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7 Willie Walsh, Director General
LTAG: turn aspiration into action; ATC; industry resilience; APAC; IATA survey
38 IATA Opinion: Dr. Xie Xingquan, IATA’s RVP for North Asia
The region’s recovery cannot ignore safety and future financial resilience
Digest
10 IATA and industry update
European connectivity, Aviation critical to European success, Air cargo priorities
14 Data: In numbers
Global passenger survey
CEO Interviews
16 China Airways sets records in cargo
China Airlines Chairman, Hsieh Su-Chien, says that prioritizing cargo operations was essential to the carrier’s survival
IATA Corporate Communications
Vice President Anthony Concil Creative Direction Richard McCausland Assistant Director Chris Goater www.iata.org
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Airlines. ISSN 1360-6387
Güliz Öztürk, CEO of Pegasus Airlines, says equal opportunities have driven the carrier’s growth Features
22 Carbon offsets
Credible carbon offsets are vital to avition’s net zero solution
30
As airlines strive to meet demand in the post-pandemic world, payments have become a key performance driver and an enabler for value creation
34
Data privacy was among the many stresses and strains on the airline ecosystem highlighted by the pandemic
36 Safety
Aviation safety is to benefit from risk-based IOSA
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In 2021, IATA members committed to achieve net zero CO2 emissions by 2050. Governments are now aligned with this vision, having agreed a Long-Term Aspirational Goal (LTAG) at the recent 41st ICAO Assembly. Both pledges are in step with the objectives of the Paris Agreement.
Decarbonizing aviation depends on supportive government policies. The most important are incentives to increase the production capacity of Sustainable Aviation Fuel (SAF) are critical. LTAG should give this momentum. And, by the next Assembly the aspirational characterization of LTAG must be transformed into a firm goal with a clear plan of action.
In parallel, governments must uphold the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). The revised baseline stabilizes emissions at 85% of 2019 levels. That cements CORSIA as the single economic measure to manage aviation’s international emissions. So it is essential that CORSIA’s integrity is protected from additional taxes and regional duplicative schemes.
“The message from these business leaders is clear and unequivocal: air transport is critical to their business success. As European governments plot the way forward amid today’s economic and geopolitical challenges, businesses will be relying on policies that support effective links both within the Continent and to Europe’s global trading partners.”
“China’s pursuit of a zero COVID strategy is keeping its borders largely closed and creating a demand roller coaster ride for its domestic market, with September being down 46.4% on the previous year. That is in sharp contrast to the rest of Asia-Pacific, which, despite China’s dismal performance, posted a 464.8% increase for international traffic compared with the year-ago period.”
“Although some politicians flirt with ideas like banning short-haul air travel, which would save less than 5% of emissions at huge economic cost, practical measures like the Single European Sky for air traffic control, which would cut emissions up to 10%, remain politically frozen.”
“2010-2019 were the best 10 years of the industry’s history. And interestingly, the average margin over that period was 5.5%.
Willie Walsh IATA Director GeneralCompare that with the margins over the last three years—minus 29%—with minus 1.8% expected this year, and you can see that these are very, very tough times. Great credit goes to airlines that have been able to manage through this crisis. It demonstrates the resilience of the industry.”
Airlines are committed to achieving net zero emissions by 2050. It means low-lying islands and other vulnerable environments can enjoy both the ec onomic growth generated by aviation and sustainability. Governments have supported this ambition with a Long-Term Aspirational Goal, but they must turn aspiration to action and incentivize the industry’s decarbonizing technologies.
IATA called on governments and regulators to encourage stronger European cohesion and economic development by embracing policies to promote greater air connectivity.
The key is recognizing the different strengths and benefits offered by the diverse types of carriers operating in Europe.
“The deregulation that delivered the Single Aviation Market is one of the significant successes of the European project and it would be a travesty if regulations that failed to take proper account of the realities of the airline business were to undermine this achievement,” said Willie Walsh, IATA’s Director General.
European regulators will tackle several challenging aviation issues
in the coming months, with slots, passenger rights and sustainability all on the agenda. These could impact on the choice and value European passengers have come to expect.
Regulators need the full picture that different airline business models bring to air connectivity and IATA Economics has developed a report to assist policymakers.
The report was launched at IATA’s Wings of Change Europe (WoCE), held in Istanbul, Türkiye, November 8-9. Its key findings include that the number of European-registered low-cost carriers (LCCs) has nearly doubled since 2004 to 35. Network carriers have fallen slightly from 149 to 131.
Within Europe, the number of origin-to-destination flight itineraries
served by network carriers is 2-4 times greater than the flight itineraries served by LCCs before the pandemic.
The importance of transit passengers in facilitating services to remote or small urban centers is crucial. This ensures that even the smallest or most remote European city with a runway can be fully connected to a multitude of destinations across the world.
Cargo capacity is also crucial for Europe’s trade, with 99.8% of belly capacity provided by network carriers, reflecting the huge demand for air cargo to intercontinental markets.
Pegasus Airlines hosted the third WoCE conference, bringing together some 400 delegates to discuss key aero-political topics and promote a stronger European aviation sector.
Turkish Technic, a leading provider of comprehensive maintenance, repair, and overhaul (MRO) services for commercial aircraft and business jets, will join IATA’s MRO SmartHub platform. MRO
SmartHub was developed by IATA and technology partner Opremic. Airlines and MRO providers are forecast to be able to reduce their material costs through the use of the platform by some 10%-15%.
IATA published results from a survey of 500 European business leaders. Using air transport to do business across borders, these business leaders confirmed the critical nature of air transport to their business success: 89% believed that being close to an airport with global connections gives them a competitive advantage 84% could not imagine doing business without access to air transport networks 82% thought their business could not survive without connectivity to global supply chains via air transport.
Around 61% of business leaders surveyed rely on aviation for global connectivity—either exclusively (35%) or in combination with intra-Europe travel (26%). The remainder (39%) primarily use intraEuropean networks.
Reflecting this, 55% reported that their offices are purposefully located within an hour of a major hub airport.
“The message from these business leaders is clear and unequivocal: air transport is critical to their business success,” said Willie Walsh, IATA’s Director General.
