Airlines International June_AGM 2016

AIRLINES INTERNATIONAL JUNE AGM 2016 - ISSUE 62

I N T E R N AT I O N A L ISSUE 62 JUNE AGM 2016

The AGM issue

TRACKING Ready for requirements

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CEO INTERVIEWS Aer Lingus, Qantas and LATAM Airlines Group

ENVIRONMENT Greener flight operations

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How can I y more passengers to the most popular airports at peak times?

airbus.com Š AIRBUS, 2016. All rights reserved. Airbus, its logo and the product names are registered trademarks.

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PERFORMANCE | EXECUTION | TECHNOLOGY

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MORE TO BELIEVE IN

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Bombardier, and the Evolution of Mobility, are trademarks of Bombardier Inc. or its subsidiaries. Š2016 Bombardier Inc. All rights reserved.

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Airlines International

CONTENTS COMMENT

FEATURES

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44 Keeping track of new requirements Technology today holds some answers.

11 Tony Tyler Aviation continues to be a force for good in the world.

AGENDA

48-49 Connectivity can save lives Charity Airlink connects aid agencies and airlines.

14 Industry and IATA update European strategy; modernized airspace; new Director General; Blocked funds

50 Tempted into profligacy?

There could be a downside to cheaper oil.

CEO INTERVIEWS 20 The courage of his convictions Aer Lingus’ CEO, Stephen Kavanagh, will make the most of the new IAG partnership.

32 In the premier league Enrique Cueto discusses what it has taken to merge LAN and TAM.

52 Every day in every way Daily operations continue to deliver environmental improvements.

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44

56-57 Benefits of European airspace modernization.

SPECIAL REPORT

SOAPBOX

26 Beating the bottlenecks European airspace needs to get more efficient

Editorial Managing editor Robert Coppinger Editor Graham Newton Sub editor Victoria Burgher Senior designer Mark Parry Picture editor Claire Echavarry Production Production manager Jane Easterman +44 (0)20 7880 6248 jane.easterman@redactive.co.uk Publishing director Aaron Nicholls

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DATA

38 Going for the record Alan Joyce, Qantas CEO, is determined to continue winning.

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

54 Airline taxation is taxing for economies Societies benefit when passenger taxes are repealed

58 Alun Rhydderch What world can airlines expect in 2040?

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

Subscription and distribution requests should be made to: airlinesint@iata.org

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

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

The paper in this magazine is elemental chlorine free (ECF), manufactured within 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 International and third parties.

Airlines International is available free for iPad and Android devices Download from the Apple and Google Play stores JUN-JUL 2016

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Comment • Tony Tyler • Director General and CEO, IATA

The power of association is significant.

Through IATA airlines work together and with partners across the industry.

A FORCE FOR GOOD T he IATA Annual General Meeting is a unique experience. Anyone attending can immediately sense what “global” means through the leaders of the industry that make “global” happen every day.

Participants come from every corner of the world and represent diverse business models. Each operates in a different business environment and all are fierce competitors in a tough business. But, they share a commitment to safe, efficient and sustainable air connectivity which transcends diversity to bring them together in a global association.

The power of association is significant. Through IATA airlines work together and with partners across the industry continuously to fortify the foundations for global air connectivity.

That is clearly evident in the case of safety. In 2015, the industry recorded one major accident for every 3.1 million flights—a 30% improvement on the five-year average.

Working with ICAO the industry’s safety performance is built on global standards. Many of these are enshrined in the IATA Operational Safety Audit which is a requirement for all IATA members.

Sustainability will be in the spotlight at the 72nd IATA Annual General Meeting. Aviation has committed to improve fuel efficiency by an average of 1.5% annually to 2020, to cap net emissions with carbon-neutral growth from 2020 and to cut net emissions to half 2005 levels by 2050.

We are on track to achieve our fuel efficiency target. That is largely driven by improvements in technology, infrastructure and operations—the first three pillars of the industry’s four pillar strategy on climate change. The fourth pillar—a global market based measure—is indispensable if we are to achieve our carbon-neutral growth target.

As with safety, the leadership of states working through ICAO is critical. The ICAO Assembly later this year has the formidable challenge of agreeing a framework for a global market-based measure to be implemented from 2020.

The most important thing that the industry can do to support a successful conclusion at ICAO is to maintain unity.

We have worked hard to achieve consensus for a mandatory global carbon offset scheme as our preferred option.

This AGM is an opportunity to re-affirm that.

The AGM is also an opportunity for the industry to remind governments of other areas where their leadership on sustainability is critical. Continued progress on sustainable aviation biofuels is threatened by the lack of a clear policy framework supporting commercialization. And major emissions reductions go unrealized because politics is standing in the way of air traffic control modernization in both Europe and the US. The theme for this year’s AGM focuses on aviation as a force for good. It’s an opportunity to show our pride in the contribution that our industry makes. By enabling global connectivity, aviation supports 63 million jobs and $2.7 trillion in economic activity. In doing so we make the world more prosperous. And if governments step up to the mark on a global market-based measure, biofuels and airspace modernization we will make it more sustainable as well.•

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The Big Picture

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TAPPING EXOTIC DESTINATIONS’ VALUE

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T

he Bagan plain of temples in the Republic of the Union of Myanmar or the country’s purpose built capital city, Naypyidaw, are two exotic destinations that airlines make accessible for the inquisitive tourist.

Exotic destinations of interest to the intrepid traveller can also be wealth drivers for

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IMAGE: ALAMY

an emerging economy including countries that are leaving behind self imposed economic exile.

By 2025, the total contribution of travel and tourism to Myanmar’s gross domestic product (GDP) will rise to 6.1%, $6 billion, from 4.8% in 2014, according to the World Travel & Tourism Council.

Across the other Asia Pacific emerging economies the potential for growth is huge.

The Pacific Asia Travel Association has predicted 6% growth in visitors. That would see total annual visitors to the region reach 670 million by 2019. Focusing on Myanmar, IATA foresees a 4.4% compound annual growth rate (CAGR) in passengers until 2034. That growth will require substantial investment in capacity and skills.

A new terminal and parking bays at Myanmar’s Yangon International Airport have been completed and can provide sufficient capacity until 2020. However, the country still has other challenges to surmount. Its air traffic management infrastructure and standards need to be upgraded to meet this rapid growth.

An infrastructure master plan and roadmap with personnel training are also needed.

Aviation is playing a critical role in Myanmar’s re-integration into the world after five decades of political isolation and economic stagnation. People are visiting Myanmar to see the sites and to build economic links. They are arriving by air. And they are making a real contribution to Myanmar’s future prosperity. •

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Agenda

Upcoming events...

138th Slot Conference 21-23 June Hamburg, Germany

AGENDA European strategy must deliver

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Cargo XML Workshop 23 June Singapore

245 billion euro prize for modernized European ATM

The European Commission’s (EC) European Aviation Strategy is a step forward. But IATA Director General (DG) emphasized that it must be acted upon.

The EC’s publication of the European Aviation Strategy last December

IATA has released a study projecting a one million jobs and 245 billion euro ($277.6 billion) boost to European prosperity in 2035 if airspace modernization is delivered.

Europe is well served by air connectivity, which today supports 11.7 million European jobs and $860 billion of European gross domestic product. But, it is inefficient.

Average flights are nearly 50 kilometers longer than they need to be in terms of distance traveled and delays average

affirmed aviation’s vital role for the continent. The European airline industry faces real challenges. In 2016, we see Europe’s airlines making a 4.3% net profit margin or $8.80 per passenger. However, Europe’s airlines still lag behind those in North America which are set to make a 9.5% net profit margin or about $21.44 a passenger.

Speaking at the European Aviation Club in Brussels on 26 April, IATA DG and Chief Executive Officer (CEO), Tony Tyler, said: “The risk is that the strategy becomes perceived as irrelevant or lacking in ambition. So it is important to demonstrate that the strategy is inspiring concrete actions. That will pay big dividends. Backed by the right strategic vision, the continent’s airlines are capable of delivering much more value to the European economy!”

The strategy encompasses the goals of simplifying and harmonizing complex and onerous regulation, reducing higher taxes and improving infrastructure. These are issues that European airline CEOs are concerned about, but Tyler warns: “On many issues, however, I must say that the strategy seems satisfied with the status quo. Perhaps that is driven by the reality that the Commission is not the only regulator in Europe. Aligning all the needed institutions behind the strategy—including member states—will take significant cat-herding skills.” •

around 10 minutes per flight. This inefficiency negatively impacts prosperity, productivity and sustainability. An IATA-commissioned study by SEO Economic Research estimated that these inefficiencies, if unchecked, will grow to cost the European economy 245 billion euros in 2035 (See Data section, pp. 56-57, and Special Report, pp.26-30, for more information). “Air traffic management inefficiency is not just a burden for airlines. Travelers suffer wasted time from delays. The environment suffers from avoidable emissions. And businesses face reduced productivity.

Combined, all of this has a cost on Europe’s competitiveness.

And the cost is shared broadly. This study shows that every European—individual or business—has a stake in this issue,” said Tony Tyler, IATA’s Director General and CEO. Europe has long had a plan to improve its air traffic management—the Single European Sky project—which aims to deliver a threefold increase in capacity, improve safety by a factor of 10, reduce environmental impact by 10%, and cut costs by 50%. •

End-to-end billing next E&F Offering IATA is partnering through a memorandum of understanding with Airports Authority of India (AAI) to jointly deliver an end-to-end billing and settlement process for air navigation service providers (ANSP).

Described as a full solution, the E&F services start with data gathering and encompass billing and the collection of overflight charges. This end-to-end solution is based on what has been

implemented for AAI already. Since 2007, IATA has been collecting overflight charges for the Indian airspace on behalf of AAI through the E&F service. Over the years, the process of AAI providing IATA with the billing data, so that E&F can collect the aeronautical charges, has been automated to the highest degree possible.

IATA Director, E&F, Manfred Blondeel, said: “Currently the E&F billing systems receive air traffic control data directly from

AAI’s systems thus reducing errors and improving efficiency of the entire billing and collection process. It is this proven automated system that will now be offered.”

IATA E&F and AAI will now work together to provide these automated processes to other ANSPs. “The power of association is significant. Through IATA airlines work together and with partners across the industry continuously to fortify the foundations for global air connectivity,” added Blondeel. •

AIRLINES INTERNATIONAL

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Airlines International

www.iata.org/events e-Cargo Conference 13-15 September Geneva, Switzerland

Maintenance Cost Conference 2016 14-15 September Bangkok, Thailand

World Financial Symposium 19-23 September Singapore

World Passenger Symposium 18-20 October Dubai, UAE

Sweden’s IATA Board meeting recommends new Director passenger tax can’t help the General A meeting of IATA’s Board of Governors on 5 April has unanimously recommended Alexandre de Juniac, Chairman and CEO of Air France-KLM, to succeed retiring Director General and CEO, Tony Tyler. With confirmation by the IATA Annual General Meeting to be held 1-3 June 2016 in Dublin, Ireland, de Juniac will take up duties as the head of the association after a short handover period.

“I am honored by the confidence of my industry colleagues and mindful of the heavy responsibilities that the Director General and CEO bears,” said de Juniac. “Tony Tyler has done a great job at the helm of IATA and I am excited to succeed him. IATA has a de Juniac will take critical role to play in supporting the success up his post later this year of the aviation industry—leading advocacy, safeguarding the industry’s money, building the standards that underpin global connectivity, and partnering with stakeholders and governments to drive important changes. I look forward to leading IATA as it supports safe, efficient and sustainable global connectivity.”

Tyler noted that de Juniac brings valuable experience from both government and industry. “I can’t think of a better person to lead the IATA team,” he said. •

Momentum rolls for MBM communique emphasized the need for a solution that avoids market distortion; a global mechanism akin to the regulation airlines are used to; a global system to avoid regional complexity and therefore cost, and the use of a global offsetting scheme as the single measure.

Michael Gill, Executive Director of the cross-industry Air Transport Action Group, which organised the forum, said: “We are now less than five months away from the crucial ICAO Assembly, at which industry hopes governments will agree to go ahead with the global offsetting scheme.

