Pierre J. Jeanniot
APG Global Connect Conference
Summary and Closing Address
Monte Carlo, October 29–31, 2014 >>
This conference has focused on the year 2020 and attempted to describe – to the best knowledge of the participants and their ability to influence it – the shape of the aviation industry more than five years hence and the type of distribution systems that may prevail at that time.
The economic forces, as one would expect, are a most important driver of aviation and of traffic flows.
Jean-Christophe Victor gave us a brilliant overview of what is likely to happen in each geopolitical region of the world, their various interactions and economic impact.
His broad observations were:
• We are living longer
• The middle class will be much larger
• The economic weight of nations will be different – India, Brazil, Indonesia, Turkey, etc. The economic centre is shifting.
The airplane manufacturers pay very close attention to such forecasts to produce their own estimates of how many airplanes of each type they are hoping to sell in each region.
Both major aircraft manufacturers have similar expectations. They differ only slightly, mostly on the number of very large airplanes that are likely to sell.
Their more recent forecasts suggest that the market, i.e. the traffic, will grow worldwide at 4.9 percent p.a.
But the growth between emerging markets is likely to be 6.8 percent p.a.
On the basis of these forecasts, the aircraft manufacturers would expect to sell some 7300 airplanes by 2020, of which:
• 36% would be for Asia-Pacific
• 20% for Europe
• 19% for North America
• 8% for Latin America
• 7% for Middle East
CIS countries and Africa would buy 4% and 3% respectively, and freighters would represent only 3%.
In looking at those forecasts – and the trillion dollars of investment that these acquisitions represent – any banker could be tempted to express a word of caution.
I am reminded of a proverb, an Arab proverb I believe, which says that
“Anyone who predicts the future is lying, even if he speaks the truth; and forecasting is always difficult, particularly when it concerns the future.”
That is because most forecasting models assume continuity of the situation that has existed up to the present time, and we are poorly equipped for anticipating any dis-continuity or major disruptions.
IATA reported that 3.1 billion people flew during 2013.
On the basis of a continued projected growth of approximately 5% per year on average, by 2020 we should be flying 4.6 billion passengers.
That year, the industry’s revenue should exceed 1 trillion US dollars. Of course, this assumes linearity of forecasts and no major dis-continuity such as an economic recession or major military conflict in an important region of the world, any of which could seriously impact – temporarily – the flow of business traffic and tourism.
Such events are largely unpredictable, but history teaches us that their occurrence can have a significant impact on the growth of our industry.
We had, in 2013, the best year ever in terms of aviation safety, with the least number of total losses and fatalities.
Almost everyone was anticipating – and hoping – that this trend would continue in 2014.
In less than six months we destroyed that illusion.
We were given a grim reminder that unpredictable events can occur and dramatically change our course of action.
Was that predictable?
In the past, looking at the future, it has been often fashionable to quote the Prophecies of Nostradamus.
Michael Nostradamus, a French apothecary from “Provence” and probably a monk, wrote in 1555 (465 years ago) a book called “Les Propheties”.
In this book, each block of four lines – called a “quatrain” – is an attempt to predict some event in the future.
In his book of Propheties, this is the “quatrain” we may have found which would relate to our current times:
“In the days of a holy man named Francis
The sky was brought down to a fiery end
The Middle East close to sinking in the abyss
And the evil forces were there to attend.”
A few months ago, the global aviation industry experienced a tragic week, in which three different commercial airlines suffered catastrophic incidents over a short period of time.
First, Malaysian Airlines flight MH17, a Boeing 777-200, was shot down by an air defense missile as it was flying over Ukrainian airspace on July 17.
Next, on July 23, a TransAsia ATR.72-600 crashed on one of the Taiwanese islands of Penghu while attempting to land in adverse weather conditions.
The third accident was an Air Algerie MD83 aircraft which crashed in very heavy rain/thunderstorm over Northern Mali on the way from Burkina Faso to Algiers. Indeed,
“The sky was brought down to a fiery end”.
We will leave out for the time being the mysterious disappearance earlier this year of Malaysian Flight MH370 – still unexplained!
I hate to think what would have been said if this Malaysian airplane had disappeared over the Bermuda triangle!
I will refrain from commenting on the second half of the Quatrain, which one can assume would refer to the extensive turmoil still taking place in the Middle East.
Back to the three tragedies which occurred in quick succession, and unfortunately caused more casualties than the industry suffered during the whole of 2013 (210 to be precise).
To provide some reassurance, IATA reminds us that 100,000 flights take to the sky and land safely every day – and that getting on an airplane is still one of the safest activities one can do.
As one of our esteemed and very experienced speakers, Jean-Paul Troadec – the former head of the French Bureau of Accident Investigation – has demonstrated, our capabilities of analyzing accidents from the remains of the black box, as well as from the remains of the aircraft, enable us to learn rapidly and to take measures to prevent further similar accidents.
At this point in time, the mystery of MH 370 remains unsolved and may remain so for a long time, although a new attempt is being made to locate the aircraft.
The events of this past year, each in its own way, are in the process of introducing some major changes to the airline industry over the next five years – changes that will redefine the tracking of airplanes and ensure that we will never again be unable to monitor the path being followed by an airplane, that path being a function of the normal oversight and guidance provided by the air traffic control authorities of the different regions and areas, assisted by satellite tracking.
The Malaysian airplane destroyed over Ukraine reminded the industry – very forcefully – that there are many war regions on our planet, and if we are to continue to overfly conflict zones we must have a much better understanding of the risks that are being faced, and of the capabilities of the weapons used by the insurgents.
Both of these events are in the process, over the next timeframe, of altering the operations of civil aircraft – where they will fly, and the flight path to be followed.