In his keynote speech at the World Cargo Symposium in London, Brendan Sullivan, IATA’s Global Head of Cargo, highlighted four priorities to build resilience and strengthen air cargo’s post-pandemic prospects: Achieving net zero carbon emissions by 2050 Continuing to modernize processes
Finding better solutions to safely carry lithium batteries Making air cargo attractive to new talent.
“Air cargo had a stellar year in 2021, achieving $204 billion in revenues,” said Sullivan. “But
challenges are mounting. The war in Ukraine has disrupted supply chains, jet fuel prices are high and economic volatility has slowed GDP growth.
Despite this, there are positive developments. E-commerce continues to grow, COVID restrictions are easing, and high-value specialized cargo products are proving resistant to economic ups-and-downs.
“Going forward, achieving our net zero commitment, modernizing processes, finding better solutions to safely carry lithium batteries, and making air cargo attractive to new talent are critical.”
Safety and sustainability: Achieving net zero and the safe carriage of goods is a priority for air cargo
Air cargo had a stellar year in 2021, achieving $204bn revenues
Airlines face a daunting challenge as they strive to transform how they engage with customers, offer the right set of products at the right price, and fulfill with speed and ease. Their to-do list is long—New Distribution Capability (NDC), dynamic pricing, personalized offers, omnichannel, and so on—leaving commercial and IT teams scrambling to determine how to update technology and processes to stay ahead of the competition.
While some efforts are making slow progress, at the core of the challenge sits legacy technology. This often federated stack of point solutions, designed in the era of paper ticketing, is so highly constrained that it can no longer adapt to the modern
e-commerce environment travelers demand. Thankfully, there is a path forward.
Removing reliance on scattered tools across legacy commercial, e-commerce, and operations systems is the first step. To do that, airlines must acquire the technology and capabilities to implement new digital initiatives easily. This is precisely what FLYR provides: a clean sheet, industry-optimized platform integrating data, forecasting, pricing, reporting, and simulation capabilities in a “single pane of glass” that informs and automates commercial functions across the airline.
At the core of our platform are three essential platform components. First, our common data service that automatically collects complex global data into one single repository for a trusted and unified view. Second, our Machine Learning capabilities enable better decision intelligence and automation across a range of commercial functions to achieve maximum revenue performance. Third, our analytics framework maintains a single source of truth, monitors the system and users, and enables a common visualization and experience. Together, these services serve the entire traveler journey, from acquisition to fulfillment.
Additionally, recent FLYR acquisitions allow decisions made by our technologies to be placed in front of customers and fulfilled in legacy reservation environments. These acquisitions include Faredirect for dynamic ancillary pricing, xCheck for marketing automation, Newshore to power next-gen booking experiences, and Pribas to remove legacy reservation system and distribution constraints.
Together, our Revenue Operating SystemTM comprises of three applications suites:
• AI-driven Revenue Intelligence
• Improves revenue performance, unifies decisions across teams, and creates better business outcomes with deep learninggenerated pricing and decision support.
• Advanced Retailing and Fulfillment
• Eliminates complex and outdated inventory processes with an NDC-based retailing model that centers around offer and order management capabilities.
• Digital Customer Experience
• Creates immersive experiences across channels and devices to better interact and engage with customers on a complete commerce platform.
With our cutting-edge AI-powered technologies, we unlock the full potential of airline data by making predictions directly from context, revolutionizing total revenue optimization. While automation is great, people remain key to airlines' success. Commercial teams now get real-time access to accurate commercial data, KPIs, and
Alex
Mans, Founder and CEO of FLYR
According to Alex Mans, founder and CEO of FLYR: “Travelers want more relevant, personalized buying options and airlines are desperate to provide them. It’s technology that’s the barrier.”
forecasts to optimize revenue across passengers, ancillaries, and cargo.
FLYR can implement the transformational platform in 16 weeks and integrate with all of an airline’s existing tools wherever required, layering on offer and customer experience capabilities, to begin breaking the stronghold of legacy technology and age-old processes. Because our platform integrates directly with an airline’s PSS and other back-office systems, teams can immediately enable dynamic customer experiences and unlock business-wide
revenue opportunities without disrupting their current systems.
We also recognize that when it comes to taking on these digital-first initiatives, most airlines can’t start from scratch. They need a framework. That’s why FLYR’s engagement approach is partner first, vendor second. This allows us to address three critical needs to achieve business success: technology innovation, new engagement models as a partner, and commercial models that align with financial
incentives. We provide onsite training, solicit customer feedback, and ensure business results and ROI are proven at every step in the process.
These initiatives are achievable and can be done with speed and minimal disruption. FLYR is the only provider that can put it all together for you. Let's get started.
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“Removing reliance on scattered tools across legacy commercial, e-commerce, and operations systems is the first step”
37% of travelers said they have been discouraged from traveling to a particular destination because of the immigration requirements.
Process complexity was highlighted as the main deterrent by 65% of travelers, 12% cited costs, and 8% time
from 222 countries, with high satisfaction scores for 2 years in a row
of passengers are interested in a special program for trusted travelers (background checks) to expedite security screening
of passengers want to use biometric data instead of passports and boarding passes
China Airlines Chairman, Hsieh Su-Chien, says that prioritizing cargo operations was essential to the carrier’s survival.
As well as expanding its cargo network, China Airlines is optimistic that growth driven by pent-up tourism and travel demand will stimulate the recovery of the passenger market once border restrictions are fully lifted.
How important has cargo become to your strategy?
China Airlines is one of the market leaders on high-traffic cargo routes around the world and the scale of our cargo capacity gives us an edge over the competition. The SARS epidemic in 2003 had previously triggered a sharp decline in passenger revenue that impacted overall operations. At the time, the cargo business stepped into the breach and helped the company weather the crisis.
Passenger air travel was once again hard hit by the sudden COVID-19 pandemic. But international demand for medical supplies and the consumption of goods remained solid. This again highlighted the importance of air cargo in stabilizing the industry supply chain and connecting international trade and economies.
During COVID-19, China Airlines adopted
“prioritize cargo over passengers” as our business strategy. The advantages of freighters, with regards to loading and unloading oversized or specialty cargo, were combined with the bellyhold of passenger aircraft to reinforce the importance of Taiwan as an Asia-Pacific hub for the transhipment of goods.
