Risk And Growth Vs Safe Financial Gain: Planning Growth In Latin America, Asia And The Atlantic

Transcript

John R. Byerly:So this is the last panel of the day. We are between you and martinis. That's a challenge, and especially with such good panels before. I don't have Richard Quest's smile or his savoir-faire or his ability as a moderator, but I'll do my best. I'll be helped in this by having an absolutely fantastic panel. And as Peter Harbison said, what we're going to discuss this afternoon is prospects for growth in aviation markets, and in particular, what matters to airlines, airports, and other stakeholders such as the travel and tourism industry as they look to plan and implement programs to seek expansion and how to make that expansion succeed. That planning and evaluation process can involve airlines, both passenger and cargo, as they weigh options for where to fly next. It can involve airports that are looking to attract new service, or it can involve hotels and resorts that are deciding where to spend their advertising resources. On the panel today, like I said, I have a great panel, are Eduardo Iglesias, the Executive Director of ALTA. We have Peter Cerdá, IATA's Regional Vice President for the Americas. Nancy Sparks, Managing Director for Regulatory Affairs at FedEx. Erik Hansen, Senior Director of Domestic Policy at the U.S. Travel Association. And last, doing double duty, last but not least, doing double duty this afternoon, Vicki Jaramillo, Senior Director for Marketing and Air Services Development at the Greater Orlando Airport Authority— Aviation Authority, excuse me. In just a moment, I'll ask each of our panelists for a few initial thoughts. on the general theme, but let me start with a few questions, general questions to set the stage. First, what makes a new opportunity harder or easier to tackle? How do you trade off sticking with growth strategies that have worked in the past against launching efforts to expand outside your traditional comfort zones? Is Peter Harbison right? Is sticking in your comfort zone a dangerous strategy for the long term? Second, which impediments to growth, be it infrastructure limits, government policies, even cultural differences, which do you consider of the greatest concern or challenge? What worries you, keeps you awake at night? Third, a sort of chicken and egg question. How do you— when you— do you pursue new air service, whether to a new market if you're an airline, or pitching an airline if you're an airport to come and serve your airport, Do you do that first and then go to your government and say, we need some liberalization, we need some relief here to make this possible? Or do you do it the opposite way around, go to the government, press for liberalization where it's needed, and then go out and pitch the service? How do those two interact? What's the importance of liberalization and open skies to the work you do? Fourth, and this will be my last general question, how do airline mergers, acquisitions, alliances, and partnerships affect this decision process? What are the advantages and disadvantages of tackling new markets on your own, as opposed to working with an established player, an alliance partner, in some other way? So Eduardo, I'm going to begin with you, and we're going to focus a little closer here at home, Western Hemisphere, Latin America. I'm thinking in particular about Brazil, but it's not the only example. Brazil, Latin America has been a mercurial place for the aviation industry in recent years. Huge promise, but many, many, many challenges. How do you judge prospects for growth? What's likely to work, and what are the principal impediments you see going forward in North America, Latin America?

Eduardo Iglesias:Okay, well, thank you. That's a long question, but I like long questions. I'll do my best to answer. Okay, first of all, Latin America and the Caribbean, we have doubled the traffic in the last 10 years in the region. So we've gone from around 100 million passengers to 200 million passengers, 250 depending on how you count them regarding whether the airline is domestic or international. The same thing has happened with the fleet. So in the last 10 years, the fleet has doubled and the average age has been cut to half of it. So when this morning there was a slide portraying the average age of the fleets in the world, Latin America there should be around 7 to 8 years on the average. So as you were saying, yes, we are currently experiencing some slowdown in Brazil. Brazil accounts for half of the traffic in Latin America. So out of that 250 million passengers, Or 200— yes, between 200 and 250, Brazil accounts for 100 million passengers. But bear in mind that those 100 million passengers were 30— less than 10 years back. So even though we've seen a slowdown today and in the last months, the numbers are going back, but we are not going back to 30 million or 50 million. We would probably go back to '95, '96, and then rebound afterwards. Bear in mind that the origins of the Brazil situation has a big economic component, but it is on steroids currently because of the political uncertainty. There is no light at the end of the tunnel. So as any entrepreneur and investor does in those situations, They have actually refrained from investment, and that's putting a lot of pressure inside into Brasília and the jobs that have been created there. So Latin America is accustomed to those economic cycles, and at this time I would probably say that our airlines are better fitted to navigate the crisis, the same thing as for many of the Latin American governments. While some, some Countries were having a party with the commodities export, just like Brazil and maybe Venezuela. In that sense, there were others doing their homework and saving for the future. That's why we see the Pacific Rim, from Mexico to Chile, doing extremely well, except for maybe Ecuador. You will have Chile, you have somewhat Bolivia.

Vicki Jaramillo:Peru.

Eduardo Iglesias:Peru, Colombia, Panama, and Mexico doing extremely well. And if you see the traffic numbers in January and February of 2016 and you take the slice of Brazil out of the statistics, we've grown January and February on an average of 10% as compared to 2015. So the forecast we have, and that's something that Peter can actually span afterwards. We, we forecast this region to continue to grow steadily from 4% to 6% annually. So that will take us to doubling the traffic in the next 10 to 12 years. If we fast-track that and we continue growing at 10% rates, that will bring closer the doubling of the traffic, and we are not ready for that. We have huge issues going on with our infrastructure. And that really poses a big challenge. Most of our big airports are landlocked in terms of areas of expansion for the future. So they are landlocked and the current capacity is already saturated or congested or saturated. So we have to really think out of the box looking forward in terms of the facilitation of movement of goods and people.