We have come a long way and made impressive progress. It is now time for government negotiators to start narrowing down their discussions.” •

Sweden can do better than impose a regressive tax allegedly for tackling climate change and instead work with IATA and the international community to reduce pollution.

The Swedish government is considering an air passenger tax, ostensibly to help combat aviation’s climate impacts. Evidence from elsewhere in Europe is that such taxes damage air transport connectivity, employment growth, and trade, whilst having a negligible impact on the environment (See taxation article, p.54-55).

Air transport is at present responsible for supporting 83,000 jobs and 53 billion Swedish Krona in gross domestic product.

The Swedish economy thrives on trade links, which can only be boosted by increasing air connectivity.

“IATA data reveals air passenger growth in Sweden is set to grow by 2% per year over the next two decades. Passenger numbers will reach 43 million in 2034, as demand to fly in an increasingly globalized world is met by wider and more affordable air links. This will be a boost to the economic and social development of the nation,” said Rafael Schvartzman, IATA’s European Regional Vice President, but it cannot be if the government imposes an unnecessary tax.

To properly fight climate change, IATA has encouraged Sweden’s policy makers to back efforts by international governments and the global air transport industry to achieve carbon-neutral aviation growth.

In 2009, the aviation industry agreed targets for its carbon emissions, including carbon-neutral growth from 2020 and a cut in carbon dioxide of 50% by 2050.

Achievement of these targets is on course, but to deliver carbon-neutral growth the world’s governments at ICAO need to agree to implement a global market-based measure. •

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IMAGE: REUTERS

Global market based measures discussions focused on the proposal from ICAO Council President Dr. Olumuyiwa Benard Aliu at an ICAO high level meeting in Montreal on 11-13 May. The next step is the ICAO Assembly, which in September this year will decide on the design of the scheme through which carbon dioxide emissions growth from 2020 is offset through the international carbon markets. The ICAO discussions have been gathering pace since the UN specialized aviation agency agreed to the development of a mechanism at its Assembly in 2013.

Coordinated with the ICAO meeting was a session of the aviation industry’s Global Sustainable Aviation Forum. Its

climate

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Agenda

Corporatized US air navigation proposal sees support grow Air traffic control could receive more consistent funding levels for improvement

IMAGE: GETTY

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The United States’ Federal Aviation Administration’s (FAA) air traffic organization (ATO) would be spun-off into a stand-alone not-for-profit corporation under legislation being considered by the country’s lawmakers in Congress.

Under the proposal, FAA would continue to be responsible for safety oversight and regulation of the corporatized air traffic organization. The action, which is being spearheaded by member of Congress Representative Bill Shuster, Chairman of the House Committee on Transportation and Infrastructure, comes amid growing concern in the national legislative body and industry over the challenges FAA has faced in implementing its transformational NextGen air traffic management system.

In a recent speech in New York, Tony Tyler, IATA Director General and Chief Executive Officer, cited a report from the Office of the Inspector General of the US government’s Department of Transportation that NextGen is significantly behind schedule and over budget too.

“The reality is that as it is currently structured, FAA has been unable to move NextGen forward at a pace commensurate with the requirement,” said Tyler, noting that, “much of the problem lies outside the agency’s control. It is subject to the vagaries and shifting priorities of the annual federal budget process.

“Given the importance of the US market, a modernized and efficient US air traffic control

Blocked funds to become Venezuelan debt Venezuela’s blocked airline funds could become national debt under new law with carriers paid back over time.

Venezuela blocked the repatriation of $3.8 billion in airline ticket sales. IATA went before the Venezuelan National Assembly Finance Commission on 27 April to petition for the inclusion of blocked funds as part of this law. The law is being proposed by the coalition of opposition parties in control of the country’s National Assembly following December 2015 elections.

Venezuela’s President Nicolas Maduro called the law: “Absolutely illegal, immoral and unconstitutional”.

However, Congressman Omar Barbosa, of the opposing A New Era party, said that the coalition would consider the inclusion of the blocked funds amount in the 2017 budget law, which could enable payments. •

system is critical to the future growth of global commercial aviation and it is for that reason that we support legislation to modernize the system through the creation of an independent, corporatized non-profit entity to perform these services.”

The proposal is being considered by the Congress as a part of the FAA reauthorization process. The current authorization for the FAA expires on 15 July. •

Pan-African outlook is the answer Governments and organizations need to focus on the development of pan-African aviation for the continent and world to realize the benefits.

That was the message at the IATA 2016 Aviation Day Africa in Abuja, Nigeria in May. Entitled Driving African Economies through the Power of Aviation, the conference brought together regional stakeholders to address current issues affecting aviation in Africa including the proliferation of taxes and charges, public-private partnerships, aviation, safety, security, next generation airports and market connectivity.

Aviation in Africa carries over 70 million passengers a year, supports more than 6.9 million jobs on the continent and generates over $80 billion in GDP. Over the next five years the African economy is forecast to grow at a strong 4.7% per year, well above the global average rate.

Raphael Kuuchi, Vice President Africa, IATA said, “Policies that promote investment in air transport infrastructure, improve safety and enhance air connectivity must be implemented. Aviation has the potential to make a much more significant contribution to economic growth and development within the continent if its power is unleashed.” •

AIRLINES INTERNATIONAL

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In association with

HALF DAY EXECUTIVE BRIEFING

PARTNERING FOR PERSONALIZED TRAVEL The modern passenger expects a personalized experience. This half-day event organized by the official IATA magazine, Airlines International, in association with KPMG, will examine these expectations and how airlines will counter legacy processes and technology to deliver journeys tailored to the individual traveler.

The event will feature: Keynote sessions on the main topics affecting tomorrow’s passenger experience An interactive panel, Partnering for Personalized Travel Extensive networking opportunities Key findings from IATA’s Airs@t survey

FREE EVENT REGISTER YOUR INTEREST AT: BIT.LY/IATA_EXECBRIEFING Date: Friday 15 July 2016 Time: 08.30 – 14.00 Venue: KPMG Office, Number Twenty, Grosvenor Street, London, W1K 4QJ Who should attend?: The event is aimed at C-Suite and director level aviation executives *Numbers are limited. Your registration is subject to confirmation.

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Agenda

NDC work underway

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IATA is collaborating with a coalition of national travel agent associations (The Group) on a New Distribution Capability (NDC) study.

The study will seek to understand the impact—from a business, technology and commercial perspective—of NDC for travel agents; explore possible obstacles to successful NDC implementation and options to overcome them; and provide potential funding models for the transaction of airfares and airline ancillary products via the travel agent channel using NDC. The study will be conducted by an independent consultant to be appointed jointly by The Group and IATA. The study will include the perspectives of large, medium and small agencies, including both business- and leisure-travel focused agencies. It will seek the views of key stakeholders across the distribution value chain, including airlines, global distribution systems, travel technology firms and providers of corporate booking tools.

“With the full set of NDC ‘end-to-end’ schemas now available, this collaboration between IATA and The Group is a great opportunity to understand jointly the benefits and implications of NDC from the

perspective of travel agents,” said Yanik Hoyles, IATA Program Director, NDC (See picture).

The Group includes the American Society of Travel Agents (ASTA); the Association of Brazilian Travel Agents (ABAV); the Association of Canadian Travel

Agents (ACTA); the Association of South African Travel Agents Association (ASATA); The Australian Federation of Travel Agents (AFTA); the Travel Agents Association of New Zealand (TAANZ); and the Travel Agents Federation of India (TAFI). •

IATA improves baggage tracking IATA Resolution 753, to be implemented by June 2018, will mean that baggage will be tracked at every point of the journey, but airlines are improving already.

According to SITA, the baggage mishandling is rate down 10.5% to the lowest ever recorded. Despite 3.5 billion passengers, an 85% rise since 2003, SITA’s Baggage Report 2016 says the rate of mishandled bags was 6.5 per thousand passengers in 2015. This is down 10.5% from the previous year, and less than half the rate in 2003. IATA is leading the way with its call for airlines to track each bag throughout its entire journey and its Resolution 753, which is to be implemented by airlines by June 2018.

Francesco Violante, Chief Executive Officer, SITA, said: “Over the

next three years bag tracking will be in the spotlight as airlines ready themselves to implement IATA’s Resolution 753. This increase in visibility will provide more control and drive further improvements in bag handling. It also means that passengers will be able track their bag, just like a parcel, which will reduce anxiety and allow them to take fast action if flights are disrupted and their bags are delayed.”

According to SITA, about 40% of airlines and airports now provide self-bag-tag printing at kiosks and more than three quarters are expected to do so by 2018. Almost a third of passengers expect to be using bag-drop, either a dedicated staffed station or fully self-service, in 2016. •

AIRLINES INTERNATIONAL

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Airlines International

Sun powers Solar Impulse 2 success Solar Impulse 2 is flying across the United States on the latest leg of its round-the-world trip using only solar power.

Solar Impulse 2 flies with no fuel and zero emissions. It had reached Arizona on 2 May. Solar Impulse is the first prototype aircraft that aims to demonstrate the feasibility of flying day and night, only propelled by solar energy. Its pilot André Borschberg landed at Phoenix Goodyear Airport, Arizona after taking off from the Moffett Airfield in Mountain View, California, the same morning. The men behind it, Bertrand Piccard and Borschberg, want to demonstrate what clean technologies can do for aviation.

Solar Impulse 2 had arrived in the US on 23 April after flying across the Pacific Ocean. Weather permitting, Solar Impulse was to make its way across the rest of the US before crossing the Atlantic.

IATA is a long-standing institutional partner of Solar Impulse and has provided assistance to ensure the smooth passage of the solar plane around the world. •

Apology /

Solar Impulse reached California on 24 April 2016

JetBlue’s name was misspelled on the cover of the April-May issue. Airlines International apologizes for the error.

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JUN-JUL 2016

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In this interview • Integration • Autonomy • Value

Aviation’s importance to Ireland means Stephen Kavanagh, Chief Executive Officer of Aer Lingus, is determined to fully exploit the potential of joining IAG. Tony Concil reports

COU

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CONVIC AIRLINES INTERNATIONAL

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CEO interview

THE

URAGE OF HIS

CTIONS Stephen Kavanagh was appointed as Chief Executive Officer and executive director of Aer Lingus from 1 March 2015

How is the airline performing?

Aer Lingus is celebrating its 80th Anniversary. I would describe the airline as an octogenarian with teenage tendencies.

We’re in a good position with strong cost and market fundamentals. Our 2015 results showed a credible 7.2% operating margin. We achieved that without the full benefits of the low oil prices due to a combination of the effects of hedging and the exchange rate.

We are growing profitably. The main driver is our successful strategy to expand across the Atlantic and our continued competitive resilience in short-haul markets. The benefits created by our integration into IAG are creating new opportunities to deliver improved margin.

How are you positioning the airline in the market?

Aer Lingus is fi rmly positioned as a value carrier. Our mission is to connect Ireland to the world and we exploit the opportunities created by our geography to use Dublin as a gateway between Europe and North America.

Aer Lingus is a business on a relatively small island on the periphery of a major market. But what we lack in size, we make up for in innovation. Aer Lingus has always been at the forefront of new ideas because of the size of our home market.

We’re pragmatic. We are demand-led. You can’t pigeon-hole us other than to say we try to identify and meet demand. We manage cost diligently and try to deliver great customer service too. And we will continue to evolve to meet customer demand.

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What impact has the IAG takeover had on business partnerships?

Pre-IAG integration, our strategy was to look for sustainable partnerships based on mutual value. We were alliance-neutral with strong partner airlines from all three major alliances and an equity interest from Etihad.

The IAG purchase gives us a stronger platform with the potential for fresh investment and the possibility to increase our share of traffic across the Atlantic. But, many of our old codeshare arrangements remain in place.

