APG Global Connect Conference, Monte Carlo

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!

Thank you

Pierre Jeanniot congratulated by André Leclerc, President, Kéroul

Pierre Jeanniot delivers keynote address at Destinations for All World Summit in Montreal

Access to the Future
Keynote Address at Destinations for All World Summit
Montreal, October 19–21, 2014  >>

Mr. co-chairs, distinguished participants, esteemed guests. Ladies and gentlemen, Mesdames et Messieurs:

This Conference is about freedom. Freedom of movement for anyone.
Freedom for everyone. Freedom from any form of discrimination and particularly freedom from discrimination resulting from any type of limitation – physical or otherwise.

Probably the most notorious of all “freedom fighters” was Mahatma Gandhi, whose non-violence movement and charismatic personality brought political freedom to India.

But freedom is an empty word unless a framework is built and the conditions exist that enable freedom to be fully exercised, to be fully enjoyed.

In India, that task fell to Nehru, who had become the first Prime Minister. Nehru had transformed himself from political activist and freedom fighter into nation builder.

Nehru had a dream, a dream to provide the basic essentials for his people, a dream to create the conditions under which everyone in India could live with dignity. He insisted on the term everyone! We can well understand how difficult it was to achieve such a dream in India, given the lingering presence – unfortunately still today in some quarters – of the “caste system”.

I suppose that one could trace the concept of human rights back to the “Magna Carta” which was signed in 1215, and probably long before that. The Americans – and, of course, the French Revolution among others – made major contributions to the advancement of the concept and the definition of human rights.

The United Nations at its meeting in Paris on December 10, 1948 established a set of international standards which were to be agreed by every nation, and would apply to everyone. Incidentally, Canada made a major contribution to the drafting of that declaration.

Among the many freedoms identified in that declaration – such as freedom of expression, freedom of religion and so on – are listed some freedoms of particular interest to this conference – freedom to move and travel as we wish, and freedom from any form of discrimination!

Pierre Jeanniot address at  Destinations for All World Summit

The United Nations decided to go further when it established, in 2006, a Committee on The Rights of Persons with Disabilities. The resulting Convention came into force in 2009 and has since been ratified by some 150 nations.

The purpose of that Convention is:

“to promote, protect, and ensure the full and equal enjoyment of all human rights and fundamental freedoms by all persons with disabilities”; and

“to promote respect for their individual dignity.”

It’s a great and noble statement. I find it a bit cold, somewhat remote, but nevertheless a great statement!

Who does this statement apply to? Who are we talking about? Who are all these people with disabilities? Who are these people that we need to treat with respect and individual dignity?

Well ladies and gentlemen, let’s look at ourselves in a mirror – and reflect on the current demographic trends. These demographic trends are very interesting, very revealing!

The good news is that we are all living longer, on average, and our life expectancy has grown considerably. Talk to people who manage pension plans for retirees about that!

The not-so-good news is that this increase in our lifespan often comes at the cost of some deterioration in our physical condition.

A research document on the issue of human rights for the federal government of Canada, completed in 2012, established the proportion of Canadians living with a disability in 2006 at 14%. At that time, this represented 4.4 million people. The document concluded that in light of the aging population, this number was growing rapidly! Approximately half of these persons had a motor impairment

If we extrapolate this worldwide, the number becomes considerable.

Let’s just take the number of airline passengers. We now have a situation in which an increasing number of people have the time to travel and, given the proliferation of low prices available, more and more people have the means to do so.

However these same people have an increasing number of diverse physical disabilities.

IATA at this year’s Annual General Meeting, informed us that 3.1 billion passengers were transported by the airlines in 2013.

If the conclusions of the Canadian study hold up internationally, this would mean, proportionately, that the number of air passengers with a disability would have been, in 2013, around 450 million, of which 225 million were with reduced mobility.

I grant you that this approximation lacks scientific rigour. However there’s no denying that serving such a market has huge economic potential!

We have clearly made remarkable progress in medicine, thanks to advances in biomechanics, robotics and cybernetics. More recently, research in direct neuronal interfaces- or brain-machine interfaces if you prefer – has been very promising.

All this allows us to envision new prostheses that could minimize the impact of our physical difficulties. Physical difficulties due to illness accidents or simply aging – that incurable disease that we all have! There are plans for new prostheses that should improve our hearing, our sight and allow us to walk with the assistance of robotic adaptations that obey commands from our brain.

Unfortunately, the day that all these marvelous possible and probable developments will available to all is still far in the future.

We must be aware of current realities. There is an urgent need to act to compensate for conditions that will continue to be with us for a long time to come.

ICAO was established by the Chicago Convention signed on December 7, 1944. In the context of this Summit I believe that the preamble of the Chicago Convention is most appropriate.

Allow me to quote a short excerpt.

“WHEREAS international civil aviation can greatly help to create and preserve friendship and understanding among the nations and peoples of the world” …

“THEREFORE the undersigned governments have agreed that international air transport services may be established on the basis of equality of opportunity, and operate soundly and economically.”

Incidentally the same people established IATA in April 1947, which has similar principles.

ICAO has made a thorough review of the issues that must be addressed to ensure that each stage of air travel is adapted to the needs of people with disabilities. This excellent set of recommendations to airlines, airports, and various agencies such as security customs immigration etc. are proposed to facilitate the clearance and transportation by air of any person with disabilities in a dignified manner.

This fairly extensive list of recommendations covers from reservation assistance (including seat selection) to moving through the airport, signage, information on arrivals and departures, check-in baggage assistance, security checks, boarding access to bridges and ramps, seat assignment, signage on board, availability and stowage of wheelchairs on board.

There is a need to give special attention to washrooms on all flights, and not uniquely on long haul and wide-body aircraft – although it is most certainly essential for airplanes that are designed to fly non-stop for thirteen to eighteen hours half-way around the globe!

Should we not identify seats closer to washrooms which could be allocated as a priority to handicapped travellers? These should be aisle seats with removable arm rests.

What guidance and support could be made available to assist a blind person in reaching a washroom and returning to his or her seat? And so on.

ICAO recommends appropriate training programs for all personnel involved in every step of a journey, training programs ensuring that all personnel are sensitive to the various types of disabilities and are able to adequately deal with each of those disabilities.

Particular care needs to be taken in the training requirements of crews when dealing with emergency procedures. Safety in air travel is our number one objective. It cannot be compromised!

Ensuring safety in the air at all times imposes a number of constraints on the operation of airlines. There are a number of necessary actions and conditions that must be carried out in the case of emergency, whether we are dealing with excessive turbulence, depressurization, or an emergency landing on land or water.

While these are – fortunately – infrequent events, we must at all times be in a position to ensure the safety of everyone on board – everyone, regardless of any disability.

To be fair and give credit where credit is due, we need to acknowledge that very real progress has already been made by the travel and tourism industry as a whole. There is much to be commended, and their efforts deserve to be recognized.

There is already a pictogram that clearly indicates which establishments, or mode of transportation, have the means – and the capacity – to welcome people with certain disabilities in a thoroughly satisfactory way, with dignity. Pictograms for people with limited mobility, hearing-impaired people, and blind people, have been around for some time.

Should we continue to go it alone? Or would it be desirable to create a new, international symbol grouping together these three main disabilities? A universal symbol that would indicate that all efforts have been made to compensate for motor and sensory disabilities – a symbol that is accepted, and recognized, by the international community.

Perhaps we could create a special award that could be given out each year to the most deserving company at a gala sponsored by a company that chooses to support the cause?

During the closing session of this World Summit, you will be invited to adopt a declaration. The “Montreal Declaration” will commit all of us to work towards ensuring that the objectives of this Summit are achieved as quickly as possible.

Among the international tourism players, air transport is one of the most important. The development of air transport continues to progress in a spectacular way. We can today carry up to 800 passengers aboard a wide-body aircraft, providing meal and bar service for all. Some airlines go so far as to feature deluxe cabins with showers – while carrying you halfway around the world in a single flight.

And yet despite these achievements, we have still not managed to make airplanes perfectly accessible to everyone. Major adjustments have been made in airports to welcome disabled persons and ensure their comfort – but much remains to be accomplished.

If it has not already been done, I would suggest that these excellent ICAO recommendations be made available to all airlines, airports, and governments.

Perhaps ACI and IATA would agree to include in their “passenger processing” facilitation programs a special section on the handling of passengers with handicaps.

The industry should set objectives and targets to achieve full compliance: implementation progress could be monitored by ACI and IATA in cooperation with ICAO.

It would be nice if the various government authorities were to review the situation of each of their agencies, and re-enforce those directives.
For instance, should agencies at airports provide a specific channel to more appropriately deal with disabled passengers?

In closing, ladies and gentlemen, it is also very important for the design of new aircraft, that the specifications provided by airlines to the manufacturers clearly stipulate the need to design and equip cabin space so as to accommodate – with dignity – the increasing number of disabled travellers.

If our famous aviator, Antoine de St. Exupéry, were still alive, he would no doubt have had an aging Little Prince say:

“Dear Mr. Aircraft Manufacturer, please draw me a plane

A plane that will allow me, who is now hard of hearing

And blind …

And with reduced mobility …

To enjoy the same privileges … as all other passengers …

And, like them, to be treated with dignity.”

Merci – Thank you!

Address at l’Institut de Formation Universitaire du Transport Aérien in Aix-en-Provence, France


> Airline Challenges – Current Strategies: A personal perspective

APG World Connect Conference, Washington D.C. Concluding Remarks

APG World Connect Conference – Concluding Remarks
Washington D.C., October 24–26, 2013  >>

Ladies and Gentlemen:

Once again, it appears that Jean-Louis has asked me to do the near impossible!

We have had two days of spirited – at times exciting – but always informative and most interesting debates and presentations.

Clearly, it would not do justice to the contributions to this conference to boil it down to a few words in ten minutes!

I will not attempt to do so (although a few highlights should be mentioned.)

So rather than a more elaborate summary, I will confine my remarks to a few observations.

The airline Distribution System needs to evolve … and it is evolving.

This conference has illustrated rather well what changes are occurring – or I should say, what changes are beginning to occur, since we are very much in a transition mode.

What will be the ultimate shape of this Distribution System?

How efficient – and useful – will it be?

This has some way to go to be clearly visible. It has been suggested that it may take four to six years!

It should be obvious that all the participants in the airline industry – be it airlines, G.D.S’s, travel agents, airports, perhaps as well as air navigation providers (although they were not present at this Conference) – all participants have a stake in these debates.

All those participants are interdependent, and they are to some extent linked through the Distribution System.

As the Distribution System evolves so is their relationship likely to evolve.

Common sense suggests that everyone should gain from better cooperation. Clearly, it should be a win-win for all participants.

Unfortunately for the legacy airlines, their lack of profitability has been most frustrating.

And the tendency has been, at times, for airlines to look beyond their own operations for reasons to explain their inadequate profit track record.

IATA has recently published another study on the “Profitability of the Air Transport Value Chain”.

This is the latest – and the third such study – but the main observations have not changed significantly from one study to another.

The study continues to indicate that airlines have the lowest returns of all the participants in their value chain. These include the manufacturers, the G.D.S’s , the airports, and the travel agents among others.

The study concluded that there were problems in the value chain – not too specific – but additional causes including inefficiently designed regulations, poor industry infrastructure, and commoditization of the airline product were identified.

Each sector of the industry managed to earn a higher return on capital
during every past business cycle, than the airlines.

Over the past forty years or so, the price of air transportation has dropped 60 percent in real dollar terms.

Over that period, load factors have increased from a world average of 55 percent, to 80 percent, aircraft utilization has gone from 8 hours a day to 10.5 hours a day, and fuel consumption per tonne/kilometer is now less than half.

But all the efficiency gains generated have been passed on to the consumer in terms of lower prices.

The airlines have shown tremendous generosity towards their customers – but investors have certainly not been privileged.

Investors in airlines have received a return on capital which, on average, has been USD 17 billion less every year than they would have earned by investing in another industry of similar risks.

It is somewhat ironic that the highest return on investment of any participant in the air transport chain is in the Distribution System.

More specifically, the Computer Reservation Systems (C.R.S.’s ) provided by the Global Distribution Systems (G.D.S.’s ) on average earn a very satisfactory 20 percent Return on Investment (R.O.I.).

And one should remember that the airlines created the C.R.S.s and subsequently decided to sell those very valuable functions!

Some 15 to 20 years ago – I was the Director General of IATA at the time – the cost of sale and distribution of the airline product had reached a level that exceeded 20 percent of total costs.

This included promotion, advertising, commissions to travel agents, loyalty programs, etc.

The airlines concluded that these costs were getting out of hand and needed to be addressed.

E-ticketing was introduced as a cost reduction measure.

Travel agent commission programs, with some of the “Super Commissions”, were an easy target.

In parallel, the growth of the Internet was having an impact, along with the rise of the “low-cost” carriers.

The success of the low-cost carriers in direct selling to the consumers using the internet was suggesting that large elements of the selling and distribution costs could be eliminated – or at least substantially reduced.

The legacy carriers were dragged into the ‘”low-cost game” rather unprepared, and unable to lower their costs sufficiently.

Of course, the perishable nature of aircraft seats and the low marginal cost of flying an additional passenger is certainly one of the reasons why prices often get below costs.

But selling at “low-cost fares” – and producing at legacy costs – was not likely to result in a profitable industry, even at peak load factors!

This was clearly not the road to achieving satisfactory profitability.

And the legacy airlines felt somewhat frustrated – and unfairly disadvantaged.
They were the ones “starving at the end of the food chain”!

Turning the airline product into a commodity is certainly the result of legacy airlines’ – perhaps unwilling – strategy to compete with the low-cost airlines.

Unfortunately, in my view, a strategy almost exclusively focused on price!

The airline industry needs to get back to better product segmentation, with options – all of which resulting from a better understanding of consumer needs and how to meet those various customers’ expectations.

The application of “Big Data” marketing shows some promise in individually targeting customers.

An improved Distribution System which better answers the customers’ needs and expectations – where all the participants have a proper role and a proper place – is what needs to evolve.

The result must lead to a better yield – and sustained profitability for everyone!

Thank you!

APG World Connect Conference, Washington D.C. Opening Address

The State of the Airline Industry – The Continuum of Change
Opening Address
Washington D.C., October 24–26, 2013  >>

Ladies and gentlemen:

It is nice to be meeting in Washington – a great city, and a beacon of democracy!

A city where the decision-making which takes place here has, at times, a huge potential impact on the entire world.

Many centuries ago when Rome was the seat of power, the common expression to illustrate its importance was that “all roads lead to Rome”.

Today, the electronic highways have taken over the role of linking the world.

And given the importance of this city, it may not be inappropriate to state that today all electronic highways – in some fashion – connect through Washington.

And thus it stands to reason that Washington is a natural choice for a conference to discuss the status – and the evolution – of the industry’s distribution system.

The electronic highway is of critical importance to travel, and to the airline world!

But before I go on, a disclaimer!

The views expressed here are strictly my own and do not necessarily reflect those of any companies or associations with which I am or have been associated.

