CAPA Americas Aviation Summit

Travelport, Senior Commercial Director, Air Commerce, Craig Banks

CAPA – Centre for Aviation, Executive Chairman, Peter Harbison

ICF Aviation Principal Carlos Ozores provides insight into potential traffic growth in Argentina, the wave of potential JVs poised to form in Latin America, the market potential for LCCs and ULCCs in South America and how different governments approach aviation in the region.

Volantio CEO Azim Barodawala offers perspective on fare segmentation in the US, opportunities for ULCCs at secondary airports and opportunities for hybrid business models in Latin America.

Most airlines appreciate that technology is radically changing marketing and distribution models, yet the structure of airlines remains focused on the business of flying metal. How should airlines prepare for this brave new world in which ambitious technology upstarts and intermediaries – constantly interrupted by the informed consumer – retain their (sometimes limited) control over distribution?

Airline management teams will need to undergo the requisite paradigm shift and innovate their marketing and distribution strategies to position their companies as retailers in the digital realm.

• Data is power – why airlines should start behaving like tech companies
• With the harnessing of big data, how important are online consumer channels like Amazon, Facebook, Alibaba, Airbnb becoming?
• What kinds of low cost automated distribution channels should airlines invest in?
• What is the future role for the GDSs?

Moderator: Fisher College of Business, Executive-in-Residence & Airline Business Strategist, Nawal Taneja
Panel:

• Caravelo, Commercial Director, Jonathan Newman
• IATA, Regional Director, Financial & Distribution Services, The Americas, Alicia Lines
• Skyscanner, Senior Director, Global Strategic Partnerships, Hugh Aitken
• Travelport, Director, Air Commerce, Toby Kubis

As aviation infrastructure – on the ground and in the air – appears stuck in a time warp, the future of US domestic aviation looks perplexing. Funding for airport improvement, in what the President has described as often “third world” airport standards, has not been forthcoming. Despite much talk, there appears to be little progress towards finding adequate methods or resources to supplement an already complex funding system, compounded by federal-state bickering and taxes that are both unhelpful and unproductive.

Air Traffic Control financing has been a political football for years and, despite universal agreement on the need for radical improvement, little traction is being achieved. These constraints inevitably impact on market access, and in turn on the competitive environment in congested markets. Eximbank funding has also suffered from political duelling, at the same time as foreign Export Credit Agencies have remained active. And, although international financing conditions have fortunately remained reasonably benign, US OEMs are placed at a disadvantage for no sound reason.

Meanwhile too, many medium sized communities have become disconnected as airline consolidation has reduced them to outposts, impacting their local economies. At a time when aircraft orders are booming and the US airline industry is more profitable than it has ever been, the time is ripe for a more comprehensive look at the overall system to make sure it better fits the needs of the industry, consumers and local communities.

The discussion will seek to draw out the key underlying problems with today’s system and look to ways of “fixing” it. For example:

• Are US airline and airport infrastructure and service levels appropriate to what US consumers and communities should expect?
• What impact does this have for airlines on the competitive access environment?
• What funding solutions can be learned from overseas experience to improve standards?
• What steps can be taken to help medium sized airports recover connectivity?
• Should Eximbank funding be reinstated?
• Would a national aviation policy be of value?

Moderator: Trinder Aviation & Aerospace Advocacy, PLLC, President & CEO, Rachel Trinder
Panel:

• Fisher College of Business, Executive-in-Residence, Nawal Taneja
• InterVISTAS Consulting, Executive Consultant, Kenneth Currie
• Southwest Airlines, Executive Vice President & Chief Revenue Officer, Andrew Watterson
• Spirit Airlines, Senior Vice President & Chief Commercial Officer, Matt Klein

Asia’s airlines are continuing to embark on what they consider to be once-in-a-lifetime long haul growth. Nowhere is this more significant than in mainland China, whose airlines have been busily opening over 100 new intercontinental destinations since 2006.

Japan too remains a key market, still retaining a strong proportion of premium travel and relatively high leisure yields. Under the US-Japan open skies regime, JVs can be forged – at least between the respective oneworld and Star Alliance partners.