Erik Hansen:Yeah.

Eduardo Iglesias:Streamline immigration processes, customs, and everything that has to do with the airport experience, because we have to extract as much value of the capacity we have installed if we want to at least have some time for the investments that might be done to kick in in the future and continue the expansion. So wrapping it up, I will probably say that we have Infrastructure. We have a huge lack of uniformity in Latin America in terms of regulations. When you compare Latin America, a market of around 600 million people, with the EU, Europe, the U.S., India, China, the importance of that comparison is that all those markets work under a single regulatory framework. Even— you may like it or not, but consumer protection and consumer compensation is already settled or somewhat established by those regulations. Not in our region. For the same amount of people, we have 60 regulations applicable only for consumer claims. Expand that for— Move into investment, substantial ownership, antitrust, etc. So it has become a very difficult region in that sense to make cross-border investments or mergers. Back in the past, it was much easier, and you saw the creation of the Latin American economic groups like Grupo TACA and afterwards the Grupo LAN and now LATAM after the merger and afterwards COPA and Copa Colombia, etc. And finally, taxation, and that's an area of expertise also of IATA, my colleague here, Peter, so he can— where he can give you some examples of what's going on in Latin America and the Caribbean.

John R. Byerly:Thank you, Eduardo. Peter, points of agreement, points of expansion, other comments to get us started here?

Peter Cerdá:So let me start off by a lot of what Eduardo— everything Eduardo says is It's right on mark, and you're going to see we complement each other. We're even dressed almost the same together, and we didn't plan for this. But we do have 2 stories in the Americas. One is a North American story, which has been a story of success, particularly for the U.S. carriers. A strong 2015, roughly $19 billion of profits. The same is expected in 2016. Not the same story in Latin America. Last year, there was a loss of $300 million, primarily because of the situation in Brazil. The outlook is somewhat better in Latin America for 2016. We're expecting somewhere around $400 million. Nothing to celebrate, certainly not during a very complex situation. When you look at the past, the gains per passenger in Latin America is about $1.26 compared to the Global average roughly around $9.60. So certainly there is a lot to do in Latin America. Saying that, the situation is not financially gloom. We have some markets that are doing very, very well. Eduardo mentioned the Pacific Rim countries— Mexico, Panama, Colombia, Chile, just to name some. But when you look at some of these countries, You look at the regulatory framework, these are governments that are very pro-aviation, that are open to work with industry, that are working closely with the airlines, that are not imposing unreasonable taxes or fees on the industry or on the passenger, which is critical. So these are markets that are actually flourishing. They're expected to continue to grow between 6— between 3% and 6% over the next couple of years. The average in the region, 6%, and we may have some success stories, 9%, 10% in the years to come. So that's some good news moving forward. Safety is something that we take for granted. It's something that we expect as an industry. This was not the story 10 years ago. 10, 15 years ago, passengers did not want to travel on Latin American carriers because of the safety level. Today, some of the safest airlines are based in Latin America. The airlines have invested greatly in technology, in training, better oversight to really make the Latin carriers some of the safest airlines in the world. The other component that I think we have things to cheer about in the Southern Cone is some very good senior executives running some very, very good airlines in some very trying periods of time. Many of these airlines in the past were family-owned, government-owned, Today, they're in most of the stock markets around the world. So we have some very successful models and you have some of these airline CEOs who have been there for a very long time. They understand the business. They know how to deal in volatile situations. One thing you'll always see in Latin America, the volatility. It could be political. It could be natural disasters. It could be Any types of disasters that impact, somehow the industry is very resilient in overcoming these issues. We have other opportunities. We've had in the past some countries that have not been success stories. Venezuela is still owing the industry close to $3.8 billion of airlines' money. We don't see that coming back to the airline community anytime soon. The country is bankrupt. Brazil is going through this perfect storm. It's a political, economic, social crisis that we have. We don't know who will be the person in charge when the Olympics come, and that's a very important showcase not only for the region but for the country that you have the Olympics representing the region. We don't even know if Dilma, the president, will be in power or not, or who in the cabinet will still be there. But we do have other countries that we have on our radar who are our short-term successes. One is Argentina. We've just now overcome 14 years of very gloomy relations with the government from an aviation standpoint. It was basically a country very rich in resources, in culture, history, that basically cut itself from the rest of the world. Now with the new government, they have put aviation as a priority on the agenda, willing to work with stakeholders to really push the tourism and travel industry in that area. The other market is Cuba, obviously, with huge amounts of potential moving there over the next couple of years. Since the Obama administration made the announcement back in December 2014 till roughly one year after, there was a 60% spike in U.S. travelers going to the country. Now, with the new scheduled service going into there, there's huge potential there, but there's also some risk that we have to overcome. Infrastructure will certainly be one of them, not only on the aviation sector, but in the entire infrastructure for the country. But we do have challenges, as Eduardo mentioned. One is infrastructure. You talk to many of the airline CEOs in the region, And they say, we want to grow, we're able to grow, but we can't grow fast enough because the infrastructure in my respective country cannot withhold me. And that's putting a huge risk on the viability of the industry in the region when you don't have competitive hubs that are able to permit airlines to expand service. Taxation is a major issue in our region. We have over 130 different types of taxes in the Americas. Way too much. It's— our industry is still considered a cash cow. It is very easy to impose taxes, increase fees on the industry, and unfortunately that always goes back on the traveling public. So that has an impact, something that we're certainly preaching and advocating to governments. They need to understand that aviation enables economic development. If you start putting barriers such as taxation, Higher charges, you make the country, make the city very uncompetitive. And the traveling public is very educated nowadays with internet, with airplanes being able to fly 17 to 18 hours around the world. A passenger is going to decide if he wants to go to the Caribbean or if he wants to go to Dubai for holidays. And sometimes it's cheaper to fly your 15-hour flight to Dubai from Miami than it is to go to Antigua, which is a 2.5-hour flight. So those are some of the challenges that we have that we continue to push. Certainly, while it's somewhat gloomy at the moment with some, you know, not very good news in Brazil, Venezuela, and some other parts, there is certainly a lot of optimism. But from the airline side, governments need to play a much greater role in partnerships rather than the current stance that many of these governments are playing.

