Industry Leader Interview - IATA Director General Willie Walsh

Transcript

John Strickland:Morning, ladies and gentlemen. I'm John Strickland, and let's have a warm welcome for Director General of IATA, Willie Walsh. Right, Willie, I'm glad they laid on the comfy chairs first thing. As we just heard, Greek furniture. We just need a little bowl of olives, a bit of ouzo, and we can be away, you know, or maybe a pint of Guinness too. us to really put a bit of class on it. Yeah, Willie, we heard that session there. We were talking about who would set up an airline. You're heading up the global body for the industry. We heard about coming out of COVID the startup ratios, the old slogan about, you know, start with a large fortune, make a small airline by starting an airline. I think you've gathered a few statistics on what's actually been happening just lately in terms of success and failure in airline startups.

Willie Walsh:Yeah, I've been looking at this separate to this event, and when they were talking about it, I just thought it was interesting So I pulled up my details on this. So in the last 10 years, between 2015 and 2024, a total of 408 airlines were started globally. A vast majority of those were in Europe, 173 in Europe. So 408 started, and during the same period, 420 failed. So it was a net 12, minus 12. For the industry. I have to be honest, these figures surprised me. And these are all airlines globally, could be small, could be large. And during the COVID period, which was even more surprising, 133 airlines started and 138 airlines failed. So a net minus 5. So I think it is fascinating for industry. You know, I wouldn't have guessed 420 airlines started in the last 10 years. That figure surprised me. I probably, if I was given the 420, I probably would have been able to guess the number that failed.

John Strickland:Yeah.

Willie Walsh:But the numbers are staggering, you know, for an industry like this, the number of new entrants that come into the industry, the number of people who believe that they can succeed in an industry that is brutally competitive. So it's great to see that enthusiasm for the industry, but I suppose it's depressing when you see just how many of those airlines fail during, you know, and most of them actually in a short period after they start.

John Strickland:Well, there's long been that kind of desire, hasn't there, that apparent glory of, if not having your name on the tail, having an airline that is yours, your personal entity, almost like a child. In fact, you hear some entrepreneurs who've run airlines for a long time and they don't want to let go, even though the logic is not there. And I remember hearing Bill Franke on the airline leasing side of things saying how many hundreds of business plans crossed his table and they would just chuck most of them in the bin straight away because they were just so ill-thought-through and only a handful actually make it.

Willie Walsh:Yeah, well, I think Conor tells that story about working with Tony Fernandes to start AirAsia, and Tony's quite honest, you know, he had a business plan and then he sensibly asked Conor to have a look at it and then tore up the business plan and started with a new one. So, you know, it is a challenging industry, but it's still, I think, an industry with an exciting future.

John Strickland:Yeah.

Willie Walsh:I genuinely believe that, you know, I've been in the industry now 46 years and I've seen a lot of change, but I think we've seen the most significant change take place in the past 20 years. And, you know, it is a more rational industry today than it was prior to that. Like, I can remember in the early stages of my career, you know, this cyclicality which was a feature of our industry and probably will continue to be, you know, the view was you can't do anything during the downturn, you've just got to hang in there and wait for the good times to come back. I think that attitude changed, particularly after the collapse of Lehman's. I think that period during the global financial crisis when, you know, smart airlines said, you know, I can't just wait for the recovery, I'm going to have to manage this downturn and started taking action much more quickly. So I think as an industry, the reason so many airlines survived during the COVID period, which, you know, when you look back on, you know, what happened there, and we often forget, but in May of 2020, global traffic fell by 95%, you know, a 95% reduction in traffic in May of 2020 versus May of 2019. And, you know, the reality is most of the airlines that remained in business remained in business because they immediately took action to address anything that was within their control and started ensuring that they could generate sufficient cash to be able to survive through the crisis. And none of us knew how long that crisis was going to last.

John Strickland:Right.

Willie Walsh:In fact, I think most of us hoped that it would be measured in months rather than years. So I think it is a great testament to the way that the industry operates today and the way the industry, I believe, will operate going forward in the face of new challenges that we will face. Without doubt, we will face more challenges.

