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Executive R eport Powered by Air Transport World | Aviation Daily | Aviation Week & Space Technology AviationWeek.com/IATA June 2, 2016 INSIDE THIS ISSUE What Alexandre de Juniac will bring to the IATA DG role page 3 Brussels Airlines CEO recalls the air- port terrorist attack page 4 AAPA chief on Asia-Pacific challeng- es page 6 Aer Lingus CEO Kavanagh on oppor- tunities & growth page 7 Latin American carriers on the eco- nomic roller coaster page 8 European SES: still a work in progress page 9 Delta’s new CEO brings change & continuity page 10 Ireland’s pro-aviation policy pays off page 11 Your next leader Air France-KLM chairman and CEO Alexandre de Juniac prepares to take the helm at IATA. SEE ARTICLE, PAGE 3 Tyler: Airline business still not easy As he takes the IATA AGM stage for the last time as director general, Tony Tyler remains all business and dog- gedly determined to continue address- ing those issues that hamper the global airline industry. Tyler highlighted some of the key issues he expects to be at the top of the agenda at the 72nd AGM here in Dublin. “The biggest issue will be the environ- ment in the run-up to the ICAO Assembly in September,” he noted. “There is a huge opportunity to fix this issue and we need to do our part to show that this industry is united and that we will continue to work with gov- ernments towards market-based measures’ implementation. “As always, safety is on the agenda, and on the security side there are clearly challenges. Most recently, the Brussels [terrorist attacks] show that public areas are vulnerable. So let’s do all we can to reduce crowding in public areas. Let’s get people moving quickly through airport terminals and through security with- out long queues. In the US, the TSA conges- tion is unacceptable; everyone recognizes that and something needs to be done,” Tyler said. “We also still need to work on taxes and get governments to see aviation as a driver of economic growth rather than a cash cow. And with infrastructure, there are still significant problems in China, the Gulf and elsewhere, while the US is making slow progress with NextGen. Airport charges are another issue, particularly as what you see with some large hubs is that airports are effectively monopo- lies. So we need effective regulation where the airport is required to consult with its customers. It’s important for governments to recognize that.” But the “number one priority,” Tyler believes, is the overall state of the global economy. “There’s plenty to worry about there. The way some of the industry is per- forming right now is somewhat defying eco- nomic gravity. The figures are pretty good, but I think airlines are finding out that cheap oil is nice, but it doesn’t solve all problems. The strong US dollar has not been good for all airlines and the big European carriers and some of the Asian carriers are finding it a very challenging business. My personal observa- tion is that labor militancy seems to be up a bit also. So there’s certainly an improvement over previous times, but it’s still not an easy business.” But it’s a business from which, at least in the near term, Tyler plans to take a hiatus. So how will the DG feel as he takes the stage this year? “Certainly I have mixed feelings as this will be my last AGM as DG and prior to that as [Cathay Pacific] CEO and an [IATA] board member,” he said. “But I am looking forward to a new life.” Karen Walker/ATW [email protected]

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Page 1: 2016 IATA AGM DAY 1...2016 IATA AGM, combines reporting from the network’s “Power of Three” global editorial teams: Air Transport World, Aviation Daily and Aviation Week & Space

ExecutiveReportPowered by Air Transport World | Aviation Daily | Aviation Week & Space Technology

AviationWeek.com/IATA

June 2, 2016

INSIDE THIS ISSUE

What Alexandre de Juniac will bring to the IATA DG role page 3

Brussels Airlines CEO recalls the air-port terrorist attack page 4

AAPA chief on Asia-Pacific challeng-es page 6

Aer Lingus CEO Kavanagh on oppor-tunities & growth page 7

Latin American carriers on the eco-nomic roller coaster page 8

European SES: still a work in progress page 9

Delta’s new CEO brings change & continuity page 10

Ireland’s pro-aviation policy pays off page 11

Your next leader

Air France-KLM chairman and CEO Alexandre de Juniac prepares to take the helm at IATA. SEE ARTICLE, PAGE 3

Tyler: Airline business still not easyAs he takes the IATA AGM stage for

the last time as director general, Tony Tyler remains all business and dog-gedly determined to continue address-ing those issues that hamper the global airline industry.

Tyler highlighted some of the key issues

he expects to be at the top of the agenda at

the 72nd AGM here in Dublin.

“The biggest issue will be the environ-

ment in the run-up to the ICAO Assembly

in September,” he noted. “There is a huge

opportunity to fix this issue and we need to

do our part to show that this industry is united

and that we will continue to work with gov-

ernments towards market-based measures’

implementation.

“As always, safety is on the agenda, and on

the security side there are clearly challenges.

Most recently, the Brussels [terrorist attacks]

show that public areas are vulnerable. So let’s

do all we can to reduce crowding in public

areas. Let’s get people moving quickly through

airport terminals and through security with-

out long queues. In the US, the TSA conges-

tion is unacceptable; everyone recognizes that

and something needs to be done,” Tyler said.