John R. Byerly:Peter, I want to come back to Cuba in a minute after we've got the other panelists. I want to get to Nancy very quickly, but one question for you. You mentioned the family ownership, the longstanding management at a lot of the big leading Latin American carriers. I think of LAN Chile, LATAM today, but others as well. This morning there was discussion of the— I'll call it return on investment horizon, the calendar. Do you think that Latin American executives, chief executives, have a longer horizon than their United States counterparts?

Peter Cerdá:I think history proves it. You have many of these airlines that have been— many CEOs have been in power for, or in the position for a long time. You don't see a lot of turnover from their senior executives. Their strategic planning is long-term. There's always adjustments. No one in the LATAM Group ever imagined that 3 years ago, 4 years ago, when they went into a relationship with TAM at a time when Brazil was bustling, that they would have these obstacles that they're facing today. You speak to Enrique Cueto, the CEO of the LATAM Group, and he's not going to deviate. They're going to continue their position on making the LATAM Group a global player that's going to compete, it's going to provide a good service, and It's going to innovate and it's going to continue to expand. And if you speak to Pedro Helburn at Copa or to Andres Conesa Aeroméxico, they're all going to say the same thing. They're very, very— they understand the local playing field. It changes. They understand if they want to play in the global market, they have to be able to compete. And these are some very savvy and very smart individuals that have good teams in place and they will continue to drive through their strategic Thanks.

John R. Byerly:So Nancy, I'd like to broaden the discussion a little beyond the Western Hemisphere now, and no better place to start with than FedEx. There is no more global airline than Federal Express. You are a global enterprise, but you pursued expansion in different ways around the world. You've grown yourself, but I think of the TNT acquisition in Europe as a different mode of expanding your reach and penetration of markets.

Nancy Sparks:Yes.

John R. Byerly:How does FedEx go about deciding where to expand and how to expand, what mode to choose, and do so successfully? And coming back to the Cuba theme, perhaps you could tell us a little bit about what went into the decision of FedEx, alone among all cargo carriers, to apply for some of the frequencies now available under the new U.S.-Cuba arrangement.

Nancy Sparks:Okay, well, I hope I can remember all those questions.

John R. Byerly:I know, long questions. I apologize again, but you're just going to have to bear with me.

Nancy Sparks:I've worked for FedEx for 32 years, and this is probably one of the most exciting times to be at the company. We never have lacked for innovation because we all work for Fred Smith, who is the innovator par excellence. So there's always something new going on, and the newest of the new, of course, is our Cuba application. As John mentioned, we are the only All cargo operator to apply for the rights to fly to Cuba. We have what I keep calling a very modest proposal, which is one flight a day, 5 days a week, Miami to Havana. We believe that we can provide excellent service because we have a network to every place in the United States. And keep in mind, remember, this isn't only a U.S.-Cuba opportunity. This is It's not the rest of the world to Cuba opportunity for U.S. carriers. So by having a national network going to every address in the United States, we feel like we're giving the DOT plenty of value for a very small expenditure of opportunities. So everybody, we can watch this space for a while. I have no idea the timeline that DOT has involved— has in mind. I think that's a good point. They have not inches but feet of pleadings already to go through, and they're a very busy group of people to begin with. So it's very interesting. But to get back to general expansion questions, we operate with a blend of expansion. We have done regional acquisitions. We have done single-country acquisitions. For instance, a couple of years ago, we finalized an acquisition in Southern Africa involving 7 countries down there where we bought the land part of the business. We bought the pickup and delivery business. And with the exception of Flying Tigers, we've never done another airline merger. When and if we get the final approvals, on the TNT acquisition, we will not be doing an airline acquisition because the EU rules will not allow us to own the Belgian and the Spanish carriers that TNT presently owns and operates. So those carriers would be spun off and we would continue to have a U.S.-only airline. But our U.S. airline does reach, as Rush O'Keefe explained, plane this morning through the use of 5th freedoms. And so therefore, for us, a major, major factor in our ability to expand continues to be open skies agreements. We're watching very carefully the progress of the Mexico agreement, where we have been working for years with our local allies and our local businesses to try and get 5th freedoms wrapped into that Mexico agreement.

