Pierre Jeanniot was named Officer of the French Légion d’Honneur by the President of the Republic of France on 14th of April 2017 in recognition of his remarkable professional career and exceptional leadership of the International Air Transport Association.
Address to the Montreal International Aviation Club >>
by Pierre J Jeanniot, delivered by Jeffrey Shane, General Counsel, IATA
24 November 2016 >>
It’s always a special pleasure to meet with a group of aviation enthusiasts – people who understand what a remarkable industry this is and what it has contributed to the quality of the world we live in!
Even for enthusiasts, however, it’s easy to forget what an incredible journey it has been over first century of aviation, and so I am going to provide a brief review of the highlights.
Then we will spend a few minutes considering together what we might expect in the future, given the remarkable trajectory this industry has been on, and given the exponential rate at which aerospace technology has advanced.
First, the history. . . .
Two years ago, we celebrated 100 years of the first commercial flight, when a flying boat carrying one passenger flew 21 miles from St. Petersburg, Florida, to Tampa at the breakneck speed of 55 miles an hour. The flight lasted 32 minutes.
From this humble beginning has emerged a global airline industry that last year transported 3.8 billion passengers worldwide.
No one could have imagined, back then, the extraordinary success that would be achieved in civil aviation over the next 100 years, nor the fundamental transformation of life on this planet that it would engender.
But it was by no means a linear progression. There were some important triggering events and some significant accelerators.
It’s an uncomfortable proposition, but there can be no denying it: Wars are great accelerators of technology!
The First World War provided a surge of innovation in aviation. The occasional bomb dropped by hand at the start of the war was nothing compared to the thousands of kilos of bombs carried by the much larger twin-engined airplanes which had joined the battle by 1918.
Engines quadrupled in power. There was a vast increase in the number of trained pilots. By the end of the war, more than 150,000 aircraft had been produced by the major combatants.
But none of the aircraft available at the end of the First World War were designed to carry either freight or passengers.
While potential passengers remained a bit skeptical about the safety of air travel, the great advantage of speed for freight and postal services was recognized almost immediately.
In 1919, Pierre-Georges Latécoère – an aircraft manufacturer in Toulouse – obtained a subsidy from the French government and some surplus military aircraft and started to operate regular mail services between Toulouse and Casablanca and eventually to Dakar.
Its successor, Aéropostale, began regular flights between Buenos Aires to Natal in northern Brazil, and across the Andes to Santiago.
In Canada, the first bush flying took place in 1919 to survey the Quebec wilderness.
Air mail services expanded rapidly in North America, and by 1925 the major U.S. banks had become regular customers.
These early commercial air services laid the foundation for the establishment of Imperial Airways in Britain. The first leg of its service from the UK to Australia was inaugurated in 1927.
Pan American Airways started its first international passenger service between Key West and Havana in 1928.
By 1931, KLM was operating a regular service between Amsterdam and Djakarta.
Air France was born in 1933, a regrouping of four small French airlines.
The pace of development quickened.
The 1930’s brought more powerful engines, metal fuselages instead of wood, retractable landing gear, and variable pitch propellers.
It was also in the 1930’s that the Boeing 247 led the way in revolutionizing air travel. Its two 550-horsepower Pratt & Whitney “wasp radial” engines propelled the airplane 50 mph faster than any other airliner at the time, and it was more economical to operate.
The Douglas DC-3, the airplane you see in the picture, was one of the most popular and versatile aircraft ever produced. General Eisenhower rated it as one of the most significant items of war-winning equipment. Over 17,000 were produced.
The Second World War represented another major aerospace accelerator. It accelerated development of more efficient piston engines such as the Rolls Royce Merlin, and major progress in aerodynamics. It also saw the introduction of large 4-engined bombers, the Flying Fortress and the Lancaster, each capable of carrying up to 10 tons of bombs.
But bigger was not always better! The most powerful engine built up to then was developed by Pratt & Whitney for Boeing’s 4-engined StratoCruiser. Each engine generated 4,300 horsepower and had 28 cylinders. Because they were so complicated, however, reliability became a major problem.
The most important development engendered by World War II, of course, was the introduction of jet engines and their use on fighter aircraft. The first of these, the German Messerschmitt Me262 and Britain’s Gloster Meteor, entered service in 1944.
This era also witnessed important developments in rocketry, notably Germany’s V1 and V2 guided missiles.
Commercial air traffic exploded during the 1950’s, growing from 3 million to 57.7 million passengers by the end of the decade.
The U.S. carriers Pan Am, TWA and Eastern became major players, and dominated the market.
European airlines also experienced a revival.
The 1950’s witnessed the introduction of the Douglas DC-4, DC-6 and DC-7, as well as the Lockheed Constellation, Vickers Viscount and Vanguard Turboprops. A transatlantic crossing took between 12 and 14 hours, using 4-engined aircraft carrying over 80 passengers.
Transpacific journeys required multiple stops – Hawaii, Midway and Guam.
The first commercial jet airliner was the DeHavilland Comet. With four so-called “Ghost” turbojet engines built into the wings, it first flew in 1949. Each engine developed 5000 pounds of thrust and consumed 1.2 pounds of fuel per pound of thrust per hour. Production was eventually halted due to catastrophic metal fatigue attributable to the airplane’s faulty design, but the airplane had been a game changer.
By 1955, the Pratt & Whitney JT3 engine was developing 13,500 pounds of thrust, but used 24% less fuel than the Comet’s engines.
The Douglas DC-8 and the Boeing 707 had twice the capacity and flew at twice the speed of earlier 4-engined propeller aircraft. In other words, they were four times as productive.
1970 saw the introduction of the Boeing 747, the first wide-body, with a twin aisle fuselage with three times the capacity of the Boeing 707.
At this point it was possible to say that air travel was no longer reserved primarily for the elite. The era of mass air travel had arrived.
An airplane designed exclusively for the elite, however, was the supersonic Concorde, produced cooperatively by France and the UK. Entering service in 1976, it was designed to fly 100 passengers at twice the speed of sound. It was a great technical achievement, but ultimately an economic failure. There just weren’t enough elite passengers. It ceased operating in 2003.
The development of turbofan engines in the late 1980’s substantially increased the efficiency of the turbojet. This innovation consisted of the addition of a larger fan, which passed part of the air around the engine, making it run cooler and quieter.
Steady increases in the size and range of wide-body commercial airplanes being produced by Airbus and Boeing required bigger, more powerful and more efficient engines. Improvements in the by-pass ratio have meant more power.
The Airbus A380 is the largest airliner today and can carry a maximum of 853 passengers, with a range of 15,300 kilometers and a cruising speed of Mach 0.86. Remember those “Ghost” turbojets on the DeHavilland Comet with their 5000 pounds of thrust? The A380 is powered by Rolls Royce Trent 900 engines. Each one produces 70,000 to 80,000 pounds of thrust.
A potential competitor to the A380 in terms of cost – but still to be produced – is the Boeing 777X with a range of 14,000 kilometres and a capacity of 440 passengers. The 777X engines will each deliver upwards of 105,000 pounds of thrust, and yet fuel consumption per seat will be barely 18% of that of the Comet!
Commercial aviation has become a very efficient, worldwide transportation system, currently transporting – as I said earlier — some 3.8 billion passengers a year. Travel from one side of the world to the other now takes a day or less.
Particularly because of the growing middle-class in India, China, and many other developing economies, traffic is expected to continue to grow at around 4.5 percent a year. People enjoying some measure of disposable income for the first time want to travel, and a growing aviation market is thus assured.
Given the enhanced efficiency of aircraft together with liberalization and competition, the price of air travel will continue to fall in real terms.
The question now is: Has commercial aviation reached a plateau in terms of innovation?
