Address to the 8th International Symposium of the International

FAV: Funding the Fight Against Pandemic Diseases
Closing dinner address to the 8th International Symposium of the International Consortium on Anti-Virals (ICAV)
Ajaccio, Corsica, October 5, 2009  >>


Thank you Mr. Chairman … for those kind words.

Good evening … ladies and gentlemen.

I am very much honoured … indeed … to have been asked to say a few words … on the occasion of this prestigious Gala dinner.

As I look around the room … it is obvious that … we have here the makings of a very successful evening … which … as you know … usually requires … a gathering of highly intelligent … well-educated people … engaged in fascinating conversation … and slightly drunk!

Well … we certainly have most of the required elements … and we can keep on working on that last condition!

Ladies and gentlemen … I am well aware that … no speech is entirely bad … if it is short … and I intend to be guided by this appropriate observation.

But I will not allow myself to be too restricted in words … when I express the great admiration I have … for each of you … eminent scientists … who have volunteered to join the fight … against the ever-present threat … of global pandemic diseases.

Your continued good work has already … and will continue … to save millions of lives … and despite my promise to be brief … I cannot say enough in praise … of your selflessness … generosity … and dedication to mankind … for which we are most deeply grateful..

The ICAV 8th international symposium … is being held … at a crucial moment … in the history of pandemics … and hopefully will show that progress is being made on several critical fronts.

The fact that HIV … is yet to have a truly successful vaccine after 25 years … and billions of dollars of research effort … certainly merits a review … on how to deal with this nasty virus in the future.

This naturally includes the development of future HIV therapies … whether vaccines or antivirals … as well as the important role of the community in addressing the needs of HIV infected people.

Most interesting … and worthwhile … was the session devoted … to the integration of all aspects of dengue research … to design innovative virus control strategies.

It was disturbing to be reminded … and I do hope that the government authorities are equally concerned … that classical response schemes … involving grant-funded research … massive and rapid diagnosis … clinical trials … patient care etc … are not suitable for a crisis situation of the magnitude … and speed of propagation … of the H1N1 type of pandemic.

ICAV’s identification of the gaps … and their proposals to bridge those gaps will … I am sure … go a long way in fighting the disease … as will the suggested improvements in surveillance … and predictive methods for human-to-human transmission.

Like most laymen … with only a rudimentary knowledge of your highly specialized field … I cannot pretend to understand much of the scientific progress … that you have achieved … and have been exchanging at this symposium.

In truth … you could well be wondering … what I … an aviation executive … am doing here … short of hobnobbing with some of the best scientific minds in the world.

Which in itself is certainly not unpleasant! … But let me briefly address the question.

Over the many … very many years … I have been involved with the aviation industry … earlier as President of an airline … then as the head of the International Air Transport Association … IATA … I often talked about the important economic and social contribution … that our industry has made to the world.

The contribution of aviation to international tourism was obvious … but beyond that .. the stimulation we brought to international trade was extensive … and generated much economic growth … and job creation.

Together … with the development of the current worldwide electronic communications network … we were bringing the world closer together … helping to create the Marshall McLuhan vision of the global village … promoting a better understanding … and appreciation … of our differences and cultures.

These are exciting … and worthy achievements … but there was another side to the coin.

Over the past few years … I came to realize … how the growth of international air travel has aided … and abetted … the worldwide spread of infectious viral diseases.

Unfortunately …for many of my colleagues … still today … and for the public and governments generally … it was a virtual elephant in the room … still largely invisible … despite an important wake-up call in 2003.

It was then … in 2003 … that SARS struck.

Spreading from mainland China … to all corners of the world in a matter of weeks … the SARS epidemic shocked the world …causing global damage estimated at 300 billion dollars … and driving my industry into yet another financial crisis.

SARS was forewarning us … of the disastrous social and economic consequences … of a more serious and widespread pandemic … but not many were listening!

Almost every country in the world … now enjoys international airline service … such that any point of the world … can be reached in less than a day. … This vast network can allow pandemic infections … to circle the globe … in a matter of hours.

The world’s airlines carry approximately two and a half billion passengers a year … that is a lot of opportunities for transmitting diseases.

I am told that infectious diseases already kill some 17 million people a year worldwide … but this is nothing compared to the devastation … that a serious pandemic would cause today.

ICAV … as you well know … was founded after the model developed by Canadian scientists … in response to the SARS crisis.

It is a unique and innovative model … of international scientific collaboration.

But … like many good causes … it suffers from lack of funds.

The first stage of therapies development – … the discovery of new promising antivirals – … is largely … if not completely supported by grants obtained by you … ICAV-affiliated researchers.

The latter stages … when commercialization is anticipated … can be supported by the pharmaceutical companies.

But the critical stages … of pre-clinical and clinical trials … receive little public or industry funding. … This is where we … of the Foundation on Antivirals (FAV) … are to come in.

From conception to realization … FAV took more than a year and a half …

Conceived in late 2007 … FAV received its charitable status from the Government of Canada in February of this year … and … I’m pleased to report … that with a contribution from the Government of Québec and Montréal International … we were able to establish the international secretariat in Montréal … as of last May.

As the founding Chairman of this new international Foundation … I was very pleased to welcome Monsieur Jacques Chirac … former President of France … and the Right Honourable Jean Chrétien … former Prime Minister of Canada … who have both agreed to be Honorary Patrons.

Our prestigious Board of Directors includes two gentlemen you already know … Jocelyn Beaudoin … who is president and CEO of FAV … and Michel Chrétien …who is FAV’s Scientific Director … and of course a co-founder of ICAV.

David Hill … a distinguished lawyer, and Pierre McCann … a senior CIBC Executive … serve as Secretary and Treasurer of the Foundation.

Other Directors include Ronald Allen … retired Chairman and CEO of Delta Airlines … Jean-Claude Baumgarten …President and CEO of the World Travel and Tourism Council … and Jeremy Carver … whom of course you know as the co-founder and president of ICAV.

Another airline colleague … Ali Ghandour … former President and CEO of Royal Jordanian Airlines … is also on the Board … as are Peter Harbison … Executive President of the Centre for Asia-Pacific Aviation – Australia … Urban Joseph … retired Vice-Chairman of the Toronto-Dominion Bank … the Honourable Michael Meighen … a member of the Canadian Senate … and Alain Mérieux … President of the Fondation Mérieux – France.

All in all … we have built a prestigious network of influential … high-profile personalities … who are all committed to promoting the Foundation around the world … and to the achievement of its financial goals … so essential to reaching our common humanitarian objectives.

To increase the international visibility of our cause … we need to persuade
more people of “influence and affluence” … to join the list of our Honorary Patrons … Board members … and Governors.

My friend Ali Ghandour … who is a former advisor to his Majesty the late King Hussein of Jordan … has already agreed to approach a very important Middle-East personality about becoming an honorary patron of FAV … and so increase our presence in this region.

We’ll need your help … in identifying and recruiting … high-profile ambassadors from your respective regions and countries …who are well positioned to help solicit substantial donations … and/or … to make generous personal gifts.

It would also be invaluable to have your support …and on occasion your participation … in FAV’s efforts to solicit the major international corporations … and government decision makers … headquartered within your respective borders.

Based on a preliminary study of potential donors … the goal for our first campaign is $100 million by March 31 … 2015.

However … the Foundation’s official launch will not take place until next spring. … By then we hope to be in a position to announce … that a significant portion of this initial fundraising target has been raised … or pledged.

Our strategy is to concentrate … in this first year … on major international corporations present in Canada … and then to rapidly expand our fundraising efforts to the United States … Europe … the Middle East and the Asia-Pacific region.

Funds raised by FAV will be allocated by the Board … on the basis of a recommendation from its Scientific Committee … based … of course … on a specific proposal from ICAV’s Scientific Committee.

Regular progress reports … charting results … will be presented to the FAV Board … and shared with our donors.

Our objective is to contribute to the development of at least one new antiviral therapy every five years.

Donors will be publicly recognized in a variety of ways – … through publications … galas … special events … and so on.

Donors of one million dollars or more … or those instrumental in raising this amount … will be recognized as “Governors.” … The first ten will be recognized as “Founding Governors.”

Our initial approach to fund raising is traditional … in that it targets major corporations, … Perhaps also slightly innovative … in so far as it will focus on those corporations which could themselves be agents of propagation by the nature of their geographically wide-spread activities.

Our next fund raising efforts … will fall into the category of real innovative financing … of the type that was described in the first session on Saturday morning.

As Dr. Douste – Blazy pointed out in his remarks … traditional sources of funding have proven to be clearly insufficient … to achieve the health-related Milennium goals.

The plan to expand UNITAID Millennium financing … from a tax on airline tickets to focus on the travel trade as a whole … in fact … arose from my initial discussion with Dr. Douste-Blazy.

I made this suggestion in the spirit of complementarity which I felt was evident between our two activities. … We develop new therapies for the developing world … and UNITAID/Millennium distributes them.

Since we both intend to rely on innovative fund-raising strategies involving the travel and tourism industry … it could be beneficial to join our efforts … and we have held some preliminary discussions to that effect.

The tourism industry has already suffered much from virus-caused pandemics … and has a lot to lose … and conversely much to gain from the development of successful antiviral therapies..

Tourism is concerned. … This was echoed recently by many media … including the FIGARO … which on the 22nd of September stated “La grippe A enrage le tourisme! “ Some seventy-five travel agents had gone bankrupt in the first half of this year in France alone … in part as a result of decreases in tourism that were virus-related.

Ladies and gentlemen … we need to remind our fellow citizens that epidemics have come close to wiping out mankind … since the beginning of recorded history.

As early as 430 BC … typhoid killed a quarter of the population of Athens over four years.

From about 540 AD … the Plague of Justinian … or bubonic plague …went on to eliminate half the human population of the known world – … though it spared Justinian himself who was infected … but survived!

The Black Death … which started in the 1300s … killed 75 million people … including half of England’s population.

Since 1816 … cholera has caused seven pandemics … the latest in the mid-sixties.

Epidemics have killed entire indigenous populations. … Up to 95% of the Native American population of the New World … was killed by Old World infectious diseases such as smallpox, measles and influenza.

We have been reminded that not every segment of the population is affected in the same way. … This spring … influenza hit Canada’s Haida … and other native communities … first and deepest … and it could well get much worse.

Almost all of these diseases … as well as typhus … tuberculosis … leprosy … malaria … yellow fever … and … more recently … SARS … are still around.

To this day … smallpox is the only human infectious disease to have been completely eradicated.

The world seems to suffer from generational amnesia … and needs a strong and loud wakeup call!

Modern science may have reduced the impact of infectious diseases on local populations … but modern travel has extended their range… and the rapidity with which they spread.

Our rapid … and extensive scientific advances … have indeed given us a false sense of security. … Mankind is still very vulnerable to a massive bacterial or viral attack!

Regretfully … the developed world is still too insensitive to the plight of the developing regions of the world … as if they lived on a different planet!

We are shocked about the death of a few people in Western Europe or North America … but disinterested about half a million deaths in Africa.

AIDS could kill 31 million people in India … and 18 million in China by 2025.

The AIDS death toll in Africa may reach 90-100 million by 2025.

Equally worrisome for the future … are antibiotic-resistant “superbugs” … which may contribute to the re-emergence of diseases … which had been well controlled … such as tuberculosis.

Over-reliance on antibiotics is a factor in the re-emergence … and it raises a similar issue … with respect to the amount of government money going to the development of vaccines … versus antiviral therapies … which are effective even in the treatment of new viruses such as H1N1.

Three very important infectious diseases now receiving antiviral attention from ICAV – … H1N1 influenza … dengue fever … and HIV/AIDS … have the potential to do a lot of damage.

Assuming a pandemic as severe as that of 1918 … 71 million people could die from H1N1 influenza.

And then there are already 50 million reported cases worldwide of dengue fever.

The disease killed 20,000 people in 2008 … and over 2.5 billion are at risk … mostly children and adolescents.

Ladies and gentlemen … there is a lot of difficult work for you … to do in the years ahead.

As Plutarch wrote 2,000 years ago … “Research is the art of going up alleys … to see if they are blind.”

Research is painful … frustrating … often exasperating … and requires taking risks. … One needs patience … determination … dedication … and you have those great qualities.

With much of your research being funded by government grants … there will no doubt be a need to raise the profile of our worthy cause with governmentl authorities … and minimize the invariably creeping paralysis … too often associated with the bureaucratic process!

Looking ten years down the road … FAV’s vision is to be recognized as the “premier” international Foundation … dedicated to the development of antiviral therapies.

We can only deliver this … of course … through our close affiliation with ICAV … and as a result of ICAV’s increasingly successful identification of promising new therapies.

Ladies and gentlemen … some seventy years ago … Antoine de St. Exupery … an aviation pioneer and a great humanist … disappeared over the Mediterranean … on a flight from Corsica to Marseille.

In his famous book “The Little Prince” … one of the characters observes … “What is essential in life … is often invisible to the eye”. … Let me add … “it is the caring for mankind which makes your contribution so special.”

FAV is very proud to share with each of you … and ICAV … the objective of developing successful … and cost effective … new antiviral therapies … by harvesting the best ideas … from the best minds … for the benefit of all mankind.

Thank you.

Opening address to the 17th World Air Transport Forum

World Air Transport: The future is not what it used to be
Opening Address to the 17th World Air Transport Forum
Paris, October 29–31, 2008  >>


Good morning ladies and gentlemen,
A very warm welcome to the 2008 World Air Transport Forum … which … exceptionally … is being held in Paris this year.

A no less prestigious location … you would agree … and at least equally renowned for its gastronomy.

Holding the World Air Transport Forum in Paris is not a diversion … to make you forget … that last year … we were predicting … with confidence … that the airline industry would achieve a profit of five to six billion US dollars in 2008.

Now … if we are to believe the most recent IATA forecast … which was issued in September 2008 … we would be looking at a loss of 5.2 billion dollars.

In retrospect … the number was correct … it was simply the sign preceding that number that was reversed!

No sooner are the fuel prices giving an indication of returning to a more reasonable level … than the spectre of a worldwide recession … now stands to deny the airlines … any chances of financial recovery.

Over the past nine months … the dramatic increase in the cost of fuel … has caused air fares to increase rapidly … reaching a level such that … for the first time … demand was becoming suppressed.

In many markets … this led to a corresponding reduction in the number of price-sensitive travellers.

It is now clear … that the bubble of bargain air travel has burst … and now … of course … economic uncertainty has dampened business travel.

This year … global passenger traffic has slowed down markedly … domestic traffic fell everywhere … and the largest domestic market … the North American market … was hit the hardest.

With revenues dropping as quickly as costs were rising … the convergence of those factors … caused some of the U.S. airline CEOs at the last IATA AGM … in Istanbul … to describe the situation as … “A Perfect Storm”.

But as if that was not bad enough … the situation was soon to deteriorate much further.

And to summarize: … the rapid … and dramatic … “meltdown” of a number of major U.S. financial institutions … accelerated a “Tsunami” … literally devastating the credit markets.

Public confidence was totally shattered … and the U.S. economy reached a very critical juncture.

The vigorous intervention by the U.S. Congress and the Treasury to engineer a massive bailing out … first of some large financial institutions … considered “too big to fail” … and later extended to the entire U.S. financial system … was not able to bring about some stability.

It now remains to be seen … whether the concerted intervention of all major central banks in North America … Europe ….. even in Asia … and of their governments … will truly succeed in calming the markets … and bring back some sanity.

Hopefully … all of this should have signalled the “beginning of the end” … rather than merely the “end of the beginning” … But this was before we began to slide into a recession!

Even before the current deterioration of the economy … thus far this year … almost all U.S. carriers … legacy and low-cost … had lost money.

Their losses were acerbated by a weak U.S. dollar … old and relatively fuel-inefficient fleets … poor balance sheets … and faltering consolidation efforts.

All the major U.S. carriers had announced substantial capacity cutbacks … taking advantage of the crisis … to ground many of their older aircraft.

The low-costs were more particularly affected … by the rapid rise in the price of fuel.

Always the largest portion … fuel costs … went from 40 percent … to 50 percent … of their operating costs … compared to an increase from the 20 percent range to approximately 35 percent for network carriers.

Less affected by traditional legacy carrier problems … Jet Blue for instance … and others … still gained market share … but they nevertheless shaved down their expansion … by deferring delivery of new aircraft.

As always … airlines tend to order new aircraft at the top of the economic cycle … and take delivery at the bottom.

The mainline European carriers … less affected by fuel increases because of the strong euro … and most having hedged a large proportion of their anticipated fuel needs for 2008 … were still making money … and had not dramatically reduced capacity.

The big three … Air France/KLM … Lufthansa/Swiss … and British Airways/Iberia … had announced slowdowns in their expansion rates … but had yet to consider capacity cut-backs … as of a few weeks ago..

The European low-costs are responding less well to the cost challenge.

Easy Jet and Air Berlin are both losing money. … The former is reducing its rate of capacity growth … and the latter has embarked on a major cost reduction program.

The shocker … of course … is Ryanair … which appears to be headed for a full-year loss … because of un-hedged fuel … massive write-downs on its investment in Aer Lingus and … said Mr. O’Leary in July …“plummeting consumer confidence in the UK and Ireland.”

The situation is also very difficult on the Indian sub-continent … where the airlines could lose as much as 1.5 billion dollars this year.

The high cost of fuel … aggravating general inflationary trends … coupled with extensive price wars … resulting from excess capacity … will force re-structuring.

As the market growth is now slowing down considerably … capacity is now being cut back … and consolidation is likely to accelerate.

Elsewhere in the world … airline executives … although increasingly cautious … were not convinced that they were facing a major crisis.

Perhaps this is because … the structure of the world economy has changed considerably … since the last financial crisis.

Rapidly growing Asian economies … have increased their internal and inter-Asia trade … and are now less dependent on the U.S. economy.

China … India … and other Asian nations … as well as the Middle East … particularly the Gulf States … were still expanding aggressively … and so were their airlines.

Over the past two years … an unprecedented number of new aircraft have been ordered …from both Boeing and Airbus … by the so-called “BRIC” economies – … Brazil, Russia, India and China … – where air traffic had been growing in double digits.

No sooner had the fuel crisis given signs of abating somewhat … than growth … rather than replacement … become once again the order of the day for these airlines.

Emirates … for example … announced in August that if oil prices fell to $105 per barrel … the airline would launch services to Durban … Algiers … Amsterdam … Kiev …Barcelona … and Buenos Aires.

As we look ahead … and try to anticipate the performance of our industry … there are a few pertinent questions still to be answered … For instance …

Do we have now … total visibility on the state of the bad debts crippling the U.S. financial institutions … and on the amounts exported from there … to the non-U.S. institutions?

Have the actions taken by the various governments … national and international banks … been sufficient to restore liquidity and rebuild public confidence?

Warren Buffet … the well-known financial guru … still expresses deep concern … regarding derivative financial products.

And finally

Given the credit crunch … and its associated loss of appetite for risks … and the slowing down of worldwide growth … not to mention the recession …

Can we still justify … and finance … the huge numbers of aircraft we have ordered … in the past two years?

Obviously … the storm is far from over … and for all airlines the crisis is very serious.

To borrow from Mr. de la Fontaine …

“Ils n’en mourraient pas tous … mais tous étaient atteint ». (les animaux malades de la peste).


As an eternal optimist … I keep looking for silver linings behind those dark storm clouds.

One of those silver linings is actually green.

It’s our industry’s determination … now well documented … to take our environmental responsibilities seriously.

Flying green was the theme of this Forum last year.

Our objective was to raise awareness of the environmental issues facing our industry … and I believe that everyone would agree … that this industry is now fully aware of its environmental responsibilities.

IATA followed up its vision statement … of a carbon-free industry within 50 years … with a hopeful expectation … that the industry will at least be “carbon-neutral” – meaning continued traffic growth without any emissions increase – by about 2020.

ICAO committed to “aggressive action” on aircraft emissions … and in their customary fashion … created a new group of senior government officials … to formulate an “implementation framework.”

At Farnborough … everyone … and everything was green.

There were green flags everywhere.

So today … the environment is no longer at the top of our forum’s agenda … because it is now on everyone’s agenda.

While environmental pressure on airlines … has yet to reach European proportions in other parts of the world … carriers everywhere are working … to build environmental initiatives into their core strategies.

Some of our critics were quick to accuse us of “green-washing” … in other words … trying to make ourselves look more environmentally friendly … than we really are.

But it’s not just good PR.

Like other big business … we see potential profits in flying green … by appealing to more green travellers … by saving on fuel … and by attracting more capital … from environmentally-conscious investors.

To say nothing of the goodwill being generated … by being good corporate citizens.

One of our speakers at last year’s conference … warned us … that any airline that does not have a strategy to address environmental issues … might even find itself unable to get financing.

And this was even before the “credit crunch”!

The tourism sector is certainly cashing in on green travel.

Eco-tourism is growing at three times the rate … of the mainstream travel market.

Nine out of ten of the tourists surveyed … say they prefer tourism … that shows concern about the natural environment.

In the Asia-Pacific region alone … well over a hundred hotel … resort … and visitor complexes … are now certified by the industry’s Green Globe program.

For tourism … green may be the new gold!


The world’s attention … including that of our industry … is now on Greenland … fittingly enough.

Its melting glaciers … have become a focal point … for world concern about climate change.

Delegations of politicians … and industry leaders make pilgrimages to Illulissat … to see the glacier melting before their very eyes.

They have to change places at Hangerlussuaq … however … because the glacier there is inconveniently growing . . .

That wasn’t meant to chill your commitment to flying green.

Rather … it was to remind us … that the evidence of global warming is not all consistent.

Nor is it fully understood.


Drastic and hurried solutions … to problems we are only beginning to understand … can create more harm than good.

Biofuels are a case in point.

The rush to turn plants into energy … is compounding a third world food crisis.

We now realize that any new generation of biofuels must not compete with food crops … for land use.

I do not think that we want to be perceived … as taking food out of the mouths of underprivileged babies … in order to fuel our airplanes.

Last year … at this forum in Cannes … I suggested that algae were probably the most likely … and least damaging source of biofuel.

Some 35,000 square kilometres of algae farming … could produce enough biofuel to totally replace jet fuel … whereas it would take six million square kilometres … an area the size of Europe … to do the job with soybeans.

Airbus and Honeywell … in cooperation with JetBlue and International Aero Engines … are developing a process to produce jet fuel from algae-based oils … that could provide up to 30% of all commercial aviation needs by 2030.

Air France-KLM are in a pilot project with a Dutch technology company … that produces algae on a large scale.

Such industry initiatives deserve to be encouraged.

Carbon trading is … in my opinion … another example of a hurried response to the greenhouse gas problem.

Buying permits to emit … can only be an interim solution … and could detract from the real objective!

Lets face it … carbon trading is passing the buck among the players.

Getting rid of carbon emissions is where the buck stops.

I am pleased … and somehow gratified … by how much our industry has accomplished already.

Every day brings announcements of new achievements.

The fuel-efficiency improvements promised by the Airbus A-380 now a reality – … and hopefully soon the Boeing 787 … and the Airbus A-350XW … will also meet expectations.

Airlines are pushing airframe manufacturers to launch new narrow bodies … that are at least 15% more efficient than the current generation. … But that will have to wait to the 2020’s.

In the meantime … the manufacturers are constantly coming up with aerodynamic tweaks and low-drag packages … designed to improve the fuel efficiency of aircraft currently… in … or just coming into service.

The engine world … is pursuing the development of geared turbofans … and un-ducted fans … all aiming for that 15% fuel improvement target.

Rolls-Royce and General Electric are also talking about developing an engine for natural gas-powered aircraft.