“We also still need to work on taxes and

get governments to see aviation as a driver of

economic growth rather than a cash cow. And

with infrastructure, there are still significant

problems in China, the Gulf and elsewhere,

while the US is making slow progress with

NextGen. Airport charges are another issue,

particularly as what you see with some large

hubs is that airports are effectively monopo-

lies. So we need effective regulation where

the airport is required to consult with its

customers. It’s important for governments to

recognize that.”

But the “number one priority,” Tyler

believes, is the overall state of the global

economy. “There’s plenty to worry about

there. The way some of the industry is per-

forming right now is somewhat defying eco-

nomic gravity. The figures are pretty good,

but I think airlines are finding out that cheap

oil is nice, but it doesn’t solve all problems.

The strong US dollar has not been good for

all airlines and the big European carriers and

some of the Asian carriers are finding it a very

challenging business. My personal observa-

tion is that labor militancy seems to be up a

bit also. So there’s certainly an improvement

over previous times, but it’s still not an easy

business.”

But it’s a business from which, at least in

the near term, Tyler plans to take a hiatus.

So how will the DG feel as he takes the stage

this year?

“Certainly I have mixed feelings as this will

be my last AGM as DG and prior to that as

[Cathay Pacific] CEO and an [IATA] board

member,” he said. “But I am looking forward

to a new life.”

Karen Walker/ATW

[email protected]

Page 2: 2016 IATA AGM DAY 1...2016 IATA AGM, combines reporting from the network’s “Power of Three” global editorial teams: Air Transport World, Aviation Daily and Aviation Week & Space

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Page 3: 2016 IATA AGM DAY 1...2016 IATA AGM, combines reporting from the network’s “Power of Three” global editorial teams: Air Transport World, Aviation Daily and Aviation Week & Space

[ 3 ]

ExecutiveReport

The Aviation Week Network Executive Report, produced onsite at the 2016 IATA AGM, combines reporting from the network’s “Power of Three” global editorial teams: Air Transport World, Aviation Daily and Aviation Week & Space Technology. Stay connected and informed at AviationWeek.com/IATA.

ONSITE EDITORIAL TEAMAir Transport World

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Published by Penton Media Inc., 9800 Metcalf Ave., Overland Park, KS 66212-2216. Also the publisher of ATW Daily News, Aerospace

Daily & Defense Report, Business & Commercial Aviation, ShowNews, SpeedNews and The Weekly of Business Aviation.

An AGM, a handover and a new industry leader

With IATA DG and CEO Tony Tyler to to retire from the position later this year, the 72nd AGM has a particularly important item on its agenda: confirm-ing a successor who can integrate the often differing interests of the mem-bers while promoting key interests of the industry as a whole in front of the world’s governments and other stakeholders.

The IATA board of governors believes

it has found that person in the form of Air

France-KLM chairman and CEO Alexan-

dre de Juniac. De Juniac’s confirmation by

the assembly is expected in Dublin, and it is

anticipated that he will step down from his

current role at the end of July and take up

his new position shortly after. Like Tyler, he

is expected to enjoy strong support from the

board. Nevertheless, there remain issues on

which the IATA membership is divided.

The complicated question of liberalization

and government support of airlines, for exam-

ple, is broader than the Gulf carriers. The big

state-owned Chinese airlines want to expand

their international routes much more rapidly

than they have done in the past, but are held

back by restrictive traffic rights in France and

Germany, while the US is now apparently

reluctant to pursue an Open

Skies treaty with China.

Some aviation leaders,

including International Air-

lines Group (IAG) CEO Wil-

lie Walsh, have raised con-

cerns that liberalization is at risk of being

rolled back. Others feel that the Open Skies

template needs to be revisited, citing fifth free-

dom access rights in particular, even though

these are critical to the US cargo operators.

From his own history as an airline CEO, de

Juniac knows well the challenges this industry

faces. During his tenure, Air France was in

constant restructuring mode, capacity was fro-

zen, activities such as the full-freighter busi-

ness disposed of, and the airline was trying to

find answers to counter increasing competi-

tion from low-cost carriers.

De Juniac brings significant government

and industry experience to the DG role.

Before his move into industry in

1995, he was an advisor to Nicolas

Sarkozy during the future French

president’s tenure as French min-

ister of economics, finance and

industry. And after holding senior

positions at Sextant Avionique, Thomson-

CSF and Thales, de Juniac returned to politics

as the chief of staff for Christine Lagarde

during her time as French minister for the

economy, industry and employment.

De Juniac joined Air France as chairman

and CEO in 2011, moving up to oversee the

Air France-KLM Group in 2013.

His next challenge: to represent the indus-

try on the global stage.

Jens Flottau/Aviation Week

[email protected]

IATA

de Juniac knows well the challenges this industry faces.