10,000 Foot View

Once again, to paint the background against which airlines’ product distribution will be discussed over the next two days, it could be useful to take a 10,000 foot view of the airline industry.
And to take stock of the forces and the trends which are shaping its evolution.
The well-known periodical, the Economist, observed recently that the emerging markets – the so-called BRIC (Brazil, Russia, India and China) which have led the global economy for a decade- will no longer compensate for the weakness of the rich countries.
Collectively, these emerging markets – the BRIC – will barely match last year’s pace of 5 percent.
In the foreseeable future, growth is likely to be broader based, and include the ten next economies such as Turkey, Indonesia, Thailand, Mexico, etc.
These ten economies have a smaller combined population than China alone!
But we will achieve a more balanced growth from this broader array of countries, and it should cause smaller economic ripples around the world.
Looking at aviation, the latest ICAO forecast indicates that air traffic will remain relatively strong in the near term.
Passenger traffic is projected to increase 4.8 percent world-wide this year, and it will average approximately 6 percent for the following two years – more specifically in 2014 and 2015.
IATA remains optimistic that the airline industry will achieve a USD 11.7 billion profit this year, up from 7.6 billion US dollars in 2012.
The key driver is the industry’s load factor, which is expected to average 80.3 percent – an absolute record high.
Passenger yields are expected to grow a very modest 0.3 percent.
Although all regions are expected to show a profit in 2013 some, as one would expect , will be stronger than others.
Asia-Pacific will lead all regions with a margin of five percent. The main driver is the strong growth in China and in the region’s long haul market.
North American airlines’ profitability is expected to reach USD 4.4 billion. Here the main drivers are consolidation and efficiency measures.
Europe, where the economic conditions are the weakest , is expected to achieve a margin of 1.3 percent, although the market will grow 4 percent.
The fastest growing region remains the Middle East at 15 percent , while Latin America is next with a growth of 9.8 percent.
Unfortunately, African airlines will continue to be the weakest performers, with a margin of only one percent.
IATA notes that, worldwide, ancillary revenues are topping five percent, indicating that many airlines are trying to shore up their bottom lines with this source of revenue.

The Alliances

Are the alliances undergoing a significant transition?
Until recently, the Gulf carriers had stayed away from joining alliances – partly because, given their individual expansion strategies , they had no need for alliances to satisfy their growth expectations.
And partly because the hostility of the European legacy carriers – and their allegations that Gulf airlines enjoyed unfair advantages – would not have encouraged any form of partnership.
However , in the past year we have seen some significant shifts in attitudes on the part of both the legacy carriers and the Gulf airlines.
There is a growing understanding that the world economy is continuing to shift – and so are the traffic flows.
We are now seeing substantial traffic growing between various emerging countries, as well as traffic increasing between emerging countries and developed countries.
And thus, what is happening is not just about the Gulf carriers. It is about a re-alignment of business models to exploit and stimulate those traffic flows.
The legacy carriers, primarily European, are also adapting to this new market reality.
An example of this type of business re-alignment is illustrated by the alliance of Qantas and Emirates Airlines which, as one would expect, has had an impact on the “One World” Alliance.
But, in parallel, “One World” was successful in enticing Qatar Airways into joining their alliance.
The addition of Qatar Airways to “One World” is said to greatly facilitate the access of its members to several interesting Asia-African flows.
Etihad which, despite many delays and modifications by the Indian authorities has now been allowed to acquire a minority stake in Jet Airways, may have introduced some complication in Jet Airways’ previous attempts to join “Star Alliance”.
The situation becomes additionally confusing when one remembers that Etihad is a major shareholder in Air Berlin, itself a member of “One World”, while at the same time Etihad has a major commercial agreement with Air France-KLM , a leading player in “Sky Team”.
In South America , “Star Alliance” is well represented by AVIANCA, the second largest airline group in the region.

Seamless Air Travel

You will remember that the three global alliance airline groups have been promising “seamless travel” between members’ networks – but this has been little more than a marketing claim.
The fact of the matter is that the customer is still flying on multiple airlines with varying degrees of product quality, consistency, and communications practices.
True seamlessness remains more of a target than a fact, and unfortunately, as an alliance grows in numbers of airlines, the challenge of offering a consistent and quality product grows as well.

Regional Capsule: North America

With the merger of American Airlines and US Airways – at this time still opposed by the D.O.J. although it is a fair bet that it will be allowed – the U.S. commercial aviation landscape will have shrunk from six to three large mainline airlines.
When you also add the low-cost giant, Southwest Airlines which is now completing its integration of AirTran Airways, those big four players collectively account for three quarters of U.S. airline capacity.
Consolidation, route reduction and higher fares in the U.S. market are creating opportunities for the new breed of low-cost carriers, led by Spirit Airlines, to capture the traffic which the big three full service network carriers no longer find worthwhile.
With the purchase by Delta of a 49 percent stake in Virgin Atlantic , the three global alliances will have divided the routes between Europe and North America almost equally between them – leaving precious little for the non-aligned carriers.
In Canada, WestJet ‘s launch of a new regional feeder operation is likely to heighten domestic competition, while Air Canada is aggressively pushing into new international markets using Turkey as a gateway to Central Asia, the Middle East and Africa.
Air Canada has also introduced a new leisure airline, “Rouge”, targeting leisure Caribbean and European destinations.

Europe – The Battle for the Short-Haul Market

Last year, the ten members of the European Low Fare Airlines Association (ELFAA) carried 202.4 million passengers, while legacy carriers, members of AEA – the Association of European Airlines – carried 340 million passengers.
The rate of growth of these two groups suggests that in a not too distant future, low cost airlines will have overtaken the legacy carriers in the intra-European market.
The European “Big Three” – the Lufthansa Group, the International Airline Group (IAG) and the Air France-KLM Group – are fighting back, but so far with mixed success.
Lufthansa is planning to grow “German Wing”, its low cost subsidiary , to ninety airplanes by next year
German Wing will gradually take over control of all of Lufthansa’s continental routes, outside of its main hubs of Frankfurt and Munich.
For IAG, the acquisition of Vueling is a very important element of its European strategy.
Vueling has the second lowest cost base in Europe, and its enhanced business offering Is delivering a popular solution to the highly price-sensitive, short-haul sector.
Air France-KLM has set in motion many initiatives to improve productivity and competitiveness, which should reposition its regional offering, its leisure brand, and its alliance and partnership strength.
Meanwhile, “Sky Team” member ALITALIA faces a battle for survival – but it is unlikely to be rescued solely by Air France-KLM. Its shareholders are presently considering whether to invest another 100 million Euros to keep the airline running as it seeks new financing.
Ryan Air’s well established dominance on the Continent – with its 81.5 million passengers -is progressing towards its stated target of 20% market share.
It has launched its first base outside Europe in the Moroccan cities of FEZ and Marrakech, and intends to operate up to 60 additional routes following this first move.
Charging for toilets continues to be the number one story on the social networks. Although Ryan Air says that it has no such plans, it considers that this negative publicity drives people to their website – and sells more tickets!
Defying many predictions, Easyjet – with Carolyn McCall as CEO – has achieved an excellent turn-around, with a year-over-year pre-tax profit increase of 27.9 percent.
Easyjet was able to get a foothold in Russia following the re-allocation of British Midland route rights.
Easyjet has cautiously moved from a purely L.C.C. model to a limited hybrid to cater to business passengers on some key routes such as London-Moscow and Milan-Rome.
It has recently signed a contract with the “Shortbread House of Edinburgh”. The airlines will sell the traditional biscuit on board of its services in Europe, Russia and the Middle East!
And then there is the case of Turkish Airlines which considers itself to be a European airline.
• Its ambition is to connect the world via Istanbul, to compete and even outgrow its Gulf rivals.

• Strategically placed between Europe and Asia, as well as the Middle East and Africa, Turkish is one of the fastest growing airlines, having carried 38.5 million passengers last year.
Turkish Airlines is a recent addition to “Star Alliance”.


The outlook for the Asian market remains relatively bright despite the recent slowdown in traffic growth.
China expects domestic air travel to double by 2020, at which time it plans to have 240 civil aviation airports – up from 180.
But the gap between the demands of the rapidly growing airlines and the supply of experienced professionals is widening – potentially restricting growth.
Following the lifting of economic sanctions, Mynamar’s international and domestic markets have been growing very rapidly, and LAOS aviation has doubled over the last fifteen months.
Low costs are beginning to enter these markets.
Within South Asia, the L.C.C. penetration of the short-haul market is now 50%, but the medium-haul markets between South Asia and other parts of the Asia-Pacific region remain relatively undeveloped.
This market is now being targeted by Air Asia X.
On the Indian Sub-Continent, the government of India has now given conditional approval to the proposed investment for an up to 24 percent stake by Etihad in Jet Airways.
This will likely impact the market dynamics in the area, opening up the vast Indian market to a major Gulf airline – and providing Jet Airways access to the powerful Abu-Dhabi hub.
Air Asia hopes to obtain approval for a 49 percent investment in a joint low cost venture with TATA Sons Limited.

Middle East

As we have already seen, the three major Gulf carriers are pursuing very different strategies.
• Qatar Airways is joining “One World Alliance”;

• Emirates has chosen to grow a strong relationship with Qantas;

• Etihad’s path has been to take a minority stake in many carriers, and use those relationships to achieve cost and revenue synergies. Those investments now include Air Berlin, Air Seychelles, Aer Lingus, Virgin Australia, and more recently, Jet Airways.
The other airlines in the area are struggling to survive – with the exceptions of Air Arabia, the largest low-cost carrier in the Middle East and Africa , which continues to grow rapidly, currently 13 percent compared to last year.

Latin America

The LATAM Airline Group marked the first anniversary of its merger between LAN and TAM with an overall loss of USD 300 million, partly attributed to the depreciation of the Brazilian currency.
LATAM remains confident to achieve the long term financial benefits of the merger.
Regrouping AVIANCA, TACA Airlines, AEROGAL and Tampa Cargo , the new AVIANCA brand will be gradually introduced, seeking to project a new phase of growth of the Latin American carriers to the world.
AVIANCA Brazil has more than doubled in size in less than two years, and hopes to benefit from membership in Star Alliance.
AVIANCA Brazil is owned by the Synergy Group, which is the largest shareholder in the new AVIANCA and remains the only bidder in the sale of Star member TAP Portugal.
COPA has emerged as a leading carrier in the Intra-Latin American market, leveraging Panama’s strategic position in the middle of the region – and its superior airport.
With an annual operating margin of at least 17 percent since its 2005 initial public offering, COPA is highly profitable.

New Aircraft Overview

Hopefully, the Dreamliner’s nightmare is over!
Following a series of minor mishaps, the grounding of a Boeing B.787 fleet for four months was unprecedented.
Although the cause of the problem was never precisely identified, the extensive redesign of the Lithium C-ion battery system provided sufficient safeguards to allow the aircraft to return to safe operations.
Airbus has not been totally without problems. They are still fixing cracked wing components on the A.380’s currently in operation, as well as those on the assembly line.
Modified wings will not be available until 2014.
The Airbus A.350-900 successfully started its series of test flights, and the quality of the early results is most encouraging.
Good progress is being made on the development of the larger A.350-1000 with its engine, the Rolls Royce Trent XWB-97 …
However, the backlog on the smaller A.350-800 is eroding in favour of the larger variant.
Boeing has announced the launch of the B.787.10. This is an eighteen feet stretch of the standard B.787-9 version which will accommodate forty more seats.
The B.787-10 will accommodate 300 to 330 seats with a range of 7000 miles.
A few months ago, Boeing announced the launch of the B.777-X project. This new aircraft is unlikely to be in service until the next decade.
The B.777-X family will offer a new composite wing and a new GE9X engine , with capacity ranging from 353 to 406 seats. The B.777-X family is proposed as a response to the Airbus A.350-1000.
The A.320 NEO (New Engine Option) may well be history’s fastest selling jetliner – but Boeing’s 737 MAX is close behind.
Airbus promises a 15 percent fuel burn improvement compared to the standard A.320.
Boeing , not to be outdone, claims a 16 percent upgrade.
The improvement is largely dependent on the performance of new engines. Also, the Airbus A.320 NEO will feature sharklets, which improve fuel performance.
• The Pratt & Whitney 1100G (geared fan) has already achieved 12 percent better fuel burn than the CFM 56.5B currently on the A.320.

• The LEAP-1A of the GE/SNECMA Joint Venture is hoping to start tests next year. It will be the first commercial fan to incorporate ceramic material components.
The smaller version airplanes of both series, for example, the A.319 NEO and Boeing 737-7 MAX, are almost obsolete before delivery – and are not selling. These smaller versions account for only 2 percent of orders.
Airbus is considering some modifications which could take the A.320 NEO to 235 seats from the current 180 seats maximum permissible. (This will require two additional doors.)
Bombardier’s “C” Series has started test flights.
• The CS 100, covering the 100-125 seat market, is aimed at airlines wanting superior runway performance.
• The manufacturer has proposed a 160 seat variant by extending the fuselage of the CS300 by two feet.

• The performance of the “C Series” is highly dependent also on the Pratt & Whitney geared-fan engine, which has now been certified.
The decision by Embraer to re-engine its E-jet series has provided additional competition to Bombardier and the 70 to 90 seat Mitsubishi.

ATM – Europe
Single European Sky – a Failed Project?

The European Commission (E.C.) has been pressing Member States to comply with the Single European Sky targets – but many of them have not.
National interests – and powerful labor unions – continue to prevent the achievement of significant economic benefits, and the elimination of national borders in the air.
Slim Kallas, the E.U. Transport Commissioner, acknowledges that air traffic control continues to be too expensive, and hampered by high levels of delays.
The European Air Traffic Management systems are estimated to impose an additional cost of 5 billion euros per year on travelers.


Meanwhile, devoid of many political issues, SESAR – the Single European Sky Air Traffic Management Research joint undertaking – saw its mandate extended for a further eight years.
The new 600 million euro funding will focus on:
• Developing means to allow airplanes to fly more direct routes.

• Integrating new types of aircraft, such as drones, in the air traffic management system
Is the Single Sky Dead?
Europe is displaying a disconcerting lack of political will.
Perhaps the dream of the Single Sky is dead!

ATM – North America

The U.S. Next Gen ATM program , targeted for full implementation in 2015, is said to be on track.
Two crucial foundations for the system should be largely completed by the end of this year.
• “ADS-B” – Automatic Detection Surveillance Broadcast which allows 2-way links automatic positioning – is being implemented, and

• ERAM – the En route Automatic Modernization Program – is set to replace by the end of this year the operating system used by the F.A.A., at twenty of its en route centers.
The U.S. has also set 2015 as the date when small, unmanned aerial vehicles (U.A.V.) will be permitted to fly in all areas of the national airspace, although at the start the F.A.A. is likely to restrict U.A.V. operation to line-of-sight of the operator on the ground.
Only small U.A.V.’s – with a mass less than 25 kilos flying below 400 ft. over non-populated areas and within line of sight of the operator – are to be operational by 2015.

