CAPA Asia Aviation Summit 2019

Thao Nguyen Thi Phuong, President & CEO, Vietjet Air

We invite leaders from across the aviation and technology landscape to discuss standout technological innovations and trends that have shaped the aviation industry over the last year and identify any key learnings. Panellists will also share their projections on how the industry will evolve with the introduction of new technologies in 2020 and beyond.

• How can organisations turn big data into actionable insights that intelligently understands and delights the customer (and enhances revenue)?
• How can organisations use technology to further improve the customer experience?
• What are the opportunities and implications of AI and robotics? What opportunities exist to become more efficient in their operations with the implementation of AI and new technologies?

For decades airlines carelessly discarded information about their customers, leaving this powerful tool in the hands of intermediaries and the GDSs. As airlines sought to wrest back market power and to reshape their focus from flying towards distribution and other revenue forms, this coincided with vastly increased computing power and an ability to assimilate vast amounts of data into something meaningful. 

This is transforming the way airlines think and work, from operational analytics to leveraging data to generate better commercial returns. But it is still early days and the potential of this art has many forms still to display. And of course it’s not just airlines who are playing in this park. Few organisations have more consumer data than Facebook, Amazon, Google – and the numbers of potential players is growing by the day.

Inevitably some airlines are more advanced than others, so the gap between big and small tends to grow.

• Exploring categories of activity where analytics is being used effectively
• Converting data to save costs and generate revenue. What streams are possible?
• Who has the capability to use data effectively? – is outsourcing necessary?
• Will the big consumer data aggregators play in the airlines’ park?

Legacy distribution systems have for decades presented airlines with the twin problems of high costs and product commoditisation. In efforts to address these issues, a handful of carriers throughout the world have invested heavily into establishing their own API channels with agents, while the concurrent push by IATA for airlines to implement the NDC standard has encouraged the industry to adopt a retail focused approach to distribution. 

The GDS will also need to evolve in order to remain relevant and to compete effectively against other intermediaries and aggregators such as metasearch companies (some of which now have direct booking capabilities), as well as digital behemoths such as Amazon, Google, and Facebook – to gain a slice of the pie.

But as airlines work on enhancing their retail offering and improving their merchandising capability via both direct and indirect channels, a resounding message from industry players is that airlines need to consider the importance of mobile and messaging platforms, which are slowly replacing the desktop as the preferred interface for researching and booking travel.

• Is this increasingly fragmented and complex commercial and technological distribution landscape sustainable? How will business models evolve in response? Is there a need for a direct connect aggregator?
• Should airlines build lots of direct connects or revert back to lean, centralised distribution channels?
• Who is going to be offering services to bridge the gap between airlines/aggregators that are NDC compliant and those that aren’t? Will it be the GDS and IT providers, other airlines or speciality providers?
• How are newer intermediaries adding value to airline distribution?
• How do airlines enhance their digital shopfront? Are airlines over-emphasising the importance of airline.com over mobile messaging platforms and bot technologies?

This is awarded to the regional airline that has been the biggest standout strategically, has established itself as a leader and demonstrated innovation in the regional aviation sector. (Note that this award is not limited to operators of regional aircraft; it is intended to recognise smaller airlines – fewer than 10 million annual passengers – that either do not operate any long haul services, or only operate limited long haul services.)

Vistara was selected for its strong consistent growth, even before the collapse of Jet Airways in Apr-2019. Launched in 2015 and 51% owned by Indian industrial giant Tata Sons and 49% owned by Singapore Airlines, Vistara‘s traffic grew by 30% in 2018 to more than five million passengers and its seat count is up by 40% in 2019. In a highly competitive domestic market dominated by LCCs, this was a substantial achievement.

Vistara currently operates 40 domestic routes, serving 30 cities in India. It has recently added international routes with the launch of Mumbai–Dubai, Delhi–Bangkok and both Mumbai and Delhi to Singapore in Aug-2019 and Mumbai–Colombo on 25-Nov-2019.

