AVB's roundup of IATA AGM 2018

Last month, AVB journeyed far to the welcoming shores of Australia, to attend the International Air Transport Association’s 74th Annual General Meeting and World Air Transport Summit
Hosted by Qantas, the flag carrier of Australia, the International Air Transport Association’s (IATA) 74th Annual General Meeting (AGM) and World Air Transport Summit was held from the 3 – 5 June 2018, in Sydney, Australia.
Natalia Mroz IATA
Hosted by Qantas, the flag carrier of Australia, the International Air Transport Association’s (IATA) 74th Annual General Meeting (AGM) and World Air Transport Summit was held from the 3 – 5 June 2018, in Sydney, Australia.

Hosted by Qantas, the flag carrier of Australia, the International Air Transport Association’s (IATA) 74th Annual General Meeting (AGM) and World Air Transport Summit was held from the 3 – 5 June 2018, in Sydney, Australia.

Over a thousand aviation industry leaders attended the event, keen to discuss the latest developments in the aviation industry and to decide on the organisational policy for the year to come.

Topics covered at IATA AGM 2018 included airport privatisation, sustainable fuels, gender equality within the industry, human trafficking, the pros and cons of tourism, data usage, as well as the latest in aviation security.

Profitable 2018

Opening up the 74th AGM and World Air Transport Summit, IATA unveiled its projections for 2018, which is set to achieve a collective net profit of $33.8bn for the year. While certainly a positive indicator for what is to come, the trade association also warned against rising costs that stem as a result of both expensive fuel and labour, along with the upturn in the interest rate cycle.

In terms of return on invested capital, IATA projects the figure will hit 8.5% in 2018, a slight decline from the 9% recorded in 2017. Despite this, however, the figure still surpasses the average cost of capital, which the organisation reported had reached 7.7% on higher bond yields. The effect of this could mean it will be more difficult for the aviation industry to acquire the capital required for fleet expansion and service enhancement.

IATA’s forecasts also included some insights on the Middle East region, which it notes carriers in the region are recovering. Additionally, the trade association pointed out that the rise in oil price has had a positive impact on revenues and the oil-based economies within the Middle East, while Gulf airlines have substantially curbed growth. Part of the region’s positive improvement can also be attributed to improving aeropolitical relations with the US.
Net profits for the Middle East are forecasted to rise to $1.3bn in 2018, an increase over the $1bn reported in 2017. In terms of net profit by passenger, the figure reached $5.89 per travellers, up from $4.81 recorded in 2017.

Open Border Strategy

One of the many topics discussed by IATA at this year’s event was the importance of open borders. Calling on governments to increase their efforts to reducing barriers of travel and allowing the free movement of people across borders, the organisation unveiled its Open Borders Strategy.

Over the next 20 years, the number of passengers will double. That’s excellent news for the global economy, as air connectivity is a catalyst for job creation and GDP growth. But we will not get the maximum social and economic benefits from this growth if barriers to travel are not addressed and processes streamlined,” said Alexandre de Juniac, IATA’s director general and CEO.

Broken down into four main components, one part of the strategy examines the value of including travel facilitation as part of bilateral and regional trade negotiations, a move which will potentially stimulate economic growth for participating countries.

The Open Borders Strategy also called for more efficient processing of Advance Passenger Information (API), which would help streamline the movement of passengers in airports, as well as the linking of registered-traveller programs that in turn improve security and operational efficiency.

The final part of the strategy calls for a review of visa requirements and removing travel restrictions. Finding existing visa regimes to be overly obstructive, expensive and inefficient, IATA believes that continued visa plans will soon be unable to cope with forecasted travel demand. To solve this challenge, the organisation believes that traveller data needs to be shared over a trusted network.

IATA projects there will be a growth of 3.5% per annum in terms of passenger volumes and almost a doubling of passenger traffic within the next 20 years.

“If we look at visas processes, they can be cumbersome and expensive. They are fragmented and that could impede the ability of passengers to travel. In particular, when we look at merging economies — Asia, Africa, Latin American, and the Middle East — these are places where we helped build the economies, but these are the areas where nationals typically need visas to travel,” commented Hemant Mistry, director of Airports and Fuel, IATA.

“This can be a quite an impediment as well moving forward. We really want to facilitate the ability for the public to travel. We really need to ensure that this process of visas is minimised as much as possible.”

Privatisation backfires

A hot topic at this year’s AGM and World Air Transport Summit was around the privatisation of airports, which according to the trade association, has not had the same impact as other sectors that have moved to private.