We could still build bigger airplanes, although some think the A380 may already be too big. How much more improvement are we likely to see in aerodynamics based on the traditional wings-on-a-tube configuration? Are our avionics and propulsion systems approaching their effective limit?
In the not too distant future we can expect to see the emergence of unconventional aircraft shapes such as a blended or hybrid wing body, increasing aerodynamics and improving structural efficiency.
Alternative positioning of the engines, perhaps above the wings or in the tail, is also being explored to reduce drag.
Development of a quiet supersonic jet is well advanced. NASA is planning to unveil a prototype in 2019, and a company called Aerion is developing a small supersonic private or corporate jet. Eventually, small commercial supersonic jets are expected to capture some 1% of the market.
Another company, curiously called Boom Supersonic, is developing a supersonic airliner using composites and today’s vastly improved turbofan engines. It will be efficient enough, its sponsors say, to match today’s subsonic business class pricing. It will comply with applicable noise regulations, they say, despite naming themselves “Boom.”
Studies to develop a hypersonic airliner are also underway, aimed at meeting the needs of wealthy customers in a hurry — London to Sydney in two to three hours, for example.
There is certainly no shortage of new ideas. Richard Branson’s Virgin Galactic project is one of them. The epic round the world flight of Solar Impulse II is another, and of course commercial drones.
Each new idea introduces a certain discontinuity in existing markets, and creates potential new markets.
They challenge us to think about the unpredictable, or even what might have been deemed “impossible” – ideas that have the potential to reshape the aviation landscape.
Most are the product, of course, of new, emerging technologies.
Richard Branson’s Virgin Galactic project is designed to commercialise space tourism.
Much was learned from the crash of the ill-fated Spaceship I. The first flight of its successor, Spaceship II, is planned for next year.
Already, over 700 people have pledged the ticket price of US$ 250,000 to enjoy a few minutes in space.
Here’s how it will work: Spaceship II will be carried by the mothership, a converted 747, to an altitude of 50,000 feet. At that point, it will separate and fire its rocket engines to reach supersonic speed. After 70 seconds its engines will cut out and the spaceship will cruise to its peak altitude.
At 31 kilometers above the earth passengers will experience true weightlessness. When they reach 100 kilometers they will achieve astronaut status, as officially defined by the Fédération Aéronautique Internationale, an aviation sports club based in Lausanne that apparently decides who is an astronaut and who isn’t.
Spaceship II will re-enter the atmosphere at an angle to minimize friction, then switch to a gliding position at an altitude of 24 kilometers above the earth. From there it will take 25 minutes to glide back to the spaceport.
One of the most remarkable accomplishments in the entire history of aviation was the successful round the world flight of Solar Impulse II, which circled the globe without burning a drop of fuel – relying simply on solar-generated electric power.
It took two men with a crazy dream to do it. Bertrand Piccard is a medical doctor, a psychiatrist by training, and a guy who had circumnavigated the world in a balloon in 1999, earning a world’s record for the longest flight ever – more than 28,000 miles. If the name Piccard sounds familiar, it’s because he’s the son of Jacques Piccard, who with American Don Walsh in 1960 dived in a bathyscaphe to the deepest place on earth, the Mariana Trench in the Pacific Ocean. Bertrand is also the grandson of Auguste Piccard, who while studying the effects of cosmic radiation in order to validate some of Einstein’s theories, climbed more than 14 miles high in a balloon. Interesting family.
The second man was André Borschberg, a mechanical engineer, an entrepreneur, and a former pilot with the Swiss Air Force.
This is a fascinating story and so I’m going to take a couple of minutes to share it with you.
Aircraft and engine manufacturers told them their dream was impossible – too big, too light, impossible to control in flight. None offered any kind of support.
During its ten years of development, the two men succeeded in raising approximately US$ 100 million from non-aviation sponsors, including makers of pharmaceuticals, watches, and elevators. The aircraft was designed by the Engineering Department of the University of Lausanne.
Solar Impulse II was powered by specially designed lithium-ion batteries weighing 366 kilos. It carried more than 17,000 solar panels on its wings. It had a wingspan of 72 meters – wider than that of a 747 –and a carbon fibre body. It weighed 2,300 kilos.
The flight plan was designed to optimise energy production and conservation. During daylight hours, the aircraft flew at an altitude of around 8,500 meters, descending to 1,500 meters at night. Remember, it was solar-powered; it flew all night long on battery power. I think it’s a problem when my rechargeable shaver dies before I’m done shaving. The consequences might be a bit different if the batteries on a solar-powered airplane died somewhere over, say, the Mariana Trench.
But the batteries never died. Solar Impulse II flew around the world in 17 legs, the longest being some 4500 miles from Nagoya, Japan, to Hawaii – a flight that took 117 hours. The two men alternated legs – only one flew at a time – and Borschberg did the Japan-Hawaii leg. That one leg turned out to be the longest solo flight in history. He was up there nonstop for five days and five nights, grabbing sleep in 20-minute catnaps. Hard to imagine.
Just for clarity, it was the longest solo flight in terms of time aloft. The previous record was set by the late Steve Faucett piloting the Virgin GlobalFlyer. He flew continuously for 76 hours – a little more than three days – the differences being that he was flying a piston-engined aircraft and circumnavigated the globe without refueling. Less time in the air, yes, but a lot more distance. I leave to you to decide which was the more remarkable achievement.
Piccard and Borschberg are now in the process of creating an international association to promote renewable energy and to encourage the development of new technology. They predict that it won’t be long before we have electric airplanes transporting up to 50 passengers on short- to medium-haul flights.
Drones. Much of the dynamism in the commercial drone market is fuelled by the interest shown by the internet giants.
Amazon and Alphabet – Google’s parent corporation — plan to use drones to deliver packages. UPS, Fedex and Deutsche Post are actively exploring similar concepts. Clearly, the “drones business” has great potential to reduce costs and improve service.
But it is likely to alter considerably the landscape of air transportation, at least at the local and regional level. Unmanned commercial aviation requires development in automated flight controls and airspace management technology including sensors and algorithms to avoid hazards and collisions with other aircraft.
And, by the way, progress in unmanned aviation technology will also benefit driverless car technology.
Unhappy with Montreal’s traffic these days? What about drones designed to carry people? Well, the German start-up E-Volo is thinking about you. It is developing a 2-seater Volo-copter, the first certified electric-powered vertical take-off and landing aircraft – VTOL — which it plans to have in service by 2018. A 4-seater is expected in 2020.
E-Volo plans to introduce these products in places such as Singapore and Dubai, forward-looking jurisdictions where the airspace is relatively small and thus more manageable.
Uber and Airbus’s Silicon Valley outpost are working together to develop a concept for helicopter ride sharing. A prototype of an autonomous vehicle designed to fly cargo or a single passenger is expected next year.
The co-founder of Google, Larry Page, is personally funding a flying car start-up, while the CEO of Tesla, Elon Musk has a project to develop an electrical VTOL aircraft.
Okay – let’s shift gears now. We’ve been talking about aviation from its beginning, through its incredible evolution over the course of the last century. As impressive as that history is, however, let’s face it – it’s wholly terrestrial.
So now it’s time for a little star-gazing!
In order to protect our species, ensure its long-term survival, and fulfill our desire to continue to explore the universe, humankind must colonize beyond Earth. All we need to do, therefore, is achieve the ability to operate routine flights between the Earth and Mars.
Why Mars? It’s on the edge of what astronomers call the “Goldilocks Zone” – not too hot and not too cold for human beings to survive. Whether it’s “just right” may be less clear. But Mars is more or less similar in size to our Earth – the photo shows them to scale — and the evidence seems to be that it has water.
How do we achieve what appears – today – to be an impossible dream?
Much has been learned from the Apollo lunar program – most importantly some very valuable lessons in how to improve the critical power-to-payload ratio.
Clearly, a new, revolutionary propulsion system will have to be one of the essential breakthroughs.
