The ACTE-CAPA Global Summit attracted over 800 delegates and more than 40 c-level executives to Amsterdam on 27-28 Oct-2016. The CEOs of more than 20 airlines spoke during the summit, which included the annual CAPA Aviation Awards for Excellence gala dinner.
For a report on the award winners see: Icelandair, Iberia, Qatar, Wizz, AirAsia’s Fernandes, London City, Vancouver, ABB win CAPA awards
Liberalisation and disruptive technologies were among the main themes across two days of keynotes and panel discussions. Brexit, China, global alliances and the future of the low cost model were also examined in specifically themed panel discussions.
HRS Global Hotel Solutions CEO Tobias Ragge delivered the opening speech highlighting the technological changes confronting the travel industry. He said the change that is currently going on in the travel industry will accelerate, driven by travellers' demands from corporations, as well as what technology can fulfil.
KLM’s Elbers delivers keynote address on digital disruption
KLM CEO Pieter Elbers followed Mr Ragge with an enlightening keynote presentation on digital disruption. Mr Elbers said digitalisation is changing the industry at an unprecedented pace and will provide “massive opportunities”. He also stressed that the only way to move forward is to digitalise, and importantly to digitalise operations by equipping staff with the tools.
Mr Elbers stated that traditional businesses lack experimentation, data-sharing and agile internal processes. He said that the speed of implementation of new technology is changing, adding that traditional airlines like KLM are struggling. He also noted that if traditional airlines do not change they will “miss the boat.”
KLM is a frontrunner in social media, with 22 million passengers connected consumers on Facebook and 100,000 incoming social media messages per week. Mr Elbers said that airline digitalisation has a different impact depending on the customer. He believes airlines that are able to differentiate themselves in the digital sense will be the airlines of the future.
KLM started focusing on social media in 2010 during the ash cloud incident, and that communication channel proved that social media is the most effective way to communicate with stranded passengers. KLM now pledges to reply to all social media queries or comments within an hour, and its average response is now 42 minutes. “It’s really the way forward”, Mr Elbers said.
He noted there is a shift from mobile first to mobile only, adding that more than 60% of visits are through mobile. KLM has also experienced a rise in passenger website usage, with 33% of tickets now sold online and 70% of passengers now using the web to check in.
For more on Mr Elber’s presentation, see the related report: KLM CEO Pieter Elbers at the CAPA-ACTE Global Aviation Summit: Responding to digital disruption
Qatar’s Al Baker delivers keynote on liberalisation
Mr Al Baker said Qatar’s goal is to open the skies “gradually and surely” between the remaining restricted European markets and Qatar. He believes a more liberal air service agreement with greater access to markets will benefit travellers both in Europe and Qatar. He pointed out that “competition has always benefitted the customer”.
Mr Al Baker stated that the EU and Qatar markets should be open to each other, at least for third and fourth freedom rights, with eventual fifth freedom flying rights granted beyond. He also noted that as the EU and Qatar grow closer, which they are surely destined to do, harmonisation will accelerate.
Mr Al Baker said that over the past 20 years it has become obvious that “we need to fight for every market”. He noted there is still a “huge protectionist” tendency in many countries, including the US.
Qatar Airways will celebrate a “significant milestone” in 2017 – its 20th anniversary. Mr Al Baker pointed out that Qatar Airways had grown from four aircraft to more than 190 aircraft over the past 20 years, with nearly 350 aircraft on the way including the A350. Qatar has grown its network from a regional focus to a “truly global” network, with 170 destinations across six continents. Doha Hamad International Airport is currently embarking on the third phase of its expansion, which will result in the airport’s capacity increasing from 30 million passengers to 70 million passengers per annum.
Panel predicts how industry will evolve over the next decade
Mr Al Baker also participated in a subsequent panel discussion on the industry outlook for the next 10 years, encompassing several issues including liberalisation.
Mr Al Baker predicted that “wise brains” will prevail in terms of liberalisation in the aviation market over the next 10 years. He believes that there will be more liberal regimes and more transparency, particularly from Gulf airlines. Mr Al Baker also predicted that travel will revolutionise in the next 10 years (for example, the printing of boarding passes at home).