ATM – Asia

The Seamless Asian Sky (S.A.S.) concept is moving well.
The objective is to ensure that from an operational perspective, the airspace boundaries are transparent – or seamless.
The regional heavyweights – China, India and Japan – are providing valuable input, and will enable smaller countries to find their place in the jigsaw.
The Seamless Asian Sky plans to tie in as much as possible with the U.S. NextGen, and the European S.E.S. implementation.


Europe has climbed down over imposing Emissions Trading, finally responding to worldwide opposition.
Referred to as the “STOP THE CLOCK” decision, it agreed to suspend the Emissions Trading Scheme (ETS) for one year.
A global, market-based measure was discussed at the 38th ICAO Assembly this October. Governments mandated ICAO to develop a single Market-Based Measure (MBM) for implementation from 2020.
The last IATA AGM passed a Resolution in June suggesting that ICAO should adopt a global solution aimed at achieving a “carbon neutral” growth by 2020.
My own view is that taxes are a regressive measure – and given that the ultimate aim is to develop, low carbon substitute fuel – the emphasis needs to be placed on increasing funding for bio-fuels research and production!

Distribution Channels

Connectivity continues to grow, and providers say that mobile usage in flight is following the same trend as on the ground, with data usage increasing rapidly.
In the air, passengers are using their mobile phones more for data services – such as internet and texting – than actually placing voice calls.
In 2013, about five million mobile devices will have accessed the AeroMobile network.
More than fifteen million passengers have been connecting since the service was launched in 2008.
A study on the “Future of Airline Distribution”, commissioned by IATA and published in December of last year, predicted that:
• by 2017, 50 percent of bookings and ancillary purchases will be made on mobile devices

• and that air travelers are more likely than the general public to use smart phones and tablets;
Not surprisingly, the study concluded that the airlines need a system that can help not only to distribute their flights, but also merchandise their products – and value – across the various channels.
The system should support extensive fare and product transparency, dynamic pricing, ancillary product merchandising, and retailing.

New Distribution Capability

Airline Business magazine believes that, over the last year, the most important development in airline distribution is the introduction of the New Distribution Capability, “N.D.C.”
As we know, N.D.C. is a set of technology standards which will give the airlines an ability to distribute all their content through third parties, while retaining control over how it is presented.
N.D.C. will allow airlines to independently offer dynamic shopping and pricing through any channel.
The messaging system will be a modern messaging technology such as X.M.L.
The application to establish a new distribution capability – N.D.C. – was filed in March with the D.O.T. in Washington, in response to comments filed by third parties. Those parties were concerned , or opposed, to N.D.C. – as initially proposed – on matters of antitrust and privacy.
The G.D.S.’s are possibly the most exposed to the changes that N.D.C. is trying to bring about.
Some G.D.S.’s have requested some clarification, and will want to ensure that N.D.C. will not impact some of their product developments.
They have generally expressed a willingness to participate – if allowed to do so.
Hopefully we will hear their views at this Conference.

Travel Agents’ View

Bruce Bishins, President of the Travel Agents Association of Canada and Managing Director of ARTA USA, believes that
“There is a compelling reason for travel agents to get involved in IATA’s New Distribution Capability (N.D.C.) – or risk being left at the gate.”

There will be an impact on front-office selling, middleware facilitation, and back office routines and accounting.
It will definitely change the way things are done today
In his view, the travel agent community needs to become intimate with N.D.C., or they will find themselves eclipsed by airline websites and /or any emerging new entrants that want to sell travel.
Again, we will likely hear their views during this Conference.

Closing Remarks

The travel sector’s approach for the past two decades has been to push customers towards lower prices through lower cost and yet more uniform – and lower – cost distribution channels.
This has overly emphasized price as the primary, if not the only, product differentiator.
While customers value price significantly, it is far from being their unique preoccupation.
Clearly, travelers have different views, different desires, when it comes to their traveling needs – and in terms of their shopping preferences.
The basic theory which governs consumer behaviour has not changed.
How much consumers are willing to pay is still very much a function of their perception of the value they are receiving. And that has not changed!
A famous cosmetic company uses the slogan “our products may cost a little more, but you’re worth it!”
That company and many others have understood this relationship , and the need to place the consumer at the center of their marketing strategy.
There is a need to make customers the strategic focus – and for customers to be at the centre or our preoccupation.
There is a need to better understand their individual needs in order to serve each of them better, and to provide to each of them the best, most satisfying, end-to-end experience they deserve.
The industry should move away from a model focused exclusively on price – and, for that matter, on reducing distribution channel costs – to a model that seeks to maximize returns by best serving their customers’ needs.
I recall that Bill Clinton, then a Presidential Candidate, launched his campaign in this city with a rather simple – and explicit – slogan … and I quote
“It’s the economy … stupid!”
Ladies and gentlemen, when the industry’s load factor – worldwide – has now reached over 80 percent and this airline industry is still a long way from being profitable, it is time to do a little soul searching.
It is time to change our strategies. It is time to refocus consumer expectations.
To paraphrase Bill Clinton, it’s time the airlines recognize that if we are not profitable
“It’s the yield!”
And in the airlines’ elusive quest to achieve sustainable profitability – could the travel agents be an important ally?
Thank you!

Pierre Jeanniot delivers the keynote address to the APG World Connect Conference in Monte Carlo

State of the Industry – The Game Players
Keynote address to APG World Connect
Monte Carlo, October 25, 2012  >>

Ladies and gentlemen:

Every two years , Jean-Louis Baroux brings this Conference back to Monte Carlo, a place of opulence, perhaps in the hope that some of those characteristics will eventually rub off on our perennially troubled aviation industry.

Well, if we can believe the latest IATA forecast, the anticipated industry-wide – 0.6% net profit margin for 2012 – is not likely, once again, to cause everyone to pop champagne.

Not to take any chances, this conference continues to ensure that this magic liquid is amply present at every reception, to help either to celebrate our successes or to drown our sorrows, as the case may be.

Before I go on, let me remind you that the views expressed here are strictly my own and do not represent the views of IATA or any other corporation that I have been associated with over the years.

Our industry is accustomed to having to deal with numerous uncertain conditions, and this current year is no exception.

The Chinese economy, which has become a major engine of world economic growth, has been slowing down.

The Asia-Pacific international market was showing a 5.5% expansion. However, when one takes into consideration the impact last year of the Japanese earthquake and Tsunami, and the recovery this year of the Japanese market to its previous level, the real growth of the Asia-Pacific international market was, in fact, marginally negative.

India’s domestic traffic was essentially stagnant, partly as a result of the government’s disastrous aviation policies, bureaucratic nonsense and excessive taxation.

North American markets were essentially flat.

However, on the bright side, the other regions of the globe have continued thus far to show good growth, particularly the Middle East, Latin America and Africa.

The financial crisis has shaken public confidence in the banking system, revealing that unfortunately some banks – driven by greed – had total disregard for the basic rules of prudent investment.

To avoid a liquidity crisis which may have brought the entire economy to a halt, the government provided a huge “bail-out” fund to the banks – at the expense of the tax payers!.

Unfortunately the banks are not the only ones misbehaving.

Many governments are overly in debt, and the situation is particularly acute in Europe.

And unfortunately, unless the North American economy clearly recovers – and Europe fixed its problems – all regions will likely suffer.

Against this background of economic uncertainty and continued aggressive competition, the various major players have been re-evaluating their strategies, each in its own way.

Latin America has been one of the important battlegrounds.

The merger of two important airlines in the region, namely LAN and TAM – each belonging to different alliances – forced a re-examination of their respective affiliations.

The Chilean antitrust regulators told LATAM, the new combined entity, that its two operating airlines will have to be in the same alliance – and not in the same alliance as their primary Latin American rival, AVIANCA-TACA.

LAN is a founding member of “OneWorld”, and TAM became a member of STAR in 2010.

The dilemma should have been resolved this Spring, when AVIANCA-TACA was admitted into STAR.

One could have concluded that LATAM would be the South American member of “OneWorld”. However, LATAM has been keeping its options open.

Just to complete the picture, in Latin America we should remember that Aeromexico and Aerolineas Argentinas are the region’s members of Sky Team.

The European presence of “OneWorld” was somewhat weakened in Eastern Europe by the bankruptcy of MALEV.

However, that void will be partly compensated by Air Berlin and its affiliate Fly Niki, which joined the alliance in March of this year.

The bailout package provided to Portugal by the European Central Bank and the International Monetary Fund (IMF) imposed a requirement for the privatization of the national airline, T.A.P.

The relatively strong position of TAP in two key emerging markets – Latin America and Africa – has raised the interest of several groups including I.A.G. and the Lufthansa Group.

Among the other major alliance developments worthy of note is the expectation that Malaysian Airlines would join “OneWorld” this year.

And then, on the Indian sub-continent the largest Indian private airline, Jet Airways, has been invited to join STAR.

However, the government of India has requested that Air India, which had been previously rejected by STAR, be admitted at the same time as Jet Airways. This could complicate the situation.

As a natural expansion of the “Metal Neutral” Joint Venture between Lufthansa and All Nippon Airways , SWISS and Austrian were invited to join in.

Finally, Japan Airlines and I.A.G. have agreed plans for a Joint Venture business … on all services between Europe and Japan.

The European low fare airline scene has long been dominated by RyanAir and EasyJet.

For the first time – and perhaps as an indication that the market is reaching saturation – their growth rate has been coming down to a meager 4 to 5 percent per annum.

And for the first time also seasonality has become a factor. RyanAir, for instance, decided to ground a number of airplanes during the winter months.

This year, a newer and aggressive airline – “ Norwegian Air Shuttle” – has decided to challenge those leaders.

Norwegian Air Shuttle, last January, placed an order with Boeing and Airbus comprising of 374 aircraft, of which 222 are firm orders and some 150 are options to be exercised later.

One gets a good measure of this ambitious move when one compares the Norwegian Air Shuttle fleet plan with the size of RyanAir’s current fleet of 270 airplanes and EasyJet’s 204 airplanes.

Determined to stop the attack on their short-haul markets, the three major European airline groups have launched some substantial restructuring programs to reduce their operating costs.

Their objective is to achieve a more competitive presence in the European short-haul market.

Lufthansa, which recently announced a reduction of some 3,500 full-time administrative jobs worldwide, is considering shifting up to 90 jet aircraft to a division providing short-haul, low cost services outside of Frankfurt and Munich.

This would likely be combined with its low cost unit, “Germanwings”.

As part of its cost reduction effort, Austrian Airlines also decided to transfer the company’s fleet of 80 airplanes and its 2100 employees to its 100 percent-owned subsidiary, Tyrolean Airways.

The move was carried out to eliminate duplication and to achieve a new collective agreement.

The other member of the Lufthansa Group, Swiss, is looking at splitting off its short-haul operation – possibly to be based outside Switzerland – to achieve lower costs.

IAG – the International Airline Group – is disbanding the loss-making BMI Baby, redistributing its valuable airline airport slots to the more lucrative markets.

Thus far, the main focus of the Group has been in Spain. This will include short-term downsizing and network reshaping to address Iberia’s uncompetitive cost structure.

The Group will increase its low-cost presence in the Spanish market.

Iberia Express, a new subsidiary with services said to be almost identical to those of Iberia but with staff remunerated at low-cost competitive rates, became profitable in its second month of operation.

Thus far, Iberia Express and Vueling – also 46 percent owned by Iberia – are both growing successfully.

Finally, the last member of the European “ big three” – the Air France/KLM Group – centers its efforts on Air France, with a plan to increase productivity and efficiency by 20 percent.

Its regional restructuring is based on a three-prong effort:

First, giving Transavia – formally a KLM subsidiary – an increased role to operate a no-frills, leisure airline from Orly to Mediterranean and European destinations.

Transavia’s fleet will be increased from eight aircraft today to 22 by 2015-2016.

Second, the activities of AIRLINEAR, BRITAIR and REGIONAL will be regrouped with the objective of reducing costs by 15 percent.

Then, Air France is opening regional hubs in Marseille, Nice and Toulouse for services to various European and Mediterranean destinations.

Thus far, the results of those new liaisons have been somewhat mixed, suggesting some fine-tuning is still required.

The Gulf carriers had remained strongly focused on their plans to “Connect the World” through their respective hubs, maximizing 5th and 6th freedom opportunities.

But in the last few weeks we have seen a dramatic shift in their strategies which could position the Gulf carriers at the core of a new global order.

Emirates and Qantas have exchanged a major codeshare agreement which covers all major European destinations.

This could cause some serious strain on the “OneWorld” Alliance.

And then Qatar Airways, which had been cosying up to British Airways, and has now joined OneWorld.

The third member of the powerful Gulf “triumvirate”, Etihad, together with Air Berlin has now announced a wide-ranging commercial agreement with Air France/KLM.

Given this new development one wonders how long Air Berlin – 29% owned by Etihad – would remain in “One World”.

Clearly, the major strategic shift by the Gulf carriers has thrown the three alliances … into a state of flux!

A brief overview of the region would not be complete without mention of Turkish Airlines – fast growing and also ideally located between Europe, Asia and Africa.

Turkish Airlines, which today operates to five North American destinations plans in the short to medium term to add five more major destinations.

Turkish Airlines is also looking at investing in other airlines, and has been showing interest in LOT Polish Airlines as well as Portuguese TAP.

Finally, the growth of Air Arabia – the largest low-cost carrier in the Middle-East and Africa – is most impressive, and has established new hubs in Casablanca and Cairo in addition to its main base in Sharjah.

Regardless of who is involved, more consolidation will take place in the U.S.A.

American Airlines’ restructuring plan calls for a reduction of 13,000 employees, major concessions from each labor group, and termination of the defined benefit pension plan as well as closing the Fort Worth Maintenance Base.

The plan hopes to generate sufficient cash to renew the fleet over the next five years.

A strong American Airlines would marginalize U.S Airways, leaving it with little scope to grow. This is believed to be the reason for U.S. Airways to begin a potentially hostile take-over bid for American Airlines.

The U.S. Airways’ effort to gain control of American Airlines has generated much support from Wall Street and American Airlines’ own unions.

American Airlines, which had originally shown very little interest in merging with U.S. Airways, has since indicated that a merger should be considered.

Southwest Airlines, the model of the “low-cost” par excellence, has played a part as well in the consolidation process, having acquired AirTran. Southwest’s recent losses are, in part, related to the integration of AirTran in its operation

Return to its full profit potential is now targeted for 2014.

As part of its diversification activities, Delta Airlines has decided to invest 100 million dollars in GOL, the San Paolo-based airline, which has a 40 percent market share in Brazil, to leverage and consolidate further its long-term commercial agreement.

And then in Canada, in line with the trend to develop hybrid business models, Air Canada has announced its intention to create a NEW long-haul, low cost, wholly-owned subsidiary. This new airline will target trans-Atlantic leisure destinations as well as in the U.S.A. and the Caribbean.

Looking for more room to grow, WestJet announced this year the creation of a regional carrier division, with an order of some forty Dash8-400 airplanes.

WestJet was successful in negotiating with its current employees a lower wage rate for any new employees to join this new division.

