Your Highness Sheikh Nahyan Bin Mubarak Al Nahyan, John Pistole, Administrator of the US Transportation Security Administration, James Hogan, President and CEO of Etihad Airways our host for this event, sponsors, colleagues, partners, ladies and gentlemen, good morning.
It is a great pleasure to be with you at the second World Passenger Symposium. I would like to thank our host Etihad Airways, for their strong support as well as our sponsors, who help to make events such as these possible.
For airlines, the passenger business is vitally important. On average, more than 80% of airline revenues come from the passenger business.
But aviation is a team effort. The value chain is complex. And to be successful, we must work together. It is the only way that we can provide our passengers with the value that they expect from their travel experience. And that is why the World Passenger Symposium is a value chain event. It reflects the fact that travel agents, airports, air navigation service providers, regulators, manufacturers, ground service providers, global distribution systems (GDSs) and many others must work together to make each passenger journey as safe, secure, seamless and convenient as possible.
Next year, we expect about 3 billion people to travel by air. By 2030 we expect the figure to double. Serving that number of passengers will require innovation. Technology presents us with new possibilities almost daily. But choosing the best way to evolve the passenger experience is a complicated task. We need to understand what consumers expect and value enough to pay for. We have the advantage of being an industry built on global standards—so we have a unique structure on which to implement change. But, to take advantage of this and be successful, the value chain must be aligned—not just in principle, but for implementation.
Of course, we all hope that consumers will value the choices we make enough to impact the bottom line positively. Certainly, that’s an area where airlines could use a boost. Our latest forecast is for a small profit of $4.1 billion this year. That is a 0.6% net profit margin. It’s less than half the $8.4 billion that the industry made last year. And that was about half the $19.2 billion profit of 2010. Next year may be slightly better—with a $7.5 billion profit. But on revenues of $660 billion, that is still a pitiful 1.1% return. And believe it or not, that is an improvement on the 0.1% average post-tax margin over the last two decades.
These poor results come despite strong demand for connectivity. Over the past 40 years, the airline industry has grown by a factor of ten. By comparison, the global economy has only tripled. There is a thirst for our product. And efficiency gains have helped to satisfy that demand by making connectivity much more accessible. Since the 1970’s the real cost of air travel has fallen by some 40%.
Poor financial performance is not universal across the aviation value chain. Some parts of it are doing quite well. But we will never reach our full potential as an industry if the core of the value chain cannot generate sustainable returns. So, we have a common problem. Fresh thinking by all industry players, however, can deliver winning solutions for all. And one area to focus on is how to maximize efficiency and value from our infrastructure and processes.
With that background, the theme for this conference could not be better selected: Innovate Together—Greater Value, A Better Experience. Our businesses operate in a fast changing world. And success depends on working together with a clear focus on evolving our product to deliver value to our customers. And there is much room to improve the travel experience.
At IATA, we’ve recently undertaken a major review of our strategy. Our mission remains the same—to represent, lead and serve the airline industry. But we updated our vision to be the force for value creation and innovation driving a safe, secure and sustainable air transport industry that connects and enriches our world. So, as the conference theme suggests, IATA is fully committed to finding common purpose with our value chain partners to develop new ways to deliver even greater value to airline passengers. And, of course, global standards are a key advantage in doing so. As with e-ticketing, bar coded boarding passes, self-service kiosks and other innovations, agreement on a global standard gives us the possibility to innovate and deliver added benefit to passengers who crisscross the global village that aviation makes possible.
The theme is appropriate…and so is the venue. Etihad Airways and Abu Dhabi International Airport were among the first airline-airport pairs to implement all six passenger self-service options in IATA’s Fast Travel initiative. They are a model of what cooperation can deliver. More broadly, aviation has taken center stage in the economic development of the Gulf region. Governments here understand the power of connectivity to drive economies. And with this understanding governments have created a business-friendly environment for air transport with low taxes and world-class infrastructure. As a result, airlines are able to deliver connectivity that has been a catalyst in transforming and growing the region’s economies. Including aviation-enabled tourism, our industry supports some 14.7% of GDP and 14% of the workforce in the United Arab Emirates (UAE).
So we are in the right place…and with the right theme. And we have a big agenda.
- Simplifying airport processes to make them faster and more convenient
- Providing more products and services options to our passengers
- And delivering them in the most cost-effective channel that is aligned with an airline’s selling proposition, while giving customers a tailored offering
I would like to focus on two areas where this Symposium has a special opportunity to cooperate on innovative solutions to bring value for all by improving the passenger experience and modernizing distribution.