This followed an announcement by state-owned Qatar Airways … that it aimed to become the first carrier in the world to fuel its fleet with natural gas.

Not surprising! … The Emirates hold more than 15% of the world’s proven natural gas reserves.

In July … Boeing reported that United … Air New Zealand and Japan Airlines … had completed 57 flights using continuous descent approaches (CDA) rather than a series of level segments … resulting in a 40% decrease in fuel consumption … during descent.

SAS completed Europe’s first ever transatlantic “green approach” last December … and has been collecting data on some 1,300 CDA flights since then.

However … ATC congestion remains a significant complication in achieving the potential fuel savings.

Streamlining air traffic management … through the Single European Sky (SESAR) initiative … an efficiently coordinated and integrated ATC operation … could deliver significant reductions in CO2 emissions.

The same could be said of implementation of the Next Generation Air Transportation Systems (NextGen) in the U.S.

Unfortunately, governments are still dragging their feet in this area.

In June … ICAO launched its Web-based Carbon Calculator tool.

This gives airline passengers … an unbiased and transparent first-order assessment of CO2 emissions… for a given flight between city pairs … for use in carbon offsetting programs.

For its part … IATA is developing an electronic ticket … that will have room for an environmental fee or pledge.

It should be in place by next year.

Although I’m lukewarm on carbon trading … I believe carbon offsetting projects can make a significant contribution in reducing our carbon footprint.

Constructing wind farms … or buying solar panels … for a village that formerly burned kerosene for its energy … may not have the dramatic impact of reforesting the Sahel . . . but such projects all have the merit of reducing CO2 emissions.

And thus … with some notable exceptions … the air transport industry as a whole seems determined … and dedicated … to making concrete progress in reducing its carbon footprint.


Not to belabour the argument … the EU’s insistence on a rapid conclusion of Phase II … for example … could undermine the most significant development for global air travel in the last decade.

I am referring … of course … to Phase I of the new “open skies” agreement between the United States and Europe.

As it stands … the agreement is truly a “silver lining” in many ways.

All those cumbersome bilateral agreements signed over the years between the U.S. … and European countries … have been replaced by one agreement covering all 27 members of the Union.

Any airline from the EU will be able to fly … unrestricted … from any city on the Continent to any American airport.

The log jam on Heathrow is unlocked.

The most coveted airport in Europe … no longer restricts London-U.S. flights to two British and two American carriers.

Air France/KLM became the first European carrier to take advantage of the liberalization with … on April 1 … a new flight from London to Los Angeles.

Despite the shaky condition of the U.S. economy … threatening to further dampen demand … European and U.S. airlines are preparing to launch a wave of additional flights … in response to the new open skies agreement.

British Airways having bought L’Avion … has now launched a new subsidiary … appropriately named OpenSkies … to operate Boeing 737s from Paris and Brussels to New York.

The first route was inaugurated in June … and the second is to start up soon.

New transatlantic routes … between points previously unserved … and increased competition on those already well served … should bring down airfares … or at least prevent them from being raised excessively.

The parties also agreed to rapidly conclude Phase II … which includes the sensitive issues of foreign investment limits in U.S. carriers … and cabotage rights.

A positive step in this direction was taken in Phase I … with the recognition of acquired rights of airlines … (landing rights … slots … access to routes …etc.) … from different countries after they merge … or after one buys another.

When … and whether … Phase II is completed … will depend on the economy and the health of the U.S. airline industry … and nothing will happen until the new administration is fully in place.

Jeffrey Shane … the former U.S. Undersecretary for Transportation Policy … and other speakers … will have a lot to say about this watershed development in our afternoon session.

Ten years ago …I suggested that a “big bang” solution to worldwide liberalization was most unlikely.

The way to go … was the continued expansion of regional common air markets … such as has been achieved by the EU … and the pursuit of bilateral agreements between the regional areas . . . or “block-lateralism,” … to use an expression I coined at that time.

Hopefully … this first block-lateral agreement … which has now taken place … will encourage other regional common air market agreements … by like-minded nations in Asia … in Latin America … and elsewhere.

Combined with increased market access of the low-costs … over the past two decades … the accord’s flexible arrangements … if emulated elsewhere … will open endless opportunities for the expansion of business … trade … and tourism … around the world.


Our industry structure is continuing to evolve to cope with … the persistently turbulent skies of commercial aviation … and new consumer demands.

One of the most remarkable developments of the last decade … is the emergence of the Gulf States … as the new hubs for international air travel between East and West.

Recently … Dubai Airport caught up with Singapore in passenger traffic volume.

The Gulf airports have to meet the needs … of the rapidly expanding Emirates Airline … with almost sixty A380s arriving over the next five years … as well as the expansion of Etihad … Qatar Airways … GulfAir … and others!

The almost adjoining airports of Dubai … Jebel Ali … Sharjah … Doha … Bahrain … and Muscat … will together … by 2012 … offer an annual capacity of over 300 million passengers.

Three hundred million! … That’s just short of a million passengers per day … and all from elsewhere.

Talk about reshaping the industry.

But some wonder whether this huge wager will pay off.

The trend is still in favour of non-stop … long-range service … from any major city in the world … to any other.

Why go through Dubai if you don’t have to … other than because the city is becoming a glamorous playground for the rich … richer … and richest.

The shape of things to come … among mainline carriers in Europe …is pretty well determined by the so far successful “big three” mergers.

Air France/KLM … Lufthansa/Swiss … and now … after a bumpy courtship … British Airways/Iberia … will dominate the European scene.

Alitalia will end up in one of the “big three” … even Prime Minister Berlusconi has now realized … that he cannot escape the inevitable.

Still largely undetermined … is the fate of the smaller European carriers … yet to find a role in a rapidly changing industry … being buffeted by volatile fuel prices … overcapacity … and an economy sliding into recession.

Finnair’s profits are down. … SAS earnings have slumped badly … and the group plan to unload Spanair ASAP.

British Midlands (BMI) is likely to be acquired by Lufthansa. … That is almost a foregone conclusion.

BMI controls over 11% of the slots in Heathrow … worth … incidentally … about $10 million to $40 million a pair for the peak morning time.

The slots are probably worth more than the airline.

Austrian Airlines is on the market for a big brother … to help determine its future … as are Czech … and JAT.

They should find buyers. … Despite current difficulties … the markets of Eastern Europe are looking increasingly attractive in the long term.

In the U.S. … a bid by Delta and Northwest … to form the world’s largest airline… is about to become a “fait accompli” … despite substantial discontent by the Northwest pilots.

The merger could be eclipsed by the potential larger pairing of Continental and United.

American Airlines is also making noise about a merger with US Airways … despite reports that its merger with America West has led to poor service … low morale … squabbling workers … and a very significant drop in stock price.

But one should remember that size does not guarantee survival.

If this had been the case … Eastern Airlines and Pan Am would still be around today.

Even consolidations of that magnitude … may not streamline the U.S. industry enough to snap it out of its downward spiral.

The potential mergers seem to offer little opportunity … for the level of capacity reduction still required.

There is almost no overlap between the Delta and Northwest networks … for example.

The excess capacity in southeast Asia and India … caused by the recent proliferation of low-cost carriers … has led to rampant price wars.

The situation is unsustainable … and will lead to more consolidation … and mergers … within a year or two … India is particularly vulnerable.

Although China’s airlines are still reaping the benefits of a rapidly growing economy … and don’t feel threatened to the same extent … by the “slowdown” in international markets … there is some pressure for consolidation.

Air China … for example … is looking for greater access to the country’s biggest city … by taking over second-level carrier Shanghai Airlines.

This could be a big step toward creating the balanced … nationwide operator … that China still lacks in any of its big-three airlines.

To return to the liberalisation of the Atlantic air market … the sea changes being brought about by the U.S.-EU agreement … include stronger commercial alliances … and even joint ventures within those alliances.

We have there … clearly … the seeds of potential transatlantic mergers … if and when they would become allowed in Phase II.

Air France initiated the first big Open Skies joint venture late last year by proposing that they … and Delta Airlines … merge their long-haul North Atlantic routes.

In June … Continental announced it would join Star Alliance partners Lufthansa … Air Canada … and United … in a now antitrust-immunized venture … that coordinates flight schedules … capacity … fares and services … and pools revenues on transatlantic flights.

In earlier days … pool agreements on the Atlantic and elsewhere were the norm. … Plus ça change . . .

Not to be outdone … in August … American Airlines and British Airways (with Iberia) signed a potential joint venture agreement … for flights between North America and Europe.

The last time they tried … in 2002 … U.S. regulators demanded that the two carriers hand over to competitors … enough slots for 16 daily departures at Heathrow.

This … incidentally … was a number equal to the whole of American’s operations at the airport.

Now that Heathrow is fully open to all EU and U.S. airlines … such concessions should no longer be required.

Many of the new services resulting from this “liberation of the Atlantic” … are aimed squarely at the business market.

L’Avion … which British Airways bought … and fused with its OpenSkies subsidiary … offers business class-only flights between Paris and New York.

BA has ordered two Airbus A318s … configured for 32 business class seats convertible to lie-flat beds … for a twice-daily London City-New York service beginning next year.

Virgin announced in June … that it plans to acquire 15 new planes … for business class only flights to New York and … eventually …to other U.S. cities from London … Paris … Amsterdam … Frankfurt … Milan … and Zurich.

Timeframe is the next 12 to 18 months.

Singapore Airlines plans to convert five A340-500s to a 100-seat… all-business class configuration … and offer daily service to New York and Los Angeles.

Lufthansa is also considering expanding its all-business class service … which presently uses two Airbus A319s … and one Boeing 737.

Why would these larger airlines remain convinced that a market for such service exists … when three business class-only pioneers … MAXjet … Silverjet … and EOS … have failed?

And this despite the weakening economy … and an already significant decline in premium demand … in some markets?

Well of course … the start-ups could not offer … the back-up convenience of an extensive network … and a frequent flyer program … to say nothing of the fact that they were operating out of secondary airports.

In 1971 … Southwest initiated a daring business new model …a no-frills … one-class service … operating one aircraft type … out of cheaper second-tier airports.

Surprisingly … Southwest has now decided to introduce business class into its business model … expand service to major airports … offer more frills and benefits … etc.

The airline believes the modified model will deliver $100 million a year … but it has muddied a clear fundamental formula that has delivered great results for 37 years.

Will the change be successful?


Another low-cost business model change that’s on the rise … is going long-haul.

Air Berlin went that route in May … when it launched services to Beijing and Shanghai.

But it is in Asia-Pacific skies … that the spirit of Sir Freddie Laker really soars.

Since October 2006 … Oasis Hong Kong Airlines… has been offering a two-class … full-service operation on the Hong Kong-Gatwick route …and since July last year … six weekly flights between Hong Kong and Vancouver.

In May … after just five months of operation … Kuala Lumpur-based AirAsia … had already sold 100,000 seats on its two routes to Australia and the Chinese city of Hangzhou.

The airline plans on an eventual network of some 77 long-haul destinations.

Will these ambitious plans succeed?

Many hurdles need to be overcome for successful long-haul operations … such as complex international regulations … the need to provide costly amenities … like real food … more expensive airports … longer turnaround times … etc.

This will require a significant departure from the successful low-cost model.

The ultimate in convenience … of course … is business class “on demand” in a private jet.

This business model has existed for some time … in the form of time-sharing aircraft operated by Netjets … Bombardier Skyjet International … Flexjet … and others.

Instead of owning the aircraft … you buy any number of return trips … but on a per plane basis … not on a per seat basis.

Lufthansa Private Jet (LRJ) has gone one step further … by recently acquiring a dedicated fleet of Cessna Citations … and Bombardier CPJ200s … all with tailored livery and 12-seat VIP interiors … which are … or will be … available 24 hours a day … 7 days a week.

DayJet … which began operations in Florida last December … goes still further … by offering “per-seat on-demand” private jet service.

Customers reserve online … telling the airline where they want to go … when … and how far in advance they are prepared to travel.

The more flexible they are … the lower the fare.

This new business model … of private jet service … is being made possible by the development of new Very Light Jets (VLJ) … like the four-passenger Elipse 500 … whose airframe made of strong but light composites … and Pratt & Whitney engines … barely the size of a washing machine … allow a sticker price of under $2 million.

Per-seat … on-demand … private jet service would offer flexibility … the calm of dedicated terminals rather than the hassle of hubs … and promises to be affordable.

It may well be a model that transforms the business market.

My friend Bob Crandall …who will be joining us for the great debate on Friday … certainly thinks so.

His POGO airline was to start with 100 Elipses. … However … the current financial crisis may make it difficult to attract the required funding.


Ladies and gentlemen … last year at this Forum … I concluded my remarks with a plea … for this industry to come together in a coherent … determined and visible fashion … to address the threat of greenhouse gases.

This year … I would like to propose another “bête noire” to worry about … and which represents a hidden threat to our industry and our planet … just as serious as environmental pollution.

That threat is … infectious viral disease pandemics.

A virtual elephant in the room … still largely invisible in terms of public … and governmental concern.

Remember how the SARS epidemic of 2003 shocked the world … and the damage it did to our industry?

Modern air transportation made it possible for SARS … to spread from mainland China to all corners of the world … in a matter of weeks.

The epidemic cost the world many billions of dollars … a forewarning of the disastrous social and economic consequences … of a more widespread pandemic.

Worldwide … infectious diseases account for over one fifth of human deaths … killing some 17 million people a year.

In many of the poorest countries … infectious diseases are responsible for over half of all mortalities … trapping entire populations in a vicious circle … of disease and poverty.

Little has been done to develop effective … readily available … antiviral drugs to treat these diseases.

Less than 10% of the money invested in global health research is applied to infectious diseases.

The increasing cost of research and development … and competitive pressures … have led pharmaceutical companies … to focus their research dollars almost exclusively … on the more lucrative ailments of the West.

In the last 30 years … only 1% of new commercial drugs were designed specifically for infectious diseases.

Yet the threat of infectious diseases is not limited to the developing nations … and international air travel can allow pandemic infections … to circle the globe a matter of hours … with potentially devastating effect.

To address this problem of “neglected diseases” … an international … not-for-profit Consortium has been established … linking some 200 scientists in twenty-four countries.

This innovative model facilitates the sharing of academic research in a collaborative network … and will speed up the identification of promising therapeutic discoveries.

To solicit funds to finance the research and development of antiviral therapies … a Foundation has now been established.

Its specific role is to take promising drugs from academic laboratories through pre-clinical and clinical trials …a stage of the development process that receives little public funding.

I have agreed to become the Chairman of this International Foundation … and I am pleased to announce that Mr. Jacques Chirac … former President of France … and Mr. Jean Chrétien … Former Prime Minister of Canada … have both agreed to be Honorary Patrons.

The Foundation on Antivirals … known as FAV … has been approaching high-profile individuals … corporations … and institutions to seek their financial support … and moral endorsement for this critically important cause.

For obvious reasons … we would naturally expect the travel and tourism industry to be supportive.

And many of you … present today … are indeed representatives of these industries.

I look forward to your support!


Ladies and gentlemen …

Caught in the downdraft of the financial crisis

Tossed around by the turbulence of fuel price volatility

Buffeted by an economic recession of potentially worldwide proportions

The air traffic world is flying through perhaps the most threatening skies… it has ever encountered.

The storm is far from over … and while the airlines in the U.S. are taking the brunt of the storm … European carriers will increasingly be exposed … and so will the BRIC airlines.

Even the Gulf carriers … up to now largely unconcerned … would be wise to prepare to be engulfed as well.

No one will escape the fury of the current storm.

But … there are some positive elements of importance to our air transport world:

Those looking for silver linings need look no further … than our industry’s strong commitment to flying green.

Concrete progress is being made by almost every sector …the notable exceptions being air traffic control … and government-imposed carbon taxes.

Another silver lining … is Phase I of the new “open skies” agreement between the United States and Europe.

I hope this watershed block-lateral agreement will encourage … other regional common air market agreements … in Asia … Latin America … and elsewhere.

Still another encouraging sign … is our industry’s ability to evolve its structure … to cope with economic downturns …, changing markets and traffic patterns … and varying customer needs.
Among the most remarkable structural changes taking place are:

The emergence of the Gulf States as the new hubs for international travel;

The successful “big three” mergers in Europe … and their attendant effects on the non-aligned airlines; …

The antitrust-immunized joint ventures on the North Atlantic; …

Some mainline carriers launching all-business class services as the start-ups in this market go belly up; …

The low-costs modifying their successful formula with business class and long-haul services; … and

The emergence of affordable … per-seat-on-demand … private jet service.

Managing in this uncertain environment will require strong nerves … a steady hand … and the occasional dose of tranquilizer!

One thing is certain …

The future is not what it used to be!

Thank you

Annual AGIFORS Symposium – Dinner Speech

Operations Research… and May the Past be Prologue
Annual AGIFORS Symposium – Dinner Speech

Montréal, September 26, 2008  >>


Ladies … gentlemen … and O.R. Practitioners

You are at the end … of a few days of intensive discussions … on Operations Research models and their various applications.

In thinking ahead about this address … I was reminded of a good friend of mine … who was Chancellor of a Canadian University … He once told me … that a statistical analysis had been carried out … on the effectiveness of his speeches on various audiences.

The analysis revealed that …

A good start …. Either amusing or thought-provoking … could capture … as one would expect … the attention of his audience for about five minutes.

From then on … the attention span would start to stochastically decrease gradually over the next ten minutes of so.

By the end of that period … it was found … with a margin of error of 1 in 20 … that for ninety-five percent people in the audience … their brains would begin to drift … into a variety of erotic fantasies.

He would then conclude … “You know Pierre … Over my many thirty-five to forty-five minute speeches … you would be simply amazed at the amount of pleasure … I have induced to my audience!”

I wonder how much pleasure the Cuban people would have experienced … listening to a four hour speech by their great leader … Raoul Castro!


Joking aside … it would seem reasonable … to assume … that the attention of any audience decreases over time … and with it …. the absorption rate.

Of course … this would be modulated by the eloquence of the speaker … and the interest the audience in the subject.

Assuming … that we are not talking about politicians … – I apologize … if there are any in the room – … but about people communicating meaningful information …. such as operations research members of AGIFORS undoubtedly would … then the amount of real and valuable … information transmitted … should also increase with the length of the address.

With absorption capability decreasing over time … and the amount of information communicated increasing with time … we have a classical O.R. case … which should suggest … that the optimum speech length should be defined by the saddle point.

However … this by itself would likely be an incomplete model … without the introduction … of some measures… of value to the audience.

We need to introduce a third dimension … a subjective evaluation … of the audience’s measure of satisfaction.

We should assume that satisfaction increases with understanding … but this is unlikely to be a linear function … because having reached a peak … our satisfaction curve would start to decrease with the attention span … and boredom may start to creep in.

I have now managed to complicate my little model … and a new optimum would now have to be found … as a point in our three-dimensional space.

I will leave you to judge … in this particular case …. whether my remarks will come … anywhere close … to the kind of saddle point … which would achieve an optimum level of satisfaction for you … the audience.


Upon receiving the invitation from Lise Fournell to join you this evening … I was very pleased to see that AGIFORS is … in all evidence … still a vibrant group.

As a founding member of your Association … it is most rewarding to see … that the gleam that existed in our eyes at the time … has not only survived … but very much prospered … both in terms of talent … and importance.

The genesis of AGIFORS can be traced back … to an international IFORS meeting in Oslo in 1960 … (the International Federation of Operations Research Societies).

Dr. Sandiford … who was at that time head of the Operations Research Group in Air Canada’s Headquarters … and I … [ I was then heading a small group of Operations Researchers in the Operations Department of Air Canada ] … were the only two Canadian delegates attending this IFORS Conference.

We presented a paper on management simulation … of which several had already been developed in Air Canada.

A number of other airlines’ Operations Research practitioners were also present in Oslo … and the discussions that took place at that time … suggested that there could be some merit in creating an airline group within IFORS.

The choice of setting up a sub-set of IFORS … rather than a sub-committee of IATA … was quite deliberate …. We felt that there was more to be gained … by being part of a broader scientific community … than a sub-set of an airline-driven … commercial and operations association.

The first AGIFORS group met in October 1961 in Sun Valley … New York … and regrouped some twenty-five practitioners.

I undertook to organize the second meeting … which was held … as Lise may have pointed out … in Val Morin … in the Laurentians … just North of Montreal ….. in October 1962.

Right from the start … the airline operation with its complexities … network characteristics and the usual scarcity of resources … appeared to be a natural for O.R. applications.

The need to optimize the utilization and deployment of very expensive assets … the aircraft … the efficient allocation of crews … the need to develop commercial models to deal with the competitive nature of aviation … all of these dimensions were certainly fertile ground for a more rational examination of the factors involved … the various alternatives … and evaluation of potential outcomes.

I note from the papers which were presented at your conference … that schedule models … and revenue generation models …. for instance … are still popular topics.

Of course … they are addressing new realities … such as the optimized routing of air taxis … and operators of business jets.

In the case of revenue generation … the question of product segmentation … customers’ purchasing behavior … and effectiveness of channels of distribution … are still very interesting subjects.

Getting back to that first AGIFORS meeting … I believe that Air Canada was the first … to develop an airline management simulation game.

This computerized airline management game had been one of the papers… we had presented at the IFORS meeting in Oslo.

It has since been extensively used and refined … and today … a later version is a centerpiece of one of IATA’s Executive Management Courses … and still continues to be very successfully utilized.

I recall that … in order to test its realism … we challenged some well-known Canadian businessmen – … two brothers who had built something of an empire in the distribution field – … to play the game against our team of O.R. practitioners.

It was interesting to see that … once they had become familiar with the game … they were able to beat us thoroughly in a competition … demonstrating that their business acumen and experience … could easily outsmart our more limited knowledge … as O.R. practitioners … of operating a business.

The experiment did … however … confirm … – and it was their opinion – … that the simulation we had developed …responded well … to the dynamics of what they considered to be a real life environment.

During this period …I was also very active in the Canadian Operations Research Society … which was also affiliated with ORSA … the American society … as well as TIMS … the Institute of Management Science …

The Canadian experience was quite interesting … as some degree of similarity existed … in response to the problems being faced by the airlines … and some of the other major network operators …whether railroad … or telecommunications.

My involvement in the Canadian Operations Research Society led me to be Secretary of the Society in 1962-63 …and subsequently President of CORS … in 1967.

This invitation to speak at this AGIFORS Symposium … revived my curiosity about the evolution of the field.

Looking up the website of C.O.R.S. … the Canadian Operational Research Society … many of familiar names (subjects) are still being addressed – … scheduling … queuing … simulation … optimization modeling … are all familiar subjects.

Looking up the list of previous CORS Presidents … I saw another thing that had not changed.

They still do not know how to spell my name! … Of course … even mathematicians have their limitations.

Interestingly … I noted on CORS’ list of events … that from the 7th to the 10th of December this year … a conference on winter simulation is being held in Miami, Florida.

They might have considered holding it in Montreal at that time of the year … and experience the real thing!

Operations Research was not very well understood in the early days … and this may well still be the case today.

I remember once being asked … by a misinformed Committee of Parliamentarians … to report on our research into medical surgical operations!

On another occasion …I tried to explain to a U.S. immigration agent what operations research was … which was how I had identified my profession.

After listening to my explanation for about five minutes … he proceeded to write down “clerk”.

I chose at the time not to contest his decision … and simply be content with having been accepted as a visitor … to the glorious land of Uncle Sam!

Another time … I was the Co-chairman of a Joint CORS ORSA Conference in Montreal … I had to get through Customs some 1000 copies the program … which had been printed in the U.S.

Again … I attempted to explain what this pile of documents was all about.

The befuddled Customs Officer was trying to assess what he should charge in terms of customs duty … for this printed material.