During the Cold War and the space race between the United States and the Soviet Union, successively more powerful launch systems and ever bigger and more effective multi-stage rockets were developed to launch satellites and fly astronauts into space.
The largest of these, NASA’s mighty Saturn 5, which powered the Apollo lunar program, weighed almost 5 million kilos at lift-off. The payload, however, was less than 54,000 kilos – a ratio of payload-to-booster of 1.6%. Have we reached the limit in terms of the booster to payload ratio? Certainly not.
Moreover, thanks to the International Space Station program, we are learning a lot about how to work, grow things, and even to make things in space.
Twenty-four astronauts have flown around the moon and 12 have walked on its surface. The first two missions were Apollo 11 and 12, in 1969; the last was Apollo 17 – in 1972.
But let’s get back to our mission to Mars.
As I said, we’ll need a revolutionary, completely different, propulsion system.
Thermonuclear fusion powers the sun, and the potential for nuclear fusion, particularly the issue of how to contain and exploit the energy generated, has been the subject of intense research for many years.
Scientists estimate that a fusion-powered space ship could reach around 30,000 kilometers a second — 7 to 10% the speed of light. That’s zipping right along.
Other development work has focused on Ion Thruster engines, a form of electric propulsion.
Ion thruster engines are practical only in the vacuum of space, but the technology is highly efficient in terms of consumption of the xenon gas that provides the fuel.
Of course, once we get to Mars, we’ll have to deal with a pretty challenging environment.
The surface gravity on Mars is 38% that of the Earth; the Martian atmosphere is mostly carbon dioxide — CO2; and the atmospheric pressure on the surface of Mars is about 1% of what we have on Earth.
Only trace amounts of molecular oxygen are present in the mostly CO2 atmosphere of Mars, although large amounts of ice are thought to exist both underground and on the surface. It has been estimated that if the ice at the Martian South Pole melted, the planet would be enveloped by an ocean 5 to 11 meters deep.
We know the soil on Mars contains nitrogen, sulfur, hydrogen, phosphorous, carbon, and oxygen – all elements essential to life.
As on Earth, Mars’ tilted axis results in seasonal climate variations. The average temperature is minus 46 degrees Celsius, ranging from minus 146 degrees in winter at the Poles, to plus 35 degrees in summer at the equator.
Here’s a factoid that you might find interesting: A Martian day – the time it takes Mars to rotate around its axis — is just 40 minutes longer than a day on Earth. A Martian year, on the other hand, is 686 Earth days due to its greater distance from the sun.
NASA scientists believe that it is technically feasible to bring about on Mars the very considerable climatic changes necessary for humans to live there.
Such a hugely ambitious venture would of course require major international collaboration to overcome the many challenges, and involve enormous cost.
But the pioneers of this venture needn’t be humans; they can be robots.
The prospect of the human race one day emigrating to a new planet is tremendously exciting – and definitely worth it!
In a nutshell … And still gazing into my crystal ball —
Over the next 30 to 50 years, space tourism will become a major attraction, with hotels in orbit, trips on board orbiting space modules, and even round trips to the moon.
Major developments in solar panels and in our ability to store electrical energy will enable regional and local aviation to be mostly powered by clean electricity.
And improvements in biofuel and electrical power will completely eliminate the generation of CO2 by commercial aviation.
Aviation will become totally green!
Algorithms and sensors will be perfected, leading to automated, safe personal air travel.
Personal VTOL vehicles will be widely used for urban and regional transportation, becoming viable alternatives to road transport, particularly in gridlocked urban areas.
International cargo flights will be totally unmanned, and international passenger flights will be totally automated, although they will still have one pilot on board.
And by the end of this century —
We will have mastered a new propulsion technology, and the trip from Earth to Mars will have become a daily journey – or less.
A human colony will have been established on Mars and will be developing agriculture and local automated industries.
Humankind thus will have figured out how to survive and even flourish on Mars.
Because medical science will certainly have found a way to extend – considerably – our life expectancy …
you are invited to a meeting of the International Aviation Club of Montreal on November 24, 2116, to verify the progress made by the commercial aviation industry.
IATA’S EVENT >>
30 AUGUST 2016 >>
Distinguished guests, friends and former colleagues
I am honored – and happy – to be part of this gathering on the occasion of “IATA’s Changing of the Guard”.
I have had the privilege, over the past few years, to get to know Tony Tyler and to witness his important contribution to the international aviation world. Tony’s style of leadership contrasted significantly from that of his immediate predecessor, reminding us that much can be accomplished by a persuasive, quiet and diplomatic style.
Many others have highlighted Tony’s many accomplishments which have been widely acclaimed, and I would not attempt to offend his well-known
modesty by repeating those numerous achievements here.
But I believe that I am expressing the sentiments of the entire Montreal international aviation community when I express our gratitude to Tony for his – and IATA’s – contribution here.
And in saying on their behalf, “au revoir, bon vent” and our best wishes in your future endeavours.
At the same time, I wish to say to Alexandre de Juniac “bien venu et nous espérons vous voir ici souvent – vous êtes chez vous!” as you will remember, of course, that IATA is a Canadian organization, having been created by an Act of the Canadian Parliament.
We all know that Alexandre brings to the Director General’s role – a unique combination of government experience, aerospace hi-tech manufacturing and, of course, airline leadership as CEO of a major international airline. He will require all of that experience and wisdom to steer IATA through the turbulent skies our industry faces all too frequently!
It has often been said that management is much more an “art” than a science.
Some business schools have yet to make that observation!
One of our well-known Canadian authors, “Pierre Burton”, once described a Canadian as “someone who can make love in a canoe”.
Now, I don’t know how many of you have ever tried, but I can assure you that to make love in a canoe takes a lot of determination, a certain acceptance of risk, and a great sense of equilibrium.
Determination, acceptance of risk, and a sense of equilibrium – those skills were very useful to me in my role at IATA, and I would encourage Alexandre to acquire a canoe if he does not own one already.
At times, some IATA meetings would remind me of Kevin Costner in the film “Dancing with Wolves”.
All the wolves need attention, but you must always remember that you could become fair game at any time!
Those meetings would sometimes illustrate that “common sense” is not as common as you may think.
It is useful for any Director General to practice the art of letting a consensus emerge. The D.G. does not really have the authority to impose a view. At best he can use “moral-suasion”. and appeal to the solidarity – and moral responsibility – of the participants, reminding them that an “imperfect agreement” is sometimes better than “no agreement”.
If, at the end of the day, you have not disappointed too many – and pleased quite a few – you must have done it right!
But unlike a science, art can mean different things to different people.
A visitor at a painting exhibition was truly puzzled by a Picasso painting and, since the artist was standing by, the visitor enquired
“Mr. Picasso, can you tell us what this painting means to you?”
Picasso smiled and replied “Oh,
approximately 200,000 US dollars!”
Unlike science, the art of management requires different styles for different circumstances, from Mother Theresa to Niccolo Machiavelli!
At times you need the agility of a politician
One of my favorite politicians would say “If you think it is easy to be a politician, try standing on a fence while keeping your ear to the ground!”
At other times, the role may call for the cold neutrality of an impartial judge.
Sometimes it may call for quick action. Le Prince de Talleyrand would say “the art of statesmanship is to foresee the inevitable, and to expedite its occurrence”.
In adversity, we can get some valuable lessons from Winston Churchill’s determination.
In his darkest hour, Churchill would convincingly declare “Never, never, never give up! And if you are going through hell just keep on going!”.
Ladies and gentlemen, it may be wise for me to stop here.
I do not want to sound like the “mother-in-law” giving advice to the newly weds.
It is easy for some of us who have been there to give good advice, perhaps simply to console ourselves that we are no longer in a position to set a bad example.
Once again, Tony, all the best to you!
