Date: 22 September 2016
Remarks of Alexandre de Juniac at the IATA World Financial Symposium
Thank you for that kind introduction.
Ladies and Gentlemen, it is an honor for me to make my first formal public address as IATA’s Director General and CEO to the World Financial Symposium.
I officially began as DG and CEO on 1 September. Tony Tyler provided strong leadership to IATA over his five year tenure. And he is with us today, supporting me in the transition. I would like to thank him for his sound advice and wise counsel—including that it was important to meet with this group today!
Aviation was founded on partnerships. And it is great to see the strong support of so many sponsors who have come together to make this event possible. Times like these remind us that we are partners and share a common objective in making aviation even more successful.
State of the Industry—A Good Year But with Uncertainties Ahead
Let’s start by looking at the current state of our industry. From that perspective, I joined IATA at a great time. Our chief economist, Brian Pearce, has just told us that the airlines are set to collectively make a $39.4 billion net profit this year. If he is correct—and I have no reason to doubt it—this will be a record profit for the industry. It will also be only the second year in our history and the second in a row, in which the airlines’ return on invested capital (9.8%) will exceed the cost of capital (6.8%)—at the industry level.
It seems that we are living in extraordinary financial times!
The good results come from a lot of hard work, internal restructuring and process re-engineering. Lower oil prices are, of course, helping. Passenger demand is resilient beyond expectation in the face of global economic uncertainty (although the same cannot be said for cargo demand). And while we and our customers have borne some horrific terror attacks, these last few years have not seen the kind of major global crises that marked the early part of this century.
So, we can use this WFS as a time to celebrate that the airline industry is becoming a normal business and earning normal returns for its investors. Well done!
But I don’t think that we should get too comfortable in our success. To start with, profitability is not evenly spread. Nearly 60% of the profits are being generated by the US industry—and congratulations to them! However, the rest of the world is experiencing varying degrees of success. And some parts—Brazil, for example—are in crisis.
Every normal business has a business cycle. I am not here today to predict an end to the good times. But it would be unrealistic to expect them to last forever. Dramatic shifts are not uncommon in our business. And the horizon is full of potential threats:
- What if oil prices suddenly rise as fast as they fell?
- What if terrorist activity spreads further and intensifies?
- What would happen if a major economy had a hard landing?
- Could the current protectionist rhetoric dent the demand for global connectivity? And…
- Is there a business disruptor out there that could re-shape a major part of our industry?
These are realistic—if not pleasant—questions. I am not making any predictions by asking them. But they should point us in the direction of vigilance.
I am a big believer in speed and innovation. We cannot predict the future. But we need to be prepared to react quickly when the environment changes. That’s not easy for any business—and it is a real struggle for process-driven and safety-focused industries like air transport.
These last years, we have built greater resilience into our operations. The roots of our financial success lie much deeper than lower oil prices. But that does not give us immunity to sudden shifts in fortune that need a speedy and innovative response.
IATA’s vision is “to be the force for value creation and innovation, driving a safe, secure and profitable air transport industry that sustainably connects and enriches our world.”
Innovation is integral to IATA’s vision. Speed and urgency are seen in words like “drive” and “force”. So, in my new role, I shall do my best to ensure that IATA fulfills this vision and is a true catalyst for innovation and change that helps our industry.
I am very pleased to see that the theme of this conference is developing high performing financial organizations. My memory of being a CEO is still fresh. As some of you may know, my previous job at Air France-KLM was focused on driving change. The CEO is important in setting the direction and helping to make things happen. But, in the case of Air France-KLM, he is one person among 100,000 employees.
So, the CEO has to trust and to rely on his or her team, for real insight and to deliver results. That’s true even during the relatively good times that the industry is currently experiencing financially.
- Airlines are still fragile. You see that in many balance sheets, which are heavily burdened by debt
- We are a capital intensive industry, and access to capital can still be a challenge
- We are very closely tied to economic and political undercurrents which can have a major impact on our costs: for example, oil prices, exchange rates, and interest rates
- Like all businesses, we face an environment where the accuracy of economic forecasts on which to base decisions is a big issue
- And lastly, we have to work constantly to keep the confidence of financial markets and the banking sector. This is important in order to have funding at a reasonable cost and with much needed flexibility
So I fully agree that we need high performing finance departments. These are big issues that need to be handled well.
High performance, however, is not confined to the finance department:
- Human resources must not only hire the right talent, it needs to develop them into future leaders
- The sales department must go beyond filling the plane to maximizing revenue by understanding the customer
- Marketing must not stop at creating the desire to travel, it needs to ensure that the passenger’s expectation of value is met throughout the journey
The “dream team” for any CEO has high performance across all its functions, so that effective decisions can be made swiftly. That’s what drives innovation with speed—a theme that you will hear me repeat very often. I look forward to listening to the discussions today. In particular I will be listening for ways that IATA can help our members to raise the bar—not just for the finance function, but across their entire organizations.