In the middle of my explanation I said to him … that Operations Research was to Management like a new religion.

This instantly resolved his dilemma … as religious material was to be admitted … tax free.

With a sigh of relief … he cleared me and all my documents.


I have found … as I suspect many of you have … that the great military strategists … were a good source of inspiration in addressing some competitive situations.

A decisive battle is a zero-sum game … with winner takes all … and as General Paton was fond of saying … “In war there is no prize for second place!”

In a competitive arena … in any specific market … and whether there is only one … or many … competitors against you … good intelligence is paramount.

The basic rules followed by all great Generals … from Alexander the Great … to Napoleon … and even Mao Tse Tung … are amazingly similar.

They considered it to be absolutely essential … to have as up-to-date … and as complete … information as possible about the strengths … the weaknesses … and the basic strategy of their competitor.

They would always … take great care … to engage in a battle at a time … and on a field … of their own choosing … even if it gave the appearance of retreating.

They would take time to simulate ahead of time … the relative position of the respective players during the battle … along with the alternative moves … and likely counter-measures.

Those great Generals would attempt to avoid getting distracted on too many fronts.

When they would have decided to attack … they would concentrate the maximum of their capabilities … on what they believed to be … their competitors’ main weaknesses.

Speed of decision-making … and swift action… are always extremely important factors in ensuring success.

And finally … most decisively won battles … have included a surprise element … sometimes a carefully orchestrated deception …

Once again … good intelligence about what your competitor knows … or assumes … of your strategy … is essential.

Although the principles of military strategy have not fundamentally changed … in my view … the ability to get pertinent information precisely … correctly … continuously updated … has simply exploded.

Multi-sensor scanning … from satellites … from unmanned air vehicles … or from ground-based fixed and moving platforms… are able to provide continuous information through a network-centric capability.

Sophisticated data fusion … filtering and relevancy identification processes …provide valuable information which is transmitted … instantaneously to the field commanders … along with accurate identification of threat and alternative response.

Electronic warfare … an increasingly precise reality … is resulting in substantially increased efficiency of military capabilities.

Once again … processes and systems developed for military applications … are likely to find their way into the commercial world.

Thus … time and time again … the key word is intelligence …which is why the function of Chief Information Officer … the CIO … has become … such an essential member of the senior management team of most … if not all companies.


The variety … the volume … and urgency of issues that need to be addressed … by Executives … may often prevent the careful development of appropriate models to resolve any particular issue …

However … the mental discipline which has been acquired in the development of OR-type solutions … is undoubtedly … very useful in analyzing the issue confronted … and in making the right decision.

Indeed … I often found this type of disciplined approach to be useful during my days at Air Canada.

For example … as Head of Marketing … it proved a valuable tool in identifying …and evaluating … specific strategies … in the light of the competitive environment that we were facing at the time.

Later on … as CEO … a disciplined approach was absolutely essential in evaluating different strategic alternatives … in our efforts to privatize the corporation which … at the time … was State-owned.

Similar approaches have been useful … in my more recent role as Director General and CEO of IATA.

To give you an example of a typical strategic approach …the following anecdote could serve as an illustration.

Towards the end of the last decade …, traffic was growing rapidly between Europe on the one hand … and Japan … Hong Kong … and South Korea on the other.

Unfortunately North Korea … which controlled a rather large flight information region … would not permit any aircraft to cross its designated airspace … thus forcing all airlines to fly around at considerable cost.

This was an increasing source of frustration … and every effort by the international community to influence the situation had failed.

North Korea had a small national airline called “Air Koryo” … which was anxious to achieve some degree of international recognition … and Air Koryo approached IATA to join our Association.

Air Koryo being State-owned … this provided an opening for us to begin discussions with the North Korea government.

We now had a basis for negotiation.

There were two immediate hurdles in suggesting the opening of the North Korea airspace.

The first was that the Pyongyang air traffic control centre … was not adequately equipped … to provide the necessary oversight and control of flights going through its region.

Secondly … communication between North and South Korea was strictly prohibited.

This would become a major impediment … as it would be necessary for the air traffic control centre of Pyongyang … to pass on information to the Seoul Air Traffic Control … as any aircraft crossed its airspace.

An additional factor in our favor … was the fact that North Korea was rather short of foreign currency … particularly US dollars … and they had not been aware that air traffic control centers … guiding airplanes through their airspace … could charge an appropriate fee … and thus earn valuable foreign currency.

We were able to demonstrate to the North Korean authorities … that opening up their airspace to very specific corridors … jointly defined … could be carried out with virtually no security risk to them.

These corridors would enable the international airlines … to achieve considerable savings in time and cost … by crossing that airspace.

As the North Koreans were short of U.S. currency … we offered to advance the funds … to train their controllers … and to adequately equip their air traffic control centers.

We arranged for an appropriate charge formula … collected the fees from the airlines … supervised the upgrading of the North Korean control centers … and thus got the centre to be fully operational.

But there remained a major difficulty … which was the lack of communication between North and South Korea … and North Korea was absolutely rigid on that point. … Under no circumstances could there be any direct communication between North and South Korea.

To overcome this particular constraint … IATA offered … – and subsequently received authorization –… to set up and operate the telephone lines between Pyongyang and Seoul … so that North Korea could continue to feel that they had not established any link with South Korea.

With all this having been agreed … it was implemented. The result was a typical case of Minimax:

Minimum giving in on the part of North Korea in terms of their self-imposed constraints and restrictions … with the maximum amount of benefits derived in terms of improving the functioning of their ATC …generating foreign currency … and achieving international recognition for their airline.

For the international airline community … the ability to fly through the admittedly still restricted North Korea airspace … was providing them with savings in fuel and operating costs of around $150 million a year … well worth the relatively reasonable fee for air traffic control which North Korea charges … and which was based on IATA’s recommended formula.

This was clearly a win/win which … as you would certainly recognize … required the identification of the various factors involved … and the search for the optimum compromise … which finally led to a satisfactory solution.


Finally … I believe … that Operations Research has been … a great incubator for the development of executives … and that this is still largely the case.

In Air Canada … out of the twelve or so … members of the O.R. group at the end of the 60’s … six eventually progressed to the level of Vice President … or Senior Vice President … and your humble servant even made it to the level of President and CEO.

Air Canada is not a particularly unique case in this regard.

Lise Fournel is a good example that … starting as a fairly junior O.R. practitioner less than twenty years ago … one can still become a Senior V.P.


Ladies and gentlemen … the airline industry has always been under stress … and probably always will be … as the current crisis affecting our industry is a good example … of what aviation faces periodically.

There has never been a shortage of issues … and there have always been too few resources.

It is a natural field for O.R. applications.

Over the years … as an O.R. practitioner … I have learned that the KISS principle is useful to keep in mind … (Keep It Simple Stupid).

I have designed models that have virtually collapsed under their own complexity.

Mathematical elegance may be academically attractive … and indeed useful … in getting your papers published … but it may be useless to your airline … if the implementation is overly complicated … and does not yield real results.

I remember that when Yogi Bera was asked … if there was a difference between the theory and practice …. he said …

“Well … in theory there is no difference … but in practice there is!”

O.R. practitioners can be very useful internal consultants … but must remember … that not every problem requires a sophisticated solution.

All too often … executives do not have the luxury of time … They must act quickly … now.

A simple quick analysis … today … with its stated limitations … may still be of better help … than a more thorough analysis … produced too late to impact a decision.

Finally dear colleagues … I guess that it may be permitted to use that term … as a former O.R. practitioner … I feel that … by now …. I may have been sliding down your retention curve … way past the saddle point!

On the basis that no speech is entirely bad … if it is relatively short …I would like to thank you for the opportunity you have given me … to get back to my O.R. practitioner roots.

And to reminisce about AGIFORS … and O.R. in general.

I wish each and every one of you … much success in your respective careers … as O.R. practitioners of course … and also … undoubtedly for a number of you … as airline executives.

Thank you!

Keynote address to the 21st Annual Canadian Airline Investment Conference

A Perfect Storm?
Keynote address to the 21st Annual Canadian Airline Investment Conference
Toronto, June 2o, 2008  >>


Ladies and gentlemen:

Those of you who may have glanced at my biography have probably concluded that I have been in aviation a fairly long time.

Well to tell the truth, when I started in the airline – in those days Air Canada was called Trans-Canada Airlines – commercial jet travel had just become the latest novelty.

Over the many years that I have been in this crazy business, I have seldom experienced a dull day.

I feel quite confident that the airline executives participating in this event would support that observation.

I am thinking more specifically of Bob Deluce and Joe Randall. Indeed, I should thank them both for having done such a fine job some 25 years ago or more, in heading the two regional airlines which preceded Jazz.

In the case of Bob – Air Ontario; and Joe of course was heading Air Nova.

The creation of a number of regional airlines across our country was one of the important elements of my restructuring strategy which was required to make – what was at that time a Crown Corporation – privatize-able.

You will appreciate that setting up these regional airlines, each with a much lower operating cost structure than Air Canada, could provide good service with a fleet of Dash-8s to markets too expensive to serve with the DC9-30’s and Boeing 727-200s of the Air Canada fleet.

It was a sort of a win-win. Good and affordable air services were being provided at dozens of locations being abandoned by Air Canada, and the main airline was substantially lowering its domestic operating cost.

It is rather nice to see that the fledgling children we launched back then have become a solid and profitable airline, playing a very valuable role in this country.

By the way, another initiative launched at approximately the same time was Aeroplan!

But for this we have to blame American Airlines. My counterpart there, the famous Bob Crandall, had launched the American Advantage Bonus Plan.

Within weeks we had created our own response which was Aeroplan, but unfortunately, in the then highly regulated environment of the times, the Canadian Transport Commission turned down our proposal.

Following more than six months of frantic negotiations, we finally prevailed – but by then we had lost some 5% of our high-yield Transborder business class traffic.

Fortunately for us, Aeroplan became very successful very quickly, although no one would have ever imagined that it would become the important stand-alone business it is today.

Incidentally, I am not mentioning these two success stories merely for nostalgic reasons.

They are good examples of monetizing some of Air Canada’s hidden values, which is one of the important actions one should take, particularly in times of crisis.

And today the aviation world is certainly facing yet another crisis.

In Istanbul, at the IATA AGM a few weeks ago, some U.S. airline CEO’s were describing the current situation as a “Perfect Storm”.

This is because costs are going up while at the same time revenues are coming down.

This is most disappointing given the fact that we had recently experienced better than average traffic growth.

IATA reported that international traffic grew by 7.2% in 2007 – close to the 7.6% increases achieved in the previous year.

Most encouragingly, business travel was expanding at a fairly good pace during 2007, providing to the network airlines a great source of yield improvement.

Indeed, in the long haul markets travel in business and first class was growing faster than economy.

With capacity growing at a slower pace than traffic, load factors in both international and domestic markets reached the high 70s.

Airline revenues increased by some 7% in 2007 and profitability, although still very much insufficient, reached a 4.2% return on investment.

While this represented better results than the industry had been able to achieve for many years, this result is still far too low to attract capital and ensure financial sustainability in the long run.

In 2007, fuel started the year close to 50 USD a barrel, and then rose to hit 100 USD a barrel.

By the end of last year, it looked like many airlines were hoping that fuel had peaked and that – if the sub-prime crisis was contained – the economy would return to a reasonable rate of growth.

But the first half of this year has shown that this view was overly optimistic.

There is probably light at the end of the tunnel, but no one seems to be venturing a guess as to how long that tunnel may turn out to be.

With some markets undergoing rapid decompression, the likelihood of over-capacity at times of economic slowdown shows that once again we have not learned from the past.

Revenues of airlines are closely linked to economic cycles. Airlines tend to order airplanes at the top of the cycle…

All too often, unfortunately, the airplanes are delivered during a downturn.

Over the past two years, airlines have ordered an unprecedented number of airplanes.

With these airplanes about to be delivered at the time of decreasing traffic – and with the cost of fuel sky-rocketing – this amounts to a rather disastrous scenario.

I am told that at least one U.S. airline executive, totally bewildered by this situation and unable to decide what to do, finally turned to his local preacher for advice.

“Put your faith in the bible”, counseled his spiritual adviser, “and you should find an answer in there.”

Our airline executive, bible in hand, went walking on the beach, meditating.

Tired of walking, he sat down, placing the holy book at his feet.

Suddenly there was a strong gust of wind and the pages of the bible began to flip furiously. Then, just as suddenly, the wind dropped. Eagerly, our airline executive picked up the book and looked at where the pages had stopped flipping. It said “Chapter Eleven”.

Unfortunately, for many U.S. carriers it’s a case of “been there – done that”, and I am quite sure that they have no wish to go through that painful process again.

And thus the aviation world is facing yet another crisis, partly caused by the recent rapid rise in the price of a barrel of fuel and, to some extent, the sub-prime financial crisis which has started to undermine the confidence of consumers, primarily in North America.

On the basis of an average oil price of 120 to 130 USD per barrel for the current year, IATA is now forecasting an industry loss of $2.3 billion.

This is a major swing from their initial forecast of a profit of $6.8 billion based on last year’s expectations.

We are told that some 24 airlines have suspended operation, or gone out of business, in the past six months.

These include the three “business class only” airlines which emerged in the last three years, attempting to create a new niche across the Atlantic.

Year over year, in the first quarter of this year, global passenger traffic slowed down markedly, although the worldwide average has remained, for international traffic, at +5%.

At the same time, domestic traffic fell everywhere compared to last year over the first four months of this year.

The largest domestic market, the North American market, is definitely on a decreasing slope.

As a result of the worsening U.S. situation, “legacy” carriers have once again launched some major capacity reduction, taking the opportunity to ground many of their older airplanes.

United Airlines has announced that it will retire 100 mainline jets. This would include ninety-four of its B737s and six B747s. The cumulative mainline domestic capacity will shrink by 17-18%.

Continental Airlines plans to retire twenty-four B737-300s out of a fleet of forty-seven and thirteen B737-500s out of a fleet of fifty-five.

Some further reductions are planned for 2009, which will amount to a mainline capacity reduction of 14-16% in total.

Continental has announced that 3000 jobs will be eliminated.

American Airlines plans to retire forty to forty-five mainline aircraft, mainly MD80s and some A300s. This amounts to approximately 11-12% of capacity reduction.

The so-called “low costs” are also affected, slowing down their expansion.

Jet Blue Airways is deferring delivery of twenty-one A320s from 2009-2011 to 2014-2015.

Air Tran Airways is deferring the delivery of eighteen B737-700s from 2009-2011 to 2013-2014.

Southwest, while still taking delivery of twenty-nine new B.737-N.G. airplanes, is now planning to retire sixteen older B737s this year.

The price of fuel represents the largest percentage of operating costs for low cost airlines, in some cases in excess of 40%. This makes them more fragile and could lead to more failures and/or consolidation.

Although less affected at this point, the European low costs are responding as well to the cost challenge.

Ryan Air achieved a hefty profit at the year ending March 31, but it has announced plans to ground about 10% of its fleet during the winter schedule.

Air Berlin reported a net loss of close to 60 million euros in the first quarter of this year, and has embarked on a major cost reduction program.

Although the general weakening of the global economy is worrisome to all airlines, the impact of high fuel increases is somewhat less for European airlines because of the strength of the euro.

As well, most E.U. airlines have hedged a large proportion of their anticipated fuel needs for 2008.

As such, the main European international carriers – although continuing to look at ways of reducing cost – have not decided to dramatically reduce capacity as have their U.S. counterparts.

The structure of the world economy has changed considerably since the last financial crisis.

The rapidly growing Asian economies have increased their internal and intra-Asia trade, and are much less dependent on the U.S. economy.

China, India, and other Asian nations, as well as the Middle East, more particularly the Gulf States, are set to continue their expansion aggressively – at least for the time being.

But the outlook remains very much uncertain, with several unanswered questions.

Will the weakening of the U.S. economy cause serious damage to the economy of its trading partners?

Is the full extent of the sub-prime financial crisis now fully known – and contained – in the U.S. as well as elsewhere, given the fact that some of that sub-prime debacle was exported through the international financial network?


Is another bubble about to burst?

The Gulf airlines such as Emirates and Etihad have remained very optimistic in terms of their projected growth, and have not modified or delayed the delivery dates for their fleet acquisitions.

More particularly, Emirates recently stated rather clearly that it intends to continue to take delivery of fifty-eight A380s currently on order.

The Chinese airlines, led by Cathay Pacific, are enjoying participating in the growth of the Asian economy, and thus far have not felt threatened by the so called “slow-down” in international markets.

However, we should expect that there will be further losses and consolidations… in Southeast Asia and India, as a result of the recent proliferation of low cost airlines and the price wars that have resulted from the ensuing excess capacity. This current excess capacity situation is, of course, unsustainable and within the next year or two will lead to a rationalization of the situation.

The consolidation process which has been ongoing in Europe for some time is continuing.

The case of Alitalia would have been settled by now if it had not been become a political football during the last Italian election and temporarily stopped.

I would expect that even Prime Minister Berlusconi cannot escape the inevitable.

Shopping for a buyer for Iberia is continuing, and Lufthansa is now in a position to exercise its right to take control of British Midland International – and its very valuable London Heathrow slots.

In the U.S., we are all too familiar with the regrouping underway.

Delta and Northwest should soon be a “fait-accompli”, although there may still be substantial discontent by the Northwest Pilots which should be resolved as soon as possible if the integration is to be harmonious.

And then there is the question of whether or not United Airlines will be able to merge with Continental, now that getting together with U.S. Airways has proved to be impractical.


And we should not forget that American Airlines is also interested in the right merger.

Of course, size does not guarantee survival. If this had been the case, Eastern Airlines and Pan Am would still be around today.

And there is no doubt that many mergers and acquisitions have not resulted in increased shareholder value – sometimes quite the opposite!

Nevertheless, there have been examples of successful mergers, for instance U.S. Airways. Iin Europe we can point to KLM/Air France, and to Lufthansa/Swiss, both of which have worked out rather well.

With the actual seat occupancy factor for most airlines in the high seventies and low eighties – and many U.S. airlines cutting back capacity – very little room for revenue improvements can be expected from carrying more people on each airplane.

This means that the price of fares in the U.S. will inevitable need to go up significantly, given that all other cost components have been thoroughly reviewed – and reduced – to the extent possible in the last few years.

Elsewhere, the many new aircraft deliveries and increased liberalization are likely to continue to put pressure on yields. The high cost of fuel, however, should encourage the airlines to park or scrap older airplanes, and reduce the excess capacity.

It is somewhat unfortunate that the delivery of the latest types of aircraft being produced by both the major manufacturers – Boeing and Airbus – have been delayed.

They represent a significant improvement in operating cost, and in particular fuel consumption.

Their deployment would have considerably helped airlines to reduce their operating costs.

The fuel consumption per passenger-kilometer achieved by the Airbus A380 represents a significant reduction, but unfortunately the production rate of this new airplane is much lower than originally anticipated, which will prevent deliveries from taking place as planned.

Additionally, the continuing delay, of probably some two years now, for the B787 will prevent airlines from achieving a much better operating cost, and force the continued use of much less efficient, older B767s and Airbus A300s.

The U.S. carriers will continue to face a rather difficult time, given that they have some of the oldest fleets around and, unfortunately, their weak balance sheets are likely to be further battered by the current financial and fuel crises which will severely restrict their ability to modernize their fleets rapidly.

This will also likely prevent the U.S. carriers from taking advantage to the same extent as their European counterparts, of the opportunities arising from the recently implemented U.S.-E.C. air bilateral, which will provide a great deal of flexibility and encourage new services to be launched across the Atlantic.

A vigorous implementation by several carriers of the new Freedoms offered by this bilateral could further stimulate the market, and could act as a counter balance to the current down trend in traffic.

It is well known that new market opportunities always stimulate the market in general and create new growth to the benefit of the economies at both ends of the route.

The main Canadian carriers, WestJet and Air Canada, benefit from relatively newer fleets than their American counterparts, and this should hopefully provide them with a cost advantage when competing trans-border with the American carriers.

Thus with the rather strong Canadian dollar and a more fuel-efficient fleet, the Canadian carriers should be in a position to take advantage of the current difficulties of their American competitors.

Invariably, airlines place large orders for new airplanes when the economy is good and traffic is growing, but unfortunately – and frequently – inevitably delivery of those airplanes takes place when the economy is weak and traffic is decreasing.

We could be facing a similar situation once again.

Over the past two years, an unprecedented number of new airplanes have been ordered, both Boeing and Airbus. Admittedly, many of these were ordered by the so-called “BRIC” economies – Brazil, Russia, India and China – where air traffic has been growing in double digits.

If the current economic crisis – still somewhat focused around North America and the international banks – begins to resolve itself by the end of this year, the airline crisis may equally show signs of resolving itself – barring the fact that a few more carriers will fail and/or consolidate their operation.

However, should the economy worldwide show further deterioration, we would be faced once again with substantial overcapacity over the next couple of years, with the associated dire consequences of price wars and further bankruptcies.

The financing needed to cover this big order of new aircraft is considerable, and one may wonder whether the financial markets are able to respond adequately to this challenge, given the traditional fragility of our industry.

To state the obvious, those airlines which have a solid balance sheet – and good cash flow – will have little difficulty in meeting their financing requirements.

Unfortunately, this is unlikely to be the case for majority of the airlines, which may result in a still greater percentage of airplanes being owned by the leasing companies.

The regional airlines on a worldwide basis will continue to grow, although possibly at a slower pace, but the high price of fuel will also have an impact on their viability.

The current fuel crisis is giving new life to turbo props, which had continued to be out of favor with some consumers who wrongly believed that these airplanes are older generation than the jets.

Bombardier’s Q400 has re-gained some popularity with the consumer, and there are even questions of developing a stretched version.

With the acknowledged inability of both Boeing and Airbus to begin work on an eventual replacement for the A 320 family and the B737 family, the Bombardier C series may find itself in the fortunate position of filling that gap.

Neither Boeing nor Airbus is likely to produce a new single aisle airplane much before 2020, and if the C-series can actually be produced and become operational by 2012-2014 – and assuming it is able to deliver a 15-10% improvement in operating costs, including fuel consumption – it may well become a very popular choice both for the regional carriers and the mainline airlines for the larger 100-135 seat market.

A good part of that cost improvement depends, of course, on the success of the engine being developed by Pratt & Whitney, and on Bombardier gaining from the experience of the two main manufacturers on the increased use of composites for the fuselage and for the wings of that airplane.

Far from having to worry uniquely about fuel cost, security, and air traffic congestion, the airlines still have to contend with their “carbon footprint” and the proposals in different parts of the world, in particular Europe, to charge to compensate for the CO2 being released by aviation.

Biofuels, some believe, may be one of the giant steps the industry needs to take to achieve a significant reduction in CO2 emissions.

Richard Branson is one such believer, and has said that he intends to build plants to produce an environmentally friendly aviation fuel.

His Virgin Fuels subsidiary has formed a partnership with Boeing, GE Aviation, and Virgin Atlantic, to demonstrate the feasibility.

From a practical point of view, this in my view is more for the sake of appearances – to show that something is being done – than for practical results.

Incidentally, scientists calculate that it would take six million square kilometers – an area the size of Europe – to produce enough biofuel to totally replace jet fuel using soybeans.

And recently, the current agricultural crisis has put the spotlight on the disadvantages of crop-generated biofuel, and is likely to force a review of that approach.

Last year at the World Air Transport Forum in Cannes, I suggested that algae were probably the most likely – and least damaging – source of biofuel.

Recent research has shown that algae would do the same job with only 35,000 square kilometers. Not only do they absorb great quantities of carbon dioxide during their lifetime, but they are also a source of energy-rich oil that can be turned into fuel.