That includes our codeshare with Etihad, even though the IAG purchase included Etihad’s stake. Basically, we plan on maintaining our partnerships where they add value to IAG. British Airways (BA) is, of course, one of our oldest and strongest partners. So, being part of IAG is a natural fit and our relationship with BA now goes much deeper. We are extracting even more value and that is helping JUN-JUL 2016

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CEO interview

with our revenue flows and with cost synergies. It’s working for all stakeholders and it’s working quicker and better than most of us expected.

Will Aer Lingus be re-joining oneworld?

Aer Lingus was in oneworld and exited. We like to think that we were ahead of the curve in industry trends. At that time, for example, Aer Lingus stopped offering business class on short haul and that didn’t work for the other alliance partners.

Today, it is a different story. We are very open to joining oneworld again, which already includes our IAG siblings BA and Iberia. And I expect that we will make a decision with respect to re-joining oneworld under BA sponsorship in the not-too-distant future.

Has the move from being an individual airline to a group member been a good thing?

I have been very struck by the autonomy given to the member companies within IAG. There is support for our business strategy. The independent business plans haven’t changed at all. They have just accelerated in terms of timing and growth potential.

The brands all have their relevance in their respective markets. Aer Lingus in Ireland is a strong brand just as Iberia is strong in Spain.

If you can maintain those brands, their history, and, at the same time, exploit the synergies then you can have the best of both worlds.

And though there is plenty of mutual learning and cooperation, there is also healthy competition within the group to be the star performer. We are all striving to be better.

Aer Lingus is comfortable working within the IAG philosophy and it is looking very good for our business. IAG has developed all the right behaviors for a company wanting to maximize its returns and the efficiency of its operations.

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Can Dublin provide IAG with capacity across the Atlantic given the congestion at Heathrow?

Dublin has been talked about as Heathrow’s third runway. But, Dublin is much more than that. All the gateways—Madrid, London and Dublin—are working for IAG in their own way and all the carriers have a role to play.

Aer Lingus is fortunate to call Dublin home as it is a natural gateway between Europe and North America. And we have positioned the airline to take advantage of that with a unique

If we didn’t have Ryanair we would have had to invent them because it keeps us focused on what matters.

service proposition and a primary reliance on direct distribution though our website.

Stephen Kavanagh Does Dublin airport have enough capacity to cater to your growth?

We have been very successful in growing connectivity at Dublin. The global financial crisis took its toll on Dublin’s overall passenger numbers and planning permission from 2007 to build a parallel runway was put on hold.

Last year, the airport experienced 15% growth, taking total passenger numbers to over 25 million. Double digit growth is expected again this year. So, we welcomed the recent announcement that the Dublin Airport Authority (DAA) now plan to complete a parallel runway by 2020.

While the runway is the most important long-term investment, we are also working with the DAA for improvements to taxiways and the stand areas to make sure that the existing capacity is utilized optimally. And there are some pinch points in the terminal too. We have just introduced a self-service bag drop facility, for example, that should help passengers to utilize existing terminal resources better. We have big expectations of getting more people through the terminal faster. That’s good for our customers and for our competitiveness.

2015 Appointed as Chief Executive Officer and executive director with effect from 1 March 2014 Kavanagh made Chief Strategy & Planning Officer 2009 Chief Commercial Officer 2007 Corporate Planning Director 2006 Planning Director 2003 Operations Planning Director 1988 He joins Aer Lingus working in analytical and management roles in fleet scheduling and business planning departments Kavangh is a graduate of University College Dublin

AIRLINES INTERNATIONAL

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11/05/2016 12:01

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CEO interview

You share Dublin Airport with Ryanair.

How would you describe your relationship?

24

We have been competing vigorously for 30 years and that has been to the benefit of both carriers.

Broadly speaking, in Dublin the market is 40% Aer Lingus, 40% Ryanair, and 20% others. We have stimulated the marketplace together and that can clearly be seen in the dramatic rise in traffic figures.

If we didn’t have Ryanair we would have had to invent them because it keeps us focused on what matters. We are disciplined on cost and we never take the customer for granted.

Trying to keep one step ahead is a healthy thing. The passenger has benefitted and Ireland has benefitted.

What do you see as the biggest challenges in European aviation?

Operating in Europe carries more costs than it should because of the infrastructure and air traffic management issues. But, there has been a lot of progress and in many ways the market is liberalized. Carriers can achieve scale in operations in a limited context.

Even so, some of the infrastructure and services are not priced at what I would call a market rate. And until we get to that point, European airlines are not as competitive globally as they could be. We are getting closer to that point all the time, but we need some very basic, but critical improvements—like achieving the Single European Sky. There is also an onerous regulatory burden.

Take EU261, the passenger rights regulation.

Aer Lingus is fortunate to call Dublin home as it is a natural gateway between Europe and North America. And we have positioned the airline to take advantage of that.

We are focused on our customers. And our aim is to ensure that our guests never have to seek recourse through it. But, the scope of the regulation keeps growing through court decisions. And it is a law that hasn’t been replicated in any other business sector.

Europe can be a very complicated place to do business and the priority for simplification is anything that reduces costs, that improves efficiency, and that allows airlines to fly on time. The answer is found as much in building the right regulatory framework as it will be in achieving a real Single European Sky. What makes a great Chief Executive in the airline industry?

You need clarity in your strategic direction and you must be consistent in implementing that strategy. It goes without saying that you must be a leader and have the courage of your convictions.

Do you feel there is an advantage in promoting leaders from within the industry?

I am biased obviously, but I’m a great believer

in knowing the industry inside out. I’ve been with Aer Lingus for 28 years in a wide variety of roles, from Check-in Agent to Chief Executive, in both state and public ownership, and through the range of business cycles that this industry experiences. I’ve witnessed what works, what doesn’t, and most importantly, why.

I’ve also been fortunate to work with a lot of very talented people. Aer Lingus has been a training ground for many CEOs and senior managers.

Willie Walsh [IAG Chairman] is a former Aer Lingus CEO and Alan Joyce [Qantas CEO] was my first line manager. And there are many others.

Having the experience of their mentoring and guidance has benefitted me enormously.

What can delegates expect at IATA’s 72nd AGM in Dublin?

I hope the AGM will demonstrate the reason why there are so many Irish nationals working across aviation on a global basis. Ireland is a great aviation nation.

Delegates will get fi rst-hand knowledge of why aviation is so important to Ireland, its people, and its economy. If you want to demonstrate the power of competitive, liberalized air travel, then Dublin and Ireland are wonderful examples.

An entire aviation ecosystem has grown up in Ireland that is creating jobs and supporting economic growth. Ireland is an aviation success story and a template for others to follow.

And, of course, we shouldn’t forget that being in Dublin means the social opportunities will be plentiful! •

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In this report • Capacity • Regulation • Modernization

BEATING THE BOTTLENECKS 26

viation creates exceptional value for Europe, supporting nearly 12 million jobs and helping to add some $860 billion to the European Union economy.

The European aviation framework, however, is a hindrance and not a help to the industry. If air transport is to develop those

A

€245 billion ($280 billion) annually, and some one million jobs will go unrealized.

The modernization benefits in cost savings and therefore potential ticket price cuts are substantial [See Figure 2]. Forty three euros could be the saving per passenger with the full benefits of modernisation and con-

figures to their full potential, connectivity must be allowed to flourish [see Figure 1].

Several bottlenecks to growth must be overcome, starting with Europe’s airspace.

straints such as night fl ight bans being removed.

“Air traffic management inefficiency is not just a burden for airlines,” says Tony Tyler, IATA’s Director General and Chief Executive Officer. “Travelers suffer wasted time from delays. The environment suffers from avoidable emissions. And businesses face reduced productivity. Combined, all of this has a cost on Europe’s competitiveness. And the cost is shared broadly. Every European—individual or

Wasted capacity A recent study by SEO Economic Research, commissioned by IATA, reveals the extent to which airspace capacity is wasted. Flight trajectories in Europe are on average about 50 kilometres longer than necessary and delays amount to about 10 minutes per flight. Further costs are incurred as Europe loses itself in a maze of 38 air navigation service providers (ANSPs) in an airspace similar in complexity to the United States, which has just a single ANSP. If left unchecked, by 2035 these inefficiencies will cost Europe

Infrastructure congestion needlessly limits aviation’s benefits in Europe

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Special report

Figure 1 Direct, indirect and airport connectivity growth, European airports by world region 2004-2015 Share in total connectivity 2015 Africa

% Connectivity growth 2004-2015 by region Europe

4%

37

Asia-Pacific

15%

Europe

North-America

43

Middle-East

43

Latin-America

37

Middle East

Asia-Pacific

117

4%

Africa

73

Total

50

51%

Latin-America

5%

North America

21%

43

8 19

5

Source: SEO & ACI

Benefits of airspace modernisatilon

Total benefits

Capacity

Lower airline costs

Time

Connectivity

Total benefits

Capacity

Lower airline costs

Time

€0

Aviation supports 1.12 million German jobs and contributes €77 billion to German gross domestic product. But these benefits are under pressure from airport infrastructure challenges, the overall inefficiency of European airspace, and onerous taxes.

Berlin Brandenburg Airport has suffered years of delay and cost overruns, for example, and is unlikely to open for full operations until the end of 2017 at the earliest. Meanwhile, a 2010 ban on night flights at Frankfurt has pushed cargo on to the road network, resulting in higher costs and more carbon emissions.

And if European airspace isn’t modernized, Germany would lose out on 158,000 jobs and €45 million by 2035.

The €1 billion German departure tax compounds these problems. “Adding €1 billion to the cost of connectivity with the departure tax is counter-productive,” says Tony Tyler, IATA’s Director General and CEO. “Removing it would support job creation, boost trade, and make Germany a more attractive destination for both tourism and business.”

11

€10

8

€20

5

8

€30

32

11

€40

Connectivity

Consumer benefi ts (bn€)

Figure 2 Consumer benefits of airspace modernization

Germany Case Study

27

Benefits of airspace modernisatilon plus removal of airport capacity constraints

If airport congestion problems are tackled alongside airspace modernization, EU GDP would be $301 billion plumper by 2035, according to the SEO study. Tackling these twin problems would also create 1.3 million jobs.

1.3 m

$301 bn

JUN-JUL 2016

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Special report

Recognizing aviation’s benefits The EU Aviation Strategy has been broadly welcomed, illustrating that, from a political point of view, the European Commission has recognized the importance of aviation. The overall tone of the document clearly mirrors the industry’s campaign on the benefits of aviation and overall it provides a fair assessment of the challenges the aviation industry is facing.

“This is a crucial moment for the European airline industry as it is now being recognized as a priority by the EU institutions”, says Athar Husain Khan, CEO of the Association of European Airlines (AEA). “AEA will continue to engage with the Commission and the European decision makers to promote concrete solutions to the challenges of European airlines.” He adds that now, “it is important to move forward and turn the proposals into concrete, ambitious actions.”

There are issues with the EU Aviation Strategy, such as the weaker regulatory environment for airport charges. Airlines argue that airports are failing to match their efforts to reduce costs and provide better value for money for consumers. Since 2000, the price of air tickets has fallen by 37% whereas airport costs per passenger have risen more than 30%, both in real terms. “ Airports and airlines are partners,” says Tony Tyler, IATA’s Director General and CEO. “The best relationships are where we consult transparently to agree on what kind of infrastructure needs to be built, at what cost and at what service levels. But it is not a partnership of equals. Airports are monopoly providers. With a few rare exceptions where market power assessments reveal that there is competition between airports, an independent regulator is needed to balance the airline/airport relationship.”

28

business—has a stake in this issue.”

The big modernization idea is the Single European Sky (SES). Progress on SES has been slow and many ANSPs have not achieved even the watered-down targets. Between 2012 and 2014, en-route air traffic flow management delays increased while the cost per fl ight was higher than targeted, at €54.13 vs €53.92, according to the Performance Review Body Annual Monitoring Report 2014.

“Europe has failed in achieving the SES goals,” affirms Tyler. “Despite a strong European Commission vision and push for SES, misguided national interests have prevailed.”