Page 4: 2016 IATA AGM DAY 1...2016 IATA AGM, combines reporting from the network’s “Power of Three” global editorial teams: Air Transport World, Aviation Daily and Aviation Week & Space

[ 4 ]

ExecutiveReport

The March 22 terror attacks in the departure hall of Brussels Airport remain

at the forefront of executive minds in Dublin as AGM participants discuss ongoing

security challenges. A despicable act against the aviation industry in general, the

attacks were especially hard on Brussels Airlines, which is based at the airport. CEO

Bernard Gustin is not the type to merely lament, however. A couple of hours after

the dual suicide bombings, he and his executive team had outlined a threefold plan

to steer the carrier, its employees and passengers through the unprecedented crisis.

Executive Report spoke to Gustin a couple of weeks afterward, providing insight into

what it was like to be there and the consequences for his company.

Where were you at the time of the bombings?I was in the office at 7 a.m. I had come early to prepare for a man-

agement board meeting and was in good spirits because on March 17

we had announced our results for 2015, which were excellent, and on

March 21 we had presented our aircraft with the livery of [Belgian

artist] Rene Magritte. I had a feeling of accomplishment. Easter was

coming up, and like so many Belgians, I was looking forward to spend-

ing the weekend at the coast. At around 8 a.m., I received a call on my

mobile phone, but I did not pick up as I wanted to concentrate on the

meeting. But the person called again and again. So I finally answered.

It was Arnaud Feist, the CEO of Brussels Airport.

What was your initial reaction? I immediately enacted our crisis center. My first concern was staff and

passengers. When the first images came through I feared for casualties;

one of the bombs exploded close to our ticketing desk in the airport.

It was a tremendously stressful day

and one of the most challenging

things was not knowing the grav-

ity of the situation and having to

find out who was where, who was

injured, and how badly. We were not

allowed in the building. One of my

employees visited all the hospitals to

try to locate our colleagues.

The speed at which you resumed operations March 24 and set up temporary bases at two regional airports in Belgium, Antwerp and Liege, following the closure of Brussels Airport, surprised even Lufthansa. Would it not have been easier to wait for the reopening of BRU?

We asked them [Lufthansa] for help with information technology

systems and they said, ‘Yes, of course, we’ll have it ready in five weeks.’

We politely, but firmly, answered that that would not work for us; we

wanted it the same day. The opening of two bases was an expensive

endeavor and it would have been financially cheaper to keep all aircraft

grounded and cancel the travel plans of the 22,000 passengers Brussels

Airlines carries daily, but from an ethical point of view it would not

have been correct.

It was logistically very demanding to set up the regional bases—we

needed to establish handling, maintenance, catering and procedures

at two airports we had never operated from. We had to arrange

transport of passengers, crew and aircraft; obtain slots; and inform

passengers of the changed schedules. In the meantime, we had to

deal with injured staff and passengers, lost luggage and so on.

You said your action plan—“Caring, Operating, Recover-ing”—helped you manage the crisis.

It helped everybody in our company to deal with the stress and

trauma. We decided to work on all three elements and to be transpar-

ent in our communications, internally and externally. I think people

have appreciated this. Our team spirit is stronger than ever and our

brand is also stronger.

How severe is the financial impact? I anticipate that this event will cost us between €70-100 million

($78.8-$112 million) this year. It is huge, but it will not kill a company

[Brussels Airlines] that has sufficient cash [Brussels Airlines had €189

million in cash at the end of 2015]. Our luck is that we had done a

heavy restructuring over the last three years. We will recover from

this horrible event and put the company back on track to achieve the

goals set in our 2018 business plan.

Cathy Buyck/Aviation Daily

[email protected]

Brussels Airlines: Fighting Back

Bru

ssel

s A

irlin

es

“We will recover from this horrible event and put the company back on track to achieve the goals set in our 2018 business plan.”

—Bernard Gustin

Page 5: 2016 IATA AGM DAY 1...2016 IATA AGM, combines reporting from the network’s “Power of Three” global editorial teams: Air Transport World, Aviation Daily and Aviation Week & Space

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Page 6: 2016 IATA AGM DAY 1...2016 IATA AGM, combines reporting from the network’s “Power of Three” global editorial teams: Air Transport World, Aviation Daily and Aviation Week & Space

[ 6 ]

ExecutiveReport

For Asia-Pacific airlines, a mixture of caution and optimism

For Association of Asia Pacific Airlines (AAPA) DG Andrew Herdman, the IATA AGM is always “a great meeting with key stakeholders and an opportunity to look at the industry from a global perspective.”

Speaking with the Executive Report ahead of the AGM, Herdman

summed up some of the questions that will be on the minds of many of

the Asian carrier CEOs during this AGM.

“Overall, despite concerns about the global economy, the fact is that

passenger demand is continuing to increase. The question is, are we going

to see that continue? Will a slowing economy ultimately affect demand for

air travel? And how do airlines balance those concerns?” Herdman said.