AirAsia Group CEO Tony Fernandes was also on this panel and predicted there would be a divergence between low cost and full service models. Mr Fernandes said that airlines trying to be full service at the front and low cost at the back are pursuing an unsustainable model.
“Airlines can’t do everything”, Mr Fernandes said, then predicting that eventually the industry will be split into purely low cost and full service players, with LCCs focusing on value-conscious consumers and FSCs focusing on passengers that are prepared to pay more. “When that happens we will become a more efficient industry”, Mr Fernandes said.
The third member of this panel, World Travel and Tourism Council CEO David Scowsill, stated that the travel industry will continue to grow by 3.5%-4% p/a over the next 10 years and will grow 1% faster than GDP. He also said that the centre of the universe will shift more to the Gulf and China as Europe and North America face infrastructure constraints.
Mr Scowsill stated that aviation is very advanced in so many aspects, but also “terribly behind” in others. He said that airlines have had to create ways around legal issues through such things as codeshares and joint ventures.
Aeroflot highlights achievements and goals
Aeroflot deputy-general director Strategy and Alliances Giorgio Callegari was next up with a keynote presentation on Aeroflot’s achievements and goals.
Mr Callegari stated that the Aeroflot Group had experienced “remarkable” growth in the past seven years. He noted its passenger numbers had increased by 3.5 times – from 11.1 million in 2009 to 39.4 million in 2015 – and its fleet age had declined by 8.6 years – from more than 15 years to 6.4 years. Aeroflot has also achieved a 20% reduction in fuel consumption, as well as an 8 ppt improvement in load factor from 70% to 78%.
Mr Callegari stated that Aeroflot has a “very disciplined” approach to network development, adding that it operates routes it believes to be profitable, and not where it sees opportunities for connecting traffic. He also noted a “balanced” distribution of products, with 50% of its passengers and 30% of its revenues generated from Russia’s domestic market.
Mr Callegari that Aeroflot aims to be among the five largest airline groups in Europe and in the top 20 globally by 2025, based on passenger numbers.
Panel discussion addresses liberalisation
Mr Callegari also participated in a later panel discussion on liberalisation. Mr Callegari said that Russia has one of the most liberal approaches to foreign ownership and control. “I’d be very happy to hear what country outside Russia has allowed a foreign shareholder to own more than 50% of an [airline] company”, he said. “Russia has proven to be very practical.”
Delta Air Lines managing director Legal and Regulatory Julie Oettinger told the panel that Delta has been and continues to be a strong supporter of liberalisation and open skies. She said comments made by other airlines that Delta, along with other US airlines, are adverse to open skies are not correct. “Open skies has been an unqualified success of US policy”, Ms Oettinger said, pointing out that the US had been a pioneer since the first open skies agreement was forged approximately 20 years ago between the US and the Netherlands.
Open skies agreements now cover 70% of the US international market. “It’s been a substantial success, and there’s no question Delta is a strong supporter of the policy and continuation of the policy”, said Ms Oettinger.
However Ms Oettinger cautioned that open skies does not necessarily create “genuinely open markets”. She said that at times there is a need “for vigilance to make sure the promise of open markets actually exists”. Ms Oettinger pointed out that the conversation regarding the impact of subsidies for the Gulf airlines is not limited to the US, but has also been a topic in Europe and at the ICAO level. “We believe this a core element of open skies and it needs to be addressed”, she said.
Ms Oettinger said there is no prospect of US ownership and control laws changing in the near or medium term. She pointed out there are still political concerns and opposition to changing the regulation. “From a political perspective the law is not likely to change in the near to medium term”, she said.
AACO secretary general Abdul Wahab Teffaha told the panel that Arab airlines do have a shared vision of what the ideal aviation market should be; that is – free of restrictions, and that most importantly governments should play the role of regulator. Mr Teffaha pointed out that customers of today and tomorrow care more about an airline’s brand than its nationality.