And then, moving off the strictly no-frills product, WestJet is now introducing a premium product with more legroom and various amenities to appeal to the business travelers.

Hybrid business models are proliferating. Well, it’s a case of whatever will work for you!

Low-cost carriers are expanding rapidly in Asia/Pacific.

Malaysian low-cost carrier, Air Asia, continues to increase at 12% annually.

SCOOT became the third long-haul, low-cost carrier in Asia, joining JetStar and AirAsia X.

SCOOT is also the fourth brand in the SIA group’s portfolio, which already includes low-cost carrier Tiger Airways, partially owned by SIA, and the short-haul, full service carrier, SilkAir, in addition to the mainline Singapore Airlines’ full service brand

Seven years ago, there were no low cost airlines in the Singapore market. Today L.C.C.s account for 25% of passenger traffic at Singapore’s Changi Airport.

Yet Singapore Airlines has not shrunk. The market has simply grown.

Japan is fast becoming the new L.C.C. battleground in Asia-Pacific, with three new entrants this year namely:

JetStar – a Qantas /Japan Airlines’ joint venture;
PEACH – a subsidiary of ANA /All Nippon Airways; and
AirAsia – a joint venture between Malaysia Air Asia and All Nippon.

This flurry of new entrants has prompted Narita Airport to announce that it will build an L.C.C. dedicated terminal, due to open in 2015!

L.C.C.’s are projected to carry 20% of Japan’s domestic traffic by the end of 2012, and possibly as much as 50% by the end of the decade.

The L.C.C. Japan phenomenon is rapidly spilling over into neighboring countries.

The Qantas’ Group, which also follows a multi-airline portfolio strategy, has chosen to have its Asian expansion channeled through its low cost JetStar subsidiary.

JetStar, joining forces with “China Eastern Airlines”, will launch a new low cost subsidiary in 2013, based in Hong Kong.

China is the target market.

Another Chinese carrier, Hainan Airlines Group, plans to turn its affiliate – 45 percent owned “Hong Kong Express” – into a low cost operation.

Vietnam, Indonesia and the Philippines are seen as markets with great potential for low cost travel. Both are archipelagos with large numbers of overseas workers, and are increasingly popular tourist destinations.

Finally, Myanmar’s aviation market is poised to enter a major period of growth as the country begins to open up to world trade and tourism.

Despite a slowdown of work related to a delamination issue, Boeing plans to deliver – on schedule – forty-five B-787s to customers in 2012, and has a goal of meeting a rate of 10 aircraft per month by the end of 2013.

The first airplanes were powered by Rolls Royce Trent 1000. Earlier this year certification was completed for the B-787 powered by General Electric, GENX-1B.

Boeing’s network analysis group has forecast that a potential of up to 450 new city pairs could be opened as a result of the B-787-8s particular combination of size (250 passengers), range (14,000 kms) and operating economics.

Thin routes such as Boston-Tokyo, Mumbai-Mexico City or Frankfurt-Santiago (Chile) would be good candidates.

Meanwhile, Airbus has started the final assembly process of the A-350-900. Airbus still believes that it can begin customer delivery in 2014.

Redesign efforts have been on-going on the larger A-350-1000 model to reinforce its ability to compete successfully with the Boeing 777-300 ER and any further improvements to this model, which Boeing is already beginning to examine.

Not surprisingly, predictions vary widely between Airbus and Boeing on the performance of their re-engined, next generation, narrow bodies.

The A-320 NEO is due to begin commercial operation in three years, while the Boeing B-737 MAX debut is even further off – targeted for 2017.

Airbus indicates that the A-320 NEO is expected to produce an overall fuel-burn improvement of 15 percent compared to the current A-320 model.

Boeing is claiming that the B-737 MAX will have a 17 percent fuel burn advantage over the current A-320.

This could be a case of “apples and oranges”.

Boeing’s prediction for fuel burn per seat is based on a 162-seat configuration for the B-737 and a 150 seat arrangement for the A-320.

A huge order from SkyWest at Farnborough for 100 Mitsubishi regional jets – the 90-seat MRJ-90 – was a major signal that the Bombardier-Embraer duopoly may have ended.

SkyWest is a key player in the biggest regional jet market, the U.S.A.

But Mitsubishi is also studying a stretched 100 seat version for potential customers including Air Lease Co.

The MRJ is the second entrant in the larger regional jet arena, following the SUKHOI SuperJet 100 which entered service last year but has yet to gain full credibility with Western operators.

Meanwhile, Bombardier no longer insists that the first flight of the C-Series – the CS100 – will take place by the end of 2012, but still hopes to deliver a certified for 120 minutes E. T.O.P.S. at entry into service to a customer in 2013.

The plan also calls for the larger C.S.300 to be certified by 2014.

By allying its product with the Chinese COMAC C-919, Bombardier would be able to offer a hybrid family to the Chinese carriers.

COMAC C-919 is expected to fly in 2014, and start delivery in 2017. RyanAir has expressed an interest for the aircraft.

The objective of the Single European Sky initiative, launched in 2004, was to achieve a European airspace without borders.

Progress has been painfully slow.

Unable to see a way of overcoming, the complex political and bureaucratic obstacles required to achieve a Single European Sky, the Europeans have embarked on an intermediate step of forming Functional Airspace Blocks … (F.A.B.)

This would at least allow some consolidation of facilities and functions to reduce costs – and by extension, the fees paid by the airlines.

To illustrate the magnitude of the current European system’s inefficiencies, it may be sufficient to note that the United States’ A.T.C. delivers approximately twice the volume of all European ATCs – for the same price!

There are today, in Europe, some 27 air navigation authorities and a number of military air control centers.

And, at present, the European States are planning to regroup their ATCs into nine (9) multinational Air Space Blocks covering almost all of Europe.

But then, once the integration is completed within each of these Functional Blocks there will remain the task of ensuring that the nine will efficiently work together.

On the technical side progress is achieved more easily.

The Single European Sky ATM Research (S.E.S.A.R.) program was also launched in 2004 to provide Europe with “high performance air traffic infrastructure and technology” to meet the requirements of the future.

The 4-D Trajectory Management is on track, and is one of the more significant projects to deliver flight optimization.

This will require further coordination between airborne and ground systems.

The modernization of air traffic services is progressing in other regions.

In the U.S.A., as part of the NextGen air navigation improvement program, the F.A.A. has now awarded a contract to accelerate the development of satellite-based procedures.

These will allow aircraft to fly more directly to their destinations – and more efficient approaches into an airport.

In Asia, the concept for a seamless Asian Sky (S.A.S.) has achieved widespread, high level support.

S.A.S. does not mean one owner – but a need to agree that the airspace boundaries need to be transparent, or seamless.

Fortunately, Asian governments have progressive aviation policies. China, Japan and India will each provide valuable input, and will enable smaller countries … to find their place in the overall picture.

A decade or so ago, many airlines – particularly the low costs – began to offer their products directly through the web.

The advantages seemed obvious, and a number of experts were predicting the death of the travel agents.

But it is now clear that the travel agents are going to outlive those experts.

The role of the travel agent is not decreasing. More than 60 percent of all airline tickets are still being sold through travel agents.

G.D.S’s, which were also predicted to become obsolete, have evolved and today also operate direct sites for airlines.

The travel agents are being paid more money to use the G.D.S’s., which are probably their prime customers.

However, there is a need for the travel agents to develop a response to the rapidly increasing use of mobile devices.

The increasing importance of ancillary products to airline revenues is introducing a new dimension.

To what extent should travel agents and G.D.S.’s be involved in retailing ancillary products such as seat selection, food, entertainment etc. – in addition to those traditionally related to the trip, for example hotels, car rental, theatre tickets etc.?

The love-hate relationship between the airlines and the G.D.S.s is continuing, with strong opposition by all airline associations to a U.S. DoT proposed mandate requiring all airlines serving the U.S.A. to distribute all their content and services through Global Distribution Systems (G.D.S’s).

Meanwhile, Google is de facto becoming a distribution channel in its own right, with the additional capabilities of proposing more products and services on the basis of your purchase history and preferences.

Some eleven years ago, Ryanair C.E.O., Michael O’ Leary, boasted that eventually his airline would be making so much money from ancillary revenues that he would be able to afford to fly people for free -perhaps based on the expectation that gambling would be allowed on board, which of course has not happened.

Nevertheless, over time airlines have continued to come up with many more ways to boost their so-called “ancillary revenues”.

An annual study carried out by IDEA Works, sponsored by AMADEUS, has been tracking those revenues.

This year’s report shows that the total revenue collected by fifty carriers reporting ancillary revenues as a separate category was 22.6 billion US dollars in 2011 – up from the 13.5 billion dollars reported two years earlier.

Some observers believe that these revenues may be starting to top out, but there may still be some room by varying prices by flight based on demand, just as carriers have done with yields.

Meanwhile, Mr. O’ Leary is no longer talking about flying his customers for free!

Among other aspects being explored, airlines may be able to gain some additional revenues for connectivity on board.

By the end of 2011, 1,885 aircraft were equipped with Wi-Fi , and the current forecast is for 6,100 airplanes to be equipped by 2015.

Today, most Wi-Fi equipped airplanes fly in North America. All major U.S. airlines are – or plan to be – totally equipped.

The number of passengers who chose to pay for the Wi-Fi service increased to 7 percent by the end of 2011 from some 4 percent in 2010.

The growth is, in part, driven by the rapid penetration of smart phones and other communication devices such as tablets.

In-flight Wi-Fi revenues are expected to exceed 15 billion US dollars in 2015.

Connection services are provided by Chicago-based GoGo Inc., which covers all of Continental U.S.A., Canada and Alaska.

This represents only some 2 percent of the earth’s surface, but Geneva-based OnAir plans to offer near global coverage using INMARSAT satellite.

The price is not cheap, but the coming boom in air-to-ground and satellite broadband capacity should drive prices down.

Despite all those efforts of frequent cost restructuring, mergers, acquisitions, alliances, joint ventures, experimenting with different business models, hybrids and subsidiaries – the aviation industry as a whole continues to fail the profitability test!

With a few exceptions – far too few – the airline industry is not profitable, and does not consistently earn its cost of capital.

Many airports are also unprofitable – and overly constrained in their expansion.

Air Navigation Services are under pressure, and need to be encouraged to regroup.

For a few governments – and the Gulf States are a good example – commercial aviation is a strategic industry, and plays a major role in the development of their respective countries.

But unfortunately, for many governments – particularly in Europe and North America – commercial aviation and air travelers are regarded as the proverbial “milking cow”.

And the cow is getting thinner, and thinner!

And yet the socio-economic impact of air transport is simply huge on every country, region, and indeed the world.

A recent study carried out by Oxford Economics, clearly demonstrates the economic and social benefits of aviation at the national level.

This study involved over fifty countries, and concluded that when the air transport industry has been encouraged to grow efficiently in response to the demands of the expanding market, the economic impact has been very substantial.

The Oxford Economic study concluded that aviation is a key factor facilitating world trade, helping countries to participate in the global economy, and increasing their access to international markets.

While it may be a giant undertaking to convince all governments to be more supportive of our industry, we can make significant progress by working together better.

As partners of the broader travel, transportation and tourism world, we would all of course benefit from more enlightened government policies.

But we can also help each other to become more efficient and more profitable, and seek greater synergies to our mutual benefit.

This is an important dimension which we will begin to explore more thoroughly in the Friday afternoon session of this Conference.

In closing, ladies and gentlemen, I am reminded that having lost twenty thousand pounds in the South Sea bubble in 1720, Sir Isaac Newton has been quoted saying

“I can calculate the motion of heavenly bodies, but not the madness of people.”

If he had lived today – and invested in our industry – he may well have said the same thing about the way we manage airlines, which leads me to conclude that most of us must be in this industry for the romance and the fun – but certainly not for the money!

Yet we must be looking forward to a brighter tomorrow!

Thank you!

Pierre Jeanniot delivers the keynote address to the APG World Connect Conference in Montreal

The Role of Boards in State Aviation Enterprises
Keynote Address to the APG World Connect Conference
Montréal, October 15, 2012  >>

Distinguished participants:

The socio-economic contribution of the aviation industry is very important to all countries.

For aviation to be truly successful, the government needs to be a strong partner, and each aviation related organization – whether an airline, an airport, an air navigation services provider, or a regulatory agency – must share in this quest for success.

There is, at this time, a particular need for every aviation-related organization to understand the forces reshaping the aviation world in order to decide how best to reposition itself in this changing environment.

This has increased the responsibility – and the urgency – for those involved in the governance process to carry out a strategic direction review of their respective organizations.

We will recall that in December 1944, at the Chicago Convention, the International Civil Aviation Organization – ICAO – was created as an agency of the United Nations to oversee the orderly evolution of international aviation.

A few months later, in April 1945, the same participants at the Chicago Convention created IATA – the International Air Transport Association – to provide standards and guidance for the development of operational and commercial activities of the airlines.

With very few exceptions – essentially in the United States, where TWA (Trans World Airlines) and Pan American were privately owned – everywhere else in the world, every company and organization involved in aviation was controlled and operated by a State.

Governments controlled, owned, operated and regulated every facet of the commercial aviation activity including flight frequencies, capacity and the price of the product being offered by the airlines.

The paralyzing weight of bureaucratic aviation regulations – and increasing consumer pressure – led in the late 1970’s to a major change in the attitude of the United States vis-à-vis its commercial aviation.

In a bold move, the Carter Administration decided to disband most – if not all – of its commercial aviation regulatory oversight, thus opening its air transport industry to unrestricted market forces.

As one would expect, this caused a major upheaval, and the change was, of course, most disruptive to the established carriers.

Some airlines disappeared, unable to adapt; others restructured extensively, adapted, and became stronger.

With many of the regulatory entry barriers eliminated, numerous new airlines were able to emerge.

Most were based on a new “low cost” business model.

Unfortunately, many of those new carriers expanded too quickly, and were unable to survive when the next downturn of the economy occurred at the end of the ‘80s.

But as we know, the “low cost” concept survived, was re-launched a few years later, and now flourishes in every region of the globe.

Stimulated by the new opportunities, the market reacted with vigor and expanded rapidly.

With greater choice – and extensive price competition – the consumers were the clear winners!

The U.S. experiment was closely watched by other countries and regions.

And based on the conclusion that there was much more to gain than to lose, many States have followed the same path – but admittedly in a more gradual way.

Canada, for instance, deregulated its domestic market during the second half of the 1980s.

Previously considered as a highly regulated and quasi essential service, aviation is now – in most parts of the globe – regarded as a consumer product, largely driven by market forces.

Beyond the domestic air markets, liberalization has also progressed steadily on the international scene with the emergence of a number of common air markets such as within the European Community, as well as some regions in Asia, Africa and Latin America.

“Open Skies” style air bilateral agreements – launched originally at the initiative of the U.S.A. – have greatly increased opportunities to expand the market internationally.

Canada and the U.S.A., for example, reached an Open Skies Agreement some fifteen years ago – and air traffic between the two countries increased by some 27 percent in the following two years.

