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CAPA Airline Leader Summit

Dublin, Ireland
11-12 May 2017
THE GREAT DEBATE This discussion will take the form of a debate. Speakers will alternate between the opposing propositions while delegates will be encouraged to actively participate. Ownership and control rules will be discarded (with thorough disruption of the aviation system) Despite decades of inertia, new forces are at work, operationally and commercially that are coming together to disrupt the airline industry. From a range of sources, momentum has been building that signals the potential for a remarkable evolution in international ownership restrictions. But changing the regulatory order of things is extremely complex, even assuming willing parties. Underpinning the transactional bilateral approach, the persistent role of “ownership and control” clauses in the myriad of bilateral agreements has dogged any prospect of substantial disruption. Joint venture and bilateral partnerships have become enormously important to the success – and even survival – of major airlines. Limited by ownership and control rules, airlines have constantly sought options to expand their global presence. The multilateral alliances have gone some way in that respect, but the intensification of international long haul competition has greatly enhanced the value of close bilateral ties. A new disruptive influence has appeared in the marketplace, with an abundance of aviation bilateral “currency” at levels never previously imagined. China has emerged, and its outbound tourists are delivering massive economic benefits to every country in which they land. The magnitude (and sudden appearance) of China’s currency asset is unprecedented. Until recently, China has not been a principal voice in the formulation of international policy. Instead it has been content to rely upon the historical constraints of the bilateral system, protecting its airlines as they achieve a level of international competitiveness. As it stretches its wings in the aviation market, China’s influence is growing rapidly. Secondly, there have already been a number of incursions into the sanctity of ownership and control provisions. These include (1) the proliferation of cross-border JVs, which have been particularly functional in Southeast Asia as LCCs like AirAsia have sought to establish themselves across the region as Pan Asian airlines; and (2) the revival of significant minority shareholdings in foreign airlines. Etihad accelerated this trend, which is now being elaborated multiple ways. To disrupt the complex regulatory structure that has survived 7 decades is no easy task, but most of the industry believes it needs to be, at least insofar as the deadlock of “ownership and control”. That said, there are clearly cracks appearing in the fabric. Moderator: John R. Byerly, Consultant, John Byerly For the proposition that ownership and control restrictions will be disrupted: Proposer: European Aviation Club, Chairman, Rigas Doganis Seconded: BKH Aviation, Chairman, Barry Humphreys Against the proposition: Against: Aviation Strategy & Concepts, Managing Director, Ulrich Schulte-Strathaus Seconded: DVB Bank, Senior Vice President Aviation Research, Albert Muntane Casanova Audience participation will be encouraged and the audience will vote on the various issues raised.
Travelport, Global Head of Product & Marketing, Air Commerce, Ian Heywood
Etihad's investment in Alitalia, airberlin, Jet Airways and five others, as well as AirAsia’s cross-border JVs have helped redefine the definitions of partnership and alliance. HNA Group, which has bought stakes in LATAM Group, Virgin Australia; Qatar Airways, with investments in IAG and LATAM; Delta in Virgin Atlantic CIT Group on the aircraft side and Hilton on the hotel side. For now it is mostly airlines investing in other airlines, where potential synergies arise.
  • Will there be more international investments in airlines?
  • Is the China investment model (investing across various travel brands) another way of the future? eg can airlines help to grow the travel category, and thereby move more people around the world? According to the WSJ, Chinese overseas investments have hit USD199 billion in 2016.
ChairmanJohn R. Byerly, Consultant, John Byerly Third Parties:
  • ACI Europe, Director General, Olivier Jankovec
  • Aeroflot, Deputy General Director for Strategy & Alliances, Giorgio Callegari
  • airBaltic, CEO and Chairman of the Board, Martin Gauss
  • Aviation Strategy & Concepts, Managing Director, Ulrich Schulte-Strathaus
  • European Aviation Club, Chairman, Rigas Doganis
  • European Commission, Director General MOVE, Henrik Hololei
  • KLM, President & CEO, Pieter Elbers
  • Irish Aviation Authority, Chief Executive, Eamonn Brennan
 