CAPA Chairman Emeritus Peter Harbison said: “Vistara‘s growth from start up in 2015 to become India‘s sixth largest airline by seats in 2019 demonstrates that there is still a place for a well executed full service business model in a market where LCCs have more than three quarters of domestic seats and approaching one third of international seats. Vistara’s recent move into international operations promises to add a new dimension to the India market.”

Vistara Chief Executive Officer Leslie Thng said: “Our vision is to establish Vistara as a global full service airline that India will be proud of. This recognition by CAPA reaffirms our confidence in realising this vision as we broaden our horizons and prepare to launch medium and long-haul international operations while bolstering our presence in India. Our effort continues to be to innovate and stay relevant in the dynamic aviation industry, to maintain the highest standards of operations and to focus on delivering consistent, world-class service to customers.”

This is awarded to the airport with over 30 million annual passengers that has been the biggest standout strategically, has established itself as a leader and done the most to advance the progress of the aviation industry.

Hong Kong International Airport was selected for its role in managing the difficult process of agreeing its third runway project with multiple parties and the accompanying Terminal 1 expansion and improvement project. This will ensure that three years before the runway is completed, terminal capacity will be more than sufficient to handle the anticipated increase in passengers.

It was also selected for its resilience in dealing with the disruption caused during the political protests of 2019 and for managing to maintain consistent services to the passengers using it during that disruption, thus offering support to Hong Kong’s beleaguered international commercial and tourism sectors.

CAPA Chairman Emeritus Peter Harbison said: “Hong Kong Airport has successfully completed a long and tortuous process of moving towards agreement on a third runway, along with its terminal expansion.  More recently the airport has acted effectively to navigate a difficult period, accommodating passenger and airline needs and maintaining operations in difficult circumstances.”

Hong Kong International Airport Deputy Director, Services Delivery, Steven Yiu said: “We are honoured to receive this prestigious award, which recognises our efforts in strengthening the hub status of Hong Kong International Airport through continuous development of various segments, from core passenger service, air cargo and multimodal connectivity to retail, exhibitions and hotels. By accelerating these interconnected and synergetic developments, HKIA is transforming from a city airport to an Airport City – a trend that will continue over the next decade and beyond.”

This award recognises the airline, airport or supplier responsible for the most powerful innovation in the industry over the past year. The innovation could be customer-facing, B2B, efficiency-related or a new marketing product – and must be a new standout and established the company as a market leader in the product or process.

Singapore Airlines (SIA) was selected for its ULR product. Singapore Airlines has invested heavily in ensuring the success of its resumed nonstop flights to the US. SIA worked very closely with Airbus to ensure its A350-900ULRs would be available and fit for purpose to offer travellers the best possible service available. SIA was the first airline in the world to operate the A350-900ULR, configured in a two-class layout, with 67 Business Class seats and 94 Premium Economy Class seats.

The innovative strategy involved an entirely new service and product including new meals from Canyon Ranch specially created for ultra-long haul nonstop US flights. Wellness formed an important part of the strategy with SIA partnering with Canyon Ranch, the world’s premiere integrative wellness brand, designed to re-invent ultra-long-haul travel with a focus on wellness cuisines, rest and relaxation, and general well-being on the world’s longest flights. 

“Wellness continues to be an important factor of any corporate travel programme”, said CAPA Chairman Emeritus Peter Harbison. “Singapore Airlines pushed the development of the A350-900ULR with a vision of expanding its premium long haul offering. This clearly will assist airlines around the world as they themselves push their long haul strategies. Combatting the impacts of these gruelling services by partnering with a leading wellness brand only emphasises the innovative strategy of the airline.”

Singapore Airlines Chief Executive Officer Goh Choon Phong said: “We are honoured to receive the Innovation of the Year award from CAPA. Innovation is at the heart of everything that we do at Singapore Airlines, whether it is our cutting-edge in-flight products and services, or the digital transformation programme that is changing almost every aspect of our business. Our record-breaking non-stop services to the US exemplify our efforts to push the limits and bring even greater convenience and comfort to our customers.”

