Address to the Canadian Aviation Historical Society

The History of Tomorrow Being Made Today
Address to the Canadian Aviation Historical Society
Ste-Anne-de-Bellevue, Canada, June 4, 2010 >>

Mr. President, members of the Canadian Aviation Historical Society, ladies and gentlemen of the aviation community.

I am most honored and very pleased to be associated with this historic event.

An event which celebrates the one hundredth anniversary of this region’s passionate love affair with the world of aviation.

I believe that the genesis of this great interest can be traced back to the first Canadian International Aviation Meeting which was held here in June 1910.

At the closing event, Count Jacques de Lesseps flew his Blériot XI over the city of Montréal – and it is said that this first ever appearance of an aircraft in the Montreal skies generated a considerable amount of emotion and interest.

This was undoubtedly a defining moment in time which has led to the diversity – and the richness – of the aerospace activities that this region is known for today.

And I know that you are very much aware that the greater Montreal region is the home of some 60% of the entire Canadian aerospace industry – and is considered one of the three world centers of this important industrial sector.

I am reminded that Prime Minister McKenzie King once said that the problem with this country was that

“Canada has too much geography … and not enough history”.

But when it comes to aviation, Canada has an impressive history. And in deference to McKenzie King, it would be fair to say that it is the challenges offered by Canada’s geography that has led to the writing of some of the best chapters of Canada’s – and indeed the world’s – aviation history.

As Canadian aviation enters its second century, I can attest that I have been a part of it, in one way or another, for more than half of that period.

In fact when I started in this industry, flying was still a little risky – but I am told that in those days sex was a lot safer!

When I joined Trans-Canada airlines, the Canadair North Stars were the mainstay of the fleet and Lockheed Super-Constellations were opening up more Atlantic routes.

The airline was fulfilling its nation-building role, having taken over from the railroads the task of bringing this country together.

The pioneering efforts of my predecessors have been, I believe, well documented.

They have inspired many of us – and have substantially; contributed to the advancement of aviation worldwide.

As for my modest contribution to aviation history, I believe that the part I played in the development of the famous “Black Box” has been mentioned many times.

What is perhaps lesser known is that I was the first Air Canada executive to integrate and lead all computer systems and communication functions.

Today, you would call this role the Chief Information Officer – the C.I.O.

In that capacity I directed the development and implementation of the first real-time computer reservation system in the world – Reservec II.

For the sake of full disclosure I would need to point out that American Airlines was also developing a real-time computer system in the same timeframe.

There were, however, some significant differences between the two systems, as ours was based on Univac computers and theirs on IBM.

Now let me say, for the record, that during my stewardship of Air Canada which covered the best part of the 80’s (I left the airline in the fall of 1990):

We designed and introduced the first Business Class over the Atlantic and long-haul transcontinental routes

We regrouped, or created, regional airlines in every major part of Canada which today are the founding components of Jazz.

We pioneered the wide-body twin engine aircraft over the Atlantic.

We designed an ambitious international strategy which permitted Air Canada to finally gain access to Asia.

Transforming the then Crown corporation into an airline that could be privatized was, without a doubt, the most significant challenge that I faced as the CEO.

Every facet of the business needed to be addressed:

The network needed to be streamlined
The fleet modernized
Our productivity substantially improved
Our balance sheet significantly strengthened
Out internal culture completely changed
All contracts to be re-negotiated
A new strategic plan developed.

In the process I faced three industrial actions or work stoppages in three consecutive years and, as one would expect, spent much energy to minimize the negative impact of public/political opinion which is usually opposed to changes of these magnitudes.

But we prevailed, and that success led to many other Crown Corporations being privatized, like the C.N.R.

There is one other contribution from my days at the helm of Air Canada which I believe may be of interest to mention here.

It is the introduction of non-smoking flights on the Toronto-Montreal sector, in response to the need of a specific market segment.

The announced threat of a boycott by the Tobacco industry gave us tremendous publicity and accelerated the movement against smoking in public places.

I would have to confess that I never imagined at that time that this relatively modest but bold move would have been a triggering event for the widespread ban on smoking which exists worldwide today.

I have always believed that in Canada there was room for only one major international aviation champion.

And I regret that I was unable to convince the government of the time to allow air Canada to lead the required restructuring.