John Strickland:Yeah, and probably an evolution, because as you were reflecting there, it made me think of a conversation I had. I think it's one of your old colleagues in IAG said, you know, you would do every year the risk management, you know, what might hit us and at what extent, and the benchmark was always 9/11. I don't remember precisely what the figure was, but maybe we We could get a 20% revenue hit, but we never expected to get zero revenue.

Willie Walsh:Well, 9/11 was, if you look back on it, was a 4.5% revenue hit. The global financial crisis was 16.5%. And then if you look at the period, you know, if you look at 2020, it was almost, it was 56% revenue collapse versus the prior year. And, you know, the recovery periods in post-9/11, you mentioned in months, The global financial crisis was probably a little over a year, and then, you know, COVID took us obviously quite a bit longer. So, you know, I think we have to be prepared for deeper, more prolonged crises. Hopefully we won't have one like that, but having gone through one, you know, I think we've got to use that now as a benchmark.

John Strickland:You're right.

Willie Walsh:You know, what would you do if your revenue collapsed by 60% in a 12-month period. You know, what would you do if your revenue collapsed in one month by 95%? And what you can't do is sit there thinking, you know, well, you know, let me call a committee meeting and let's get in some consultants. You're going to have to take immediate—

John Strickland:Roll your sleeves up.

Willie Walsh:And it was the point that was made, you know, AI is going to be fascinating, but, you know, at times like that, you need people who know what to do and do it quickly and instinctively take measures. They're not always going to be right, they're not going to be 100% right, but the, you know, to me the key to success during a period like that is the speed to which you respond to it.

John Strickland:Absolutely. Well, during the course of that last crisis, you switched from your last airline role heading up IAG to heading up the industry role, hands-off. I can't remember if that's the time you said you no longer had to have your phone out in the middle of the night in case something happened. But we've been dealing with, as, as, as Akbar Abakar just summarized there, many, many crises, many things that are still to come. So without wanting to make this a gloomy discussion between us today, let's try to go through some of those issues now. Now, perhaps the biggest crisis outside of, or a challenge outside of the hands directly of the industry, is the one of sustainability. And if I think back to when you became Director General of IATA, in your first year you achieved I think a pretty, a pretty incredible uniting of airline minds in terms of the agreement to achieve net zero by 2050, then ratified by ICAO. It was a pretty encouraging thing given the variety of people in the IATA family, so to speak, and politics behind all that. But we're 4 years on and sustainability is still there as the biggest external challenge. We've seen recently, I think it was the A4E European Airlines Group Conference, of which there are some people here today, There seemed to be a bit of a slackening back, a bit more nervousness to say the least about whether that can be achieved. I think you've made some statements yourself. Where do you see we are now on that?

Willie Walsh:I still think net zero in 2050 is a target that is achievable. What I don't see as being achievable are these interim targets that have been set, you know, and typically they've been set by people who don't understand what the challenge will be going forward. You know, it isn't going to be a straight-line achievement from whatever date you started in, be it 2020 or 2025. And I'm particularly critical of the EU because of the targets that they've set in 2 areas. One, I think the absolute targets are unachievable, and I've said that for some time. I said that when they came out. I think this global concept of a 2030 target was a very dangerous thing to do because I think I think, you know, the ability for the industry to significantly adjust to CO2 reduction in that short period is going to be very challenging. And I think the risk with setting these short-term targets, if they are not achieved, then those who are critical of the industry will use that to further attack us. And that's been the history in the past. So, you know, my criticism of the EU is I think the targets that they set were Targets that didn't take into account the policies that would be required, the technology that would be required, the investment required, the impact of that investment. I think they just looked at figures and said these look good. And particularly difficult, I think, is the focus on ESAS, which is extremely expensive, requires renewable energy, which, you know, there isn't an excess of renewable energy today. And there's very little production. So, you know, the idea of synthetic fuel, I think, is great. But the idea that you're going to force airlines to use this synthetic fuel that is extremely expensive, isn't being produced, and is using renewable energy that can be better used in other places, I think is wrong. And this is where I think, you know, at the A4E conference, people were saying the EU needs to just reset their thinking and look at, you know, what's happening today versus what was happening when they set these targets. What we're seeing, of course, is that the, you know, the wider value chain is not delivering. You know, the OEMs are not delivering because they've had problems. So, you know, we're operating now with an average age of the fleet is 15 years today versus the average age, the long-term average age was 13 years. So aircraft are on average 2 years older. Those aircraft are not as fuel efficient, they're more expensive to operate, and the ability for the OEMs to get back to a, you know, a lower average age is going to take forever.