Some airlines in Asia-Pacific are trimming back capacity a little, he

noted, because they are seeing some softness. “Traffic growth in the region

was about 8% last year and continued at about the same rate this year,

but will that be sustained or will there be some moderation, in which

case you have to be very careful about capacity growth.

“It’s also about whether airlines can benefit from lower fuel prices or

whether that all goes to the passenger.”

Herdman pointed out that the strong US dollar has been a headache

for Asia, but that has reversed somewhat lately.

“For many of these questions, the answers are a guessing game. From

an airline point of view, there is a natural hedging process and that’s

reflected in aircraft orders and deferrals. Boeing and Airbus have these

massive backlogs, approaching 10 years. But both manufacturers have also

announced cost-cutting initiatives and that’s interesting from the point

of view of their competitiveness. In terms of net orders, yes, there is a

bit more caution, but the waiting time [for new aircraft] is so long now

that there’s no hurry to join the back of the queue,” he said.

So some aircraft are

being held on to a little

longer, Herdman believes.

“From that side, things

have stabilized, but that’s

not because the long-term

traffic growth predictions

have changed, although

some people who ordered

new-generation aircraft

have discovered that they

no longer need them.”

The transpacific market, meanwhile, remains as competitive as ever.

“From an Asia perspective, it’s an interesting market. The Chinese

airlines are finally making major commitments to these routes where in

the past it was the US airlines that were the major drivers in the market.

Now, it’s the Chinese carriers that are really driving it,” he said. “But

their competition is not just coming from the US carriers; it’s coming

from all the other Asian carriers.

“It’s a big market and very important because it has a strong premium

and they are very long-haul routes. The new equipment now offers the

capability to do very long non-stops that were not even economically

feasible in the past.”

Overall, Herdman noted, premium traffic is holding up, but not as

well as leisure traffic, which is growing robustly.

Karen Walker/ATW

[email protected]

At last year’s IATA AGM in Miami, the tension and talk buzzed about the Gulf carrier “wars.”

In the months leading up to the Miami event, three of the US majors—

American Airlines, Delta Air Lines and United Airlines—built a campaign

alleging illegal government subsidies for the Gulf “big three” carriers.

Delta’s-then CEO Richard Anderson demanded that Gulf carrier traffic

right be frozen pending requested government talks on the US Open Skies

treaties with the UAE and Qatar.

Fast forward one year and the result seems to be little to no change.

Emirates Airline, Etihad Airways and Qatar Airways continue to grow

their presence in the transatlantic market. The US government has made

no public comments of any substance about its position and not set any

agenda for Open Skies talks.

But from a global perspective, it is probably too soon to claim the

debate is over.

The European Commission late last year presented its new aviation

strategy, which includes language about its intention to negotiate EU-wide

air service agreements with various countries, including Gulf states. “While

the additional connections provided by the Gulf airlines are welcome—

there are concerns regarding the conditions under which they operate,”

the Commission wrote.

“Comprehensive aviation agreements between the EU and the GCC

States would be the right way forward to bridge the interests of both sides

by creating conditions that will allow further market development and

growth based on common rules and transparency.”

Those agreements will include clauses on what constitutes fair competi-

tion and mechanisms that could be activated if one side believes the other

is in violation of the deal.

Jens Flottau/Aviation Week

[email protected]

‘Gulf wars’ dispute loses heat but still bubbles

Bar

ry C

roni

n

AAPA DG Andrew Herdman

Page 7: 2016 IATA AGM DAY 1...2016 IATA AGM, combines reporting from the network’s “Power of Three” global editorial teams: Air Transport World, Aviation Daily and Aviation Week & Space

AviationWeek.com/IATA [ 7 ]

ExecutiveReportJUNE 2, 2016

AGM host Aer Lingus is in growth mode

Aer Lingus is the host airline of the 72nd IATA AGM here in Dublin. International

Airlines Group (IAG) acquired Aer Lingus in September, bringing it under the Group umbrella

that includes British Airways and Spanish carriers Iberia and Vueling. Stephen Kavanagh

joined Aer Lingus in 1988 and was appointed CEO in March 2015. He talked with the

Executive Report.

A prestigious role to be this year’s AGM host airline … Yes, Aer Lingus is celebrating its 80th anniversary this year, so it’s quite

a significant milestone in the company’s history. But it’s also important for

Ireland and for how it has developed and highlighted the positive impact of

aviation. So we are delighted to showcase both Aer Lingus and Ireland and

its aviation and airline businesses. We’ve been a very long standing member

of IATA and we last hosted the AGM in 1962, so we are delighted to have

this opportunity.

What issues do you expect to see raised at this AGM?Because we are in Europe, I think we will see a focus on the infrastructure

issues in Europe, whether it be Single European Sky, runways or regulation.

As an industry, we are highly regulated and some of that regulation is nec-

essary, but not all of it adds value. That has been on the IATA agenda for

some time and I can see it being echoed within [Ireland], a very liberal and

deregulated marketplace.