John R. Byerly:Thank you.

Nancy Sparks:So we'll see where that's going. About 6 years ago, I guess it was, we did a major acquisition down in Mexico, and we have about 9,000 employees now in Mexico. For us right now, other than geographic opportunities like Cuba, the big opportunity is e-commerce. And since this is an aviation audience, I won't spend too much time on that except to point out that there are some— I think that's a great point. Very interesting changes going on in customs law and trade facilitation. The change in the United States law recently with the Customs Reauthorization Bill, raising the de minimis from $200 to $800 to match what you can bring home in your suitcase to what you can send home in a package. That's going to make a huge difference in terms of our ability to clear packages from all around the world into the United States quickly. So we'd like to see those kinds of changes going forward and customs simplification through the WTO trade agreement. So there's a lot going on, but the factors that call out for us to expand are a blend of opportunity, of market change, and just basically raw economics.

Peter Cerdá:Thank you.

John R. Byerly:Erik, the U.S. Travel Association represents a huge cross-section of the U.S. hospitality, tourism, travel industry. I just looked at the letter H, but you could say it goes from Hertz to Hyatt to Honolulu Tourism Agency. Is there consensus among your members On which foreign countries offer the United States tourism business industry the greatest promise? Who will bring you— which countries do you think, or do your members think, are the best places to tap for additional tourism flows to the United States to meet, among other things, President Obama's goal, probably unreachable at this point, but we're getting closer, of having 100 million foreign visitors to the United States per annum by, I think the year was—

Peter Cerdá:2020.

John R. Byerly:2020 or 2021?

Erik Hansen:2021.

John R. Byerly:Erik, over to you.

Erik Hansen:I think the general thinking in the industry is that the BRIC countries provide so much opportunity for growth, so Brazil, Russia, India, and China. There's a lot of concern about a number of those countries now. With the strengthening dollar, we are seeing a little bit of a slowdown in visitation from China. There's a lot of concern about the perfect storm in Brazil. But I think those are short-term risks, short-term concerns, but that overall we really continue to be optimistic about those markets. You know, I mean, coming from Washington, I can't imagine what it's like to have a legislature that can't pass a coherent budget or doesn't agree with the administration on everything, and then with an administration where you don't know who you're gonna have in charge next, and maybe the person might be a little crazy. I don't know if we have those Similar analogies here in the United States. But I'm hopeful that in Brazil and in other parts of the world, those things will start to correct themselves. And when they do, I think we're going to start to see the trajectory go up again, even though we have seen a slowdown. I mean, let's think about Brazil, for example. We saw substantial growth from Brazil at a time when trips per capita was still at about half a trip per person. So the upside for that country is still substantial. The, the growth from Brazil came at a time when the visa wait times were 3 months, when you were landing in the United States and just to get through customs you had to wait 3 hours. It's shocking to me that people still wanted to come to the United States. We have now a promotional arm called Brand USA for the United States that is trying to attract increased visitation from abroad. That's going to help. I think the underlying dynamics of international aviation and growth in international markets coming into the United States is still going to be strong, but it's not in vogue to just be an optimist, so I will point out 2 areas of concern. One is protectionism. I think with the presidential elections and some heightened rhetoric after some devastating and unfortunate terrorist attacks, Both abroad and in the United States, there's been a posturing in Washington and from some of the presidential candidates to call for shutting down the visa waiver program, to not let any more countries into the visa waiver program, to suspend countries into the visa waiver program. We're talking about building walls between Mexico and the United States at a time when we're liberalizing our international air service agreement with that country. I think protectionism is scary, and you can never underestimate the ability of Washington to swing the pendulum quickly to the other side and do something that's irrational because of an irrational fear or something that they're able to stoke in the general public that provides them with a political advantage. That's risk number one. I think risk number 2 is the customer experience. It relates a lot to things like the customs and entry process coming into the United States, how difficult it can be to get a visa, how many countries we have in the visa waiver program. So there are those aspects as well. But I heard someone earlier today say that aviation at its core is just getting people from point A to point B in a metal tube in subfreezing temperatures. I think that's a cold description even for freight. For people to come to the United States, it's not that they have to get here by air travel. I mean, that's— you can say that, right? You're not going to swim here if you're coming from overseas. So yes, you have to take a plane, but you don't have to come. And if the experience is poor, when you decide to come, when do you decide if it's necessary to take that trip is going to change. And some trips that may not seem like a hassle If customs is going to be a breeze, if you're able to travel to the United States without a visa or without having to renew your visa, all of those things can make a difference when it comes to frequency and return visits. And if we're not focused on that part of air travel, then we're only focused on the first big hurdle in aviation, which is figuring out how to solve for gravity, right? We've got to figure out the experience. experience as well, and that's going to be, I think, a big part going forward. I don't know that we're there. I don't know that we're innovative enough in the United States in that regard yet.