John Strickland:Mm-hmm.

Willie Walsh:You know, deliveries last year, 2024, I think it was 1,266 aircraft delivered, which was lower than the number of deliveries in 2023 and significantly lower than the 1,850, I think, aircraft that were delivered in 2018. So we're way behind in terms of technology. Airbus has, I think, sensibly said 2035 for hydrogen is not going to happen. You know, I was skeptical about hydrogen. I think hydrogen is going to be a factor later on. So, you know, we're not seeing the fuel companies make the investments that, you know, they should be making. And in fact, they're all walking away now from investments and commitments on sustainable fuel because they're still being incentivized to produce fossil fuels. You know, ATC has not delivered. You know, the Single European Sky Agreement in Europe was nonsense. It didn't deliver on anything that was expected. So, you know, when you look at everything that has happened since we first set that target, in the short term, we're going backwards rather than forwards. And that's the concern we have, you know, unless there's a significant change in the approach. We're not going to meet any of these interim targets. And as IATA, we said setting interim targets was foolish. You know, let's focus on the long term. It's going to be extremely challenging to hit that long-term target, but let's focus on that and let's not get distracted by trying to, you know, measure where we're going to be in 2030, 2035. And that's, you know, I think that's where we find ourselves today. And then the Your political environment has obviously changed, so it's a, it's a different place that we're in today than where we were, but I'm still optimistic. I still think it can be done, but without question the challenge is much greater today than it was.

John Strickland:I mean, there's such a variety of issues there that you described, so many elements independent of each other that are affecting this progress. Is there, despite that, anything more airlines themselves can directly do? I'm thinking about the price of synthetic fuels being more expensive, is there a way that airlines can say to companies who are investing, especially some of the newer companies setting up to produce SAF fuels, that they can stomach the higher premium for the investment in that product and pass it through ticket prices? It maybe seems a stupid question because—

Willie Walsh:No, but I think, and this is important because there are people who argue that what we need is mandates to stimulate demand.

John Strickland:Yeah.

Willie Walsh:That's nonsense, because all you have to do is look at what's happening. Every single drop of SAF that has been produced has been used by the industry, every single drop. And in fact, if you go around, you'll be able to see lots of airlines who have said, I would have used more if it was available to me, because many airlines have made individual commitments in the short term, particularly around 2030. So it's not a demand problem. The demand exists. In fact, the demand exceeds the supply. It's a supply problem. And, you know, what we need is, you know, we need governments to recognize that they have a huge role to play in stimulating the supply in the same way as, you know, they stimulated supply for wind and solar energy. You know, that didn't happen because consumers went out and started, you know, putting solar panels on their roofs. It happened because solar panels were made at prices that were more affordable. You know, the amount that consumers produce is small, but that there was significant investment supported for industrial production and use, production of solar energy and wind energy.

John Strickland:But does that mean price parity with kerosene today, or that you'd stick to a premium?

Willie Walsh:Yeah, I've always taken the view that there will be a premium. You know, I think there are some people who believe that you know, ultimately sustainable aviation fuel will be at a discount to fossil fuel. I've never seen it that way. So I think the industry has recognized that, you know, paying a premium for the sustainable products was not the issue. The issue is the ridiculous premiums that we're having to pay. You know, SAF, it's actually difficult to measure because there isn't a market for SAF. So, you know, there isn't a price that you can actually get. You can manufacture what you believe the price of SAF is today. And, you know, we believe it's about 2.8 to 3 times the price of kerosene. E-fuels, because they're produced in such small measure, you'll pick a number, 10 times, 15 times. You know, the differential in the premium there is huge. And you're not going to get many airlines saying, I'm prepared to pay 10 times what my fuel is for this really small production of a very premium product. So, you know, fuel has traditionally been the single biggest element of an airline cost base. This year it'll probably be overtaken by labour, yeah, given where we see the oil price today. You know, so labour will now be the single biggest cost, fuel will be the second biggest, and They've always been 1 and 2, but it's typically been that fuel has been number 1, labour has been number 2. As an industry, we can control to some degree our labour costs. Very little we've been able to do on fuel, but fuel will still represent on average 25% of the cost base. And therefore, the industry can adapt to a small premium, but it can't adapt to a premium that's 10 times what we're paying for Just another element on this, and then I want to turn to a different topic.