Subsequent to the Asia Pacific awards, the CAPA Global Awards for Excellence will be announced as part of the CAPA World Aviation Outlook Summit in Malta on 5-Dec-2019. For more information on the CAPA Awards for Excellence, visit centreforaviation.com/about/capa-awards

This is awarded to the regional airport that has been the biggest standout strategically, has established itself as a leader and done the most to advance the progress of the aviation industry. (Note that this award is not limited to airports without any long haul or intercontinental services; it is intended to recognise smaller airports – fewer than 10 million annual passengers – that rely primarily on short haul routes.)

Phnom Penh International Airport was selected for adopting an innovative strategy that has led to sustained passenger growth in excess of 25% over two years (2017/18) and of 15% in Q1-Q3 of 2019 while the regional leader, Thailand’s Bangkok Suvarnabhumi Airport, has languished in the 3% to 10% category.

For (together with the other airports in the group), contributing to up to 17% of the country’s total GDP, sustaining more than 1.7 million jobs, representing 20% of the working population. And for the very rapid completion of works to extend the runway to 3,000 metres, thereby expanding the potential for new long haul services.

CAPA Chairman Emeritus Peter Harbison said: “Over the three years from 2015 to 2018, Phnom Penh Airport grew its passenger volume by some 50%, requiring enormous adjustments to its operating regime. At the same time cargo payload capacity has almost doubled. The expansion was the result of a well coordinated programme of business development.”

Cambodia Airports Chief Executive Officer Alain Brun said: “As a small airport, Phnom Penh International Airport benefits from an ability to easily adapt and respond to our customers’ needs, which is demonstrated by winning this award. This accolade is testament to the relevance of the airport Public Private Partnership model under which Phnom Penh International Airport, powered by Vinci Airports, has been successfully developed over the last 25 years. Our model warrants long-term vision, reliability, and continuous investments, which translate into solid passenger growth, from 600,000 to 6 million by the end of 2019, significant infrastructure projects and operational efficiency.”

This is awarded to the airport with 10 to 30 million annual passengers that has been the biggest standout strategically, has established itself as a leader and done the most to advance the progress of the aviation industry.

Brisbane Airport was selected for boosting the Asia market, by increasing the number of weekly frequencies by 50 to 137 in the period July 2016 to July 2019, a critical enhancement for Queensland and its tourism industry, which accounts for 4% of Queensland’s GDP. China has become the largest source market for Queensland while Japan is the third largest source market.

Together with Queensland and Brisbane tourism and economic development bodies, Brisbane has become a model for airport business development.

Secondly, for its innovative development of non-aeronautical businesses, and attendant revenues. For example, the BNE Auto Mall, of which stage one will open by 2021. It is a 300 million Australian dollar automotive precinct which will include a performance track, car dealerships, manufacturers and retail amenities and which will also service and sit alongside exhibition and conference facilities, hotels and driver training schools, which are all located next to the Brisbane Airport international terminal.

And finally, for being one of the leading airports in the world for on-time performance.

CAPA Chairman Emeritus Peter Harbison said: “Applying an important coordinated strategy with Queensland and Brisbane tourism and economic development bodies, Brisbane has become a successful model for airport business development. This has helped achieve a significant growth in international services to the airport, with attendant economic benefits to the city and the region.

Brisbane Airport Chief Executive Officer Gert-Jan de Graaff said: “It is an honour and a privilege to be recognised by industry experts and to receive the title of CAPA Asia Pacific Medium Airport of the Year 2019. Being a great airport is about more than building and managing safe, secure and efficient facilities.  It’s also about advocating for our community and passengers and forming collaborative alliances to vie for new services, connecting people, creating communities, and developing opportunities through collaboration.”

“Community is well and truly at the heart of what we do at Brisbane Airport and I think this approach sets us apart in the industry,” Mr de Graaff added.

Between 2000 and 2018, the populations of the world’s cities with 500,000 inhabitants or more grew at an average annual rate of 2.4 per cent. However, 36 of these cities grew more than twice as fast, with average growth in excess of 6% per year. Of these, 28 are located in Asia, with 17 in China alone.

Furthermore, two-thirds of the global population will live in cities by 2050 and the number of megacities is predicted to rise from 33 to 43 within the next decade – again, many of which are located in Asia.