Exposing airlines to full and unrestricted market forces has resulted in a highly significant re-shaping of the airline industry.

Many “national” airlines have disappeared.

A number of previously “national” airlines have merged and restructured to create a more viable regional entity.

Typical of those in Europe are the Air France/KLM Group, the Lufthansa Group, and the International Airline Group – I.A.G. – of British Airways and Iberia.

A new breed of “national” airlines has emerged, typically from the Gulf States which have identified aviation as a strategic industry.

The new airlines, based on the so-called “low-cost business model “, have now firmly established a significant market presence in every region of the world.

Although prevented from merging across borders by foreign ownership restrictions, many “traditional carriers” have regrouped in alliances, and have also been permitted to operate joint ventures in specific markets.

Unaccustomed, and uncomfortable, in dealing with such fiercely competitive situations, States have found it very difficult – if not totally uneconomic – to continue to own and operate airlines.

Yet abandoning its own flag carrier has been a decision extremely difficult for many States to accept.

It can be an emotional subject – and a matter of “national pride”.

To postpone what is all too often unavoidable, a government may choose to continue to pour money into an airline to compensate for its mounting operating losses, hoping that somehow it may eventually turn around.

But without massive restructuring – read massive layoffs – and numerous other painful retrenchments equally politically unacceptable, continuing to support financially an inefficient and uncompetitive national airline at huge cost to the taxpayer may simply prolong the agony.

The demise of SABENA and ALITALIA are prime examples, and unfortunately the current situation of Air India appears to be following the same path.

Privatizing a national airline requires not only a management group willing to take – and live with – tough decisions. It also needs the support of a fully committed government.

The labor unions are usually strongly opposed – for obvious reasons – and the public in general is concerned about the loss of services.

For Air Canada, the decision by the Canadian government to deregulate air transport in Canada -and allow unrestricted competition – made it essential for the corporation to become privatized to be able to react quickly to rapidly changing market conditions, and to access much needed private capital.

More specifically, and as an example of the many aspects to consider in the case of the privatization of Air Canada – which I piloted –

• All labor contracts were re-negotiated to remove inefficiencies and improve productivity;

• There was a need to achieve a significant reduction in headcount and identify a number of services and functions which would be more economical to outsource;

• A number of uneconomic international and domestic services needed to be terminated, and we needed to find a way to deal with rather strong objections from the communities affected;

• In the case of the domestic services discontinued, we created a number of regional airlines which could provide adequate service at much lower cost;

• To reassure the smaller communities affected, a program of subsidies was put in place to ensure continuity of service;

• All the obligations of the corporation which had benefited from government guarantees had to be re-negotiated;

• An extensive employee and public communications program was carried out to explain – and reassure.

The successful privatization of Air Canada served as an example, and paved the way for other State corporations to become privatized.

Despite the obvious socio-political and economic difficulties which need to be overcome, the privatization of State-owned airlines has continued to progress – and in some cases accelerated.

During my term as Director General of IATA, we set up a few seminars to assist airlines in this difficult process.

The pressure to have the State “step back” from the ownership and operation in air transport activities is not limited to airlines.

The presence of private investment in other major elements of the air transport industry – such as airports and air navigation services – has also been growing.

Private capital seeks new investments in what had previously been regarded the restricted domain of States.

Additionally, a number of governments are anxious to reduce their deficits and have welcomed private investment, which would enable them to shift spending to other needs – for instance social.

This does not mean at all the end of the State presence in the field of air transportation.

While the State may reduce its intervention in the ownership and operational aspects of aviation, it should refocus its efforts in other areas.

Governments should shift towards becoming “referees”, setting the rules of the game to promote competitiveness and ensure, among other things, safety and security as well as public trust.

In any enterprise, regardless of the type or its nature, the role of a Board member is to represent the shareholders, and to ensure that the business is managed in the best interests of those shareholders.

In private enterprise, a very key role of the Board is to select and appoint the CEO – and, of course, to periodically evaluate the performance of the CEO.

In State-controlled companies, the choice of the CEO may – or may not – uniquely involve the Board.

In any event, the governance process needs to provide general oversight to ensure that the business is managed efficiently and in line with the mandate given to the CEO.

In aviation-related enterprises, one would have to add that the concerns for safety and security, as well as the issue of environmental impact, should also be subjects for Board discussion and oversight.

For any State-owned and operated enterprise, the Board probably has an even greater responsibility to minimize “reputational risk”.

It must ensure that the entity is well regarded by the public and avoids any controversial situation – particularly any which could cause embarrassment to the shareholders.

State-controlled entities are, by their very nature, rather risk adverse. The decision making process is very slow and requires many checks and balances.

Following established procedures is often more important than the results.

And yet, facing up to commercial challenges requires taking a certain amount of risk to manage the necessary change, as well as react quickly to a changing market and competitive environment.

Together with management, the governance process must come to grips with the transformations required to best position the enterprise in its need to respond to the challenges – and opportunities.

This may call for:

• Reviewing and redefining the mission/mandate;

• Setting some new objectives;

• Re-assessing the re-affirming the values;

all of which would be necessary to provide appropriate guidance to the development of a new strategic plan.

But, of course, this new mission, new objectives and new strategic plan cannot be developed without the participation – and agreement – of the shareholders.

And here, in my view, lies an important role for the governance process.

There is a need to encourage the government to develop or adapt its aviation policies in response to the changing economic and competitive environment – a role of liaison between the management and the State to ensure mutual understanding of the challenges being faced, and the socio-political-economic implications of the changes being contemplated.

The socio-economic impact of air transport is simply huge on any country, region, and indeed the world.

A recent study carried out by Oxford Economics clearly demonstrated the economic and social benefits of aviation at the national level.

This study involved over 50 countries, and concluded that when the air transport industry was encouraged to grow efficiently – in response to the demands of the expanding market – the economic impact was very substantial.

But achieving those substantial benefits could only be obtained if:

• The proper investments are made to support efficient growth – either by the State making the investment, or by encouraging private interests to meet the requirements;

• Taxes and levies of all kinds are kept at a just minimum ;

• Monopoly suppliers are efficiently regulated, with proper incentives to strive for better productivity.

This, incidentally, is one of the major areas of IATA activity on behalf of the airlines of course, but equally of interest to the air traveler who ultimately will bear the brunt of the additional costs.

Concluding Remarks

• The demand for air transport – under market forces – has been expanding and will continue to expand;

• The demand for investment in air transport – required to meet adequately that demand – has been growing and needs to be met if the benefits are to be realized.

• The State is likely to depend increasingly on private investment to fund the growth in aviation and its required infrastructure.

• The various actors of the aviation industry increasingly need to respond to commercial/business criteria, and in that context the role of the State in the air transport industry is being challenged and needs to be redefined.

• Given the huge socio-economic benefits generated by air transport, the State must act to encourage this growth, and develop an appropriate and comprehensive aviation policy – balancing, as the need may be, the various socio, political economic considerations.

At the end of the day, one must deal with the realities of each case.

Government is also about the “art of compromise”.

In this period of transition, what role should be played by the governance process assisting States in developing a new vision – and a new government policy? More specifically

• What part of air transport should be largely, if not totally driven by the market?

• What safeguards, if any, are required?

• What should remain state-owned, and why?

• Under what conditions would a public-private partnership be desirable?

Can appropriate conditions be developed to satisfy both the public requirements – and the private expectations?

These are a few of the decisions being faced by those involved in the governance process.

But in closing, the fundamental question really is:

• In this period of transition, where should the frontier lie between the State – and the market?

Thank you!

Pierre Jeanniot is inducted into the Canadian Aviation Hall of Fame

Acceptance Speech
Canadian Aviation Hall of Fame Gala Evening
Montréal, June 14, 2012  >>

Monsieur Le Président, Mr. Chairman of the Canadian Aviation Hall of Fame, Tom Appleton, distinguished inductees past and present, mesdames, messieurs, ladies and gentlemen.

First and foremost, I wish to express my most sincere gratitude to the Board and to the Selection Committee of the Aviation Hall of Fame for this prestigious honor.

Je suis extrêmement touché par ce geste de reconnaissance que je me dois partager avec tous ceux et celles qui m’ont secondé au cours de tant d’années.

I have been most fortunate during my years at Air Canada, as well as at IATA, the International Air Transport Association, to have enjoyed the support of many extremely competent and dedicated aviation professionals. And I think that I can state categorically that without the invaluable involvement of those competent and dedicated people, the significant contribution attributed to me would not have been achieved!

Many of the Air Canada Executive team who worked with me at that time are here tonight. I am deeply honored and touched by their presence.

J’ai passé quelques trente ans au service d’Air Canada et je crois sincèrement qu’en dépit de l’importance médiatique que l’on a accordé à la fameuse « Boîte Noire » la contribution à Air Canada, que je considère avoir été la plus importante été la privatisation d’Air Canada.

Le gouvernement conservateur de Brian Mulroney ayant décidée de libéraliser totalement le marché aérien la position d’Air Canada, société d’état, devenait insoutenable. Sans l’ouverture de l’actionnariat notre ligne aérienne était vouée à l’asphyxie.

Le Ministre du Transport à l’époque, Don Mazankowski, comprenait bien la situation mais par contre dans sa situation actuelle la société Air Canada n’était pas privatisable.

Don Mazankowski me dit textuellement «Pierre, lorsque tu auras fait les changements nécessaires afin qu’Air Canada soit privatisable,le gouvernement la privatisera mais ne fais pas trop de vagues !»

Après avoir remplacé Air Canada par une ligne régionale dans une bonne douzaine de villes Canadiennes malgré l’opposition unanime des chambres de commerces et des députés locaux.

Après avoir renégocier les conditions de travail de tous les employés et subit trois grèves importantes et quelques boycotts les vagues ressemblaient plutôt un Tsunami! Je dois dire que j’ai quand même eu droit à certains égards de quelque syndicat.

Lors d’une des diverses démonstrations je me rappelle avoir vu un placard qui disait «Brian, débarrasse nous de Jeanniot – envoyé le au Senat!»

Je devais sans doute avoir besoin de repos!

I have been given credit for Air Canada pioneering wide-body, twin-engine operations over the Atlantic. And credit for ACARS, and in particular the first data link over the Atlantic enabling flight information to be transmitted electronically and automatically.

But much of that credit is due to the very excellent leadership of our technical and operations group, and particularly Captain Charlie Simpson ,then Head of Flight Operations, and who I am very pleased to say is here today.

Charlie is also famous for having shattered the “glass ceiling” – or should I call it the “Glass Cockpit” – in pilot recruiting. He hired the first group of female pilots, a group of twelve who were immediately labeled in Air Canada, “Charlie’s Angels”.

Although this may not seem like a significant aviation contribution, the introduction of the first ever non-smoking flights on a commercial airline turned out to be a bit of a landmark.

I took the decision – despite the strong negative recommendation of our Commercial Department who, by coincidence, were mostly smokers . The threatened, rather vocal boycott by the entire tobacco industry – growers, manufacturers, distributors – gave us tremendous free publicity, and we gained approximately five percent in market share on the Montreal-Toronto corridor.

We were still at the time a Crown Corporation, and the Federal government decided to take some credit for the results and progressively extended the smoking ban to all domestic flights. As far as influencing worldwide the non-smoking movement, the rest is history.

L’aviation internationale est un domaine qui vit beaucoup trop fréquemment en état de crise. Et l’Association du Transport Aérien, l’IATA, se trouve à fortiori au cœur de toutes ces crises. Il nous incombe de proposer ou en l’occurrence de prendre toutes actions possibles afin de minimiser les conséquences négatives sur le transport aérien. Les crises financières, es crises du pétrole, les conflits militaires tel que la guerre du Golfe – toutes ces crises ont requis des actions ponctuelles … et énergiques.

La plus spectaculaire aura sans doute été la gestion de l’importante crise résultant du malheureusement célèbre 11 septembre 2001 – the infamous 9/11 – qui a littéralement paralysé le transport aérien pendant près d’une semaine.

However, I believe that the most important achievement of IATA during my tenure was to convince the association to adopt safety as its first and foremost objective.

The support of ICAO was simply invaluable, and I would like to acknowledge the support of my good friend, Dr. Assad Kotaite, President Emeritus of ICAO. And we are very much honored by his presence tonight.

And in the context of reducing the aircraft accident, it was necessary to:
• conduct a detailed analysis of the different types and causes of aircraft accidents
• establish and set in motion industry-wide programs to address these various causes
• and accept the challenge of decreasing the industry’s accident rate by half over ten years.

Finally, we proposed that all international airlines should adopt the practice of periodically having carried out safety audits by external experts in a similar way that everyone calls on external financial auditors for their financial reporting.

I would like to pay credit to the technical Operations and Infrastructure Group of IATA led by its Senior Vice President, Gunter Matschnigg, for his highly successful efforts in fully achieving these demanding objectives, namely:
• 50 percent reduction in the accident rate in the following ten years
• and implementing IOSA, the IATA Operations and Safety Accreditation Program, which is now required to maintain membership in IATA.

Mes dix ans à l’IATA m’ont appris jusqu’à quel point les gouvernements, mis à part ceux du Golfe Persique, traitent l’industrie du transport aérien comme « une vache à lait ».

Taxes, levies, charges of all kinds unduly penalize air travelers and the airlines worldwide, to the detriment of the profitable growth of our industry.

In many countries, obsolete rules and processes create a bureaucratic and costly nightmare for aviation.

I recall that one day in India – attempting to illustrate their idiosyncrasies affecting aviation – the Deputy Minister for Transport smiled and said to me with some humor “you must remember, Mr. Jeanniot, we in India inherited our bureaucracy from the British – and we perfected it!”

Cette expérience internationale de quelque dix années durant laquelle j’ai souvent affronté des juridictions bizarres et franchement Byzantine m’ont fait apprécier d’autant plus le Canada.

Je me rappelle d’avoir fait éclater de rire le premier ministre Jean Chrétien, auquel j’avais déclaré que depuis que j’avais eu à travailler avec la bureaucratie Européenne de Bruxelles, je commençais à regretter celle d’Ottawa.

Mr. Chairman, I am afraid that I have exceeded my allotted time and I do plea for your kind indulgence. Once again, many thanks for this great honor.

Mesdames, messieurs, chers confrères et consœurs de l’aviation, de nouveau je tiens à vous redire combien je suis reconnaissant de l’honneur que vous me fait ce soir.

J’en suis profondément touché – merci infiniment!

State of the Industry – The Game Changers

State of the Industry – The Game Changers
Keynote address to APG World Connect
Singapore, November 3, 2011  >>

Ladies and gentlemen, Singapore is a great place to meet!

Singapore has been an acknowledged leader among those south-east Asian Tigers which blazed the way for the explosive economic growth this region is today enjoying. It is an appropriate back-drop for an exciting commercial aviation meeting. A meeting which, in the Jean-Louis Baroux tradition, will ensure that the resulting intellectual stimulation will be matched by its epicurean content.

But first, a brief disclaimer. Let me say at the outset that the views expressed here are strictly my own, and do not represent the views of IATA or any other corporation I have been associated with over the years.