A flexible schedule helped expand our cargo network and develop new potential markets to keep the company profitable during the pandemic.
China Airlines is one of the top 10 air cargo international carriers in the world and our 747- 400 freighter fleet is the largest in the world. We took full advantage of our freighter capacity and promoted custom charter flights as well as expanding our high-priority, e-commerce, postal, and temperaturecontrolled businesses. At the same time, we stepped up use of passenger bellyholds and used passenger cabins for carrying cargo.
It proved to be a record year in 2021 with more than one hundred cargo-carrying charter flights in a single month. A new single-month cargo revenue record of TWD15.4 billion was set in December and we exceeded TWD10 billion in cargo revenue for five consecutive
“A flexible schedule helped expand our cargo network and develop new potential markets to keep the company profitable during the pandemic”
months and surpassed TWD100 billion in cargo revenue for the year. This was an increase of 52% over 2020 and made 2021 the best year for the cargo division in the company’s history.
New 777F freighters on order are now being delivered as well and four have arrived so far. One more 777F is scheduled for delivery in Q4 2022 and the fleet will reach ten aircraft by 2024.
Are you optimistic about air travel in AsiaPacific or will the mix of travel restrictions hurt demand?
Continued travel restrictions and uneven vaccine rollouts in Asia-Pacific meant that its recovery lagged that of Europe and North America. Nevertheless, as national governments continue to relax their COVID-19 border restrictions, pent-up demand is now gradually being released and the volume of passenger air travel is growing faster than anticipated.
Asia Pacific saw a growth of 528.8% in July compared with the same period last year and 23.1% compared with June. There have been five consecutive months of growth as well. Air passenger demand in 2022 is expected to reach 73.7% of 2019 levels, while the capacity will return to 81.5%. The Pacific Asia Travel Association (PATA) estimated that 2024 international visitor arrivals in Asia Pacific will reach between 86% and 120% of 2019 levels. The Economist Intelligence Unit also expects the Asian tourism industry to recover by 2024.
International passenger volumes in Europe and America are significantly higher because they opened their borders relatively quickly. In Taiwan, the Central Epidemic Command Center only loosened quarantine measures in mid-June. Even though there was still a cap on total arrivals, the volume of passengers passing through Taoyuan Airport in July was 382.8% higher than the same period last year.
Once restrictions are fully removed, nearly three years of pent-up tourism and travel will drive growth from Q4 2022 onwards and bring about the revitalization of the entire air travel industry.
What are the other major challenges in the region?
Factors affecting the global airline industry include the Russian-Ukrainian conflict, drastic fluctuations in fuel prices, labor shortages, slowdown in economy growth, inflation, and high inventories.
The more dispersed nature of the Asia Pacific market means that leading airlines must develop connecting hubs with wider coverage to stay competitive. But the inconsistent border restrictions, different national quarantine requirements, and lack of regional coordination has hampered progress. All these affect passenger flow and delay the restart of air travel.
There are signs of recovery, but the revitalization of the airline industry is dependent on having the right policies in place. Nations should provide safer and more convenient measures for international travel to ensure the continued growth of the airline industry.
Do alliances still have a role in the postpandemic industry?
China Airlines joined SkyTeam in 2011. The alliance continues to expand its global network and we partner with other members to connect Taiwan to major destinations around the world.
China Airlines has been an active participant in various SkyTeam programs since we became a member. We also shared our resources with SkyTeam partners to jointly develop systems that reduce operating costs. Traveler services were upgraded across the board through the sharing of alliance service products and programs such as SkyTeam VIP lounges, SkyPriority, and SkyTransfer.
Airline alliances will continue to pay dividends for China Airlines’ operations in the post-pandemic period. Digital and technological developments in particular will be key areas of competition. Their core value will come from bridging gaps in service when traveler itineraries span multiple airlines. The next step is to build traveler confidence in air
Asia Pacific saw a growth of 528.8% in July compared with the same period last year and 23.1% compared with June
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Sustainable aviation fuels (SAF) have many challenges, and overcoming them will take government leadership and support, as well as the cooperation of the industry supply chain. Solutions are beyond the means of any individual party.
There is strong support for SAF development in the West and a basic framework for the SAF market and supply chain is beginning to take shape. By comparison, the integration of such resources in Asia is not yet complete. Governments and stakeholders in the Asia Pacific region should refer to the Western experience with SAF development and take local conditions into account to develop a joint policy for supporting the SAF supply chain. They must also develop a usage policy that balances airline sustainability and market fairness.
China Airlines began including 10% SAF on the new A350 from 2017 onwards and on the new A321neo from 2021 onwards.
During this time, China Airlines hosted a number of industrygovernment-university research symposiums and expert consultation meetings on SAF to share both international knowledge and our own experience in its use. Later, we even mobilized the industry and formally requested, through the Taipei Airlines Association, government support on SAF. The Taiwanese government has indicated its support for such a policy.
travel while coexisting with COVID-19, and to introduce service recovery to deal with changes in itineraries, making air travel more predictable in the post-pandemic period.
Sustainability is another focal area for SkyTeam. Sustainable flights operated by member airlines helped the alliance develop more environmentally friendly processes that will contribute to the Fly Net Zero goal.
SkyTeam also supports the IATA 25by2025 initiative. China Airlines hopes to promote greater diversity and gender equality in the industry as well as contribute to the sustainable development of the airline industry.
Are sustainability initiatives a luxury in the current financial crisis or are they essential to the industry’s future?
Supply chain disruptions and energy crises due to extreme weather, inflation, fluctuating currency rates, geopolitical conflict, and COVID-19 are all generating concern about another global financial crisis. Unlike past financial crises though, current conditions are more favorable to the promotion of green recovery and sustainable development.
Lockdowns and quarantines imposed to contain the COVID-19 virus brought about a natural shift in economic activity and structure. During the COVID-19 pandemic, a flexible approach was adopted by our management team for proactive risk management, the development of corresponding response strategies, consolidation of resources, and the dynamic adjustment of passenger-cargo operating plans. The continued profitability of our core business despite prevailing trends was the outcome of our investments in sustainability.
China Airlines supports international initiatives on carbon reduction and the mitigation of climate change. We also took up “The Sustainable Flight Challenge” issued by SkyTeam through our demonstration flight from Taipei to Singapore.
