Dublin, 10-11 March 2016CAPA Airlines in Transition 2016 Agenda
| DAY 1 – THURSDAY 10 MARCH 2016 | |
| 08:00 | Registration |
| 09:00 | Chairman's welcome |
| 09:10 | daa outlook and welcome, CEO, Kevin Toland |
| Session 1: The Outlook: ‘Disruption’ to replace ‘Constant Shocks’ as the driver of industry evolution |
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| 09:25 | CAPA Global Aviation Outlook: DEMAND is the issue for 2016 For 2015, the pivot was cost, as fuel prices astonishingly slumped by some 50%. In those circumstances a lot of inefficiency could be disguised, allowing widespread profitability. Prices have remained low, still defying anyone to predict where they will go in 2016. No-one predicted the slump, so everyone may equally be overlooking the signs that predict a surge. The consensus, for what it is worth, suggests a gradual increase in prices – although that has been the belief for some time and still prices slide. At the end of 2015 the price of crude oil was in the low USD40s. So, many airlines should continue to be profitable in 2016, even unusually so, although 2015 is likely to have been the peak, perhaps of all time. Whatever happens on the cost side of the ledger, one thing is clear. In 2016, the driver will be demand, or lack of it. CAPA - Centre for Aviation, Executive Chairman, Peter Harbison |
| 10:10 | CAPA Airline Boardroom Live. Strategy Session 1: How can FSCs regain their short haul markets from LCCs? From the time that the penny finally dropped for full service carriers that LCCs were a fixture and were not going away, the full service airlines have sought many ways, usually without great success, to counter the erosion of their short haul operations by the new entrant, lower cost specialist point to point airlines. The impact has been not only on their regional operations, but usually on their network overall, as the short haul services feed into their respective hubs, fattening the long haul sector loads. This state of affairs was more or less tolerable while the competition on long haul transferring over their hub was stable and their alliances, global and bilateral, were able to protect them. Then the super “Connectors” (Gulf airlines and Turkish) came along, disturbing the comfortable equilibrium – and in turn placing renewed importance on their short haul routes; these were the markets where they could at least aspire to dominate.The experience of European carriers is mirrored in Asia , with many FSCs losing short-haul market share to numerous LCCs while their services to Europe also suffer. A variety of responses has been attempted, from simple discounting, through partnerships, using the pull of FFPs, reducing frequency, dropping uneconomic routes, establishing subsidiaries, modifying existing entities. The Board will be asked to formulate priorities for a strategy to protect and expand the hub carrier. In doing so, it will consider such issues as:
1. Responding with existing/conventional tools
Moderator: European Aviation Club, Chairman, Rigas Doganis
Panel Members:
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| 11:20 | COFFEE sponsored by Holiday Extras |
| 11:50 | DISRUPTION: HAVE AIRLINES GOT A FUTURE? Distribution and engagement are key words, but where data is king who are the real masters in those fields? Airlines are not big companies. But they are a vital part of the travel chain. Yet because of the protective cocoon of regulation in which they live they have had little need to be creative or disruptive. Airlines are certainly being slow to react to the changing horizon – if they are reacting at all. The past year has exemplified how some legacy interests will fight to preserve the status quo, using non-market solutions. And while airlines are busy pointing their guns at the traditional distribution modes, the big new kids on the block are focussing on the total travel system and are busily accumulating massive data sets. Air travel distribution revenues might be an important factor in airline economics. But for companies with market caps of hundreds of billions of dollars, they are minimally attractive. Moreover those revenues are tied up in a complex of contracts and legacy practices, making disruption difficult. By contrast, travel overall, in which airline revenues are one small part, leads straight into spending behaviour profiles. Airline customer profiles offer a good entry point to higher value customers, but it is the other expenditures that add up to real value. Travel, in other words, is where the value lies. Its information chain is evolving fast. And every provider is attempting to put an app in front of its customers, to capture their eyeballs. That is increasingly frustrating to users – who really only want one super-app, where all their needs converge. That super-app is not going to emerge – but it is forming where the data converges. In short, information on every dollar that 80% of the earth’s population spends is now being gathered and used by Google, Facebook, Amazon, even booking.com – and whoever comes along next. As they slowly take control of this extensive data – and work out how to use it to communicate with their customers – the airlines risk being severely marginalised. As a recent Economist article observed: “In many cases the successful companies will no longer be the ones that make the best products, but the ones that gather the best data and combine them to offer the best digital services.” If it chose to, Google could buy every major airline in the world out of petty cash. In many cases its local establishment could even own the whole airline. Aside from a strategy to reduce their tax payable, this is hardly likely. But what other indirect options are available to these and other data giants to extracting value from the industry?