IATA, the Association for European Airlines, and the European Regions Airlines Association developed an airline blueprint for SES that highlights three key reforms: A binding performance scheme. This should be established through an independent European regulator for air navigation charges, which could set targets for each country or functional airspace block and demand appropriate corrective measures when necessary.

The rationalization of ATM structures.

Services should be opened to competition, the number of air traffic control centers across Europe cut from 68 to not more than 40, and the ratio of back-office staff to ATCOs

Between 2012 and 2014, en-route air traffic flow management delays increased while the cost per flight was higher than targeted, at €54.13 vs €53.92, according to the Performance Review Body Annual Monitoring Report 2014.

European PNR The EU PNR directive states the required format for passenger information should be the globally agreed common data format recognised by ICAO Doc 9944 and by the World Customs Organization. This alignment with global rules is a positive move by the EU, but going forward, it is essential that the European Commission ensures that member countries follow this directive and indeed develop harmonised systems.

reduced from 2.4 to 1.6.

A more efficient network. Significant progress on SES is unlikely to be achieved without an independent economic regulator for air navigation charges. Though the SESII+ package was supported by the EU Parliament, it is opposed by most of the larger EU member states. SES has high-level goals, including a three-fold increase in capacity, a reduction in environmental impact of 10% and a 50% reduction in the cost of providing ATM services to airlines. But, so far, the project has achieved only low-level success.

No room to grow There is room for improvement on the ground, but too little room to grow. The interminable saga of London Heathrow’s third runway illustrates the problem. A firm decision has yet to be taken and, even assuming a positive answer, a third runway is likely a decade or more away. Yet Heathrow operates in excess of 99% capacity already.

There are similar capacity crunches—and similar expansion difficulties—at other European hubs. Berlin Brandenburg, not due to open for another 18 months is the prime example while Munich’s new runway is subject to an approval process that has lasted a decade already.

In its 2012 baseline year, Eurocontrol identified six airports that operated at 80% or more of their capacity for more than three hours per day. In 2035, the organization reports that 30 airports will have reached that point. It argues in its Challenges to Growth study that “with this future level of congestion, it becomes difficult to accommodate minor deviations from plan, and delays begin to accumulate rapidly.”

Eurocontrol estimates unaccommodated demand in Europe will reach 1.9 million fl ights by 2035, assuming moderate levels of growth. A high growth scenario sees that figure soar to 4.4 million.

There are airport development plans to alleviate the problem. Notably, a new airport should come online in Istanbul in early 2017 to support the success of Turkish Airlines, while Frankfurt will benefit from a new terminal due to open in 2022. The industry is also eking out every opportunity in the existing infrastructure. Of the 168 slot-constrained airports in the world, 101 are in Europe.

IATA’s Worldwide Slot Guidelines are accepted best practice in managing access to congested airports. And such projects as IATA’s Fast Travel are embracing the latest technology to enhance automated processes

AIRLINES INTERNATIONAL

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E190-E2 ROLLOUT – FEB 25, 2016.

HISTORY IN THE MAKING.

The hangar doors opened wide. The wheels turned. And our brand new E190-E2 rolled out to a standing ovation. For those in attendance, it was a moment both joyful and historic.

Because it marked the world’s first glimpse of the second generation of E-Jets — a highly evolved new family of airliners that builds on the historic success of our first generation.

Now, we truly are on a roll. And ready for E-Jets to make history. Again.

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Special report

Why should connectivity be allowed to flourish?

Eurocontrol estimates unaccommodated demand in Europe will reach 1.9 million flights by 2035, assuming moderate levels of growth. A high growth scenario sees that figure soar to 4.4 million.

Flight counts in Europe peaked in 2008, and will increase further 16

15.4

14

12.8

and increase passenger throughput without increasing an airport’s footprint. But these tweaks, impressive as they are, are no substitute for more gates and more runways. The ship of unaccommodated demand may already have sailed. “We do see some efforts in Europe to address the capacity issue,” says David Stewart, Head of Airport Develop-

30

ment. “In general however, these efforts are sporadic and are missing a perspective on both immediate and future industry needs.

In addition, a lack of political will results in stagnant European hub airports which make resolution of capacity issues even more complex and expensive.”

Without hub capacity, the European network structure could fracture as regional flights are squeezed out in favor of more profitable fl ights that handle a bigger number of passengers.

Secondary airports would not necessarily be the panacea, relying largely on links to the local hub. And as by defi nition they serve secondary markets, they cannot greatly affect demand for capacity at hub airports.

Total fl ights (millions)

12

8.89

9.68

10

8.85

8

High traffic forecast Base traffic forecast Low traffic forecast

6 4 2 0 2005

2010

2015

2025

2030

2035

SEO Economic Research

will naturally make that carrier think twice about entering such an agreement. As that fi rst carrier is often a smaller, regional business and as the compensation could be many times the ticket price, the likely outcome is that regional services will be reduced, affecting customer convenience.

IATA calls for a smarter regulation approach that is aimed at solving real problems, aligned with global standards, and implemented efficiently. The best way to achieve this is through consultation with key

Regulatory burdens Any solutions to loosening bottlenecks need complementary regulations. “It is important to note that due to the many regulatory burdens imposed on airlines and operating restrictions imposed on airports, the existing physical capacity cannot always be used efficiently,” says Krešimir Ku ko, Croatia Airlines’ President and CEO. Night curfews and the delay in approving self-printed baggage tags for departures from the EU are clear obstacles. But, regulations are dampening connectivity in other ways too.

A proposed revision to EU261 indirectly affects regional connectivity. Putting the onus on the first carrier in an interline journey that suffers delays or missed connections

2020

What does airspace inefficiency cost an airline?

According to the University of Westminster a 30-minute delay of a Boeing 737-800 costs approximately €1,170. This increases to €28,390 for a three-hour delay. SESAR suggests that airspace modernization could reduce delays 10%–30% by 2035, resulting in substantial airline cost savings and passenger benefits too.

stakeholders and a rigorous cost-benefit analysis. The smarter regulation formula is all too rarely followed,” says Tyler. “As a result, we spend as much time trying to amend ill-conceived regulations as we do trying to build useful ones.

“We see this in Regulation 261. Once a regulation is on the books, it becomes very difficult to control, let alone amend.”

Closing the gap Tyler accepts that predicting the future for European aviation is fraught with uncertainty.

He notes, however, that the present, “already shows a clear gap,” in terms of aviation benefits—between what could be and what is.

Reducing that gap as much as possible, as quickly as possible, would produce real value for the air traveler and for European economies.

“Aviation is important to Europe,” concludes Tyler. “I believe that governments will gain tremendously by recognizing our common interests and paying even more attention to the sector’s needs. And by addressing infrastructure challenges, building a smarter regulatory framework, and earning a license to grow from achieving its sustainability targets, there is nowhere to go but up for aviation—in Europe and globally.” •

AIRLINES INTERNATIONAL

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11/05/2016 12:08

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03/05/2016 14:18

In this interview • Merger • Capacity • Adaptation

Enrique Cueto became Chief Executive Officer of LATAM Airlines Group in 2012.

IMAGE: BILLYPIX

32

AIRLINES INTERNATIONAL

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CEO interview

IN THE PREMIER LEAGUE How has the merger between LAN and TAM gone?

It was long an ambition to bring LAN and TAM together and create an airline group in Latin America capable of competing in the aviation big leagues. Since we merged in June 2012, we’ve been working tirelessly to integrate our processes, products and network.

While the road hasn’t always been easy and we’ve had to overcome cultural, operational and regulatory challenges, I think we’ve made extraordinary progress.

Over the past few years, we’ve successfully aligned the most extensive network in Latin America, implemented operational improvements, optimized our fleet use and introduced a renewed travel experience. And, in August last year, we announced that LATAM would be the new brand for LAN, TAM and affi liates, giving us the opportunity to create an airline group with a truly Latin American identity and a global presence.

Recently, in May, we marked the most significant milestone yet in our journey with the departure of the first LATAM aircraft, one of the most iconic symbols of any airline. Our

LATAM Airlines Group CEO Enrique Cueto talks about what it has taken to merge LAN and TAM and what the future holds.

passengers now have the ability to book tickets via the LATAM website, accumulate kilometers using LATAM’s frequent flyer program, check-in at LATAM counters, relax in LATAM VIP lounges and fly on LATAMbranded aircraft.

While mergers and take-overs are relatively commonplace in the industry, never before in the history of aviation have two airlines from different countries, with different languages and cultures, united under a single brand, leaving the previous names behind. Although the change will be gradual and we still have another three years until we will be ‘100% LATAM’, I think everyone involved should be very proud of what has been achieved so far.

Has the tie up changed the airline’s competitive position?

Absolutely. The changes since the merger

33

have helped us to establish LATAM as the leading airline group in Latin America and give us a platform to become one of the leading groups in the world.

LATAM brings together the best of LAN and TAM, delivering our passengers much more than the sum of our parts. As LATAM, we offer an unrivalled network in Latin America with domestic operations in seven countries, serving over 137 destinations in 25 countries in total. We also have the most modern and efficient fleet in the region and were the fi rst airline group in the Americas to operate both the Airbus A350 XWB and Boeing 787. And, we’ve invested $50 million a year in digital solutions to offer our passengers a more personalized travel experience.

Is there room for further consolidation in the region?

Despite the current economic climate, Latin America presents great long-term opportunities for growth in the aviation industry, so it is impossible to rule-out future consolidation or competition. This is healthy for the industry and ultimately passengers are the ones JUN-JUL 2016

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CEO interview

Enrique Cueto that benefit. However, LATAM’s priority is to ensure that we continue to offer products, services and a network that differentiates us from our competitors.

IMAGE: BILLYPIX

34

How has the difficult economic picture in the region changed LATAM’s operations?

It goes without saying that we are operating in a challenging economic scenario – particularly in Brazil. But, we are not waiting for a recovery; instead we are transforming the company to operate within the current environment. That is why we have introduced both cost and fleet reduction plans, and have worked to match capacity to demand.

With growth in the region expected to slow in the short-term, we need fewer aircraft and as a result we have restructured our fleet plan to reduce our commitments and postpone the arrival of some aircraft until 2018. This has helped us to save $2.9 billion to date.

The most notable drop in demand has been in Brazil and we have reduced capacity accordingly with plans of a further reduction of 8-10% in 2016. While the challenges may continue, we see this situation as temporary, and this does not affect our long-term strategy in Brazil or the connectivity we offer.

What’s more, we achieved cost reductions of approximately $325 million in 2015 and aim to continue with our reduction plan this year to cut costs by an additional $300 million.

Overall, it is important that we remain a fi nancially healthy company, by staying alert and taking all necessary measures to mitigate

In May, we marked the most significant milestone yet in our journey with the departure of the first LATAM aircraft, one of the most iconic symbols of any airline. the effects of the crisis and other risks to the business.

What can governments do to make sure the region is competitive for air carriers?

If we take the benefits that aviation brings to national and global economies as a given, it is important that governments help the industry to improve connectivity and widen access to more people in the region.

One way of doing this is to offer low fares.

However, the challenge for every airline operating in the region is to maintain competitive pricing in a context where operating costs and airport taxes are high. This makes it difficult for any airline to avoid passing these inherent costs onto passengers.

Additionally, operators in Latin America have to navigate local differences in regulation and legislation, which can often slow processes. As we have seen in Europe and the United States, multi-lateral agreements can be a way to tackle this. An obvious example would be the introduction of an open-skies policy across the region.

2012 Appointed Chief Executive Officer of LATAM Airlines Group.

1994-2012 CEO of LAN Airlines.

1993-1994 Served on LAN Board of Directors.

1983-1994 CEO of Chilean cargo airline Fast Air. Enrique Cueto is also a member of the Cueto Group, LATAM Airlines Group’s controlling shareholder.

AIRLINES INTERNATIONAL

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11/05/2016 12:10

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CEO interview

36

In terms of environment, what do you believe a global market-based solution looks like?

As the fi rst industry to collectively agree to limit CO2 emissions, aviation has already shown great leadership in recognizing its impact on the environment and shaping the concept of global sustainability. If these ambitious global emission reduction goals are ratified at the general assembly of ICAO [International Civil Aviation Organization] in September 2016, it could mark an historic milestone.