How do you take advantage of Ireland’s geographic location?

It’s often seen that the geographic location of

Ireland, on the periphery of a major market, is a

strategic weakness. For example, the Irish govern-

ment was obsessed with us maintaining connections

with Heathrow. In fact, we see opportunity to grow

from Dublin. Our geographic location gives us the shortest crossing over the

Atlantic and that’s an advantage for any airline. That is something we are

keen to continue to communicate. It underpins our strategy. IAG has a three-

hub strategy—Heathrow, Madrid and Dublin—and each plays a part in the

system. It’s a mindset change, to see opportunity where others see weakness.

What’s it like working with the other IAG airline CEOs?As the operating companies retain their autonomy as airlines, the value is

not just in what the Group offers and in the guidance from IAG, but also in the

debate and discussions from within the companies. I have to say, there’s a little

bit of competitiveness. We are delighted to deliver a return on capital against

expectations from year one and now we’re striving to become the most profit-

able operating business within the Group. It’s very healthy competition. It’s

in the right spirit. There are mutual learnings, which are shared, and there’s

a lot of cooperation. So it’s been a very comfortable in terms of not just the

structures, but also the personalities. It’s a very impressive team to be part of.

What are your growth focus areas?We have seen some recovery in the Irish economy; we are just beginning

to see that drive our short-haul performance. Obviously, short-haul is where

most of our volume is and it’s also where our most intense competitor is and

so we continue to develop and that business. But our focus in terms of ASK

growth has been across the Atlantic. We’ve grown at a compound rate of

12% since 2010 and we’ve continued that in 2016 under IAG’s ownership,

where we’ve accelerated our growth and added three new destinations. We’ve

commenced Los Angeles; we will start [New York] Newark and Hartford,

Connecticut, in Q3. That will bring us to 10 gateways in North America.

We are starting to get double dailies on our core gateways in North America,

which allows us to maximize our efficiencies out of Dublin without compro-

mising the efficiencies of our short-haul operation.

We have double daily now on Chicago, JFK and

Boston and we will look to increasing frequencies

on our other gateways. We are also looking at future

aircraft types and how aircraft such as the Airbus

A321LR may fit into a revised hub strategy where

frequency is invested in, but not at the expense of

cost per seat.

Norwegian, the low-cost, long-haul carrier, plans to start service to the US from Ireland, pending regulatory approval. How do you view the new competition?

Every airline wishes for a monopoly in its home market. But life doesn’t

work like that. Competition is good. Level competition is healthy and it

stimulates the marketplace and we respond accordingly. We are in business

because of extremely low entry fares. We operate a high volume, high load

factor transatlantic operation. We compete on the basis of value and price

is a key component. So we keep focused on our cost reduction and on the

guest experience and we believe that we can retain our competitiveness.

Please share your thoughts on Tony Tyler’s IATA leadership and his named successor, Alexandre de Juniac?

We have been truly blessed with Tony for a number of years. He has that

great balance of diplomacy and industry knowledge and he has been key

to identifying the issues that IATA should focus on, reinforcing IATA’s core

mandate. And the delivery over the past years has been exceptional and we

look forward to that continuing. I think IATA has chosen very well.

Karen Walker/ATW

[email protected]

Aer

Lin

gus

“As an industry, we are highly regulated and some of that regulation is necessary, but not all of it adds value.”

—Aer Lingus CEO Stephen Kavanagh

Page 8: 2016 IATA AGM DAY 1...2016 IATA AGM, combines reporting from the network’s “Power of Three” global editorial teams: Air Transport World, Aviation Daily and Aviation Week & Space

[ 8 ]

ExecutiveReport

Bleak economic times make hard-going for Latin American carriers

For most Latin American carrier CEOs coming to the IATA AGM, the prosperity of their continental neighbors in North America seems a distant dream. Political instability in two of South America’s largest countries is adding to airlines’ woes in the region, as economic travails continue.

Brazil and Venezuela are facing political crises, while the International

Monetary Fund (IMF) predicts the region’s economy will contract by

0.5% this year, more than expected, marking the first two-year period of

contraction since the economic crisis of 1982-1983.

Brazil’s political uncertainty continues as the country’s legislature in

May suspended President Dilma Rousseff and appointed a caretaker

government headed by interim President Michel Temer. Rousseff faces

impeachment proceedings in the Senate later this year, and the appoint-

ment of a caretaker government has eased some of the more pressing

political concerns; yet, the country continues to face political uncertainty,

analysts say.

Continuing recessionBut more pressing for Latin America’s largest economy is its continu-

ing recession, as global demand for natural resources and commodities

remains soft. The IMF reports the country’s GDP contracted by 3.8%

last year and will contract by 3.8% this year.