I believe it is fair to say that Singapore is very much a symbol of the changing landscape of aviation. Singapore created the first major international aviation hub in the Asia-Pacific region. This model has since, in some ways been emulated by the Gulf States. Having much to gain and nothing to lose, Singapore was an early promoter of “Open Skies” air bi-laterals which have been spreading throughout this region and all other parts of the world. Among the more recent such development was the Agreement ratified between the United States and the European Community – with Canada joining in – virtually creating an Open Skies condition between North America and the European Community. Among the more important changes in government policies with a significant impact on our industry, was the decision last year by the U.S. and the E.U. to grant anti-trust immunity to some of the key members of the three alliances over the Atlantic. This anti-trust immunity is allowing them to operate in what is now referred to as a “Metal Neutral” formation. This “Metal Neutral” Anti-trust Immunity is a close substitute to a merger, allowing the key members of each alliance full coordination of the major airline functions on the designated routes including scheduling, pricing, revenue management ,marketing and sales.

Immunized joint ventures are perhaps even better than a merger, since they avoid the complications which inevitably come with a full merger. The setting up of immunized joint ventures has since rapidly extended to other markets. Japan’s regulatory authorities approved antitrust immunity for STAR on the Japan-Europe market, (Lufthansa-ANA), and on the Japan-USA routes (United/Continental-ANA). Similarly, antitrust immunity was granted to One World on the Japanese market (American-Japan Airlines). On the South Pacific, Australia and New Zealand competition bodies were involved in providing antitrust immunity to Sky Team (Delta-Virgin Australia) and One World (American-Qantas). Today, over sixty airlines participate in one or the other of the three alliances, but there are very few key players in the hard core of the immunized , Metal Neutral Joint Venture.

Meanwhile, new carriers have been growing in the Middle East. These Gulf airlines have developed a new model – a model which in fact re-invents the concept of national network carrier. The genesis of this new model can be traced back to a decision by the Government of Dubai to single out air transport – and specifically airlines – as one of its strategic industries, and an important tool of economic development. The airline model that evolved was based on the following elements:

•    The availability of new long-haul airplanes
•    The central geographic positioning of the Gulf
•    The full exploitation of 6th freedom rights
•    The development of an ultra- modern airport
•    Advantageous local tax and operating conditions

Etihad, Gulf Air, and Qatar Airways have followed a similar plan and are developing a global network carrier. Interestingly, Turkish Airlines has adopted a comparable strategy. With the advent of new, long-range, efficient airplanes and an increasingly liberalized market and 6th freedom rights, these carriers are capitalizing on the opportunity to link virtually every major city in the world with a one flight connection through their respective hubs. Burdened by excessive taxation, environmental constraints, expensive infrastructure and high labor costs, European airlines have concluded that the advantages enjoyed by the rapidly expanding Gulf carriers prevent a level playing field. Others in Europe, such as Finnair, see this model as an opportunity.

Low cost carriers are now providing 23 seats out of every 100 flown by all the world’s airlines. They continue to enjoy an excellent growth rate in the double digit range (growth was 15.7% in 2010 over 2009). Low cost carriers are growing in every region. In 2010, the capacity share of seats offered was:

•    17.7% for Asia-Pacific
•    28.7% for North America
•    35.0% for Europe
•    29.9% for Central/South America

Much of the low cost carriers’ growth in Southeast Asia has been made possible by the acquiescent attitude of governments accepting – tolerating – cross-border operations by non-flag carriers. As liberalization spreads in Asia-Pacific, we can expect the number and proportion of seats offered by low cost carriers to grow rapidly. To counter the penetration by low cost carriers, several legacy airlines have decided to launch a low cost subsidiary – or in some cases, to acquire control of a low cost carrier. Focusing on this particular region, and more particularly the Indian sub-continent:

•    Jet Airways , Kingfisher and Air India launched – or acquired – low cost subsidiaries a few years ago to counter the flurry of low cost airlines which emerged rapidly following the decision by the government to open up the market. For instance, Jet Airways created Jet Konnect, and acquired a low cost renamed “JetLite”.

•    Those low cost subsidiaries have provided a counterweight to Indigo and Spice Jet, now well established – and growing – Indian low cost carriers.

Elsewhere in the region, several legacy carriers have launched – or are planning to launch – low cost subsidiaries:

•    Qantas’ Jet Star domestic low cost subsidiary is doing quite well, and plans to form Jet Star Japan, with Japan Airlines and Mitsubishi.•    Thai Airways is working with Tiger Airways Holding of Singapore to establish a joint venture low cost carrier, based in Bangkok.

•    Tiger Airways Holding is also trying to launch – or re-launch – two more low cost airlines, one in the Philippines (SEAIR), and the other in Indonesia (MANDALA).

•    All Nippon Airways is planning to launch PEACH, a new short-haul , low cost carrier based in Osaka.

•    Finally, while Asia-X and Qantas’ Jet Star are making progress at getting established , Singapore Airlines has recently announced its intention to establish a new, no frills, low fare airline operating wide body aircraft on medium and long-haul routes.

Excluding the Chinese orders, Asian low cost carriers account for about 55 percent of the narrow-body order book for Airbus and Boeing. This would take their share of the region’s operating single-aisle fleets to more than 45 percent by 2015. The implications of this projected growth would be particularly significant for the region’s flag, or legacy carriers.

Similar development is occurring in other regions of the world. For instance, Air Canada has recently announced its intention to launch next year a new, low cost, long-haul subsidiary. If you can’t beat them, join them! In Europe, Brussels Airline was acquired by Lufthansa, and Iberia owns some 48% of Vueling, the Spanish low cost carrier, and plans to start another low cost, Iberia Express. And thus, many legacy airlines have decided to participate in the low fare market … in one way or another.

Modernization of Air Traffic Management is intended to be an important game changer. It was somewhat ironic that a number of members of the European Community would agree to abolish their borders on the ground – through the Schengen Treaty – but at the same time fiercely defended the need to keep them in the air! Since then – and with much delay – the concept of a Single Sky has been accepted.

And indeed, some very impressive targets have been set for “SESAR”, the European Air Traffic Management modernization project. European Air Navigation Services are expected to achieve a 50 percent reduction in service cost per flight by 2020, while at the same time accommodating a 3-fold increase in traffic. It should also contribute a ten-fold improvement in safety, and a 10 percent reduction in environmental impact , presumably by reducing flight stacking and straightening air routes. These targets have not been universally accepted.

The European Head of CANSO, the Council of Air Navigation Services Organization, has expressed serious concern as to whether they are indeed achievable. The technology and operational objectives have been agreed, but it is not totally reassuring that implementation is in the hands of politicians in some forty States!

Europe does not need all the current air traffic centers, which today number more than one per country. In fact, it is likely that the whole of the European airspace could be adequately served by four to six air traffic control centers. Beyond the technical complexities -which are being addressed – the problem is very much political. Air traffic controllers are highly skilled and well-paid professionals whose function is supported by other skilled jobs. These specialists will quite naturally fight for their jobs, and politicians are reluctant to see these important jobs disappear from their constituencies.

Nevertheless, somehow Europe is slowly creeping towards implementing a Single Sky through agreements to set up “Functional Airspace Blocks”… (F.A.B.s). While these avoid the delicate subject of mergers, these States are hoping to achieve greater operational efficiencies – and lower costs – by sharing their respective successes. There is evidence that this approach is developing a natural – but slow – momentum.

Meanwhile, it is vitally important to ensure that SESAR and its U.S. counterpart, NextGen, progress in concert. And to that end , U.S. and European specialists have already been working for some time on Atlantic inter-operability. The objectives of “NextGen” are comparable to “SESAR”. “NextGen” is required to increase air traffic capacity of the U.S. skies by some 250 percent over the next two decades. (The number of air travellers in the United States is expected to grow from 700 million to 1.2 billion in 2030.) The F.A.A. claims that the new system will save some 2 billion dollars of fuel per year (based on 2009 prices). The system will also improve delays in bad weather, and the handling of ground movements at airports.

As in the European project , “NextGen” will call for airplanes to be equipped with Automatic Dependent Surveillance Broadcast (ADS-B).
Other regions of the world are also developing modernization plans.
Canada and Australia – each with a huge airspace to cover – are moving ahead with ADS-B implementation. And Japan, in support of its long term vision of the future air transportation system, has developed CARAT (Collaborative Action for Renovation of Air Traffic Systems). A framework for cooperative action between Europe and Japan was recently signed to ensure interoperability between SESAR and CARAT. South Asian countries must also make sure that their Air Traffic Management Services are modernized in step, to achieve worldwide commonality.

The new wide-body aircraft generation, with its composite structure and fuel efficient engines, is introducing significant new elements contributing to the reshaping of our airline industry. The Airbus A-380 has essentially delivered its promise, and although its introduction was much delayed – and its implementation was very slow – the airplane has established a well-defined niche. As we know, this aircraft plays an important part in some Gulf airlines’ expansion plans. The Boeing 787, also delayed by some three years, finally started last September delivery to All Nippon Airways (ANA), its launch partner.

This is the standard version of the Dreamliner , the B-787-8. The two other versions of the B-787 will follow by 2013 – the -9, a larger model with similar range, and then a higher density model with much shorter range. (this has yet to be confirmed). At this time, the Airbus wide-body competitor – the A-350 series – will also be delayed by at least two years, but will also hopefully achieve the same improvements in operating costs and fuel burn. You will recall that that both manufacturers claim that their new wide-bodies will deliver a better than 20 percent improvement … over the models they are intended to replace.

What about the narrow-body fleet?

Wisely I believe – given the enormous investment in time, skill and money still required by the two major manufacturers to complete their respective wide-body developments – they both decided to postpone such an initiative. The Airbus A-320 re-engineering strategy has clearly paid off.
The NEO is well ahead of its 1000 order target set by Airbus for its first full year of marketing. The A-320 NEO is planned to achieve a 13 to 15 percent improvement in fuel burn over the standard A-320, and to be available in 2015. Boeing – which had claimed that its customers would prefer to wait for a new narrow-body – has now been forced to reconsider. Increasingly concerned about losing some of its key customers, Boeing has now made the decision to re-engine its B.737NG series -to be called the B.737MAX. The first delivery is now promised in 2017-two years after the A320NEO. In my view, this confirms that neither manufacturer is prepared to risk producing a clean-sheet, new narrow-body model before the end of 2020.

However, within the next few years the field is going to get fairly crowded in the narrow-body market. The Bombardier C-Series, with a capacity of 110 to 140 seats, plans to be available by 2013. The C-Series offers a 12 to 15 percent improvement in fuel consumption over the older B-737 and A-320s. The Russians’ entry from SUKHOI – the Superjet 100, with a first delivery date in the second half of 2012 – claims a similar performance for its models, which offer capacity ranging from 100 to 130 seats. The Chinese have also entered the fray with the COMAC C-919. This entry clearly takes aim at the A-320 and B-737 market given its size, seating capacity and range. The C-919 was planned to enter service in 2016, but could be delayed by at least one year. Nevertheless, the Chinese airplane did attract the attention of RyanAir , which signed a M.O.U. with COMAC for the C-919 at the Paris Air Show.

Aviation contributes less than 3 percent of total worldwide CO2 emissions. However, air traffic is projected to continue to grow at an average rate of 4.5 to 5 percent per year for the foreseeable future.
Today, the entire air transport industry has agreed to some rather ambitious targets. More specifically:

•    An annual improvement in fuel efficiency of 1.5 percent on average per year to 2020;

•    Capping net emissions from 2020 onwards – in other words, achieving carbon neutral growth from then on;

•    Cutting net aviation emissions by one half by 2050 compared to 2005.
These targets are now widely accepted and enjoy the support of the entire air transport industry – the manufacturers, the airlines, the airports and the navigation service providers.

Every member of this great industry is expected to contribute to CO2 emission reduction:

•    We have already stated that the implementation of SESAR and NextGen is targeted to achieve a 10 percent improvement, on average, in flight environmental impact.

•    The new generation of wide-body airplanes from Boeing and Airbus which are coming on line will contribute some 20 percent reduction in CO2 emissions.

•    The re-engined Airbus A-320 NEO and the Boeing B-737MAX will provide a 12 to 15 percent improvement in emissions.

•    The next single aisle airplane generation in fifteen years will have to provide a minimum of 25 percent to better than match this level of reduction …

Meanwhile, the introduction of new players such as the “C Series” and the Russian, as well as the Chinese entries, will need to contribute some 12 to 15 percent:

•    Biofuels are likely to make a significant contribution to carbon emissions reduction. The use of some biofuels has shown reductions in the order of 75 to 80 percent in CO2 emission. It is estimated that with some encouragement from governments, as much as 15 percent of the industry’s needs could be met by biofuels by 2020.

Dozens of airlines have already operated flights using a mixture of conventional and biofuel , with very satisfactory results.
Non-food biomass such as algae is a favorite, but many other sources are being tested. And thus, we should feel confident that the airline industry is rising to the challenge and will indeed meet its ambitious carbon emissions reduction targets.

So why would the European Community feel an absolute need to force fit international aviation into its Emissions Trading System?
This has created a crisis of major proportions.

•    The U.S. airlines have launched a legal challenge;
•    China has threatened to impose measures on European airlines;

•    The Asia-Pacific Airlines Association , as well as the Latin American and Caribbean Air Transport Associations, have called on the governments of their region to reject the E.U. Emissions Scheme.

To illustrate the inappropriateness of this decision, the Air Transport Association of America provided the European Community with a typical example using a U.S. airline flight from San Francisco to London Heathrow. The E.U. rule would apply to the aircraft even before the airplane begins to taxi from the gate and yet, as a percentage of emissions, only 9 percent would take place over European airspace. What if every other government was to decide to impose a scheme of its own? Clearly, the need for an international agreement appears obvious.

With the recent rise of interactive social media websites, people can engage in virtual discussions, send and receive images, videos, and express their views to thousands – even millions – of other people around the world. Technology is moving on, and it is now commonplace to use mobile phones and various tablets and pad devices to exchange information and surf the internet.

One of the largest social media is Facebook, where over 500 million registered users each have a page. Other leading sites are Twitter, for the exchange of short messages, and Youtube to watch and share videos.
Airlines are making increasing use of these social media to reach and interact with their customers. This will be discussed extensively at this Conference.

Many airlines now employ dedicated media staff to monitor their social media presence 24 hours a day. Southwest Airlines, for instance, claims to have well over one million “friends” on Facebook, and one million followers on Twitter.

Many carriers have set up social media “fan pages” for frequent flyers, and offer special advantages to users. Some social media sites allow passengers to exchange information on travel plans so that they can meet up on a flight or at a hotel. The variety is becoming endless.

And thus, today travelers connect and get content in many different ways. Airlines can genuinely provide truly personalized service to their customers. Social media provides a great way to deal with crises. Facebook and Twitter were found by some airlines to be a particularly effective way of keeping their passengers informed during last year’s volcanic ash cloud disruption. An airline with a strong brand – such as Virgin – can use social media to reinforce it.

