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CAPA World Aviation Outlook Summit

Berlin, Germany
27-28 Nov 2018

CellPoint Mobile, CEO, Kristian Gjerding

CAPA – Centre for Aviation, Executive Chairman, Peter Harbison

Deutsche Lufthansa AG, Chairman & CEO, Carsten Spohr

The digital economy has transformed consumer expectations around the way they research, purchase and experience the airline product. As a result airlines need to work hard to differentiate their product offering and deliver a personalised and seamless experience for customers throughout the entire travel process. With airlines starting to see themselves as digital companies rather than just transportation companies enabling passengers to get from A to B, there is now a greater inclination for experimentation, with many airlines (and manufacturers) leaning on creative tech start ups to find solutions for their technology, operations and customer service problems. This is creating interfaces between large aviation organisations and the growing global travel tech scene. Agility and out-of-the-box thinking seems to be the USP for many startups aiming to develop and market business model innovations for the aviation industry.
  • Is outside competition required to fire up internal creativity?
  • Are big organisations simply unable to cope with the speed of change in technology and customer behaviour?
  • Separating the wheat from the chaff, how to identify the winning ideas
  • Putting the framework in place first – deciding on an airline’s digital strategy
  • How are the global alliances utilising technology to facilitate multilateral connectivity and deliver benefits to customers of member airlines?

Moderator: Made by Many, Founder, William Owen

Panel:

  • Bluebox Aviation Systems, CEO, Kevin Clark
  • CellPoint Mobile, CEO, Kristian Gjerding
  • Miles & More, Director Strategy & Innovation, Benjamin Pfeifer
  • Skyscanner, Senior Director, Strategic Partnerships, Hugh Aitken
Although Europe has experienced some notable waves of merger and acquisition activity in the last 14 years – such as the Air France/KLM and BA/Iberia mergers and various Lufthansa Group acquisitions – the region remains one of the most highly fragmented airline markets globally. There are more airline groups operating in Europe than in any other region in the world and their profitability is lower compared with, for example, the tightly controlled North American market. Any consolidation to date hasn’t led to any meaningful change in the structure of the European airline market, nor has the disappearance of several airlines led to greater market concentration. Clearly, consolidation has been slow and steady, but the region’s top groups wield the power and capital to significantly speed up the process. Is this on the horizon or will consolidation activity continue to amble along at its current pace?
  • Are there too many airlines in Europe for the size of the market?
  • Is consolidation the key to greater profitability?
  • What are the cultural, political and regulatory barriers that that inhibit more consolidation in Europe?
  • Will airline failures or M & A activity drive greater market consolidation?
  • Can Europe’s largest airline groups ever match the market concentration levels of their North American peers?
  • How have JVs and alliances overcome ownership and control inhibitions?
  • What is the outlook for consolidation in the LCC sector?

ModeratorCAPA – Centre for Aviation, Executive Chairman, Peter Harbison

Panel:

  • Alitalia, VP Alliances & International Affairs, Jiri Marek
  • easyJet, Regional Director, Javier Gandara
  • Eurowings, Chief Commercial Officer, Oliver Wagner
  • LOT Polish Airlines, CEO, Rafał Milczarski

Air Malta, Chairman, Charles Mangion

The UK’s exit from the EU is fast approaching – yet uncertainty remains. The European Commission has maintained that when the UK leaves the EU it will also leave the single aviation market, meaning the UK will have to negotiate a new bilateral air service agreement with the rest of the bloc in order to ensure traffic rights for its airlines. It must also negotiate new bilaterals with 17 non-EU countries where rights are currently granted under EU agreements. The most important of these is a renegotiation of the UK-US deal, which is set to govern the rules of engagement for flights between the two countries across the highly lucrative trans-Atlantic market.
 

The 3 major JV groupings that operate on the trans-Atlantic depend on open skies for them to gain antitrust immunity to operate in the UK market, the largest premium route. But the extent to which the UK will be restored to open skies once it leaves the EU remains to be seen, with US pilot unions conspicuously vocal in their concerns about some of the liberal provisions of open skies. Aside from labour organisations, EU governments could undo the great strides taken over the years in liberalising international traffic rights, in order to protect their flag carriers from bigger competitors encroaching further on home markets.

  • What issues are involved in the UK renegotiation and what are the positions of the protagonists?
  • Are the region’s airlines at risk of operating under more restrictive norms?
  • Will unions intervene to wind back the provisions of the North Atlantic?
  • What are the prospects for US-UK open skies post Brexit?
  • Could Brexit provide a catalyst to reform the entire bilateral system that underpins aviation governance?

