these legacy processes will remove unnecessary costs while delivering a better customer experience.

By 2021, the ONE Order standard will have been tested by several pioneer airlines. Mass rollout is expected to follow, although full adoption of ONE Order is a multi-year, multi-stage process that will engage many participants in the travel value chain.

Digital airline

These initiatives and many others are the first steps will enable airlines to sell the travel experience rather than a ticket. airlines.iata.org

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Moreover, they are the first steps on the march to becoming a digital airline where traditional paper-based processes have been re-imagined to allow all the elements of the travel experience to be brought together digitally.

AirAsia has invested heavily in digital services and acquired a 50% stake in online travel planning platform, Vidi (formerly Touristly), specifically to expand its ancillary portfolio. When airline founder, Tony Fernandes, announced the carrier’s digital vison he anticipated on average $3 extra per passenger from new ancillary income.

Avianca, meanwhile chose Hernán Rincón, a computer scientist, to lead the airline. Rincón was formerly president of Microsoft Latin America. His announced strategy includes a call for rapid digitization.

“These digital airlines will be ready to compete with digital retailers and other digital players,” suggests Leopold. “Because it is clear that the question is not if the airline industry will be disrupted, but when, and how. Airlines need to get ready for major changes.”

The Digital Airline vision A Digital Airline will have modernized systems that utilize off-theshelf retailing solutions simplified digital processes for fulfillment and accounting with orders access to a greater number of vendors for airline solutions due to simplified entry into the industry easier interlining processes across airline business models and other transport modes order-based settlement systems accessible by all involved parties

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2019 – 02 Airlines

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Cargo

13% Brendan Sullivan, IATA Head, E-Commerce and Cargo Operations

“In the e-commerce world, shippers and consumers want transparency on their package, they want predictability of delivery times, and they want speed”

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In 2019, air cargo is expected to be worth $116 billion, about 13% of airline revenues

3000 It is estimated that carriers have to undertake 3000 rules and checks such as compliance checks to ensure they can transport cargo

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Cargo

From click to ship E-commerce is having a major impact on air cargo, but the sector must continue to adapt to realize the full potential from this revenue stream

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WORDS: GRAHAM NEWTON

E The cargo facility of the future will be safe and secure, green, automated, connected and smart

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-commerce represents a structural shift in shopping. Consumers are moving to a 24/7 online experience.

Take Singles Day in China, an event much like Black Friday in other parts of the world. In 2018, it generated more than one billion packages in a 24-hour period. In fact, global e-commerce growth rates in the region of 15%–20% year-on-year are the norm, creating millions more shippers and billions more parcels with revenues measured in the trillions.

The air cargo sector must continue to modernize to support the scale of this transformation.

Packages need to be processed in a manner that allows them to be moved safely, speedily, and efficiently. In short, the ease of purchasing must be matched by the ease of shipping.

“In the e-commerce world, shippers and consumers want transparency on their package, they want predictability of delivery times, and

2019 – 02 Airlines

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Cargo

they want speed,” says Brendan Sullivan, IATA’s Head, E-Commerce and Cargo Operations.

Virtual record

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Taking advantage of e-commerce opportunities requires both a virtual and physical infrastructure.

On the virtual side, ONE Record is about creating a digital “plug and play” environment to make data easily accessible, furthering air cargo’s paperless processes vision.

To overcome the multitude of reports that can exist for a single shipment, the ONE Record standard evolves e-freight messaging into such next generation technologies as cloud hosting and distributed databases to provide a single view of a virtual shipment record.

“Ultimately, ONE Record will allow everybody involved in the logistics and transport supply chain to exchange data easily and transparently,” says Sullivan.

A pilot project is being established to generate appropriate feedback. IATA will also work with the industry to develop the ONE Record data model to include other areas of air cargo.

Future facility

In terms of physical infrastructure, the move away from dark and dusty warehouses on the outer reaches of the airport will be vital.

The cargo facility of the future imagines fully automated high-rack warehouses, green vehicles navigating autonomously through the facility, and employees using artificial intelligence (AI) and augmented reality (AR) to be more efficient.

“The cargo facility of the future will be safe and secure, green, automated, connected and smart,” says Sullivan. “This will ensure the cargo facility of the future is fit for purpose in size, location and for the people who use it.”

