Ahead of the IATA AGM, Walsh talks about the industry’s main focus areas.

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Rush Transcript

Karen Walker:

Hello everyone, and thank you for joining us for Window Seat, our Aviation Week Air Transport podcast. I'm Air Transport World and Aviation Week Network, Air Transport Editor-in-Chief, Karen Walker. Welcome on board. And this week I'm absolutely delighted to be joined by the CEO at the International Air Transport Association or IATA, Willie Walsh. Willie, it's always great to see you. Thank you so much for joining us and giving us some of your time today.

Willie Walsh:

Thanks, Karen.

Karen Walker:

I know it really is a very busy time for you right now. The IATA's 79th AGM and World Air Transport Summit is just around the corner opening in Istanbul on June the 4th. So, that's really the point of our discussion today. That's the focus of our discussion. That's a big meeting of all the world's airlines, CEOs, and senior executives. And there's a lot of good deep discussions there on industry issues. So what I'm hoping here is for a little bit of a snap insight from you as to what we can be expecting. Let's start with the venue itself. Istanbul, fabulous city, an important aviation hub first and foremost. So maybe you can just talk a little about that. And then also, obviously, Turkey and Syria have had this devastating earthquake earlier this year. Maybe you could also just talk a little to the role that aviation plays when you have these sorts of human catastrophes.

Willie Walsh:

Yeah, I think the earthquake clearly was a horrible, tragic event. And I think it also demonstrates how important air transport is because the speed at which people were able to respond to get people out of the area as well as rescuers into the area, ship essential goods, medical equipment, you can't really do that without having air links the way we did. And great credit to the carriers in Turkey, all of them who immediately made resources available to ensure that as much as possible could get to the region as quickly as possible. In addition to support from international airlines, but a terrible event, it's going to take a long time for people to rebuild their lives given what has happened then. So I think everybody in Istanbul at the AGM will be conscious of the fact that we're holding our event there following a very tragic event earlier this year. Istanbul, as you say, a very important hub when you consider the way Turkish Airlines and the other airlines in Turkey have developed over the years.

It's fascinating to see what they've done. Well everybody I think was rightly focused on the Middle East. I think Istanbul was quietly building up a hub and a network that is a clear rival to the mega hubs in the rest of the world. So vibrant society, vibrant country, and well-connected pretty much to every part of the world. So we're very pleased to be holding our AGM there. We held it in Istanbul in 2008. It was a great event then, and I think everybody's looking forward to a very positive and constructive event. And it's clearly much nicer when we're meeting and the industry is doing well, and I think we're pleased with the recovery. I think it's probably better than we had expected. If I go back to the AGM last year, we were optimistic about this year, but the early reopening of China came as a great surprise and a real boost to the industry. So a lot of things to look forward to in Istanbul and we're expecting a record turnout as well. So it should be a great event.

Karen Walker:

That's good news on the turnout and no surprise, like I said, fantastic city. And you know, you came on board as a CEO at IATA when the industry was still at a incredibly low point. The recovery was still a distant dream in many respects. But it does feel very much like you've done two AGMs since then. Well actually correct the-

Willie Walsh:

[inaudible 00:04:09].

Karen Walker:

That's right. It was at Boston and Doha. That's right. But it does feel like going into this one that there's a sense of a turnaround where, as you say, China has reopened. All across Asia, borders have reopened and high levels of demand everywhere now. So just talk a little bit about how you feel about industry confidence levels and also the biggest concerns that they have operationally, et cetera.

Willie Walsh:

Yeah, I think people are cautiously optimistic. Everybody recognizes still work to do. You can't ignore the fact that balance sheets were heavily damaged as a result of the financial challenges during the pandemic, but the industry is performing well. Demand is very good. Capacity is coming back, maybe a little bit slower than some people had expected, but I think that reflects some of the challenges we're currently facing with supply chain issues, and getting new aircraft, and getting spare parts for existing aircraft has become a real challenge. And an issue I think of great concern to all of the CEOs that I talked to. But if we look at the domestic markets are now back to where they were in 2019. In fact, I was just looking at the latest figures, we haven't released tape of figures yet, but I was studying them earlier today and domestic traffic is now above where it was in 2019.