And Alexandre, we wish you great success. I know that you can count on everyone here, myself included, to support you to the best of our abilities
Thank you very much.
Université de Québec à Montréal >>
Le 25 mai 2016
M. le Vice-Recteur
M. le Directeur-général
Chers boursiers … mesdames et messieurs
Une remise de bourse … c’est toujours un événement très agréable … puisqu’il célèbre la réussite académique.
Vous savez … dès sa création … la Fondation de l’Université du Québec à Montréal … a voulu privilégier l’octroi de bourse aux étudiants les plus méritants.
De fait … lors des deux premières campagnes de levée de fonds … nous avions décidé qu’au moins un tiers des fonds reçu … serait dédié pour des bourses.
C’est une question d’investir dans la matière grise … plutôt que dans les briques !
Je tiens bien sur … à mon tour … à vous féliciter … tous, chacune ou chacun … pour les succès que vous avez obtenu.
Votre réussite démontre bien l’énergie … la volonté … et la persévérance … qui sont nécessaires pour obtenir le succès.
Ce sont des qualités qui sont aussi nécessaires pour réussir dans vos carrières respectives.
Évidemment … je ne voudrais pas négliger totalement le facteur chance … par contre j’ai souvent observé … que plus on travaille … plus on est chanceux!
Et il faut savoir saisir l’opportunité lorsqu’elle se présente.
Bill Clinton … qui avait espoir de trouver un compromis acceptable au conflit Israël-Palestine … disait que Yassir Arafat était la personne qui … « ne manquait jamais une opportunité … de manquer une opportunité. »
La réputation de l’UQAM … c’est largement la réussite de ses diplômés … sans vouloir bien-sûr … minimiser l’excellence de l’enseignement et la recherche.
Mais cette réputation … l’UQAM la doit à la notoriété grandissante de ses diplômés … et j’espère bien que vous serez bientôt … vous aussi … à même d’y contribuer.
Les médias ont souvent tendance … à illustrer les turbulences … qui témoignent d’une jeunesse … un peu trop pressée … de voir notre société évoluer.
C’est le propre de la jeunesse … nous aussi à l’époque … nous avons fait notre part … mais cela peut rendre la tâche un peu plus difficile … à ceux qui dirigeait la levée de fonds.
À mesure qu’elle grandit … l’UQAM et sa fondation … auront de plus en plus besoin de fonds.
La notoriété de ses diplômés … l’excellence de ses étudiants … dont vous êtes un exemple … joue un rôle extrêmement important … auprès des entreprises qui sont sollicitées … lors d’une campagne de levée de fonds.
Nous devons être fier de notre réussite et nous nous devons … de médiatiser encore plus … les succès accomplis par nos diplômés.
À nouveau … félicitations à tous les boursiers … Je vous engage à compléter vos études avec grand succès.
Je vous souhaite … de prendre pleinement votre place … parmi les leaders de demain … et ainsi de contribuer à la notoriété de l’UQAM.
Merci … et bonne chance !
APG WORLD CONNECT
October 29, 2015 – Marrakech
THE GREAT DEBATE >
“Open Skies” or “Fair Skies”? That is the question >
Moderator Pierre Jeanniot >>
Having completed their respective consolidations, the three major U.S. airlines – namely United, Delta, and American – have been reaching a new height in profitability.
The profit forecast for the current year continues to be excellent, and some concerns are beginning to appear about what is starting to look like a comfortable oligopoly.
An immunized Joint Venture involving the major players of each of the three key alliances was in place and controlling a substantial portion of the trans-Atlantic traffic.
It was now time to renew the fleet – and finally reward the shareholders.
In Europe, the Lufthansa Group and the Air France/KLM Group are hoping to finally reach an agreement with their respective unions to expand low cost subsidiaries, which hopefully will contain the erosion of their domestic/European traffic caused by Ryan Air and Easy Jet , among others.
Lufthansa had an ambitious program in place for German Wings, and the Air France/KLM Group was anxious to obtain the green light to substantially grow TransAvia.
The International Airline Group (IAG), led by British Airways, had been the first to restructure by “right-sizing” Iberia and establishing a strong presence in the low costs game with the acquisition of Vueling.
One would have expected that some new stability would emerge for the airline industry, but this was not to be the case.
The Gulf Carriers’ Hub Strategy
Exploiting a strategic geographic position – or some other specific advantages, whether economic, historical or otherwise – is nothing new.
Venice took advantage of its strategic geographic position on the Adriatic sea, and the financial strength of its bankers, to control the trade between Europe and the Middle East during the 13th to the 15th centuries.
Genoa became a competing hub, and later on Amsterdam developed a dominant position in Northern Europe.
England, a state island, felt obligated to ensure that London would become a strong naval hub.
In more recent times – and looking at the commercial aviation side – KLM was probably the first airline to build an international aviation hub in Schiphol.
KLM was quite successful at growing its market well beyond its own home base.
KLM became a 6th freedom specialist, handling traffic flows from other countries to other countries through Amsterdam.
Singapore, an island state, exploited the same strategy, driving traffic from south-east Asia to Europe through Changi Airport.
It is therefore not surprising to see that both Singapore and the Netherlands were the first to welcome with open arms, and to adhere to the U.S.A. “open skies” type of bilateral – essentially because the “open skies” bilateral further facilitated the expansion of the 6th freedom strategies.
A decade ago, the Gulf Airlines’ 6th freedom traffic was not yet very significant and did not attract much attention.
However, their growth ambitions should have been fairly obvious, given the very large quantity of aircraft they were ordering.
Last year, the three Gulf airlines – together with Turkish Airlines which is following a similar strategy – carried a combined total of 115 million passengers.
The European legacy airlines began to lose an increasingly significant share of their long-haul market to Asia, which was being diverted through the Gulf airlines’ respective hubs.
Lufthansa believes that its Frankfurt hub has lost nearly a third of its market share on routes between Europe and Asia since 2005.
Emirates and Qatar Airways now serve some 32 destinations in Europe, and Turkish Airlines operates at 84 European airports.
Those carriers are in the process of adding many services to more points in Asia, and are expected to take an increasing share of the Europe to Asia traffic.
They are also increasingly providing good connectivity through their hubs to various points in India, and in the Eastern part of Africa.
The legacy European carriers’ initial attempt to draw attention to their perceived lack of “level playing field” was unsuccessful in bringing the E.U.’s attention to the matter, perhaps because:
- These Gulf carriers were placing on order a huge amount of European-built airplanes, and
- Europe was attempting to negotiate with the U.S.A. an air bilateral agreement which was trying to be even more liberal than “open sky” and would permit expanded foreign ownership.
And thus, on the basis of “if you can’t beat them, join them”, European carriers began to look for accommodations, if only reluctantly.
- Air France/KLM declined to inject more funds into the restructuring of Alitalia, and instead tacitly accepted that, by default, Etihad would acquire a 25% commanding stake in Alitalia.
- Air France/KLM, while maintaining a much reduced position in Alitalia, developed a series of code shares with Etihad – to protect their position.
- The I.A.G. invited Qatar Airways to join “One World Alliance”, and Qatar purchased 9.99% of IAG’s stock.
- More recently, Lufthansa formed a Joint Venture with Turkish Airlines called “Sun Express” for vacation destinations in Turkey and various Mediterranean and Middle East destinations.
- The European Community had tacitly approved an investment of 49% by Etihad in Air Berlin and some 25% investment in Alitalia.
Additionally, the Swiss Civil Aviation Authority gave approval to a 33% stake of Etihad in “Darwin” which was rebranded Etihad Regional.
And then, choosing not to rely on its previous relationship with B.A., Qantas became a major partner of Emirates, choosing their hubs as the most appropriate way to connect with many European destinations.
However, having explored many of the opportunities in Europe, the Gulf carriers now turned their sights on North America.
Now they were ramping up their service to the U.S.A. – to the dismay of the major North American international carriers.