IATA’s white paper on the subject lists six technologies set to revolutionize air cargo facilities (see sidebar).

“In the last quarter of 2018, we launched a proof of concept study on augmented reality in air cargo,” Sullivan informs. “The goal of this Airlines 2019 – 02

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Sending information Putting together a framework is only the beginning. E-commerce is creating millions more shippers, many of them small and medium-sized enterprises (SME) that, almost by definition, are different from traditional bricks-and-mortar companies.

“We need to disseminate the right information to these shippers and ensure they have access to the right tools,” Sullivan says. “They have different requirements from traditional companies, and we must respond.”

It is a tough challenge. On the safety side, for example, all shippers must understand the need to pack lithium batteries to comply with global regulations.

IATA has begun working with the Universal Postal Union to get all related information out into the marketplace, and is seeking further collaboration from other relevant air cargo organizations.

IATA’s white paper six technologies IATA’s white paper on the subject lists the technologies set to change air freight for the future.

Green, sustainable, buildings Big Data leading to predictive AI systems Drones and autonomous vehicles Internet of Things for connected cargo and devices Robotics and automated systems Augmented reality and wearables

study is to determine whether augmented reality was suitable for air cargo and what kind of high-level findings we should expect to see.”

The study focuses on acceptance of cargo given that there are estimated to be over 3,000 rules and checks to be performed before a carrier can determine whether they can carry the goods, ranging from compliance checks to physical suitability for a given aircraft.

The study uses a wearable solution (glasses) with speed of processing, error reduction and user satisfaction all being measured.

Support projects

To further enhance the levels of service, a number of important cargo work streams are supporting the air cargo industry’s efforts to capitalize on e-commerce growth while still maintaining the excellent safety record of the industry and improving operational efficiency.

Border control projects illustrate the point. The global standards in Advance Cargo Information (ACI) and the Air Cargo Tariff and Rules (TACT), for example, facilitate not only a speedier handling process but also a more secure and accurate one. There is also a working group exploring a number of other customs and security issues to ensure the industry is properly consulted on customs requirements. A focus on advanced electronic cargo reporting requirements is one the group’s primary objectives.

The World Trade Organization (WTO) Trade Facilitation Agreement will also be vital. Some 140 countries have signed this agreement, which is intended to speed up shipments while also reducing cost. The WTO reports that the full implementation of the TFA could reduce trade costs an average of 14.3% and boost global trade by up to $1 trillion per year, with the biggest gains in the poorest countries.

“The growth of e-commerce benefits both major corporations and small and medium-sized enterprises,” concludes Sullivan. “By improving e-commerce services and making them globally available, developing countries can grow their economies, reducing poverty and inequality.” airlines.iata.org

16/04/2019 19:16

Advertising Feature: Datalex

Using dynamic pricing to get ahead of the game The benefits of dynamic pricing are multifaceted – use it to the advantage of the entire organization The theory of dynamic pricing in airline revenue management is no longer a new concept. Whether it’s a range of products offered at a range of price points, or the use of advanced algorithms using artificial intelligence, the revenue benefits of an agile dynamic pricing strategy are without question.

In the white paper ‘Dynamic Pricing – Its role in digital retail thinking’, Alan Dunne plots its evolution - from the traditional concept, to technology advancements, through to the application of machine learning to drive demand, revenue and the customer experience.

In the paper, Dunne also addresses ‘continuous pricing’, whereby revenue is fully optimized with unlimited price points, perfectly aligned with the market demand at any given time. The revenue benefits of machine-assisted pricing optimization such as this are well documented, but this should not be a daunting concept for the pricing analyst.

At a basic level, dynamic pricing is built upon an extensive array of what are still fundamental pricing applications. It is simply advancing many concepts on a larger scale, in a faster way.

Algorithms will continue to use assumptions, behaviors and forecasts to price a product or service. In new or exceptional circumstances, they are still a robust tool that helps the airline to react efficiently: Airlines will factor weather into forecasts to predict cancellations in cold weather, or load

airlines.iata.org

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factor limitations in hot weather. For IROPS such as exceptional weather events, dynamic pricing can help airlines to re-price alternative routes, or re-calculate seat revenue where a limited schedule is imposed.