John Strickland:Do you think as we go through the next, what, 2, 3 decades to get to 2050, we look at order books, notwithstanding delays in deliveries now, might we really have to face up to a situation where the mature aviation economies, particularly like US and Europe, have to accept some kind of cap on their growth?

Willie Walsh:No.

John Strickland:In the greater interests of countries that are really moving forward?

Willie Walsh:No, I think we Well, I can't see, other than Europe, I can't see anywhere that's debating a cap on growth. I don't see it happening in the US regardless of who's in the White House.

John Strickland:Yes.

Willie Walsh:You know, I see it potentially happening in some elements of Europe, and the EU keeps talking about, you know, constricting demand. You know, to me, that's not the solution. You know, I know Peter's going to be on the stage talking about India. I find India fascinating. You know, the idea that India will suppress the growth of their airline industry when there's massive economic benefit going to accrue to that country and the people of that country as a result of the connectivity that aviation will give them both domestically and internationally. You know, the domestic connectivity that the likes of India, Indigo produces is really important to the Indian economy, and they're not going to change that because they don't have the alternatives that exist in some parts of Europe. So the only place where I hear discussion around capping demand is in some parts of Europe, and even there I think it's more— I would call it greenwashing actually. You know, you talk about France where they talked about restricting some domestic flying. Domestic flying. It's complete nonsense. Domestic flying from Paris Orly, not from Charles de Gaulle, you know, and trying to get people to go on the train. The CO2 benefit of that is negligible, if any. In fact, you could even make a case that it's a negative impact because you're assuming everybody goes to the train when in fact that may not happen. So I think we've got to be realistic, and in Europe in particular, I think decisions should be based on, you know, hard data rather than what politicians want to say is going on. And the reality of it is, you know, I keep quoting the Eurocontrol study, you know, if you stopped all flying in Europe of less than 500 kilometers, it would represent 24% of the flights but only 3.8% of the CO2. If you introduced a single European sky, which can be introduced without any investment because the aircraft can do it today, you would reduce CO2 in Europe by 10 to 12%. So, you know, stop all short-haul flying, 3.8%. Single European sky, which you can do overnight and can be done because the politicians are the ones standing in the way of that. It's not technology. You could save 10 to 12%. So that's the reality. So when you hear these people talking about we need to suppress demand, that's nonsense. What we need to do is to make our system as efficient as it possibly can be.

John Strickland:Do you see hope? I mean, when you're engaging with these politicians and particularly people in Brussels, I mean, can you get them out into the world, so to speak, visit airports, visit communities, talk to people? They're flying themselves, but sometimes it does appear quite closed. You know, the theoretical edicts come out from Brussels, but as you say, don't match the real world.

Willie Walsh:Yeah, I'm probably a little bit more hopeful today, principally—

John Strickland:The Draghi report.

Willie Walsh:Yeah, the Draghi report, I think, was was very important because it highlighted, I think, for the first time the need for Europe to look at competitiveness in a global context rather than, you know, just been fixated on the single market. I think what's happening, you know, with the Trump administration should be a wake-up call to Europe about competitiveness and the need to be able to, you know, operate in the most competitive, most efficient way. And I don't believe You know, there is this view that, you know, Europe's answer to every problem is regulation. And if the regulation doesn't work, more regulation and keep regulating until, you know, you get a solution that works. That's nonsense. I think you've got to look at why aren't things working as efficiently as possible and then address those inefficiencies. And to me, Europe has become very inefficient. When you look at European competitiveness on a global scale, it's not that they can't be efficient because in fact you've got many excellent airlines, for example, operating within Europe competing on a global scale, but the regulation in Europe makes it much more difficult for Europe to be competitive globally, and I think that has to be addressed. And I'm more optimistic that given what's happening in the global economy, that Europe will finally start addressing those issues.