Claims of Unfair Competition
The U.S.A. coalition of airlines, a lobby group representing, primarily, the three major North American carriers – Delta, American, United, and their unions – released a document to back a report accusing the Gulf carriers of having received some 42 billion USD in assistance by their respective States over the past decades, and they alleged that this was only the “tip of the iceberg”.
Those benefits would include such things as:
- Zero interest loans – with no arrangements for repayment;
- Grants of land which could be regarded as subsidies;
- Development of massive airports, built and paid by the State, and very cheap rent facilities and landing charges;
- Low labor rates because the home state bans unions;
- Low personal and corporate tax rates to promote the growth of business.
These three carriers were pressing the “White House” and the Department of State Transportation and Commerce, to revise or terminate the “Open Skies” air bilateral agreements with the United Arab Emirates (U.A.E.) and Qatar.
They claim that the extensive government support enjoyed by the Gulf carriers provides them with unfair advantages, and distorts competitiveness.
Not all the U.S. airlines support the attacks. Fedex – a major beneficiary of the U.S. “Open Skies”, and one of the world’s largest airlines – opposes any major change to the current “Open Skies” policy.
Fedex President/CEO, David Bronczek, wrote: “These U.S. passenger carriers do not fly extensively between foreign points like Fedex does. From its Dubai hub, a gateway into Africa, Fedex flights from the U.S. crisscross with our flights from India and Asia, in order to move U.S. products into local markets.”
The U.S. Travelers’ Association and several airlines such as Alaska, Hawaiian, and Jet Blue, have also indicated their opposition to any changes, and have signed a letter defending the Gulf carriers.
The U.S.-U.A.E. Business Council asked that Delta release for public review its study of the subsidies provided by the Gulf States to their airlines, and redirected public attention to its own 2013 “Study of the Impact of Open Skies on the U.S.-U.A.E. relationship”.
This study had identified that the impact of Open Skies on the U.S.-U.A.E. relationship was 16 billion USD and 200,000 manufacturing jobs, plus some 6 billion USD in increased inbound tourism.
Who is more subsidized?
Both sides have essentially made claims that their counterpart has benefitted from unfair financial support which has been distorting competition.
The Gulf carriers have responded vigorously to the U.S. major airlines’ allegations. Emirates has published a huge report which indicates that, contrary to these allegations, Emirates received only a total of 218 million US dollars in capital investment and has returned some 3.8 billion US dollars in dividend to the shareholder, while the U.S. carriers have received benefits of some 100 billion US dollars.
Ethiad has estimated that American Airlines, Delta, and United Airlines received 71.48 billion US dollars in government sanctioned “benefits and concessions”, which allowed the U.S. carriers to quickly progress from the “edge of bankruptcy” to being today among “the industry leaders”.
Referring to the current “Open Sky” air bilateral agreement between the U.S.A. and the Gulf States, Emirates points out that under the current agreement:
- A capacity freeze would be a breach of the current bilateral.
- Article 11 of the US/UAE Open Skies agreement – dealing with fair competition – contains no reference to subsidies.
- Article 13, which deals with artificially low prices, does not mention any direct or indirect government subsidies or support.
- Neither party shall take unilateral action.
Emirates currently serves ten U.S. destinations, and still plans to extend its operation to some twenty U.S. destinations in total.
European Majors Airlines echo their U.S. Counterparts
The U.S.A. Open Skies discussion had reached a stalemate on the question of foreign ownership some time ago, with the U.S.A. refusing to allow more foreign ownership.
In fact, the U.S. airlines appear quite comfortable with the current status quo, and their unions find themselves on the same page.
Thus no one in Washington wanted a change at this time – but the dramatic rise of the Gulf carriers was having an impact.
Stimulated by the position taken by the three major U.S. carriers with respect to the Gulf airlines, some European carriers decided to go back on the offensive, and asked their governments to intervene.
Both France and Germany’s Ministers of Transport have called for the European Commission to act in order to restore “fair competition with the airlines of the Gulf”, and called on the E.U. to adopt a common strategy to “put an end to those unfair practices”.
Austria, Belgium, the Netherlands, and Sweden supported the initiative.
The European Cockpit Association is calling the rise of the Gulf carriers “an unintended consequence of liberalization”.
The request is now for “fair skies” … not uniquely “open skies”.
The European Union will request a new mandate from Member States to the European Commissioner, Violeta Bulc, to negotiate with the Gulf Cooperation Council on Aviation Competition.
Some European airlines are asking for Europe to withhold traffic rights from Gulf carriers until further negotiations and a new Agreement is achieved between the E.U. and the Gulf States.
They are also requesting that financial support for European “quasi subsidiaries” such as Air Berlin and Alitalia – where Etihad holds a major stake – be subjected to European competition law.
The E.U. and the Gulf States have agreed to hold a round of talks by the end of 2015.
Strains on Alliances and Associations
The current situation has introduced some strained relations in both North America and Europe.
Alitalia and Air Berlin have terminated their membership in AEA. Both are affiliates of Etihad.
The International Airline Group (IAG) also withdrew its membership in AEA, citing significant differences in opinion.
Having left AEA, the International Airlines Group has now become a member of ELFAA – the European Low Fare Airlines’ Association.
Encouraged by important membership gains earlier this year, particularly the addition of the International Aviation Group, ELFAA went on a renewed offensive
- Calling for rejection of the air traffic control price hike proposal;
- Requesting improvements in airport charges;
- Condemning the proposed extension of the Intra-EU only scope for E.T.S. (Energy Trading Scheme).
Initiative by the five largest EU Airline Group
The five largest European Airline Group – Air France/KLM, EasyJet, IAG, the Lufthansa Group, and Ryanair – met last summer and agreed to work together to lobby for the development of a new aviation strategy for Europe in response to the request for input by the new E.U. Transport Commissioner, Violeta Bulc.
These five airlines between them carried a total of 420 million passengers in 2014, accounting for half of the passenger journeys in Europe.
They also agreed that to have six airline organizations representing the airline industry in Brussels was not the most effective way, and agreed to explore possible forms of future representation, yet their action was ‘de facto’ creating another airline organization lobby group.
The five airlines identified a number of measures which would support the Commissioner’s objectives to enhance the competitiveness of the European air transport industry, support the growth of jobs across Europe, and help consumers by providing more flights and lower prices.
The group of five proposed the following:
- Develop a simpler, more efficient regulatory structure;
- Look at lowering the costs of the E.U. airports, and at ensuring that monopoly airports are effectively regulated;
- Deliver reliable and efficient airspace by reducing the costs of ATC providers, and ensure that ATC strikes do not cause disruptions;
- Stimulate the economy by removing passenger taxes – and unreasonable environmental taxes.
The group confirmed their support for several key principles – the most important, of course, being commitment to safety and safety standards.
They also reaffirmed their opposition to the provision of State aid to airlines and airports, and their support for balanced consumer rights.
Airport Council International -Europe
Referring to the ACI Europe 2015 Airport Industry Connectivity Report, ACI Europe at its last annual meeting stressed the need for the E.U. to place connectivity and consumers at the very heart of its new aviation strategy.
Adding its voice to the current debate, the President of ACI Europe stated: “Open Sky and fair competition need to go hand in hand, but airport and tourism organizations do not regard public financing of airport infrastructure, start-up aid for airlines, and more favorable fiscal regimes as necessarily involving unfair competition, but rather as legitimate economic development policy chosen mostly by the Gulf States”.
What about consumer interests?
These do not appear to be a central preoccupation in the current airline concerns. The requests for a “level playing field”, and for “fair and equal opportunity” to compete, do not seem to refer to the consumer.
The original force behind aviation deregulation was the need to satisfy consumer pressure. The consumers were clamoring for more choice and better prices, and it could only be satisfied if there was more freedom to participate in the market and allow the offering of different products and prices.