And fascinating to see China domestic traffic is now over where it was in 2019. So the recovery in China has been very strong. International travel, still a distance to go. We're at about 84% of where we were in 2019. Now some of that is impacted by the war in Ukraine and the gradual rebuilding of the international traffic in the Asia Pacific region, which has lagged other regions in the world. But I think that should improve significantly as we go through the rest of this year.

So yeah, the picture's pretty good. There are challenges there, but I suppose the other positive is talk of global recession has eased a bit. There's still concerns about some economies, but I think there's little fear now of a global recession absent some other new shock, which is good. Employment levels are still very high. So when I look at the demand side, I can see reasons to be optimistic for the rest of this year and indeed going into next year. I think the supply side is the bit that is a concern. We're still seeing issues with Boeing and Airbus delivering new aircraft. We're seeing a lot of issues and in fact it is a real concern with airlines being able to source spare parts for aircraft that are in service or indeed aircraft that they wanted to bring back into service. So that has slowed down the recovery in capacity. So it's an interesting picture, but the general mood I think, will be one of cautious optimism.

Karen Walker:

What do you see on the cargo side that gained new prominence through the pandemic? And obviously cargo did extremely well. Again, how much of a conversation is that going to be at the AGM, and what's the trend line there?

Willie Walsh:

Yeah, it's still doing well and it still will be a very important contributor to airline finances. I think there is a greater appreciation for the value of the cargo side of the business. Inevitable that most airlines will focus on passenger operations. That's where most of the revenue comes from. But cargo proved to be an essential lifeline in effect for a lot of airlines in terms of cash generation through the pandemic, and being able to keep people occupied, and keep their fleets operating as much as possible.

So volumes have dipped in the first few months of this year. They're still reasonably good. The yield environment is still positive but not as strong as it was. But you would expect that as more capacity comes back into service. So traditionally, it's about a 50/50 split between dedicated freighters and belly hold when you're looking at cargo. Belly hold today is at about 40% of the total cargo. So it's still not back to where it was. And that will be, I think, something that the industry can look forward to in terms of rebuilding some of the capacity in the cargo side. But definitely an important part of the industry. And as I said, I think new and renewed value being attached to what cargo can do.

Karen Walker:

Now from the passenger perspective, again, you've got a lot of people really eager now to fly. And they're sharing [inaudible 00:08:54], but buying the tickets and they're doing a lot of transatlantic flying that they'd sort of put off. As you say, domestic coming back really big. People returning to flying for work, but also very much so for leisure and personal purposes. Their concern of course is are there going to be delays, cancellations on the scale that we've seen during this ramp up? So operationally like that, obviously that's not just about the airlines, it is also about the air traffic system, the management systems, the security systems, the immigration systems. Do you from an industry perspective, feel that the airlines have put in place sufficient practices, et cetera to manage that?

Willie Walsh:

Yeah. I think so. I think from an airline point of view, they have had time to build up the resources. There were a lot of challenges getting people back into service that we hadn't anticipated as an industry, I've highlighted previously, getting security checks done, and new recruits taking much, much longer than it had been. And in an environment where employment levels globally are still very strong. Offering somebody a job and then having to do the background security check, which was in many cases taking months, people weren't hanging around waiting for the job, they were going elsewhere. So I think that was something that we hadn't anticipated as an industry, but clearly something that people have factored in this year. So I'm not really concerned about airlines being prepared. The areas that caught us out most last year were airports where they weren't able to provide the capacity that they had declared.

Again, I expect that to be addressed. I'm seeing better performance from most airports now, and we are seeing very busy traffic at the moment and we haven't really experienced too many problems. So on most areas, I'm optimistic that we will get through. The area that concerns us most is air traffic control. We know in the US for example, there is a big problem. Air traffic control systems have not been fully resourced in the US and that is going to create some problem. It's already led to airlines having to reduce capacity in places like New York. So we do have concerns there and that will probably continue into 2024 and maybe beyond. We're seeing issues already with air traffic control delays in Europe. We've had terrible disruption as a result of air traffic control strikes in France, which seem to be going on forever. So I think the area that will concern us most will be on ATC, and I do expect those to see disruption and probably significant disruption in some areas because of these ATC issues.

Karen Walker:

Sort of ironic really that the ATC systems... I mean they've had quite a long while of a gap if you like, haven't they?