Let’s start with the passenger experience. Earlier I mentioned the successful collaboration between Etihad Airways and Abu Dhabi International Airport on the implementation of all six Fast Travel projects. Fast Travel responds to consumer demands for more convenience and control over their journeys. Supporting this, our new Global Passenger Survey reveals that 52% of travelers are eager to print out their own bag tags at home and 77% would prefer to use a self-boarding gate at an airport. We need to be ready to meet these demands in a way that is globally harmonized.
The good news is that the efficiencies created with self-service options for check-in, baggage tagging, scanning of travel documents, flight rebooking, boarding and mishandled baggage tracing, provide a solid business case supporting the required investments.
That makes Fast Travel the perfect win-win project—creating value for passengers and cost-savings for the industry. And we have only scratched the surface. Our 2020 vision is for a fast, seamless curb to airside experience that is predictable, repeatable, secure and globally consistent.
How will that look?
- Passengers will be able to prepare for their travel better thanks to real time access to operational information on flight status, wait times and baggage via mobile devices so they can plan their journey appropriately.
- International passengers will arrive at the airport knowing they are ready to fly, because governments will already have confirmed that they can via direct electronic interchange between the traveler and the government. At the airport, it will only be necessary to confirm the passenger identity with a biometric match.
- Passengers will have tagged their bags before they depart for the airport--they may even drop off their bags at a more convenient location.
- And if there are flight delays or itinerary changes, these may be transmitted instantly to other travel suppliers supporting the trip, such as car services, meeting planners or hotels, so that the journey is seamless even when there are disruptions.
These and other components of our 2020 vision are analyzed more fully in the Simplifying the Business (StB) White Paper prepared by the StB Think Tank that has been distributed to you.
Of course, this future is not inevitable. It will only happen if we agree to make it happen. That means integrating the many processes at the airport—including government process such as security and immigration—into a seamless experience. And it means powering the possibility of real time information exchange with ubiquitous one click access to Wi-Fi. Joined-up thinking is absolutely critical. All the right people are here to provide just this. So I have high hopes for the results of this symposium.
Checkpoint of the Future
One area that I believe we must tackle together is security. For too many passengers, it is a time-consuming, overly-intrusive and even intimidating exercise. Long lines, removal of jackets, belts and shoes, packing and unpacking of laptops, the liquids ban: All these have contributed to make the checkpoint among the most stressful experiences of the journey.
Furthermore, unless we work together to integrate the checkpoint into the continuous passenger flow we are creating, it will end up consuming much of the time we are saving through Fast Travel. According to our Passenger Survey, queuing time is already the most frequent gripe with security. The reason is not hard to find. We have added so many requirements to the airport checkpoint that throughput has fallen from an average of 350 passengers per hour pre-9.11 to just 149 today. With ever increasing passenger numbers, we need to find a way to get people through security faster—and of course with no compromise on effectiveness.
Fortunately, industry and governments are coming together to back a solution: For the past two years, IATA has been working with our public and private sector partners to develop a Checkpoint of the Future (CoF) with the long term aim of enabling passengers to walk through a security checkpoint without stopping, removing items of clothing and liquids, or taking computers out of bags.
This will require a mindset change. Today we are looking for prohibited objects with a one-size-fits-all process. We need to be wiser. One of the fundamental premises of CoF is risk assessment. That will allow us to focus resources where the risk is greatest, which will make the system more secure. And we will reduce the hassle. To achieve this, we will need to make fuller use of passenger information. We are not talking about forcing the collection of more information—only using to better effect the information that is already mandated by governments. Of course, this could be supplemented with voluntary “known traveler” programs. And by doing so we can provide differentiated screening based on what we know about each passenger.
Sharing information about passengers is a sensitive subject. But it is not a show-stopper. Governments already have broad experience with managing Advance Passenger Information and Passenger Name Record data securely for border control purposes. Furthermore our Passenger Survey shows that nearly three out of four air travelers would be willing to share their personal background information with governments in order to speed up security screening.
CoF will not happen tomorrow. We are approaching this in stages with a vision to 2020. In the early stage, we will concentrate on making today’s checkpoints more efficient. Introducing dedicated known traveler lanes, for example, can increase efficiency by up to 30% and creating a separate area for enhanced screening—so that the entire line does not stop when something or someone sets off a beep—can add another 3-4%.
Here I have to digress to mention that under the leadership of John Pistole, the US Transportation Security Administration has been actively rolling out a known traveler program. John also has been a strong supporter of the concepts behind CoF and we certainly look forward to hearing from him in a short while.