Advanced machine learning algorithms are A/B testing on an unlimited scale, with the system not only running infinite tests, but implementing the learnings in real time. For a new route launch, the system can factor characteristics from a range of existing routes (not just one), as well as other factors to propose and test a pricing structure for that new route. The airline can create a unique new offering, even though the ‘borrowed’ learnings are from a range of existing, but not necessarily similar products.

‘Charm prices’ i.e. those magic price points such as $19.99 or $99.95, still favor the seller, and they still work. While there is some evidence that ‘less charming’ price points have some appeal to consumers (who believe that these are an indication of heavy discounting), an automated pricing system can be taught how, when and to what price point, rounding should occur, while still enabling the concept of continuous pricing.

This is just a fraction of the scenarios in which progressive pricing technologies can advance existing practices, enabling the airline to maintain the control and agility that it needs, while at the same time breaking through to a new era of leading-edge dynamic pricing.

STATIC PRICING

PRICE

(single price point)

THE REVENUE

DEMAND

DYNAMIC PRICING

PRICE

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(multiple price points)

TTHEE THE REVENUE REVE ENUE REVENUE

DEMAND

CONTINUOUS PRICING

PRICE

(unlimited price points)

THE REVENUE

DEMAND

‘Continuous pricing’ means the revenue range is fully optimized with unlimited price points.

To download a complimentary copy of the white paper ‘Dynamic Pricing – Its Role in Digital Retail Thinking’ by Datalex Chief Innovation Officer Alan Dunne, visit: https://www. datalex.com/IATADynamicPricing2019

2019 – 02 Airlines

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60 seconds with...

Jevey Zhang President, Hong Kong Air Cargo

“Air freight is facing political, technical and economic challenges” What are the short to medium-term prospects for the air cargo market?

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The year-end industry growth figure for 2018 was 3.3%. But according to Hong Kong International Airport published data, although in 2018 the total cargo throughput increased 1.5% year-on-year to 5.1 million tonnes, it decreased from December.

That month it handled 448,000 tonnes, a 5.2% year-on-year drop. And in January 2019, it handled 401,000 tonnes, a 4.2% year-on-year drop.

Uncertain global economic conditions have contributed to decreases in cargo volume. Imports and transshipments were impacted the most, registering 8% and 6% year-on-year drops, respectively. Among key trading regions, cargo traffic to and from Europe and Southeast Asia has decreased most significantly. However, a list of positive factors provide us with confidence, such as recent positive trade talks, favorable fuel prices and increasing demand for time sensitive and temperature-controlled air freight.

In brief… Hong Kong Air Cargo

13 3

destinations across

As a subsidiary of Hong Kong Airlines, the carrier operates 12 routes to and from Hong Kong continents Operating out of Hong Kong, Hong Kong Air Cargo has a fleet of five Airbus A330-200F aircraft Founded in 2017, the airline transports products in full accordance with IATA standards

before we take solid action, such as the Belt and Road Initiative and the development plan for the Guangdong-Hong Kong-Macao Greater Bay Area. We would also have to undertake research on political, economic, and cultural factors and on network segmentation to target the correct markets at the correct times.

What are the major challenges in the air cargo industry?

Are you happy with the facilities at Hong Kong Airport?

We are. However, due to slot constraints many of our flights are only able to fly night schedules. We look forward to additional slots with the commissioning of the third runway as soon as possible.

How difficult is it to balance the trade flow and ensure full freighters on west-east routes?

The trade flow has suffered turbulence from time to time because of many factors. As an air cargo carrier based in Hong Kong, the answer to this is a broader approach and global optimization that will allow us to better integrate with the logistics supply chain. But there are key factors we must research Airlines 2019 – 02

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There are political, technical and economic challenges facing the air freight sector. On the political side, there is increasing protectionism around the world and policies and regulations relating to air cargo are inconsistent.

Technically, the industry has to learn how to improve service levels and increase capacity to keep up with the incredible growth of e-commerce demand, which has rapid shipping requirements. Disruptive technologies will also give rise to the economic challenge as the global logistics network and supply chain have become very dynamic. Keeping pace with new entrants will be hard. Also, although the fuel price is set to remain low for now, ultimately the price is unforeseeable. airlines.iata.org

16/04/2019 19:17

EMPOWER AIRLINES. WE CARE FOR YOUR CREWS. UNIFORM DESIGN - PRODUCTION - LOGISTICS - DIGITAL WWW.WEARSKYPRO.COM/CORPORATE

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