John R. Byerly:I just mentioned one anecdote on the— how easy is it to travel, and that's not just the— on the airline or in the airport and on the airline experience. It's getting a visa, booking your travel, the ease of the entire experience. Jihang Qi mentioned that China is now bumping up against the capacity limits in our current non-open skies agreement with, with the People's Republic of China. A few years ago, China's carriers were nowhere close to doing that, and the Chinese were constantly complaining to, to me, to Chris Urs, who succeeded me, and I— and they would have complained to Tom Engel if we hadn't fixed it earlier, after I left, I have to say. The China visa validity period When it went from single entry visas to multiple entry visas, 10 years' worth, I think Jihang would probably— and if he disagrees, he can raise his hand and complain— I think he'd agree that that's what gave a tremendous boost to travel by Chinese to the United States. Get the visa one time, come on that business trip you had to take, then come back for another business trip or bring your family or come over.

Peter Cerdá:Yeah.

John R. Byerly:And 10 years, one time to the U.S. Embassy. Really important development, and we need to do— I think the United States needs to do a lot more of that. Brazil, very, very close to the Visa Waiver Program. They're at 3.5% visa denial rates. That is how many people applying for a tourist or business visa get turned down. Under the statute, you have to be at 3%. They're so close. If the economy lifts a little bit, I think they could make it. But if the Department of Homeland Security says no more, we've got enough visa waiver folks here, we're going to kill that market because it's very expensive. There are only a few consulates in Brazil. It's difficult to get a visa. We still require personal interviews, 9/11 reaction. But those are big challenges, and it's a governmental responsibility and an industry responsibility, I think, to sell these changes or these needs to governments in the United States. Thank you. States and Latin America and around the world.

Peter Cerdá:All right. Yeah.

John R. Byerly:Just one.

Eduardo Iglesias:If I may add there, we've seen progress on the Department of State policy in terms of issuing visas, and you see that not only in Brazil, you see that with the visa waiver for Chile. Traffic numbers have— they have gone up significantly, but also now we are listening or hearing from cases of people that are renewing their U.S. visas through the mail. So that's a huge advantage. So now that you have— at least the Department of State has understood the importance of letting people come to the U.S. and spend their money here, the issue that we are facing currently is that entry and exiting the U.S. is becoming a hassle. You know, once you get them here, you convince them to come to the U.S., They got the visas issued, et cetera. They fly here and then they spend 2 hours to go through immigration process. And then on the way out, TSA— anything good that you have been able to develop during their stay, then TSA takes it away. So we've seen lately in Miami cases of passengers even trying to punch TSA agents because it's taking them more than an hour, hour and a half to hours to go through security to get to their long-haul flights. So there's somewhat a dislinkage between the Department of State and Homeland Security. Something has to— something has to change here because the experience is not being positive.

Erik Hansen:Thank you.

John R. Byerly:Vicki, so you've had a little time to rest, so now I'm going to put you on the spot. But first, a compliment. It's hard to think of an airport in the United States other than maybe Las Vegas, that matches the sort of laser-focused commitment that Orlando, and personally you, bring to the business of persuading airlines to start or expand air service. I know you'll welcome all comers to Orlando. You never say no. But in deciding where to expend your time and Orlando's resources, what factors loom largest?

Vicki Jaramillo:As most airlines know, in most airports, it's all about the data. I mean, we really mine the data and look at it, but it's not just what the numbers may tell us. It's also uncovering nuggets of what's some of that information about certain maybe cultures that are in our community that the airline may not be aware of because they're in their headquarters and they're looking at data. So we've got to be able to find what is some of that other information that we can provide that will— more than anything though, it will drive traffic because, you know, you can cover things, but you've got to make sure that it relates somehow back to the air service. I do want to say, I completely agree with Erik's comments, though, as far as protectionism and others, because I think that, and as Eduardo said, they have the ability to go somewhere else. I mean, if they decide that the experience was not so good, they vote with their pocketbooks, and they go everywhere. So, yes, in our community, because we're built on tourism, you know, Walt Disney established there, and we have many great theme parks, and it's our number one industry. We take it very, very serious. We don't always get it right, but we're trying to do our best to make sure that people are coming back. But going back to your question, we have to focus on where the markets are coming from, and then be able to figure out a strategy to convince that airline. And sometimes it'll be 5 years, 10 years. I mean, most of the people that are in air service know that it's a marathon, and we work many, many years to get the service.

John R. Byerly:Thanks very much. So one of the challenges or one of the tasks we have on this panel is to distinguish between the easy markets and continuing to do what we've done before, expanding slowly, not taking risks, and taking risks to develop the markets of the future, however you define them, mining data or otherwise. Can you talk a little bit about that, Vicki?

Vicki Jaramillo:Well, I will say that last year around this time Emirates made a huge announcement. They announced Orlando to Dubai service, and it probably shocked probably everybody in this room, I would say, except for myself, because I've been working on it for many years, because it was the smallest of all their U.S. markets. And so really, Dubai, Orlando, are they all going to Disney World? Well, not necessarily, but you have a lot of them. And I think what's more surprising now is that over 50% of that airplane originates in Central Florida, which is more than we ever thought any airline would do.

Eduardo Iglesias:Thank you.

