DUBLIN — The international aviation community gathered once again to discuss its state of affairs and plan for the future at the IATA Annual General Meeting, hosted in Dublin this week. While the range of topics is relatively the same as in previous years the tone of the discussion showed some interesting variations.
Speaking on the state of the industry in his final year as Director General of IATA, Tony Tyler noted that the industry as a whole is profitable but also noted many challenges it faces on that front.
On average, airlines will make $10.42 for each passenger carried. “In Dublin, that’s enough to buy four double-espressos at Starbucks. Looked at from a different angle Starbucks will earn about $11 for every $100 in sales while airlines will make $5.60. We don’t begrudge Starbucks their profitability. But here is clearly still upside for airline profits.”
These profits are far from evenly distributed – much of the profit in the past couple years has found itself in only a few carriers’ balance sheets – and there are challenges to them in the future. While IATA estimates for 2016 industry profits were revised up by ~$3-4bn. over the past 6 months, Tyler attributed that growth is mostly to lower fuel prices.
Separately, he acknowledged that IATA sees a 7% decrease in airfares across the industry, a number which will make hitting the profit targets more challenging and which will potentially further stress the spread between the airlines which are profitable and those which are not. Also speaking on that topic Aer Lingus CEO Michael Kavanagh offered up, “If oil is the reason for your profitability that’s a question of the stability of your airline.” This was one of several references Kavanagh made during the day regarding the massive operational changes his carrier undertook in the past few years to shore up its finances and revitalize the company.
Separately, IATA spoke to the challenges its member airlines face in repatriating revenues from some countries. Currently more than $5bn is being held by Venezuela, Nigeria, Sudan, Egypt and Angola. The largest portion of that, nearly 75%, is in Venezuela and has been for 16 months now. But the other four countries, while a smaller share and held for less time, represent a disturbing trend for airlines, especially in developing markets, as they seek to operate in a financially viable manner.
Aircraft Tracking & Safety
Aircraft tracking was, unsurprisingly, an oft mentioned topic again this year, especially in the shadow of the crash of Egyptair MS804. Tyler and Gilberto Lopez-Meyer, IATA’s SVP for Safety and Flight Operations both spoke extensively on the topic with Lopez-Meyer taking on the more significant role. While ICAO has made progress in setting some regulatory goals IATA is mostly just “along for the ride” it seems, choosing to not take a stronger stance or even recommend solutions to its members.
There is value in performance-based guidance – any solution is okay so long as it meets the necessary reporting specification – but questions remain regarding retrofitting of existing fleets and how the organization so focused on safety can avoid committing to the necessary tracking upgrades on its existing aircraft.
Lopez-Meyer specifically called out ever-improving technology as part of the challenge the industry faces given that commitments made today will be in place for decades, “One of [the challenges] is difficulties of selecting a [tracking] option because the technology is changing so fast we might expect that very soon we may have some much more powerful technology solutions.”
Aviation remains a significant focal point for sustainability and conservation efforts. IATA has re-committed to carbon-neutral growth by 2020 in a measure passed “overwhelmingly” by the gathered executives in today’s session. In introducing the measure Tyler stated, “Airlines are committed to sustainability. With improvements to technology, operations and infrastructure and the deployment of sustainable alternative fuels, we are delivering results against our climate change commitments.
However, to achieve carbon-neutral growth from 2020, we also need a mandatory global carbon offset scheme.” While details continue to be worked on for the overall implementation of the plan it was not completely welcome by the attending airlines. China Eastern raised significant objections to the plan and indicated that its fellow Chinese airlines would join it in not supporting the carbon-neutral plans.
Like many industry initiatives, the need for cooperation from all parties puts some stress on this effort. It is unclear what the end result will be if the Chinese carriers choose to not participate.