But in the US-China market, where Chinese carriers dominate, lack of progress with open skies discussions and patchy relationships between both countries’ respective airlines could put Chinese growth plans in check. There has been some move to acquire equity holdings in Chinese major airlines, with American into China Southern and Delta linking China Eastern into an intriguing mènage à quatre with Virgin Atlantic and Air France-KLM.

• China-US market in focus: Does anyone in the US now want open skies?
• Does the Japan JV example offer any solutions? How even is the playing field between China and the US?
• What is limiting US airlines access to China’s key markets?
  – Slot allocations and infrastructure (Does new airport infrastructure at Shanghai and Beijing promise relief?)
  – Airspace restrictions, protectionism?
  – The characteristics of the market?
• How important is the Japan market in the long term?
  – In its own right
  – As an intermediate point
• Are non stop ultra long haul services from the US to south and north East Asia sustainable for the network carriers – or is the market too price sensitive?
• How important is it for US network carriers to maintain capacity on strategic routes to defend market share?

Moderator: CAPA – Centre for Aviation, Executive Chairman, Peter Harbison
Panel: 

• Air China, Vice President & General Manager, North America, Zhihang Chi
• Japan Airlines, Vice President Marketing & Strategy Research, Asia & Oceania Region, Akihide Yoguchi

Unlike Asia and Europe, US, Canada and Latin American LCC activity has been relatively muted in recent years. Although it was the home of the breed, the US has slipped well behind as airline bankruptcies and consolidation allowed the US majors to reduce costs significantly and to dominate the market more actively.

Technically, the US has a high level of LCC activity, but much of that consists of Southwest’s presence; the once market leader of LCCs now occupies a cost base very similar to its major full service rivals. Aside from Mexico, (where two thirds of domestic seats and a quarter of international are on LCCs), and Brazil (almost 60% of domestic operations), Latin America overall has relatively low LCC penetration. That is all now about to change across the region. Canada has new LCC entrants and both major airlines have established lower cost subsidiaries.

To the south, countries like Chile, Colombia and even Argentina are now experiencing a tidal shift as ULCC groups spread across borders. But in many areas of Latin America particularly, despite the elements already being in place for effective market stimulation, a lack of adequate airport infrastructure and prohibitively high costs constitute barriers to entry faced by LCCs.

The reappearance of “ULCCs” in the US has sufficiently worried the majors to provoke them to adopt various price matching competitive strategies. And ultra-low cost groups like Indigo Partners/Frontier/Spirit are challenging the status quo, as is JetBlue in a hybridised fashion. With many medium sized airports anxious for a return of services, opportunities abound.

For the time being the LCCs and ULCCs are attacking the lower hanging fruit, but there are many opportunities that are not being fully exploited at present.

• How fertile is the ground for expansion of ULCCs in the Americas and what are the constraints?
• What key lessons can US majors learn from legacy carriers in other markets who have launched LCC brands? Can the same principles be applied in the Americas?
• There are opportunities in all markets both for hybridised LCCs and ultra low cost operations; which is the better place to be?
• How viable is the future for long haul low cost operations as new aircraft types and new airlines challenge the status quo?
• Is Latin America too expensive and too regulated to support the growth of LCCs? What needs to be done to stimulate the market?

Moderator: Waltzing Matilda Aviation LLC, Chief Executive Officer, John Thomas
Panel:

• Indigo Partners, Managing Partner, William Franke
• Irelandia Aviation, Member of the Advisory Board, Tony Davis
• Spirit Airlines, Senior Vice President & Chief Commercial Officer, Matt Klein

Latin America has long been the backyard for US airlines of all sizes. As a high potential growth market, its outlook is quite different from the Asian profile. Already US airlines have secured significant equity holdings and partnerships, in attempting to subdue some of the more difficult elements of competition.This has been possible as several key Latin American countries, such as Mexico, Brazil, Chile and now Argentina have adopted relatively liberal aviation policies.

Ownership and control and foreign equity ownership have been significantly relaxed in several cases. Only a small number of states including those of central America have resisted this trend. As the main Latin economies emerge from the difficult times they have experienced in this decade, there is the potential for US airlines to establish even stronger ties

• How do limits on open skies and infrastructure constraints inhibit growth?
• Are Latin American governments likely to pursue liberal market regimes, including market access and foreign ownership?
• Are more cross border equity investments likely as partnerships evolve?
• Are there opportunities for multilateral liberalisation that would benefit US airlines?
• Which markets are underserved and have the most potential?

