ROUTES AMERICAS STRATEGY SUMMIT: Visions of Future Flying
What’s the market outlook for North America, Central and South America? Which manufacturer is best placed to serve the market of the future? Can full service carriers respond to the market changes? Can you teach an old dog new tricks? How can the regulators support the market growth? What future for LCC’s in markets such as Chile, Peru and Ecuador that don’t have any LCC’s yet? These were the main discussion points in the final group session at this year’s Routes Americas Strategy Summit in San Salvador, El Salvador.
The session, moderated by Peter Cerda, regional vice president Americas at IATA, included four senior airline delegates: Hernan Pasman, chief executive officer, LAN Colombia; Ciro Camargo, Head of Alliances, Gol Transportes Aereos; Zhihang Chi, vice president and General Manager, North America, Air China and Neil Chernoff, vice president of Network Planning and Scheduling, Iberia, as well as Dr Fariba Alamdari, vice president market & value analysis, Boeing Commercial Airplanes.
How time has flown since the dawn of the airline industry. This year, IATA celebrates the 100th anniversary of its formation a period which it has made tremendous strides. The rise of the business is phenomenal and in his opening statements Peter Creda noted that if you were to convert the cost of that initial 23 minute passenger flight that marked the birth of IATA a century ago to modern currency, it would have made the flight $10,000 – that’s a staggering $434 a minute.
With such a strong group of airline panellist it was only fair that Boeing’s Dr Alamdari was able to set the scene for the following speaker. Peering into her hypothetical crystal ball she predicted that following a rapid consolidation among network carriers and low-cost carriers that has helped cap capacity and defined the current structure of the industry in the region, “it is now all about growth” with above industry average growth predicted across Latin America. Against the industry’s three per cent, Boeing forecasts demand rising seven per cent across Latin America, translating into a market of 3,000 new aircraft over the next 20 years.
“A large proportion of these 3,000 aircraft will be for expansion and growth,” said Dr Alamdari, highlighting the comparison that just 2,000 of the 7,000 new aircraft forecasted for North America over the same period would be for growth. “We predict a huge growth in terms of traffic and numbers of aircraft as low-cost carriers continue growing in countries such as Brazil, Mexico and Colombia. There are also huge opportunities in other parts of Latin America and we foresee lots of our 787s are going to be flown by network carriers across the region,” she added.
Hernan Pasman of LAN Colombia agreed on the opportunities for growth in his home market thanks to the government’s masterplan for the coming 20 years but noted that growth in the country could still be restricted by capacity problems. “The challenge is the infrastructure, changes must be implemented,” he said.
With a Brazilian airline on the panel talk inevitably returns to possible capacity issues during the forthcoming football World Cup. “Will Brazil win the Aviation World Cup?” questioned moderator Cerda. Like the airport representatives in the session before him, Gol Transportes Aereros’ Ciro Camargo was optimistic the local industry would cope with the surge in arrivals during the month long tournament.
He said the local airport industry is riding a wave of privatisation and is ready to make the necessary investment to support the infrastructure changes required. “We are always full of hope,” explained Camargo. “We have some challenging times to overcome but I am sure we will solve our issues with infrastructure, investment and the way we manage our airlines.”
Gol itself is also developing its own alliance model which has seen it move closer in recent years to some of its partner carriers, with the strongest bonds being with some of SkyTeam’s most prominent members. “We have to choose well our battles and focus on what we can do on deals to extract the most benefits we can,” said Camargo. “We have primarily looked at stronger bilateral deals in corridors across the world which are important for us. We have a great arrangement with Delta and now want to replicate this with Air France – KLM.”
The talk of growth across the Americas was a common theme throughout the day’s Strategy Summit so it was interesting to hear of the developments at Spanish national carrier, Iberia, which has in fact reduced its operations into the Americas in recent years with the closure of flights to some long-standing markets such as Montevideo and Santo Domingo as part of its restructuring programme to ease the strain during the economic recession in Spain.
The carrier’s Neil Chernoff said it was always important to take a “considered approach” when operating in a particularly volatile market but could revisit these markets in the future. “We always think about growth,” he said, “but the economic cost base needs to be right before we can consider such moves”. The airline has recently concluded a new agreement with one of its pilot unions and Chernoff noted that only when similar deals with others are concluded, could it consider future growth.
“Once we know where we are going to get with these agreements we can look again at our plans,” he explained. “We will grow where we can grow profitably, but until then we are working to reposition the Iberia brand so we are ready for any future growth.” Chernoff acknowledged that the airline had been “behind the times” and its product improvements and new corporate branding are already helping the business.
One airline that has rapidly expanded its activities into North America over the past couple of years has been Air China and its regional manager, Zhihang Chi acknowledged that the Latin American market is also of significant interest to the carrier. “We have a keen interest in Latin America there is no question about that due to the growing traffic between China and the region,” he said, but turned to fellow panellist Dr Alamdari for Boeing to develop an aircraft that could serve the market effectively.
“I don’t think there is an airplane that can fly between China and Latin America on a non-stop basis profitably,” he explained. “We are waiting on our friends at Boeing to develop such an aircraft,” he subsequently quipped. Until such an aircraft is available, Chi said Air China would look to serve the region with its fellow Star Alliance partners and on an interline basis with carriers throughout the region. The airline does currently have Sao Paulo as its sole link into the region, but that is served via Madrid, a route Chi described as being not exactly successful.
The restriction on its operations must be difficult for the flag carrier of a country that is currently investing heavily in infrastructure and transportation. “I think everybody can do it. It is just China believes in development,” said Chi, noting that ground is due to be broken later this year on the new Beijing International Airport which will enter operation in 2018 with the ability to handle 72 million passengers a year through its four runways: it intends to grow to 130 million with nine runways in the future.
“The Government is pre development and realises aviation presents various benefits to the economy,” said Chi. “It does tax airlines and imposes very severe regulations but at the same time it does support us and invests heavily in the industry.” He believed that others should follow this example and allow the industry to blossom and described such regulation like transit restrictions and the visa policy of the US government “as a very serious restriction” to development.