My proposal was for Air Canada to purchase the international route network of Canadian Pacific Airlines, leaving C.P. Air with a much strengthened balance sheet and a domestic network able to provide the kind of domestic competition required by Canada.

Although the same end point has been achieved today, I can assure you that the earlier proposal would have been a lot less painful.

I would be remiss if I did not say anything about my 10 years at the helm of IATA – the International Air Transport Association.

That period has been summarized in a couple of chapters of a recently published biography.

Let me simply say that I take great pride in having been the first and the only Canadian to head this great international institution.

During my tenure I completely transformed this then rather stogie, bureaucratic organization into a customer-oriented aviation cooperative, safety focused – and a strong and respected voice of international aviation.

Let me give you two examples.

When I joined IATA in 1991, the Association’s yearly budget was $50 million USD and the dues paid by the members amounted to $27 million USD.

When I left in 2002, the budget was $300 million USD, the dues had been reduced to $17 million USD and, for that year alone, we achieved a surplus of $28 million USD.

The second example is about the role of IATA on the important subject of safety and accident prevention.

In 1991, IATA considered that it had no jurisdiction on this matter – which is technically correct.

The role of reinforcing safety measures was to be left in the hands of ICAO, the FAA, and the other government authorities.

I took a different view. As an Association of airline operators, I believed that safety should, in fact must be – IATA’s number one priority.

I will spare you the efforts which were required to change that mentality, but it will be sufficient to say that by 1995, at the IATA General Assembly, the membership accepted the objective to develop – and implement – programs designed to reduce the accident rate by half over the next ten years.

I am very pleased to say that that objective was reached by 2005!

But enough reminiscing.

Now the past is important – not only because of the lessons and the great memories it provides us – but perhaps more importantly because it contains the seeds of what will become our tomorrow.

It may be an obvious observation to state that “the future starts today”.

But when it comes to the future shape of our industry, I believe that if we take a look at the decade just ending, we should begin to see the forces which are in the process of reshaping our world.

I am convinced, if it is not already obvious, that the passage of time will confirm that this first decade ushered in the dawn of a new era in aviation.

The first decade of the new millennium was characterized by, among others:

Some spectacular attacks by kamikaze terrorists
A sudden and highly disruptive oil crisis
The continued pressure to meet consumer demand – and the progress achieved worldwide in liberalizing air markets
A deep economic recession which lingers on
The rapid economic growth of Asia, more particularly the economies of India and China
World-wide recognition of our contribution to climate change and, more specifically, of the need for aviation to reduce its carbon foot-print

All of these factors, and more, are irrevocably changing – and redefining – commercial aviation.

On the matter of the environment, the industry has set a target of zero increase in CO2 contributions by 2025.

Since we continue to project that traffic will double over the next fifteen years, it would mean that by then our CO2 emission per passenger/kilometer would have been reduced by 50%!

This is a very ambitious target which requires, among other things, that we accelerate the development – and mass production – of new fuels.

The aviation industry is embracing biofuel as the solution, and numerous initiatives are being undertaken to test and produce sustainable aviation biofuel.

Airlines and aircraft manufacturers are heavily involved in testing various alternatives, and several airlines have operated flights with a 50% blend of biofuel and conventional aviation fuel.

In the U.S.A. the Air Transport Association, ATA, and a division of the Department of Defense have formed a partnership for:

“The development and deployment of commercially viable,
environmentally friendly, alternative aviation fuel.”

Approval for a new class of fuels is expected in the second half of this year.

It is a huge requirement. The U.S. airline industry and the DoD collectively require more than 1.5 million barrels of fuel per day.

The results – in terms of carbon emission – of using various biofuel have been most exciting, with savings of up to 95% compared to fossil-fuel derived jet kerosene.

Additionally, a recent study endorsed by Boeing and an industry team concluded that a fuel blend of 50% petroleum-based jet fuel and sustainable biofuel gave excellent results.

The fuel blend met or exceeded all parameters required such as fuel freezing and flashpoint, etc. with no adverse effect on engine or components.

The study concluded, as well, that the fuels have greater energy content and could potentially lower fuel consumption per mile.

Naturally, we also expect that the new aircraft models will play an important part in the achievement of the carbon emission reduction targets.

