|By Our Correspondent||Published: February 2018|
Singapore. Airport infrastructure has not kept pace with the rapid growth in aviation and the industry is headed for a crisis, according to the chief of the International Air Transport Organization, or IATA.
“Infrastructure is vital to our industry’s future,” Alexandre de Juniac said at the Singapore Airshow Aviation Leadership Summit. All the great plane deals will mean nothing if the industry doesn’t have the capability to manage the traffic in the air and the airports at each end of the journey.
Several capital cities in Asia such as Jakarta, Bangkok and Manila are in desperate need of capacity improvements. The need for second airports at Mumbai and New Delhi is felt acutely, he observed.
Not only is airport infrastructure not being built fast enough, there are other worrying trends for the industry such as airport privatization.
“We are yet to see an airport privatization that has, in the long-term, delivered on the promised benefits. That is because we have not found the correct regulatory framework,” Mr. de Juniac said, adding:
Airport privatization must carefully balance the interests of the investors to turn a profit with the public interest for the airport to be a catalyst for economic growth. IATA is worried that airports may move away from their basic job of providing efficient services and adding needless frills that add to the airlines’ costs, which are ultimately passed on to customers.
Airlines are worried about higher airport costs hurting an industry that already operates on wafer-thin margins. Net margins of airlines are expected to edge higher to 4.7% this year from an estimated 4.6% last year. IATA forecasts global industry net profit to rise to US$38.4 billion in 2018, an improvement from the $34.5 billion expected net profit last year.
Another significant ovservation by the IATA chief is about global airlines only making small profits in the last three years.
IATA members are “very frustrated” with the current state of privatized airports. IATA believes that airport ownership is best left in public hands. Fortunately, Asia-Pacific has some great examples to follow, including Seoul’s Incheon airport and Singapore’s Changi Airport.
Incheon provides great service to airlines and passengers and it recently expanded runway and terminal capacity to meet growing demand. Importantly, that has been done without raising charges. In fact, Incheon recently extended a discount on airport charges that was introduced two years ago. The result is that aviation plays a key role in linking the Korean economy to economic opportunities globally.
Similarly, Changi is another good example of a world class facility that is contributing greatly to Singapore’s prosperity.
The Singapore government has shown great foresight with its expansion plans for Changi Airport, including the upcoming Terminal 5, an enormous undertaking the equivalent of building a whole new airport alongside the existing one.
However, de Juniac voiced challenges for Singapore’s T5, pointing out that the plans for the new terminal must be “sufficiently robust to ensure the high standards of airline operations and passenger convenience that the users of Changi expect. And we need to get the funding model right to avoid burdening the industry with extra costs,” he said.
Meanwhile, the aviation industry in Asia has been evolving.
It was not that many years ago that people were discussing if the low cost model could work in Asia. Air Asia is the pioneer in Southeast Asia. And it essentially began in 2001. Today, the low cost sector accounts for 54% of the Southeast Asia market.
The next frontier is low-cost long-haul, a model that is actually doing much better than many in the industry would have thought. There is a segment of flyers for whom price is the biggest driver. Catering to that on long-haul operations may well prove as successful as it has been for short-haul, he said.
Even the so-called legacy carriers are changing, Mr de Juniac said.
Changing technology and new processes have improved the passenger experience and helped cut costs. Paperless tickets and the ability to select seats in advance using the airline’s app are just the tip of the digital revolution that is transforming the legacy business.
IATA believes the next biggest change agent will be data.
Airlines know their customers much more today than they did a decade ago. Consumers can be sure that airlines will compete even more vigorously to earn their loyalty—some with absolute low fares, others with premium products.
NEXT GENERATION AIRCRAFT
IATA believes the “sweet spot” for new aircraft technology is where sustainability, efficiency, cost and safety meet. Airbus and Boeing see the need for between 35,000 and 41,000 new aircraft over the next 20 years.
That equals estimated spending of about US$6 trillion. Airlines will certainly expect value for that money.
The two biggest areas of potential could be an electrically powered aircraft and for aircraft to become progressively smarter, Mr de Juniac said. \
However, he doesn’t expect to see pilotless passenger aircraft any time soon. “But we all know that the technology exists—it is already a reality in military operations. And we also need to think about the human resources that we will need as technology evolves,” he said.
Another trend to watch for is unmanned aircraft for non-passenger applications. “There is no doubt that drones are flying disrupters,” he said.
People today think it is very ‘cool’ to have your next take-out meal delivered by a drone. But will drones replace taxis, security companies or ambulances in urban settings?
What are the privacy implications? How will we control the airspace? And how can we keep them at a safe distance from commercial aircraft? These are among the weighty questions facing the industry.
FIVE FUNDAMENTALS THAT STAY CONSTANT
IATA has identified five fundamentals that the industry needs to protect, Mr. de Juniac said. These are:
1. Safety: The aviation industry had a stellar year in 2017. But there are always ways to improve—particularly as our data analysis capabilities grow.
2. Open Borders: Aviation needs borders that are open to people and trade. The industry must be a strong voice in the face of those with protectionist agendas. “I would like to imagine a future for aviation where airlines are as free as possible to meet the demands for connectivity.”
3. Global Standards: A common set of rules underpins the aviation industry’s success—in everything from safety to ticketing. IATA would like to imagine a future where these global standards continue to be strengthened by the cooperation of airlines and governments through institutions such as ICAO and IATA.
4. Sustainability: The historic agreement on a Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is one of four pillars in a common strategy by industry and governments to ensure that aviation meets this responsibility. Our commitment to cut emissions to half of 2005 levels by 2050 is ambitious and the industry should aim for a future where its net carbon impact is zero.
5. Profitability: Airlines are doing better than at any time in their history. The industry is in the ninth year of profitability since 2010. And, more importantly, this will be the fourth consecutive year in which airline earnings will exceed their cost of capital. But it is still a very thin buffer against shocks.
The IATA chief summed up as: “I would like to imagine a future where airlines generating normal profits is the norm, not a rarity!”