With rising populations, comes a need for greater mobility solutions. 

As flying cars become the next step forward in innovation, Asia has become a testing ground for a number of urban air mobility vehicles, one of the latest examples being in Singapore where German company, Volocopter tests its next round of flight tests for its urban air mobility vehicle.  

In the session, delve into integrating traditional aviation with the disruptors and the potential challenges and impacts this presents to the industry, now and in the future.

• Is urban mobility an opportunity for airlines or a threat?
• Are airlines likely to be the first to adopt this new technology?
• What is the likely competitive impact for airlines that operate short-haul and regional routes, especially for the corporate travel market?
• What is the predicted impact of the lowered barriers to entry across the market?
• How can disruptors and established airline players complement each other and provide sustainable, integrated and optimised air travel solutions?

This is awarded to the airline executive who has had the greatest individual influence on the aviation industry, demonstrating outstanding strategic thinking and innovative direction for the growth of their business and the industry.

SpiceJet, Chairman and Managing Director, Ajay Singh was selected for his significant and innovative contributions to Indian aviation as a pioneer of the country’s LCC sector.

India‘s third largest airline overall by fleet and 2019 seat count, SpiceJet is the second largest LCC and second largest domestic airline. Annual passenger numbers and revenues grew almost five times from 2008 to 2018. Its 2019 seat count is up by 28%.

Its business is primarily domestic, but its international network has grown over the current decade to embrace 10 destinations, the most recent being Riyadh, launched in Aug-2019.

SpiceJet operates a fleet of 69 Boeing narrowbodies and 32 Bombardier Q400s, as India‘s only operator of this turboprop family. In Sep-2018, it launched SpiceXpress, its air cargo division operating dedicated freighters.

SpiceJet reported three successive years of net profit between FY2016 and FY2018 in the notoriously competitive Indian market where few airlines have achieved positive results in recent years. Indeed, these results followed successive losses that had taken SpiceJet to the brink of collapse during a period when Mr Singh was not leading the airline.

SpiceJet slipped into loss in the year to Mar-2019 as a result of higher fuel costs and INR depreciation, but returned to profit with its best ever quarterly result in the first quarter of FY2020, in spite of the grounding of 13 Boeing 737MAX-8s and delays to further deliveries.

It compensated for the MAX groundings with an increase in utilisation for its existing Boeing and Q400 aircraft while also adding 32 aircraft to the fleet between Apr-2019 and Jun-2019 in order to take advantage of the gap left by Jet Airways. This demonstrated the robustness of its business model and operational skills.

CAPA Chairman Emeritus Peter Harbison said: “Ajay Singh has been one of the most effective pioneers of India‘s low cost airline segment since the establishment of SpiceJet 15 years ago. Since Mr Singh’s resumption of management and majority control in 2015, SpiceJet has achieved a strong turnaround from a near financial collapse. Under Mr Singh’s leadership, SpiceJet has adapted the business model to take initiatives not always associated with LCCs, for example operating a turboprop fleet alongside its Boeing737s, launching a cargo subsidiary, joining IATA and signing an MoU with Emirates over future codeshares.”

SpiceJet Chairman and Managing Director Ajay Singh said: “I am truly honoured to receive this prestigious award, which is a recognition of SpiceJet’s spectacular comeback and remarkable performance. Leading SpiceJet from a near shutdown to being one of the finest airlines in India, has been the best experience of my life. This award belongs to every SpiceJetter who has worked relentlessly to resurrecting a dying company and building a globally admired airline that the world today speaks of with admiration and awe.”

New generation aircraft offer game-changing economics and range for LCCs and FSCs. Airlines across the spectrum of business models are using these new tools to extend their network reach. While these advances create the potential for many new markets, route developers still face the inherent challenges of long haul flying. Maintaining consistent and profitable demand in those markets is paramount, especially once airport incentives are no longer available. 

However, with the exception of a few key players, Asian carriers have not yet fully taken advantage of the range of new aircraft technology. This is about to change though with the likes of: Cebu Pacific, Saudia, and Qantas Airways (for subsidiary Jetstar) ordering A321XLR at the 2019 Paris Air Show. 