The recent breakout of the Ebola pandemic is another reminder that our international flights are important potential vehicles of propagation of viruses, and that traffic flows can be seriously affected by such serious health hazards.
Session 1 – Building the Product
In the partnership to deliver the transportation product, the airlines are the most visible – and often the ones to be blamed by the customer if anything does not come up to expectations.
Manufacturers have continued to improve fuel consumption and operating cost.
They are improving the cabin environment, working on the pressure differential, the lighting, the appearance of the cabin, and in making the washrooms more easily accessible to handicapped people – particularly those with reduced mobility. We need:
• To accelerate the development of new sources of fuel for airplanes
• New materials – new systems to permit real-time display of logos/ads on airplanes’ outside fuselage, and the ability to change them on line
Better Passenger Info and Connectivity
Francesco Violante reminded us of the impact of big data, the increasing use of biometrics, and of proximity sensing
Aircraft will be fully connected – cockpit as well as passengers
Air Traffic Control
Air traffic control is continuously working at improving capacity, minimizing delays, and it is taking on an additional role of providing advice on flight plans – whether the presence of volcanic ash or over-flying potential conflict zones, more specifically stressing:
• The importance of collaborative decision-making involving airports, airlines, and service providers, etc.
• The need to manage civil and military needs to optimize the use of airspace
Airlines: The Buck Stops Here
Gerry Ko stepped in to describe some of the issues faced by the airlines – the evolution of various models including alliances and joint ventures.
The end product is in the hands of the airlines, and their ability to communicate with the passenger is paramount in the travelers’ perception of the product.
Session 2 – Selling the Product
Distribution channels are continuing to evolve, with new players taking a role and existing channels adapting to new needs.
Now that all objections have been removed and that N.D.C. is proving its usefulness, we should expect wide acceptance by any new and legacy distribution systems.
The Future of Payments
The Universal Air Travel Card has been an important player on the travel scene for many years.
Ralph Kaiser provided us with an excellent overview of the future of payments and the current and future positioning of UATP, suggesting that airlines will increasingly focus on the cost of payment – acceptance by credit card (6%).
Newer Distribution Systems
Among the newer distribution systems coming on the scene, Orbitz was most interesting. We have heard from Juliana Hill the various features and strengths of their on-line travel agency, and the important role that IT plays.
Model the Future
We had also a good description of the model of the future and the important role played by ARC – and Mike Premo’s ability to survive a total power outage!
Finally, we have heard from Amadeus that the G.D.S.s are determined to have a future, that new models are being developed.
Heavens! Even Ryanair is now using G.D.S. to distribute some of its products.
Dave Doctor provided estimates that incremental revenues could add $130 billion by 2020 – if properly exploited.
You may remember that the Mayans, with their sophisticated calendar, had predicted the end of the travel agents – by December 2012.
Of course, the Mayan had predicted nothing less than the end of the world for December 2012!
As we have heard from Mike Premo, travel agents are not about to disappear.
Question: Will “big data” be the foundation that will drive loyalty and profit?
Session 3 – Best Ways to Profit
What about the elusive “best route to profit”? As we have heard, the ways to profit have many paths.
Aircraft Manufacturers; Airline Business Models
The aircraft manufacturers – specifically Airbus – over the next timeframe will contribute some significant operating cost reductions with their re-engined narrow body and their new, efficient wide-body savings.
• Market growth – developed vs developing
• New engines
• Seat width – discussion on comfort
Profit for a long-haul airline
Air Mauritius, a long-haul carrier, has been quite successful in developing its own particular “niche” market.
It illustrates how important it is to stick to what it knows best how to do.
• Beyond customer service, to concentrate on customer experience
• To satisfy customers’ expectation, leading to more profitability
Airport Contribution; Sustainable profit
Many airports – and C.D.G. is a good example – have taken much care to simplify getting through an airport, and to creating a pleasant and efficient environment.
• How to be a good partner?
• How to be more efficient?
• Objective – to thank – to help support airlines
Sustainable Financial Health
I was expecting IATA to state that the path to financial health would be with N.D.C. John Gallego suggested:
• We are in the airline industry for fun – not profit!
• Lower costs – higher load factors lead to lower fares, not better profit
The path to success must at all times be focused on the customer, ensuring that the product reflects best value for money.
The information provided to the customer must be done with clarity, transparency, and timeliness.
The distribution system – or process – is a vital link in the trust which must exist between the product … and the consumers.
Commercial aviation will continue to grow, and the long haul trend of +5% per annum is likely to hold.
The growth of traffic between developing economies is forecast to be 6.9% per annum.
But there will continue to be many challenges such as financial crises, regional conflicts, pandemics etc. which could temporarily affect the long term growth trends.
Over the next five years, more efficient airplanes such as the re-engined narrow bodies and the new-technology wide-bodies will help reduce operating costs – and hopefully improve profits.
Airlines’ business models will continue to evolve towards efficient forms of hybrids.
Airline product distribution systems are looking to harness new technologies, and better respond to customers’ diversified preferences.
And travel agents will not disappear! They will continue to adapt and provide a significant and efficient service.
Just as Dilbert, one of our favourite cartoon characters, recently told us:
“Certainty about the future is a sign of mental weakness.”
It is unwise to rely explicitly on any forecast.
Charles Darwin’s observations about the various species applies equally well to our industry:
“Survival depends on our ability to adapt.”
The general trends are useful and – hopefully – will be an appropriate guide to our respective business models.
But we should always keep in mind the need for contingencies and the flexibility required to adapt quickly should the future not unfold as we had originally expected.
One last word about this conference
As we wonder about the future, we asked our crystal ball “What do you see for “APG World Connect” down the road, in year 2020?”
The continuing presence of Jean-Louis and Sandrine!
Well, that is a familiar and reassuring sight – and not only to the producers of champagne!