I understand the U.S. industry is now focusing more of its attention in this direction.

Fuels, engines, and aircraft are all critical components of the air transport industry in its drive for sustainable development.

All offer good promises in the long term.

In the short term, there are great opportunities for significant reductions in CO2 emissions by streamlining air traffic management.

Three fairly well-defined projects could delivery real results

A Single Sky for Europe

An efficiently coordinated and integrated air traffic control operation for the Pearl River Delta in China

And implementation of the next generation air traffic system in the U.S.

The Single European Sky alone could deliver a 12 million ton reduction in CO2 a year.

But governments are dragging their feet. With strong political will, a Single European Sky could quickly become reality.

Well truly, ladies and gentlemen, this industry has never faced a shortage of challenges – and we are unlikely to experience a dull day any time soon.

But… are we facing a Perfect Storm? And is this likely to be the worst crisis since the great depression, as some have suggested?

Naturally, the U.S. domestic air traffic situation – and the soaring costs of fuel – are good reasons for the U.S. carriers, both legacy and low costs, to be pessimistic.

As for the other markets, in Europe, Asia, and the Middle East, the traffic forecasts remain relatively strong for this summer.

Whatever happens to the U.S. economy in the next few months will be watched very closely, and there will be a temptation to reduce capacity for the Fall as a precautionary measure.

Having survived – with scars to prove it – through four or five major aviation crises to date, I am not prepared to declare this one as the worst!

My first experience goes back to the 1970’s, when the price of oil increased from 2 to 3 USD per barrel to some 12 USD a barrel over a relatively short time.

This caused much pain and adjustment.

But for my money – and without any doubt what-so-ever – the worst crisis I have ever had to face was 9/11.

We came close to a complete collapse of the aviation system as the skies over North America remained silent for some five days, and the economy almost came to a halt.

I was the Head of IATA at the time, and fully engaged in the struggle to get the system re-instated – urging the re-opening of air traffic, implementing security measures, keeping some aviation insurance available, etc.

The intensity, depth, and duration of that 9/11 crisis will hopefully never be matched.

This is not to say that I am unconcerned by the current situation – far from it. It is serious, and the end is certainly not in sight – but I would be tempted to say, as Mark Twain once said coming out of Wagner symphony…

“Perhaps it’s not really as bad as it sounds”.

Thank you!

High Level Summary of Commercial Aviation’s Current Situation

High Level Summary of Commercial Aviation’s Current Situation
Industry Update
February, 2008  >>


In many respects, commercial aviation enjoyed an exceptional year in 2007 with traffic growing worldwide at 7.4%. The region of maximum growth was the Gulf at +18%, followed by Africa and Latin America at +8%, Asia/Pacific at +7.3%, and Europe and North America at around +5.5%.

During 2006 and 2007, some 4,700 airplanes were ordered from Boeing and Airbus which represents a 30% increase on the size of the current fleet. Both manufacturers considered that aircraft ordered achieved a peak in 2007, and they are expecting to have substantially less orders in 2008 and subsequent years.

Despite this exceptional traffic growth, profit was inadequate. The worldwide net profit for international airlines was $5.5 billion, which represents only 1% of revenues

The cost of fuel and continued pressure on yields contributed to the disappointing profit results.

For 2008, IATA forecasts traffic growth to return to a more normal 5%, with net profit coming down to $5 billion. One should remember that historically, the long term growth of traffic worldwide averages 4.5 to 5% per annum.

Both Airbus and Boeing have produced another 20-year forecast which project that the fleet of airplanes of more than 100 seats will grow from 13,500 in 2006 to 28,500 by 2026. As expected, the growth in the number of airplanes by types varies between manufacturers, the main difference being that Boeing forecasts a need for 960 Very Large Airplanes, while Airbus projects 1,700 of those. Boeing forecasts a need for 17,600 single aisle aircraft, and Airbus projects 16,500.

For regional airplanes of 80-110 seats, the current 10-year forecast projects 1800 units. The demand for 50-seat regional jets is expected to virtually disappear, and to greatly diminish for jets in the 70-80 seat range.

The recent deterioration in the economic situation in the U.S. has introduced some uncertainty. The main visible immediate impact is a significant reduction estimated at 40% in the start of new homes, which will increase unemployment and reduce personal consumption including air travel.

This seems to have prompted the more traditional (legacy) U.S. airlines to re-examine the need to downsize their operation and gain efficiencies by mergers. At the present moment, Delta and Northwest are said to be actively engaged in merger discussions, and it would appear that United Airlines and Continental are also beginning to examine whether they could merge. Should that be accomplished, some fleet consolidation would result and that would trickle down as well to the associate regional feeder airlines.

Should consolidation significantly improve the financial strength of the legacy carriers, it would facilitate and hopefully accelerate their fleet renewal. It should be remembered that those carriers have the oldest fleets of any of the major international airlines.

Whether the ongoing economic slowdown in the U.S. will be of relatively short duration or will further deteriorate into a fully fledged recession is still unclear at this time.

Equally unclear is whether this U.S. economic situation will have a significant impact elsewhere in the world. Thus far, despite the fact that Canada sends more than 85% of its exports to the U.S., the impact has not been significant.

Given the huge volume of its exports of consumer goods to North America, China could be the most exposed to a U.S. recession. Other regions of Asia such as the Indian Sub-continent, as well as Russia, and Latin America may not be affected significantly – but it is still too early to draw definitive conclusions.

On the regional aircraft scene, SAS is now replacing its Dash 8 Q400 with the CRJ 700/900 as a result of confidence in the Q400 having been shaken by the recent nose- landing-gear-related accidents. This is somewhat unfortunate for the Dash 8 Q400, which had been selling relatively well, given that turboprops are more fuel-efficient. There is, however, continued customer resistance to turboprops as they still have an image of being older technology by comparison to jets.

Bombardier is trying hard to convince customers that their CRJ 900 NextGen provides a significant increase in customer appeal, and although cosmetic changes have improved the cabin, they may still find it very difficult to compete against Embraer.

Embraer’s wider-body cabin has gained much customer acceptance, particularly the model 195, and the current ratio of sales between Bombardier and Embraer is likely to continue to favor Embraer by 3 to1.

Bombardier has been authorized by its Board of Directors to offer its long-awaited 110-130 seat ‘C Series’ with Pratt & Whitney engines, which should provide the fuel consumption improvement required to make the ‘C Series’ a competitive airplane. First delivery would be in 2013.

To be a winner, the ‘C Series’ must achieve at least 12-15% improvement in operating cost over existing comparable size airplanes from Airbus, Boeing and Embraer.

The new Sukhoi regional jet has yet to fly, but if it meets expectations it could also become a significant competitor in the regional jet arena.

Airbus finally managed a good start with the A380 operation early performance with Singapore Airlines. Airbus has made good use of the production delay by cleaning up the types of problems usually associated with the start of operation of a new airplane type. Singapore reports only one technical problem in three months of operation, which for any new aircraft is an excellent performance. Unfortunately, the production rate will remain very slow for at least another year, as the cabling will continue to be produced manually. However, the A380 operation at this time looks good and I believe it will meet expectations in time as the production accelerates. But unless manufacturing costs of that airplane are significantly reduced, it is doubtful that a break-even point can be reached before 550 to 600 aircraft are sold.

Airbus is most fortunate that the A320 series continues to enjoy great popularity and as such generates a good part of their revenue sources today and for some time to come. A program is underway to further improve the efficiency of the A320 series, in particular to improve the fuel consumption by 1% initially and eventually by as much as 4-5%. This will further boost that airplane’s popularity for some time to come. Airbus will not likely be in a position to develop a successor to the A320 much before the year 2020.

The A340 family has clearly been outclassed by the Boeing 777 family, both the B777-200ER and 300ER, which basically leaves Airbus with the A330 family as its main contender in the medium size twin airplane market.

With the A350 XWB still 4-5 years away, Airbus is today most vulnerable in the large twin market. As the A350 family comes on line, it will then be in a position to compete much more effectively and likely displace some of the B777s, particularly the earlier generation. However, Airbus will then again be vulnerable in the smaller twin market as they will have no answer to the B787 series.

Although the B-787 program is likely to be as much as one year late, Boeing has managed to avoid the bad publicity which Airbus faced on the A380. The delay did not affect sales, with close to 700 B787s already sold despite the fact that the airplane has yet to fly.

Assuming the airplane is successfully launched, Boeing will have achieved a very dominant position in the smaller twin market, virtually holding a monopoly in that niche.

Boeing will be in a better position than Airbus to launch a successor to the B737 series should they wish to do so, as early as the 2016-2017 timeframe.

The new technology engines and composite experience should enable these new replacements to the B737s and the A320 airplanes to achieve at least 20% improvement in operation cost. Of this, reduction in fuel consumption is expected to be a major contributor.

The continuing weakness of the US dollar coupled with the rapid growth in the wealth of corporations and of individuals in Russia, India, China and Latin America will continue to fuel demand for private and corporate jets. In addition to Bombardier, Embraer, Gulfstream, Dassault, etc. – are gearing up to meet this demand. The rapid growth of this market segment represents an important opportunity for the avionics and IFE suppliers. However, they will also contribute to increasing the congestion in air traffic control capacity as well as airports.

Environmental pressures on aviation will continue to increase the demand for more efficient engines and continue to accelerate the search for less polluting types of fuel, some of which are being tested at this moment.

The recent signing of an air bilateral agreement between Europe, Canada and the U.S. could provide an additional boost to the traffic growth over the North Atlantic and will encourage additional liberalization of air markets around the world along the lines of this significant breakthrough in air bilaterals.

Should the world economy not deteriorate as a result of the current U.S. problem and the market takes advantage of this increased freedom, traffic growth could be sustained over the next timeframe at a higher level than is currently forecast.

In conclusion, despite some economic concerns raised by the situation in North America, some of which has spread to Europe, at least to the banking sector, I believe that one should remain reasonably optimistic on the prospects for the growth of commercial aviation over the next timeframe. The areas of healthy growth are likely to remain the Gulf, China, Southeast Asia – particularly India – and Latin America. It is entirely possible that the strength of their economies may this time largely cushion them from the current U.S. economic problems.

Opening address by Pierre Jeanniot, Chairman of the 16th World Air Transport Forum

Flying Green – A Modest Industry Proposal
Opening address by Pierre Jeanniot, Chairman of the 16th World Air Transport Forum
Cannes, 17-19 October 2007  >>


Good afternoon ladies and gentlemen

Je vous souhaite la plus cordiale des bienvenues. A very warm welcome to all of you to the 2007 World Air Transport Forum.

You will no doubt have noticed that we changed the name of this 16th annual industry get-together, but we have not changed the location as we believe it is essential that we continue to hold this historic event in one of the world’s great gastronomical capitals.

This Forum has always attempted to achieve the right balance between the stimulation of the intellect – and the pleasures of the pallet.

With this in mind, we have a great program lined up for you.

We are very impressed, and indeed highly honoured, that our speakers include so many of the leaders of the air transport industry.

Given the theme of the Forum and the potential impact of aviation on global warming, we thought of inviting Al Gore as a key speaker but we found out that one of the “inconvenient truths” about the former US Vice-President is that – even as an environmental advocate – is that he charges $175,000 for a 30-minute address – plus expenses.

In the interests of keeping the attendance fee for this Forum at a reasonable level, we decided to save you the expense.

Perhaps it’s just as well we couldn’t afford Al Gore. He’s not very popular in airline boardrooms these days.

The Emirate Airlines 2006/07 annual report describes An Inconvenient Truth as “regrettably persuasive but fundamentally misleading”.

I’m sure Timothy Clark, the President of Emirates Airline, will have more to say about the “Goring”, if you pardon the expression, of our industry during his presentation on Thursday morning.

Among the many claims made by air transport advocates recently to illustrate the progress made, you will undoubtedly have heard some of the following:

Flying a passenger today over a given distance requires 70% less fuel than it did 40 years ago.

The Stern report says that airlines account for only 1.7% of global greenhouse gas emissions.

No other industry has matched aviation’s achievements, or its investments in quieter and cleaner technology.

While aviation is responsible for less than 2% of greenhouse gas, it contributes 8% to the global GDP.

To rationalize as to why aviation is the undeserved whipping boy of global warming, it has been said that:

Politicians who want to be seen doing something about global warming find that airlines offer a suitable headline-grabbing target.

or

It’s a vendetta – a class war against the middle and upper classes. Those killjoy greens are trying to demonize the air travel and the package-holiday industries.

And then there would be some attempt by the air transport industry to divert attention by pointing a finger at other culprits, for instance by reminding everyone that:

Cows are responsible for 18% of the greenhouse gases that cause global warming, which is more than cars, planes, and all other forms of transport put together.

And computers generate around 2% of CO2 emissions worldwide – about the same as commercial aviation.

Perhaps now Greenpeace, which has criticized “binge travelling”, will go after “binge downloading”, and “binge texting”.

Now, as the debate goes on among the counter-claims made by the lobby groups which are trying to limit air travel, you will likely have heard the following:

The growth rate of air travel will considerably outstrip any improvements the industry could make in fuel efficiency – or traffic management – to bring down emissions.

While no one suggests that other polluters – cars, factories, power plants – are not much more important, aviation is coming under scrutiny because it appears to be growing relatively faster than those other sources.

The impact of air travel on climate change could be even greater than the CO2 figures suggest, because of other emissions such as nitrogen oxides (NOX), soot, and water vapour.

What is reality? What is fiction?

Let me suggest that the answer no longer matters.

For most of us, perception is reality.

Our industry is perceived to be a major polluter – and likely to become an even larger environmental menace in the future.

Whether we’re contributing 2%, 3% or 5% to global warming emissions, our industry is taking a 100% beating for it.

Noise used to be the biggest challenge, especially in communities that developed around airports – perhaps because the land was so affordable.

Technological progress in noise reduction has made it possible to virtually tip-toe a multi-ton aircraft down the runway.

New aircraft are 75% less noisy than the previous generation.

The debate over noise is largely over.

Conversely, the debate over fossil fuel consumption is getting louder all the time.

Unless we deny China and India standards of living approaching ours, forecast rates of fossil fuel consumption will lead to irreversible warming of the earth’s atmosphere – with catastrophic effects on health, food production, desertification, coastal sea levels, etc, etc.

The World Health Organization reports that air pollution deaths now exceed traffic fatalities – by three to one.

One third of the earth’s surface is at risk, as land turns to desert at a rate of about 4,000 square kilometres a year.

The search for non-carbon sources of future energy to replace, or supplement, today’s traditional carbon/based fuels must go on – and it must be accelerated.

I have not seen the film “An Inconvenient Truth”

Nor do I believe it is useful to boast about everything our industry has achieved in the past.

The debate started after most of the progress achieved had already been announced.

The Air Transport Action Group (ATAG) recently created a website aimed at providing responses to environmental criticism against the airline industry.

The website is (quote) “a rebuttal process to respond to every statement made on aviation’s impact on the environment.”

Frankly, I have some doubt that such rebuttal will be very effective.

It may simply be perceived as more industry “green-washing”, so to speak.

It is time to face the fact that we do contribute to global warming, and to demonstrate that we are doing something about it – and that we are actively planning to do more.

The public wants to see action!

In a recent comic strip – I sometimes find the comic strips more informative than the business section – Dogbert “the green consultant” is telling Dilbert to try running his SUV into hybrid cars.

“That should stop them from using fuel altogether”, he says “You can’t save the earth unless you’re willing to make other people sacrifice”.

This Forum is a unique platform for providing all the major players of the air transport industry – airports, air traffic management agencies, airframe and engine manufacturers, distributors and, of course, the airlines – with a collective opportunity to respond to the environmental challenge.

IATA has recently suggested that the industry should have as a target to reach zero emission of greenhouse gasses within the next fifty years.

I am undecided as to whether we should consider this target as very bold – or simply very realistic, since by then we may have run out of fossil fuel anyway.

However, today we still do not have an overall consensus.

Attitudes to the environmental issue among industry executives vary significantly across the globe.

Some recognize it as a critical business issue.

Others dismiss it as irrelevant.

And I would think that credit should go to IATA for pushing climate change to the top of the agenda.

We are honoured to have the Director General of IATA as the first speaker tomorrow, and I am sure he will offer a spirited defence of his aspirational – if not universally inspirational – goal for our industry.

Taxes which disappear into a general fund simply destroy aviation’s economics and social benefits, with no appreciable gain for the environment.

They simply limit the industry’s ability to invest in new technologies.

Very high taxes may somewhat reduce travel demand, but they would also diminish the huge economic benefits that airlines and airports now represent – 8 percent contribution to the global GDP.

More to the point, trying to restrict air travel through taxation just doesn’t work.

Philippe Rochat, President of the Air Transport Action Group (ATAC) will be talking to us about counter-productive eco-taxes on Friday morning.

I am sure we can expect a strong rebuttal.

In free, progressive societies, people cannot be denied the liberty of buying what they want, and of travelling where they wish – whether by car, boar or plane.

If we cannot curb the desire for air travel, can we make it more “environmentally acceptable” – through such palliative measures as emissions trading?

In January, the European Commission (EC) put forth a proposal for emissions trading.

This proposal was, however, rejected by ICAO’s Tri-annual Assembly a few weeks ago.

Undeterred, the E.U. is planning to impose quotas on all flights entering or leaving its airspace from 2012.

U.S. airlines claim that bringing them into such a scheme would violate international law and urge that the industry wait for a global ICAO plan.

Asia-Pacific carriers do not see aircraft emissions as a major issue, and say that the region has many more important challenges.

Some airlines argue that carbon trading, like taxation, is nothing more than a big revenue generator for brokers and governments – with little money left for the environment.

As the Association of European Airlines (AEA) put it (quote) “For us the issue is how green can you be – before turning red?”

Eco-activists perceive trading as some sort of soft option for airlines, perhaps a cunning ruse for avoiding green taxes – and passing the buck to other sectors of the economy.

I believe that emissions trading can make some sense, provided it is open, properly designed, and universally applied.

Carbon trading can only be an interim solution because, eventually, everyone has to reduce carbon emissions.

The right cause is getting rid of CO2.

I will have more to say on that a little later.

I look forward to carbon trading receiving some attention during this Forum.

Much of the discussion will focus on the progress being made – and anticipated to be made – in each sector of the air transport industry in the more foreseeable future.

Everyone is taking the matter seriously.

The A380 and B787 have been said to be more efficient than a hybrid car – but hybrids still emit carbon.

Can these highly significant technological achievements be repeated in the next generation of airframes and power plants?

Not one aerospace manufacturer today would question the relevance of global warming to their long-range technological development, nor would they question the urgency with which the issue needs to be addressed.

Airbus is targeting a 50 percent reduction in CO2 emissions, and a 80% lowering of NOx production for their new aircraft by 2020.

Boeing is working on a “blended wing” concept, which would theoretically offer huge gains in fuel efficiency.

The resulting design for such an airplane would look like a giant stealth fighter.

There are, however, some practical problems with the design.

Passengers would have to sit in long rows of seats – like in a cinema. “And when the aircraft banked to make a turn” writes Air Transport World “people at each end would feel as if they were in a giant roller coaster”.

Last July, Rolls-Royce launched a 95 million pound program to develop (quote) “an Environmentally Friendly Engine”.

The company now claims that even with today’s technology, a 50 percent reduction in fuel burn by 2020 is possible.

Not too long ago, it was targeting only a 10 percent further improvement within the next decade.

Un-ducted fan engines are getting lots of buzz these days as fuel savers – but that is hardly a new breakthrough in technology.

The concept is now again being pursued by GE and Rolls-Royce, but may result in an increase in noise levels which, in turn, may prove to be an unacceptable trade-off.

Many experts believe that there is a point where the benefits of taking incremental steps in fuel efficiency will simply vanish – or result in such unacceptable costs or trade-offs as to make the initial improvement not worthwhile.

How much further can airframe and engine manufacturers go?

Representatives from various airframe and engine manufacturers are here to tell us what they believe is possible.

Biofuels, some believe, may be one of the giant steps the industry needs to take to achieve a significant reduction in CO2 emissions.

Richard Branson is one such believer, and he has said that he intends to build plants to produce an environmentally friendly aviation fuel.

His Virgin Fuels subsidiary has formed a partnership with Boeing, GE Aviation, and Virgin Atlantic.

The partners have plans to carry out a joint biofuel demonstration using a Boeing 747-400 next year.

Biofuel produced from agricultural feedstock that takes CO2 out of the atmosphere is also a likely prospect because its life-cycle CO2 levels are barely half of jet fuel emissions.

It is not quite “carbon neutral” – but half a loaf is better than none.

The main drawback of commercially grown feedstock like soybean, corn, or rapeseed is the very large amount of crop acreage required.

Scientists calculate that it would take 6 million square kilometres – an area the size of Europe – to produce enough biofuel to totally replace jet fuel using soybeans.

Other options include biofuels derived from biomass sources such as sunflowers, saltwater plants, and cow manure.

But the most promising could be algae.

Recent research has shown that algae would do the same job – with only 35,000 square kilometres.

Not only do they absorb great quantities of carbon dioxide during their lifetime, but they are also a source of energy-rich oil that can also be turned into fuel.

Fuels, engines, and aircraft are all critical components of the air transport industry in its drive for sustainable development.

All offer good promises in the long term.

In the short term there are great opportunities for significant reductions in CO2 emissions by streamlining air traffic management.

I couldn’t put it more succinctly than my colleague Giovanni Bisignani who said at the Vancouver IATA meeting (quote) “Cut air traffic inefficiency in half by 2012 and we immediately save 35 million tons of CO2”.

Three fairly well-identified projects could deliver real results: a Single Sky for Europe; an efficiently co-ordinated and integrated air traffic control operation for the Pearl River Delta in China; and the implementation of the next generation air traffic system in the U.S.

The Single European Sky alone could deliver a 12-million ton reduction in CO2.

But governments are dragging their feet.

We have seen a 15-year European circus of talks, talks, and more talks – with no significant results.

A European Single Sky is technically feasible within five years, but would require strong political will and leadership.

European Transport Ministers have now agreed to set up a public-private consortium to fund and carry out research on the project.

The aim is to implement it by 2020.

The Director General of Eurocontrol, Victor Aguado, is one of our speakers and we look to him to shed some light on this complex, most worthwhile and long-awaited project.

I am not going to say very much about the role of airlines and airports in getting our industry to achieve a level of sustainable development.

Although they are the most visible targets, airlines and airports have a lot less control over aviation’s contribution to global warming than they are given credit for!

Acquiring new, fuel-efficient airplanes, and planning routes which provide weather-friendly flight paths and minimize fuel consumption are major areas where airlines have leverage in reducing greenhouse emissions.

Last year, the airlines – working with the various air traffic management authorities – were able to optimise 350 routes, resulting in 6 million tonnes of carbon dioxide savings.

Beyond that, the airlines have been busy implementing a number of incremental saving measures such as starting engines only once clearance is given, reducing weight by using lighter catering equipment, carrying blankets only on long-haul flights and even switching from paper to electronic magazines.

While the proportion of industry emissions over which airports have direct control is very small, many have come up with innovative projects to reduce their carbon footprint.

Dallas-Fort Worth, for example, has captured and treated 5 million pounds of spent aircraft de-icing fuel, and converted all of its bus and shuttle fleet to alternative fuels over the past five years – thus reducing its emissions by some 95 percent.

There is an impressive participation at this Forum of airline CEOs, Director Generals of Airline Associations and of Airport Associations, as well as senior executives of airports. I am sure these distinguished personalities will have much more to say on the subject.

Until some new form of CO2 emission-free propulsion becomes available, we must look for additional ways of stabilizing – if not beginning to reduce – our CO2 footprint, despite having to meet the continued growth in travel demand.

