World Routes: inside the Strategy Summit

The World Route Development Strategy Summit attempted to highlight some of the key issues that are impacting the commercial aviation business across the globe. With a high-profile list of speakers the content was specially developed to provide a unique insight into the business with moderator Aaron Heslehurst from BBC World television ensuring the key issues were not glossed over.

The HUB highlights the key quotes, comments, and industry facts from yesterday’s discussions:

Keynote address from James Bennett, Chief Executive Officer, Abu Dhabi Airports Corporation (ADAC):

“Airlines are the engines of economic growth.”

Abu Dhabi International airport noted a 14 percent growth in 2011 and Bennett predicts further “dynamic growth” following additional developments such as making room for the A380 and building new screening facilities, which will deliver capacity for 20 million passengers a year.

Recent developments include the building of an ATC tower in 2011, a refurbishment of Terminal 1 in 2001 and the building of Terminal 3, which brought additional capacity for 12 million passengers a year.

Keynote address from James Hogan, Chief Executive Officer, Etihad Airways:

“The region can certainly contain the three airlines: Etihad, Emirates, and Qatar.”

“The market gives me the confidence to compete.”

“From the Gulf, we can fly non-stop to all parts of the world.”

Abu Dhabi “is the cross-roads of a dynamic region,” says Hogan, yet he adds, “Nevertheless, the region has challenges. The industry has challenges,” which include regulations and the global GDP.

“The legacy carriers are finding it very hard to restructure,” says Hogan, but he adds that there is opportunity in codeshares and partnerships, which he quips are “most likely led by us.”

Etihad has 67 aircraft and carried 10 million passengers and 370,000 tons of cargo to 86 destinations last year. According to Hogan, it is the fastest growing airline in history. It also has a young fleet with an average age of 4.9 years and a large number of aircraft on order, yet Hogan says that internal growth is not enough; it must also focus on partnerships. “When we peak, we will still be half the size of our largest competitor,” he explains.

To boost its growth, Etihad formed codeshares with 38 airlines. Together, these airlines boast 379 aircraft and combined revenue of US$14 billion.

Hogan says the airline’s model is “partnership and growth, not control.” These partnerships deliver 20 percent of Etihad’s revenue and generated US$281 million in revenue in the 1H of 2012 alone.

He hinted at more codeshares, which will be announced in coming weeks.

Etihad also has equity investments with Air Seychelles, airberlin, Aer Lingus, and Virgin Australia.

Panel discussion: Constraints to growth and sustainability: Analyzing the impact of policy on the development of the aviation industry

According to Oliver Jankovec, 64 percent of European airports are freezing or lowering charges this year.

Dominic Meadows, European Commission said on ETS: “We know it is a pain for airlines… but if we are going to adjust to climate change, this does have to happen.”

“Market based measures are part of the picture… they are in aviation’s long-term benefit.”

“Relatively, aviation is being asked to do less than other sectors.”

Yet Paul Hooper, department of transport for Abu Dhabi, argued, “We’ve stepped up to the challenge far more than anyone else.”

He supports a global scheme and believes that anything else will “distort competitive playing fields.” He adds, “One of the biggest problems is that it’s put Europe in conflict with the rest of the world.”

Panel 2: Establishing the potential of the aviation industry to drive economic growth in the current financial climate

Hiran Perea of Emirates SkyCargo says we are not seeing the cargo growth that was predicted. “Everyone’s been reporting very, very bleak results.” He believes that if we do not see an upturn before the end of the year, 2013 will continue the trend for low cargo traffic figures.

However, TUI’s Olaf Peterson sees continuing demand for cheap holiday travel. “People still want to holiday no matter what the economic climate looks like.”

Rosemarie Andolino of the Chicago Department of Aviation says that Chicago airport’s passenger figures are up two percent year-on-year and that President Obama is committed to tourism growth as a means to boost the US economy. He has asked the country’s “airport partners” to come on board.

Patrick Heck of Denver International Airport questioned how airports will fund the continued need for infrastructure development. He notes that airport development will boost global GDP but says the funds are not readily available. “Those debt markets won’t be there forever and that will be tricky for airports,” he said. However, he added that Denver “can find the debt to cover it.”

Andolino spoke of Chicago airport’s US$8 billion development project, much of which has been completed and financed yet there is more still to fund. “We are on that fiscal cliff,” she said.

Andolino highlighted the growth of airports in Asia. “They’re going to want to go somewhere” – hence Western airports must be able to meet that demand.

Richard Evans at Rolls-Royce Engines noted that it is not the cost of fuel that cripples airlines, it the volatility. He noted that doomsayers thought the market would crash when fuel costs rose to US$50 a barrel, then to US$80, then to US$100 – and it has never happened.

Afternoon keynote address from Gloria Guevara Manzo, Minister of Tourism of Mexico and CEO of Mexico tourism board:

Debt less is than 30 percent of GDP. Low interest rates. Expected GDP growth of 3.5 percent in 2012 and 2013. Investing 5.3 percent of GDP into infrastructure. US$33bn invested into road, railway and port infrastructure since 2007

Panel 3 – Forecasting the continued and future impact of key industry developments on the growth of global aviation

Tourism in Mexico brings nine percent of GDP, 2.5 million direct jobs and 5 million indirect jobs.

Gina Marie Lindsey, Executive Director, Los Angeles airport says that very few airlines are using the A380 for its full capacity – they are offering a nicer flight experience instead of equipping the aircraft with more seats, higher load factors and arguably more profit.

Bangkok Airways’ Senior Vice President Network Management, Peter Wiesner says alliances have value but “being very strict, I don’t think it’s the future.”

In response to the moderator’s question whether we can expect to see any more hubs, a member of the audience suggested central or South Africa. However, Bangkok Airways’ Weisner commented “I don’t think we’ll see any new hubs, I see the existing hubs maturing and maxing out.”

Jeffrey Fegan, Chief Executive Officer, Dallas/Fort Worth agreed, adding more specifically, “I don’t think Europe can develop new hubs… I think we can expand a little bit but that’s it.”

Manzo said the development of hubs will depend on population, GDP and tourism demand.

Panel 4 – Global perspectives – capitalizing on opportunities and overcoming challenges facing the air transport industry

Alex Cruz, Chief Executive Officer, Vueling says his low-cost premium product is allowing the airline to work its way through the economic “uncertainty.”

Describing the model, he explains the airline’s ability to offer new developments in in-flight cons, on board newspapers and a high standard of service, yet with low fares.

He adds that 60 percent of the airline’s revenue is generated in Spain, that it has no plans to cut domestic routes but is looking at expanding international routes.

US airports have US$22 billion of debt, says Greg Principato of ACI North America. He says that the US government and US airlines “seem to like it this way.” Yet, North America will have 120 million people over the next four decades. “That’s the size of Japan.”

Routes is an associate member of the International Council of Tourism Partners (ICTP).