Vicki Jaramillo:Because we know that there are other carriers such as the Copas, the Aviancas, the Virgin that get about 30% local market. But Emirates listened to what we had to say about the community and has a person assigned there, and they're originating over 50% of the traffic is coming out of Central Florida on that airplane. So yes, we did our homework. They took a risk, but we realized that it was the right thing, and it's worked.

John R. Byerly:Maybe we could bore down or drive down into this one subject by talking a A little more about Cuba, and I'd ask everyone out here, I do have a Cuba question we'll get to eventually, so get your iPhones all fired up, ready to participate in a moment or two. Cuba, just for those who don't know, I think probably 90% do, but an agreement Tom Engle negotiated, an agreement, an arrangement, something, but anyway, it allows unlimited— well, It allows 20 frequencies for U.S. carriers, 20 daily frequencies for U.S. carriers to Havana, and 20 frequencies to any other airport that's open for international service in Cuba. Havana is the pot of gold, at least that's the perception, and I think we've got applications for about 60 frequencies. So 60 applications or 60 proposals for 20 frequencies. There's a diversity. of applications, one from an all-cargo carrier for less than a daily frequency, 5 times a week. I think American Airlines has argued that they should be given all 20 because they are the carrier of record at Miami. Vicki, you've got 3 or 4 carriers wanting to provide service from Orlando, but there's service around the country. Your Department of Transportation, they will make this decision at some point on how to allocate those And you've got 7 or 8 different airlines at least applying for the service. How do you do that? What perspectives would you bring on that? I guess, Erik, you're not a good person to ask on this because it's tourism the other way, primarily U.S. citizens going, but thoughts on that. Nancy, you've made your pitch for FedEx, but I could start with you. Why should we waste these valuable person-to-person, human-to-human contacts on some boxes on FedEx. Sorry.

Nancy Sparks:Well, that was not very nice.

John R. Byerly:And you know I didn't mean it.

Nancy Sparks:One of the things that you have to remember about the Cuba market is that as a matter of law, it remains not a tourist market. You do not get to go on an American little A No, a U.S. carrier and lie on the beach in Cuba. You have to have a reason for going there. There are 12 reasons under the OFAC rules. Interestingly enough, you were wrong. There are 12 applicants, not counting FedEx. So there are 12 passenger carriers which run the gamut from Silver Airways, which operates 32-seat Saabs, to—

Vicki Jaramillo:Delta.

Nancy Sparks:the big machine that American has turned on in this process. And in between, you've got the Frontiers, you've got the— oh, good grief.

John R. Byerly:Southwest, Spirit.

Nancy Sparks:Southwest. No, I was thinking Joanne Young's client. Spirit.

Vicki Jaramillo:Spirit.

Erik Hansen:Spirit, yeah.

John R. Byerly:Big application.

Nancy Sparks:So you've got a big variety there, and they're offering a variety of different customer experiences, products, and pricing points. So it will be interesting to see what the Department of Transportation wants to do with this. But one of the things that they are not doing technically, and I'm sorry, they're not promoting tourism.

Erik Hansen:We're working on it.

John R. Byerly:So the bank robber Willie Sutton once said—

Nancy Sparks:I never really answered your question. I'm sorry. Why should we get to move boxes instead of instead of people? Right. I was going somewhere with all of this. You got to have twelve one of the twelve reasons, and one of the major reasons is business development. And a lot of the applications pointed out that you know we we took Terry McAuliffe down there from Virginia and Governor. Cuomo went down there from New York, and everybody's going down there to cut deals to sell American products in Cuba. And our reaction is somebody's got to carry those American products. So we view our application as not just an application for American shippers sitting in the United States, but those American businessmen men and women that are going down to Cuba to cut the deals, to move what goods are going to be allowed under the somewhat relaxed embargo. So that— we consider that to be all part of the package. The package is not tourism, as I said, and it's not just passengers. It is an American outreach to the Cuban people, and we consider cargo to be a major part of that.

John R. Byerly:Family-to-family ties are really one of the things that the administration sought to promote, building human links. I was going to say, when the American criminal bank robber Willie Sutton was asked, why do you rob banks? He says, well, that's where the money is. I guess if you were the Department of Transportation and were thinking along the lines of Willie Sutton, you'd think, well, where do the families live? And it's the state of Florida, not only in the Miami area, but Tampa has a big population, Orlando has a big population, and there are lots of applications by carriers to fly there. If you're the Department of Transportation thinking about what's the safe choice to see flights succeed, including FedEx's great cargo service, or allowing service from Los Angeles, from New York, from Washington, from Chicago, and maybe a couple other places outside the great state of Florida. How should you be thinking about this? Sort of the same risk of doing something outside the box versus sticking with, sticking with the state of Florida.

Vicki Jaramillo:Well, if you're looking at what's—

John R. Byerly:Okay, Vicki, go ahead.

Peter Cerdá:Okay.