The growing importance of consumer interests replaced the need to protect the interests of national airlines.
But there are no reasons as to why the interest of the consumers and that of each local airline would not coincide!
The Gulf carriers took advantage of their geographic position between Europe and the many emerging economies, primarily in Asia, and the availability of new long-haul and efficient large airplanes.
The Gulf carriers have introduced a level of customer service which corresponds to their expectations – but would that have been commercially possible without financial support from their States?
Open Skies bilaterals were successful in opening up new markets – promoting competition and consumer choice.
Using the particular advantages of strategic geographic position and modern long-haul fleets, the Gulf carriers have provided European consumers with a convenient, one-stop service from Europe to many existing and new destinations primarily in Asia, but not uniquely.
The Gulf carriers are probably taking market share from the European carriers, but they are also most likely stimulating the market, and stimulating overall market growth.
Are the European and North American customers flying on Gulf carriers being subsidized indirectly by the Gulf States – if not by lower prices, by offering higher quality?
And would that be considered predatory?
Have the European carriers, previously owned by their respective States, been also in the past heavily subsidized as well?
IAG and British Airways would appear to have come to a way towards living with the situation.
What about Africa?
The question of “Open Skies” is also an important subject for other regions of the world, and specifically for African aviation.
The Yamoussoukro Declaration, signed in 1999, pledged its 44 signatories to establish an “Open Sky” regime across the continent.
But it was really never implemented.
Clearly, not all African governments see aviation as a national asset – nor a strategy of economic development, as is the case for the Gulf States.
Despite this apparent lack of interest by African nations, the latest passenger forecast by IATA for Africa nevertheless predicts that the Continent should enjoy the second highest rate of growth of the various regions, at 4.9% per annum.
But still today, some 80% of the intercontinental traffic between Africa and the rest of the world is controlled by non-African carriers.
The African Union has recently agreed on a Common African Civil Aviation Policy which proposes to adopt a united position in its dealings with the E.U.
However, this proposal is not binding on its members – and has not made much progress.
Meanwhile, there are a few hopeful signs.
Senegal has made a formal offer to South Africa suggesting that South African Airlines and Senegal Airlines take an equity stake in each other, and work towards a common restructuring program.
In December 2006, Morocco decided to join Europe’s Common Aviation Area. This led to a dramatic increase in traffic volume, with the European “low cost” airlines as Ryanair and EasyJet aggressively competing to increase their share of this market.
Morocco had signed an Open Sky with the U.S.A. in 2001, but it did not have a major impact on traffic growth.
Morocco now attracts more than 15 million visitors annually, which is a major success for the tourist industry. However, Royal Air Maroc considers that some of these “Open Skies” agreements are unbalanced and unfair, as they do not feel they have an equal opportunity to compete.
With the population of Africa expected to increase by 50% over the next 20 years, the potential for a large increase in the Middle Class is excellent.
If it finally comes into its own, Africa could follow a similar pattern to that which we have seen in Southeast Asia during the past 20 years.
But today, in most parts of Africa, we may have a case of no “Open Sky” … and no “Fair Skies”!
“Open Sky” in Asia
A 10-member group of ASEAN and developing nations plan to achieve a single aviation market by December 31, 2015.
This is part of a broader ambition to create a comprehensive free-trade zone which, however, would not go as far as creating a border control free market such as the Schengen zone in Europe.
To become effective, the agreement requires a minimum of three States’ signatures.
And given the aviation policies of a few of those nations, this is likely to be achieved fairly quickly.
However, the “Open Sky” agreement would, of course, liberalize air transport and services between those signing countries only.
Any country having some concerns about the unequal competitiveness of their aviation industry may ask for a moratorium on various aspects of the Agreement.
Looking at the membership of the ASEAN nations` group, there are giants like Singapore Airlines, Thai Airlines, and Malaysian which have bilateral feeder agreements with major airlines all over the globe, and which could readily benefit from such “Open Sky ASEAN Agreement”.
On the other hand, many smaller airlines such as Philippines Airlines, Garuda, and Lion Air would likely be more fearful.
As such, the implementation of the “Open Sky Agreement” over the 10-member group of the ASEAN nations will be progressive.
Intra-ASEAN air travel will increase – but only gradually.
What about China?
While attention is being focused on the Gulf carriers, China’s airlines are in the process of overtaking the U.S. airlines on the China-North American market.
In summer 2015, China’s airlines for the first time are expected to carry more passengers than their U.S. counterparts between China and the U.S.A.
Their rapid rate of growth is expected to continue, and the increasingly dominant position of the Chinese airlines is likely to impact on the next round of bilateral air negotiations.
It would not be surprising to see the U.S. position no longer favor a full “Open Skies” Agreement, reflecting on their experience with the Gulf carriers, although the consumers’ associations and tourism bodies would continue to press for more liberalization.
The same situation is occurring on the China-Europe market.
The number of seats – weekly, one-way in August of 2015, according to the OAG – flown by Chinese carriers between China and Europe now exceeds the totality of the capacity offered by the European airlines combined.
And the rate of growth in capacity offered by the Chinese carriers continues to rank in the double and exceed by a factor of three the rate of growth of European airlines in that market.
This summer, 22 airlines connected China and Europe. Some 14 Chinese airports have direct links to Europe, and that number is expected to continue to grow.
In agreeing to more frequencies between China and Europe and the U.S.A. , should the European Community and the U.S.A. be concerned that the Chinese carriers are heavily supported by their governments?
Placing limits on “Open Skies” Agreements on the basis of government support – or `subsidies’ – is a 2-edged sword!
In North America, the cargo airlines – Fedex and UPS – are enjoying the world-wide benefits of Open Skies Agreements, and any retaliation imposed by the Gulf States could be very damaging to their operations.
On the question of fairness, what attitude should be taken with respect to the “fly American” directive which has long been a contentious issue?
This is clearly a policy which gives U.S. carriers a substantial financial advantage.
The question of expanding “open skies” with China was considered very important to the major U.S. carriers.
China’s airlines are hugely subsidized by Beijing, and if subsidies are inconsistent with “open skies”, expanding U.S. flights to China may not be possible – and neither would the lucrative joint venture over the Pacific.
Would limiting competition over the Atlantic trigger a re-opening of the approval of joint ventures?
One thing is clear. Governments, both in Europe and in U.S.A., have been asked to review air bilaterals with the Gulf States.
International travel and tourism is a major engine of economic growth.
The “Open Sky” type of bilateral has greatly facilitated – and accelerated – that growth. But, considering the current questions
- What is fair airline competition?
- What is fair for each country?
- What is fair for the consumers?
the “Debate on Fairness” may prove most interesting.
Industry Overview and Issues
September 2015 >>
For the airline industry, 2014 was a great year. IATA reported a global net profit of some 19.9 billion USD.
This optimistic picture is continuing thus far in 2015, with a forecast industry net profit of 29.3 billion USD.
However, we have yet to see the impact on the world economy of the most recent Chinese financial crisis – and of the current reduction in oil and basic material investments.
The major slump in fuel prices has been the most recent dominant factor influencing the airline industry’s economics.
Airlines had been adjusting their operations, further trimming their costs to achieve profitability under the assumption that oil prices were to remain around the 100 USD/barrel level.
And thus, the rapid decrease in oil prices contributed directly to their bottom line.
For the foreseeable future, as the fundamental law of supply and demand dictates, the current conditions are likely to remain relatively unchanged.
“Supply is up – and demand is down”.
In a nutshell, the U.S. oil supply was recently increased, and the OPEC nations – led by Saudi Arabia -refused to slow production.
Regional instability in the Middle East has not proved to be a significant factor to affect traffic, nor to reduce oil production.
China’s economy is slowing down, and Europe’s is at best lethargic.