The airline industry has been asking for new airframe and powerplant combinations capable of delivering fuel burn improvements in the neighborhood of 20%.

The significant increase in the use of composite material, improved aerodynamics, and more efficient engines, are likely to help us meet that level of improved performance over the next 15 to 20 years for the whole fleet.

Unfortunately launch and production delays have significantly hampered fleet renewal.

The Airbus A-380 has met – or exceeded – its expected performance in terms of dispatch reliability, noise, operating costs, and fuel burn.

But the manufacturer has yet to master the challenge of ramping up production.

Last year only ten Airbus A-380 were produced – and the hope is that the rate can be increased to 20 for this year (more than 140 were sold).

As a result of the delayed introduction – and the much lower than anticipated production rate – the program will remain a financial liability and will probably never recover its costs.

Extensive delays and additional cost have also plagued the introduction of the new Boeing B-787 – the so-called “Dreamliner”.

This airplane is still undergoing acceptance flight testing – and will not start delivery before the Fall of this year.

At this time, there is no reason to believe that this new family of airplanes will not fully meet expectations and offer savings of the order of 20% – or better – in operating costs and fuel consumption.

The standard version – the B-787-8 – with a seating capacity of 210 to 250, is expected to replace the Boeing B-767-300ER and the Airbus A-310.

The longer range and higher capacity version, able to accommodate from 250 to 290 seats, will enable many new route to be opened where today the market is too thin to be economically served by a Boeing B-777-300ER or an Airbus A-340-500/600.

Not to be outdone, Airbus has been developing a new long-range wide-body – the A-350 series – which once again promises to improve significantly on its current A-330 and A-340s.

The A-350-1000 – its larger, long range version – hopes to render obsolete some Boeing B-777 models.

The Airbus A-350-800 would be aimed at competing advantageously with the bigger version of the “Dreamliner”, more specifically the B-787-9.

And thus, the profile of the wide-body, long range, international fleet likely to be in service over the next twenty years or so, is already well known.

The airframe will be largely made of composite material; the aerodynamics will have been further refined; the engines will provide substantial improvements in fuel burn; safety and dispatch performance will be higher, resulting in further improvements in reliability and maintenance costs.

But what about the single-aisle, narrow-body fleet?

The two major aircraft manufacturers – Airbus and Boeing – are unlikely to launch into the design and development of a totally new narrow-body aircraft any time soon.

The primary reason is that they both need to complete their respective wide-body programs – and reap some of the resulting financial benefits – prior to committing to some other very costly development.

And secondly, they both should be extremely reluctant in developing, at this time, an entirely new narrow-body aircraft – which would render obsolete their very successful lines of A-320s and B-737 Next Gen.

Both lines continue to sell very well, and the only concern on the horizon would be whether the Bombardier “C” Series is likely to gain momentum and carve up a significant share of the bottom end of the two well-established single-aisle families.

Still another important question is whether both major manufacturers are satisfied with the engines which could be made available for a new narrow-body aircraft.

Wisely, Bombardier delayed its launch decision until it was assured that Pratt and Whitney could guarantee the availability of a new engine.

The Pratt and Whitney 1000G Geared-Turbo-Fan, which claims to deliver 12 to 15 percent lower fuel burn, was simply crucial to the “C” Series promise of 20 percent improvement over existing A-320 and B-737 NextGen current models.

Now CFM International has also proposed to enter the narrow-body engine market of the future with its LEAP-X, which borrows on the technology developed for the G.Enx engine.

CFM claims that the LEAP-X will also deliver 12 to 15 percent better fuel burn.

There seems to be a consensus that neither Airbus nor Boeing will come up with a “clean-sheet” design for a narrow-body series before 2024-2025.

However, both manufacturers are today seriously examining what they would need to do to put new engines on an upgraded version of their aircraft – raising the prospect of a modernized, re-engined A-320 and B-737 family emerging some five years from now.

A key question would be whether they would move now or wait for a second generation already proposed by Pratt & Whitney for its Geared-Turbo-Fan.

The decision by the major manufacturers to offer a re-engined A-320 – and B-737 – five to six years from now will undoubtedly reduce the market share the “C” Series of Bombardier is hoping to capture.

Airbus believes that a re-engined A-320 would improve fuel burn, per seat, by 13 to 15 percent.