However, in order to achieve these goals it needs to be underpinned by a workable market-based solution – as proposed by IATA in its Four Pillar strategy – that both limits CO2 emissions in real terms and allows for sustainable growth.

We also need to work together with our passengers and allied industries such as aircraft and engine manufacturers, air traffic controllers and aviation fuel providers. Advances have already been made with the development of more efficient aircraft and precision flight planning for example, but an area of great potential is the production and commercialization of alternative fuels.

At LATAM, we are committed to operating in an efficient and sustainable manner, and ultimately reduce our environmental impact.

Our strategy focuses on fleet modernization, increased operational efficiency and sustainable energy sources.

We now boast one of the youngest and most modern fleets in the world, with an average age of less than seven years. We are also developing an environmental management system to measure, control and reduce the environmental impact of each area of our operation. And, we have carried out three flights using second generation biofuel, with the goal of promoting the development of a sustainable biofuels industry in South America.

What is your mid- to long-term outlook for the Brazilian market?

Brazil is going through one the worst economic and political crises in its history and

IMAGE: LATAM AIRLINES GROUP

What are the biggest pain points in terms of infrastructure?

Air traffic is anticipated to grow across the region and investment is needed to ensure that airports are equipped to deal with this.

This does not just mean an increase in size to accommodate greater demand, but also improvements in technology and services to meet modern passenger needs.

Ultra-long haul routes are a natural progression as Latin America develops and demand increases, especially with the introduction of new fuelefficient, long-haul aircraft it is not something that will be resolved overnight. That’s why, we are not waiting for a recovery and instead we have had to adapt to the current scenario.

For example, we have reduced capacity by 8-10% on domestic routes and by 25% on routes between Brazil and the United States.

Nevertheless, this does not affect our longterm strategy or the connectivity we offer in Brazil – it is, and will continue to be, essential for the company. Let’s not forget that Brazil is the third largest domestic market for air travel in the world and accounts for half of South America´s total traffic.

To be able to confront the crisis, it is necessary that the country and its leaders make decisions that benefit Brazil and its recovery.

While the challenges may continue over the next couple of years, we are optimistic that the situation in Brazil is temporary.

How will the region’s air transport sector look after current economic difficulties? Will the industry in the region be leaner?

Every operator in the region has been affected by the crisis and we have all had to respond to mitigate its effects. The operators that adapt best will be the ones who shape the industry in the region going forward.

One of LATAM’s advantages is the breadth

of our business and our presence in other countries in the region, which has enabled us to continue growing in other markets. For example, 40% of the passengers flying from Brazil to Europe today are not Brazilian – instead they come from other countries in the region served by LATAM and use Brazil as a connecting point.

It is important to remember that we are competing on a global playing field and need to ensure that we continue to offer world-class products and services. That’s why, for example, it is a priority to continue investing in digital technologies that improve the passenger experience.

Latin America has started to see its share of ultra-long-haul routes with flights to Asia, Oceania and the Middle East. Do you believe there will have to be more direct connections to these parts of the world in the future?

Ultra-long haul routes are a natural progression as Latin America develops and demand increases, especially with the introduction of new fuel-efficient, long-haul aircraft such as the A350 XWB and Boeing 787. We are committed to strengthening our international network and offering passengers greater convenience through new destinations, better itineraries and stronger alliances. However, as with any new route, there always needs to be a strong business case.

North America and Europe remain our two most important long-distance markets, but this doesn’t rule out other parts of the world and we already serve Australia [Sydney] and New Zealand [Auckland]. In October – subject to approval – we will also become the only Latin American carrier to operate fl ights to Africa, with a non-stop Boeing 767 service between São Paulo and Johannesburg. •

AIRLINES INTERNATIONAL

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In this interview • Data • Mobile • Costs

38

GOING FOR THE RECORD Alan Joyce, CEO, Qantas, is determined to continue winning and finding cost savings.

AIRLINES INTERNATIONAL

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CEO interview

Last year saw a record performance from the airline. So what are your targets for 2016?

In a nutshell, it’s to repeat the three wins we managed last year, which means a record financial performance, record customer satisfaction and record employee engagement.

The bigger picture is making it sustainable and finding the areas where we can really build a long-term, competitive advantage for Qantas in what is a tough market.

Let me give you a couple of examples. Australia’s economy is in transition away from mining and towards services and tourism at exactly the same time that demand for those things is growing in Asia—and especially in China. It’s a huge opportunity if we can get our network, our relationships, and our marketing right. And we’ve got solid foundations with the China Eastern joint venture and the way Qantas and Jetstar are expanding in the region.

The other really exciting opportunity is big data. There are 11 million Qantas frequent flyers and we’re talking to them all the time to get insights into what we could do differently. That feeds into the decisions we make on customer service, but it’s also helping us set up new ventures and move into areas that aren’t traditional for Qantas. We recently launched a health insurance joint venture with an established underwriter that incentivises people to earn frequent flyer points for exercising. If you’d pitched that to me a few years ago I would have said it was marginal, but, by looking at the insights and talking to our customers, we picked up that there was pent-up demand for something different in the insurance sector.

So, data is hugely powerful if you know how to use it. I think we’re only really scratching the surface of what’s possible.

Alan Joyce was appointed to the position of Qantas Chief Executive Officer and Managing Director in November 2008.

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Is there any internal restructuring left to do?

Yes. We’re $1.4 billion into the $2 billion program we launched in early 2014, so there’s about $600 million of cost savings and revenue benefits still in the pipeline. But, the reality is that you can’t put an end date on the need to evolve.

I think airlines have woken up to the fact that we can’t go back to the old boom-bust cycle where you make hay in good times and ride out the bad times.

What we’ve tried do with the transformation at Qantas is create a mindset where people understand that change is a constant and see it as an opportunity to do things differently and better, rather than a threat to the way JUN-JUL 2016

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CEO interview

things have always been done.

Has the Emirates partnership worked as you expected? What have been the challenges or unexpected bonuses?

In a lot of ways, it’s gone beyond our expectations. We’ve flown almost $2 billion in bookings on the partnership code, Qantas’ codeshare bookings to Europe are up four-fold, and customer satisfaction with the partnership and the Dubai hub is up there with the best on our network.

The other thing it’s done for Qantas is free us up to move our assets and investments to higher-growth regions in Asia and the Americas, rather than lower-growth markets in Europe.

It’s inevitable with this kind of partnership that you’ll fi nd things to improve, and we’ll keep looking at ways to do that that. But overall, we’re very pleased with how it’s going.

IMAGE: REX

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Are innovative partnerships like this the way forward for a profitable, sustainable industry and do you still see value in the oneworld alliance?

There’s still a role for the multilateral alliances. We know that our frequent flyers get a lot of value out of our oneworld links and those relationships will always be important to us.

I do think it’s bilateral partnerships that are going to have the biggest impact on the industry in the future, as the Emirates deal has done on our links into Europe, and as we expect the American partnership will do on the Pacific and the China Eastern partnership into China. The joint venture model works because it gives you a deep relationship without any of the complexity of taking equity.

We’re $1.4 billion into the $2 billion program we launched in early 2014, so there’s about $600 million of cost savings and revenue benefits still in the pipeline.

And over the longer term, I think our experience with these sorts of relationships will stand us in good stead as and when the time’s right to look at greater consolidation.

Alan Joyce 2008 Appointed Chief Executive Officer and Managing Director of Qantas in November 2008.

2003-2008 Founding Chief Executive Officer of Jetstar Prior to Jetstar, Joyce spent more than 15 years in key positions at Qantas, Ansett Australia and Aer Lingus.

What’s the latest on the new Sydney airport and what is your view of the airport infrastructure in Australia in general?

We’re big supporters of a second Sydney airport. It’s great that work’s underway after so many years of talking about it. But it’s important to manage expectations around size and scale: this is going to be a secondary airport that caters mostly to LCCs [low cost carriers] and freight, so let’s not build a Taj Mahal. Let’s get the foundations right and grow from there.

Airport infrastructure generally in Australia is in decent shape. We’ve been fortunate to have a lot of control over Qantas’ domestic terminals, which has given us an opportunity to really tailor the customer experience in terms of check-in lounges and so forth.

The challenges I see are making sure that the pricing model is fair—we appreciate IATA’s campaigning against pre-funding—and getting the integration right between planning for airports and land transport infrastruc-

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CEO interview

ture. With population growth, there’s a risk that airports become bottlenecks and that’s bad for Australia’s reputation as a destination at a time when we want tourism to step up and have a bigger role in the economy.

Airservices is seen a proactive air navigation service provider. What is working well and where would you like to see further enhancements to ATM? Airservices has been hugely supportive of what we’ve been trying to with new technology. We now operate required navigational performance (RNP) fl ights into most airports in the country, which adds up to big benefits in terms of lower fuel use and lower emissions.

We’d love to see RNP come to our hub in Sydney, but obviously there are some constraints that need to be worked around.

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going to invest in the fundamentals: new aircraft like the Dreamliner; new lounges like the ones we’re building in London and Brisbane; and tools and training for our frontline people. One of the big opportunities for innovation is in mobile technology—giving people the information and entertainment options they need at each point of their journey. On the one hand, that could be flagging a customer’s risk of missing a fl ight and giving them the option to rebook.

On the other, it could be super-fast inflight Wi-Fi, tapping into the high- speed satellite technology that’s just starting to come online in Australia. We think there’s potential to open up things like live sports streaming or Netfl ix that would leapfrog the industry standard.

How can we get governments to understand the value of aviation? Is the industry’s communication everything it should be?

I think the industry’s done a great job in some areas and could do better in others. Climate change is an example of IATA helping get the industry behind a common position and we’ve seen it cut through with governments as a result.

But, the industry still gives out a lot of mixed messages and that leads to inconsistent policy. A market like Hong Kong has made its name on being open to trade and investment, but the decision to knock back Jetstar’s application to set up an LCC there was widely seen as protectionist. I think we’ve gone back-

IMAGE: ISTOCK

Where are you looking to innovate in the passenger experience?

It’s a two-pronged approach. We’re always

We now operate required navigational performance (RNP) flights into most airports in the country, which adds up to big benefits in terms of lower fuel use and lower emissions. wards a bit when it comes to aviation policies that allow airlines to compete on a level playing field.

Is the global MBM—which should be agreed at the ICAO Assembly—enough for aviation to win over public opinion about flying’s effect on the environment?

It’s a step in the right direction, but it’s not enough on its own. Every airline has a responsibility to be accountable for its own emissions and explain what it’s doing about them.

There’s actually a great story to tell here because a lot of the innovations that make airlines better for customers and shareholders also have an environmental benefit. Look at the reduced emissions of the next generation aircraft from Airbus and Boeing, for example.

The IATA AGM is being held in Dublin.

Why is Ireland such a great aviation

nation and why has Aer Lingus proved to be such a great training ground for many airline senior managers/CEOs? I’m tempted to say small doses of kerosene in the Guinness. I actually think a lot of it comes back to Aer Lingus being way ahead of its time when it came to managing people. I got moved around every two years and was exposed to almost every part of the business, so it was perfect training for rising through the ranks and eventually becoming a CEO. When I fi rst came to Australia it felt a lot more like airlines were organised into fiefdoms. We’ve put a lot of effort into breaking that down at Qantas and making sure that we give our leaders the chance to experience different roles.

What makes a great airline CEO? What skills have you found most useful during your time at Qantas?

I can’t think of a business as complex as an airline that is also in the public eye as much as an airline, particularly a national carrier.

So, a big part of the skill set is being able to balance competing priorities and focus on the issues that actually need the weight and influence of the CEO. Surrounding yourself with a talented, diverse team helps—the era of command and control is long gone—but you have to be willing to make the hardest decisions yourself and explain and defend them. •

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In this feature • Satellites • Recorders • Surveillance

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AIRLINES INTERNATIONAL

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Tracking

KEEPING TRACK OF NEW REQUIREMENTS Airliners’ equipment can already enable worldwide monitoring at all times, but not all the standards needed are here yet, writes Chris Kjelgaard.