Unemployment rose to 11% by the end of

March, and the real has devalued by 47%

against the dollar. This has had a direct effect

on airlines in the country, GOL CEO Paulo

Kakinoff said. Rising unemployment and

economic softness has led to softer domestic

bookings, and business travel has fallen by as

much as 58% in the industry.

And for airlines based in Brazil, which col-

lect revenues in reals, but whose costs are in dollars, the devaluation of

Brazil’s currency has led to a sharp increase in costs. Kakinoff noted that

GOL’s CASM ex-fuel rose 16% in the 2016 first quarter over the same

period last year.

Panama-based Copa Airlines, a barometer for Latin America demand,

cut Brazil capacity by 30% in March compared with 2015, CEO Pedro

Heilbron said during the company’s recent first-quarter earnings call. And

demand is not expected to pick up until at least until the second half of

next year, analysts predict.

Venezuela’s social and political chaosBut nowhere in the continent is as badly affected as Venezuela, which

is facing social and political chaos even as its economy founders and infla-

tion rises at the fastest pace in the world. Low crude oil prices have cost

Venezuela’s economy significantly, because petroleum is its main export

and the country sits on some of the world’s largest petroleum reserves.

But economic mismanagement has played as large a role. The govern-

ment’s response to the currency’s collapse in value has been to refuse to let

companies repatriate revenues earned in bolivars at a realistic exchange

rate. Using the official exchange rate would return airlines only a fraction

of what they earned in the country. IATA estimates the world’s airlines

have $3.8 billion trapped in the country as of May 2016.

Carriers have responded to this by slashing capacity to the country.

American Airlines and Delta Air Lines in 2015 cut most of their flights to

Venezuela. American, which had the largest exposure of any US airline to

Venezuela, in January wrote off $592 million it had trapped in the country,

according to a filing with the US Securities and Exchange Commission.

Copa has ceased taking ticket revenue in bolivars and is now accepting

payment in Venezuela only in dollars. The company recently repatriated

$18 million from Venezuela—the amount owed Copa for sales in just

March 2013—and wrote off the balance of the $430 million it is owed.

The worst may be comingAnalysts fear worse could be in the offing. The administration of Presi-

dent Nicolas Maduro is being challenged by the opposition, which has

a majority in the legislature. Social unrest looms as the economy teeters

and political factions take their disagreements to the streets. Industry

insiders interviewed for this story said the outlook for

Venezuela airline demand remains parlous.

The outlook for Colombia, which also depends on

commodities exports, remains bleak as well. Airlines

that serve the country say yields remain depressed

and are not likely to recover this year. Chile, too, is

expected to remain weak this year as its mining indus-

try suffers from decreased demand. Argentina may

have turned the corner with the election of President

Mauricio Macri last year, a development that boosted

investor confidence in the country.

Good newsIt isn’t all doom and gloom. The IMF notes that Mexico and Central

America are benefiting from the relatively strong US economy and low oil

prices, with GDP growth rates forecast to be 2.4% and 4.25%, respectively.

Mexico’s thriving airline industry, with its burgeoning ultra low-cost car-

rier sector—led by airlines such as Interjet and Volaris—is transforming

the way people travel in that country. The number of people traveling

by air is growing, or, in other words, airlines are competing with each

other for a growing market, which is not a bad position to be in, Volaris

chief commercial officer Holger Blankenstein said in May. To illustrate

this, he noted that Volaris saw its main competition as not airlines, but

the intercity bus sector.

Madhu Unnikrishnan/Aviation Daily

[email protected]

It isn’t all gloom and doom. The IMF notes that Mexico and Cen-tral America are benefiting from the relatively strong US economy and low oil prices.

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AviationWeek.com/IATA [ 9 ]

ExecutiveReportJUNE 2, 2016

IATA seeks to invigorate SES project The European Single European Sky (SES) initiative aimed at

streamlining and upgrading the air traffic management (ATM) hodgepodge that bedevils the 28-nation bloc was launched more than a decade ago. But progress is frustratingly slow. A new report commissioned by IATA highlights the enormous benefits that would accrue if European airspace were modernized.

SES, or lack thereof, has been one of the most unsatisfying files of Tony

Tyler’s tenure as IATA DG and CEO, he told the Executive Report. SES

targets include a reduction in environmental impact of 10%, a threefold

increase in capacity, and a reduction in costs of 50%.

But discussions on new EU-wide cost-efficiency targets for air naviga-

tion service providers (ANSPs) and endorsement of the so-called SES II+

legislative package in the European Council have remained at a complete

standstill for several years because of the dispute between Spain and the

UK over Gibraltar. But the problem has deeper roots.

EU member states do not want SES enough, Tyler says, while stress-

ing he acknowledges the repeated efforts by the European Commission

to get traction.

“The stumbling blocks are the individual member states who are holding

Europe to ransom with a misguided perception of what is in their national

interest,” Tyler said. The implementation of SES is “not a political priority

for them. You can see congestion on the ground, but airspace congestion

is not tangible.”

