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Breaking through the profitability factor
A wide-ranging discussion at the CEO Panel took in the present and future prospects for air transport. The pandemic has created an opportunity for airlines to try different ideas and operating models and become more resilient in the face of disruption. Safety can be taken to a new level while industry profitability can break through traditionally low margins.
Financially, Sir Tim Clark, President, Emirates revealed the airline achieved double digits in net profit and said airlines can be as successful as other businesses in other industries. The 5% barrier—approximately the highest the industry has achieved—should not be as good as it gets.
The panel agreed that a customer focus was essential and the pathway to stronger profitability. One important factor will be new aircraft, which turned the conversation to supply chain issues.
Delays in the delivery of new aircraft forced Emirates to decide to retrofit much of their fleet at enormous cost. Nevertheless, the disruption shouldn’t affect planning too drastically. The pandemic taught airlines the value of flexibility and relationships with manufacturers are multi-decade and must be managed responsibly.
New aircraft, with the capability to lower fuel burn and emissions, are also vital to the sustainability challenge. The cost of sustainable aviation fuels needs to follow the path of wind and solar energy, both of which came down in price following public support.
When it comes to incentives and mandates, the panel agreed that the carrot is more successful than the stick. The former leads to low-cost production and the latter to high-cost production, they suggested.
Infrastructure is also a possible bottleneck to growth. In 10 years’ time, it cannot be a case of more of the same. The industry would be compressed leading to costs, complexity, and delays.
Even so, the panel was bullish about the industry's prospects, concluding that airlines are getting better at what they do, and consumers are responding positively.