A

n in-flight entertainment (IFE) system offering broadband satellite communications could be used to track an aircraft with slight modifications, as could the datalink airlines use to transmit engine performance data to maintenance departments.

“Many airlines already have the capability in their aircraft, but they don’t necessarily use it,” says IATA Director Flight Operations, Atholl Buchan. “There are some fl ight-tracking systems already—more in the cargo-carrying industry, for monitoring where all their cargoes are,” adds NAV CANADA’s Vice President Operations, Rob Thurgur.

So there are systems in place that can help airlines and authorities track aircraft worldwide, following the disappearance of Malaysia Airlines fl ight MH370 on 8 March 2014.

But, this event has galvanized the air transport industry to do more to track aircraft with a particular emphasis over oceanic and remote continental areas.

Flight MH370 was lost over the Indian Ocean and authorities in that region have acted swiftly, moving ahead of an industry wide solution. The Civil Aviation Authority

of Singapore (CAAS) requires all six Singapore-based carriers to be able, by 1 July 2016, to track all their aircraft in normal flight every 15 minutes. From 8 November 2018, CAAS will require all position reporting by those airlines’ aircraft to be automated. “We are supportive of the efforts to improve fl ight tracking capabilities,” says Singapore Airlines’ Acting Senior Vice-President Flight Operations, Captain C.E. Quay.

The Malaysian Government required Malaysia Airlines to provide a 15-minute tracking standard for all of its aircraft within a year of MH370. By 6 March 2015, Malaysia Airlines had complied with this requirement.

Putting in place the worldwide industry solution is taking a little longer, given the variety of aircraft equipage and types of operations. Two years on, ICAO has a tracking standard. It does not mandate that operators use a specific technology to achieve a 15minute tracking capability.

Previously, the transpacific Automatic Dependent Surveillance – Contract (ADS-C) position-reporting requirement had been 30 minutes. By consensus, this has now been reduced to 14 minutes to comply with the new

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requirement. Additionally this will have the beneficial effect of increasing the amount of fl ights each Pacific track can handle.

An ADS-C signal is data sent automatically from an aircraft’s avionics to air traffic control. Reports can be sent whenever specific events occur, or specific time intervals are reached. The ADS-C is controlled by the ATC ground station in all situations other than emergency contracts. Only the fl ight crew can declare and cancel ADS-C emergency reporting. Although the crew can initiate the emergency-reporting mode, the aircraft cannot initiate one. The purpose behind increasing the frequency of reporting of a position was to reduce the reaction time to establish an alert situation.

Establishing requirements To establish a 15-minute standard has been a two-year journey that started in May 2014 (see A two-year journey panel). ICAO and the industry began then to cooperate on finding aircrafttracking position-reporting requirements.

ICAO created NATII to conduct an evaluation of ICAO’s proposed tracking standards for aircraft in normal fl ight. This included a APR-MAY JUN-JUL 2016

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for automatic position reporting.

In the SARP, “we are trying to introduce practical ways to allow operators to determine acceptable risk under the SARP criteria,” he explains. The guidance materials are being developed, “to help regulators and operators in understanding how to implement both the normal and the proposed risk-based provisions.”

The ICAO Secretariat presented the SARP and two draft chapters of the guidance material to the ICAO Air Navigation Commission (ANC) in April. Once the ANC verifies or modifies the risk-based SARP, the outcome will go to the ICAO Council for potential adoption. “Our hope is the additional state letter will go out in June-July for comment by the States and will be adopted in the fourth quarter of 2016, to become effective from March 2017,” says Buchan. “The idea is for the whole industry to get 18 months to assess where they are, so they can comply with the November 2018 deadline.”

Recovering answers However, ICAO has already adopted some measures. On 2 March, ICAO adopted Amendment 40 to Annex 6, Part I of the Chicago Convention (Operation of Aircraft). The amendment contains performance-based SARPS for flight recorder data recovery. The amendment’s requirements apply to aircraft that receive their individual certificates of airworthiness from 1 January 2021 onwards.

The amendment also has a requirement for devices that can autonomously transmit location information at least once every minute

IMAGE: ALAMY

table-top exercise to test ICAO’s proposed normal-tracking standard in real-world scenarios. It highlighted several major operational problems ICAO’s initial standards and recommended practices (SARPs) could create.

NATII’s report to ICAO detailed these problems and in November 2015 ICAO adopted a requirement that operators be able to report at least every 15 minutes the positions of their aircraft over oceanic areas.

ICAO then asked IATA and the industry to continue the work under NATII 2 to develop an additional risk-based SARP along with guidance material to support the tracking SARPs. This work is progressing well according to Buchan.

“From the outset … one of the hopes [was] that operators would not have to outfit their aircraft with additional equipment,” says Buchan. “Most long-haul aircraft already have the necessary equipment, but, smaller narrow body aircraft which fly limited time over water in regional operations might not be equipped

A three-year journey 2014 8 March Malaysia Airlines flight MH370 disappears.

2014 May ICAO and industry establish position-reporting requirements in remote oceanic or territorial airspace outside of ATM surveillance.

2015 March The multi-national Normal Aircraft Tracking Implementation Initiative (NATII) is created after the ICAO High Level Safety Conference.

2015 November ICAO accepts the State responses and NATII recommendations to amend the proposed SARPs for Normal Aircraft Tracking. ICAO adopts requirement that operators report at least every 15 minutes the positions of their aircraft over oceanic areas.

2016 March ICAO adopts Amendment 40 to Annex 6, Part I of the Chicago Convention (Operation of Aircraft).

NATII 2 produces tracking SARP. 2017 March Tracking SARP in-effect.

when an aircraft is in distress. It is once a minute as ICAO found that when an aircraft’s position had been known one minute prior to its accident, the impact site was within a radius of six nautical miles (11.1 kilometers) of it.

ICAO defines a distress condition as a condition in which, if the aircraft’s behaviour during the event is left uncorrected, it could result in an accident, according to Anthony Philbin, ICAO’s Chief, Communications. Such distress signals may be activated by inputs from the aircraft’s flight management system.

Because the new standards are performance-based, the industry may consider all available and emerging technologies that can meet ICAO’s specified tracking requirements, says Catalin Radu, ICAO Deputy Director, Safety, Air Navigation Bureau. “These could include automatic deployable fl ight recorders (ADFRs) or other available technologies.” One under ICAO consideration is data streaming through satellite communications.

Amendment 40 also contains a standard for extending from two hours to 25 hours the duration of recordings captured by aircraft cockpit voice recorders. Maintenance datalinks, IFE, satellite communications, 15minute signals, one-minute signals, autonomous location transmitters, deployable recorders, extended fl ight deck recordings, the technical options are not insubstantial for watching aircraft flying beyond air traffic management territories. After two years, the standards and procedures are almost fi nally in place for a global solution. It is a process worth monitoring. •

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0°

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0° 33 DLT1445 B777 410 490

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° 45

JFH6752 B738 390 450

° 60

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OPG3256 A388 400 520

YGD1723 A350 380 425

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CKR8976 B744 350 415

APH6388 A321 370 485

XVX6211 B748 300 490 PVP0786 A320 310 400

AQP6800 BCS3 280 400

ZTV3309 A332 360 420

12 0°

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MKJ5509 B789 390 470 KNH2006 B748 400 500

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YGD1723 A350 380 425

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MAG7521 E190 270 410

03/05/2016 14:26

In this feature • Disaster • Logistics • Charities

CONNECTIVITY CAN SAVE LIVES Airlines are helping aid organizations to deliver supplies to disaster zones

O

n 17 April, 2016, a 7.8 magnitude earthquake struck Ecuador killing more than 650 people, injuring over 16,000 and affecting up to 680,000, including making 5,000 homeless. The most devastating earthquake in Ecuador since 1979 flattened

IMAGE: GETTY

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buildings, schools and hospitals. The Ecuadorian President, Rafael Correa, declared a state of emergency.

“Using passenger airlines, as long as there is no hazardous material involved, we put [the aid] in the belly [hold]. Timely small, shipments have tremendous value,” says Airlink Executive Director, Steven J. Smith. Since its creation five years ago, Airlink has served as a resource and partner to airlines as they deliver disaster relief around the world. The key role of Airlink is to serve as a conduit between airlines and the humanitarian supply chain.

Airlink has been working with Aeromexico, Avianca, Atlas Air, JetBlue, TAME and United Airlines in response to the Ecuador earthquake.

“Atlas Air and United have offered regular capacity,” explains Smith. By 1 May, nearly $2 million worth of goods had already been transported, including crucial medical supplies.

Airlink has 34 partner airlines with staff from six airlines sitting on their advisory panel.

They help Airlink to find critical cargo capacity which can become available for the most unlikely reasons. Mother’s day in the United States, the second Sunday in the month of May, will see a large demand for flowers. Flown from South America, this has meant that there are empty aircraft flying back down to Latin America that can carry aid.

Airlink works with more than 60 nongovernmental organizations (NGOs) throughout the world. The aviation charity works with the likes of Save the Children, the Red Cross, AmeriCares, and other United States and European Union based NGOs.

Forklifts have had to be airlifted into disaster zones to move supplies.

While some of these are well-known and well-funded charities with large-scale needs, many other NGOs do not have the fi nancial resources to make sole use of a widebody aircraft. In those cases, Airlift can act as an aid freight consolidator. Where the barrier to a charity’s effective response is not having enough money or cargo to achieve economies of scale, Smith’s team will literally pull cargo together to get it to where it all needs to be.

Airlink chooses its partners carefully. “All the NGOs are heavily vetted,” says Smith.

“Getting the right cargo and people to the right place is fi ne, and lots of organizations want to help, but sending things that aren’t appropriate, that’s not a good thing.” In Smith’s view, disaster areas can often have small local airports with limited logistical infrastructure. The wrong supplies will only take up apron or warehouse space and, “sending the wrong things will clog up supply chain,” he adds. For Ecuador the right things are medical supplies, shelters, food and water fi ltration devices.

The fi rst stage of a disaster can require people, search and rescue teams with dogs, and then the cargo delivering all the supplies.

Some of those supplies are going to be transported from warehouses stocked by the United Nations (UN), which are called Humanitarian Response Depots. There is one in Panama. Such depots are suppliers of kit to NGOs. If an NGO is responding to a disaster they can place an order with the UN. As well as the right NGO with the right supplies, there needs to be a partner with the mobility to deliver the goods, which will otherwise block the airport. An NGO may already be working in the affected country and have the necessary connections with mobility providers.

“We have even delivered forklifts,” says Smith referencing a situation where the airport needed the equipment to offload the supplies. “We worked with a UN logistics cluster and planes were arriving and they were nervous because they only had one forklift. We sent two forklifts so they could offload the planes.”

Natural disasters will always occur and while emerging economies will improve their preparation and response as they develop, peoples around the world will still want to help through charities, as Japan’s experiences in recent years shows. That international response will always need aviation. •

AIRLINES INTERNATIONAL

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Airlink

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JUN-JUL 2016

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In this feature • Profitability • Hedging • Markets

TEMPTED INTO PROFLIGACY? Cheaper oil can mean bigger profits, but beware the choices it presents, writes Helen Massy-Beresford.

T

he sharp fall in oil prices since 2014 is good news for airlines, which are enjoying a welcome boost to their profitability and passing on

IMAGE: ISTOCK

50

savings to their customers in the form of cheaper deals on fares. But, longer-term, the picture may not be quite so straightforward.

Brian Pearce, IATA’s chief economist, says: “Aviation is one of the most energy intensive industries. So, a drop in oil prices is critically important for the price of air travel and transport for business. That’s very positive news for the wider economy, air shippers and passengers, because sustained lower oil prices means that the cost of air transport is likely to stay low.”

Patrick Surry, chief data scientist at airfare prediction app Hopper says the effects are already filtering through to consumers: “We’ve seen typical consumer prices fall about 15% worldwide in US dollar terms, starting as oil prices plummeted in the second half of 2014.”