Moderator: MW Travel Consultancy, Principal, Martin Warner
Panel Members:
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| 13:00 | LUNCH |
| 14:00 |
US BIG 3 VS GULF BIG 3: IS IT LAST YEAR’S STORY? What is the status of open skies after the “subsidy” onslaught? Since the multimillion dollar “White Paper” was issued to much fanfare in 2015, there has been a mass of media hype which so far has been effective mostly in advertising the Gulf carrier products to a previously unknowing US customer base. A casualty of the process has also been Norwegian, whose application to operate under an Irish AOC has been remarkably sat on by a reluctant administration. Meanwhile, the Gulf airlines have continued to add and announce new routes to the US. A ponderous bureaucratic process to examine whether some action should be taken to stop the Gulf 3 is still under way. Many other US airlines are opposed to the proposition, most notably the world’s biggest freight carrier, FedEx, which has a hub in Dubai. Meanwhile, in Europe there are similar divisions between airlines, even provoking International Airlines Group to withdraw from the Association of European Airlines, just as Delta has left A4A. Yet, behind the overtly nationalistic clamour of the Big 3, there was never any clear end goal to be achieved. It was always highly unlikely that the open skies agreement would be unilaterally terminated (and subsidy, real or contrived, is not grounds for termination). And it is hard anyway to find a major airline which cannot be accused of receiving “subsidy” in some form. And, swept up in all the anti-liberalisation backlash have been some relatively minor fifth freedom routings, for example an Emirates service from Milan and Ethiopian Airlines 787 services between Dublin and the US. One very unfortunate outcome of all this noise has been to cast a pall over the momentum towards global liberalisation and open skies. Foreign countries, who were often reluctant in the first place to open their national airlines up to competition from US and other airlines, are beginning to wonder if they too should be more selective in opening their skies.
Moderator: John R. Byerly, Consultant, John Byerly
Panel Members:
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| 15:10 | COFFEE |
| 15:45 | A NORTH ATLANTIC OUTLOOK: Are metal neutral JVs good for the industry, the travelling public and airports? When the US DoT and the EU Commission approved metal neutral joint ventures over the North Atlantic, among the major airlines of the three large global branded alliances, the justification was that they would be in the public interest. In a more rational aviation environment, they would allow for better capacity and frequency coordination and deliver a better product for consumers. There were some who disagreed; these included alliance members and other airlines who are excluded from the JVs, some corporate travel groups and some consumer groups. Five years on, the JVs have expanded a little. They have, by unanimous agreement among the JV partners, been profitable in a market which was previously treacherously fickle. And there has been a good variety of service to suit business travel needs. Yet issues remain about the standardisation of pricing – there is rarely more than a dollar or two difference among all the JV airlines from whatever alliance on a particular North Atlantic city pair. And, with four out of five seats operating inside this closed environment, arguments are growing that this represents excessively dominant market participation. The doubts are reinforced thanks to the various strenuous attempts to prevent any destabilisation of the “triopoly”. Perhaps most insidious is that the JVs have been the unspoken cornerstone of opposition to new entry, whether by Norwegian or the Gulf airlines. A cross-Atlantic coalition of opposition has formed against any airline that might divert sixth freedom traffic from beyond Europe away from the longer established hubs. Interestingly the bilateral air services system, with all its faults, was never intended to give any preference over sixth freedom traffic flows. Indeed some of the loudest protesters today were equally vociferous against any such form of transfer traffic when sixth freedom operators first started applying the concept back in the 1970s. Meanwhile, JVs are now appearing in other markets, such as across the Pacific and between Japan and Germany.