• What examples of implementation of new aircraft types has been successful around the world? 
• What opportunities still exist to tap into new aircraft types? 
• What routes will be opened up to the Americas thanks to new aircraft technology? 
• How much reliance is there on premium traffic to make ultra long haul routes sustainable?

Frequent flyer programmes have been a common part of many airlines’ loyalty strategies over several decades now. But they have evolved from elemental loyalty models with modest money-making strategies into major revenue earners. With growing industry maturity and drastically improved technology and data analytics capabilities, the nature of FFPs is being transformed.

The contrast between these programmes and the activity of flying is dramatic. One has limited capital investment needs and generates cash almost merely by existing; the other, ringed by safety and economic regulation is highly capital intensive and even more risky, in exceptional circumstances returns a modest profit.

There are however few exponents who have climbed the heights of optimising the FFP business – for it is a business now, with a sideline of loyalty.

Qantas is a leader in the field. It is for example targeting EBIT of AUD500 million from its FFP by 2021. To put that in context, in FY2019 Qantas returned a total profit of just over AUD1 billion.

And Air Canada, arguably the first airline to create a genuine financial model for FFPs early this century, having sold off its programme, has recently re-acquired it.

With the advent of sophisticated data analytics, FFPs have also become much more than an internalised activity, with the ability now to drive change right across the business, from revenue management to network planning and beyond. 

In short, FFPs have become a valuable commodity in more ways than one. But, mingled with their poor cousins, the flying part of the airline, market valuations are often suppressed.

• How important is loyalty in an age of commoditisation?
• What are the strategies behind smart FFPs?
• How valuable is data analytics as information is accumulated?
• What are the arguments for and against owning and hiving off?

Infrastructure remains a common issue around the world and especially in Asia, forcing airlines in some markets to grow at secondary airports draw on different catchment areas. The Philippines (Manila), Indonesia and Vietnam are all problematic at the moment, and Bangkok’s new three airport policy is worth debating.

These infrastructure constraints in Asia are impacting greatly on aviation. This session will review:

• The role of the airline and airport relationship;
• What lessons can be learned from the rest of the world?
• How does Route Development look for the future in Asia? Will congestion be an impediment?
• Do Asian airports and air navigation service providers have the capacity to accommodate the growth ambitions of the region’s carriers?

Asia has enjoyed spectacular growth over the past several years. While China has clearly led the way, South Korea and Taiwan have also grown rapidly, and even Japan has had a resurgence in the past few years.

After several years of double-digit traffic growth, supported by accelerating international expansion plans by its home carriers, India is expected to emerge as the world’s third largest aviation market within the next five years.

• What impact will this have on aviation in the region?
• Can both powerhouses sustain this growth?
• How will infrastrastructure constraints impact growth?

Over recent years we’ve been through a period of relatively benign external inputs, with low fuel prices supporting lower fares and a solid global economy supporting demand. This has propelled the industry into a period of unprecedented profitability (although US airlines, mostly operating domestically, have accounted for around half of this).

The period of high profitability is unlikely to continue as oil prices, currently in the mid-USD60s/barrel for Brent Crude, creep up and as business and consumer confidence – at least, outside the US – slips rapidly.

The IMF recently issued a warning that the global economy is weakening “faster than expected” and downgraded GDP growth forecasts for 2019, and the European Central Bank has “substantially” revised downwards its economic growth projections for 2019, implying a slackening of demand in markets which have become increasingly price sensitive. At the same time, the entire aviation system is undergoing a technology-led upheaval of volcanic proportions, challenging conventional norms and demanding new solutions to new problems (and opportunities). 

Airline management’s role is to prepare for and manage the airline prudently through good times and bad; in a downturn this means minimising the impact on profitability while remaining competitive. 

• What would a downturn look like in Asia compared to the rest of the world?
• If growth continues how will the industry overcome problems like overcapacity and aggressive competition? 
• What challenges face Asia? Is it just more of the same challenges?
• What impact will fuel prices have on the industry?