Although lower fuel prices are a positive cost factor for the airline industry, the resulting weaker economic growth will eventually have an impact.
The fall of oil prices is also having an impact on airline strategies, with old airplanes finding a new lease of life – and some thin routes, previously uneconomic, may become viable.
But impacting the profitability of individual airlines in 2015, will be whether hedging has been a significant factor in the past and going forward.
Any airline which had decided to hedge fuel at around 100 USD a barrel for the current year will miss out on a great profit opportunity.
And then , the industry will have to deal with the somewhat controversial practice of fuel surcharge which, if not reduced by passing on to the consumer some of the fuel price reduction, will likely attract the attention of politicians and regulators who love nothing more than to regulate airlines.
The favorable profit climate projected by IATA will benefit all regions of the world although, as one would expect, not necessarily equally.
North America will be the biggest beneficiary, as the USA’s big three airlines continue to enjoy the benefits of consolidation, and the U.S. economy shows significant improvements.
European airlines have benefitted also from lower fuel prices, but the impact is limited by the strength of the U.S. dollar.
While long haul markets have been stronger, the region’s operating environment is hindered by regulations, high taxes, and infrastructure deficiencies.
The Middle East region, which has the highest rate of growth of almost 13% per annum, will still show a mixed profit picture – although everyone will benefit from lower fuel prices.
While demand will grow by more than 5% in Latin America, the region’s weak returns are largely a result of the poor performance of key economies such as Brazil’s, and exchange rate weakness against the U.S. dollar.
Finally, African airlines’ weak traffic growth will continue to be affected by weak currency and the various problems which have been disrupting tourism.
Worldwide, we have gone from worrying about what we should do if the price of fuel was to reach 200 USD/barrel – to what do we do if the price of fuel falls to 20 USD/barrel.
Looking at each region a little more in detail:
In the U.S.A., the impact of the rapid improvement to the bottom line is likely to stimulate the expectation of its many airline stakeholders.
It should not be surprising that everyone should feel that he or she would want to benefit from this sudden and substantial improvement in profitability.
Over simplifying, twenty years ago or so airlines were enjoying a somewhat similar situation, where yield was improving and fuel costs were lower. This triggered a series of wage increases – which ultimately contributed to a succession of Chapter 11 bankruptcies.
Regretfully, all the full service airlines went through that painful process – which led to a significant re-adjustment of their labor costs.
Today, the labor situation with the major airlines has the appearance of being relatively stable.
However, there does not seem to be a consensus on how in the future employees should be remunerated.
Some airlines believe that instead of increasing wage levels, setting up a scheme of performance-based compensation could make a lot of sense.
In this way, if profitability declines a variable portion of employee compensation should also decline.
Of course, such a scheme would need to be carefully designed and cover every employee level in a manner considered fair and transparent, from the lowest –paid employee to the CEO.
Both Delta and United have indicated their intention to follow that course.
American Airlines, however, disagrees and intends to follow a more traditional approach. Their stated policy is “to reward workers with industry- leading wage rates, and not lower wages supplemented by compensation that varies with airline profitability”.
As a result of such a lack of industry agreement, it would be most unfortunate if the competitive cycle that contributed to Chapter 11 was to get started once again.
Europe has the world’s most congested airspace, and thus far every effort to substantially simplify the administration of that airspace has failed.
There continues to be a lack of political will to confront the interest groups opposed to administrative consolidation.
However, good progress is being achieved through technical improvements, and SESAR (Single European Sky ATM Research) is hopefully going to produce some significant increases in capacity and reduction in fuel consumption.
Fuel accounts for a large portion of the expenditure of Low Cost Carriers, and the current low fuel price will accelerate their advantages over the legacy carriers.
To illustrate, Norwegian – Europe’s third biggest L.C.C., does not hedge fuel and was an instant beneficiary of the fuel cost decline, achieving an immediate shaving of 20% off its overall costs.
To address another major type of cost, Ryanair has locked up its Euro/USD currency exchange to protect its new aircraft deliveries at a substantially lower price.
The challenge for the legacy airlines – primarily the Lufthansa Group and Air France/KLM – is to continue building up their low cost presence in Europe to eventually stabilize their share of the regional market.
Air France/KLM is now hoping to establish a Transavia Europe – outside of the French and Dutch borders – given the recent willingness of their respective unions to consider and discuss this expansion.
Lufthansa is also hoping to achieve a comprehensive agreement with their pilots, which would enable a more competitive labor situation for Eurowings. The recent series of 24-hour strikes by the Pilot Unions is indicative that an agreement has yet to be reached.
Asia continues to be a great market for aircraft manufacturers.
The current Airbus forecast is for some 12,000 aircraft to be delivered in the Asia Pacific region over the next 20 years.
This is more than any other region of the world, and will place much pressure on the required expansion of infrastructure, airports and ATM.
The next challenge will be in the availability of skilled personnel to support their rapidly growing fleets.
The demand for air travel is driven by the substantial growth of the Middle Class.
Ten Asian countries have recently decided to implement an “Open Skies” Air Market Agreement, which should further stimulate the growth of air traffic among those South-East Asian countries.
China, the world’s second largest economy, has now discovered that it is not immune to the vagaries of the markets.
Its economy is slowing down, and it is suffering from an overheated real estate market which is deflating, and consumer demand which is falling.
The growth rate of the Chinese economy has now decreased to some 7% – and will continue to decrease. In fact it is now suggested that it will slow down to 5% this year.
It remains to be seen if the recent devaluation of the Yuan and the current Chinese financial crisis will have a significant impact on world economic growth.
Still, it is projected that over the next 20 years some 600 million Chinese will enter the Middle Class.
In India, the World Bank’s projection is assuming that Prime Minister Modi’s current good performance will continue.
India achieved a 5.5% growth in 2014, and the Bank projects that India’s economy will increase by 7% by 2017 as China is expected to slip below that level.
India could continue to enjoy an accelerated rate of growth, but it needs to accelerate its efforts to rid itself of its corruption culture which, fortunately, the current government is determined to change.
But India must also attack its unfortunate bias for excessive and needlessly cumbersome regulations, some of which are largely there to protect the interests of favored parties – or quite simply to illustrate its inventiveness in regulation!
Today, some 80% of the intercontinental traffic between Africa and the rest of the world is controlled by non-African carriers.
The Yamoussoukro Declaration, signed in 1999, pledged its 44 signatories to establish an “Open Sky” regime across the continent.
Such an agreement would have allowed for unlimited frequencies between any of the participating States, improve security by making it mandatory to apply ICAO safety standards, and encourage cross-border investment in air transport.
Unfortunately today ,State-owned national flag carriers continue to operate routes under fairly restrictive bilateral agreements.
Low cost carriers are struggling to make headway, having to fight the protectionist policies of the various national governments.
Clearly, African governments do not see aviation as a national asset nor a strategy of economic development as is the case for the Gulf States.
Despite those hurdles, the latest passenger forecast by IATA for Africa predicts that the continent should enjoy the second highest rate of growth of the various regions, at 4.9% per annum.
Despite the apparent reluctance to change, some progress is being made.
The African Union has a Common African Civil Aviation Policy which proposes a united position in its dealings with the E.U., advocating the replacement of separate African States bilateral discussions with a block-to-block negotiation.
But their proposal is not binding on its members.
A number of African airlines are modernizing their fleets and are buying new, fuel-efficient aircraft, which should improve both their quality of service and their operating costs.
Meanwhile, there are a few hopeful signs.
Senegal has made a formal offer to South Africa, suggesting that South African Airlines and Senegal Airlines take an equity stake in each other and work towards a common restructuring program.
In December 2006, Morocco decided to join Europe’s Common Aviation Area, and this led to a dramatic increase in traffic volume as European “low cost” airlines such as Ryanair and EasyJet aggressively compete to increase their share of this market.
