It was sunny, hot and humid before rain flooded the streets in Cancun, Mexico, last month where the International Air Transport Association held its 73rd annual general meeting. The weather couldn’t have provided a more perfect metaphor for the state of the aviation industry.
Despite projections of growth, the industry, especially in the Middle East, is facing the heat from a combined set of complex challenges that are threatening airline profits.
This year more than four billion passengers, and over half of all tourists, will rely on airlines for safe travel, according to IATA. With sixty-three million people depending on the global air transport system for employment, aviation will underpin US$2.7 trillion of economic activity and deliver a third of global trade. As a result, the industry is projected to earn $31.4 billion in profit, up a billion and a half from last year.
“In surveying the state of our industry, I can report that the foundational elements of aviation–safety, sustainability and profitability–remain solid,” said Alexandre de Juniac, Air France’s former CEO and current director general of the world’s largest airline association, in his opening address. But only hours before IATA’s first profitability forecast for the industry this year–it is revised every six months–is when political tension in the Middle East saw countries shut off airspace in a development poised to have deep implications for what have often been called ‘the Middle East 3’.
Fast Fact: Over half of the industries earnings, $15.4 bn, are generated by airlines in the US.
The announcement, which went on to become ‘the’ topic of conversation at the meet, came as a shock to al of the industry leaders and insiders gathered at the AGM. IATA had predicted Middle East airline profits will fall to $400 million from the $900 million they earned last year. De Juniac, acknowledged that target could be revised even lower. “The extent to which this will have an effect is unpredictable right now,” he told Aviation Business. “It came as a surprise to all of us.”
This wasn’t the first time the airline industry has been taken by surprise, not even the first time in the last six months.
From protectionist rhetoric voiced by President Trump in the US, to implications from Brexit yet to be deliberated, developments across the world portend to bear strongly on aviation, keeping it on edge and hindering it from growing faster than it could. In April for instance, Middle East traffic to the US dropped for the first time since IATA began measuring it. The constant unpredictability is also making some wonder about how to take profitability forecasts, especially given the lack of coordination authorities seem willing to share with the industry.
Thoughts [against globalisation] in government, gaining currency in popular discussions, or lurking at the fringe of political discourse, they are a threat to our industry.”
IATA DG, Alexandre de Juniac
When asked about it, he said, “Forecasts are based on an industry wide economic assessment,” suggesting the numbers are sound as far as the industry is concerned. “But shocks… well that’s why they are called shocks,” de Juniac said.
Appointed less than a year ago, de Juniac, in typical eloquence, delivered a rousing address at the opening of the AGM, saying the industry delivered “the business of freedom.”
“We don’t take sides in political disputes,” he said later in response to a question about stepping in to mediate disputes between governments. Our stance has always been aligned with freedom of movement.” It is the bedrock of the business, said de Juniac.
"A lack of information sharing caused post-implementation issues including concerns over lithium battery devices in the hold which pose a safety risk.”
IATA’s SVP. airport, cargo and passenger security, Nick Careen
But the business “depends on borders that are open to people and trade,” he added. “And today we face headwinds from those who would deny the benefits of globalisation.” Pointing to overtones coming from the US, de Juniac decried “nationalistic political rhetoric that points towards a future of more protectionism.”
“Whether those thoughts are in government, gaining currency in popular discussions, or lurking at the fringe of political discourse, they are a threat to our industry,” he said.
Part of the concern in de Juniac’s address to the AGM was that a lack of willingness on the part of authorities to share information with the industry continues to catch it by surprise–and make IATA’s job ever more complicated. Case in point, the laptop ban.
The US Department of Homeland Security instated a personal electronic device ban on flights out of 10 Middle East airports including Dubai and Doha in March. Impact from that ban has caused the industry to try and push the US to retract it. Middle East airports have claimed the ban affects them discriminately, despite topping ICAO’s ranking of the most secure airports in the world. The ban has also taken its toll on regional airlines. Emirates announced in May that it would cut back on routes to the country, while Qatar Airways has also slowed plans to expand routes to the country.
"The extent to which this will have an effect is unpredictable right now. It came as a surprise to all of us.”
IATA DG Alexandre de Juniac on the effect the Qatari-Gulf dispute will have on Middle East profit forecasts
The laptop ban has become a situation complicated by other issues that have emerged afterward.
“There was a lack of information sharing which has caused post-implementation issues to emerge including concerns over lithium battery devices in the hold which pose a safety risk,” IATA’s SVP of airport, cargo and passenger security, Nick Careen said of the laptop ban in a briefing during the AGM.
What would help is rapid certification of the next generation of security scanners that rely on CT technology, which promises to be more thorough and efficient when scanning devices for potential threats. But with different certifying agencies in each country and continent and a lack of will on the part of authorities in speeding up the process means we won’t be seeing them in airports any time soon, at least not within the next year.
“That’s not to say we don’t collaborate extensively with regulators and stakeholders. The flow of passenger movement at the level today would not be possible if we didn’t,” he said.
Countries will continue to react the way they deem fit if they have to, added Careen, signalling that aviation will continue to be reactive instead of pro-active when it comes to threats that pose security risks.
But there is progress being made. The US DHS has indicated it could extend the ban imposed to other airports around the world including Europe, but has held off on making any formal decisions as discussion with regional governments and security and aviation agencies take place. “Taking a pause like the DHS has is an indication that they want to work with us now,” said Careen. “We’re just trying to encourage greater collaboration.”