John Strickland:Well, let's move. We've touched on OEMs already, and we heard in the last panel about these enormous delays. I think probably you and I, similar time in the industry, probably never seen anything like this, either delivery delays, aircraft that were delivered grounded because of engine challenges like, like the GTF. Do you think that's really going to act as a handicap, maybe even well into the next decade for airline activity?

Willie Walsh:Yeah, without question. So there's about 1,100 aircraft less than 10 years old that are grounded today. The majority of those would be GTF parts. But when you think of, you know, 1,100 aircraft less than 10 years old on the ground, because principally because of engine issues, but also because of other supply chain issues. So, you know, that's the existing fleet. Then you look at the delays to the new fleet. It's going to continue for much longer than than we had expected. And, you know, Conor highlighted part of the problem, you know, it's the Tier 2 and Tier 3 manufacturers that are really struggling because of what they were forced to do during the COVID period. So I don't think anybody anticipated that these supply chain issues would continue like they have. And Nagbar, you know, his comment about when they do, if they do get sorted out, the demand for defence Procurement and supply is going to be huge in this new environment. So, you know, every way we look at this, we see this problem continuing for a long time.

John Strickland:A different question, airports, Willie. We heard introductory comments from Athens Airport, the airport load in terms of debt and so on. I was thinking the airline resilience issue is enormously important. We've had the Heathrow— well, not the Heathrow, but the electric side No, no, no, come on, it was Heathrow. Yeah, well, Heathrow closed 24 hours, and then the Newark ATC and control communications failure last week. 2 major airports, 2 hub airports, because Newark being a hub for United, floored effectively for enormous periods of time. What do you think we're going to learn from these in the cold light of day, particularly the Heathrow one? I mean, there are specific Heathrow issues you'd raise about cost, But is it like a wake-up call for airports everywhere? Because I wondered when I saw that, well, how many other airports have this?

Willie Walsh:Yeah, but, you know, I think what will be important is to understand what actually happened at Heathrow. You know, so one substation went out of action, but Heathrow was still being provided with power from 2 others, at least 2 others, and they had backup power as well. I think the question that you have to ask is Why did it take Heathrow so long to get back up and running? You know, what was the issue there? Because we know, you know, the original belief was they lost all electricity, they lost all power to the airport, and that's proven not to be the case. So I think the issue for us as an airline industry is why did the airport take so long to re-establish operations? Could they and should they have got the airport up running faster? Now, my belief is Yes, absolutely they should have. But let's wait and see what the investigation proves. But, you know, my experience with airports, and as you know, I'm not a great fan of airports because, and maybe it's been overly influenced by the chaotic situation at Heathrow over the years where I've had to deal with that, you know, probably more than anybody else. But, you know, we really do need to see a better resilience. So I'm assuming every airport in the world looked at their resilience and figured out that if, you know, a similar event happened to them, that they'd be able to continue operation, that they wouldn't have had to shut down anything at all. So it surprises me that Heathrow had to shut down, really does. I'm surprised, particularly given the timing of the event. You know, it wasn't at the peak period in the day.

John Strickland:Shut down overnight with nothing actually operating, planes coming but not leaving.

Willie Walsh:Yeah, and Heathrow doesn't operate, as you know, between Effectively between 11 and, and it has a few arrivals between 4 o'clock and 5 o'clock. So, you know, the fact that they couldn't get it sorted and back up and running for the start of operations is the bit that really surprises me.

John Strickland:Interesting how that one does play out. Just in the last few minutes, Willie, markets. I mean, I think it's perhaps fair to say all eyes on the North Atlantic market this summer. We've seen fluctuations outside of industry, stock market, companies worrying about recession more broadly. We're not getting clear messages from individual airlines at the moment. We've seen the US carriers saying they see domestic demand being hit by economic uncertainty. The North Atlantic itself in recent earnings, I think Lufthansa and Air France so far, IAG coming, still quite buoyant, albeit outbound European weaker, inbound US What's the IATA view on that? Because certainly when you published your forecast review, you showed, I think, US or North Atlantic and Europe still being the 2 lead global markets.