Moderator: John R Byerly, Consultant, John Byerly
Panel Members:
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| 16:45 | DO AIRLINE INDUSTRY ASSOCIATIONS HAVE A FUTURE? Following two conspicuous defections from regional airline associations in 2015, there must be questions about the role of industry bodies in future. The issue is further complicated when a European, cross-association grouping is set up to achieve a special purpose. The effects of rapid industry change, both in operations (LCCs and the Gulf carriers) and distribution (the new players and attempts to regain product control) are driving wedges between airlines who previously had a greater commonality of interest in lobbying governments. In the US, Delta argued that “The $5 million that Delta pays in annual dues to A4A can be better used to invest in employees and products to further enhance the Delta experience, and to support what we believe is a more efficient way of communicating in Washington on issues that are important to Delta customers and employees”. The trigger difference was over A4A’s lobbying for airways privatisation. IAG left AEA on broader policy grounds: "We believe global liberalisation of our industry is fundamental to our future growth and we are not willing to compromise on this fundamental matter"; IAG then joined ELFAA, saying, "We look forward to working with ELFAA and its member airlines on a full range of policy and regulatory issues including the pursuit of further aviation liberalisation." That association had previously been the stronghold of LCCs. Then, to add spice to the situation, applying the formula that my enemy’s enemy is my friend, the CEOs of Air France-KLM, Lufthansa and IAG, along with their peers in Ryanair and EasyJet, joined forces to promote measures for greater efficiency, better airport regulation, reduced taxes and prevent ATC strikes. Meanwhile the global association, IATA, seemingly continues from strength to strength.
Moderator: Association of Corporate Travel Executives, President, Kurt Knackstedt
Panel Members:
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| 17:30 | End of Day 1 |
| 19:00 | Pre-dinner drinks, Sponsored by MTT |
| 19:30 | The CAPA Annual Leadership Guinness Dinner Debate Dinner topic: DO AIRLINE CEOs EARN THEIR MONEY? What is the role of an airline CEO? Where – if at all – do they make a difference? Who are the key people in an airline? Perhaps because of their typically large union profiles, airline CEOs tend to be in the spotlight when it comes to pay and other remuneration. In general their income level is pretty much consistent with other industries, both in relation to other CEOs and relative to the average pay levels in their respective organisations. But that aside, it is interesting to look at where an airline CEO can really make a difference and which the levers are that (usually) he can pull. An obvious area is in determining strategic directions: investing in partnerships and alliances, driving cost reduction measures, “leadership” in staff relations, living the brand (Sir Richard Branson and Virgin). In today’s environment, one element stands out as vital – and is one where the CEO and his senior executive team, but mostly the CEO, make a major difference. That is in establishing alliances and partnerships. Partnerships are not just clinical, technically driven entities; those elements are important and they must fit, but if a partnership is to work, there must continue to be the right chemistry at the very top. And, if CEOs can make a difference, how is it to be measured? Is the indicator growth and profitability – and whose interests should take priority? Is it staff, equity investors, lenders, customers….? Much will depend on board membership and especially the chairman’s role. Their effectiveness and relationship with the CEO will be a vital piece of the formula. Often too, with flag carriers particularly, the ability to maintain good and effective relations with the highest levels of government is also a valuable skill. There are some clear examples in the modern era where airline leaders have made an outstanding difference. Among these are men like Herb Kelleher, who effectively created Southwest Airlines’ uniqueness; Maurice Flanagan who, with Tim Clark, created Emirates; Tony Fernandes, who established AirAsia; Stelios Haji-Iannou (and Ray Webster) who created easyJet; Michael O’Leary, who is synonymous with Ryanair’s success. From a branding perspective, there is Richard Branson. But changing the direction of an existing airline can be a much more challenging task in many ways.The number of successes in that area are fewer than might be expected - and to avoid embarrassment, we will not list them here! Moderator: CAPA - Centre for Aviation, Executive Director, Peter Harbison Panel Members:
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| DAY 2 – FRIDAY 11 MARCH 2016 | |
| 09:00 |
Chairman's welcome CAPA - Centre for Aviation, Chief Financial Analyst, Jonathan Wober |
| Session 3: AIRLINES, AIRPORTS AND THE ENVIRONMENT: What kind of future does the aviation industry have in next decade’s economy? |
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| 09:05 | FEATURE: AIRLINES, AIRPORTS AND THE ENVIRONMENT: Introduction: What did the Dec-2015 Paris talkfest mean for aviation? Airlines are in the cross hairs of many environmental groups, even if they only produce a tenth of the emissions of cows and sheep. Some airlines have sought to exploit relatively minor moves towards using non-fossil fuels, but are there competitive advantages to be won by adopting certain courses of action? Despite improvements, the gains from more efficient aircraft and engines will not be sufficient. Using newer, more fuel efficient aircraft and operating with greater seating density and at higher load factors are ways of lowering unit emissions. But in the absence of real breakthroughs in use of alternative fuels, will the only options be slower growth, more capacity coordination and similar travel-negative options? Airports too are centres of massive aviation emissions, both on airport and on the approaches.