The market share of the “C” Series will be very much affected by the timing of the re-engining decision, the price of fuel and whether – following re-engining – the “C” Series would still benefit from a 10 percent or so fuel burn advantage.

One way or another, the composition of the world’s airline fleet over the next 15 to 20 years is already clearly evident.

Worldwide deregulation of air markets has progressed rather slowly – but steadily.

In contrast to some other industries, there was no “big bang” – nor has the subject ever been discussed seriously at the World Trade Organization.

The genesis of deregulation can be traced back to the initiative of the Carter Administration, in the late 1970’s, to liberalize the U.S.A. domestic market.

This was quickly followed in Canada with the White Paper of the Mulroney Government entitled “Freedom to Move” – which set the stage to totally free up the domestic Canadian market.

During the 1990’s the European Community – also through a staged process – created an integrated air market.

Internationally, the U.S.A. “Open Sky” initiative endeavored to negotiate air bilateral agreements which removed any constraints as to pricing, capacity, or points served between the U.S.A. and other countries.

This type of highly liberalized air bilateral agreement has progressively become the norm in most of the air bilaterals being negotiated today.

The globalization of trade, the rapidly increasing use of electronic networks potentially linking all human beings have all contributed to the emergence of the global village which favors – and supports – greater worldwide liberalization of the air markets.

And thus powerful forces are at work re-shaping the profile of the aviation industry.

New business models have emerged; previous business models have had to question their relevance and redefine their roles.

One thing is quite clear: the days of government-owned national airlines are over.

A nation can no longer afford the luxury of subsidizing a flag carrier.

The constraints of government ownership – and the inefficiencies that came with it – render such an organization incapable of coping successfully with the intensely competitive environment which today characterizes our industry.

One of the significant factors that has forced the re-structuring of the traditional network has been the emergence – and the surprising strength – of the so-called “low cost” carriers.

Southwest Airlines – which came into pre-eminence in North America during the 80’s – is generally considered the “grand daddy” of the low costs.

During the aftermath of the U.S. deregulation many new carriers came into being -attempting to follow the Southwest model.

Most were unable to survive past the next economic recession.

It was up to Europe to re-launch the concept. New carriers such as Easyjet, Ryanair, and others gave the low cost model new impetus.

Today, low cost carriers have established a presence in every region of the globe, exerting strong competitive pressure on the more traditional airlines.

The speed with which the low costs imposed themselves in the market place has to some degree taken the traditional carriers by surprise.

They have been compelled to redefine their presence in the market and to adjust their domestic and regional networks.

The growth of the “low cost” carriers has been nothing short of remarkable.

A recent study published by the Centre of Asia-Pacific Aviation indicates that the total growth of the world capacity deployed since 2001 is equal to the growth experienced by the “low costs”.

Indeed, over the same period, the capacity offered by the traditional airlines was slightly diminished.

And the number of seats flow by the “low costs” grew from 7 percent to 22 percent of the total!

Not every new entrant has been successful but still – by the end of last year -approximately two thirds of all newcomers since 2000 had survived.

Which means – adding up the players present in all the regions of the world – that some 128 “low costs” were in operation.

What makes the “low cost” business model so successful is, of course, the simplicity of its operation.

It is a no-frills service – a single class, one type of aircraft only, with high-density seating and high aircraft daily hour utilization.

A low cost generally has low overhead, few fixed costs, extensively out-sources, employs younger, lower-paid employees – and distributes its products almost exclusively through electronic media.

Recent experience has evidenced the fact that low-cost carriers are more affected by sudden fuel cost increases than the traditional airlines.

This is simply because fuel represents a much larger component of their operation costs – and consumer resistance makes it that much more difficult to pass on the increase to the traveler.

On the other hand, the traditional airlines are more affected by an economic recession because many companies tend to implement cost-cutting measures which temporarily reduce traveling – and/or require their management to travel Economy rather than Business Class.

Buffeted by extensive competitive forces and to take advantage of the new flexibilities offered by the more recent regional economic integrations, several traditional airlines have decided to re-group – or merge – to ensure their survival.

The question appears already largely settled in Europe where, for all intents and purposes, most of the so-called “national carriers” have joined one of the three distinct airline groups respectively led by Lufthansa, Air France, and British Airways.