Furthermore, we are the only transportation company in Taiwan to have signed the Buckingham Palace Declaration banning the illegal trade of wildlife and plants. We were also the first airline and transportation company in Taiwan to sign and issue our “Declaration on Forest and Biodiversity Conservation.”
Overall, do you think passenger expectations have changed following the crisis or do you see it as business-as-usual in the years ahead?
Post-pandemic travelers not only pay attention to safety and hygiene during their trip but also want more affordable fares. However, airlines are facing a jump in operating costs due to volatile fuel prices, inflation, labor shortages, and epidemic prevention costs. Whether higher travel costs and inflation will impact interest in overseas travel remains to be seen.
Airlines are enhancing the flying experience for travelers. China Airlines introduced the new A321neo passenger aircraft in 2021. This year in-flight entertainment offerings were upgraded again with the launch of the “Dynasty Sky Reading” e-book service. Travelers on all aircraft types and in all cabin classes can now use smartphones and other personal electronic devices to download an unlimited number of books, newspapers, and magazines.
Our goal in the passenger business is a return to pre-pandemic levels of operations and profitability. Taiwan announced in September that border restrictions will be eased over two stages. To take advantage of the expected market recovery, China Airlines is increasing service frequency 50% in Q4 2022. The number of flights on Northeast Asia routes will increase from 30 a week in Q3 to more than 100 a week. Tokyo, Osaka, Fukuoka, Nagoya, Sapporo, and Seoul will all see more services on their routes.
China Airlines will also increase frequencies to Southeast Asia and on long-haul routes. We are also actively promoting trans-regional products transiting through Taiwan.
How can the production of sustainable aviation fuels in Asia-Pacific be improved?
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With airlines set to emit up to 21.2Gt of CO2 in the period to 2050, carbon offsets have an important role to play in aviation’s net zero goal. Together with carbon capture technologies, offsets will contribute up to 19% of the emissions reductions needed in 2050. In fact, it is estimated that 3-5 billion offsets will be required up to 2050.
But offsets have come under scrutiny in recent months with some observers considering them a license to pollute. Their argument is that if airlines have enough money to spend on offsets, they will continue with carbon emitting procedures and technologies.
“But this perception is wrong,” says Michael Schneider, IATA’s Assistant Director, Aviation Environment. “For a start, aviation is the only industry to come up with a target and plan to get to net zero by 2050. Carbon offsets are a gap filler and just one part of the plan. Most of the CO2 reduction will result from the industry’s huge investment in new technologies, especially sustainable aviation fuels (SAF).
“Moreover, the right offsets are not about compensation for emissions but about contributing to emission reduction with many of the offset projects offering socio-economic co-benefits for local communities,” he adds. “The industry wouldn’t be involved in offsets that aren’t effective.”
A project promoting cooking stoves in Ghana highlights the point. Not only do these efficient cooking stoves reduce carbon emissions but also they reduce significantly reduce toxic fumes within homes. Moreover, because the stoves are produced locally, they are stimulating the local economy and creating jobs.
Indeed, the Carbon Offsetting Reduction Scheme for International Aviation (CORSIA) is known for having some of the toughest eligibility criteria in the sector. That is the result of years of hard work by expert groups and with
As the industry continues to invest in new technologies, carbon offsets are just one part of the net zero solutionIATA’s Assistant Director, Aviation Environment
Net Zero by 2050 Contribution to achieving Net Zero Carbon in 2050
participation of environmental NGOs at the ICAO level, essentially making aviation offset projects state approved. Carbon offset standards and programs are independently reviewed by the Technical Advisory Body (TAB) to ensure that projects are meeting the stringent environmental integrity criteria under CORSIA.
Infrastructure/operations
Offsetting/ carbon capture
That means taking aviation’s emissions, capturing them, and storing them so they can’t escape back into the atmosphere. This nascent technology has limited capacity now but the potential for CDR is enormous.
The flip side to the strength of aviation offset projects is that other industries are drawn to this stamp of approval. As the corporate world increasingly looks to offsets, for example, CORSIA-sanctioned offset projects are considered desirable for their robustness.
Though this has led to some projects being “sold out” and others being snapped up by speculators, thereby forcing significant price rises in the short term, Schneider is confident that demand and supply will balance out.
“Where there is demand, there will also be supply,” he says. “It’s simple market forces. It’s also a good opportunity for project developers. It should lead to innovative and charismatic offset projects in the near future.”
The carbon market, which will have a strong influence on pricing, is also evolving quickly. Market intelligence is still sparse, however, and this makes it difficult for airlines to budget as it’s almost impossible to ascertain the price of an offset at any given future time.
IATA’s Aviation Carbon Exchange is helping. ACE is a centralized marketplace for CORSIAeligible offsets where airlines and other aviation stakeholders can trade CO2 emission reductions for compliance or voluntary offsetting purposes. Even so, time and experience will prove the biggest boon.
Associated with carbon-reducing offset projects are carbon capture technologies. Essentially, both are concerned with carbon dioxide removal (CDR). Net zero means every gram of carbon must be removed from the atmosphere.
“The technology is maturing rapidly, and it could be a significant contributor to the 2050 net zero goal,” says Schneider. “At the moment it is expensive but that will change.”
Direct air capture and carbon storage would also play an important role in other aspects of the 2050 roadmap. Power-to-Liquid SAF uses captured CO2 to generate drop-in liquid hydrocarbon fuel. And whereas established SAF pathways represent up to 80% CO2 reduction over their lifetime, PtL SAF gets close to 100%.
“There are going to be some interesting developments in CDR,” says Schneider. “The cost is about $600-$900 per ton of CO2, which is obviously far more expensive than an offset. We are probably about a decade out before the technology scales up sufficiently for price parity.”
Immediate impact SAF aside, most other technologies that will assist aviation’s 2050 net zero ambition will only become widely available from 2035 onwards. Hybrid-electric engines are beginning to be tested but their certification and use on commercial flights will take time. Hydrogen propulsion, another major hope, is progressing quickly but has a number of challenges to overcome, including its requirement for infrastructure changes. SAF, too, must still undergo improvements, most especially a massive ramp up in production.