Tyler said he wishes his successor at IATA, Air France-KLM CEO

Alexandre de Juniac, “extreme stamina in reminding member states of

what is at stake when they pander to self-interested, highly-compensated

ATC. For too long they have isolated themselves from change—and the

European economy can ill afford to continue to pay the price.”

IATA commissioned a study on opportunities that airspace modern-

ization would bring. The report calculates the impact if the inefficiencies

in European air traffic management (ATM), which include unnecessary

route extensions of up to 50km and delays of around 10 minutes per

flight, were eliminated.

The study revealed that a fully implemented SES in 2035 (compared

to a “do nothing” scenario in which the status quo prevails) would create

1 million jobs and boost the region’s GDP by €245 billion ($273 billion)

through improved productivity from time saved, more connectivity options,

and lower costs from improved efficiency.

“The hope is that €245 billion is a hard number to ignore,” Tyler

concludes. “My message is that Europe will be a more prosperous place

if we can achieve SES.”

The release of the study marks the launch of a Europe-wide campaign,

in which IATA will be calling on consumer groups and business associa-

tions to recognize the broad importance of efficient air connectivity to the

economy, productivity and quality of life at the national level.

Cathy Buyck/Aviation Week

[email protected]

Iranian airlines return to international scene

Western sanctions against Iran have left Iranian carriers isolated for

many years and lacking sufficient access to aircraft, spares and technol-

ogy that is taken for granted by the rest of the industry.

Since the lifting of sanctions in January, aircraft manufacturers have started re-

fleeting talks with Iranian airlines. The planned revival of Iran Air, in particular, opens

up opportunities for commercial cooperation in fields such as maintenance, repair and

overhaul.

Few doubt that Iran is an emerging air transport market with big potential. The

country’s geography and inadequate ground infrastructure makes air travel a sensible

option even inside Iran. The country is rich in natural resources and could base an

economic recovery on oil income once the price of crude increases in the coming years.

But Iran’s airline landscape is extremely fragmented. Fourteen airlines operate on

domestic routes, three of which were launched only last year. Domestic capacity has

been shrinking by around 20% since 2011, according to a recent OAG schedule analysis.

Iran Air controlled 68% of the domestic market in 2000, but that fell to 33% in

2010. Five years later, the airline offered just 22% of the industry’s overall domestic

capacity in a shrinking market.

Other carriers have seen similar swings. Mahan Air held 16% of the domestic market

in 2010, but offers no domestic routes today. Iran Aseman Airlines and Iran Air Tours

have significantly contracted flying within Iran. Zagros Air, Kish Air and Ata Airlines

now have market shares of around 14% each.

Mahan Air was the main driver of international growth among Iranian carriers,

increasing capacity by 22%. Conversely, Iran Air’s international capacity declined by

9% in 2015. Overall, Iranian airlines held a 43% market share on international routes

to and from their country.

Of the 65 airports in the country, only 10 do not have to be upgraded for the

expected influx of additional capacity.

But Tehran is well located in the middle of important and fast-growing traffic flows

and has the potential to be developed into a major hub. Imam Khomeini International

Airport, the country’s main gateway, will be expanded into a facility to handle around

45 million passengers.

Jens Flottau/Aviation Week

[email protected]

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[ 10 ]

ExecutiveReport

Bastian takes the captain’s seat at Delta

After nine years serving as president of Delta Air Lines and being CEO Richard Anderson’s most trusted advisor, Ed Bastian officially assumed the CEO’s role from Anderson on May 2.

The handover was carefully orchestrated and planned for months; Ander-

son moved to Houston and let Bastian move into the CEO’s office at Delta’s

Atlanta headquarters weeks before Bastian formally accepted the CEO title.

Bastian is walking a fine line between pledging allegiance to many of

Anderson’s positions, some of which have generated a fair amount of con-

troversy, and declaring his independence as CEO. Anderson has become the

company’s executive chairman, indicating his role will be more than chairing

board meetings. “He’s still my boss,” Bastian said of Anderson, noting that

the two men speak two to three times a week.

“Richard is a very close friend and close partner,” Bastian said. “We’ve

worked closely for the last nine years and every decision we’ve made, we’ve

been together on the decision-making process.” But he added, “I am a dif-

ferent person than Richard. I’ve got a different voice and a different style …

I view my style as collaborative … Richard was a lawyer and I come from

the financial side. I’m more analytical.”

Still, on several key issues, Bastian is largely sticking to Anderson’s line.

Asked whether the Delta/American Airlines/United Airlines campaign

against alleged Gulf airline subsidies—on which Anderson has played a

very vocal role—will be one of his priorities, Bastian said, “I’m absolutely

right alongside Richard with his views on the Gulf carriers. We believe that

these subsidies are not just real, but distorting … I’m equally frustrated and

equally engaged in the debate.”