Whereas Session 1 has looked at the likely evolution of the present system, and the issues involved in that, Session 2 will cover the new external forces that are beginning to emerge that will challenge the fundamentals of the airline system. These potential challenges to the system are emerging very rapidly. As more organisations invest heavily in big data and in using that data to develop granular profiles of millions of travellers and would-be travellers, the old arguments about who owns the passenger become moot. Amazon for example has spent USD3 billion in the past three years in the data analytics area. For individual airlines - even the more enlightened ones - to engage and invest on this scale is unthinkable. This panel will seek to expose in detail the nature and scale of these developments as they affect the airline industry, as a preface to tomorrow’s boardroom session, which will explore potential airline responses to the new forces. Moderator: Troovo, CEO (and President of ACTE), Kurt Knackstedt Panel: 
  • Amadeus, Senior Value Engineer, Travel Intelligence, David Stoyle
  • Booking.com, Director Partnerships EMEA, Toni Raurich Marcet
  • easyJet, Group Director Strategy & Network, Cath Lynn
  • Farelogix, President & CEO, Jim Davidson
  • IAG, CEO, Willie Walsh
  • Skyscanner, Director Business Development, Hugh Aitken
If Airlines and intermediaries are to retain relevance in the overall supply chain, they will need either to adapt their models enormously or to forge deep associations with the channel of disruption at the marketing and sales/retail end of the spectrum. These can be modified versions of existing distribution models or wholly new paradigms. Equity and otherwise, these liaisons will probably be with the same data organisations that are fomenting the airlines’ disruption, such as Google, Facebook, airbnb and others who will appear in coming years. In effect airlines will need to adapt to behave and act more like world class retailers if they are to avoid increased risk of marginalisation and commoditisation. Yet even embracing the current, and future travel industry implies increasing marginalisation. For much of the world, travel has simply become one of a range of consumer options, interchangeable and competing with buying a new laptop or mobile device, going to dinner with friends, or to a football match.
Understanding the changing and holistic nature of consumer behaviour just by analysing its own data is well beyond the range of airlines. The massive new aggregators live and die on that data and are able to combine it with rich travel profiles to complement it; they will not be slow to exercise their power. In this respect even the most sophisticated data sets available to airlines from their own FFP’s are just pale shadows. When embracing a traveller’s “total” annual travel data picture, a single airline, partnership (or even alliance), can only touch one small piece of the jigsaw. For airlines to avoid commoditisation and marginalisation, they will need new pragmatic alliances that allow access to broader and new forms of data. What form these will these take – for example the profile of the other partners needed, who will dominate the partnerships – and even the very role that airlines will play, are all in the mix here. It seems inevitable that these massive aggregators, who own more data on travelling individuals than airlines and intermediaries combined, cause airlines to lose control of pricing, revenue and yield, just as hotels have lost control to OTAs and HBAs. Can airlines have any hope of emerging as winners in this data revolution? Innovation, thinking outside the box, will be critical. That will need management boards with different profiles, and new managements, who understand more about retail and data than about buying and flying big boys’ toys. Even if it is possible, getting from here to there will be a massive leap. The debate itself will be a powerful disruptive force in its own right. This session seeks to determine the likely shape of the way third party will evolve. Moderator: WebinTravel, Founder & Editor, Siew Hoon Yeoh Panel:
  • Aeroflot, Deputy General Director for Strategy & Alliances, Giorgio Callegari
  • CityJet, Executive Chairman & CEO, Patrick Byrne
  • Datalex, CMO, Ornagh Hoban
  • Flybe, CEO, Christine Ourmieres-Widener
  • Malaysia Airlines, Group MD & CEO, Peter Bellew
  • Travelport Digital, CCO, Fergal Kelly
Moderator: CNN Anchor, Richard Quest Panel: 
  • Travelport, Global Head of Product & Marketing, Air Commerce, Ian Heywood
  • CarTrawler, CTO, Bobby Healy
  • SAP, GM and Global Head of Travel & Transportation, Paul Pessutti
Whatever the status of disruption in the short and medium term, what can airlines do to prepare for a new environment which will exist in 2025? Creating a bridge to the future. Getting it right now will not just be optional, but a matter of survival – or not. As the old system dies, there will be casualties. This Board meeting will explore the options available to airline managements, notably the shape of alliances and airline partnering, the role of equity acquisitions, how regulatory bodies will view JVs; can inter-governmental bilateral relations adapt fast enough to allow airlines the scope to prepare for the future. Is there scope for large non-airline investors to help?
  • What are the pre-requisites for successful partnerships as a platform to a more viable future?
  • Should cross-border JVs be adapted formally into bilateral agreements?
  • Are JVs the future (with potential for further equity links)?
  • Where do the anti-trust bodies sit now – what attitudes are they exhibiting towards JVs?
  • Is it useful to plan on the assumption that O&C rules will be reduced or removed – and if so what can be done?
Possible Case Studies #1: What’s the future on the North Atlantic? The new international battleground. Norwegian has added new trans-Atlantic competition to a dozen markets, and has 100 B737MAX aircraft it will use to the US. Meanwhile, British Airways is now responding with new flights to non-traditional markets like Fort Lauderdale and Oakland. Wow Air and Thomas Cook are adding competition, and JetBlue is threatening to use A321neos across the Atlantic. Possible Case Studies #2: Chinese airlines and long haul lower cost Asian carriers are becoming powerful on the Pacific and European routes. How do foreign secure viable positions in these markets. Possible Case Studies #3: Gulf airlines are the most efficiently positioned geographically and in terms of fleets and cost bases. There are only three (along with the other super-connector, Turkish Airlines); what partnership options present themselves – or should they be stopped on the grounds of unfair competition? Chairman: CAPA - Centre for Aviation, Executive Chairman, Peter Harbison Third parties: 
  • Aeroflot, Deputy General Director for Strategy & Alliances, Giorgio Callegari
  • European Commission, Director General MOVE, Henrik Hololei
  • IAG, CEO, Willie Walsh
  • Irish Aviation Authority, Chief Executive, Eamonn Brennan
  • Malaysia Airlines, Group MD & CEO, Peter Bellew
Recorded at CAPA Airline Leader Summit, 11-12 May 2017