“The point is that carbon offsets are not aviation’s only tool to achieve net zero in 2050,” concludes Schneider. “They can have an immediate impact, however, and though their importance will diminish as other technologies come online, every offset will be robustly assessed to ensure it makes a positive contribution to emissions reduction.”
Offsets will contribute up to 19% of the emissions reductions needed in 2050
“Aviation is the only industry to come up with a target and plan to get to net zero by 2050. Carbon offsets are a gap filler and just one part of the plan”
Michael Schneider,
New payment channels are often seen as a technological challenge. Simply implement the right hardware and software and add the payment option to the checkout screen.
But payment is so much more than that, according to Yang Li, Elavon’s Vice President, Global Airlines. “What really matters is the people factor,” she says. “Every relationship, both with businesses and the end customer, relies on this. You need humans to understand what to implement, how, and the effect on the customer experience. And that’s why diversity is so important.”
The Elavon Global Airline team serves airlines from around the world. “Since we work with many different cultures, being able to communicate in their language, and in ways that are culturally sensitive and familiar creates both comfort and trust in Elavon,” Li continues. “Our job is to help our customers understand payments. By understanding how their business works, we are more effective partners.”
Understanding and supporting varied cultures extends all the way to the end customer. Attitudes to payment can differ enormously and negotiating the complex nuances is no easy task.
In China, for example, the phone is often
used for payment and facial recognition is gaining traction. People there are comfortable with using technology and sharing data. Europe and the United States tend to be card centric as these are often tied to loyalty schemes. In other regions, cash is still king.
This creates challenges for airlines. Their global nature makes decisions on payment options difficult to assess. “That is why it’s beneficial to work with a global payment provider like Elavon rather than a local bank,” says Li. “We can help an airline to understand the channels in which they should invest.”
This is not a one-size-fits-all sector. It is essential to adapt to market conditions and the behavior of the customer. For some countries, a multitude of payment channels might offer the best potential. In others, a less is more approach might yield better results.
As with culture, regulations differ from country to country. For airlines, this makes compliance time consuming and resource heavy. Different licenses are required and, even in established markets, obtaining them can be complex undertakings.
“When an airline sets up a new route, it has enough to do without worrying about payment options or terms and conditions,” says Li. “There are staffing considerations, marketing, scheduling, and much more.
Li, Vice President, Global Airlines, Elavon
forefront of its payment
important for the customer experience.Sponsored Feature: Elavon
Again, it is best to leave the payment sector to an expert global provider.”
All these factors contribute to a frictionfree payment process. Airlines are driven to eliminate any obstacles in payment as it can result in lost revenue, or an unhappy customer. In Europe, the Elavon Transaction Risk Analysis (TRA) product can have an enormous impact too. When adopted by an airline, it improves the customer experience by allowing low-risk transactions up to €500 ($489) in value to flow through the approvals process without challenge.
Li believes airlines are finally beginning to give payment the focus it deserves. But this isn’t just about making the checkout screen
load faster or strengthening the approval process. Yes, payment should be quick and easy but improving the experience and the conversion rate requires a more holistic approach.
“When an airline decides on a new payment channel, it is deploying an opportunity for revenue growth,” she says. “It deserves the attention you would give any new revenue stream. Some people will become a customer because of the new payment channel, or an existing customer might spend more.
“Payment is about continuing to deliver value to the customer,” she continues. “Diversity is the key to that. It promotes
a deeper understanding of the customer’s needs and fosters creativity and balanced solutions. Elavon’s diverse team can provide knowledge and trust and ensure airlines deliver that value in turn.”
For more information on how the Elavon Global Airlines team can help with your payment channels, visit https://www.elavon.com/
“Payment is about continuing to deliver value to the customer. Diversity is key”
Yang Li, VP, Global Airlines, Elavon
For companies globally—not only in the aviation industry but in every other sector throughout the world—achieving equal opportunities is a journey. And it seems harder in aviation than other industries as it has long been seen as a male-dominated sector.
Why is diversity so important to the airline?
Diversity has always been integral to our vision. Our company comprises 33% women, including 70 female pilots. At our head office, it rises to 49% women. It has been an important factor in our success, which is why we understand that this is a continuous journey. You cannot stand still.
But this is not only an aviation issue. It is a global concern, and all companies are trying to
achieve some measure of diversity. All we are looking for is a balance—to have men and women equally represented in the workplace. Even so, the World Economic Forum estimates it will take 132 years to get there.
It will be more difficult for aviation than many other industries. This has traditionally been a male-dominated sector. Predominantly, men flew aircraft, designed them and maintained them. Those aspects of the industry were not encouraged as areas that women could work in, and so we are starting from zero and trying to achieve equal representation. That is a long journey.
But does diversity make business sense? Airlines and any good organization recognize diversity as a core value. Like sustainability, this is not an area a business can ignore.
All we are looking for is a balance—to have men and women equally represented in the workplace. The World Economic Forum estimates it will take 132 years to get there
But there is a simple business rationale too. Basically, half of the population is female and if you don’t have true equal opportunities, you exclude 50% of the job pool. Aviation is not in a position to do that.
We have some good individual stories among airlines, but the industry does need to take a wider view. That means ensuring there is no mindset that takes us backward. Remember, all we are asking for is a balance. We want to put the right person in the right job regardless of gender.
Are role models important and who was important in your career?
I was lucky. I have been at Pegasus for 17 years and before that with I was with Turkish Airlines for 23 years, becoming their head of sales and marketing.
Pegasus is a young company and has always had a supportive atmosphere. I never felt that there was any discrimination and always believed I was bringing something positive to the company.
Being a leader, you need to have certain qualities, but your gender isn’t one of them. You must have confidence, work hard, and always be willing to learn.
Role models are really valuable because you do have doubts sometimes. As a woman, you will have moments where you wonder if you can take charge of mostly male pilots and engineers. But a role model gives people the courage to persevere, to change a company culture if necessary, and to provide support for other women. A role model is an enabler for diversity.
We now serve 125 destinations in 47 countries with 95 aircraft
Diversity has always been integral to our vision. Our company comprises 33% women, including 70 female pilots.