Lufthansa, which earlier absorbed Swiss International, the former Swissair, has more recently completed the acquisition of Austrian Airlines, British Midland and Brussels Airlines, a quasi low cost created following the demise of Sabena.

Air France and KLM were first in Europe in successfully completing their merger. The model they developed has, in some ways, set the pattern for others to follow.

The Air France/KLM Group has also recently acquired an important participation in Alitalia, which commits the Italian national carrier to become part of their group eventually.

The third European group, comprised of British Airways and Iberia, is now completing its much delayed merger. The difficulties experienced by British Airways – not the least being pension liabilities – have among many other things complicated the merger process.

Of course there are many other national airlines that have so far remained independent, but it will be increasingly difficult for all of them not to join one or other of the groups or to participate in some form of merger.

In North America a similar phenomenon is present – and we have recently witnessed the merger of Northwest and Delta Airlines.

United Airlines – having failed on many occasions to arrive at a satisfactory arrangement with US Air – is completing a merger with Continental Airlines.

Following the merger of Northwest and Delta, Continental – which was previously allied to Northwest – felt somewhat like an orphan.

It is already clear that three major traditional airlines regroupings are emerging in the U.S., each aligned with one of the three major European groupings.

Joint ventures across the Atlantic have already been in the making, with the Air France/KLM Group and the Delta/Northwest group concluding a commercial agreement which brings under one umbrella all their respective trans-Atlantic services.

The same approach is being developed by Lufthansa, United/Continental and Air Canada – and it would be surprising if American Airlines and British Airways do not chose to conclude a similar agreement.

All these activities clearly point to setting the stage for a “mega merger” of airline groups on both sides of the Atlantic, should that ever be permitted under the U.S./European Community bilateral agreements.

Where does this leave Air Canada?

Air Canada is today an important member of Star Alliance. Its strongest partner is the Lufthansa Group, and its largest partner is United Airlines. The current bilateral agreements preclude the possibility of Air Canada being acquired by – or for that matter acquiring – another non-Canadian airline.

If we assume that eventually cross-border mergers will be permitted, it is important for Air Canada to substantially strengthen its financial position in order to ensure that it can be an important player in any potential cross-border merger in the future.

The process of regrouping airlines is going on, as well, in other regions of the world – in particular in Latin America with the activities have been led by the Lan Airlines, TACA (the Central American airline), and the restructuring that has been ongoing in Brazil.

It is most interesting that despite the difficulties experienced by national carriers to survive under the pressure of the low costs, new airlines which could be called “national airlines” have emerged and are rapidly establishing a position in the international market.

Over the last decade, three small States in the Persian Gulf have developed ambitious new hubs and are actively engaged in expanding their operation into the sixth freedom market which exists between their tiny States on the one hand – and Asia, Europe and America on the other.

Emirates (based in Dubai), Etihad (operating from Abu Dhabi) and Qatar Airways whose operation is in Doha have all ordered large fleets of aircraft.

To illustrate their ambitions, Emirates has put in an order for 53 Airbus A-380s and 70 Airbus A-350s.

In the case of Qatar Airways, they have recently put in an order for 80 Airbus A-350s and five A-380s.

It remains to be seen if, in the present context, these three new airlines based in the Gulf will actually be able to grow and prosper.

The Asian market is growing very rapidly – and this is particularly true for the Indian Sub-Continent and China. In both of these large regions, international airlines are growing and are likely to become stronger.

The availability of new airplanes with long-range capabilities allowing flights to operate directly between Asia, Europe and North America, for instance – using Boeing B787s and Airbus A-350s – will easily enable any Persian Gulf hub to be bypassed.

This situation suggests that price competition involving those very important Asian markets will likely be very active in the next timeframe.

The recession in Asia has been short-lived and the growth of air traffic is once again nearing double digits.

The Asia-Pacific region has just recently surpassed North America in terms of annual passengers boarded – more specifically, 647 million passengers vs. 638 million passengers in 2009. It is forecast that in a few years from now, the Asia/Pacific region will represent 50 percent of total air traffic worldwide.

The other regions that are also enjoying excellent air traffic growth are South America – particularly Brazil – and of course the republics that were previously part of the Soviet Union.

And we should not forget about Turkey which, with its large population, is also growing very rapidly.