Our ability to reduce CO2 emission by improvements in air traffic control is not negligible – but it is finite.

Renewing our fleets with the latest fuel-efficient aircraft and engines is significant but will only take us so far; and the switch to less damaging biofuel will only produce incremental improvements.

Carbon trading, far from being universally accepted, is at best a short-term expediency – it is certainly not a longer term solution.

The airlines know they need to do more, and several have announced programs to allow passengers to offset emissions by investing in renewable energy.

British Airways, SAS, Lufthansa, KLM, Delta and Air Canada have all joined the contest to determine who has the best eco-credentials, and thus deserving of the title “airline eminence green”

Passenger response so far to carbon offsetting has been rather modest.

Surveys show that travellers seem willing to pay extra for green holidays, at least at first.

But while such programs generated favourable initial interest from passengers, their popularity generally fades for a number of reasons:

Individual companies’ schemes are perceived as being much too small to make a difference, lack credibility, or finance projects of dubious benefit.

One critic has compared these proposals to the medieval practice of the selling of indulgences by the Roman Catholic Church to pardon sinners.

Given this situation, what alternatives do we really have?

I have a modest proposal to help airlines and the flying public to substantially contribute towards offsetting their carbon footprint.

I believe that there is an urgent need for a massive effort to de-carbonize our planet’s atmosphere by storing and/or destroying CO2.

And that the air transport world should exert leadership in bringing about major improvement programs.

Almost all climate experts believe that only large reforestation projects could offer an appreciable reduction in greenhouse gasses.

Let me suggest a major reforestation project which could capture the imagination of our industry and rally the support – and the enthusiasm – of the flying public.

Such a project would need to be large enough for our industry as a whole to make a significant reduction in its carbon footprint. It could become the industry’s main environmental contribution.

The Sahel is the boundary zone in Africa between the Sahara to the north and a more fertile region to the south.

It runs some 5000 kilometres, from the Atlantic Ocean to the Horn of Africa.

It is primarily a region of semi-arid grasslands and thorn savannah.

Major droughts in 1914 and 1968 through 1974 caused large-scale famines when the grazing became unsustainable.

Few regions of the world are more in need – and deserving – of a world-wide project that would be of specific benefit to some of the most disadvantaged countries in the world – Mauritania, Mali, Niger, Chad, and Sudan – among others.

Improving the life of those populations would be of universal benefit to all mankind.

The barren landscape of the Sahel is not much different from the situation faced by the settlers who transformed an area of Israel into a lush and fertile micro-climate.

It is most impressive to see how a forest which they planted a few decades ago – in a previously totally barren land – has indeed transformed the region.

If we were to set ourselves the objective of creating a forest – some 10 kilometres wide, the length of the Sahel – we would, in time, have created a forest of 50,000 square kilometres, or 5 million hectares.

Forests are the world’s largest carbon sink – huge breathing lungs that take in carbon dioxide and replace it with oxygen.

They are the very life of our planet.

Given that one hectare of mature forest removes approximately 400 tons of CO2 per year, our forest could absorb some 2.0 billion tons of CO2 a year.

But even if we were to achieve only 50% of that level of carbon absorption, it would still be a rather impressive contribution!

The greening of the Sahel may seem to you like an overly ambitious project for our industry to undertake.

Some might call it “Eco-excessive”

How feasible is such a project – and what would it cost?

A feasibility study would need to be carried out to determine whether there is enough ground water deep down in the Sahel region which could be pumped up to irrigate the forest

Or whether one would need to contemplate huge desalination plants on the Atlantic Coast and the Red Sea to feed equally huge pipelines across the land.

I would not venture an estimate of what such a project would cost, but instead it would be easier to estimate how much money could be made available.

Let me assume that it was agreed that every air passenger was willing to make an Eco-contribution of 2.0 euros per domestic flight or 8.0 euros per international flight.

With the volume of yearly passenger traffic approaching 1.5 billion, of which the international portion represents approximately one-third, the amount generated annually would be

(2.0)(1.0 billion) + (8.0)(0.5B) = 6 billion euros

And that is without counting in any contribution from corporate and private aircraft, which surely should also be made to contribute.

An agreement would have to be reached with each Sahel country to allow a strip of land 10 kilometres wide to be set aside on their northern border for forest planting.

The sovereignty of those countries over that land would naturally remain strictly unaltered, but each would agree to treat that area as a protected region – like a national park.

What body should be asked – or created – to administer such a project?

The U.N. is too bureaucratic and politicised to be an efficient instrument to manage these types of projects.

But perhaps a U.N. Agency, or an affiliate such as ICAO, could assist in setting up the kind of international agreement which should exist with each country of the Sahel.

Should the air transport industry wish to move ahead on this or any other global environmental project, it would be my recommendation that a new, not-for-profit, non-governmental organisation be set up to administer it.

This new NGO would be guided by Board of Directors representing all the key stakeholders of our industry, which would ensure full accountability and transparency.

And this Forum could be an appropriate occasion for the new NGO to report annually its progress and plans.

While this is not the time to expand further on this proposal, I simply wanted to illustrate that – working together – this industry and its travelling public, through quite modest contributions, could make available vast sums of money to finance global environmental projects.

Ladies and gentlemen, whether or not we are close to achieving a global consensus on the amount and impact of CO2 on global warming, the concerns over the environment have most certainly been accelerating.

Projects to harness and develop less polluting sources of energy have been multiplying everywhere.

This proposal for a huge, aviation-financed forest is based on the belief that the best way to offset carbon emission is to use nature itself.

Re-planting a forest could be done anywhere in the world – anywhere where an opportunity would make sense and climatic benefits could be gained.

My suggestion of the Sahel would have the obvious, additional impact of providing substantial benefits to the local population.

The central fact about global climate change is that every individual on Earth is in some way part of the problem.

The corollary is that everyone on Earth has to be, in some way, part of the solution.

Ladies and gentlemen, our industry is being accused of not doing its fair share in addressing the foremost challenge of the 21st century.

I look forward to this Forum to demonstrate that our industry has a deep concern for the environment, and that it is indeed actively engaged in doing more than its fair share.

The history of this industry has shown that it has met very successfully the many challenges it had to face in the past.

I expect our response to this environmental challenge to be no less successful.

Using nature as an ally to absorb CO2 in sufficient quantities such that we would totally offset our future emission seems to me, at least, a great deal more feasible – and more manageable- than deciding to send a man to the moon before we even knew if it was technically feasible.

So, why not re-forest the Sahel?

Thank you!

Keynote address by Pierre Jeanniot to the World Airline Entertainment Association 28th Annual Conference

Coffee, Tea or IFE – In-flight Service in the New Age
Keynote address by Pierre Jeanniot to the World Airline Entertainment Association 28th Annual Conference
Toronto, 17 September 2007  >>


Ladies and gentlemen,

Last night’s reception was – if indeed you enjoyed it as much as I did – a good illustration of what your Association stands for, “great entertainment”!

I’m going this morning to address the subject of in-flight entertainment from the perspective of an airline CEO.

It’s a role that I played for close to seven years, which is not a bad record compared to the revolving door game that has prevailed for airline CEOs in the past decade or more.

In my more recent past role as Director General of IATA, I had a Board which consisted of some thirty airline CEOs – and given the turmoil that was on-going in our industry I often found myself acting in the role of “father confessor” to my colleagues.

I can say one thing with some certainty. In-flight entertainment was not the most important thing on their mind.

In recent years, CEOs have been far too busy trying to ensure the very survival of their airlines to worry about what’s playing back in the cabin.

They’ve been focused on cost reduction, on safety and security, on simplified passenger handling, on fleet renewal, airport and airways congestion, and on a subject of critical importance in this new century – the question of air transport’s impact on the environment.

By and large, their efforts have paid off.

Globally the international airline community almost broke even last year, and is expected to make a combined net profit of about $5 billion this year.

But before we start to “pop the champagne”… we should remember that this is only a net margin of just 1% – still far below its cost of capital of 7% to 8%.

Although airline survivability has much improved, all those cost reduction and productivity improvement measures have taken their toll on the customer.

One should guard against becoming a “cost reduction fundamentalist”.

The National Post reported last December that, after calculating that it took a litre of fuel to flush the toilet at 30,000 feet, one of the Chinese airlines urged its passengers to go to the bathroom before boarding.

Advances in baggage tagging angered one lady who was travelling to Fresno, California, and noticed the word FAT – the code for Fresno Air Terminal – had been printed on her luggage claim ticket.

As she was a bit overweight, she took it personally and thought it was quite insensitive of the airline to point it out on her baggage tag!

Funny stories aside, despite the financial recovery, many carriers are still delivering less than acceptable customer service – ranging from more late departures, minimalist cabin comfort, to too many misplaced bags.

One of the causes, of course, is the continued downward pressure on yields.

To get close to break-even, load factors reached a record 76% for the totality of the world’s airlines last year.

In North America it crept above 80%.


The air transport cycle may be in high gear once again, but the strength of this industry is certainly not reflected equally in all regions.

Passenger demand is strong, but cargo remains sluggish.

The Asia Pacific sector generally is booming.

Europe is doing relatively well, and the U.S. industry is finally recovering – but thorny problems remain to be solved in Africa and other areas of the world.

Incidentally, it was reassuring to read in the April issue of Fortune magazine that its listing of Fortune 500 companies still included seven U.S. airlines.

Despite its many challenges, the airline world remains surprisingly vibrant, and substantial progress has been made in many areas.

Carriers have reinvented themselves to survive. But the evolution of this industry into a hardier species is far from complete.

Weaknesses remain: pricey oil threatens, and cost cutting will continue.

Heavy investments are still required in North America, particularly where fleets are only beginning their renewal.

Market forces are hampered by liberalization moving too slowly.

Regulation remains excessive in some areas – and insufficient in others.

In various parts of the world, congested terminals and airways are choking growth.

Safety and security are still issues.

And concerns for the environment are once again threatening to outpace our ability to deal with its contingencies.

Nevertheless, after many years of virtually stagnant cabin innovation, carriers have more recently begun to pour millions of dollars into improving their cabin product and, in the process, to elevate first and business class to new heights – while reducing the back end of the airplane to a flying merchandise mart.

It’s a calculated risk. IFE alone has become the most expensive item on an aircraft, just after the engines.

Part of the calculation focuses on how much an average business-class customer is worth to the carrier, and whether he or she would stay loyal if the product remained the same while the competitor’s product changed.

One airline marketing guru was heard saying “My experience has been that by the time we had done the surveys and figured this out, the customer was gone and it was too late”.

I understand that this marketing guru is now looking for a new job.

Although it may be hard to pin down an exact ROI (return on investment), investing in a premium service is simply mandatory for any carriers committed to remain a credible player in that market segment.

British Airways’ CEO Willie Walsh, for instance, makes no secret that “our premium product is the most profitable part of BA’s business today.”

First and business class now represent 20% of the airline’s capacity – and it is growing.

Indeed, I would add it is the only sector of the business where legacy carriers like B.A. can be truly competitive.

When I started at Air Canada, in-flight entertainment was a selection of dog-eared magazines of the kind commonly found in a dentist’s waiting room.

In the seventies, movies were shown by means of a reel-to-reel projector set up at the back of the cabin.

By the time I became CEO in the early 80’s, technological advances had brought the video cassette player, but passengers were still forced to stretch their necks to view a shared screen.

Now Air Canada is billing itself as the first airline in the world to adopt a
digital personal entertainment system throughout its entire fleet, including its regional jets – an industry first!

They are planning to offer on-demand movies, television, music, and interactive games to all classes of passengers.

I’m not sure Air Canada has jumped the queue here, since everyone else seems to be making announcements about their latest investments in IFE.

In very short order IFE has become a 2 billion dollar business.

This Conference which brings together an estimated 1,100 members of your Association, representing some 100 airlines as well as 260 suppliers and related companies, is a measure of the increasing importance of this vital aspect of our industry.

In the interests of full disclosure, I must confess that this is one of the reasons I was very pleased to accept this speaking engagement.

The other reason, of course, is that one of my part-time occupations is that of Chairman of the Board of THALES Canada.

And as you know, THALES – our parent company – is one of the two major suppliers of IFE systems, each with a large share of the market.

That’s the end of my commercial!


In the bad old days of highly regulated air transport, when IATA conferences decided how many cashews a carrier could offer its first class passengers, and seat pitch had to conform to a universal standard, product differentiation as such did not exist.

Today IFE and the whole cabin environment have become a driving forces of airline business success.

The cabin environment offers the most significant opportunity for any airline to be different, and in the front of the bus price is no longer the only consideration.

In the last few years, many airlines have made huge investments of effort and money to differentiate their in-flight product.

For first-class passengers, Gulf Air offers “Sky Chefs” on all its A330 and A340 flights.

There Chefs, trained at top hotels, meet privately with each passenger to discuss the menu and service options, and then personally prepare and serve the meals.

British Airways overcomes cabin limitations altogether by serving gourmet meals to their first-class customers in high quality airport restaurants before some evening flights.

Aboard, private flat beds are nearly two metres long, and upon arrival the lounge has showers and massage facilities.

Qatar Airways has a first-class lounge with a stand-up bar and leather sofas on its new A340-600s.

Lufthansa pampers first-class passengers with their own terminal at Frankfurt airport, with connecting private jet service to airports in Europe, Israel, and Russia.

Virgin Atlantic’s “Upper Class”, sold at business class prices, includes limo transfers, in-flight massages, and flat beds.

Those of you familiar with the earlier days of aviation will be reminded that flat beds in airplanes are nothing new.

American Airlines had flat-bed sleepers on its New York to Los Angeles service in 1935.

So did the giant flying boats, as they flew just a few hundred feet above the stormy sea. I really wonder if anyone got any sleep.

Many carriers have opted for a business class product that offers slightly shorter flat beds than in first class. They are reluctant to go flat out in business class because they would lose a row of seats. Also, this keeps an important element of product differentiation between Business and First.

They compensate with electronic controls, and instead of live in-flight massages, cushions that can be inflated and deflated to suit body shape or to rhythmically exert pressure on the head, neck, and body.

Virgin Atlantic compensates for the extra weight caused by beds, stand-up bars, bulky furniture, TVs, and stereos fitted out in premium cabins by chosing to reduce its cargo capacity.

Virgin boss Sir Richard Branson is unwilling to cut out any luxury item for fear of making the option less attractive, and putting off high-paying passengers.

SIA is confident that its “truly flat bed”, all the seats facing forward, and direct access to the aisle, as well as its 30-inch wide business class seat – thus far unmatched in the industry – will command a substantial 15-20% fare increase.

Air France as well, so I understand, will be seeking an extra premium for its high-end products.

You may be interested to know that Air Canada originated business class service across the Atlantic in 1983.

Called “Connaisseur” service it was my pet project – which unfortunately turned into a bit of a dog in its first year.

The cabin crew could not cope with a three-level service, and it became known as “Dinosaur” service among some passengers.

But we remained undeterred, learned a lot, and re-launched it a year later as “Executive Class” with its proper cabin and dedicated flight attendants, and it quickly gained market share on the U.K. and France.

It later won Air Canada the Air Transport World award for the best customer service on the North Atlantic in 1985.

Another innovation I personally championed was the introduction of non-smoking flights – a product differentiation much opposed by my marketing people. Not surprisingly, most of them smoked! We began with alternate flights on the Montréal-Toronto Rapidair service thus offering about 14 non-smoking flights per day each way.

My marketing group finally saw the light when Air Canada gained a 5% market share on Montréal-Toronto against Canadian Pacific who, in contrast, had refused to go non-smoking.

Looking to gain from the positive public reaction to our results, the government then mandated non-smoking on all domestic flights under 90 minutes. Later, the ban was progressively expanded to cover all flights including, eventually, the international sector.

Today, ironically enough, this particular product differentiation has gone the other way.

A German entrepreneur has leased three Boeing 747s that will offer 138 business class passengers a nicotine-friendly, all-smoking service – with free Cuban cigars – on flights between his hometown of Düsseldorf and Tokyo.

He calls the airline Smintair, or Smoker’s International Airways.

A journalist called it “Air Ashtray”.

The ultimate business-class product differentiation is the all-business-class flight, such as offered for several years now by PrivatAir-Lufthansa between Düsseldorf and Newark.

Two years ago, a new, so-called “boutique” carrier, Eos, began offering all-business class, “super-luxury” flights between Stanstead and JFK on Boeing 757-200s.

The aircraft, which could seat as many as 220 passengers, are outfitted with only 48 “pod suites” that allow each passenger 21 square feet of real estate and leather seats that unfold to six-feet, six-inch flat beds.

Amenities include cashmere blankets.

With the growth in demand, the service is now twice daily.

Another all-business boutique carrier to surface recently is MAXjet Airways which flies 767-200 ERs almost daily between Stanstead, New York and Washington, and twice a week to Las Vegas.

Prompted by EOS, MAXjet and recent new entry Silverjet, British Airways is considering all-business-class flights on routes between the U.S. and continental Europe, probably using 757s and 767s it already owns.

What all this seems to indicate is that there’s a sizeable market out there of airline customers who want more comfort and quality, and who are willing to pay for it.

They’re the same people who pay 40 to 70 thousand dollars for a quality car.

At the other end of the market spectrum, low-cost carriers are opting for ever more Spartan cabin interiors in their search for new ways to cut costs and keep fares low.

Ryanair, for example, chooses seats and carpets for their quick-cleaning capabilities.

So much so, in fact, that the carrier now stores passenger lifejackets in the overhead bins to make it easier to clean under the seats, and has also dispensed with seat-back pockets.

Besides an austere cost structure that makes Southwest look extravagant, Ryanair also puts a price on virtually everything – amenities and essentials alike – from peanuts and beverages, to baggage check-in and, eventually, cell-phone use.

The airline has entered into partnership with an online gaming company to enable passengers to play bingo and “instant-win” games on their mobile phones, taking a cut off each wager.

They’ll probably install slot machines in the back of their pocket-less seats!

Revenues from the sale of in-flight services are rising so rapidly that Ryanair promises that by the end of the decade, “more than half its passengers will fly free.”

I call this low-end strategy “the Las Vegas model”: Fly free, get free accommodation – just bring lots of money for gambling.

One cannot help wondering if lower fares are not somewhat of an illusion when you have to pay extra for meals, blankets and pillows, headphones, roomier aisle and exit row seats, reservations made by phone, and so on.

For $5 per round trip Air Troduction, launched last year, will allow you to upgrade your seatmate.

It works like this: You buy your ticket, then go to Air Troduction, log in and create a profile. You can post a photo just as you would on a computer dating service. Then you’re asked to describe the kind of person you would like to sit next to.

If two people on the same flight like each other, they can meet at the airport and book seats next to each other.

To differentiate themselves from those “pay-for-everything” low cost carriers, some airlines have decided to re-introduce a few modest amenities in economy, as well by creating a premium economy class.

The new class offers wider seats, extra leg room, improved meals and beverage service, personal entertainment, computer outlets, separate washrooms, and even a separate cabin, for a price about 25% more than economy.

Other carriers, both traditional and low-cost, have added value to their economy product by retaining amenities or introducing new ones without extra charge.

Economy passengers on Cathay Pacific, named best airline of 2006 by Air Transport World magazine, get a hot meal and beverage service even on one-hour flights.

Gulf Air has trained nannies to look after children in economy class on long-haul flights – at no extra charge to passengers seated nearby!

Jet Blue and WestJet now have live satellite TV sets in the back of every seat.

Qantas Airways offers personal, on-demand video screens in all classes. And last year at this Conference, you may recall that Qantas and Jet Airways, the largest Indian private airline, won the Annual Aviation Award for Best Overall IFE.

Jet Airways has no intention of resting on its laurels, and with the objective of capturing a commanding share of the Indian international traffic, Jet Airways is now introducing on all its wide-body fleet a new cabin environment which will be hard to match and unlikely to be surpassed in all three classes.


The aircraft manufacturers have not been insensitive to travellers’ expectations of increased quality.

The Boeing 787 Dreamliner with its larger windows, roomier storage bins, and better in-flight air quality, will offer passengers significant improvements in airplane comfort, according to the manufacturer.

Not to be left behind, Airbus totally revamped its A350 strategy by opting for a completely new $10 billion design, with a wider fuselage and improved cabin comfort.

New seats, more amenities, improved meals, and bigger bins are not the only way to product differentiation.

Any truly customer-oriented airline would recognize the fact that for air travel in the digital age, the cabin is the only place left where the airline has a truly human face – where customers can actually “interact” with live human beings.

Before they became “flight attendants”, stewardesses were chosen for – among other criteria – their beauty, charm, and helpfulness.

They actually helped stow your carry-on bag, fetched a magazine, and tucked a blanket around you before reciting that famous in-flight mantra “Chicken or fish? Chicken or fish?”

In my years with the airline, I had to deal with a persistent rumour that Air Canada actually owned a chicken farm!

In-flight entertainment in those days was live, rather than virtual.

A steward on Air Canada’s first class service to Los Angeles liked to amuse his passengers by flambéing the baked Alaska – until someone pointed out the fire hazard.

The airline’s first 747s had an upper deck lounge with a dance floor and flight attendant hostesses in long skirts.

It didn’t last long: wives started to complain that this was one amenity too many.

Air Jamaica, on whose board I served for a while, went one better – with in-flight fashion shows.

At some point during the flight, their stunning stewardesses would disappear into the washrooms and emerge wearing beachwear in which they paraded up and down the aisle, and then offered for sale through the in-flight boutique.

Today, WestJet produces a book of jokes for the flight attendants to use over the intercom titled Just Plane Fun. Oh well, to each his own!

There’s a new form of live entertainment coming which I do hope will not be part of IFE in the future – listening to your seatmate’s cell phone conversation.

Europe has been leading the charge on the use of airborne cell phones, and last June Airbus won approval from European regulatory agencies for its on-board system.

Air France will be the first carrier to introduce the service on its Airbus A318s.

According to a recent survey, many carriers plan to offer mobile phone “connectivity” on a gradual, regional basis within three years.

For instance Ryanair, Emirates, and others are going for fleet-wide installation as quickly as possible.

The AirCell system being developed in the U.S. will offer voice calls only in its second stage.

Initially the service will include a WiFi hot spot, allowing passengers to surf the Internet and use e-mail via their own laptops and personal digital assistants.

British Airways believes a texting service is likely to be the way forward, even though the eleven carriers offering “Connexion” Internet access a system similar to Air Cell had to write off a considerable investment when Boeing (CBB) withdrew the service for lack of demand in August 2006.

Texting rather than voice calls also gets around the annoyance factor, although airlines believe phone use etiquette will be of a higher standard than is common in restaurants supermarkets and other public places.

That won’t be very hard.

Efforts are continuing to reduce ambient noise in the cabin. For instance, I understand that Lufthansa Technik is looking at submarine stealth technology to slash cabin noise in future commercial aircraft.

At any rate, passengers wearing headsets will probably be engrossed in watching an on-demand unedited version of movies like Oceans 13 – a somewhat riskier offering than the family-friendly flicks which were a must for the large screens of the past.

Or they could be brushing up on their Mandarin with some interactive language lessons, checking destination information, or just watching live TV for regional news and current events.

Once available only on a few North American low-costs, live television has started to extend its reach around the globe.

Qatar Airways, India’s Kingfisher Airline, and Australia’s Virgin Blue are three carriers phasing it in this year.

While many airlines now offer seat-back, on-demand, digital entertainment systems, some are working with passengers’ private hardware to offer individualized information and entertainment.

In fact, this combination of personal electronic devices like PDAs laptops and iPods, working in concert with an airline-provided broadband delivery system, is a likely model of IFE in the future.

Discussions have been held on the possibility of licensing content for use on the airlines’ own systems, and allowing passengers to purchase and download it on their personal electronic devices in-flight.