But equally important is having men believing in diversity. They must trust women to bring creativity, productivity, and profitability. We won’t achieve our diversity goals unless men are equally committed to the cause. As I said, I was lucky. I had that support. I had people believing that I would make the company successful.
Pegasus started in 2005 as a low-cost carrier but our product has evolved, and we now have a unique proposition in the marketplace. We started with six domestic destinations and 14 aircraft. We now serve 125 destinations in 47 countries with 95 aircraft.
But it has never been purely about growth. Aside from diversity, sustainability and digitization have been high on the agenda. We want to be a digital airline that offers a responsible, sustainable product.
Does sustainability make business sense for you?
We have also developed 64 new Express Baggage kiosks that not only assist with check-in and bag tags but also allow our customers to buy ancillaries
64Sustainability is not just about the future of our airline. It is about the future of travel, and the future of the world. We can’t hold back. I don’t think we can view this as a choice between making a business profitable and pursuing environment initiatives. They cannot exist in isolation. You need both.
We have used sustainable aviation fuels (SAF) and we expect them to form around 65% of the industry’s net zero carbon emissions goal. It is true that they are expensive now but that is because production is low. If the production planned to come online does so, then we will start to see a better balance between demand and supply and a better price.
But affordable, readily available SAF requires the entire aviation value chain, from governments and regulators to the refineries. There must be incentive mechanisms to encourage the production and use of SAF because we do need a lot of
“Being a leader, you need to have certain qualities, but your gender isn’t one of them. You must have confidence, work hard, and always be willing to learn”
SAF to reach net zero. But I am optimistic, and I believe that the sector will adjust to the needs of the market.
What role will digitization play in your strategy?
Digitization is in our DNA. We think of Pegasus as a digital airline.
For example, people are starting to talk about moving into artificial intelligence (AI) and machine learning (ML). But we have been using AI and ML since 2017 to understand the amount of catering we need to load for onboard sales. We learned at an early stage that historical data alone was not enough and to use these new technologies to help decision making.
That project has been extremely successful. It has enabled us to keep our customers happy because we have the products that they want to buy, it has profited the airline because our sales are strong, and it has benefitted the environment because waste is at a minimum.
We are now implementing ML into revenue management and our pricing mechanisms. It is essential because historical data has lost its relevance due to the pandemic. Booking habits have changed, passenger behavior has changed. Now is the ideal time to transition to ML.
We have also developed 64 new Express Baggage kiosks that not only assist with check-in and bag tags but also allow our customers to buy ancillaries. And our App provides a QR code that means minimal contact through the airport if that is what a passenger wants and stops the need to constantly re-enter details. Our customer satisfaction scores are high, and are increasing.
Another area that is of great interest to us to keep aircraft utilization high is predictive maintenance. It can prevent an aircraft being taken out of service and generally provides for more efficient operations.
Is it important to have a supportive airport partner when you implement the customerfacing technologies?
It is always important to work closely with
airports but there is always room for improvement too. About 67% of our operations are from Istanbul Sabiha Gökçen International Airport and so that is where we have some flexibility to be innovative.
Airports will change considerably to accommodate new, automated processes. For example, biometrics will dominate, and I think that will stop the need for check-in in the future. What does check-in achieve that we don’t already know? It is an unnecessary extra step. The customer experience will be completely automated all the way through the airport. They will only need to leave their bags.
But, of course, this is not a technical challenge. It can be done today. But it needs all the players, including airports, to support the changes if they are to be implemented successfully.
“Remember, all we are asking for is a balance. We want to put the right person in the right job regardless of gender”
We have used sustainable aviation fuels (SAF) and we expect them to form around 65% of the industry’s net zero carbon emissions goal. It is true that they are expensive now but that is because production is low.
As airlines strive to meet demand in the post-pandemic world, payments have become a key performance driver.
WORDS: GRAHAM NEWTON
Airlines traditionally struggle with several payment-related issues, including refunds, contracts, cash flow, and integrating new payment methods. Though much has been made digital, the back-office processes have remained largely unchanged for decades and manual intervention is the norm in many instances.
Alongside controlling distribution and an offer and order environment, improving the payment sector is key to unlocking value for airlines.
There are two aspects to consider: controlling costs and increasing revenue. Two studies, one undertaken by Edgar, Dunn & Company (Airline Payment Cost and Revenue Drivers) and the other by McKinsey & Co (Payments Value Opportunity in Airline Retailing) explore the costs and revenues associated with payments for the airline industry globally.
The headline finding is that airlines took in $977 billion in 2019, including $93 billion of fees and taxes on behalf of third parties such as infrastructure providers and tax authorities. The payment acceptance cost was $20.3 billion or about 2.2% of total payment amount.
Pascal Burg, Director at Edgar, Dunn & Company, says there is a reliance on card transactions in aviation, and card payment fees represent the largest component of the total acceptance costs. “But also, airlines are paying fees on $93 billion that they don’t even get,” he says. “They’re just collecting that money for somebody else.”
Burg notes that cards represent over 90% of transactions for some airlines. But they also come with several advantages. Payment is quick and secure, and they are often tied to loyalty-related bonuses, which makes them popular with customers.
Nevertheless, alternative payment methods are gaining
traction. Integrating them isn’t cheap or easy as aviation is a complex, global business. But Burg believes the benefit would be seen in the mid-term. “Wallets are gaining traction in markets such as China,” he says. “Also, Buy Now Pay Later is working well in markets, such as the United States. And real-time bank transfers will likely be a major development in a few years.”
IATA Pay is an enabler of this latter trend and is already becoming established in several markets with several airlines.
“There is no doubt that payment has been undermanaged in aviation, but interviews have confirmed that airlines not only focus on controlling costs but also are increasingly starting to leverage payment on the revenue side,” says Burg.
Revenue potential Indeed, new payment methods offer airlines an opportunity to increase revenues. This is an area that is generally poorly understood by airlines, however, and is rarely measured.
If an e-commerce retailer introduces PayPal, for example, it routinely measures the impact of the new payment method across a range of indicators. After all, online payment is at the core of their business. But information regarding the effect of new payment methods on revenue is difficult to find among airlines.