Canada – with its relatively modest population growth and very mature air market – is likely to see its relative weight in terms of air traffic diminish on the world scale.

Lastly, it is worth mentioning another small but growing business model used in addressing the needs of an important segment of air travel demand.

Until the last economic recession, the number of private and corporate jets was increasing rapidly.

Tongue-in-cheek, one might be tempted to say – that the more recent increase in executive remuneration was driving this expansion!

You may remember images of the U.S. automotive industry’s top brass flying to Washington – in their private jets – to beg for tens of billions of dollars of bailout money to save their respective companies.

The utilization of private airplanes has been made increasingly affordable by various formulae such as “fractional ownership” – or simply by contracting over a period of time with a supplier willing to guarantee aircraft availability when required.

For instance, NetJets – with a fleet of over 800 aircraft – can provide you access to thousands of airports on request, if you have contracted with them – with guaranteed availability within four to ten hours, when and where you need it.

Additionally, there is no doubt that the security-related hassle and confusion at most airports has contributed to the popularity of private and semi-private aircraft which enable to user to largely by-pass this frustrating experience.

Although the economic crisis has dampened this expansion, we should fully expect that this sector will soon recover with vigorous growth.

The most recent forecast published by Airbus Industries predicts that by the year 2028 air traffic demand will have nearly tripled and that the fleet of passenger aircraft with over 100 seats will have grown from some 14 thousand in 2009 – to over 28 thousand in 2028.

To accommodate this projected growth, congestion of the various infrastructures will be a major issue – if not vigorously addressed.

One factor helping to fuel this congestion is the growth of the world’s major cities – coupled with the fact that more people are becoming economically mobile.

This, you may recall, was mentioned as a major factor in the decision by Airbus to build the A-380.

This “very large airplane” substantially increases the number of passengers which can be carried on any one flight between the mega urban centers.

Equally valid was the strategy developed by Boeing in proposing the B-787-9, its long range version aimed at opening new city-pairs and creating many new mid-size hubs.

Fortunately, the need to modernize both the European and the American air traffic control systems has finally been recognized.

SESAR is the European 1.9 billion Euro initiative which is involving the European Community, Eurocontrol and 16 partners – institutes, airports, firms – over a seven year period.

The SESAR project will unify Europe’s ATM Systems; create capacity to handle a threefold increase in flight movements; improve safety by a factor of 10; and reduce by 10 percent the environmental impact per flight.

SESAR components and procedures will be progressively implemented from 2010 to 2020.

The U.S.A. Next Generation Air Traffic Management System – NextGen – has been under development for some time.

The new system will introduce cutting edge, satellite-based navigation technologies with more precise flight tracking.

NextGen will provide a single infrastructure and Information Management System, improved data links, and a single weather information system.

It is projected that NextGen will need a further $20 billion US up to 2025 to complete its development.

The objectives for NextGen are similar to those of SESAR – with the FAA claiming that the new system will save up to $2 billion US dollars per year in fuel.

What can we conclude regarding the future evolution of commercial aviation, given the forces at work reshaping the industry?

Or if you prefer, if we were holding this conference in 2025 – what would we be able to write about our recent past?

I believe that we would be able to observe the following:

The desire to travel and see the world – and the need to travel for business reasons – has continued to grow worldwide.

Our earlier forecast – calling for traffic to double every fifteen years – has proven correct and we carried approximately five billion passengers in 2025.

Much of that growth has come from Asia-Pacific, with China and India providing the lion’s share.

However the CIS countries – the former Soviet Republic as well as Latin America and the Middle East – are also important contributors to that growth.

Europe and North America have implemented an integrated air market

This new EC-North America air bilateral has enabled European and North American airlines to hold merger discussions.

In most regions of the world, low cost airlines have achieved a 50 percent share of the regional/domestic market.

Driven by renewed economic affluence, the number of private and corporate airplanes operating in fractional ownership mode or its equivalent has more then doubled.

An increasing number of companies have found that contracting for a certain number of hours per year to make private jets available for their executives, on demand, to be cost-effective in the midst of the rapid acceleration of business globalization.

Significant improvement in air traffic control capacity resulting from the implementation of the various components of SESAR (Europe) and NextGen (USA) have been achieved.