The Financial Committee White Paper
This concept of the high performing financial organization, the theme and big debate of this year’s World Financial Symposium, is one that I view with special interest. What strikes me here is the strong desire to move Finance in the airline from being primarily a transaction processor to a value manager, with a focus on financial health.
If you are going to be value managers, it is vital to know where the value is coming from. We are in a service business. Value is what our customers perceive. At Thales and Air France, the most important person to me was the one who knew our customers and understood what motivated them to buy our products—and what it would take to get them to buy our products more often. There are opportunities through the use of big data to get to know our customers better. We must use them.
I believe that you are on to something important with the concept of the high performing organization. And it is great that the discussion is starting with the finance department. But my point is that I hope it spreads quickly so we have well-balanced high performing organizations. Remember….it’s all about teamwork! And you can count on my support.
I read with interest the existing four themes of the IATA Financial Committee White Paper:
- Advocating for Smarter Regulation
- Value Chain Optimization
- More Efficient Processes
These are already well-established on the IATA agenda. You can also count on my continued support for these initiatives. These resonate particularly well with me because each has an element of partnership. Our organizations are built on teamwork and the industry is founded upon partnerships. Tony did a great job of strengthening IATA’s partnerships across the value chain in each of the areas. And I intend to continue this.
The most immediate example of that continuity will be in our work on the environment—which fits into the smarter regulation category. The 39th ICAO Assembly begins next week. And the outcome could be a great example of a smarter regulation success story. On the table is a proposal for a Carbon Offset and Reduction Scheme for International Aviation or CORSIA. The industry is united and fully supports it as a key element enabling our commitment to carbon neutral growth. The initial stage will be voluntary (to 2026). We are encouraging states to sign-on early. In Southeast Asia, Indonesia and Singapore have come forward as early volunteers to adopt the scheme. I hope that will encourage other countries in the region to join. The more states that indicate their early voluntary adoption, the more momentum we will have for success.
So, watch this space over the next weeks. I am optimistic for a positive outcome. And my colleagues—equally optimistic—assure me that it will be an interesting process with many diplomatic twists and turns. My father was a diplomat. I am too eager for speedy solutions to have followed in his footsteps. But I did learn from him the importance of always focusing on the key outcome. At the end of the Assembly I think that we will have a key outcome that will be an historic achievement to show the world.
Value Chain Optimization
The environment is an example of where we work very closely with our airport, air navigation and OEM partners. We have a strong common interest in this and many other issues. But, not in all areas.
When our members do business with these partners there is a natural tension. Our members’ costs are the revenues of their partners. There are imbalances. Addressing them is a strategic priority for the airline industry. And I would like to see it at the top of the agenda of our partners as well! The entire industry will have a brighter future if the value chain is optimized.
I will borrow the “Tyler Strategy” in dealing with this issue. IATA will fight the good fight on issues of costs and charges. We will do whatever it takes to help our members in this area. At the same time, we will not allow those discussions to hijack the relationship with our partners. The important work that we do on safety, security, efficiency, sustainability and so on, must and will continue.
Innovation and More Efficient Processes
You probably know better than I the wide range of strategic programs focused on innovation and more efficient processes: Fast Travel, Smart Security and New Distribution Capability (NDC) are already well-established. ONE Order is building on the NDC standard to modernize the order management process.
The newest addition to these initiatives is the New Generation of IATA Settlement Systems—or NewGen ISS. Earlier this week members of the Passenger Agency Conference approved resolutions enabling investment and delivery to move forward. It will ensure that ISS continues to be fit for purpose as the financial back office of the air transport industry. Last year ISS successfully facilitated the distribution and settlement of some $260 billion between agents and airlines.
In conclusion, one thing that you should know about me is that I do not like to deliver long speeches. So I will conclude with one last thought before wishing you well in your deliberations.
We—airlines and all our partners—are privileged to work in a very special industry. Tony Tyler rightly describes aviation as a force for good. I have a similar belief, but a different way of expressing it.
To me, aviation is the business of freedom. We made global mobility ubiquitous. The connectivity that we provide brings people and businesses together, enables global supply chains, and connects families and loved ones. The world is better place for the freedom we provide and it is a privilege to be a part of it.
For 63 million people, aviation provides the freedom to earn their living. For 3.8 billion travelers aviation means the freedom to explore the world, build understanding, develop business, make friendships, visit relatives and make their lives better. For all of us, it is the freedom to live in a world enriched by global supply chains and the freedom to access to the full bounty of our planet.
Aviation is a critically important industry. We should always be guided by the fact that the value our members create by working through IATA makes our world a better place. That inspiration guides me day-to-day to be a forceful advocate for the business of freedom, the global standards that make it possible, and the speed and innovation that will secure its future.
I wish you a very successful conference.