Flybe CEO Update

Christine Ourmieres-Widener, CEO, Flybe talks about her early impressions of the airline and its future direction four months after joining. She gives an update on Flybe's new Heathrow routes and its participation in IAG's Avios loyalty scheme and defines the airline's business model.
  Henrik Hololei, Director General, Move, European Commission notes the challenges in liberalising ownership and control rules in the airline industry, but is confident of further relaxation. The EC's aviation regulator discusses the prospects for long haul low cost and the political resistance to new entrants in some markets. He identifies infrastructure, both in the sky and on the ground, as a critical issue for Europe.
Recorded at CAPA Airline Leader Summit, 11-12 May 2017

Aeroflot Update

Giorgio Callegari, Deputy General Director for Strategy & Alliances, Aeroflot talks about the recovery of the Russian market and the Group's multibrand strategy. He argues that long haul low cost is effectively already part of the Aeroflot Group and discusses its stance towards alliances.
Peter Bellew, Group MD & CEO, Malaysia Airlines updates on the airline's current trading environment and its fleet strategy. He discusses its approach to new routes and capacity growth and sees opportunity in China, Japan, Korea and India. He assesses Malaysia Airlines' strengths and opportunities and some of his concerns for the business.
Martin Gauss, CEO & Chairman of the Board, airBaltic gives an update on the outcome of the airline's restructuring programme and its return to profit. He explains its hybrid low cost strategy, combining ultra low cost with a business class cabin and outlines the search for a strategic investor in airBaltic.
Pat Byrne, Executive Chairman & CEO, CityJet discusses the challenges of promoting a small brand and why wet leasing to larger airlines is its preferred main business. Profitability is his goal, but he also expects CityJet to grow to be the largest regional wet lease provider in Europe.
Recorded at CAPA Airline Leader Summit, 11-12 May 2017

IAG CEO Update

Willie Walsh, CEO, IAG praises Aer Lingus' performance and business model and Iberia's transformation under IAG, while acknowledging it has more work to do. He explains the thinking behind IAG's new Level brand for long haul low cost and highlights the differences between Qatar Airways' relationship with IAG and Etihad's approach to equity investment. He talks about the importance of big data and IAG's Hangar 51 start-up investment programme. Cost reduction remains a key priority for IAG.
Recorded at CAPA Airline Leader Summit, 11-12 May 2017

KLM CEO Update

Pieter Elbers, President & CEO, KLM updates on KLM's new long haul routes and the associated fleet choices, while noting KLM has no plans for a long haul low cost operation. He discusses the transition from Fokkers to Embraers on short haul and identifies digital transformation as a priority for KLM.