Vicki Jaramillo:Well, if you're looking at right now the charters or the scheduled charters that are already going to Cuba, I mean, they've been primarily in the state of Florida. I mean, they go from Miami, Fort Lauderdale, Orlando, from Tampa. So there's already that existing infrastructure, so to speak, of people going back and forth, not for tourism reasons, but for humanitarian or the other 11 reasons that they could go down there. So yes, how would they allocate it? I would hope that at least Florida gets half of it. I mean—

Eduardo Iglesias:I will also add there, first of all, in defense of Nancy, that by having them there, you can fast-track the arrival of exports into Cuba, because it will take a while to have vessels, cargo ships, docking in Cuba for a while. So I see a positive thing, a positive twist in having FedEx being granted some of the slots or the routings that are available in Cuba. Secondly, it is the U.S. who joined the game late. Cuba was not closed to anyone but for the U.S., and it was the U.S. that was not willing to do business with Cuba, not the other way around, because Cuba was buying corn and chickens and a lot of things out of the U.S. to keep up with their needs, local needs. As Vicki was saying, most of the big communities of Cubans are already being served by charter airlines. So I think that there's an opportunity to open up somewhat the market to other opportunities for entrepreneurs coming from other areas of the U.S. also that are willing to do business in Cuba. So that will be in line with the policy of the government, of the U.S. government, in opening up business and contacts with people not directly linked to tourism, But to do business there. So if I were there in Washington, I would probably say yes to FedEx, and I would start drawing lines farther away than Florida to make sure that we increase access into Cuba from other waypoints in the U.S.

John R. Byerly:Let's see if he brought the people along. Could you put up question number 3, the 3rd question? So 20 daily frequencies available for scheduled service to Havana. DOT gets to decide. What's DOT going to do? How much are they going to give to Florida? Not more than 12. In other words, whoa. They're neck and neck. Oh my golly. So I thought you were winning, but as I see this, it's about evenly broken between not more than 12, so just a touch over half to Florida, where most of the flying today occurs on the charters, and somewhere in the middle, but not 17 or more. There will be more than There will be at least 4 flights going to someplace else. That's the judgment here. We'll see in due course. It'll be an interesting case, fascinating case for the Department of Transportation.

Peter Cerdá:John— yeah, Peter. Initially, there's going to be winners and losers. Yep, because we have so many applicants with an interest to go to Havana primarily. You have secondary markets which are less attractive in the short term. So initially, short term, you're going to have a huge There's going to be a huge push. There are going to be some airlines that are going to be disappointed. The way we need to look at this, this is a mid to long term because in the short term, we are not going to have the perfect panacea. We're going to have so many limitations going in there. If we look at the number of tourists that went into Cuba in 2014, it was roughly about 3 million. Dominican Republic had 5 million in a very mature market. We're expecting by the time 2030, 40, 2034 comes around, the 3 million is going to multiply by 10. Okay, so although that seems a long way away, it is very, very close when you talk about having the right infrastructure, the right services, and And there's a lot to do. Just getting 20 frequencies a day into Havana is going to be a challenge in itself because you have a very big airport which is— you have a domestic terminal, a U.S. terminal, and the international terminal. You can't put anyone in the international terminal nowadays.

John R. Byerly:You can't.

Peter Cerdá:Those 20 U.S. flights will have to go somewhere where I would assume probably will be where the U.S. terminal is, which is already saturated with the charters. You put anything into the regular terminal, you're gonna have issues. It is an airport that is basically— it's already a slot-constrained airport. So there's a lot of things that need to take place. Probably operating to the secondary airport is going to be a better passenger experience than operating to the primary airport in the short term. And that's where industry and And government is going to have to play a very active role. It's not only about having the terminal, but it's also having the facilitation component. Going into Cuba, both inbound and outbound, if we complain about the U.S. process, get ready for those of you who have not been to Havana. It usually takes about 2 hours— an hour to 2 hours to collect your bag once you get off the airplane. After you've gone by— 1 hour of screening and many, many questions. It's the same way to exit. Efficiency is certainly not at the top of the priority. That has to improve. Kiosk, e-boarding, all these experiences that we enjoy in the rest of the world are not there.

John R. Byerly:Sure.

Peter Cerdá:That's another process we have to educate the government. Infrastructure development, and then you look outside the the airport component or the aviation component, there is a lot to do. You could bring in a lot of people. Where are you going to sleep them? The infrastructure is still not there. The road system is still not there. So there's— this is more a mid- to long-term process in which industry is going to have to work, be one very patient, is going to have to collaborate, is going— they will have to play to the local conditions. This thing about saying, you know, global standards, this is the way it's done around the rest of the world. This is a country that's going to have to catch up the last 30 to 35 years in a relatively small time. So there is a lot to do. So those possible losers in the front end may actually be somewhat, you know, a grace in disguise as we move on. But it certainly is going to be a challenge. It's a great opportunity. And, you know, we talk a lot about Havana, but when we look at these secondary— Cuba has 12 international airports.

John R. Byerly:Yeah.

Peter Cerdá:Has 15 domestic airports. One thing we've told the government is Havana priority one, the secondary airports priority two. Do not forget about those domestic airports. Those domestic airports will very quickly become become international. And from our perspective, we said— we've told the rest of the Caribbean, watch out. You give them some time, if they're open to change, they improve their services, they have reasonable cost, it will do damage to the rest of the region.

John R. Byerly:I think there's a potential for eventually a big sucking sound from the rest of the sunspots around the Caribbean in general because a lot of people are just looking at that opportunity. Once Cuba— if and when Cuba becomes a true tourism market. Let's turn to a different subject now. Open skies liberalization. Really, how important is that to assessing risk and reward in expansion? Thoughts on that?