Nobody is exactly sure what the longer term effect will be of passengers bringing iPods and portable DVDs aboard.

But it is highly unlikely that any recently-installed, sophisticated airline entertainment systems would be made redundant anytime soon.

The demographics of today’s passengers are against it.

However the holy grail of every passenger carrying his or her own device for in-flight entertainment is on the horizon.

Technology is certainly becoming available to meet whatever passengers and airlines expect from their IFE systems today and in the near future.

For instance, the Thales Top Series entertainment system selected so far by Air France, Malaysian Airlines, Etihad Airways, and 35 others will allow passengers not only to select what content they want when they want it. It will also allow them to send and receive short messages (SMS) and e-mail browse the Internet, access corporate intranets, play games, and shop on-line – all from their seat-back units.

Sorry, this sounds like I sneaked in another commercial!

Should passengers wish to use their own laptops or other personal electronic devices, in-seat power and connectivity will enable them to do so.

Live television, mobile phones, and other off-aircraft communications will be progressively available through high-bandwidth territorial and satellite communication systems.

Airlines can choose from a range of user interfaces including touch screens, built-in handsets, portable handsets connected via a USB port and, in due course, a laser-projected keyboard.

The possibility of going wireless when required to reduce weight complexity and maintenance has also been tested and considered feasible.

Some new systems are being engineered with an eye to the future.

Modular architecture allows new technologies and equipment to be introduced on a plug-and-play basis, while processing power and data storage capacity can be upgraded as evolving technology permits.

One of the features proposed, for instance, allows passengers to some extent to tailor their programming to their personal preferences at the beginning of a flight.

This opens the door to a whole new world of in-flight merchandising and revenue-earning possibilities.

But airlines so far have not earned significant direct revenue from in-flight entertainment.

And legacy airlines have invested in it mostly for competitive advantage, particularly on long flights.

Typical of those is Virgin Atlantic, who believes that “It is the mindset of passengers not to pay for audio/video on a long-haul flight. IFE is regarded as a necessity.”

Its low cost cousin, however, has a different approach. Virgin Blue charges from $5 to $9 for viewing live television gate-to-gate, depending on the length of the flight.

I guess it’s a question of “horses for courses”.

Some investment is recouped from advertising but, there again, this has not traditionally been seen as a big revenue generator by the airlines.

Most advertising revenue still comes from in-flight magazines.

However, the more sophisticated interactive IFE systems will allow for whole new forms of service and advertising.

Passengers on board can for example view a car rental site and fill out their requirements and credit card information which is sent via satellite to the car rental company, so that a vehicle is waiting for them when they land.

No doubt more efforts will be made to personalize the offer on the basis that airline passengers are more likely to respond to sales pitches that are relevant to them personally.

Certainly “monetizing the cabin” through IFE, to mention one of the increasingly used expressions, has become a hot topic.

When IFE systems begin to represent such a significant percentage of an airplane’s cost, they’d better do a helluva job of differentiating the high-end product – and on generating revenues in the low end.

Many legacy carriers are staking their future on the premium market.

IFE will be very much part of the harmonious integration of product elements – cabin design, comfort, meals, amenities and personal contact – that make the difference at the high end.

Passengers at the low end have come to accept that to benefit from very low fares, they are having to pay for what we used to consider as basic amenities like comfortable seats, some food and drink, and perhaps – on long flights -blankets and pillows.

Now they will also have the opportunity to pay for a whole new range of comforting electronic pastimes and shopping opportunities they can no longer leave home without.

In this new electronic age ladies and gentlemen, when air travel has become a paperless and largely peopleless experience, practically the only place left where an airline can distinguish itself from its competitors is in-flight.

The range of cabin products offered has never been wider, from super first class and business-only flights to, at the low end, pay-for-everything except the flight.

Such product differentiation needs offer IFE suppliers an equally wide array of opportunities to work with airlines in designing the unique product each carrier wants to be known for.

Not only is it feasible to adapt the technology to meet the needs and expectations of their customers today but also, as other marketers have always done, in developing new applications that airline customers never knew they needed.

My friend Bob Crandall, long-serving former CEO of American Airlines, once said that cutting the grass at the airport was more profitable than the airline business.

Perhaps Ryanair, with its dream of total “monitization of the cabin”, has found the ultimate solution to airline economics.

As a fifty-year veteran of this business, it would sadden me just a little – given the historical importance of air transportation to the economic and social development of the community of nations – to think that one day the ancillary products of air travel would become more valuable than the journey itself.

Ladies and gentlemen, IFE has come a long way from the days of dog-eared magazines and hard-to-see movie screens, thanks to the talent and vision of people like you.

There are great opportunities ahead – opportunities for you to devise new ways of meeting the evolving needs of the flying public – and new opportunities to contribute to the bottom line of the airlines and, in the process, to the bottom line of your own companies.

Thank you.

Address to the Royal Aeronautical Society

Straighten Up and Fly Right: Life in the Corporate Cockpit
Address to the Royal Aeronautical Society
Montreal, November 28, 2006  >>


Ladies and gentlemen:

It’s a great honour to have been invited by the Royal Aeronautical Society to deliver the third annual Assad Kotaite Lecture.

Yours is the only organization in the world that is totally multi-disciplinary, and attempts to represent the entire aerospace community and the countless daring and determined men and women who, over the last century, have allowed us to leap the boundaries of time and distance.

The British have always been at the forefront of civil aviation. Think of the sturdy Viscount, the pioneering Comet, and the magnificent Concorde.

One has to be impressed that the Royal Aeronautical Society was founded in 1866 – some fifty years before the airplane was even invented. That’s what I call foresight!


Impressive speakers have preceded me at this podium.

Last year’s lecturer, Jeffrey Shane, the US Undersecretary of Transportation, is regarded as the “father of open skies”, a champion of air transportation liberalization, and a man I much admire.

I much admire, as well, the man who given his name to this lecture, Dr. Assad Kotaite, for so many years President of the Council of the International Civil Aviation Organization.

Dr. Kotaite’s career in air transportation even predates the first jet airliner flight. Over the past 50 years he has witnessed, and often played a role, in the major developments of our industry.

From the emerging of economy class, the development of tourist fares, and the growing importance of intercontinental services in the ’50s and ’60s;

To the ’70s, which saw the introduction of high-capacity, wide-body aircraft, the widespread use of computerized reservation systems, and US domestic deregulation;

And then the beginning of European liberalization in the ’80s, with the first “liberal” bilateral between the Netherlands and the UK;

And in the ’90s, the first US “open skies” bilateral, the European Community liberalization process, and airline use of E-commerce technology from 1995 onwards;

And finally to the new millennium, with its economic crises, new terrorist threats, and escalating concerns about the environment.


I am fond of saying that two major events happened in Montreal in 1976. Both have had a lasting impact.

One was Dr. Kotaite’s election to the presidency of ICAO, to which his many contributions deserve a gold medal.

The other event of lasting impact was the opening of the Olympic Stadium, whose construction cost Montreal taxpayers have been paying for last 30 years.


One of my ambitious – not always achieved, unfortunately – is to finish speaking before you finish listening!

So let me give it a try!


About a month ago, I was on the French Riviera to address the 15th Cannes Airlines Forum.

This is an annual gathering of air transport executives from around the world, who come to listen to people like me for something to do between great meals.

I concluded my remarks by expressing the hope that the airline industry would continue to make progress towards becoming a truly global industry, unfettered by unnecessary protection and regulation, appropriately rewarding its employees, and annually distributing profits to shareholders. An industry like any other.

Although I believe this is essentially the right objective, I do wonder whether this industry will ever be fully, and totally, like any other – or whether this is even desirable.

Air transport provides vital economic benefits.

It’s the only worldwide transportation network – which makes it rather essential for global business and tourism.

Some 40 percent, by value, of interregional exports travel by air – as well as more than two billion passengers annually.

Some 25 percent of all companies’ sales are dependent on air transport.

Air transport’s global economic impact – direct, indirect, induced, and catalytic – is estimated at almost 3,000 billion dollars (US), equivalent to eight percent of the world Gross Domestic Product.

Air transport provides significant social benefits. It improves quality of life by broadening people’s leisure and cultural experiences, and by providing an affordable means to visit distant friends and relatives.

It facilitates the delivery of emergency and humanitarian relief anywhere on earth.

And it does all of this as a highly efficient user of resources and infrastructure.

At 78 passenger-miles per gallon (US), aircraft like the new A380 and B787 exceed the fuel efficiency of any modern compact car on the market.

Even in the country of my friend Jeffrey Shane – good republican and free-enterpriser – the concept of a strategic industry implies government oversight, and occasional intervention to prevent foreign participation.

Perhaps the right, or best policy, is a pragmatic approach.

Our late and dear Prime Minister, the Right Honourable Pierre Elliott Trudeau, was fond of saying that he didn’t believe in “isms” – only in what worked. However, he didn’t always govern by that belief.

Whatever one’s views, aviation leaves no one indifferent.

There’s something magical about flying about defying the laws of gravity. It still fascinates most of us.

The caped and flying heroes of our youth still sell in comic books for kids, and in movies for adults. There is another Superman sequel coming out soon.

But perhaps driven by romanticism, it is rather obvious that not too much serious thought has been given by the founders of some of the new start-up airlines, given how few survived.

I wonder if the founder of Kiwi Airlines deliberately named their airline after a bird that can’t fly. That airline didn’t last very long!


Wanting to be an industry like any other, but in some ways – and sometimes for good reason – being unable to be so, is one of the many paradoxes and ambiguities of airline management.

Many of the world’s airlines have been privatized and are now largely driven by market demand.

Railroads, with which airlines compete, have their infrastructures, tracks and stations heavily subsidized by government, whereas the airlines fully fund – and in some cases. over-fund – their infrastructures.

I was the first to be critical, some ten years ago, of the excessive and costly investments being made by one airport in Toronto – the one named after a Canadian Prime Minister.

Aircraft manufacturers, subsidized by government loans and guaranties, charge anywhere from 50 million to 300 million dollars (US) for today’s new aircraft.

Fuel has gone from 12 dollars a barrel in the mid-1970s to 60 dollars a barrel today.

Yet airfares have gone down by 40 percent in real, inflation-adjusted terms since the mid-’70s.

You can still fly to Europe for 600 dollars. Yet consumers expect cheaper and cheaper fares.

The answer, of course, is that airlines have countered higher aircraft, fuel and other operating costs with improved efficiency through lower distribution costs, higher break-even load factors, greater aircraft utilization, outsourcing and extensive network restructuring including alliances.


Air transportation is not a luxury, any more than a television or a telephone would be. It is a vital part of our economy and social structure.

Yet it continues to be taxed and penalized by government as if it were a luxury, or a “sin” like alcohol and tobacco.

Some governments want to use extra fees paid by departing air travellers to provide extra aid to developing countries. Very commendable – but why single out air transportation?

Ronald Regan once described the motto of the transportation regulators to be “If it moves, tax it; if it moves fast, regulate it; if it stops, subsidize it.”

Such paradoxes and ambiguities add considerably to the complexities of airline management.

The list of challenges is virtually endless.

Besides its sensitivity to fuel prices, the cost of new equipment makes it highly capital intensive, with long commitment lead times.

The airline business is highly, and almost instantly sensitive, as well, to economic cycles – and to drops in discretionary income.

Airlines are highly affected by political instability, civil unrest, wars, epidemics, earthquakes and tsunamis – all of which occur with regular unpredictability!


There are some early signs of a slight industry slowdown, at least in the U.S. market, and it seems that the latest cycle of boom and bust may have come full circle.

Regardless – and although it is hazardous to make any prediction, particularly where the future is concerned – I believe the airline industry as a whole is moving towards a new equilibrium.

In most regions of the globe, the industry is shaking itself out into a more diversified and more stable model.

Traditional airlines, trimmed into profitability, are still very much alive – whether in India, in the Middle East, in Europe, in Latin America and even in Canada.

The jury is still out in the United States.

Low-costs are occupying a lot of space, but they aren’t taking over the whole industry.

Full-fare full-service is back in vogue, and the customer once again is king.

Last year’s loss, at 3.2 billion dollars, was somewhat less than expected, and according to IATA the industry is now targeted to lose only 1.7 billion dollars this year.

The industry could even make as much as 1.9 billion dollars in 2007 – an amount that would imply a return on capital of less than one percent, which is far below the eight to ten percent necessary to reward investors.

Much will depend, of course, on what impact the continuing conflict in the Middle East – and the manipulation of some disenchanted Muslim youths by terrorist leaders – will have on the price of oil, and on renewed market demand for air travel.

Although improving in total, the financial health of the industry still differs substantially by region and by type of airline.

The Asia/Pacific numbers are staggering.

Over the last five years, China’s airlines flew record numbers of passengers and cargo, and earned over a billion dollars.

The country’s booming aviation sector is expected to see air traffic double in the next five years.

India’s liberalized air transport market is now, with that of China, the brightest prospect in the global aviation arena.

Its domestic market is expected to grow as much as 25 percent annually over the next five years.

Full-service airlines such as Jet Airways, and now Kingfisher, are raising the bar on quality.

Low-costs like Air Sahara, Air Deccan, Spice Jet and IndiGo are major contributors to the sector’s explosive growth and prosperity.

Even traditional Air India and Indian Airlines are transforming themselves into potential money-makers.

A new star in the skies of Asia is Indonesia, which has become the region’s most dynamic domestic market.

Traffic growth has been spectacular, from six million domestic passengers in 1998 to an expected thirty million this year.

This giant nation of islands is custom-designed for air travel.

The picture we see emerging in the Middle East is one of three full-service, extra-long-haul carriers – Emirates, Etihad and Qatar Airways – offering access to a wide array of destinations worldwide from their competing hubs of Dubai, Abu Dhabi and Doha.

Airlines such as Royal Jordanian, Middle East and Gulf Air will occupy a second tier of restructured, partially privatized and increasingly profitable legacy carriers.

A third group will be the Middle East low-costs, offering discounted, point-to-point services within the region.

In many ways, the Middle East picture contains many elements of the evolving aviation landscape worldwide.

The European experience is proving that restructuring, consolidation and alliances can produce positive results.

The Air France-KLM Group posted an annual net profit of more than one billion dollars for 2005-2006.

Lufthansa is back in the black.

British Airways announced huge pre-tax profits for the year ending March 2006, and again in its next first quarter.

Second-tier carrier Aer Lingus has reinvented itself into a profitable airline, and SAS earned money in the second quarter.

But others like Alitalia and Olympic remain basket cases.

Ryanair, Europe’s largest budget carrier, and EasyJet the second largest, are reporting strong traffic growth.

Consolidation had made Air Berlin the third largest low-fare airline.

Eastern European low-costs are still proliferating, however, and we can expect further consolidation.

Elsewhere, on the American continent a number of Latin American airlines have become successful money-makers.

Lan-Chile and TACA are good examples.

Brazil’s more recent low cost, GOL, is enjoying spectacular and profitable growth.

Unfortunately, Varig, once a great airline, has continued to disintegrate.

The Canadian industry has regained the stability it once enjoyed before deregulation, through government policy as well as subsequently, when the two main opponents at the time – Air Canada and Canadian – had achieved a balanced market share.

Despite the recent prolonged period of great instability, Air Canada has managed to retain its role as the national carrier, serving all major international destinations and with a strong presence across North America.

The airline has reported strong net income in every quarter since its restructuring. ACE has recently floated the airline.

WestJet also posted strong profits both last year and in the first quarter. Now the main domestic competitor, it enjoys some 30 percent of the lucrative Canadian transcontinental market and sees niche opportunities for itself on the trans-border North American market.

Air Transat in now well entrenched as Canada’s premier integrated leisure airline and tour package operator. It also realized strong profits last year and in the first quarter.

Canadian carriers have seemingly decided to avoid disastrous price wars and are a great deal more focused now on achieving a good bottom line.

After losing more than 38 billion dollars since 2000, eight of the 10 largest US carriers reported a combined net income of 1.2 billion dollars for the second quarter, the first quarterly profit since 2000.

Profits of such measly dimension could easily disappear if the economy dips, or more terrorist threats of the Heathrow kind materialize.

The other two major US carriers, Northwest and Delta, are still facing a litany of difficulties. Northwest’s bankruptcy reorganization added a billion dollars to its first quarter loss, and its second quarter loss totalled 285 million dollars. Delta is still struggling to emerge from bankruptcy protection.

What was wrong – and may still be wrong – with the U.S. industry?

Why are its legacy carriers seemingly unable to restructure successfully and achieve the kind of positive developments occurring in Europe and elsewhere?

Part of the answer lies in the very important difference between legacy carriers in the US and those in Europe and elsewhere.

As much as 70 to 75 percent of the traffic carried by the major US airlines is domestic; only 25 to 30 percent is international.

The reverse is true for European carriers.

As US low-cost carriers concentrated almost exclusively on the huge domestic markets, the legacy airlines were that much more vulnerable than their European counterparts.

Their attempt to achieve parity with the low-costs required far more extensive restructuring. There were just too much overhead and fixed costs to reduce.

Legacy carriers also carry a huge pension fund problem with an unmanageable unfunded gap, as well as other burdens that come with being around for a long time.

In short, the US legacy carriers faced a much more difficult task!


On what I think is good news!

The industry is returning to the basic notion that competing on product value is a better way to profitability than competing on price alone for market share. Of course, not all carriers buy into this basic strategy.

Ryanair promises that by the end of the decade “more than half of its passengers will fly free”.

Ryanair’s secret? Besides an austere cost structure that makes Southwest look profligate, Europe’s most profitable airline puts a price on virtually everything – from peanuts and beverages to cell-phone use and baggage check-in.

By the way – have you ever wondered where unclaimed, undelivered airline baggage ends up? I understand that US carriers sell it to an outlet in Alabama. The outlet gets about one million visitors a year for merchandise that includes everything from emerald rings worth 100,000 dollars, to wedding gowns – hopefully lost after the wedding.

One cannot help wondering if lower fares are not somewhat of an illusion, when you have to pay extra for meals, blankets and pillows, headphones, roomier aisle and exit row seats, reservations made by phone and so on.

But, it will be argued, the passenger has total choice.

To differentiate themselves from those “pay-for-everything” low-cost carriers, several airlines have decided to reintroduce a number of amenities in economy. The new premium economy class offers wider seats extra legroom, improved meal and beverage service, personal entertainment, computer outlets, separate washrooms, and even a separate cabin – for a price about 25 percent more than regular economy.

Other carriers, both traditional and even some of the low-costs, have added value to their economy product by retaining amenities or introducing new ones without extra charge.

Economy passengers on Cathay Pacific – named best airline of 2006 by Air Transport World magazine – get a hot meal and beverage service, even on one-hour flights.

Gulf Air has trained nannies to look after children, even in economy class on long-haul flights.

For high-living, first-class passengers, Gulf Air offers “Sky Chefs” on all Airbus A330 and A340 flights. The Chefs, trained at top hotels, meet privately with each passenger to discuss the menu offerings and service options, and then personally prepare and serve the meals.

British Airways offers gourmet meals to their first-class customers in high-end airport restaurants before some overnight flights.

Qantas Airways has a first-class lounge with a stand-up bar and leather sofas on its new A340-600s.

I remember that when Air Canada introduced its first 747s, the airline decided to have an upper-deck lounge with a dance floor and flight attendant hostesses in long skirts. It didn’t last long; wives started to complain that this was one amenity too many!

The ultimate business-class product differentiation is the all-business-class flight, such as offered for several years now by Privat Air-Lufthansa between Dusseldorf and Newark.

And last October, a new so-called “boutique” carrier, Eos – which incidentally is named after the Goddess of Dawn in Greek mythology – began offering all-business class “super-luxury” flights between Stanstead and JFK on Boeing 757-200s.

The aircraft, originally designed to seat 220, are outfitted with only 48 “pod suites” that allow each passenger much real estate.

Another all-business boutique carrier to surface recently is MAXjet Airways, which flies 767-200 ERs almost dailybetween Stanstead and New York and Washington.

Will these new business-class-only airlines survive?

It is too early to answer definitively. But I think that it’s abundantly clear that there is a sizeable market out there of airline customers who want more comfort – and quality – and who are willing to pay for it. They’re the same people who are willing to pay 40 to 70 thousand dollars for a quality car.

I can be more definitive about one business-class-only airline that shouldn’t survive.

A German entrepreneur has leased three Boeing 747s that will offer 138 business class passengers a nicotine-friendly, all-smoking service (with free Cuban cigars) on flights between his hometown of Düsseldorf and Tokyo.

He calls the airline Smintair, or Smoker’s International Airways. A journalist called it “Air Ashtray”.

The aircraft manufacturers have not been insensitive to travellers’ expectations of increased quality.

The 787 Dreamliner, with its larger windows, roomier storage bins and better in-flight air quality will offer passengers significant improvements in airplane comfort, according to Boeing.

Not to be left behind, Airbus last summer basically junked its previous derivative strategy by opting for a completely new, 10 billion dollar design.

Called the A350Xtra Wide Body (XWB), the new airplane will incorporate – and more than match – the advanced features claimed by its competitors.

All that new in-flight comfort will make little difference to passengers, however, if they are grinding their teeth in frustration by the time they get on board.


Larger overhead bins are hardly a benefit if the only thing you’re allowed to place in them is a clear plastic bag containing a passport, keys and baby formula!

It is one of the paradoxes – and challenges – of airline management, that the safest form of transportation generates the greatest passenger anxiety.

Driving is vastly more dangerous than flying, even factoring in the risk of terrorism.

After 9/11, fear of terrorism led to a sharp drop in air travel in the United States – and an equally sharp rise in car trips.

This increase in car trips was estimated to cost the lives, over one year, of more than 1,500 people –six times more than were aboard the planes hijacked on September 11 (not counting the terrorists, there were 246 passengers on the four airplanes.).

Since 9/11, no one has died as a result of a security breach on an aircraft.

We have a zero tolerance mentality about security – but what about safety?

If our objective is to reduce all fatalities associated with air travel – do we have the best allocation of our resources between these two important aspects?

Some of the security measures are so incongruous that they would be almost laughable – if they weren’t addressing such a deadly serious matter.

Josh Freed joked in his Gazette column at the time about a security guard asking a passenger to swallow some of his Viagra medication before boarding, to ensure it was a genuine prescription drug.

It’s evident, however, that we are still taking far too long to do an effective and hassle-free job of screening passengers and their luggage.

European researchers have thus far spent 46 million dollars on a project called “SAFEE” to create a non-hijackable plane.

The concept calls for the airplane to be equipped with a computer system to spot suspicious passenger behaviour, a collision avoidance system that will prevent the airplane from being steered into buildings, an autopilot that will guide it automatically to the nearest airport in the event of a hijack, and sensors that will minutely observe passengers throughout the flight.

In any case, how useful are these technological advances if we – governments and industry – still cannot reach a universal consensus on the harmonized use of biometrics, shared data bases, and other measures that are available now to enhance security and reduce considerably the hassle of travelling by air?

Technology is the answer – but not always.

When NASA first started sending up astronauts, they quickly discovered that an ordinary ballpoint pen would not work in zero gravity. To combat the problem, NASA scientists spent a decade – and hundreds of millions of dollars – to develop a pen that writes in zero gravity, upside down, underwater, on almost any surface including glass, and at temperatures ranging from below freezing to 300 degrees Celsius.

The Russians used a pencil!

Perhaps we should borrow techniques from El Al and Israeli airports, and have screeners look more at people – and less at things like cans of shaving cream.

Videos of the 9/11 terrorists, and interviews with people who talked to them, reveal that they all exhibited symptoms of stress that would have been identified by screeners trained to do this – like sweating, failure to make eye contact, rigid posture, clenched fists, and failure to answer questions directly.