Unfortunately as in most government driven programs, costs far exceeded the original estimates.

Non-military use of unmanned aircraft has been increasing causing safety concerns and a potential increase in air traffic congestion.

Biofuels have become firmly established and have become the new norm for both commercial aviation and military use.

The production of biofuels is now targeting some 50% of the air industry’s requirements. Traditional petroleum companies have invested heavily in this new industry.

I leave you to imagine the resulting impact on the tar sands and some of the more expensive off-shore and arctic oil operations.

The combination of the electronic networks and sophisticated biometrics have given air travelers full control in handling their travel needs, as well as checking and boarding at the airport.

While they have been doing their own seat reservations for many years, the printing of boarding cards was discontinued as travelers are now simply biometrically scanned to allow boarding at the gate.

Similarly, a chip on their baggage will automatically identify the luggage with the traveller and ensure that it is routed appropriately.

This has led to a virtual disappearance of airline customer service staff at airports.

Airlines however have compensated to some extent by making extensive use of web-based social networks.

Airlines have been using Twitter-like networks to listen to what their customers have to say – and have also found this social network to be a good way to promote their fare sales.

A version of Facebook is also used extensivelyto keep a personal contact with the traveler and provides a platform for discussion.

As a result of greater use of their partly customized social network, this way of reaching the customer has diverted much of the funds and resources previously allocated to the more traditional channels of marketing and advertising.

Ladies and gentlemen

Back in 2010 we observed that the airline industry had lost more money than it had ever made over its entire history.

Some of you may recall that we were at that time in the aftermath of a very painful and prolonged economic recession which had been triggered by a disastrous financial crisis.

The airline industry recovered over several years – but its financial situation remained somewhat fragile.

Since then we have suffered two more economic recessions, and having failed yet again to learn how to manage through these crises, the financial situation of the airline industry has not improved.

I seem to recall that back in 2009, Warren Buffet – the famous financial guru from Omaha – was asked what he thought of the airline industry.

Mr. Buffet was reported saying:

“If someone had taken the initiative to shoot down the first flight of the Wright Brothers, that person would have rendered a great service to the financial community.”

You may also recall that Warren Buffet had made a substantial investment at the time in a railroad, which later paid him handsomely.

It is somewhat puzzling that despite benefiting from

Spectacular periodic technical progress
Use of the latest procedures and techniques
Constant gains in productivity
Adaptation of its business models

the industry has completely and consistently failed to earn its cost of capital.

The airline industry has constantly defied economic logic – the logic which suggests that in periods of economic crises and instability, the weak and loss making companies leave the market.

The disappearance of some companies normally brings supply and demand back into equilibrium, which eventually allows prices to increase and permits the survivors to achieve an adequate return on investment.

But the airline industry has rarely reached such a point of equilibrium – and when it did it lasted only for fleeting periods.

The drive to increase market share continues to fuel the tendency for the whole industry to provide far too much capacity.

And government-run export credit agencies have continued to make airplanes more available than the financial system would normally permit.

Thankfully, an increasing number of air carriers – and that includes Air Canada – have shown that it is quite feasible to be consistently profitable, giving signs that maturity is setting in.

But despite those encouraging signs, for a large number of airlines their shareholders should be reminded that an airline stock is still one of those where the only sure way to make money is to buy it when it’s low – and sell it when it is high.

But perhaps those shareholders should console themselves by remembering that they are contributing to a great industry which is a very unique human endeavor – and which has brought enormous socio-economic benefits to the world.

Without the continuous, safe and dependable operation of the global airline network, worldwide business and trading would collapse – with untold economic consequences.

This has been amply demonstrated each time airline operations have been interrupted for one reason or another.

Despite having become such a large mass transportation business, flying has managed to remain for many of us a fascinating and wonderful experience.

We have learned to defy the laws of gravity – and in the process opened the door to space travel.

Finally ladies and gentlemen let me say, in retrospect, that I have very much enjoyed every minute of the many years that I have been part of this industry.

It may not be one where everyone can make “real money” but one can usually earn a “decent living” – and you are guaranteed to have lots of fun!

I feel honored and privileged to have been asked to address your 115th anniversary of the first meeting in Montreal …

And given my advanced age, I must say that I am quite grateful that I am still around.

Thank you