Moderator: IATA, Regional Vice President, The Americas, Peter Cerdá
Panel:

• ICF Aviation, Principal, Carlos Ozores
• Southwest Airlines, Executive Vice President & Chief Revenue Officer, Andrew Watterson
• Volaris, Chief Executive Officer, Enrique Beltranena Mejicano

Volaris CEO Enrique Beltranena provides insight on the US transborder market, the Mexican domestic market and the upcoming codeshare partnership with Frontier Airlines.

Director of Airports for St Louis Lambert International Airport Rhonda Hamm-Niebruegge talks about long-haul destinations on the airport’s wish list, the latest developments in evaluations of potentially leasing the airpot to a private operator and the performance of the new Wingtips lounge.

Matt Klein, SVP and chief commercial officer for Spirit Airlines discusses the current demand environment in the US, the push by US majors to maximise connectivity at their hubs and dynamic pricing of ancillary products.

Southwest Airlines EVP and chief revenue officer Andrew Watterson discusses the timing of service to Hawaii and potential codeshares as well as the service profile of the Boeing 737 MAX-8.

Tamur Goudarzi Pour, VP airline sales, the Americas for the Lufthansa Group provides an update on a range of topics including Lufthansa’s ambitions for Latin America, the integration of Eurowings and Lufthansa’s monitoring of narrowbody operations on the Atlantic.

Japan Airlines VP marketing and strategy research Asia and Oceania Region Akihide Yoguchi talks about service to Seattle, the potential for operating service to American’s hubs in Philadelphia and Charlotte and how Delta and Korean’s impending joint venture will impact the Asia-North America market.

Allegiant SVP Commercial Lukas Johnson talks about benefits the company is deriving from a new revenue management system, its ancillary revenue strategy, investor reception to Allegiant’s planned new Sunseeker resort and its balance of peak versus off-peak flying for 2018.

InterVISTAS Consulting executive consultant Kenneith Currie offers insight into fare segmentation in the US marketplace, possible ULCC consolidation in the US and dynamics hopeful ULCCs in Canada face.

Mario Diaz, director of aviation for the Houston Airport System discusses passenger trends for 2018, potential impact of Chinese tariffs and the maturity of biometrics in processing international passengers.

According to IATA, the North Atlantic provides the world’s most profitable major international traffic flow. It is also the most tightly held, with three groups effectively controlling over three quarters of the seats and the bulk of the premium market. After several years of open skies on the North Atlantic and the introduction of LCCs such as Norwegian in its various incarnations, the impact of Brexit now requires a renegotiation of the agreement to restore the UK to open skies once it leaves the EU.

The major JVs depend on open skies for them to gain anti-trust immunity to operate in the UK market, the largest premium route. This will not be straightforward, as for example US pilot unions have opposed the freedom it provides for airlines to establish there. Aside from the UK there are many untapped opportunities for LCCs. New aircraft types are providing route opportunities that were not previously viable, for non-stop and one-stop service between Europe and the US (and Canada).

• What issues are involved in the UK renegotiation and what are the positions of the protagonists?
• How significant will the impact of narrowbody aircraft be on trans-Atlantic routes
• How are the traditional operators responding to long haul low cost competition?
• How are low cost airlines innovating to enhance long haul connectivity?

Moderator: McGill University, Professor of Law, Brian Havel
Panel:

• Lufthansa Group, Vice President Airline Sales, The Americas, Tamur Goudarzi Pour
• U.S. Department of Transportation, Director, Office of International Aviation, Brian Hedberg

The US applies one of the most restrictive regimes for foreign ownership of airlines of any developed country. While there is a great deal of rhetoric surrounding the reasons for this, there has not been a great deal of empirical evidence that it is in the national interest – or even that of the incumbent domestic airlines themselves. One argument sometimes raised is that in times of strategic emergency a largely foreign owned airline might not be available for national uplift.