The ultimate layer of protection is in preventing terrorists from ever reaching the airport in the first place.

Only governments can counteract terrorism – through efficient intelligence gathering and sharing, diplomacy, economic sanctions, covert action, and strict law enforcement.

Experience has not shown military action to be very effective!

If moderate religious leaders cannot make themselves heard, governments must be more vigilant in neutralizing religious terrorists.

Violence has no place in civilized societies.

Reasonable accommodation of religious beliefs does not extend to undermining the basic values such as freedom of speech, and expression, as well as gender and racial equality – shared by all Canadians.

The cost of additional security measures to the industry, and thus to the flying public, has now reached over five billion dollars a year.

How much more security do we need? How much more must we pay for?

It’s an anomaly that only airlines and their passengers should have to pay for the protection of their civil liberties.


Security is hardly the only source of passenger anxiety and management stress.

The endless quest for increased safety is the number one challenge of airline management.

Safety is the area where a zero defect mentality really belongs.

The year 2004 was the safest year ever for air transport – but last year’s eight crashes doubled the number of accidents with passenger fatalities.

The European Union suggests that airlines with unsatisfactory safety records should be blacklisted on the Internet. Interestingly enough, none of the airlines involved in accidents last year had been blacklisted.

But I believe that a more fruitful measure would be much tougher and more frequent independent safety audits conducted by ICAO or IATA.

For instance insisting that airlines submit to an Operational Safety Audit Program (IOSA), a program I launched when I was head of IATA. This year I believe more than 100 airlines will be audited under the program.

Sound management practice calls for outside financial auditors to review a company’s books at least annually. Surely safety is as important a subject for audit as an airline’s financial accounts.


The manufacturers are doing their part by developing better instruments and systems to make the skies safer.

One example is the avionics developed by Thales for the A380 flight deck.

An integrated surveillance package includes new digital radar that makes it easier to avoid thunderstorms. The next upgrade will be a “synthetic vision display” that will finally deliver what Charles Lindbergh always wanted: “A pair of spectacles to see through the fog”.


Other developments aimed at reducing airways congestion will also have a salubrious effect on safety.

The “Single European Sky” (SES) concept has been accepted in principle, and streamlined air traffic control rules are being pushed through.

Unfortunately, the European Continent’s 34 separate air navigation agencies won’t disappear anytime soon.

Abolishing borders in the sky is a political minefield. In an attitude that goes back to World War II, many in the EU are still uneasy about allowing “foreigners” to regulate and oversee their airspace.

Galileo, the proposed European SatNav system, should be operational by 2008 now that the sharing of remaining development costs has been decided. Thales is part of the development consortium.

I believe these new instruments and systems will help, and I applaud ICAO’s recent initiative in seeking consensus on a global strategy for aviation safety.


But ultimately, the buck for safety stops at the desk of the airline’s chief executive officer.

Airlines are the most visible manifestation of air safety, and must accept that reality – even though much also depends on governments, manufacturers, etc.

Airlines have to be upfront, leading the change for improved safety.

How? By their CEOs showing evidence of real, and continuous, concern for safety.

Safety has to be an essential part of an airline’s culture – and the CEO incarnates that culture.

The CEO must be the “Chief Safety Officer”, responsible for safety throughout the organization, ensuring the right checks and balances exist, getting reassurances of the right competency levels.

The CEO must be the airline’s guarantor of safety.

Liberalization of the industry can never imply a liberalization of standards where maintenance procedures, flight crew professionalism and all other aspects of safety are concerned.

As the industry deregulates and expands, government agencies must be increasingly vigilant in ensuring that all carriers and other aviation stakeholders follow the highest possible standards.


Whereas regulation may still be insufficient in areas like safety, it remains excessive where markets are concerned.

Market liberalization is progressing – but still too slowly.

I was pleased to see the Canadian Government “Blue Sky” initiative announced yesterday, and I would urge their prompt action.

It’s disappointing to hear some industry leaders continue to urge extreme caution on liberalization.

But the notion of government protecting its flag carrier still persists.

Current US liberalization policy is also disappointing. I remember when the United States championed deregulation, the rest of the industry had to be dragged kicking and screaming into a new world of unfettered market expansion.

It’s somewhat ironic that after successfully negotiation 70 open skies agreements with every nation it could bring to the table, our neighbours are now reluctant to proceed with an open skies agreement with the European Union.

Apart from concerns about security, foreign ownership and cabotage, the United States might be less reluctant to take this next step if its legacy carriers were stronger.

Downsizing and consolidation into three or four lean and mean competitors would make a big difference at the negotiating table.

Unfortunately, in my view, Chapter 11 had prevented the required consolidation of legacy carriers.

When Pan Am and Eastern were allowed to disintegrate, other airlines picked up the pieces worth saving – such as part of their fleets, gates at congested airports and a number of international route rights.

The United States is a huge mature air market. It should let the industry shake itself out.

As a significant stepping stone to a fully integrated common air market over the Atlantic between Europe and North America, the European Union might be interested in a discussion with Canada along the lines of its proposal to the Americans.

Canada has stated on several occasions that on a reciprocal basis, foreign ownership of Canadian carriers could readily be increased to 49 percent.

The advantages to Canada are obvious. Our airlines would have open skies access to a market of some 450 million people – some fifteen times our population.

Like-minded countries in other regions of the world are opening and integrating their market in this fashion.

For example, Russia and China appear interested in an open-skies style agreement with the European Union.

So are countries bordering the Mediterranean.

And a recent accord between four members of the China-Pacific Economic Cooperation (APEC) may well serve as a blueprint for other regions to establish similar open-skies frameworks along regional lines.

India has been making significant moves towards complete market freedom, and intends to pursue liberal agreements with all its neighbouring countries.

I am pleased to say that I had the privilege to have been consulted – and to make a small contribution – to India’s new liberalized aviation policy.

I know – and most airline managers now agree – that a “big bang” solution to worldwide liberalization is most unlikely.

But we must continue to make progress in a three-fold approach:

Continued expansion of bilateral “open skies” agreements by all like-minded nations;
Continued expansion of regional common air markets, such as achieved by the European Community; and
Pursuit of bilateral agreements between regional common air market areas and other regional areas – or by “block-lateralism” to use an expression I coined some time ago.

It’s a curious paradox that the globalization of industry, trade and commerce has been largely driven by airlines – but they remain still very regulated themselves.

Why is it that in the automotive industry, the pharmaceutical industry, chemical industry or the petroleum industry, anybody can do anything on a worldwide basis – but airlines still cannot?

Bismark said that “the strongest nations are always in favour of free trade.”


And if a nation’s trade is threatened, it can always legislate its way out of any multi-lateral agreement, as the current Canadian government wants to do with respect to the Kyoto accord.

Bismark also said that “the most useful thing about a principle, is that it can always be sacrificed to expediency.”

Aviation contributes only about 3% of the world annual addition to greenhouse gases.

Nevertheless, the air transport industry is blamed by environmentalists for a far greater portion of the damage caused by air pollution.

But insisting that we are an insignificant part of the problem is not a solution for airline management. If nothing else, the high profile of our industry demands that airline management be actively involved in the challenge of protecting the natural environment.

Noise used to be the biggest challenge, especially in communities that sprung up around airports because the land was cheap.

New aircraft are 75% less noisy than the previous generation, and exceed the latest ICAO standards.

Although the debate over noise has grown much quieter, the debate over fossil fuel consumption has been getting louder all the time.

The search for non-carbon sources of future energy to replace, supplement and complement today’s traditional carbon-based fuels must go on – and with vengeance.

The airline industry likes to argue that it cannot do much more than constantly improve engine technology and operating procedures – that there is no economical and safe alternative to jet fuel.

Richard Branson of Virgin Airways begs to differ. He announced recently that he intends to build plants to produce an environmentally-friendly aviation fuel – from cellulosic ethanol.

Whether or not Sir Richard’s good intention proves viable, I believe that developing bio-fuels for aviation, as we have started to do for automobiles, is well worth exploring.

It is very unlikely that our industry will be able to reduce the emissions rate from conventional fuels as fast as the growth in air travel.

New generation airplanes – the B787, A350 and A380 – with their 20 percent improvement in fuel consumption and corresponding reduction in emissions, represent a monumental achievement likely to be difficult to repeat in the next generation of airframes and power plants.

Rolls-Royce’s planning for future engines, their “Vision 10” research program which covers technologies likely to become available within the next decade, targets about a 10 percent further improvement in specific fuel consumption.

Punitive taxes on air travel are not the answer.

Taxes aimed at reducing demand, and at pricing people out of air travel, and which disappear into a general fund, simply destroy aviation’s economics and its associated social benefits – with no appreciable gain for the environment.

In fact, they limit the industry’s ability to invest in new technologies that could further reduce its impact on the environment.

A better short-term incentive is emissions trading. Allowing airlines to buy and sell the right to emit CO2 would be a more efficient way to tackle climate change.

It is a pity that the current Federal Government’s position on Kyoto has seriously limited Canadian firms from participating in a new and important business sector.

The longer term proper solution is to get rid of CO2.

If our ability to further improve engine efficiency, to switch to less damaging fuels, to become “carbon neutral” is limited, then we must be part of the overall solution by pushing for a massive effort to decarbonise the world by storing – or destroying – CO2.

Pollutants come from many sources, but the bulk of them – some seven billion tons of carbon a year – come from smokestack industries.

Much of the technology to build plants without smokestacks, to capture, store or destroy CO2 rather than vent it into the atmosphere, already exists.

It can be done – if the political will is there to do it. It’s very much a manageable problem.

We decided to send a man to the moon before we even knew it was technologically possible.

Dare I suggest that we use “eco taxes” on fossil fuels to return carbon to the ground, and by planting trees and reclaiming deserts?
And if a nation’s trade is threatened, it can always legislate its way out of any multi-lateral agreement, as the current Canadian government wants to do with respect to the Kyoto accord.

Bismark also said that “the most useful thing about a principle, is that it can always be sacrificed to expediency.”

Aviation contributes only about 3% of the world annual addition to greenhouse gases.

Nevertheless, the air transport industry is blamed by environmentalists for a far greater portion of the damage caused by air pollution.

But insisting that we are an insignificant part of the problem is not a solution for airline management. If nothing else, the high profile of our industry demands that airline management be actively involved in the challenge of protecting the natural environment.

Noise used to be the biggest challenge, especially in communities that sprung up around airports because the land was cheap.

New aircraft are 75% less noisy than the previous generation, and exceed the latest ICAO standards.

Although the debate over noise has grown much quieter, the debate over fossil fuel consumption has been getting louder all the time.

The search for non-carbon sources of future energy to replace, supplement and complement today’s traditional carbon-based fuels must go on – and with vengeance.

The airline industry likes to argue that it cannot do much more than constantly improve engine technology and operating procedures – that there is no economical and safe alternative to jet fuel.

Richard Branson of Virgin Airways begs to differ. He announced recently that he intends to build plants to produce an environmentally-friendly aviation fuel – from cellulosic ethanol.

Whether or not Sir Richard’s good intention proves viable, I believe that developing bio-fuels for aviation, as we have started to do for automobiles, is well worth exploring.

It is very unlikely that our industry will be able to reduce the emissions rate from conventional fuels as fast as the growth in air travel.

New generation airplanes – the B787, A350 and A380 – with their 20 percent improvement in fuel consumption and corresponding reduction in emissions, represent a monumental achievement likely to be difficult to repeat in the next generation of airframes and power plants.

Rolls-Royce’s planning for future engines, their “Vision 10” research program which covers technologies likely to become available within the next decade, targets about a 10 percent further improvement in specific fuel consumption.

Punitive taxes on air travel are not the answer.

Taxes aimed at reducing demand, and at pricing people out of air travel, and which disappear into a general fund, simply destroy aviation’s economics and its associated social benefits – with no appreciable gain for the environment.

In fact, they limit the industry’s ability to invest in new technologies that could further reduce its impact on the environment.

A better short-term incentive is emissions trading. Allowing airlines to buy and sell the right to emit CO2 would be a more efficient way to tackle climate change.

It is a pity that the current Federal Government’s position on Kyoto has seriously limited Canadian firms from participating in a new and important business sector.

The longer term proper solution is to get rid of CO2.

If our ability to further improve engine efficiency, to switch to less damaging fuels, to become “carbon neutral” is limited, then we must be part of the overall solution by pushing for a massive effort to decarbonise the world by storing – or destroying – CO2.

Pollutants come from many sources, but the bulk of them – some seven billion tons of carbon a year – come from smokestack industries.

Much of the technology to build plants without smokestacks, to capture, store or destroy CO2 rather than vent it into the atmosphere, already exists.

It can be done – if the political will is there to do it. It’s very much a manageable problem.

We decided to send a man to the moon before we even knew it was technologically possible.

Dare I suggest that we use “eco taxes” on fossil fuels to return carbon to the ground, and by planting trees and reclaiming deserts?


The airline business has changed considerably over the last fifty years.

Protecting the natural environment as a management responsibility didn’t exist in the days of those daring young men in their flying machines.

The Rickenbackers, McGregors and McConachies of the next generation were busy creating an industry.

And when that industry began to take shape, the generation of professional managers that followed knew that if the industry were to flourish, they had to be in it for the long term.

In the last decade, however, airline management has become contaminated by the same “quick buck” syndrome affecting corporate life today.

At its worst, short-term greed can lead to the managerial misconduct and cover-ups that brought down the top management of Enron, Vivendi, Hewlett-Packard and Hollinger.

Unfortunately, Chapter 11 bankruptcies encourage quick results – to the potential detriment of the longer term.

Refinancing attracts investors who are looking for quick rewards within two to three years, and who are likely to offer management huge incentives towards that end alone by way of share options maturing in the short term.

Airlines are a long-term business.

The investment cycle is 25 years. Airline managers must be offered incentives and rewards that are somewhat more related to the life cycle of the assets they’re being asked to manage.

If airline managers are not there for the long term and leave after a quick-buck turnaround, the danger is that the airline may be left in a worse financial and, God forbid, operating condition than it was previously.

There’s too much at stake in an airline to allow this to happen – the safety and security of its passengers, the well-being of the community it serves, and the financial security of its employees and shareholders.

Have airline managers taken appropriate steps to prevent reaching the Chapter 11 bankruptcy stage from happening in the first place?

Were the CEOs and CFOs developing the strategies required to maximize their airlines’ survival under various downturn scenarios?

Were they looking at ways of strengthening and expanding credit lines? At options to improve liquidity with, for instance, sale and lease back of assets?

Was the CEO exerting sufficient restraining influence on managers responsible for market expansion plans – and all-too-often chaotic pricing policies?

Was the CEO managing with due respect to the bottom line – and I mean the long-term bottom line – not chasing growth and overnight profit?

Most of the U.S. legacy carriers never had a plan extending beyond twelve months!

Was the CEO effective in communicating the seriousness of the situation?

“Being a president”, Bill Clinton once said “is like running a cemetery. You’ve got a lot of people under you, and nobody’s listening .”

Life in the corporate cockpit is not comfortable at the best of times.

But as President Harry Truman used to say “If you can’t stand the heat, you should get out of the kitchen.”

Managers in our industry make critical decisions.

One operating oversight can lead to tragedy. One unsound financial decision can lead to billion-dollar losses.

The personal stakes are high. You may have noted that they have installed a revolving door in the CEO’s office at Airbus.


Ladies and gentlemen, if I speak any longer the Royal Aeronautical Society will have to rename this event the “Annual Fidel Castro Lecture”.

In summation, I’d like to leave you with what I call the seven pillars of responsible airline management:

  • Safety – with passion and at any cost;
  • Security – in a cost effective and customer friendly way;
  • Profitability – sufficient to satisfy investors in the long term and to ensure
  • Perenniality – of the company – not necessarily its CEO – particularly in the absence of
  • Rectitude – of its CEO, its CFO and all other key officers whose moral authority is as essential to the company as their management authority;
  • Liberalization – of markets, not executive behaviour; and
  • Concern – for customers, for employees, for the environment, and for the community at large.

Ladies and Gentlemen, we may not have exhausted the subject but I do not wish to abuse of your patience. You have been a most kind, and wonderful audience.

Thank you very much!

Address by Pierre J. Jeanniot to the Cannes Airline Forum

The Air Transport Industry Today – Is the Customer King Again?
Address to the 15th Cannes Airline Forum
Cannes, October 18, 2006  >>


Ladies and gentlemen,

It is a great pleasure to join Jean-Louis in welcoming you to this fifteenth Cannes Airlines Forum.

Increasingly over the years, this Forum has become the place to discuss the forces of change affecting our industry to conduct business behind the scenes, to forge new friendships, and to enjoy its very convivial atmosphere.

I have no intention of spoiling Jean-Louis Baroux’s fun by revealing the gastronomical delights we all know he has planned for us once again.

But I must admit that I can’t help wondering if people don’t come to our discussions for much the same reason that tourists visit the great sites of France, which has been described to me as “something to do between great meals”!

The theme this year is centered around air transport and its clients: Do we need to be restoring customer trust and confidence in our industry? And are we doing that?

It’s not the first time we’ve addressed this theme. At the seventh Cannes Airlines Forum in 1998, we talked about the then “new” relationships between passengers and airline companies.

The question we asked at the time was whether the passengers were justified in being unhappy.

Eight years have passed, and for almost a decade the industry has been intensely focused on cutting costs, often resulting in reduced service, higher load factors, airport congestion etc., compounded by the frustration and stress resulting from a succession of new security measures.

I don’t recall what we answered in 1998 but I suspect that we were falling somewhat short of meeting our customers’ expectations.

At any rate, the series of economic crises that were soon to follow forced the industry to take drastic measures to ensure its survival.

With the rapidly increasing popularity of the so-called low cost carriers, many traditional airlines were forced to shrink dramatically.

And quality began to sink to the lowest common denominator.

So where are we today?

Do we know what needs to be done to reassure our customers that this industry is fully trust-worthy and dedicated to providing value-for-money services that are safe, on-time and customer-friendly?

That is what we are here to find out.

But first, has this industry sufficiently recovered to be considered today beyond the survival mode? Let’s take a few moments for a brief overview.


Although it is hazardous to make any predictions – and particularly so when it concerns the future – I believe that 2006 will turn out to be the transition year towards “a more stable, if not truly profitable, aviation industry”.

There is a mood of optimism about our industry that has been absent since 9/11 and its aftermath, and I believe that this optimism has not really been dampened by the events of this past summer.

Well, the industry is indeed growing, and because it is growing – and in some areas very rapidly – it will attract more investment.

But investors should choose carefully. As the old joke goes, “there are three ways to lose a lot of money: betting on slow horses; dating fast women; and investing in a poorly managed airline”.

Last year’s loss, at 3.2 billion dollars, was somewhat less than expected, and according to IATA the industry is now expected to lose only 1.7 billion dollars this year.

It could even make as much as 1.9 billion dollars in 2007, an amount that would imply a return on capital of less than 1 percent – which is far below the 8-10 percent necessary to adequately reward investors.

Much will depend, of course, on what impact the continuing conflict in the Middle East -and the manipulation of some disenchanted Muslim youths by terrorist leaders – will have on the price of oil, and on renewed market demand for air travel.

I am reminded that the father of the Wright Brothers, who was a Protestant Minister, had tried very hard – invoking religious reasons – to discourage his sons from attempting to fly, stating that

“If God had wanted men to fly, he would have given them wings.”

Beyond the obvious sensational impact of using aircraft as weapons of mass-destruction, do Muslim extremists believe that we are contravening some Divine order?

Whatever the reason, we are unfortunately likely to continue to be a popular target.

But whatever the latest threat, the industry, and I mean all participants – governments, airlines, airports – will be judged by how quickly it can adjust security measures to reassure customers, reduce the hassle of traveling by air, including airport congestion, and thus minimize uncertainty for airline passengers and also for investors.


Last year, the world’s airlines ordered more than 2,000 aircraft in total from Boeing and Airbus.

Aggregate sales for the two companies should fall to less than half of that in 2006, but that would still represent a lot of increased capacity.

The order backlog today represents 19 percent of the existing fleet.

New, more efficient aircraft may well tempt airlines into offering lower fares, chasing after market share. This is not the way to long-term profitability.

But clearly, part of that new technological efficiency has to translate into profit, and returned to investors.

Although improving in total, the financial health of the industry still differs substantially by region, and by type of airline.

And among the mediocre and failures there are some spectacular successes.


The Asia/Pacific numbers are staggering.

Over the last five years, China’s airlines flew record numbers of passengers and cargo, and earned over a billion dollars.

The country’s booming aviation sector is expected to see air traffic increase at more than 10 percent per year over the next five years. And although China’s airlines lost about 3.0 billion yuan in the first half of 2006, carrying close to 75 million passengers, its airports made 1.5 billion yuan.

It seems Western airports aren’t the only ones to do better than their airlines.

Slide 13 India
India’s liberalized air transport market is now, with that of China, the brightest prospect in the global aviation arena.

It’s domestic market is expected to grow as much as 25 percent annually over the next five years.

Full-service airlines such as Jet Airways, and now Kingfisher, are raising the bar on quality.

Low-costs like Air Sahara, Air Deccan, Spice Jet, and IndiGo are major contributors to the sector’s explosive growth and prosperity.

Even traditional Air India and Indian Airlines are transforming themselves into potential money-makers.

Malaysia, along with India, has become fertile ground for discount airlines.

Air Asia has just ordered forty more A320s. But a shakeout is looming, and the industry’s overall prospects have been somewhat dampened by the continuing losses of the national carrier, Malaysian Airlines.

A new star in the skies of Asia is Indonesia, which has become the region’s most dynamic domestic market.

Traffic growth has been spectacular, from six million domestic passengers in 1998 to an expected thirty million this year.

With large cities separated by distance and water, Indonesia is custom-designed for air travel.

JAL seems to be a fading star in the Asia-Pacific region.

After losing 32 billion yen in the same period last year, it reported a quarterly loss almost as big this year (26.7 billion yen), and is facing mounting challenges after a series of safety mishaps and management in-fighting.

Singapore is losing ground to Dubai as an aviation hub.

Dubai’s passenger volume has already reached 76 percent of the Changi hub.

The good news is that the Singapore government is seeking to further liberalize air services with its neighbors including Malaysia, China, and India to defend the hub status of Changi.


The picture we see emerging in the Middle East is one of three full service, long-haul carriers – Emirates, Etihad, and Qatar Airways.

Their competing hubs of Dubai, Abu Dhabi, and Doha will enable those carriers to offer access to a wide array of destinations worldwide with a fleet of extra-long-haul aircraft now coming on the market.

Airlines such as Royal Jordanian, Middle East, and Gulf Air will occupy a second tier of restructured, partially privatized and increasingly profitable legacy carriers, regionally focussed but linked into the global alliance networks.

A third group will be the Middle East low-costs offering discounted point-to-point services within the region.

In many ways, the Middle East picture contains many elements of the evolving aviation landscape worldwide.


The European experience is proving that reinvention, restructuring, consolidation, and alliances can produce positive results.

The Air France-KLM Group posted an annual net profit of 1.17 billion dollars for 2005-2006.

The Group is reporting strong traffic growth so far this year and announced a net profit of 224 million Euros for the three months ending in June.

Lufthansa is back in the black, with a net income of 183 million euros on 5.2 billion euros in revenues in 2006, and expects a positive contribution from the integration of Swiss International by next year.

Swiss actually made money in the second quarter.

British Airways announced a soaring pre-tax profit of 620 million pounds for the year ending March 31, 2006, and reported a 154 million pound net profit for the first quarter ending June 30th.

The British have yet to buy into the European consolidated model.