European Commission deputy director general Matthew Baldwin told the panel that the EC hopes to achieve a liberal market place with Europe at the centre, with strong and competitive airlines based across strong European hub airports offering direct flights across the world. He said that the EC had received new mandates to negotiate with ASEAN, the UAE, Qatar and Turkey. It hopes to receive more mandates to negotiate with the whole Gulf area, Mexico, Armenia and China.
Mr Baldwin noted that since the introduction of the single European market intra-Europe routes had increased by 400%, and routes with more than two competitors had increased sixfold.
The other panellist, US FAA former deputy administrator and chief NextGen officer Mike Whitaker, stated that joint ventures and alliances are “very inefficient”. He also said that these are not sustainable economic models in the long term.
SkyTeam and Star CEOs discuss future role of global alliances
The afternoon session on 27-Oct-2016 kicked off with a panel on alliances, which also included Mr Baldwin (European Commission). Mr Baldwin said that over time alliances and JVs lead to increased choices, such as more frequencies and flights to more destinations for the consumer.
SkyTeam CEO Perry Cantarutti and Star Alliance CEO Mark Schwab also participated in this panel.
Mr Cantarutti said the role of the alliance had shifted over the last six years to be more customer-focused. SkyTeam now spends most of the time developing customer-facing programmes and benefits that individual airlines would be hard-pressed pursuing on their own.
“I see that trend continuing. Our focus is not on recruiting new members like it has been in years in the past”, Mr Cantarutti said. He added that customer service initiatives are “what our members tell me they want so that’s where we very much spend our time and money”.
Mr Schwab agreed with Mr Cantarutti and said Star is now focused mainly on providing a seamless experience for its passengers. Mr Schwab said that joint purchasing of aircraft proved to be too difficult to pursue because of a diversity of requirements and procurement rules. “The conclusion is don’t waste too much time and focus on things that add value”, he said.
Mr Schwab also noted that predictions of the demise of global alliances are ill-conceived. “I’ve been hearing about the demise of alliances since Star was five years old”, Mr Schwab said. “We will celebrate our twentieth anniversary next year and we are working on five year plans right now.”
He added that Star’s members continue to believe they get value from the alliance that they could not generate from other sources. “You don’t want to throw things out unless you can replace it with something of equal value”, Mr Schwab said.
Low cost panel examines future of LCC model
The alliance panel was followed with a panel on low cost airlines, featuring executives of four leading LCCs.
Wizz Air CEO Jozsef Varadi predicted that LCCs will continue to grow while full service airlines will continue to be rather stagnant. He expects LCCs to capture 60% to 70% of the total market in 10 years.
Mr Varadi said that anyone can produce low fares, but producing low fares with a margin is the key. Ryanair CCO David O’Brien said he agreed with this assessment. Mr O’Brien added that the lowest cost operators, as long as they can keep cost low in the right areas, will ultimately prevail.
AirAsia’s Mr Fernandes told this panel that AirAsia will not change its model to serve business customers better. “Fundamentally we won’t change our cost structure or our model for this market”, he said. “You got to remember what your core principals are.”
While AirAsia will offer its business passengers a higher-priced bundle that includes items such as meals and the flexibility to change flights, it will not change its seats or alter its model in order to woo business passengers. Mr Fernandes said full service airlines can survive and be profitable if they focus on premium customers, arguing that airlines will gravitate to full service or low cost and stop trying to be both at the same time.
“Ultimately low cost is king”, Mr Fernandes said. “We just have to focus on having the lowest cost.” He added that offering a high-frequency and low cost product across all seats at all times is also critical. He said the limited number of low cost seats typically offered by legacy airlines “drives people mad”, and that AirAsia is offering low cost seats on all flights at all times on all days.
Wow Air CEO Skuli Mogensen said LCCs need to be focused on maintaining the lowest costs possible in order to meet passenger expectations and demand. He said passengers are more conscious of value for money, and low fares are more appreciated than a few years ago.