“For the next couple of years, at least, we’re in for a period of relatively low prices. We’re seeing that reflected in the futures markets for oil,” explains Pearce. The futures market is where airlines hedge, buying future quantities of fuel at a fixed price.

Pearce says: “Hedging should be risk management— insurance not a bet. It does stabilise your fuel costs so that’s an uncertainty that you remove. Obviously it comes at a cost.” For some airlines, that policy has delayed the positive effects of lower oil prices.

“The key thing about hedging is it’s far more of an art than a science,” says John Strickland, an airline strategy consultant. “It has risks either way.

An airline can be locked in to overpriced fuel or feel the benefit. The key thing is to get consistency on price. Sometimes an airline will tolerate the risk of a higher price to have that certainty.”

Strickland also notes that currency plays a role:

“Not all airlines have the full benefit [of lower oil prices]…because fuel is denominated in dollars. Currency changes reduce the impact for some airlines.”

Cheap can be difficult Hedging policies and currency issues aside, the lower oil price actually presents difficult decisions for airlines and could, paradoxically, diminish profitability in time.

Pearce explains that for network growth generally, it will likely be a horses for courses, situation, with some airlines preferring to focus on their return on capital, rather than market share through new routes. He sees South East Asia as a region that will see network expansion. “You’ve got new entrant airlines, low oil prices and low interest rates, so it’s going to be easy for people to enter those markets [with new routes]. I suspect we’ll see more of that.”

An example of a market that tends to focus on return on capital is North America. “The more mature markets, the US domestic market being one, are more stable in their structure,” says Pearce, pointing out why it is unlikely to be an area of great route development.

In Strickland’s opinion, airlines that focus on return on capital may face a dilemma if their competitors boost capacity. In Europe, he cites Ryanair as an example of an airline with a strict capacity approach, but with the low oil price, he poses the question, “do [such airlines] sit tight or fight back to keep their market position?”

Expand the network or expand the bank balance; improve the fleet’s fuel efficiency or improve the return on capital to share holders; hedge against future prices or buy fuel at the market rate for now. Lower oil prices are a double-edged sword. Which edge is too sharp will likely depend on a lot of factors. •

AIRLINES INTERNATIONAL

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The agenda includes a discussion on how airports are adjusting to an evolving digital world, as well as sessions on what needs to be done to transition freight forwarders and airlines to new technologies and processes. There will also be sessions on the latest e-commerce changes the industry is facing, including the specific challenges that digital transformation may bring. The government’s move to digital processes, including the upcoming U.S. Customs and Border Protection implementation of mandatory electronic export in ACE will also be debated, as well as what business intelligence solutions and best practices are available for industry professionals to improve decision making, and a session on what needs to be done to attract new talent and ideas to the industry.

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In this feature • Markets • Efficiency • Technologies

F

52

uel efficiency is improving about 2% a year, well ahead of the average 1.5% improvement targeted through 2020.

And though a global offsetting scheme needs to be agreed at the forthcoming ICAO Assembly, if aviation is to achieve the next milestone of carbon-neutral growth from 2020, operational and technological enhancements that drive fuel efficiency will continue to play a significant role in the industry’s environment strategy.

Better operational practice and new technology are two of four industry pillars on climate action, alongside positive economic measures and improved infrastructure.

Last year, the Air Transport Action Group worked with IATA and other associations to publish a set of efficiency case studies by the industry, Aviation Climate Solutions. “The case studies show the wide variety of climate action across the sector,” says ATAG Executive Director, Michael Gill. “Carbon emissions reduction projects by over 400 organisations in 65 countries are represented. But this is only a snapshot of the projects underway. The most impressive realisation is the sheer amount of collaboration between industry partners, helping to drive efficiency. Action is taking place in all parts of the world: not only at large organisations, but also through partners in emerging economies.”

Airline innovation Many roads lead to better fuel efficiency. Lufthansa and Israel Aerospace Industries have developed the TaxiBot aircraft tug, for example, that gets an aircraft to its departure position without using the main engines, saving fuel, noise, and emissions. It has been in regular operation at Frankfurt Airport since February 2015.

Meanwhile, Croatia Airlines aligned its potable water use with demand resulting in annual fuel savings equating to about 40 tonnes of carbon dioxide (CO2) per A319/A320 while cabin reconfigurations have similarly reduced aircraft weight and fuel use, cutting CO2 by 80 tonnes per year per aircraft.

South African Airways takes fuel efficiency seriously, according to Tlali Tlali, Manager of Media Relations. “We remain keen to implement new measures aimed at promoting more fuel efficient methods in our operations,” he says. “We always place a lot of emphasis on fuel efficiency and empower our crew to be innovative within the boundaries of the regulated fuel policy while not compromising fl ight safety in the process.”

Singapore Airlines notes several fuel efficiency projects in its 2014-2015 Sustainabil-

EVERY DAY IN EVERY WAY While aviation looks to the upcoming ICAO Assembly for a global market-based measure for carbon emissions, environmental improvements in daily operations continue apace

ity Report. Its A380s have adopted new operational procedures at London’s Heathrow Airport and it has also instigated tailored arrivals and continuous descent approaches elsewhere; measures that are saving fuel while maintaining safety. It has also been working with its OEM partners to tweak engine performance, lessen aircraft drag, and minimize aircraft weight.

NASA technology Electric vehicles on the ground, new generation aircraft in the air—the day-to-day business of flying has scrutinized and tweaked just about every aspect of performance.

The next phase of development continues this exciting progress. The EU’s Clean Sky Joint Undertaking (CS JU) program recently demonstrated an “all electrical aircraft” (AEA),

Less is more CO2 emissions per seat kilometre have reduced more than

80%

since the introduction of jet aircraft.

The noise level from jet engines has dropped over

75%

since the first jets entered service.

Air Transport Action Group

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Tracking

for example, using an ATR 72 prototype. The technologies used on the AEA were jointly developed by ATR’s shareholder Finmeccanica, Liebherr, and Thales as well as other CS JU partners.

Alessandro Amendola, ATR’s Senior Vice President Engineering, says that “contributing to developing and deploying new technologies for the greener aviation of tomorrow is a key part of ATR’s identity.”

Meanwhile, NASA has completed its Environmentally Responsible Aviation (ERA) project, that could help cut airline fuel use in half. Jaiwon Shin, NASA’s Associate Administrator for Aeronautics Research has claimed that the technologies identified by ERA could amount to $255 billion in operational savings between 2025 and 2050.

Eight integrated technology demonstrations were completed by ERA researchers, including tiny embedded nozzles that blow air over the surface of the vertical tail fi n. This proved aircraft could fly with smaller tails, reducing

Global Offsetting Scheme Update

weight and drag.

Composite materials that reduce an aircraft’s weight as much as 20%, morphing wing technology that allows an aircraft to seamlessly extend its flaps, and a hybrid wing body concept were also studied.

Engine improvements have focused on the redesign of the compressor stage of a turbine engine, an advanced geared turbofan jet engine, and an improved design for a jet engine combustor, which is where the fuel burns and the CO2 and nitrogen oxides are created.

environmental integrity, cost-effectiveness and the need to avoid market distortion as they shape the agreement,” Gill concludes. “While we understand the political sensitivities of these talks, the industry would like to see an agreement with broad coverage of aviation emissions.”

More than

25,000

new aircraft, equating to an investment in excess of $3 trillion, have helped the industry avoid over five billion tonnes of carbon dioxide since 1990.

ICAO’s global aviation dialogues (GLADs)—a series of regional outreach and education sessions—took place in March 2016 as negotiations continue toward the adoption of a global climate agreement for air transport.

Air Transport Action Group (ATAG) Executive Director, Michael Gill, says that the GLADs were a vital tool to help build consensus among governments. “The development of a global carbon offsetting scheme for aviation is crucial if aviation is to meet its climate obligations, while also continuing to meet the economic and connectivity growth desired by many countries around the world,” he notes. “The successful Paris Agreement on climate change provided positive momentum for discussions at ICAO, which already has its own mandate and wellestablished program for addressing aviation and climate change.”

The GLADs are part of over two years of intense discussions, with negotiators trying to find the balance between environmental and political acceptability.

Ahead of the GLADs, the ICAO Secretariat published a draft proposal for the design of a global market-based measure in the form of an offsetting scheme, which Gill believes marked “a significant and welcome step” that delivers fresh impetus to discussions.

“We urge governments to keep in mind the principles of simplicity,

53

Partnerships As the manufacturers’ work on engine development illustrates, airlines cannot maximize fuel efficiency on their own. As has been the case from the outset of the industry’s environment strategy, the aviation value chain has important contributions to make.

Airport Collaborative Decision Making (A-CDM) typifies the widespread collaboration. Information sharing should cut down on such delays as unnecessarily long taxiing times or extended waits at the runway for take-off. It is estimated in the European Aviation Environment Report 2016 that A-CDM could save 12–36kg of fuel in the taxiing phase per fl ight.

A-CDM follows a defi ned set of steps so that airline, airport and air navigation service provider (ANSP) get important arrival and departure information at the same time. This allows the different organisations involved in a fl ight to adjust schedules and resources as appropriate while the improved efficiency potentially brings capacity benefits too.

A-CDM was pioneered in Europe, where it is hoped there will be a minimum of 42 A-CDM airports by 2019, but has been given a global reach through ICAO guidance material.

In terms of airspace, a new system called iTEC—installed at UK ANSP NATS’ Prestwick Centre—typifies the modernization that is slowly taking hold. iTEC will reduce aircraft fuel burn and emissions by enabling the future introduction of free route airspace above 28,000 feet. Trajectory-based operations mean that an airline’s preferred routing can be applied wherever possible. iTEC entered limited operational service in late January 2016 with a view to be fully operational by the summer. The system is initially being used to control aircraft in Scotland’s upper airspace sectors, but will be rolled out across the entire NATS operation at Prestwick and Swanwick Centres over the next five years. Alastair Muir, NATS Operations Director at Prestwick Centre says iTEC will help NATS become “more flexible, efficient and resilient with big benefits for our airline customers.” So though the aviation world is understandably concentrating on bringing the bigger picture into focus at the next ICAO Assembly, the brush strokes still count. These details help identify aviation’s commitment to the environment in the public arena and ensure fuel efficiency remains central to the industry’s culture. • JUN-JUL 2016

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In this feature • Consultation • Tickets • Strategy

AIRLINE TAXATION IS TAXING FOR ECONOMIES The evidence shows that societies don’t benefit by taxing air travel, but it is hard work convincing lawmakers that that is the case.

54

I

n times of government austerity budgets, aviation is a tempting target for politicians.

A passenger tax is relatively efficient to administer, and many of the people who pay aren’t citizens who can vote against it. The airline industry therefore faces a challenge to dissuade governments of the dangerous impact of air taxes on national economies.

“It’s an easy win for governments, a quick money grab. The number of taxes levied on airlines and their customers is still growing and many states fail to see the negative impact that these taxes will have on their economy in the long term,” explains Charlotte Fantoli, Assistant Director, Industry Taxation at IATA. The industry contributes over $100 billion a year through, for example, corporation taxes and social security taxes. But, the industry strongly opposes taxes that single out aviation simply to raise revenue for non-aviation purposes. Such taxes, the industry believes, have a negative effect by damaging economic growth and employment. Fortunately, airlines can draw on a strong body of evidence, both in terms of classic economic theory and real-world examples, to press their arguments.

In terms of successfully argued examples, two that stand out are in the Netherlands and Ireland. The Netherlands scrapped its aviation

tax in 2009. This was after it was demonstrated that the tax had a negative impact on the national economy. It had hoped to raise $395 million for the government, but in reality it was costing the Dutch economy $1.7 billion.

“Passengers were driving across the border to neighboring airports in Belgium or Germany to avoid the tax,” says Fantoli.

In Ireland the departure tax of three euros disappeared from April 2014. Since then the country has seen an economic boom partly helped by the cancellation, among other incentives to boost economic competitiveness.