Willie Walsh:

Yeah, they have.

Karen Walker:

This is not a new problem, but you'd think that this was an area where they could have benefited almost from having that extra time to address some of these things, and here we are still. But...

Willie Walsh:

Yeah, no. It is disappointing because it clearly added to challenges that we didn't need last year and it's disappointing to see that they're going to continue into this year. But having said that, I think we're anticipating these issues. I think capacity the airlines have put in is better matched to what they genuinely believe they will be able to handle. And that's taking into account expected disruption at airports and some ATC. But having to tolerate the constant disruption and as a result of French ATC strikes, that's an issue that is going to have to be addressed. We can't go on as an industry with the problems that we encounter on an annual basis in France.

Karen Walker:

Another topic of course that's always discussed at the AGM is safety. You typically do give some really good data on safety trends and then also some discussion about anything new that's of concern, et cetera. Could I just ask you about, in the US, there's been some in the headlines about the incursion incidents, the number of those. I mean it is being taken seriously. There's a lot going on now in the US looking at that congress from FAA, et cetera. Do you expect that to be a topic at the AGM? And what are the thoughts for me across the industry on what's going on there?

Willie Walsh:

I think going on my own experience as a former commercial pilot and from talking to people, these are not new issues. Obviously, we don't want to see them happen and there have been a number of well-documented and publicized issues, particularly in the US. I think we need to reflect on the fact that the industry remains very, very safe, and is focused on these issues and will continue to be and will do everything to ensure that operations are as safe as possible. So we never rest when it comes to safety, we're always working at it.

And I know that all of the airline CEOs that I've spoken to about this issue are sort of conscious of the publicity, but I think are also very carefully studying their own data. And this is where data sharing on safety issues in the industry is absolutely essential so that we can see if there are problems that are specific to certain airports. Or even, we look at it, is there an issue with specific aircraft types? So this is one of the benefits of our industry where we collaborate on safety to make sure that everybody learns from every experience and that we share that data so the industry can continue to make progress, and then to operate in the safest way possible. So as I said, we're never relaxed about this issue. We will continue to work hard on it. But I think we're confident that the industry continues to perform at a very, very high level.

Karen Walker:

If I go back, this was before you were an IATA member of course, when you were at IAG, but before you were actually the CEO there. There was the AGM in Sydney, I think it was, where there was a lot of questions about the diversity and inclusion aspects of, not really IATA, but more generally the industry. Saying, "Where are the female CEOs? What's happening here?" And as a result of that, IATA has really made quite a push. You've got your 25 by 2025 initiative, you've really stepped up that. Is it having the impact? What are you seeing?

Willie Walsh:

So we're making progress. And I think it's the beauty of having data again and monitoring the progress that were made. We can see that we are moving in the right direction. Now you could rightly be critical of the industry saying 25% is not a very ambitious target. But given that we were well below that, and you're quite right, the debate in Sydney was an interesting one, I think and a very important one. And it's become even more important because we all know everybody's in a battle for talent globally. As we said, there's high levels of employment, we're all trying to attract and retain talent, the right resources in our organizations. And if you are seen, perceived to be an industry that is predominantly male, you're immediately reducing the potential pool of talent significantly. And we can't afford that as an industry. So this isn't a nice to-do issue, it's a must-do issue.

And I am pleased that we are making more progress. You're seeing more and more female CEOs, which is good. And more and more senior leaders in the industry, female leaders. So that that's good. We're playing our own part in IATA. I now have three women on my management committee. There was one when I arrived here. We have to do more, and the industry has a big job to do. I think the area where we're most disappointed is with pilots. We're nowhere near where we need to be there. India still leads the way with about 13% of their pilots are female. Ireland is, I think, in second place with about 10%. But that highlights just how big a problem we are because when I started flying back in 1979, Aer Lingus had three female pilots. So less than 1%. It's taken us over 40 years to get to 10%. At that rate of progress, we're never going to get close to where we need to be.