Morocco’s objective was to attract at least 10 million tourists annually.
A report by Intravista, a group of independent consultants, concluded that if only 12 of the 44 nations party to the Yamoussoukro Declaration were to implement the decision, the liberalization of their key markets could provide an extra 155,000 jobs – and 1.3 billion US dollars in annual G.D.P.
With the population of Africa expected to increase by 50% over the next 20 years, the potential for a large increase in the Middle Class is excellent.
If it finally comes into its own, Africa could follow a similar pattern which we have seen in Southeast Asia during the past 20 years.
Turning to the Latin American region, Brazil’s airline industry did not enjoy a good year in 2014.
Inflation was up, consumer confidence was at an all-time low, and economic growth was almost at zero. …
This negative situation continues.
Despite the country’s economic slowdown, IATA forecasts that Brazil will overtake Japan’s home market by 2022 and establish itself in the top three global domestic aviation markets.
Although both the Brazilian and the Argentinian economies have been weak, traffic growth in the Latin American region in total was robust.
The increase in trade activity has provided a boost to business-related travel, resulting in a year to date of +6.3% RPMs by mid-year of this year compared to 2014.
The lack of adequate, timely, and cost-effective infrastructure, security, airports , and airways will continue to be the biggest challenge.
The Middle East region continues to be the fastest growing area.
Middle East traffic is projected by IATA to grow at 5.1% per annum, reaching some 250 million passengers annually in 20 years’ time.
The on-going dispute over “Open Skies” and alleged subsidies may slow down temporarily the expansion of the three major Gulf airlines to European and North American destinations, but in my view it is unlikely to change their longer term strategy.
In the immediate, the dispute has poisoned the relationships within the “One World” alliance, more particularly between Qatar Airways and American Airlines. Qatar Airways has indicated that it intends to leave “One World” unless this dispute is resolved promptly.
While the spotlight has been on the “unfairness” of the alleged advantages enjoyed by each side – European and North American vs Gulf airlines – other carriers in the Middle East region have been growing rapidly.
Saudi Arabian Airlines (Saudia) has announced plans to increase its fleet to 200 aircraft, and will capitalize, in part, on the growth in religious travel to the region.
Other players in the region which have expansion plans include Gulf Air, Kuwait Airways, and Oman Air.
Not to forget the very successful and fast growing Air Arabia – the most important low cost.
Capabilities of the air navigation authorities over the Persian Gulf to cope with the rapidly growing traffic could be a major challenge.
Although the current dispute over alleged subsidies may be a temporary distraction, the inherent and continuing political instability of the region can have a local impact.
LCCs worldwide are migrating towards a hybrid model – and the Middle East is no exception.
Flymas, Saudia’s LCC, has a Business Class cabin with generous 48 inch seats; and Fly Dubai on its Boeing 737.800 fleet has a 2-2 seat configuration for its Business Class. The airline aims to increase its annual passenger numbers to 20 million by 2020.
Air Arabia, based in Sharjah, is the only major budget airline in the U.A.E. that has not upgraded its fleet to a Business Class.
With its net profit margin being about 14% – higher than Ryanair and EasyJet – Air Arabia has no incentive to alter its Business model.
ALLIANCES … THEN AND NOW
Restrictions on foreign ownership imposed by all nations was making it virtually impossible for all major airlines to increase their international reach by mergers and acquisitions, or by setting up foreign subsidiaries.
Alliances were developed to overcome this major hurdle, at least in part.
The first global airline alliance was launched more than 18 years ago. “Star Alliance” was formed in May 1997, and initially regrouped Air Canada, Lufthansa, SAS, Thai and United.
It was followed in 1999 by “One World”, then comprising American Airlines, British Airways, Canadian Airlines, Cathay Pacific and Qantas.
The 3rd major alliance, “Sky Team” , was launched in 2000, with Air France, Delta, Korean Air and Aeromexico as initial members.
A fourth group, called the “Qualiflyer Group”, driven by Swissair, was intended to bring together the various airlines in which Swissair had acquired a stake, namely S.A.A., Fly , LOT, TAM, AOM and LTU.
The failure of Swissair resulted in the liquidation of that particular alliance.
The three Gulf airlines had each chosen originally to go their own way and not join any alliance.
Emirates, the super carrier of Dubai with the world’s biggest fleet of large airplanes – particularly but not uniquely Airbus A.380 – pursued a strategy of going at it alone.
Emirates, however, was able to develop bilateral relationships with many carriers including Korean Air, South African Airways, JetBlue, Alaska and Virgin America as well as EasyJet.
The most extensive alliance of Emirates is now with Qantas, which makes Dubai the principal connecting hub for Qantas from Australia to Europe.
Although Qantas is said to continue to be part of “One World”, it is a fair assumption that its very close relationship with Emirates would have strained its relationship with several members of “OneWorld”, including Cathay Pacific and British Airways.
Changing drastically its position, Qatar Airways took a different route and decided to join “OneWorld” in a move that included getting a stake in IAG (owner of British Airways, Iberia and Vueling).
Taking yet another different path, Etihad decided to invest heavily in various smaller /medium sized international airlines such as:
- 20% of Virgin Australia
- 33% of Switzerland’s Darwin Airlines, recently rebranded as Etihad Regional.
Etihad then created Etihad Airways Partners which comprised Air Berlin, Air Serbia , Air Seychelles, Jet Airways, Etihad Regional and Etihad itself.
Etihad’s strategy, which it describes as an “Equity Partnership”, is strangely similar to the path followed more than 20 years ago by Swissair.
Hopefully Etihad will be more successful.
Etihad is not unique in following a strategy of buying shares in other airlines.
Some U.S. airlines have been looking abroad for investment opportunities to increase their presence in the global market.
Delta plans to invest 450 million US dollars for a 3.5% stake in China Eastern Airlines.
Previously, in 2011, Delta had invested 65 million US dollars to acquire a 4.17% stake in Aeromexico, and 100 million US dollars for a 3%share of GOL Linhas Aéreos of Brazil.
Delta has indicated that it plans to increase its share of GOL to 9%.
United has also announced that it will invest 100 million US dollars in Brazil’s Azul Airlines.
Both carriers expect to have a seat on the Board of those airlines – but unlike Etihad they have no illusions of being able to directly influence significantly the strategic direction of those airlines, but perhaps simply monetarize eventually their investments.
The principal objective of any alliance was to provide for its most valuable customers a service of equal quality whatever the destination.
Ultimately, the alliance would be able to offer customers a seamless product, from any part of the globe to any other destination.
This pre-supposes that the alliance partner would be able to harmonize their product in terms of quality of inflight service, cabin environment, passenger handling at airports, etc.
This also meant that these passengers would be able to accrue benefits on all airlines (mileage points), access lounges, enjoy similar seat selection, priority check-in, upgrades, etc.
For instance, in the case of a customer buying a ticket on Lufthansa on a flight which would be operated by Brussels Airlines, or All Nippon Airways – could his expectation be fully met?
Or a ticket sold by KLM on a code share operated by Kenya Airways?
Then there is the question of providing an adequate customer experience, when part of the travel is carried out by a low cost airline itself owned by an alliance member.
The problem is that the contract between the passenger and the airline is different depending on whether the airline is a L.C.C. or a full service carrier.
Is the passenger fully informed that the service provided will be significantly different from the airline – a full service carrier – … which actually sold the ticket which actually includes that part of the travel which will be carried out by a low cost carrier?
It is generally acknowledged that alliances have significantly extended the market reach of their members, as well as increased their presence. Joint ventures have been expected to improve their profitability on some of their key markets.
Customers have significantly benefitted from much improved connectivity.
But much remains to be done to provide their customers with consistency of service across the various alliance members.
Pierre J. Jeanniot, O.C., C.Q.
President & CEO, Jinmag Inc.
Director General Emeritus, IATA