Conversely, social media can quickly spread an unfortunate incident – and damage a reputation. You may remember the case where a Canadian musician, frustrated by United Airlines’ refusal over eight months to offer compensation for his damaged guitar, composed a song which appeared on Youtube.

The song was entitled “United breaks guitars”. It became a worldwide hit, was viewed over 10 million times, and proved to be a Public Relations disaster for United! But not everyone is convinced of the value of social media. Some airlines – such as RyanAir – consider it to be a costly use of resources with questionable value. And some people feel that extensive use of social media can have “Orwellian” overtones as regards personal privacy.

Airlines have often expressed concern about the cost of using the G.D.S. to distribute their product , and some have attempted to by-pass Global Distribution Systems – avoiding their fees – and provide a direct link to travel agents. But GDSs are also diversifying.

Sabre is planning to open, in the coming months, the Sabre Red app center”. This will be the first on-line marketplace to connect travel buyers – including travel agencies, travel management companies and leisure operators – with third-party developers. Taking advantage of the high speed of the communications networks which have become widely available, people are turning to devices which can offer a wide choice of features, such as tablets and pads.

Google and Apple are tempted to move for a greater slice of the airline distribution business by developing travel applications. In fact, Google’s recent acquisition of I.T.A. software indicates its intent to build a new flight search tool which could get end-users quickly to a site where they can buy a ticket.

The center of gravity of aviation has been shifting to Asia. Asia overtook the U.S. – the largest air travel market – in 2009. According to the Center of Asia Pacific Aviation, the world’s top ten routes are now in Asia Pacific. Year over year, the Asia-Pacific region -in terms of seat capacity offered – has been growing by 11 percent. Although intra-regional traffic is growing strongly, the year-over-year increases in flight frequencies to and from the region grew by 13 percent.

Taking a much larger role in meeting the intra-regional demand, low cost airlines are expected to grow by 20 percent per year over the next few years. The market presence of low cost carriers on the international scene is still very modest, but Air Asia X, Qantas’ subsidiary Jet Star, and the soon to be launched Singapore Airlines’ new subsidiary are determined to make a good attempt at penetrating this market. The inter-continental low cost carrier has now emerged as the new frontier.

Despite the region’s rapidly increasing demand for low cost products, it is interesting that the demand for premium traffic is also growing. IATA’s latest survey, published in August of 2011, reported that premium traffic within the Asia Pacific region had increased by an impressive 14.8 percent!

This contrasts to a decrease of more than 9 percent within North America. Another study conducted by the “Global Business Travel Association”, also released in August of 2011, re-enforces the increasing popularity of premium travel in Asia-Pacific.

The choice of airline for Asian travelers is being influenced by their preference for superior food and beverage options, as well as for hi-tech amenities.

Ladies and gentlemen, our industry continues to change – and nowhere is change occurring more rapidly than in this region, Asia-Pacific.
The main driver in this region is, of course, the exciting economic expansion which fuels the exploding growth of aviation. Although this expansion will be tempered from time to time by the unavoidable pressures of economic cycles, the long term prospects remain strong.

Supporting this growth – and enabling it to unfold – are a number of significant game changers which, on a broader front, are driving the transformation of our industry worldwide. These transformation forces are bringing both opportunities – and challenges – to which we must continue to adapt if we are to survive and prosper. The history of our industry has shown that we have seldom taken advantage of market growth to improve our profitability.

If I was to make a projection, I would expect that our somewhat irrational pricing behavior is unfortunately likely continue in the future. And this means that along with continued pressure for cost reduction, you will need to continue to fight for every dollar of revenue. And thus, in our competitive jungle, there are some fundamentals which will not change and which, in closing, can be illustrated and summarized by the following African proverb:

“Every morning in Africa, a gazelle wakes up.
It knows it must run faster
than the fastest lion, or it will be killed.

Every morning, a lion wakes up.
It knows it must outrun
the slowest gazelle, or it will starve to death.

And so, ladies and gentlemen,

It does not matter
whether you are a lion or a gazelle.
When the sun comes up
You had better start running!

Thank you!

Keynote address to World Tourism Day – The Future of Aviation

Europe: Policies and Political Will
Address to ‘World Tourism Day – Future of Aviation’
Helsinki, September 28, 2011  >>

Mr. Chairman, distinguished speakers from the European Aviation Safety Agency the FINAVIA Corporation and of the Boeing Company, colleagues from the aviation community, friends from the tourism world.

Distinguished guests, first let me express my sincere gratitude to BARIF for your kind invitation to participate in this important event, and for giving me an opportunity, however briefly, to visit this great country.
I very much regret that during my many years at the helm of IATA various circumstances, crises and obligations of the role never gave me the opportunity to come to Helsinki. It is therefore a double pleasure for me to be here!

But first, a brief disclaimer. Let me say at the outset that the views expressed here are strictly my own and do not pretend to represent the views of IATA or of any other corporation I have been associated with.
Finland and Canada have much in common. Both of us have liberalized our economy, and as a result are doing rather well.

Finland has just about the best record of any of the E.U. nations for government debt to GDP ratio (approximately 48%). Canada has the best record for debt to GDP ratio of all the major economies – the so-called group of seven nations (the ratio was 77% in 2010).

As Northern nations we both have harsh weather, although you do benefit from the soothing influence of the Gulf Stream and the Baltic Sea.
When one reflects on the economic difficulties experienced by the nations of southern Europe – as well as in my own hemisphere – that is one more thing we have in common!

Finally let me say that in both of our cases, the proximity of a large nation – in your case Russia and of course access to the E.U. Common Market , and in our case the United States – provides us with some great opportunities – but also some significant risks and challenges.

The late Prime Minister Pierre Trudeau was fond of saying that living close to the United States was like sleeping with an elephant in the same bed. You could easily get crushed if he rolls over!

For both of our countries, our geography and our demography – more particularly our relatively smaller home market compared to our neighbors – suggests that we must be acutely aware of the major trends re-shaping our industry.

Governments’ actions and policies have always had an important impact on aviation. Perhaps more so than on any other sector of the economy.
In North America and in Europe more particularly, the actions of governments in my view show a rather curious lack of coherence.
To over-simplify, these governments plan and encourage a full market economy to stimulate growth and greater customer choice through competition.

But at the same time, the same governments continue to introduce excessive taxes – in some cases recklessly -and lack the courage to properly support the necessary expansion and modernization of air traffic control functions and airport infrastructure. On the positive side, there is no doubt that the opening up of our industry to the market forces has been beneficial for the consumer – and to rejuvenate our industry.
Worldwide liberalization of air markets may have progressed rather slowly, but it has moved steadily. In contrast to some other industries, there was no “big bang”. A number of regionally integrated air markets exist today in Europe (E.C.), North America, Latin America, Africa, and Asia.

Internationally, the U.S. “Open Sky” initiatives introduced an air bilateral agreement which removed any constraints as to pricing, capacity, or points served between the U.S.A. and other countries. This type of highly liberalized air bilateral agreement has progressively become the norm in most of the air bilaterals being negotiated today. And, as you most likely know, a wide ranging “Open Sky” agreement was recently concluded between the United States, the European Community and Canada, providing all carriers in those regions with unlimited scheduling opportunities.

In other regions of the world -Asia/Pacific, China, India, the Middle East, as well as Latin America -increasingly liberalized air market agreements and the vigorous economic growth of those regions is providing the airline industry with exciting new opportunities.

But there are some dark clouds and unfortunately, in a number of countries, air travel is being taxed as if it was as “sinful” as alcohol and tobacco!

One of the worst offenders is probably the United Kingdom. The Airline Leader magazine in its March 2011 issue writes “It would not be unfair to describe Britain’s aviation policy as anti-aviation”! The article further observes that “The lack of any coherent strategy – combined with some anti-aviation forces – is undermining the viability of the nation’s airline system”.

One of the ugliest aspects of the U.K.’s imposition on aviation has been the Air Passenger Duty – ADP- along with its adherence to the principles of emissions trading involving airlines. This is simply another tax in disguise, as none of the funds collected have been applied to environmental initiatives. Recognizing that aviation is the prime engine of international tourism, let me quote the President and CEO of the “World Travel and Tourism Council”, David Scowsill, who recently declared:

“Governments continue to milk the tourism cash cow, with little thought for the industry which creates jobs, generates exports, stimulates investments, and powers sustainable economic growth”.

David goes on to say “The U.K. Air Passenger Duty has long set a dangerous and unhealthy precedent , and it is disappointing that the German government has also seen fit to penalize the industry – and millions of travellers – in this way.”

The Centre for Asia-Pacific Aviation reported last summer ”the U.K. domestic market took a big hit with a drop of 18% in available seats, demonstrating the continuing impact of the U.K. Air Passenger Duty charges – and the improvement in rail services”.

In its latest Quarterly Report, Ryanair observed that Dublin airport Authority increases of 40% in Airport charges, coupled with the Irish Government’s 3.0 euro tourist tax, had caused the traffic to plummet by 30% in 2010 to 18 million passengers from a peak of 24.7 million in 2007.

Ryanair believes that returning airport charges to a competitive level could generate at least 5000 jobs in the Irish economy. U.S. President the late Ronald Reagan who, as you may recall, was trying to reduce the bureaucracy of the U.S. Government, once said:

“Government’s view of the economy could be summed up in a few words:

If it moves – tax it;
If it keeps moving -regulate it;
If it stops moving – subsidize it”!

Some of us may be tempted to think that these words could also apply to aviation and tourism.

As was indicated previously, the opening up of our industry to market forces has been beneficial.
It is one of the powerful forces which have been reshaping the profile of our industry.

The model of the low cost carriers originated in the U.S. more than thirty years ago, with Southwest Airlines. Although Southwest has survived, many who emulated the formula succumbed during the 1990’s recession.
The model was successfully re-launched, with carriers like Easy-Jet, Ryanair, and others giving it a new impetus. Worldwide, low cost carriers are now providing twenty-three seats out of every hundred flown by all the world’s airlines.

They continue to enjoy an excellent growth rate in the double digit range. For example, growth was 15.7% 2010 over 2009. The low cost carriers are growing in every region. In 2010, the capacity in seats offered was:

  • 17.7% for Asia Pacific;
  • 28.7% for North America;
  • 35.0% for Europe.

Some observers believe that if this trend continues, low cost carriers will have captured some 50% of the intra-European market by 2020.

To counter the loss of market share, some legacy airlines are trying to launch a low cost carrier or, in some cases, to acquire control of one of the low cost carriers. (Brussels Airline being acquired by Lufthansa, Vueling is 48 percent owned by Iberia.)

Within the various economic regions where such activities are allowed, competitive forces have continued to encourage mergers and acquisitions.

And meanwhile, alliances have continued to expand their respective memberships. To date, more than fifty airlines already belong to one or the other of the three alliances, and some thirteen more have been invited to join.

Beyond the growth in their membership, the shape of the alliances is also changing with the emergence of joint ventures with anti-trust immunity.

The U.S. and E.U. authorities have recently granted anti-trust immunity to some of the key members of each of the three alliances over the Atlantic.

This anti-trust immunity is allowing them to operate in a fashion now referred to as “Metal Neutral”. A joint U.S. DoT – E.U. report states that “Metal Neutral” is a close substitute to a merger, allowing the key members of such alliances total coordination of the major airline functions on the affected routes including scheduling, pricing, revenue management, marketing and sales.”

Immunized joint ventures are also being achieved over the North Pacific for STAR, as well as for One World (Japan’s regulatory authorities have had to approve). On the South Pacific, key members of Sky Team and One World have also been granted anti-trust immunity for their respective “Metal Neutral” operations.

The smaller airlines not involved in these “Metal Neutral” operations may find it increasingly difficult … to maintain some influence … on their own respective alliances.

While legacy airlines have been busy expanding their alliances and creating a strong core of Metal Neutral joint ventures, new carriers have been growing in the Middle East. The Gulf airlines have developed a new model – a model which, in fact, re-invents the concept of national network carrier.

The genesis of this new model can be traced back to a decision, in 1985, by the Government of Dubai to single out air transport – and specifically airlines – as one of its strategic industries.

Along with the decision to turn the Emirates into a financial and trade center, the need for a world-class airline was identified as an important tool of economic development. The airline model that evolved was based on the following elements:

  • The availability of new, long-haul airplanes;
  • The central geographic positioning of the Gulf;
  • The full exploitation of 6th freedom rights;
  • The development of an ultra-modern airport;
  • Advantageous local tax and operating conditions.

Emulating that successful Emirates strategy, Etihad, Gulf Air, and Qatar Airways have followed a similar plan, and are developing a global network carrier.

With the advent of new, long-range, efficient airplanes – and an increasingly liberalized market and 6th freedom rights – these Gulf carriers are capitalizing on the opportunities to serve virtually every major city in the world with a flight going through a hub in the Persian Gulf. The rapid expansion of the Gulf airlines has attracted much concern on the part of some European and North American carriers.

Others, such as Finnair, see this model as an opportunity. Burdened by excessive taxation, environmental constraints, expensive infrastructure, and high labor costs, some European airlines have concluded that the advantages enjoyed by the Gulf carriers prevent a level playing field – and make it very difficult for them to compete successfully.

And thus, the airline industry has re-aligned itself into a number of very distinct groups:

  • Alliance members;
  • Low costs;
  • New “National” network Airlines (typically Gulf carriers); A large number of still un-aligned medium to smaller sized airlines. Some, such as Virgin, concentrate on building a unique “brand image”.

Thus far, none of the major low costs has chosen to become members of any alliance, believing their model and mode of operation to be largely incompatible. As far as the Gulf carriers are concerned, they truly believe – at this time – that their organic growth capability in developing their respective 6th freedom market will be sufficient for quite some time to support their expansion plans. I note, in passing, that Finnair has a similar strategy building a Europe to Asia hub.

Finnair’s CEO has recently stated that he believes that the Asian market will represent some 80% of revenues by 2020. Driven largely – but not uniquely – by the exciting economic development of Asia, the airline industry will continue to enjoy good traffic growth – at least for the foreseeable future. But it is urgent in some regions -and Europe is a case in point – that infrastructure be expanded to cope economically and safely with this growth.

My first address , as incoming Director General and CEO of IATA in 1992, was at a Conference in Brussels which had been called to discuss a chronic European air traffic congestion problem.
This was some nineteen years ago – the European Community had fifteen members and fifteen air traffic management authorities.

There were, as we then observed, too many air traffic control centers – each operating with different rules, different software, and different equipment.

All of which resulted in a very unproductive system, and a lot of unnecessary delays and congestion.
The need for a “Single Sky” concept was already obvious but the best that could be achieved was to get an agreement to harmonize the rules and systems between the various air authorities.
A program called EATCHIP (European Air Traffic Control Harmonization Program) was launched.

I thought at the time that it was somewhat ironic that a number of members of the European Community would agree to abolish their borders on the ground – through the Schengen Treaty – but at the same time fiercely defend the need to keep them in the air!

Since then we have progressed, and the concept of a Single Sky has been accepted. And indeed some very impressive targets have been set.
Air Navigation Services are expected to achieve a 50% reduction in service cost per flight by 2020 – while at the same time accommodating a 3-fold increase in traffic, a ten-fold improvement in safety, and a 10% reduction in environmental impact.