Growing burden Nonetheless, proposals for new taxes continue to proliferate. There is some relief in the Chicago Convention which contains provisions that, for example, prevent the taxation of aviation fuel on international flights. But that does not exclude passenger taxes.

The Norwegian government planned to introduce an air transportation tax equivalent to 80 Norwegian Krona (NOK) ($9.70) on departing passengers on both domestic and international flights from 1 April this year. Such a move would have brought in one billion NOK for the government, and, according to the administration, help in the country’s battle for a

cleaner and greener environment.

However, an intervention from the European Free Trade Association Surveillance Authority (ESA), which monitors compliance with European Economic Area Rules in Norway, has postponed the tax’s introduction until 1 June. That will give ESA time to review the case and judge whether it is breaching rules over state aid.

“This tax came out of the blue,” says Torbjorn Lothe, Director of the Federation of Norwegian Aviation Industries, which is leading a coalition to fight the proposal. “The government says it is a new climate tax but that it is political rhetoric. It emerges from the government’s need to find a new tax to balance the budget for this year. It will mean a 10% increase in ticket prices for domestic flights and will, given the tough competition in the sector, make many routes economically unviable. We will have a 5% drop in passenger numbers.”

Another example of singling out aviation is Italy’s recent 38% increase in its council tax levied on air passengers. This amounts to an extra 2.50 euros for every person and came without any warning or consultation.

In Ecuador, the International Tourism Fee was increased by 150% to $50 in mid-March.

This is in addition to the Infrastructure Tax, also for tourism, of $10 per arriving passenger

AIRLINES INTERNATIONAL

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Taxes

How higher taxes impact the economy

IMAGE: GETTY

introduced earlier in the year. In New Zealand, a new Border Clearance Levy for each person arriving and departing the country on international fl ights has been in effect since 1 January.

All of these new taxes are in addition to existing structures in a wide range of countries including, Germany, Colombia, Costa Rica, the United States, and the U.K., where Air Passenger Duty raises £3 billion ($4.2 billion) a year in government revenue.

Fantoli says these taxes have a hugely negative effect on economies. “They increase the cost of travel and therefore impact demand and ultimately connectivity and the global economy,” she states.

IATA stresses the danger of reduced air connectivity limiting business opportunities. It also highlights the problem of tax revenue losses arising from avoidance measures such as passengers using airports in neighboring countries (see side bar).

Seeing sense In the UK, a 2014 PwC report said that abolishing the Air Passenger Duty (APD) would make the UK economy, on net, about £16 billion larger in the first three years following abolition.

There has been some progress with the APD on economy flights for children under 12 being abolished from May 2015. APD for under-16s was abolished from March 2016.

If APD devolution occurs, the U.K.’s Scottish regional government may go much further. It has launched a consultation into plans to cut the amount charged by 50% between April

Passenger taxes make air tickets more expensive. But, on an air ticket that costs hundreds or perhaps thousands of dollars, can a few dollars tax really make a difference?

The answer is yes, and it is to do with an economic rule known as ‘elasticity of demand’. At its most basic, the rule means that if the price of a good or service rises by a certain amount, demand will fall by a certain amount.

The elasticity of demand for air travel varies depending on factors such as geography, and journey purpose. Geographically, if a tax is national or even focused on a particular national region, this creates an opportunity for passengers to switch to a more competitive option. In addition to the Dutch example, the UK’s Air Passenger Duty is a clear example of a national effect. The tax had to be reduced to zero in Northern Ireland after Belfast’s only direct flight to the USA was threatened with closure because the Republic of Ireland had a much lower aviation tax and passengers were choosing to fly from Dublin instead of Belfast.

“For major tourist markets that depend on inbound traffic the impact can be even more severe. If travelers switch to an alternative destination it is not just the economic activity associated with the air travel that is lost but the whole holiday, with the knock-on impact this has on the

2018 and 2021. By reducing, and eventually abolishing the tax, the Scottish government wants to attract more flights to airports in Glasgow and Edinburgh.

Last year, Edinburgh Airport claimed a 50% reduction would lead to 3,800 new jobs by 2020 and a £200 million economic boost to the country each year.

Fantoli says the Scottish consultation is a, “step in the right direction,” and one IATA can, “leverage,” to take its case against air passenger taxation to other governments around the world.

In this respect, the commitment in the European Commission’s recent aviation strategy

whole tourism value chain; for example, hotels, restaurants, tourist attractions, car rental firms and so on,” says James Wiltshire, Head of Policy Analysis at IATA. A tax doesn’t have to be a large one like APD to have an economic impact. If a tax is modest it may not directly affect the choice of someone to fly, but it might affect their travel budget in other ways, for example, by giving them less to spend on tourist attractions and entertainment when they arrive. There is also the issue of the increasing costs in other areas, such as airport and visa charges.

“Taxes and charges can have a cumulative effect. It’s a bit like the boiling frog analogy – each individual ratchet up of the dial doesn’t seem to make much difference, but adding more and more can suddenly tip the balance and have a considerable negative effect,” says Wiltshire. “A tax of a few cents may not intuitively seem to make a material difference, but it all means that there is lower spending somewhere else in the travel chain.”

IATA’s economists are able to use well-established metrics for jobs and economic impact to calculate the effect of lower spending on the direct benefits of aviation, and also related tourism and economy-wide impacts.

Given the undoubted role of air transport in driving economic development, the conclusions are clear: governments who tax aviation are not just boiling a frog – they are killing the golden goose as well.

55

that it would create an inventory of European taxes and examine their impact was welcome.

Taxes are levied by its member states, but it is a clear sign that the Commission understands the importance of air connectivity and the detrimental impact of taxation.

How many examples of increases in wealth do there need to be after a passenger tax has been dropped, for governments like Norway to end such tax plans? Only time will tell.

Fantoli believes IATA is making progress in its efforts to convince governments to think twice. “We constantly tell them to consider the long-term impact. Once we do that then they start thinking again.”. • JUN-JUL 2016

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Airlines International

BENEFITS OF EUROPEAN AIRSPACE MODERNIZATION Airspace modernization could result in €245 billion of additional gross domestic product (GDP) for Europe in 2035, according to IATA funded research by SEO Amsterdam economics.

European GDP increase of €245 billion in 2035 is realized through new employment and productivity increases by the labor force

Employment increase: 0.41%

Productivity increase €717 per job

With a modernized airspace, the benefits are predicted to ripple through the rest of the economy and create more positive outcomes. The research estimates that the agglomeration, productivity and labor market effects will generate an additional one million jobs in 2035.

56

In its own right, the aviation industry supports about 12 million jobs and 4.1 percent of GDP in Europe. With airspace modernization, consumers are expected to benefit from €11 billion in lower ticket prices, € 5 billion through shorter travel times and fewer delays for passengers and €19 billion more from connectivity gains.

There is a virtuous circle of economic growth stimulating air travel demand and that connectivity feeding the increase in business activity. Airspace modernization is needed because fragmented European airspace means flights are 3% longer than they could be.

Bottlenecks cause 10 minute delays per flight and the longer routes mean more fuel burnt.

A modernized airspace will mean: capacity with more efficient air • Higher navigation. flight times will be reduced four • Average to eight minutes per one-way flight. delays will decrease from 12 to • Average eight minutes. carbon dioxide emissions per • Lower flight.

*Representative intra-European return trip based on 138 pax per flight Fuel price = £0.78/kg Value per hour: Business €54 Leisure €18 Flying time of 126.5 minutes per leg

New employment 1 million jobs

GDP growth through…

€245 billion Productivity increase: 1.14%

New employment

€64bn

Productivity increase of existing employment

€176bn

Europe (European Union 28 plus Switzerland, Norway and Turkey)

Source: SEO

Airspace modernization leads to substantial time and cost savings on a representative intra-European return trip* Business Leisure

Time savings

-11.4 min.

Flight time:

Departure delay:

-8 min.

7,18 2,40 10,17 3,42

Connectivity effects Frequency increase

+35%

45

30

Cost savings 3,04

Maintenance, aircraftand crew costs Fuel cost

4,07

ANS costs

4,14

Delay costs

0,52

AIRLINES INTERNATIONAL

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Data

Virtuous circle of connectivity growth and economic growth

Airspace modernization has particularly positive effects on tourism, trade, innovation, employment in knowledge intensive sectors and productivity

Passenger demand Number of hotel beds

Trade in services

R&D expenditure

Number of patents

Employment in knowledge intensive sectors

1.26% 2.19% 4.68% 5.54% 1.30%

Economic stimulus

Aircraft movements

Infastructure

Trade Investment Tourism

REGION

Airspace utilization

AVIATION Business climate & employment

Connectivity

Lower travel costs for passengers

Source: SEO Analysis

Source: Eurostat, SEO

57

TOTAL

Examples of economic benefits from airspace modernization in 2035

Additional passengers

132 18

13

12

13

14

15 2

132 21

20

21

21

23

20

23

22 2

245

Millions

% Change

45 34

33

27 15

GDP benefits

10

6 Bin â&#x201A;Ź

1,5

1,5

1,5

1,5

1,7

1,4

1,7

1,6 % Change

32,5 5,5 3,6

3,5

Consumer welfare benefits

3,2

3,2

2,6 0,4

Bin â&#x201A;Ź

1003 116

Employment benefits

158 105

95

111 65

65 Thousands of jobs

Source: SEO

JUN-JUL 2016

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Soapbox

THE WORLD IN 2040 More leisure time, less government could lead to airlines becoming spacelines.

58

Alun Rhydderch is a Co-Founder of the School of International Futures

W

e started the 21st century with an Internet obsession. But, the excitement with social media and fear of cyberattack concealed the fact that a revolution in the way we would live our lives was underway.

The data infrastructure provided by the internet has transformed the fi rst half of the this century as powerfully as the railways did the late 19th. The traffic passing through internet routers and servers today make the trade flows of the last century pale into insignificance, in volume, but also in value.

In 2011, W. Brian Arthur foresaw that a “neural layer” of connected devices would overtake the “muscular system” of the physical economy in value within two decades.

He called this neural layer the “second economy”. The transition happened, sooner than he imagined.

The goods we need and want are now easily produced using automated, self-improving processes, with minimal energy cost thanks to renewables and the fusion baseload.

These goods being easily available and reproducible, their economic value is low and we no longer measure ourselves by them.

In fact, countries no longer measure themselves by their economic weight either. The production and trade of goods used to drive domestic and international politics. You could measure your gross domestic product and fi nd your position in a league table. But, other measures have taken over, the most important being linked to life satisfaction.

This is strange territory for humanity, with less work to do, and a comfortable life. Being a competitive species, we still fi nd ways to score points. Sports, experiences of all kinds we can brag about. We source clothes and kitchenware from niche designers. We decorate and we also create more and more things ourselves, sometimes by hand, usually with designware.

States are different too. People are still attached to a national identity, but their lives do not require much government. The status of doctors, teachers and administrators is high. With people fighting for the jobs, health services and education are good. Computers manage the currencies, resource allocations and citizen dividend distributions. A small team liaises through the United Nations on international matters, but trade processes are automated, and dispute resolution software copes with most disagreements.

Am I painting too rosy a picture? Well, some nations bear historical grudges and occasionally block trade and access to their territory. More importantly, resource scarcities still remain. It can be tempting for the countries owning these resources to demand special terms or form cartels to increase their leverage. Because of the intertwined systems of exchange, however, such actions are usually defused quickly as they lead to automatic reprisals.

The main concern for the future is population levels.

Technology breakthroughs have increased the carrying capacity of the planet in terms of food and water, and cities have not become the magnets to the extent that was predicted. But, with people living well past 100 and having more time and money to raise children, it is inevitable that decisions will soon need to be taken.

This has led to a major international programme to provide off-Earth living options. Designs for orbiting colonies are already underway following the opening of the fi rst low Earth orbit hotels, which recently started taking guests and are proving wildly popular.

These are just some of the trends that could be shaping our future world. It will be interesting to see how they also shape the airline industry. www.soif.org.uk

AIRLINES INTERNATIONAL

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