Pilot and other unions have been particularly strenuous in their opposition to increased foreign ownership. Here again there appears to be no generic reason for their resistance to change, other than unsubstantiated claims of the possibility of lower paid workers being introduced. Meanwhile some US airlines have taken advantage of other countries’ rules to acquire up to 49% of their national airlines in order to strengthen their market position.

• How do the US foreign ownership rules compare with other countries?
• What are the benefits of higher foreign ownership limits in the US market?
• Would a more relaxed regime be a threat to incumbent airlines or existing airline employees?
• If the US relaxed its rules, would that encourage more other countries to allow US investment in foreign airlines?

Moderator: Holland & Knight, Partner, Anita Mosner
Panel:

• Air Line Pilots Association International, Executive Administrator, Rick Dominguez
• Association of Flight Attendants-CWA, International President, Sara Nelson
• FedEx Express, Managing Director, Regulatory Affairs, Nancy Sparks
• GoldSpring Consulting, Partner, Neil Hammond
• U.S. Department of Transportation, Director, Office of International Aviation, Brian Hedberg
• Volaris, Chief Executive Officer, Enrique Beltranena Mejicano

Bankruptcy and subsequent consolidation have delivered the majors a low cost base and strong market positions, especially at their main hubs. But a combination of lower fuel prices and a resurgence of low price competition has created downward pressures on yields over the past year.

These may be recoverable, but there is a constant threat of ULCC entry on city pairs that have been lost as major airlines consolidated – a network phenomenon that occurred in Europe and Asia as LCCs have successfully gained dominant positions. Compared with other developed regions there is relatively lower connectedness for medium sized airports since consolidation.

As those airports (and their local economic interests) become more aggressive in their marketing activities, and as ULCCs expand, a new network and pricing dynamic will appear. Unlike their Asian and European full service peers – who are much more exposed to LCC pressures – US airlines have not resorted to establishing low cost subsidiaries.
Instead they have used various pricing strategies on their mainline operations. To date this appears to have been successful. As low cost competition grows and the majors’ cost bases rise, this may call for new responses.

• How effective are existing pricing strategies like Basic Fares in competing in the long run with ULCCs?
• How are the network carriers defending their hubs from LCC and ULCC incursions?
• What prospect is there of establishing LCC subsidiaries as parent company costs rise?
• What role can loyalty play in this ultra competitive environment, when for example the vast majority of travellers will only fly with the airline once a year?
• With yields under pressure, investing into product and the customer experience is vital; how effective are the measures being adopted?

Moderator: ICF Aviation, Principal, Carlos Ozores
Panel:

• Allegiant Air, Senior Vice President, Commercial, Lukas Johnson
• Lufthansa Group, Vice President Airline Sales, The Americas, Tamur Goudarzi Pour
• VivaAerobus, Vice President Network Planning, Revenue Management & E-Commerce, Javier Suarez
• Volantio, Chief Executive Officer, Azim Barodawala

When the US government first began promoting Open Skies agreements, the concept met considerable opposition from airlines. Many carriers were accustomed to restricted-entry markets, had made major investments in building lucrative international markets, and feared inroads into their home markets, where they often enjoyed dominance. Governments were quite used to trading for a balance of benefits, leading often to tit-for-tat—you want something for your carriers, we get something for ours. Consumers were often left behind.

Open Skies not only relaxed pricing and capacity controls, but also made it possible to serve many more points behind the previously restricted number of international gateways. In doing so, it reduced the proportion of beyond-gateway domestic connections. Another by product was to enable much more extensive sixth freedom operations internationally.

U.S. leadership across Administrations to forge Open Skies agreements transformed air travel. Prices dropped. Alliances were formed. Both legacy airlines and low cost carriers entered new markets. New routes were opened, many that would have never been possible without Open Skies and metal-neutral alliances with antitrust immunity. Open Skies spread throughout Europe, to Canada, Latin America, Asia Pacific, and Africa. Cargo carriers established new distribution hubs in the Middle East and Asia, with few access constraints. Airlines have available a wide array of open skies markets with fifth (and sometimes seventh) freedom rights, although, outside North Asia, the rights are rarely exercised.