So there is a big challenge. I think it's clear to us that the measures we've taken so far have not been as effective as they need to be when looking at the long term. So yeah, there will be more discussion about this at the AGM, and you can expect this to be a recurring theme at IATA AGMs. Because it is the classic case of what gets measured gets done, and the fact that we're now measuring this and more and more airlines and partners in the industry are committing to the 25 by 2025 initiative. And clearly when we get to 2025 and we've achieved that goal, we need to... Well before that, we need to think about, "Well, what's the next measure? What's the next target?" And it's just a fact that we have to have targets to make the progress that we're making. It's sad to think that, but that's the reality. So I'm pleased that we are making some progress. Still a long way to go, but I think there's some positives, and we take encouragement from the progress that we've made to date.

Karen Walker:

Good. And certainly if girls can early on, see a career track, whether that's at the executive with the industry or as a pilot as you say, then the hugely competitive workforce, that's going to be a plus for everybody, isn't it? So...

Willie Walsh:

I think one of the positives is there's a better appreciation for flexible working because we all had to work in a flexible way through the pandemic. And I think people now realize actually that flexibility is a real positive. And applying that to how we work going forward I think will be positive because we know that the data's all there, that this is one of the issues that leads to women either not joining or women leaving the industry. So I think greater flexibility is going to be a key, or one of the keys to addressing this issue. But, yeah, we need more young girls thinking about career in aviation. And particularly thinking about careers as a pilot or, engineer, mechanic. And these are fantastic jobs. Really, really interesting, challenging, rewarding jobs. And there's no reason why we shouldn't see more female pilots, female engineers, female mechanics. Absolutely no reason other than traditionally these were seen as male jobs. And we just have to convince people at a much earlier age that this is an industry that can be attractive for them.

Karen Walker:

Really good points there. Another huge topic only gets bigger every year and has continued to be huge, even when everybody was dealing with the pandemic, is, of course, sustainability and making this industry even more sustainable, even lower in CO2 emissions in particular. So that's the big 25th commitment that the industry made at the AGM that you hosted in Boston. So that was a very big target and it's very challenging, but it seems to me that the whole sustainability issue just gets bigger in general as the climate change awareness gets bigger. So where is the industry going next in terms of not just maintaining that momentum, but how can it get even bigger?

Willie Walsh:

Yeah, it's absolutely critical. We've said openly that this is an existential issue. We either sort this or we won't have a future as an industry. When we agree the target of net zero in 2050, we set out a pathway which was important to be able to demonstrate that there was a path to getting to net zero in 2050. Now I was very clear to say it was just one, it wasn't the only one. Because I know there will be other options for us as we get closer to the date, but sustainable aviation fuel was the one that we highlighted because it's available to us today. It's technologically proven. It can be used on the existing aircraft, it can be used in airports with the existing infrastructure. So it's ready, we can adapt immediately. The big problem for us is seeing more and more production of sustainable fuels.

We've used every drop that's been available to the industry despite the significant premium that airlines had to pay for sustainable fuel. So what we're doing now is we're looking at sort of stage gates along the way to 2050 because I think that's the next thing we need to do as an industry to demonstrate that we're credible. So trying to get a realistic target for sustainable aviation fuel in 2030, 2035, 2040, this is what we're working on now. And you know that a lot of airlines have individually committed to using 10% sustainable aviation fuel by 2030. Now we think that that's great, but it's not going to be possible for every airline around the world to do that. And in fact, what is disappointing is that many of the European airlines that have committed to get to 10% by 2030 are having to buy sustainable fuel from the US, which just does not make sense.

So there is concern that Europe is not going to be able to match the progress being made in the US. I think you've got to give credit to the Biden administration for the incentives that they've introduced at a federal level under the Inflation Reduction Act, which I think will give a big boost to investment in a new sustainable fuel development in the US. I hope that we see a similar approach in Europe because Europe and the US I think are capable of leading the way there. We're seeing great progress in places like Singapore as well, and India now beginning to do it. So it is building globally, but trying to get to a figure that we believe is realistic for 2030 is something we're working on at the moment. And we'll then have targets for 2035, 2040, 2045, 2050 just to demonstrate that we're on the path. But I'm confident though that we'll get there.