This year we are carrying out tests on specific CoF components, such as technology to do biometric matching of passengers and e-passports. In 2014 we expect to trial risk assessment using passenger information already required by governments, plus technology such as biometric verification along with operational improvements. As technology and processes for CoF are validated we will want to introduce them into the system. And by 2020 we envision that the walk-through experience will be possible.
I am a strong advocate of the Checkpoint. And like this symposium, it is an industry-wide effort, with broad stakeholder representation from airlines, airports, regulators and security equipment manufacturers. Moreover, it is bringing together people whose mission is focused on security, with those who are looking at improving the overall passenger experience. This cross-functional approach gives us the best of both worlds—a more secure and passenger friendly outcome.
I urge airports, security regulators and equipment providers to join with us to identify candidate airports for our first Checkpoint of the Future trial in 2014.
We are taking a similar partnership approach with another major industry project: The New Distribution Capability.
The internet economy has fundamentally reshaped the ways in which sellers and consumers interact. Customers expect to be recognized when they shop online, regardless of the value or complexity of the transaction. And they are accustomed to receiving tailored offerings based on their past purchasing behavior. Correspondingly, sellers want to know more about their customers and their purchasing likes and dislikes, in order to customize their product offerings accordingly.
Airlines are able to participate in this new model with those customers purchasing directly from their websites. They can recognize return visitors and make offers based on travel history, loyalty status, credit card brand or other parameter. And customers have complete visibility of additional products and services on offer.
But only around 40% of ticket sales by value come through airline websites. For the 60% of air travel that is sold indirectly via travel agents using Global Distribution Systems (GDSs), the model is different. The travel offer is put together outside the airline by third parties. The customer is anonymous to the carrier until the transaction occurs. Thus it is impossible for the airline to tailor its offer to the customer via the indirect channel.
Furthermore, this model is focused only on finding the lowest ticket price. This has resulted in the commoditization of air travel.
Airlines are trying to escape the commoditization trap through differentiation, and merchandizing, such as offering a low, mid and high price point for every offer. They are developing products and services, such as special meals, expedited boarding, roomier seats and access to airport lounges. But at the end of the day, the travel agent sees only codes—F, J, Y and their various derivatives. There is no way to tell if your “J” product is a flat bed or an economy class seat with an empty seat beside it.
The solution is the New Distribution Capability (NDC) powered by open XML standards. This will enable innovation in the same way the iPhone enabled applications to be developed. It is difficult to know what innovations will come. But we could certainly expect to bridge the gap between airlines and their customers so that customized offers can be made even through travel agents. With that, we will move from the mass commoditization of air travel to what one analyst has called “mass customization.”
It also will encourage market entry in the distribution space, which will stimulate competition, which is always good for prices. Airlines spend $7 billion per year on GDS fees. It is not news that we are very concerned about this cost—which is greater than the industry profits this year. But through the NDC and the unbundling model, we also have an enormous opportunity to grow the revenue associated with every seat purchase—and thereby grow the pie for all, new entrants and incumbents. We are engaging with our GDS partners and are confident that they will identify ways to create value to the new model.
IATA’s role is to lead the industry to adopt a new, modern infrastructure that will accommodate more choices for personalized travel offers, provide the foundation for the development of new, efficient tools for agents and lower the overall cost of distribution. To this end, IATA will propose a roadmap and business case for the NDC this week and on Thursday the Joint Passenger Service Committee will vote on the NDC standard. Following that, we expect to complete the Standards definition next year. Then competition and travelers’ needs will guide airlines, agents, system providers and new entrants with tremendous opportunities for innovation.
Forty years after the birth of the current distribution paradigm, this meeting is the opportunity for everyone to get in on the ground floor of the next revolution in airline retailing. We need volunteers among airlines, travel management companies, online travel agencies, GDSs or other technology providers and corporate customers to join NDC pilots in 2013.
In the end, what matters most is that we can deliver a compelling value proposition to our customers. Ending the commoditization of our product will allow us to create more retailing opportunities—providing value to customers, increasing revenues and reducing costs. Then we need to deliver that value in a seamless passenger experience that is smoother, faster and more secure. It’s a tall order. And it will require a complex orchestra of private and public sector partners to cooperate, guided by a common vision and a willingness to innovate.
But I am confident. Working together is part of our industry’s DNA. It’s been about 100 years since the first commercial flight. Over that time we have cooperated to make flying the safest way to travel with amazing advancements in technology and processes. As our industry developed, global connectivity changed the way that the world lives and works. And there is still enormous potential to be realized. Working together, we can innovate to deliver even greater value—to our passengers with a better travel experience and to the global economy with ever more efficient connectivity.