Willie Walsh:Yeah, so we'll update the forecast, and I think if you look, and we'll issue it at the AGM in Delhi, the things that have changed since then, obviously global GDP will have declined because of what's happening, but it's important to remember that, you know, the world is more a services economy than a manufacturing economy. So, you know, it's not all doom and gloom, but GDP will have declined. The oil price has declined, and that clearly has to have a positive— cargo has been impacted without question. You know, the figures we've seen up to the end of March were very robust, but I think there's good evidence to suggest that that was people shipping goods before the tariffs came into effect. The cancellation of the de minimis in the US for customs, you know, items of less than $800, that will have a big impact. So there's quite a few negatives. Unemployment will probably increase, but it's increasing from a very low level. You know, interest rates are probably going to come down slightly, but maybe not as fast as people had expected. But demand is still good, you know, people still want to fly, and I think when, when I look at all of the moving parts, I suspect we'll get to a similar, if not the same, net result, but we'll get there in a different way.

John Strickland:By different means.

Willie Walsh:Yeah, you know, revenue I would expect will be lower than we'd originally forecast, but costs will also be lower, and, you know, a lower oil price, given that, you know, oil is typically the single biggest cost that an airline faces, does allow airlines, you know, to price at a lower price point as well if they need to, if they believe they need to stimulate some demand. So I'm still optimistic about this year. I think this year will still be a positive year for the industry and a positive year for all regions. I think it's when you start looking further on, if these measures don't get sorted out, you know, if we do continue to have debates around tariffs and trade wars in 2026, you know, that, that's maybe a different environment. But for 2025, I still see 2025 as being a relatively good year. And if we look at the traffic stats that we have, they're, they're all still very healthy and very positive. We did see in March a slight reduction in the transatlantic Europe to North America and vice versa. It was down 1% in March versus 2024. It had been up, it was 5% up in January, I think it was less than 1% up in February, it was 1% down in March. Now March can be impacted by the timing of Easter, so I've tended to always look at March and April together, so we'll wait and see the April figures before it. But even, you know, if it's 1%, it's not what some people have out there.

John Strickland:No.

Willie Walsh:And, you know, if you look at The areas that have been significantly impacted, it's clearly, it's very obvious Canada, US has had a big impact. Nowhere close to the ridiculous figures that I've seen some people quote of -70%. You know, it's nowhere close to that. In fact, you know, it's significantly, significantly less than that, but it has clearly been impacted. Now, Canadians are still flying, but it would appear they're just not flying as often to the US.

John Strickland:Flying elsewhere.

Willie Walsh:There are some moving parts there, but I still think, you know, when I take it all together, if I was an airline CEO, I'd still be pretty optimistic about 2025. And, you know, looking at the positives but looking at the negatives as well, I'd still be net positive about 2025.

John Strickland:And Willie, in the time I've known you, you are an optimist at heart. You take things apparently in a cool and calm way. Your term is up for For the first innings, as it were, at IATA. You're going to sign up for a second term?

Willie Walsh:So Peter Albrecht, who's my chairman, has twisted my arm and convinced me that I should continue for a little while. So we've agreed that I will continue until June of 2027 at the very latest. I will be gone, you know, lest there be any doubt. I will not be on a stage as the Director General of IATA after the After June of 2027. So I'm looking forward to retiring. I'll still—

John Strickland:You're going to finally sail that boat? Well, you had a boat, you sold it.

Willie Walsh:Yeah, I sold it because I wasn't using it, so I'll have to buy a new boat. But no, I've actually, I've moved my focus now to maybe producing wine initially. I think, yeah, I think that sounds even better than, you know, sailing a boat.

John Strickland:Not only an alternative brand to Guinness, No, no, it would be for self-use. Well, listen, Willie, we're out of time, so we may well get you back on stage one or two more times between now and 27. So ladies and gentlemen, Willie Walsh, Director General of IATA. Thanks, thanks, Willie.

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