Wow was by far the smallest LCC on the panel but has been growing fast, particularly with its new medium-haul operation to North America. The North American operation is less than two years old but now includes 10 destinations. Mr Mogensen said the North American operation had been successful, including 95%-plus load factors on the new Los Angeles and San Francisco routes. Wow is now “seeing a lot of self-connectivity, primarily from the US”.
Corporate travel panel explores impact of technology
The final panel of the first day focused on corporate travel, including the needs of corporate passengers and the potential impact of new technologies.
Ernst & Young Global Travel Meetings and Events Leader Business Enablement Karen Hutchings said the biggest challenge is when a young savvy traveller finds a fare on the web that is cheaper than what is available from the travel management company (TMC). She said Ernst & Young recently sent a survey to the 1,000 millennials in its organisation, and the most common response – accounting for 250 of the 300 replies – was that millennials wanted to book everything on a mobile app without having to talk to anyone. “We are not there yet”, Ms Hutchings said.
Travelport Global Head of Product and Marketing Air Commerce Ian Heywood said that third parties are capturing 60% of airline revenues but only 10% of ancillaries. Ancillaries from third party companies are still very poor, although ancillaries are starting to get more attention.
Travel in Motion managing director and Partner Daniel Friedli said that “the low cost airlines are doing a very good job” with e-retailing and ancillaries. He said that “the other airlines are trying”, but are handicapped by legacy systems and a legacy mindset.
easyJet director Head of Business Anthony Drury told the panel that easyJet had adjusted its schedule to cater to business travellers. easyJet has not changed its model, but now it uses slots at key business airports to make sure it offers the frequencies business travellers need – namely early flights out and late flights back. Mr Drury said easyJet also now has a team working on raising awareness in the business travel community about easyJet’s network, frequencies and value proposition.
Sabre presentation kicks off second day of ACTE-CAPA Global Summit
The second day of the summit began with a speech from Sabre managing director global corporate solutions and sales partner programmes Fred Bowen. Mr Bowen said that with constant connectivity the experience for travel is changing. He noted that 60% of travellers would be unwilling to go on vacation without a mobile device.
Mr Bowen said that modern day business travellers not only desire, but prefer, self-service. He noted that this expectation by the business traveller means that suppliers need to create simple, user-focused technology that will complement the business trip, not complicate it.
Mr Bowen also said that while business travellers generally use traditional payment methods, the majority of travellers would use mobile payment if they had the option. He said this showcases a “huge” opportunity gap for travel managers to enable virtual payment solutions, which also have benefits such as reducing fraud and eliminating the need for expense reimbursement.
New technologies drive change in the travel sector
A panel on technology in the travel sector followed Mr Bowen’s presentation on 28-Oct-2016.
Nok Air CEO Patee Sarasin told the panel that Asia is experiencing rapid growth of digital start-ups. He said all the new digital technologies in the travel sector were “overcrowded at times for our brains”, but they provide opportunities for airlines. Mr Patee said Nok regularly reviews all new ideas and is looking at how they can be adopted to its business.
Mr Patee added that “we spend lots of time developing new technologies to create something what consumers want”. He said the focus is on providing customers with a “very personalised” digital solution that will recognise a customer’s name and provide what a passenger wants in a single step. Mr Patee said Nok is looking at several mobile innovations, which are being developed internally. For example, he said that Nok would soon implement a new solution which will provide its passengers with activities at their destination, arranged by several providers.
Travelport senior VP and managing director Air Commerce Group Derek Sharp said that Travelport had used new digital technologies to help its airline customers improve service to customers when there are delays or cancellations. For example, new technology has automated the process of providing reaccommodation for impacted airline customers, enabling airlines to send messages to passengers about available hotels.
Previously the process has been entirely manual, with all passengers including tier-level frequent flier members having to wait in long queues to receive paper hotel vouchers, and those do not in fact guarantee that a room will be available when they get to the hotel. Mr Sharp said, “outside technology has helped spark that, but there are also some great ideas internally”.