But have we witnessed the zenith of international liberalism in aviation, with protectionism rearing its head. Will the drum beating in Washington DC for international trade wars with China, Russia, and others spill over into aviation? Will Middle East politics serve to isolate some countries, with winners and losers? Will calls from Big 3 US airlines for retaliation against alleged airline subsidies in the Middle East lead to more than consultations? Will cargo and fifth operations be targets? In a broad atmosphere of economic nationalism and Trump Administration calls for tariffs, with a willingness to endure trade wars with one of its largest trade partners, what does the future hold for Open Skies?

In Europe, the EU is sharpening its competition tools to face Gulf carrier challenges. The EC appears set to revamp laws enabling it to impose duties on non-EU airlines or suspend flying rights if it finds unfair trade practices involving subsidies, slot allocation, ground handling services, airport charges, refuelling, etc.France, Germany and Italy appear more protective than the UK, which has typically led the liberalisation charge. As the UK exits the EU under Brexit, and its future role remains unclear, will the EU position change? This panel will explore these and other questions, including:

• How important is it that governments work to ensure a level playing field in aviation?
• Could US airlines take greater advantage of the market access opportunities they have available under existing agreements?
• Is the dispute among the Gulf Carrier States, Europe, and the US likely to spill over to other trade or geographical areas, or trigger a retrenchment against Open Skies?
• What impact will President Trump’s trade policies likely to have on aviation?
• As China becomes a major market, is an Open Skies agreement likely – or necessary, to secure JV authority?
• Is there a global trend to rolling back open skies?
• What is the likely outcome of UK-EU and UK-US Open Skies’ talks?

Moderator: Baker McKenzie, Partner, Kenneth Quinn
Panel:

• Delta Air Lines, Managing Director, Government Affairs, Robert Letteney
• FedEx Express, Managing Director, Regulatory Affairs, Nancy Sparks
• U.S. Department of Transportation, Director, Office of International Aviation, Brian Hedberg

Air China VP & General Manager for North America Zhihang Chi offers insight to a potential trade dispute between China and US, Air China’s fifth freedom rights and a desire to forge a JV with United if China and the US achieve open skies.

International President, Association of Flight Attendants-CWA Sara Nelson discusses the union’s priorities for the next few years, steps the association is taking to shorten negotiating times for collective bargaining agreements and the union’s position on US foreign ownership laws.

Orlando International airport Senior Director of Marking and Air Service Development Vicki Jaramillo discusses the airport’s expansion, long-haul wish list and attractive domestic markets and traffic from Orlando to Brazil.

IATA Regional VP for the Americas Peter Cerda provides an update on progress Latin American governments are making in adopting a more liberalised approach to aviation, how Argentina and Peru are addressing infrastructure challenges and if there are any threats on the horizon that would slow Latin America’s economic recovery.

IATA Regional Director Financial and Distribution Services for the Americas Alicia Lines discusses how emerging technologies fit into the NDC framework, GDS endorsement of NDC and also provides an update on NDC adoption in the Americas.

Executive Administrator of the Air Line Pilots Association Rick Dominguez discusses concerns of pilots a United and Delta going forward and whether a new pilot deal at Spirit Airlines could accelerate progress in negotiations at fellow ULCC Frontier.

Skyscanner senior director, global strategic partnerships Hugh Aitken offers an update on the integration of Trip.com and the potential of emerging technologies in the evolution of payment mechanisms.

GoldSpring Consulting partner Neil Hammond offers an outlook on how emerging technologies could benefit the corporate travel sector and the way branded fares are being introduced into the corporate travel structure.

Caravelo Commercial Director Jonathan Newman offers insight into airlines that are technology innovators, and how carriers can better understand how to set up retailing platforms for maximum value and the benefits of NDC.

US DoT Director of International Aviation Brian Hedberg discusses the progress of talks between the US and the UK to create an air services agreement after Brexit, low cost competition in trans-Atlantic and US airline foreign ownership.

Tony Davis, member of Irelandia Aviation’s advisory board discusses opportunities for ULCCs and LCCs in South America and challenges taxation and infrastructure those airlines face in spreading the model across the region.

Indigo Partners Managing Partner William Franke discusses Chilean ULCC JetSMART as the airline reaches its one-year milestone, Argentina’s potential, conditions in the US market and an update on Frontier Airlines, including its planned codeshare with Mexican ULCC Volaris.