Similarly unappreciated by airlines is the payment conversion rate—those payments that are successfully fulfilled. Most often, this means whether a card is approved or declined. E-commerce is obsessed by this key performance indicator and usually monitors it in real time. A high approval rate is vital to a successful business. However, for air travel purchases this rate typically is about 85%, which is considered to be in the lower range. And it appears that few airlines monitor it closely.
Aside from measuring and monitoring the conversion rate,
Airlines took in $977bn in 2019, including $93bn of fees and taxes on behalf of third parties such as infrastructure providers and tax authorities
airlines need to understand that the way card approval is processed can affect the result. There are different routes to approval and options to retry card payments that are under airline control. Increasing the conversion rate by just a few percentage points can make an enormous difference to the bottom line.
“Payment must be viewed as part of the transaction and not just the end of it,” says Nina Wittkamp, Partner, McKinsey & Co. “That makes it part of the customer experience and airline engagement with the customer.”
McKinsey’s own report, Payments Value Opportunity in Airline Retailing, suggests that a focus on the revenue potential of payment could play a major role in unlocking about $40 billion of retailing potential by 2030. Also available is an additional $14 billion directly related to payment strategy.
Payment should be seen as a way of differentiating an organization, but all airlines have been hampered by a lack of innovation in this area. McKinsey reveals that out of more than 12,000 fintech companies, fewer than 50 are focusing on aviation, a result of the complexity of the industry. If airlines lose control of the customer relationship to new travel platforms, then the retailing revenue potential drops more than 50%.
There are multiple touchpoints in the passenger journey for payment options to be offered. The revenue potential therefore comes from a variety of sources. There will be an increase in ancillary service purchases, an enhancement in loyalty activity, improved sales, and growth in emerging markets.
Wittkamp says airlines must put in place a detailed payment strategy. Establishing a baseline is essential, as is constant monitoring. “This cuts across departments, including commercial, loyalty, distribution, and finance,” she says. “All have to get together to examine the impact of different payment types, how each customer segment approaches payment, and much more.”
The payment methods airlines choose will vary according to circumstance. The United States is card centric, for example, due to the benefits associated with card use. Parts of Asia and Latin America, on the other hand, still live by ‘the cash is king’ principle. In China, offering wallet payment alternatives like Alipay and WeChat Pay have become a requirement.
Whatever options make sense must be prioritized. Wittkamp says payment options are subject to diminishing returns so five or six alternatives is plenty.
Beyond customer expectation, airlines should consider cash flow. Post-pandemic, all companies are holding on to cash and that means airlines are getting paid later. Payment terms must be carefully considered as does the payment methodology. When will airlines see the money?
Ease of use and world-class security are self-explanatory. More challenging is deciding where and when to offer a payment opportunity. It’s an important decision as payment should create customer engagement and form part of the customer relationship.
Backing up these considerations is an expert airline payment team. How many people and the reporting line should form part of the payment strategy. Will the team sit in the finance or distribution department, for example? Certainly, there is the possibility to better integrate payment strategy and commercial operations.
Both the Edgar, Dunn & Company and McKinsey studies show that to take advantage of retailing, airlines must first innovate in payment options. That is easier said than done but, with $40 billion up for grabs, it is a challenge worth undertaking.
“Payments must be seamless,” Wittkamp concludes. “The aim is to give the customer choice and trust in the transaction. Then you look to keep costs to a minimum and measure the impact of each option on your revenue potential.”
If airlines lose control of the customer relationship to new travel platforms, then the retailing revenue potential drops more than 50%
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Health information became the norm during COVID-19, but the rules varied from country to country. Some insisted that airlines hold on to the information, others were adamant that the health data had to be deleted or wouldn’t allow it to be transmitted internationally.
The painful workaround and compliance costs were all too familiar to airlines. The increasing use of data and emerging privacy laws have created a patchwork of bewildering complexity.
“There are about 137 countries with some form of privacy legislation,” says Leslie MacIntosh, IATA’s Director Legal Services. “These laws are often inconsistent with each other, vague, or have extraterritorial implications.”
The problem is likely to worsen as new technologies requiring personal information are implemented to enhance border management, passenger facilitation, and security tasks. If unaddressed, this issue of inconsistency in data protection laws has the potential to disrupt the recovery of international connectivity and dampen aviation demand.
It is equally confusing for travelers. Consider a passenger buying a ticket through a global distribution system to fly from the United States to Australia via Europe and Asia. If there
is a data breach, where should a complaint be made?
The European Union’s General Data Protection Regulation (GDPR) is perhaps the most influential of privacy regulations and the most far-reaching, affecting EU citizens throughout the world. But though it serves as a guide for many countries, it is now being developed in different directions. Brazil, Canada, and China are just a few of the countries that either have enacted or plan to enact new privacy laws. Unfortunately, the effect of these privacy laws on a fast-moving, dataheavy global industry such as aviation is, at best, an afterthought. Even though aviation is governed by international treaty—the Chicago Convention—the laws are being designed for domestic application.
This runs counter to an ICAO resolution. ICAO Assembly Resolution A40-9, Appendix A, states that countries should “avoid adopting unilateral measures that may affect the orderly and harmonious development of international air transport and to ensure that domestic policies and legislation are not applied to international air transport without taking account of its special characteristics.”
Guidelines for data laws MacIntosh accepts that there are no easy wins. “An international treaty on privacy laws is unrealistic but we need regulators to think about aviation when they are constructing their privacy regulation,” she says. “They should be doing that anyway. That has been made clear at ICAO.”
The industry is not seeking exemption from privacy laws but is calling for an understanding of its operational needs and a similar framework for data privacy that exists for safety and other critical industrywide concerns.
After all, passengers must provide personal information to an airline to travel internationally, and their data must move with them as an inherent and expected aspect of the journey.
There are airline-to-airline, airline-toprovider, and airline to-government data exchanges. If any part of this is disrupted by cumbersome legislation, the passenger will suffer inconvenience, delays, or even denial of travel.
IMAGES: ISTOCKData privacy was among the many stresses and strains on the airline ecosystem highlighted by the pandemic.WORDS: GRAHAM NEWTON
The EU’s General Data Protection Regulation is the most influential of privacy regulations and the most farreaching
Since being introduced nearly 20 years ago as a mandatory requirement for membership in IATA, the IATA Operational Safety Audit (IOSA) has had a significant impact on aviation safety.