These targets have not been universally accepted. The European Head of CANSO – the Council of Air Navigation Services Organization – expressed serious concerns late last year. CANSO has called the target “unrealistic”, and believes that the economic modeling used was too inaccurate to support target setting.

This massive “SESAR” air traffic management modernization project is currently in the process of being validated. The stakes are high. Patrick Ky, the Executive Director for the “SESAR Joint Undertaking” (J.U.) which is managing the public-private partnership that is overseeing the development phase, says that over the next fifteen years, the total costs are expected to be in the 30 to 35 billion Euros range. Richard Deacon, the head of the U.K. semi-privatized ATM provider NATS, deplored that “SESAR” is providing the bricks to build a new house – but no one has spoken to the architect!” We have a situation where the technology and operational objectives have been agreed – but it is not totally reassuring that the implementation is in the hands of politicians in some forty States! In our new hi-tech world, Europe does not need all the current air traffic centers, which today number more than one per country.

In fact, it is likely that the whole of the European airspace could be adequately served by four to six air traffic control centers.
Reflecting on the inefficiencies of the current system David McMillan, the Director General of Eurocontrol, has concluded that the productivity of European ATMs is approximately half that of the U.S. systems. Beyond the technical complexities which are being addressed, the problem is very much political. Air traffic controllers are highly skilled and well paid professionals, whose function is supported by other skilled jobs. These specialists will quite naturally fight for their jobs – and politicians are reluctant to see these important jobs disappear from their constituencies. Privatization of the various air navigation services could be a less painful way for politicians to distance themselves from the issue.

In this regard UK-NATS – which is celebrating this year ten years as a P.P.P. – is a real success story! I had the privilege -and the pleasure – of serving on the Board of NATS for the first two years of its existence as a PPP, and they are a good example of what can be achieved. Consulting their latest Annual Report published in April, you will see that NATS was able to cut air traffic delays by over 95%, reduce operating costs by 30% in real terms, and improve its financial performance from a loss of 80million pounds in 2002 – to a profit of 106 million pounds in 2011.]

Spain has announced its intention to privatize its air traffic control system ahead of the partial privatization of its airports.
This would re-structure AENA, the Spanish government’s company which currently controls both. AENA’s air traffic controller costs have been by far the highest in Europe, and any attempt to bring these costs more in line with other ATCs has unleashed strong opposition from the Spanish Controllers’ Unions. Not surprisingly change – and more particularly potential change in ownership – has already caused unrest among controllers, and this is likely to accelerate.

Nevertheless – somehow – Europe is slowly creeping towards implementing a Single Sky through agreements to set up “Functional Airspace Blocks” (F.A.B.s). While these avoid the delicate subject of mergers, a F.A.B. attempts to achieve some of the operational effectiveness as if it was operated by one jurisdiction.

Recently Belgium, France, Germany, Luxembourg and Switzerland have signed an agreement to create a ‘’’Functional Airspace Block – Europe Central” (F.A.B.E.C.),which hopefully will streamline -if not eliminate – the current fragmentation of a major portion of the European airspace.
FABEC has received 13.8 million Euros in E.U. support for a study to be completed by the end of 2012. This is the third Functional Airspace Block to be set up, following on the UK. –Ireland F.A.B. and the Denmark-Sweden F.A.B.

There is evidence that this approach is developing a natural momentum.
States involved in the Northern European ATM Alliance – Denmark, Estonia, Norway, Iceland, Ireland, Latvia, Sweden, U.K, and Finland – are working together. It is reported that these States are setting up an executive management team to prepare legal and financial ground to enable a specific joint venture.

This alliance hopes to achieve greater operational efficiencies – and lower costs – across their common airspace. The Chief Executives of these various ATC providers believe that the experience gained by operating their respective F.A.B.s has enabled them to identify exciting opportunities – and practical ways – to drive efficiencies across their airspace.

This is likely to bring them closer to a possible, eventual , integration.
Meanwhile, it is vitally important to ensure that SESAR – and its U.S. counterpart, NextGen – progress in concert. U.S. and European specialists have been working for some time already on Atlantic inter-operability, and this year FAA personnel will become formally involved within SESAR – with some direct involvement down the road.

Unfortunately, as the recent tragic events in Norway demonstrated, no one today can hope to be sheltered from a potential terrorist attack.
While terrorism can hit our democratic society virtually anywhere, we keep being reminded that aviation will continue to be a favorite target. Why should airlines be such a favorite target? The reasons are relatively obvious:

  • Our industry enjoys high visibility, and we have essentially a no-accident tolerance level;
  • Aircraft accidents are unfortunately very spectacular – and are extensively covered by media;
  • Any terrorist attack on an airliner – successful or not – has an immediate effect, hopefully short-term.
  • It is disruptive to the economy of the region – if not the world.

The public expects that a terrorist attack on a commercial airliner will be prevented at all costs, and under all circumstances …. As a result, governments and the airline industry have been forced to take extraordinary measures beyond what any other industry would be expected to take.

Measures that are very costly to everyone – and most disruptive to passengers. Last June at its Annual General Meeting, IATA reported that the cost of security at airports – largely born by the airlines and the travellers – had soared to 7.4 billion US dollars. But there are additional costs, less visible.

The U.S. Travel Association (U.S.T.A.) recently released research that was carried out in 2010. This research showed that travellers in the U.S. are avoiding two to three trips per year, due to the unnecessary hassle associated with security screening at airports. U.S.T.A. has estimated the resulting cost to the U.S. economy to be approximately 85 billion US dollars – and a resulting loss of some 900,000 jobs.

While I am not aware of any similar research of the impact of airport security on European air travellers’ habits, it would not be surprising if a substantial number of air travellers each year are avoiding taking some trips. Indeed, some European politicians have been urging travellers to switch to trains, where possible – but in this case for ecological reasons.

Understandably, this can be an attractive option in Europe for short to medium distance trips, given also that security processes are a lot less onerous at any train station compared to any airport!

Perhaps because it is the most visible evidence of increased security, that so much effort and technology has been directed at airport screening.

One of the more recent introductions of technology at airports has been the controversial use of body scanners. The objections raised by a number of privacy and civil rights’ organizations in the U.S. demanded a suspension of the program on the basis that it was “uniquely intrusive” and violated travellers’ rights against unreasonable search (invoking the 4th Amendment).

This led to the introduction of new software which only shows generic body outlines – and therefore enhances privacy. But there are also other concerns. It would seem that body scanners’ maintenance was not always properly conducted. These records indicated that some full body scanners were shown to be emitting radiation levels ten times higher than expected.

Reacting to the situation, the European Parliament last summer passed a Resolution advising Member States that while “the European Parliament Members accept that body scanners would enhance security, they request that the technology be deployed in the least harmful way to human health and with concern for privacy”.

The Resolution further states that “due to health risks, scanners using ionizing radiation should be prohibited in the E.U.” The Members of Parliament were also urging that scanning be applied at random – without any discrimination or any form of profiling – and that no “body image” be stored and kept.

I would suggest that of all the nations which have had to confront security threats, few – if any – would match the State of Israel. It is my understanding that authorities in Israel look at security in four dimensions, namely:

  • Technology;
  • Profiling;
  • Intelligence; … and
  • Information-sharing.

The lack of information sharing was an obvious failure in the 9/11 terrorist attack. Most of the perpetrators and their motives were known by one national intelligence service or another – but no one was willing to share the information which might have enabled the whole story to emerge before the event. This major gap in our defenses does not appear to have been fully closed.

The failed 2009 Christmas Day attack continued to reveal a failure to “connect the dots”. Reviewing the incident, President Obama stated “this was not a failure to collect intelligence: it was a failure to understand the intelligence we already had which resulted in the suspect not being placed on the “no-fly” list. Among the questions of information sharing, the hotly debated exchange of passenger data was finally settled this summer between the United States and the European Union.

This Agreement would allow the U.S. Department of Homeland Security (DMS) to store the data for fifteen years, rather than the five years which is today allowed in the E.U.’s passenger name record (PNR) scheme.
In parallel, the Department of Homeland Security (DMS) began a joint initiative with the International Civil Aviation Organization (ICAO ) to reach a global consensus on better information collection, vetting and sharing of information about passengers before they even get to the airport.

Despite claims that this could amount to profiling, there is increasing acceptance for a proposal -supported by both the U.S. Department of Homeland Security and the U.S. Travel Association – to reform the current security screening system.

The proposal for a revised airport security screening process would, among other things, call for implementing a risk-based, trusted traveller program.

This should allow also greater focus on those who pose a greater threat.
The recommendation also suggests a need to reduce repeat screening of those arriving on international flights and connecting to domestic services.

Through ICAO, a number of governments – including the U.S.A. – are working to define standards for a checkpoint of the future.

At its last AGM , IATA unveiled a first mock-up of such a checkpoint .
Passengers would be directed to one of three lanes, namely known travellers ; normal; or enhanced security. The passenger would be directed on the basis of biometric identifiers contained in his or her passport or other travel document, that would trigger the result of a government previously-conducted risk assessment. We should be concentrating on bad people rather than on bad things being carried on board.

Aviation contributes approximately 2 percent of the total worldwide CO2 emissions …. This is still, at this time, a fairly modest contribution to global warming.

However, air traffic is projected to continue to grow at an average rate of 4.5 to 5 percent per year for the foreseeable future. And with this in mind, already some ten years ago, the air transport industry began to take steps to deal with this matter very seriously – first to contain, or reduce the growth of its carbon footprint , and to eventually reduce it in absolute terms.

This has led to the identification – and the commitment – to some rather ambitious targets. Those targets are now widely accepted, and enjoy the support of the entire air transport industry – the manufacturers, the airlines, the airports, and the navigation services.

Together, the members of the air transport industry have committed to:

  • An annual improvement in fuel efficiency of 1.5 percent per year to 2020;
  • Capping net emissions from 2020 onwards – in other words, achieving carbon neutral growth from then on;
  • Cutting net aviation emissions by one half by 2050 compared to 2005.

These targets have received the support of the U.N. and its Secretary General, who commended the industry on its sectoral approach.
The industry has been working very closely with the International Civil Aviation Organization (ICAO), to achieve an international consensus among all nations.

Every member of this great industry is expected to make a contribution to CO2 emission reduction.

  • We have already stated that the implementation of SESAR and NextGen is targeted to achieve a 10 percent improvement on average to flight environmental impact.
  • The new generation of wide-body airplanes from Boeing and Airbus which are coming on line will contribute some 20 percent reduction in CO2 emissions.
  • The next single aisle airplane generation in a decade or so will better than match this level of reduction.
  • Biofuels are likely to make a significant contribution to carbon emissions reduction. The use of some biofuels has shown reductions of the order of 75 to 80 percent in CO2 emission. It is estimated that with some encouragement from government as much as 15 percent of the industry’s need could be met by biofuels by 2020.

Dozens of airlines have already operated flights with a mixture of conventional and biofuel, with satisfactory results (e.g. Qatar Airways, B.A., KLM, Finnair, Virgin Atlantic, etc.). Non-food biomass such as algae is a favorite, but many other sources are being tested.

For instance, B.A. has entered into a partnership with the Solena Group to build a sustainable jet fuel production facility. This plant is expected to convert about 500,000 tons of waste into 61 million litres of green fuel – which is double what would be required to make all of B.A.’s flights out of London City Airport carbon neutral.
And thus, we should feel confident that the airline industry is rising to the challenge and will meet its ambitious carbon emissions reduction targets.

So why would the European Community feel an absolute need to force fit international aviation into its Emissions Trading System? Along with the “cap and trade” principle, the E.U. also appears to believe that “one size fits all”. True, the ETS seems to have worked reasonably well for many industries since its inception in 2005, and somehow decided that airlines should be treated like any other sector of the economy. But international aviation is different. It is not an ordinary industry – as the World Trade Organization and the O.E.C.D., among others, have concluded.

International aviation is still largely governed by the Chicago Convention, which created ICAO and, indirectly, IATA. The founders of the International Civil Organization recognized that the nature of international aviation required – indeed demanded – and continues to require globally harmonized rules to function safely and efficiently.
Unfortunately, the E.U. has decided to move unilaterally on a subject which, by its own nature, requires international agreement!

This has created a crisis of major proportion. The U.S. airlines have launched a legal challenge against the E.T.S. in the European Court of Justice. The China Air Transport Association, representing the country’s airlines, has described the E.T.S. as “unreasonable and illegal” – and China has threatened to impose measures on European airlines.
The Latin American and Caribbean Air Transport Association, ALTA, has called on the governments of its region to reject the inclusion of international aviation in the E.U. Emissions Scheme.

Also expressing concerns, the European Airline Association – AEA – is urging the E.U. and the U.S. to accelerate negotiation towards a global approach within the ICAO forum. Central to the dispute is the decision by the E.U. to impose its scheme on all international flights from , or to, anywhere in the world that arrive at or depart from an E.U. airport.
To illustrate their perceived unfairness of this decision, the Air Transport Association provided the following example using a U.S. airline flight from San Francisco to London Heathrow.

The E.U. rule would apply to the aircraft even before the airplane begins to taxi from the gate and yet, as a percentage of emission:

  • 29 percent would take place in U.S. airspace;
  • 37 percent over Canadian airspace;
  • 25 percent over the high seas …
  • and only 9 percent over European airspace.

Of course, for a European airline operating a flight out of London Heathrow to San Francisco, a similar percentage of emissions would take place over these same airspaces. And what if the Canadian government and the U.S. authorities were to decide to impose a scheme of their own?
Clearly, the need for an international agreement appears obvious – and the sooner the better.

Mr. Chairman, there is no doubt in my mind that European commercial aviation still has an exciting future. Indeed, in the first six months of this year, the number of passengers in Europe grew by 63 million – which is more than 10%. But it is also facing some significant challenges.

The European airline industry is a very significant sector of the economy – and a prime engine of tourism. But it is not clear that government policies are adequately supportive of their economic importance. Market liberalization has significantly contributed to the expansion and the re-structuring of the industry – but at the same time, airlines and their customers are excessively taxed and saddled with expensive infrastructure. Valiant efforts are being made.

However, one is tempted to ask whether European politicians truly have the political will to speedily bring about an efficient, Single European Sky.
By contrast, the European airlines are facing competition from carriers – mainly in the Gulf – who enjoy full support and encouragement from their respective governments. Security at airports is costly, it is inconvenient, and there is a crying need for stronger European leadership to address the problem and bring about major improvements.

Finally, rather than recognizing the unique nature of international aviation and supporting the ambitious targets in carbon emissions reductions the industry is striving to achieve, the E.U. is attempting to impose its Regional ETS approach on an international issue. Mr. Chairman, Finland can be proud to have originated the world’s most popular game, presently being played on mobile phones, ipads, and the like – the famous “Angy Birds ”.

But Brussels and the E.U. can claim to have originated the latest, most unpopular proposal for international airlines – and have caused a lot of Angry Birds!

Thank you.