Microsoft procurement group manager Global Travel Meetings and Expense Georgie Farmer called for streamlining travel, particularly at the “friction” points. She said that Microsoft had “evolved” in the past 12 to 18 months by setting up its travel team structure to focus on integrated travel-centric solutions.
Océ Technologies procurement account manager for business travel Huub van Rumund said that travel managers should be the innovators and grow with procurement managers in order to help the traveller.
PwC Strategy& partner Stefan Stroh noted the need for integration in the travel process from end to end – into one-stop shop. He also noted the need for “big data” to personalise the experience.
Mr Stroh said the challenge facing airlines in personalising the travel experience is how to use the data collected. He also stated that the legacy technology inherited by some airlines makes it difficult to extract the right information.
Panel explores opportunities in the Chinese market
The following panel focused on China, including opportunities in the tourism and airline sectors, as outbound figures from China continue to increase rapidly.
Vancouver Airport Authority VP Operations and Maintenance Steve Hankinson said that Vancouver Airport is seeing an increasing shift in the China inbound market from group to individual traveller. Mr Hankinson said growth in individual travellers from China is an opportunity driving growth from China, particularly secondary cities, but also requires more work for the airport. Vancouver Airport has invested in additional resources to help individual Chinese travellers with the travel process, including making connections.
Mr Hankinson said the airport expects more new routes from secondary Chinese cities. “From our perspective there is no end in sight”, he said.
Vancouver has the advantage of having both a large inbound and outbound market for China – it has its own big Chinese community and is a popular destination for Chinese residents. Vancouver is also a hub facilitating connections between China and other destinations throughout North America. Mr Hankinson expects a liberalisation of the transit visa regime to facilitate growth in Chinese transit traffic. Vancouver now has more Chinese airlines than any airport in North America, but Mr Hankinson also sees an opportunity for growth in the Vancouver-China market for Air Canada.
Thai AirAsia CEO Tassapon Bijleveld told the panel he expects more Chinese airports to offer the airline attractive packages to support new routes. He said of the 20 Chinese airports now served by AirAsia: about half had approached the group “with a very good incentive package that we can’t resist”. Mr Tassapon expects more Chinese airports to offer similar packages as airport construction projects are completed. Several Chinese airports are planning new terminals or runways, and will need more services from foreign airlines to fill the additional capacity.
Mr Tassapon noted that 85% of the airline’s bookings on China routes are online, matching its overall 85% online booking rate. While AirAsia has been able to achieve a very high online booking rate for the Chinese market, Mr Tassapon said that Thai AirAsia had adapted to the local market by using Chinese payment systems.
Mr Tassapon also noted that it is challenging to stimulate demand in China during off-peak periods. He said that Thai AirAsia had tried to do so with promotions, but in the outbound China market passengers generally only want to travel during peak holiday periods, and often with several family members. Thai AirAsia is partially able to respond to the seasonal fluctuations in demand by operating extra flights during Golden Week and the Chinese New Year period.
ForwardKeys CMO Laurens van den Oever said that the recent terror attacks in France and Belgium had resulted in slowing demand from Chinese travellers; not only for those countries but also for neighbouring countries such as Italy, which are part of the itinerary for the majority of Chinese. However, the above has also resulted in the rise of new markets for Chinese travellers, including Spain, Portugal, UK, Nordic (on the rise), and Moscow. He noted that the challenge lies in how to spread out the distribution of Chinese travellers.
JG Aviation Consultants John Grant stated that the seasonality in China’s travel market remains an “inherent” problem. He pointed out there is no desire or aspiration from UK airlines to expand their network in China.
Mr Grant predicted that as China becomes more technically competent in their airlines, distribution systems, and ATC management they are just “going to grow and grow”. He believes that by 2025 the three largest airlines in the world could be Chinese, and that China will “dominate the world”.
Institute for Aviation Research president Dr Zheng Lei stated that the size of China’s travel market will be “much, much bigger” by 2025, which will create opportunities for both Chinese airlines and foreign airlines. He said that Chinese airlines had opened 48 intercontinental routes in the past two years. He said that Chinese airlines will be partners rather than competitors for foreign airlines. He noted the partnerships between China Eastern Airlines and Delta, as well as between Xiamen Airlines and KLM.