On another controversial issue, Delta’s divergence from the rest of the

US airline industry on the push to have air traffic control (ATC) separated

from FAA and moved to an independent organization, Bastian’s view is “very

similar to Richard’s,” he said, explaining, “We think the air traffic organiza-

tion being split off from FAA is not in our interest or in the interest of our

customers … It is by far the safest [ATC] system in the world. It is by far the

best operating system we see anywhere. Why is it not working for others? I

can’t tell you that, but I can tell you it works for Delta.”

But Bastian emphasized that “anytime you see a leadership change at the

top of a company,” it provides an opportunity for reevaluation. “I do have

different ideas and different thoughts,” he explained, noting in particular that

Delta has a “changing customer demographic” and needs to increasingly

focus on “a new generation” of passengers.

Bastian is scheduled to speak as an IATA AGM panelist on Thursday.

Aaron Karp/ATW

[email protected]

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AviationWeek.com/IATA [ 11 ]

ExecutiveReportJUNE 2, 2016

Aviation-friendly Ireland reaps the benefits

The Irish government and the Irish civil aviation authority (IAA) have adopted a more forward-thinking orientation on aviation than most of their, often much larger, counterparts in Europe. The policy is paying off—big time.

Ireland is one of the smallest countries in Europe, with just 4.6 million

inhabitants, yet about half of the world’s leased aircraft are registered in

the country and the world’s first duty-free shop was established here. It is

also home to Europe’s largest airline by passenger count and the world’s

largest airline in terms of international enplanements: Ryanair.

Aviation executives in Ireland commonly joke that it took an Irishman

to get International Airlines Group (IAG) off the ground and grow it into

an agile, profitable and diversified airline group: IAG CEO Willie Walsh,

born in Dublin and a former Aer Lingus CEO. Aviation is central and

strategic to the Irish economy, IAA CEO Eamonn Brennan noted. “We

live on an island; we don’t even have bridges. This is a key thing.”

A high-value sectorAviation contributes just over €4 billion ($4.3 billion) directly to the Irish

GDP, comprising €1.9 billion from aviation, €1.3 billion through the supply

chain and €0.9 billion from associated spending by people employed in

aviation. It supports 26,000 jobs directly and a further 16,000 in the supply

chain. Ireland’s tourism industry, which is dependent on aviation, accounts

for another €5.3-billion

GDP contribution and

180,000 jobs.

The Irish govern-

ment has earmarked

aviation—along with

information technology

and the pharmaceutical

industry—as high-value

sectors to the Irish econ-

omy. It launched a new

aviation policy in 2015, after two years of consultation. “This govern-

ment policy says that we have to make the industry more competitive

and innovative. The global aviation industry continues to expand and is

estimated to double over the next 20 years. This presents opportunities

for Ireland in virtually every area of aviation such as airlines, pilot train-

ing services, satellite-based air traffic control services and aircraft leasing

services,” Brennan said.

Embracing deregulationAer Lingus CEO Stephen Kavanagh told the Executive Report that

Ireland’s embracing of deregulation and liberalizing access had paid off.

“It’s a very small economy in the global context, but it’s a very open

economy, one of the most open economies and on a par with Singapore,”

he said.

“Ireland has recognized the requirement for connectivity and, as an

island, sees that air transportation is how that’s delivered. We have very

strong indigenous competition with Ryanair, but there’s the ability for us

to compete not only in the Irish market but also across the Atlantic and in

Europe. Deregulation has allowed us to grow scale. Deregulation, competi-

tion and liberalization have brought out the very best in terms of behaviors

and competitive response. We’re efficient, we’re focused on returns, and

the Irish economy has benefited and the consumer has benefited.”

Competition rewardsKavanagh also believes competition reaps its own rewards. “Com-

petitiveness has fostered demand,” he said. “We see a higher propensity

to travel than in most other nations and that’s because we’ve created an

opportunity for competitive airfares.

“We are one of the two largest Irish airlines, but there are others and

the aviation eco-system, including airlines, lessors, MROs and travel tech-

nologists, has prospered because it’s been open to competition. To remain

relevant, we have to remain competitive and everyone has reaped the

benefits.”

IATA DG & CEO Tony Tyler told the Executive Report, “the Irish

government has taken a very pro-aviation strategy for some years now,”

pointing out that the country reduced its departure tax to zero in 2014.

With the growth and planned second runway at Dublin Airport, there are

“clearly signs that the tax policy is bearing fruit and near neighbors should

take note,” Tyler said. Irish Transport Minister Shane Ross is scheduled to

speak during the AGM’s opening sessions on Thursday morning.

Cathy Buck/Aviation Daily

[email protected]

By Barry Cronin

“Ireland has recognized the requirement for connectivity and, as an island, sees that air transportation is how that’s delivered.”

—Aer Lingus CEO Stephen Kavanaugh

Page 12: 2016 IATA AGM DAY 1...2016 IATA AGM, combines reporting from the network’s “Power of Three” global editorial teams: Air Transport World, Aviation Daily and Aviation Week & Space

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