On aggregate, airlines on the IOSA registry outperform their non-IOSA counterparts. For example, in 2021, airlines on the IOSA registry had zero fatal accidents. And their all-accident rate was more than six times better than the rate for non-IOSA airlines (0.45 vs. 2.86).
The data is clear and has attracted non-IATA airlines to the scheme. Of the 400 or so carriers on the registry, more than 100 are not IATA members. This track record of success is not being taken for granted, however, and the industry focus is always on getting safer. “Safety is about continuous improvement,” says Mark Searle, IATA’s Global Director of Safety. “There are major advances in aircraft technologies, and a multitude of other factors that have enhanced flight safety. Audit programs must do the same. We cannot stand still.”
Accordingly, IOSA is moving from a compliance-based approach to a risk-based approach to auditing.
A risk-based methodology to safety audits is already utilized by leading aviation authorities, such as the UK Civil Aviation Authority. The aim is to provide a deeper dive into specific areas of risk, thereby providing greater understanding of the issues involved and identifying opportunities to improve.
Safety Management Systems highlight the point. The IOSA Standards and Recommended Practices (ISARPs) check that an airline has an SMS in place. Moving to a risk-based approach means going beyond box ticking to evaluate the effectiveness of an SMS in practice.
“For example, what if an airline has opened a new route that involves some difficult geography, such as a mountain range close to the destination, that is unlike any other route on the network?” asks Searle. “Risk-Based IOSA would want to understand how new risks, relating to this new operation, were being managed.
“It becomes a bespoke audit,” he continues. “Is the airline doing anything differently that has changed its risk profile, and what is it doing about it?”
This makes the risk-based approach a more
IATA’s safety audit is moving from a compliancebased approach to a risk-based one.
dynamic process. That could provide some initial challenges to airlines, as they adapt to the new methodology, but at the same time it will allow them to get fresh insights into safety issues that wouldn’t have been available by going through the 960-strong IOSA audit checklist. Searle notes that many airlines are looking for this deeper dive to help them derive greater value from the IOSA process, given the investment in time and resources that IOSA entails.
There will be a phased approach to introducing the new look IOSA, and five trials of the new process are underway. In 2023, the plan is for 20 official, risk-based audits, which will allow the capabilities needed to perform the audit to be ramped up. Some 100 risk-based audits will follow in 2024 and the transformation will come into full effect in 2025.
IATA will act as the guardian of the program and begin to contract auditors directly. Bringing the auditing function in-house will help ensure consistency, through greater auditor standardization, even as each audit differs somewhat depending on the individual airline’s risk factors. And though IOSA audits
run on a strict bi-annual basis, the risk-based approach makes a variable audit cycle possible in the future. That could mean airlines need to dedicate less time and fewer resources to an audit, saving cost.
How regulators evaluate or use IOSA in their own safety programs will also need to adapt. “The relationship with the regulatory authorities will be key,” admits Searle. “Risk-based oversight can be hard for some governments to understand. But we know that the US Federal Aviation Administration and the European Aviation Safety Agency support this approach.”
The Memorandum of Understandings that IATA has with countries concerning IOSA will be updated to reflect the new risk-based methodology.
“It is right that we come out of the pandemic with a determination to keep safety at the top of every airline agenda,” says Searle. “RiskBased IOSA is a great opportunity moving forward and evolves the industry’s unwavering commitment to keeping everybody safe.”
Risk-based IOSA and other topics affecting industry safety were among the issues discussed at the IATA Safety Conference, Dubai, October 25-27, 2022.
In 2021, airlines on the IOSA registry had zero fatal accidents
In 2023, the plan is for 20 official, risk-based audits, which will allow the capabilities needed to perform the audit to be ramped up.
Much of the world has reopened borders and aviation demand is strong as a result. But Asia— and North Asia in particular—is lagging. China is, of course, the dominant player and only recently has it begun to ease border measures. There have been some positive developments: recently, the Civil Aviation Administration of China (CAAC) relaxed the circuit breaker policy for international flights. the State Council executive meeting stated that it will increase domestic and international passenger flights in an orderly manner and formulate measures to facilitate the exchange of personnel from foreign companies the latest version of the “Prevention and Control Plan” has been implemented the time for personnel isolation and control has been greatly reduced to 7 days in a facility and three days at home. Nevertheless, after two and a half years of border restrictions, China needs to remove quarantine for arrivals and quickly adopt a full reopening to allow international travel to flourish. This will support the recovery of the Chinese airline industry, and the broader economy as a whole. Remember, in the early days of the pandemic, China was one of the first to bounce back and we saw a surge in traffic as a result. China is a huge generator of international traffic and tourists for other countries. It is vital that the country resumes this role.
IATA stands ready to help Chinese civil aviation maximize the safe and orderly flow of passengers by sharing the best practices of other markets’ recoveries, so that unhindered international travel can return as soon as possible.
Two standout areas will ensure a positive recovery. The first is financial resilience for all North Asian airlines. We know how devastating such travel restrictions have been on airlines in our region. To allow them to get up to speed, IATA will continue to innovate services to deliver value and better serve their needs.
For example, our standards, services, and products improve operational and financial efficiency and reduce cost. The IATA settlement systems, such as our Billing and Settlement Plan, can help airlines to improve cashflow and reduce costs. The Chinese airlines, in particular, would derive huge benefits from the economies of scale deriving from their participation in a single global program. It would translate into lower transactional and back-office costs. And the continued modernization of these systems means the advantages will only increase.
The second area—and something we must never neglect, especially as the industry ramps up—is safety. The benefits of collaboration in this area are proven and the links in the safety chain in North Asia must be strengthened. IATA encourages the regulators and airlines in the region, in particular China, to share their safety and operational data so that such benchmarking services as IATA’s Global Aviation Data Management platform can enhance everybody’s safety performance. Sharing safety and operational data is key to improve global aviation safety and would benefit airlines in the North Asia region enormously.
Not so long ago, North Asian airlines were the envy of the world with the biggest and fastest growing markets on their doorsteps. But with the right government policies and the best industry support, there is no reason why these airlines and markets cannot regain their former strength.
Dr. Xie Xingquan, IATA’s RVP for North Asia, says the region’s recovery cannot ignore safety and future financial resilience.