It was hoped that privatisation would help bring higher levels of efficiency to airport operations, as well as create opportunities to draw investment for critical infrastructure. Amongst those airports that have made the transition into private ownership across the world, IATA has yet to find a true success story that stands out.

In fact, the trade association has found little evidence that private airports operate more efficiently than government-run airports, and in many cases, tend to be more expensive for airlines and consumers thanks to increasing airport charges.

I think there are examples of airports that have provided some benefits. What we wanted to see is a real overall improvement, in terms of services, investment, and efficiency. It’s hard to find specific examples that produced that,” commented Hemant Mistry.

“If you look at the industry overall, what we’ve seen is that the performance of those airports that are privatised haven’t been as good as competitors,” he added.

In an effort to address the issue, IATA and Deloitte have released guidance materials that encourages governments to form public-private partnerships (PPP) and other variants of privatisation programs for airport infrastructure.

Aptly called the Airport Ownership and Regulation Guidance, the report examines various ownership and operating models, as well as current industry best practices in airport management.

Split into three key areas, the first explores models of privatisation. Governments are encouraged to adopt an aggregate view of airport ownership and operating models and match them to the financial and macroeconomic objectives of inviting private participation in airport infrastructure provision and management.

The second part of the report took a closer look at the process of privatisation and suggested that in the same way competitive and transparent transaction process is vital in assuring public value for money, government bids must be assessed on balanced criteria.

The last area the guidance materials explore was the value of a regulatory framework created in parallel with an assessment of potential ownership and operating models. IATA and Deloitte concluded that regulation would not only help curb market abuse but will also lead to improved efficiencies and service quality in airport management.

The importance of regulation was highlighted by Dr Alison Roberts, CEO of Airlines for Australia and New Zealand, during an onstage discussion on airport privatisation.

“Where it hasn’t worked is because the appropriate regulatory safeguards are not in place. Privatisation has worked really effectively in a lot of sectors and in airports, but not all airports,” said Roberts.

If you were an airport and you had a competitor looking over your shoulder, there is a reason to be more efficient, deliver better service, improve quality, and keep your pricing down. At the moment, particularly in this region, there is nothing.

So in the absence of that what you need to do is to create the effect of having a competitor looking over your shoulder by putting a regulator there and having the threat of regulation.”

Middle Eastern Leadership

In the final press briefing of the event, the International Air Transport Association introduced the new Chairman of the IATA Board of Governors (BoG).
Serving as the 77th chair of the IATA BoG for a one-year term, His Excellency Akbar Al Baker, Group Chief Executive of Qatar Airways, is the first CEO from the airlines to hold the position, though he has been a member of the board since 2012.

Succeeding outgoing chairman Goh Choon Phong, CEO of Singapore Airways. Al Baker previously served as the president of the 70th AGM that was held in Doha, Qatar, back in 2014.

“I am honoured to be recognised by the aviation community, who voted for me to become the chairman of IATA. I will make sure I put all my efforts to serve the international aviation community to the best of my ability,” commented HE Al Baker.

“I will make sure I play a very constructive role, looking at the best interest of not only, the airlines of the association, but also the people that have made this industry so successful.”

The new Chairman went on to highlight some of the industry challenges that IATA would be tackling over his term. This included addressing human trafficking, the ongoing security challenges, as well as promoting safety and accident avoidance. Another challenge is the centred on the increasing price of oil.

“We will have to find ways to work in order to reduce the costs to the airlines, especially with privatised airports, which are putting a lot of strain on the resources of airlines … we are making sure we bring all efficiencies in the industry, to mitigate the risk that the airlines face in this period,” said HE Al Baker.

At the end of the briefing, IATA revealed that Carsten Spohr, Chairman and CEO of Lufthansa, will serve as Chairman of the BoG from June 2019, following the conclusion of Al Baker’s term.

Next stop: South Korea

Following the conclusion of the 74th IATA AGM and World Air Transport Summit, the airline trade association has already unveiled the next stop for the annual event. For the first time ever, the 75th iteration of the event will be held in Seoul, South Korea and will be hosted by Korean Air. The nation’s carrier has been a member of IATA since 1989.

“The aviation industry is looking forward to meeting in Seoul for the 75th IATA AGM. South Korea has a great story to promote,” commented Alexandre de Juniac during the announcement.

“Strategic planning and foresight have positioned the country as a global hub for transport and logistics. I am confident that Korean Air will be a great host as Seoul is transformed into the capital of the global aviation industry during the AGM. We are also delighted to be in Seoul in the same year Korean Air celebrates its 50th anniversary.”

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