Vicki Jaramillo:I just want to say that we, as a community, as an airport, we've been very outspoken on open skies because We are not a hub for any major U.S. carrier, for any of the U.S. legacies. So we're similar to, say, an Oakland, a Las Vegas, a San Diego, that we are— our success internationally is from being a spoke off of an international hub. So it's from, you know, here to Mexico City, it's from here to Panama, it's from Orlando to Bogotá or to Brazil or to Dubai or to Frankfurt. So it's becoming that spoke off that international hub. And then in the cases, for instance, like with the JetBlue, that would be one that would do some point-to-point on the U.S. side. But because we're not a hub, you know, it's very rare that a U.S. carrier is going to put in that long-haul international flight. So open skies for airports— U.S. airports that are not hubs is very, very key.

John R. Byerly:I mean, as someone who put 10 years of his life or more into doing open skies, that's music to my ears. I'm going to ask Eduardo, though, do you think the absence of Open Skies with Mexico, the absence of Open Skies ratified with Brazil, is that making a difference in how much flying is going on? Is it important?

Eduardo Iglesias:I'll say that in the case of Mexico, yes, because bear in mind that the bilateral that the U.S. currently has with Mexico, which is still in place, is very limited. And technically creates duopolies.

Nancy Sparks:Yeah.

Eduardo Iglesias:So 2 airlines from one side, 2 airlines from the other, and we've seen the huge growth of low-cost carriers that are doing transborder connections, U.S.-Mexico, and they've been blocked from accessing some of the bigger markets. You know, the Mexican government looked for a way to actually designate some of those some of the former Mexicana routes to some of these new low-cost carriers. But still, there's a huge uncertainty because you are subject to the ruling of a judge on a bankruptcy process that may say tomorrow, stop those flights and give them back to Mexicana. So by having the bilateral, the new Open Sky Agreement ratified, It not only opens the door for more transborder traffic between the U.S. and Mexico, but also the opportunities of Mexican airlines to join or explore at least joint ventures with U.S. partners, something that in the past was not available to them.

John R. Byerly:Erik, I think you wanted to say something on this. Is the absence of open skies not only in Latin America but in other places in the world, be it China— Russia maybe not so much, but Is that holding back the growth of tourism to the United States?

Erik Hansen:Absolutely, and I think for all the reasons that Vicki pointed out. We've, you know, we've got a lot of airports in this country that are not the hubs that have lost international air service, and they used to be huge destinations. And I don't think St. Louis is ever going to be the airport that it once was, but without open skies, we're not going to be able to get that point-to-point service, or for the airports that are a spoke or concerned about origin and destination traffic, we're not going to be able to get that additional air service. I don't think any of the big 3 probably would have added a new international flight to Orlando out of the hubs in the Middle East. So we're going to have to rely on that. So I heard someone say earlier that everybody is pro-open skies, but it can't just be pro-immunized alliances or immunized joint venture open skies. It's got to be pro-open skies, I think, in all instances if we're going to get continue to have opportunities to grow aviation across all different types of airports and different types of metropolitan areas. And I think that absolutely has to be the, you know, posture number one for the United States government, is that in all cases where we can have open skies agreements, to have them and to work backwards from there.

Eduardo Iglesias:And if I may add also, I personally experienced the creation of Economic group of different carriers in Latin America just because the regulations were not available. You know, the flexibility of the open sky was not available and we could not invest or technically take control of another carrier in the region. So by bringing in the 5 freedom rights that you were mentioning before, you bring in transparency to the market as well. So who's actually controlling an airline? After the Panama Papers, we'll see a lot of things out there. But there's a lot of creativity going on at the law firms in terms of purchasing bonds that can become shares, voting shares afterwards. But that is actually looking after control or putting a member in the board. It's only one member with veto power over main decisions, even though you are a small shareholder of the company. So, but by opening up, you bring transparency. So instead of relying on another airline that you technically control, in this case, as you were saying, you are now flying fee freedom flights with your pilots, with your brand, and expanding the reach of your network.

John R. Byerly:Let's continue to talk, but let's put up question number 2. I am going to let you talk because you're going to get to talk while we get the polling going, and people can change your vote if you want after Nancy's enlightenment.

Nancy Sparks:Open skies is obviously one of my favorite topics, but one of the things that's happening right now in FedEx expansion is that we, we have a network of hubs around the world, and they are all in open skies jurisdictions, at least open skies for cargo.

Erik Hansen:Cargo.

Nancy Sparks:Cargo. So we're filling in the map now. We've just done a major— or just started a major facility expansion in Korea, what we call a transshipment center. We've done the same thing in Japan, 2 open skies countries in which FedEx is now able to change its flight patterns, incorporate flight patterns, add new flights, and You know, as Rush was saying this morning, ad flying, you know, for American pilots. So there's a lot going on outside of FedEx's pure, we love open skies because we love hub and spokes. We love open skies because it provides the connectivity that we think today's economy requires.

John R. Byerly:It looks like about 71% right now— whoops, dropping— agrees with you. Please join me in thanking a great panel for what I hope was a good discussion.

Erik Hansen:Thank you.

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