Dr Lei said that China had adopted a policy to become more open, but in a “progressive” and “orderly” manner. He said domestically there are still restrictions, particularly for LCCs such as Spring Airlines. He noted the restrictions on the import of aircraft had not allowed airlines to grow as they could. Further, other restrictions include entry into certain routes. Mr Lei believes that when Chinese airlines become stronger the government will be more likely to become more open.
London School of Economics presentation on travel disruption
A presentation on travel disruption, from London School of Economics EGC director Graham Floater, followed the China panel.
Mr Floater said the five main disruptors to the travel distribution industry in the next 10 years could be grouped together as: consumer expectations; mobile; big data and artificial intelligence; regulation and travel risk. He noted the disruptions could take place in the airline sector, as well as with hotels and cars, travel retail, and gatekeepers such as Microsoft.
He said the speed and scale of the consumer revolution is underestimated in the travel distribution industry. Mr Floater predicted the direct sales of larger airlines are likely to grow in the short term.
Digital disruption discussed in penultimate panel
A panel on digital disruption with Mr Floater and three other panellists followed.
Skyscanner Chief Commercial Officer Frank Skivington told the panel that airlines had failed to keep up with the mobile revolution. He said that approximately 50% of major airlines still do not have apps and websites that are mobile-optimised. Mr Skivington said that while the mobile revolution had now been under way for two to three years – the airline industry is behind the curve.
Mr Skivington added that corporate travel “is ripe for disruption”. He said there are now too few providers, and he predicted that “the business model of more cost for less choice will disappear”.
CarTrawler CTO Bobby Healy said the challenge is getting airlines to be innovation partners with the company. He explained that CarTrawler, being a B2B company, has to use its technology in tandem with its business partners.
Mr Healy added that the main disruptor in the next five to 10 years will be customers shifting to mobile. He explained that consumer shift had been a key disruption – not just in the use of physical devices, but also in customer behaviour.
Mr Healy stated that airlines are not investing enough in their technology platform, and also that they are not investing in it the correct way.
Uber general counsel for Europe Middle East Africa Jim Callaghan said that Uber has a similar playbook as Ryanair. He said both companies seek to do something disruptive that consumers want. Mr Callaghan previously worked for Ryanair and taking the job with Uber “is a bit like going back to Ryanair without the wings”. He said the taxi industry is “a protective monopoly”, and “regulation is the biggest challenge to innovation”, but “over time the consumer will end up winning out”.
Potential impact of Brexit debated in the closing panel
The closing panel featured a discussion on Brexit.
bmi regional CCO Jochen Schnadt said that “we haven’t seen a significant impact on our demand” because of Brexit. He pointed out that bmi regional is focused on business and corporate traffic. There has been a greater impact on UK-based LCCs and leisure airlines because it is now 20% more expensive for Britons to go abroad.
Mr Schnadt said the devaluation of the British Pound had also had a favourable impact as bmi regional’s cost base is mainly GBP and USD, whereas Euros account for a large share of its revenues because of European point of sale.
CityJet executive chairman Patrick Byrne had a different view, that the fall in the British Pound would impact short haul leisure travel, particularly out of the UK. He explained that devaluation of the local currency could affect people’s affordability, stating: “the British people tend to take more than one holiday a year, so is that down to two, one or zero?”
Mr Byrne added that the fall in the British Pound had “certainly hit us”, since the airline reports in Euros. He said CityJet had also seen a slip in yield.
Lufthansa VP International Affairs Dr Regula Dettling-Ott said the group had not seen a slowdown in demand. She noted that currency exchange and fuel price make a difference but political developments had not impacted, so far.
Dr Dettling-Ott said the impact of Brexit – either it is negative or positive – is still quite an open issue. She explained that as far as the real world is concerned: although the vote has happened, nothing else has happened and the regulatory framework is still the same, which also makes it difficult to assess options.