Keynote Presentation: SUN, Strong Universal Network, Founder, Geoffrey Lipman
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| 09:25 |
Can airlines and airports realistically continue to project high growth unless there are substantial breakthroughs in alternative fuels? At institutional level IATA has played an important role in helping ICAO governments move towards a programme for emission reductions. But developing alternatives to fossil fuels is one part of a long term sustainability strategy, which will take many years to bear fruit. Meanwhile there is no shortage of publicity moves by individual airlines and by airports, with varying long term utility. Meanwhile tabloid opposition to airline and airport growth – especially in Europe – continues to mount. Even where greater operational efficiencies are achieved, the increase in carbon emissions will potentially outstrip non-aviation improvements. And, while the future existence of airports and airlines is inextricably linked, there is only limited cooperation between them in seeking substantial emission reductions. (As for many ANS providers, cooperation would appear a bridge too far.)
Moderator: CAPA - Centre for Aviation, Chief Financial Analyst, Jonathan Wober
Panel Members:
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| 10:05 | The Future of Travel: An Interview with: CAPA - Centre for Aviation, Executive Chairman, Peter Harbison IATA, Director General & CEO, Tony Tyler Travelport, CEO, Gordon Wilson |
| 10:35 |
CAPA Airline Boardroom Live. Strategy Session 2: How can FSCs regain their short haul markets from LCCs? A reformulated Board will be presented with an executive summary report of Session 1 of the meeting and, incorporating that, be asked to address a set of different matters, which for the sake of convenience we have described as high level. Part 2. High level decisions 1. Distribution Strategy
Moderator: European Aviation Club, Chairman, Rigas Doganis
Panel Members:
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| 11:30 | COFFEE |
| 12:00 | ARE AIRLINES ON THE WRONG TRACK WITH BRANDING STRATEGIES? Ensuring that brand converts to dollars is no simple task As much as any industry, airlines rely on branding to sell their product. Establishing a powerful brand is perceived to be vital to generating sales. This is particularly so in foreign markets, where local airlines dominate distribution and frequent flyer/loyalty programmes. Advertising inflight product through traditional media is still a significant activity, but in a changing world, airlines are being forced to look to new directions for market positioning. The industry is threatened with being commoditised, so it is logical that companies would seek to differentiate through branding (among other things). Social and digital marketing have become de rigeur for marketing departments and “engagement” with customers is apparently a must-do. So long as big data is still more a discussion than a reality for airlines, digital and other modes will continue to compete for strategic attention in marketing and sales divisions. But market research suggests that brand may be little more than a distraction, particularly where social media is involved. Similarly, the impact of FFPs on customer loyalty may be greatly exaggerated. The vast bulk of buyers are in fact infrequent travellers and are much more interested in price than product – or brand. So, for example, American Airlines president Scott Kirby said recently that 9 out of 10 of American’s passengers fly on the airline only once a year or less. For them, he believed, “travel is clearly a commodity”. Brand was pretty much irrelevant. He also said that the commoditised passenger pool represented 50% of its revenue; stated alternatively, the other 10% represented up to 50% of revenue. The obvious message is that there is no single way of optimising travel on an airline. But where best to allocate resources?
Presentation: Brand Vista, CEO, Andrew Stothert
Moderator: MW Travel Consultancy, Principal, Martin Warner
Panel Members:
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| 13:20 | LUNCH |
| 14:00 | GOLF CHALLENGE Tourism Ireland are kindly hosting a special 9 Hole Golf Afternoon at the Powerscourt Golf Course for up to 12 golfers. Tee off will be at 14:00 following lunch at the end of the Conference. The golf challenge is now full. |
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