I'm encouraged by the fact that, as you said, right throughout the pandemic, despite the huge financial crisis, airlines continue to make commitments to sustainable aviation fuel and investments in other technology like carbon capture. So I think you've got to give credit to airline leaders for doing that at a time when you could naturally expect them to be laser-focused on saving money. So I think it does transform the industry because we've talked about financial viability, and now sustainable environmental viability going hand in hand. And that's the reality of it. We have to be sustainable and viable both financially and environmentally. And I'm pleased actually that the industry is doing that. So we know it's going to be a huge challenge. We know it's going to cost a fortune to do that. And I've been very open about that saying to people that there is going to be a big cost to transition to net zero, and that means ticket prices will have to go up.

Fuel is our single biggest cost today. It typically represents about 27% of the industry's cost base. And sustainable fuel is on average two and a half times what jet kerosene is today. So whatever way you look at this, there's going to be a cost. Even ignoring the billions and trillions of dollars, indeed that will have to be spent on new technology aircraft in the period between now and 2050. So big, big challenge for the industry, but one that we recognize we have to address. And the great thing about our industry, and you can go back through history, when we set ourselves targets like this, when we show determination, we do achieve it. And that's why I'm really pleased that we've made the commitment and we're now going to really start demonstrating the progress to net zero in 2050.

Karen Walker:

Yeah, it's interesting, the history of the industry. When you look really, although they're different, safety top priority remains a top priority of course, but that's something that the industry as a whole work together on. Must reduce. We must reduce incidents, et cetera, et cetera. And they've done it. I mean it's been that track history, so it's not like the industry doesn't have a precedent for how to work together on those issues where it can't just be one. They can't just be one great sustainable airline or even one great sustainable region, can there?

Willie Walsh:

No. And there won't be. It is a global issue. And we will all fail or succeed together. And you're absolutely right, I think it's something that people outside of our industry don't fully appreciate just how much collaboration goes on when it comes to safety. Yeah, I use these terms myself. We are brutally competitive. We hate one another at an industry level, but when it comes to things like safety, I have no hesitation working with people that I want to compete out of business with. And that's what we do, we work together on safety and we'll work together on sustainability as well.

Karen Walker:

I'm going to be at a AGM of course, covering that along with a lot of media. You usually get a huge presence of media there. So I'm really looking forward to it. I think Istanbul will be a fantastic city. What are you most looking forward to as you turn up to open this event?

Willie Walsh:

Well, I have to be honest. I'm looking forward to people with a smile on their face. Because having gone through such a depressing, horrible period, it will be great to be able to see people talking positively. Now we've got to be realistic. We're talking about an industry that will be profitable in 2023 at an industry level, but with margins of around 1%, it is going to be plus or minus a little bit around 1%. A 1% margin.

I know business leaders in other industries who wouldn't get out of bed for a performance like that, they'd be ashamed. So we do have to sort of temperate it with a bit of realism as well. There is still a lot of work that we need to do, but being in a position where we're now talking about making some profit is so much nicer than when we were meeting in Boston and still questioning whether we were going to ever see the industry reopen. If you remember in Boston, the US was still closed. We had to get special exemptions to be able to get into the US. So it's been a big change in a short period of time. But a very important transition from crisis into rebuilding, into forecasting profitability, and working to repair the damage that was done.

Karen Walker:

Yes, that Boston AGM was quite remarkable for that alone. I mean, I think people were thinking, "Really? Really, could this happen as an in-person event?" As you say, lots of hurdles there, just even for the executives to get in. And yet it still happened. And I think people felt really good that it did.

Willie Walsh:

It was very important that we did it.

Karen Walker:

It was.

Willie Walsh:

It was very important that we held that event in person and to demonstrate that we were ready as airline people. We wanted to fly, we were ready to fly, and to value the importance of meeting face-to-face, which is something that I think everybody has a much greater appreciation for having gone through that period when we couldn't engage with one another directly.

Karen Walker:

I agree. The industry had been talking all through the pandemic about the importance of face-to-face. So it was about showing up and doing just that. So it's fantastic. But I think you're right. I think there's going to be a real more sense of normal in many ways at this one that I think everybody's going to enjoy. So, thank you again, Willie, for your time, and wishing you a really successful AGM. I'm sure it will be. Thank you also to our producer Michael Johnson, and of course, thank you to our listeners. Make sure you don't miss us each week by subscribing to the Window Seat podcast on Apple Podcast or wherever you listen. And until next week, this is Karen Walker disembarking from Window Seat.