Second-tier carrier Aer Lingus has reinvented itself into a profitable airline, and SAS earned 60.2 million euros in the 2nd quarter.

But others, like Alitalia and Olympic, remain basket cases.

Ryanair, Europe’s largest budget carrier, and EasyJet, the second largest, are reporting strong traffic growth.

Air Berlin has become the third largest low-fare airline with the acquisition of DBA, formerly Deutsche B.A., and made a net profit of 30.1 million euros during the 2nd Quarter ending June 30.

Eastern European low-costs are still proliferating, however, and we can expect further consolidations.

So despite some rough air ahead, the European sector can expect to enjoy an improved level of stability in the years ahead.


Elsewhere on the American continent, a number of Latin American airlines have become successful money-makers.

Lan-Chile and TACA are good examples.

Brazil’s more recent low cost, GOL, is enjoying spectacular and profitable growth.

Unfortunately Varig, once a great airline, has continued to disintegrate.

Volvo do Brasil has now acquired the 79-year-old airline for 24 million dollars, plus a pledge to invest 485 million dollars in the bankrupt carrier.

In August, Varig was flying only ten planes out of a former fleet of 65 jets.

Mexicana is taking aggressive measures to cut its annual costs by 20 percent, and grow its network, to take on the new budget carriers recently launched in its backyard which have captured 12 percent of the Mexican market in the first quarter of 2006.


In Canada, a new industry equilibrium appears to be in the making.

Air Canada reported a net income of 258 million dollars for 2005 just a year after the airline’s restructuring, and achieved a net income of 118 million dollars in the seasonally slow first quarter of 2006.

WestJet also posted strong profits both last year and in the first quarter, as did Air Transat in its recent second quarter.

WestJet now enjoys some 30 percent of the lucrative Canadian transcontinental market, and sees niche opportunities for itself on the trans-border.

Of course, few U.S. carriers are doing as well as Southwest. Its second quarter earnings were 333 million dollars, compared to 144 million a year earlier.

Nevertheless, the U.S. industry’s litany of difficulties seems to be finally abating.

American Airlines reported net income of 291 million dollars in the second quarter, the highest quarterly profit in six years.

Continental reported a 198 million dollars second quarter profit, nearly double last year’s, and the highest quarterly profit since 2001.

United emerged from three years of bankruptcy protection in February and had its first profitable quarter since 2000, an estimated 119 million dollars on 5.1 billion dollars in revenues.

Alaska Airlines earned 71 million dollars on 710 million dollars in revenues in the second quarter.

Of the major U.S. carriers, only Northwest and Delta are still lagging behind.

Northwest’s bankruptcy reorganization added a billion dollars to its first quarter loss, and its second quarter loss totalled 285 million dollars.

Operating expenses fell 12 percent, and recent union agreements to cut labour and pension costs seem promising.

Delta is still struggling to emerge from bankruptcy protection.

It had to silence its Song low-cost subsidiary in May, and lost 2.2 billion dollars in the second quarter.

But excluding huge reorganization items, the airline achieved its first adjusted profit in six years.

U.S. Airways posted a record $305 million second quarter profit, second only to Southwest, and expects to post profits for the remainder of the year.

“The primary driver of this turnaround”, said CEO Douglas Parker, “was the merger” with America West completed a year ago in September.

Parker says that Northwest and Delta are prime candidates for mergers – and I agree.

After losing more than 38 billion dollars since 2000, eight of the ten largest U.S. carriers reported a combined net income of 1.2 billion dollars for the second quarter – the first quarterly profit since 2000.

Can we believe that we are witnessing here a true recovery?

There are still fundamental problems with the U.S. industry, and I believe that there is still a need to downsize and consolidate.

Unfortunately, in my view, Chapter 11 has been preventing the required consolidation of the legacy carriers.

When Pan Am and Eastern were allowed to disintegrate, other airlines picked up the pieces worth saving – such as part of their fleets, gates at congested airports, and a number of international route rights.

Low-costs now represent 42 percent of the U.S. domestic market, and their share will probably level off at 50 percent.

Now, eight legacy carriers competing for the remaining 50 percent are far too many to ensure a stable, profitable industry.

One way or another, consolidation has to take place.

There are bound to be more mergers and consolidations, domestically and internationally.

I don’t wish to discourage membership in the various airline associations, but the world doesn’t need 280 marginal carriers.

With the proliferation of new carriers, inspiration ran wild in chosing the names of some of the new airlines, and I think that the results do not always inspire confidence.

Didn’t New Zealanders worry that Kiwi Airlines was named after a bird that can’t fly? The airline did not last very long for that matter.

Is Aspiring Air, another New Zealand carrier, truly an airline? Or hoping to become one?

Is the Chinese airline Lucky Air, with a fleet of only one aircraft, somewhat not begging the question?

Is Shangri-La Air in Kathmandu as mythical as its name?

Would you want to be the next customer on Japan’s Air Next?

This is not projecting a very serious image!


To return to our brief overview

All in all, in most regions of the globethe airline industry is shaking itself out into a more diversified model, and is showing signs of heading towards more stability.

Traditional airlines trimmed into profitability are still very much alive almost everywhere. But the jury is still out in the U.S.A.

Low-costs are occupying a lot of space but they aren’t taking over the whole industry.

Full-fare, full-service is back in vogue – and the customer, once again, is king.

The industry is returning to the basic notion that competing on product value is a better way to profitability that competing on price alone for market share.

Of course, not all carriers are returning to this basic strategy.

Ryanair begs to differ, in fact promises that by the end of the decade “more than half if (its) passengers will fly free”.

Ryanair’s secret? Besides an austere cost structure that makes Southwest look profligate, Europe’s most profitable airline puts a price on virtually everything – from peanuts and beverages to baggage check-in, and now, cell-phone use.

Ryanair intends to offer in-flight gambling next year and take a cut off each wager.


The latest security measures, which drastically reduced on-board cabin baggage, may well increase the number of lost bags.

By the way, have you ever wondered where unclaimed, undelivered airline baggage ends up? The U.S. carriers sell those to an outlet in Alabama.

This outlet gets about one million visitors a year for merchandise that includes everything from emerald rings worth $100,000 to wedding gowns – hopefully lost after the wedding.

I am told that this is the State of Alabama’s largest tourist attraction!

One cannot help but wonder if lower fares are not somewhat of an illusion, when you have to pay extra for meals, blankets and pillows, headphones, roomier aisle and exit row seats, reservations made by phone and so on.

To differentiate themselves from those “pay-for-everything” low cost carriers, several airlines have decided to re-introduce a number of amenities in economy by creating a Premium Economy Class.

The new class offers wider seats, extra legroom, improved meal and beverage service, personal entertainment, computer outlets, separate washrooms, and even a separate cabin, for a price about 25 percent more than economy.

Air Canada, Air New Zealand, British Airways, Thai, and United all offer this type of product differentiation in one form or another.

Economy passengers on Cathay Pacific get a hot meal and beverage service, even on one-hour flights.

Qantas Airways and Virgin Atlantic offer personal, on-demand video screens in all classes.

Even low costs such as Jet Blue and WestJet now have live satellite TV sets in the back of every seat.

Gulf Air has trained nannies to look after children even in Economy Class on long-haul flights, and at no extra charge.

For high-living, First Class passengers, Gulf Air offers “Sky Chefs” on all A330 and A340 flights.

The Chefs, trained at top hotels, meet privately with each passenger to discuss the menu offerings and service options, and then personally prepare and serve the meals.

British Airways offers gourmet meals to their First Class customers in high-end airport restaurants before some overnight flights.

Qantas Airways has a First Class lounge with a stand-up bar and leather sofas on its new A340-600s.

I remember when Air Canada introduced its first 747s, the airline decided to have an upper deck lounge with a dance floor, and flight attendant hostesses in long skirts.

It didn’t last long; wives started to complain that this was one amenity too many.

Lufthansa pampers First Class passengers with their very own terminal at Frankfurt airport.

Virgin Atlantic’s “Upper Class” includes flat beds, in-flight massages and limo transfers.

Qantas has cocoon-style sleeper seats in Business Class.

British Airways’ “Club World” has slightly shorter flat beds than in First Class.

Most carriers are reluctant to go “flat out” in Business Class, however, because it is still an important differentiation with First Class.

New seats, more amenities, improved meals, and bigger bins are not the only way to a better business product.

Continental had the novel idea to improve their product – by ensuring their employees would all be friendly and knowledgeable!

The ultimate business-class product differentiation is the all-business-class flight, such as offered for several years now by Privat Air-Lufthansa between Dusseldorf and Newark.

Last October, a new so-called “boutique” carrier, Eos, began offering all-Business Class “super-luxury” flights between Stanstead and JFK on Boeing 757-200s.

The aircraft, originally designed to seat as many as 220, are outfitted with only 48 “pod suites” that allow each passenger much real estate.

Amenities include cashmere blankets.

Another all-business, boutique carrier to surface recently is MAXjet Airways, which flies 767-200 ERs almost daily between Stanstead and New York and Washington.

I think that it is abundantly clear that there is a sizeable market out there of airline customers who want more comfort and quality, and who are willing to pay for it.

These may be the same people who pay 40 to 70 thousand dollars for a quality car.

The aircraft manufacturers have not been insensitive to travellers’ expectations of increased quality.

Larger windows, roomier storage bins and better in-flight air quality will offer passengers significant improvements in airplane comfort – at least that is what is claimed by the manufacturer.

The Boeing 787 will have windows 65 percent bigger than today’s standard.

Instead of shades, a film over the windows can be adjusted to block out sunlight during movies while still allowing passengers to look out, much like a limousine.

A fuselage built largely of carbon-fibre composites will allow higher humidity in the cabin and lower pressure, which means travellers will arrive feeling less tired and less dehydrated.

Not to be left behind, Airbus last summer basically junked its previous derivative strategy by opting for a completely new 10 billion dollar design with a wider fuselage, and slightly higher speed.

This new airplane is now called the “A350Xtra Wide Body (XWB)”.

To compete with both the Boeing 787 and the B-777, it will need to more than match the advanced features claimed by its competitors, such as enhanced cabin lighting, wider windows, etc.

In the regional jet arena, Embraer’s new midsize 170 and 190 aircraft offer big-jet comfort and four-across seating.

Somehow Bombardier continues to delay, perhaps indefinitely, its decision to build a new regional jet – to the delight of Embraer which is becoming the new leader in this product niche.

It remains to be seen whether Sukhoi’s entry will become a serious challenger.


All that new in-flight comfort will make little difference to passengers, however, if they are grinding their teeth in frustration by the time they get aboard.

Larger overhead bins are not a benefit if the only thing one will be allowed to place in them is a clear plastic bag containing a passport, keys, and baby formula.

A popular Montreal humorist, Josh Freed, joked in his newspaper column at the time about a security guard asking a passenger to swallow some of his Viagra medication before boarding, to ensure it was a genuine prescription drug.

My friend Jacques Duchesneau, President and CEO of the Canadian Air Transport Security Authority, will have I am sure a good deal more to say about that subject tomorrow.

But it is evident that we are still taking far too long in screening passengers and their luggage.

We’ve known about the threat of chemicals on planes for at least six years.

Some of you may remember Operation Bojinka, when two Kuwaiti terrorists blew up an unsuspecting Japanese businessman in his seat on a Philippines domestic flight, using liquid explosive placed in a contact-lens case.

It was a test for a plan to blow up a large number of aircraft over the Pacific.

European researchers have thus far spent 46 million dollars in a project called “SAFEE” to create a non-hijackable plane.

The concept calls for the airplane to be equipped with a system to spot suspicious passenger behaviour – a collision avoidance system that will prevent the airplane from being steered into buildings, an autopilot that will guide it automatically to the nearest airport in the event of a hijack, and sensors that will minutely observe passengers throughout the flight.

But what use will these technological advances be if we, as governments and industry, still cannot reach consensus on the harmonized use of biometrics, shared data bases, and other measures that are available now to enhance security and reduce the hassle of travelling by air?

Technology isn’t always the answer.

When NASA fist started sending up astronauts, they quickly discovered that an ordinary ballpoint pen would not work in zero gravity.

To combat the problem, NASA scientists spent a decade and hundreds of millions of dollars to develop a pen that writes in zero gravity, upside down, and at temperatures ranging from below freezing.

The Russians used an ordinary lead pencil.


Aircraft movements now total about 70 million annually.

Many Governments around the world are increasingly hard-pressed to finance the billion of dollars needed to relieve airport and airways congestion.

But it is not, in many cases, because of a shortage of funds collected through taxes and fees.

I read recently that less than 5 percent of the “passenger facility charges” collected over the past 15 years at LAX has been spent on improving facilities.

Air traffic delays are another source of air travellers’ frustrations, not to mention the cost of wasted fuel and its impact on the environment.

Here again progress is being made.

The recent reduction of vertical separation minima over Europe, the Atlantic, and North America has doubled airways capacity.

The “Single European Sky” concept had been accepted in principle, although it is still a long way from being implemented.

Galileo should be operational by 2008, and other promising concepts are in development.

And the industry is beginning to seriously examine the possibility of alternative bio fuel.


I would like this Forum to conclude that we continue to make progress towards becoming a truly global industry – appropriately rewarding our employees, caring for our customers, and annually distributing good profits to shareholders.

But above all, I would like to see our customers back on the pedestal, particularly at the airport.

Our customers should have at their disposal, in every class, a full range of quality, value-for-money products to meet their needs, and their pocket books.

Our common objective should be to ensure that our customers do not have any reason to worry about security and safety.

We also should be able to reassure them that our industry speaks the truth, and does the right things.

I will be most happy if airline customers in the years to come can claim, once again, that getting there by air is half the fun!

Thank you.

ICAO/ACI Global Air Transport Outlook Conference – A Canadian Observer’s View of the North American Air Transport Industry

A Canadian Observer’s View of the North American Air Transport Industry
ICAO/ACI Global Air Transport Outlook Conference
Montreal, 29-30 June 2006  >>


Ladies and gentlemen,

In my opening remarks yesterday morning I noted that, in Canada, a new industry equilibrium appears to be in the making.

Air Canada reported net income of $ 258 million for 2005 – just a year after the airline’s restructuring – and net income of $118 million in the seasonally slow first quarter of 2006.

WestJet also posted strong profits both last year and in the first quarter, as did CanJet and Air Transat in its recent second quarter.

I used the word “new” in the sense that the Canadian industry has regained the stability it once enjoyed. First before deregulation, through government policy, but also subsequently when the two main opponents at the time, Air Canada and Canadian, had achieved a mature acceptance that competing on product value to grow the market was a better way to profitability than competing on price alone for market share.

Following the present prolonged period of great instability, Air Canada has managed to retain its role as the national carrier serving all major international destinations, and with a strong presence across North America.

West Jet, the main domestic competitor, enjoys some 30% of the lucrative Canadian transcontinental market and sees niche opportunities for itself on the trans-border. However, its rapid growth has come at the expense of a major increase in long term debt – now totalling some 1.1 billion USD – which is some two and a half times its equity.

With the return on capital having plummeted from as high as 18.4 percent some six years ago to less than four percent for the past two years, West Jet’s expansion is likely to be more moderate from now on.

By way of comparison, Southwest Airline – the role model of all those so-called low cost airlines – has consistently averaged 11 percent year after year.

CanJet seems content with operating short-haul destinations out of its Halifax base, supplemented by “sun” destinations in the winter.

Air Transat is well entrenched as Canada’s premier integrated leisure airline and tour package operator.

All those carriers have seemingly decided to avoid disastrous price wars and are a great deal more focussed on achieving a good bottom line.

I’m sure our American friends would love to hear the U.S. industry is also stabilizing. Unfortunately there the litany of difficulties continues unabated:

Despite heavy traffic and higher fares, American again lost money in the first quarter.

Continental narrowed its loss but the forecast for 2006 is dim.

United emerged from three years of bankruptcy protection in February and lost 306 million USD in the first quarter of this year, which is slightly more than it did in the first quarter of 2005.

Northwest’s bankruptcy reorganization added a billion dollars to its first quarter loss.

Delta is still struggling to emerge from bankruptcy protection, and last month had to silence its Song low-cost subsidiary.

Southwest still made money but had to fight harder to maintain its edge.

What’s wrong with the U.S. industry?

Why are the U.S. legacy carriers seemingly unable to restructure successfully and achieve the kind of positive developments occurring in Europe and elsewhere?

To add – and perhaps reinforce – some of the opinions and views already expressed at this Conference, let me point to a very important difference between legacy carriers in the U.S. and those of Europe and elsewhere.

As much as 70 to 75 percent of the traffic carried by the major U.S. airlines is domestic, and only 25 to 30 percent is international.

The reverse is true for European carriers.

As U.S. low-cost carriers concentrated almost exclusively on domestic markets, the American legacy airlines were that much more vulnerable than their European counterparts.

Their attempt to achieve parity with the low-costs required far more extensive restructuring.

There were just too many overhead and fixed costs to reduce.

Legacy carriers also carry the legacy – of huge pension funds with an unmanageable unfunded gap, as well as other burdens that come with being around for a long time – as some of us grey heads here today know all too well.

The financial difficulties of legacy carriers over an extended period of time have forced them to put fleet renewal on the back burner.

Too large a percentage of their fleet consists of 25 year-old plus aircraft.

Their fuel and maintenance costs are much higher than those of, say Jet Blue, which flies the new, 20% more fuel-efficient Airbus 320s and Embraer 190s.

Jet Blue was a good example of how, generally, the low costs have been able to enter domestic markets and prevail almost overnight because of a new, efficient fleet and low overhead, low-seniority employees, lean headquarters staff in airport hangars, no-frill service, etc.

But when I say that Jet Blue was a good example, it is because Jet Blue has since broken away from the low cost formula by acquiring a second aircraft type and introducing an upgraded hybrid service.

And we all know that a mixed fleet is a “no-no” for any low-cost.

The airline has now posted its second quarterly loss, and it remains to be seen whether this change in strategy will succeed – or may in fact turn out to be a costly mistake.

It will be interesting to watch whether the U.S. Airways-America West merger will truly turn out to be successful.

U.S. Airways earned $65 million in the first quarter, in part because the merger with America West allowed it more leeway to trim less lucrative routes and beef up more profitable pairings.

Despite their good efforts, I don’t think that the legacy carriers are yet off the hook in their need to downsize and consolidate into lean – and mean – competitors.

Unfortunately in my view, Chapter 11 is preventing the required consolidation of the legacy carriers.

When Pan Am and Eastern were allowed to disintegrate other airlines picked up the pieces worth saving, such as part of their fleets, gates at congested airports, and a number of international route rights.

I said yesterday that the European experience is proving that consolidation and mergers can produce positive results.

I believe that U.S. legacy carriers, reborn into three or four strong competitors, would also benefit from cross-border mergers with alliance partners – something which is currently prevented by a U.S. aviation policy that puts very restrictive limits on foreign investments.

The Canadian industry has given signs of being interested in such a development.

As a case in point, Air Canada’s minority investment in Continental some years ago was a precedent that proved profitable for both carriers.

With a population of only 33 million, the conundrum for Canada’s airlines is where to grow.

The skies opened a little wider with the Canada-U.S. agreement signed last November.

The 5th freedom rights negotiated provide an opportunity for Canada to link U.S. and European markets through Canadian points.

The U.K.-Canada bilateral, recently agreed in principle, offers similar opportunities if it can ensure that the 5th freedom ultimately defined would match those in the U.S.-Canada bilateral, and thus permit Canada’s airlines to participate in U.K. to U.S. markets through Canadian hubs.

Given U.S. concerns about security, foreign ownership and cabotage, I don’t think further liberalization of the Canada-U.S. agreement will happen any time soon – just as, for the same reason, the EC-U.S. negotiations are at an impasse.

As a temporary alternative to a fully integrated common air market over the Atlantic between Europe and North America, the European Commission could perhaps be interested in a discussion with Canada along the lines of their proposal to the Americans.

With cabotage no longer of great importance to the E.C. position, other concerns – even security – could be overcome.

Canada has stated on several occasions that on a reciprocal basis, foreign ownership of Canadian carriers could readily be increased to 49%.

The advantages to both Europe and Canada are obvious.

Some 25 bilaterals would be replaced by one agreement covering the whole European Common Market.

Canada’s airlines would have “open skies” access to a market of some 450 million people – some fifteen times its own population.

The European Community would achieve the successful implementation of their common Atlantic air market approach, with a major North American partner.

The experience learned in such an agreement would be useful to all parties in eventually overcoming U.S. reluctance.

A Canada-E.C. agreement would be another step in modernizing the Chicago convention and moving beyond the archaic air bilateral approach which may have served the industry well in the past, but is now of another age.

As Canada and other countries have learned, the market knows better than governments as to who should fly where, how often, and at what price.

Our global village may still be a long way from one common air market, but despite hesitation and reluctance by many – and outright refusal by some – it is moving steadily towards this eventuality.

At stake are continuing world economic growth, satisfying universal consumer demand, and the overwhelming need to rationalize the international air transport industry to achieve, finally, a sound financial basis.

Transportation – perhaps as much as agriculture – was essential to the start of civilization, and has been an integral part of our economic and cultural growth ever since.

Canada knows that well.

More than many other nations, Canada was created and developed with the help of transportation.

The growing importance of international trade to Canada requires the continued support of an enlightened transportation policy.

Canada’s need to remain at the forefront of the liberalization process is not uniquely altruistic, but I believe that increased market access would ultimately benefit everyone.

We all know that a “big bang” solution to worldwide liberalization is most unlikely, and that we are likely to continue in a step-by-step approach.

The way to proceed appears to be, therefore:

Continued expansion of bilateral “open skies” agreements by all like-minded nations;

Continued expansion of regional common air markets such as achieved by the European Community;

Pursuit of bilateral agreements between regional common air market areas and other regional areas – or by “block-lateralism”, to use an expression coined some time ago.

Globalisation of industry, trade and commerce is a process which has been unfolding for many years, and of course the World Trade Organisation (W.T.O.) has been working hard at removing trade barriers on many fronts.

But international aviation, together with the communication networks, should be credited with having largely contributed to the acceleration of globalization we have been witnessing.

Now, it is a rather curious paradox that the airlines themselves would remain unable to become truly global entities themselves.

Why is it that the automotive industry, the pharmaceutical industry, or the petroleum industry – and so many other industries – are given full freedom of action on a worldwide basis but the airlines are not?

The restructuring of the airline industry in North America remains unfinished.

Low costs now represent 42% of the U.S. domestic market and their share will probably level off at 50%.

Now six legacy carriers vying for the remaining 50% may prove to be too many to ensure a stable, profitable industry.

Would it not be desirable to encourage consolidation into three or four major national carriers once again able to hold their own domestically, and internationally?

Some have suggested that Chapter 11 bankruptcy protection should be modified to limit the frequent resuscitation of moribund airlines – which may only serve to prolong the agony.

And we must also encourage more mergers and consolidations internationally. I do not wish to discourage membership in IATA, but wouldn’t the industry and the travelling public be better off if, instead of 250 marginal national carriers, the international airline industry was to consolidate into maybe 30 or 40 strong global competitors?

Should consolidation accelerate internationally, would the U.S.A. be content to watch it from the sidelines and prevent opportunities for its reborn U.S. legacy carriers to merge with international alliance partners – which would require that the U.S. aviation policy become less restrictive about foreign ownership?

Surely questions of security and ownership can be addressed satisfactorily if the will to do so is there.

The process of dismantling the barriers preventing world deregulation of international aviation must be vigorously pursued.

In this quest, it is hard to believe that the U.S.A. would not choose to remain a key driver.

The prize is surely worthwhile. At stake is the emerging of an industry finally allowed to behave like most others – stable and profitable.

Thank you.