Moderator: John Byerly, Consultant, Consultant, John Byerly
Panel:

  • ALPA, Regulatory Counsel & Senior Attorney, David Semanchik
  • Croon Callaghan Aviation Consulting, Partner, Jim Callaghan
  • ERA, Director General, Montserrat Barriga
  • Whitaker Air Space, Principal, Michael Whitaker

Berlin Brandenburg Airport, CEO, Engelbert Luetke Daldrup

Airbus, SVP Business Analysis & Market Forecast, Bob Lange

Boeing Commercial Airplanes, Director, Market Forecasting, Wendy Sowers

Moderator: CAPA – Centre for Aviation, Executive Chairman, Peter Harbison

Panel:

  • Airbus, SVP Business Analysis & Market Forecast, Bob Lange
  • Boeing Commercial Airplanes, Director, Market Forecasting, Wendy Sowers
  • IATA, Chief Economist, Brian Pearce
All major European carriers have overhauled their cost structures in the last decade or so in the face of liberalisation, the rise of LCCs and increasing competition. Each wave of change has been met with inevitable resistance from traditional labour forces, who have had a comparatively disproportionate impact on the aviation sector compared with other industries, in the process stymieing management restructuring efforts (and massively disrupting everyday operations) for the sake of workers’ rights.
 
Already fractious relations between airline management and labour associations have reached a tipping point. The international nature of the aviation market has seen some airlines apply more relaxed labour laws from other jurisdictions regardless of where their employees are based. EU based unions for example have called out Ryanair and Norwegian for employing non EU crew on EU registered aircraft and have fought for a ban on what they deem “social dumping”. At the same time, there is also rising demand for a diminishing pool of human resources, as LCCs expand and full service carriers busily set up new subsidiaries. So – while airline managements still need to drive down costs, this is more challenging now in the context of looming pilot shortages. How will the relationship between management and unions evolve under these challenging conditions?
 
  • Does the aviation industry have enough human resources to service the growth ambitions of the world’s carriers? At what cost?
  • Do unions have the interest of the industry at heart?
  • What constitutes a level aviation labour playing field?
  • Are airlines too focused on a wage race to the bottom for the sake of profit?
  • As essentially inertia-seeking, can unions adapt to the rapid process of change that challenges their managements?

Moderator: Aviation Strategy & Concepts, Managing Director, Ulrich Schulte-Strathaus

For:

  • ALPA, Regulatory Counsel & Senior Attorney, David Semanchik
  • Vereinigung Cockpit e.V., Board Director International Affairs, Robert Spuerk

Against:

  • Austrian Aviation Association, Chairman, Peter Malanik
  • CityJet, CEO, Pat Byrne

This is awarded to the airport with over 10 million annual passengers that has been the biggest standout strategically, has established itself as a strategic leader, and done the most to advance the progress of the aviation industry.

Avinor Oslo Airport was selected for its innovation in the area of environmentalism and the opening of a second terminal.

Oslo traffic has increased by more than 50% since 2010, when it handled only 19 million passengers. It is on pace to handle around 29 million passengers in 2018, making it the second biggest airport in the Nordic region despite Norway having the smallest population apart from Iceland.

Norway’s airport authority, Avinor, has gained a reputation for seamless integration of new infrastructure, as witnessed by the successful integration of the EUR900 million Terminal 2 in 2017 and for its propensity for advance planning. Construction of a EUR350 million extension for the non-Schengen east terminal began in Oct-2018 and will increase the airport’s non-Schenghen capacity by almost 50% to 8 million when it is completed in 2022. Oslo has experienced rapid growth in non-Europe traffic in recent years and the airport now has 14 links outside Europe.

It is perhaps in the area of environmentalism that Norway and its leading airport are best known. The country has already set a date for the implementation of electrically-powered only aircraft on short haul routes (it already has the highest number of electric cars per capita in the world). For its part Avinor Oslo Airport is collaborating in an ambitious project to build a ‘sustainable’ and ‘energy positive’ (meaning solar powered) airport city to be built around an existing business park, using electric vehicles only. A geothermal power project has also been launched at the airport site.

“Avinor Oslo has been a standout in Europe’s competitive airport sector for several years,” Mr Harbison said. “The opening of the second terminal and the breaking ground on a further terminal extension as well as its innovative environmental work further positions Oslo’s main airport as a strategic leader in Europe and globally.”

This is awarded to the airport with over 30 million annual passengers that has been the biggest standout strategically, has established itself as a strategic leader, and done the most to advance the progress of the aviation industry.

Orlando International Airport was selected for its creative adoption of new technology and rapid growth.

Orlando overtook Miami in 2017 to become Florida’s busiest airport. Passenger numbers reached nearly 45 million in 2017 compared to less than 35 million in 2010 and Orlando should reach the 50 million milestone in 2019. Growth has accelerated the last four years with passenger numbers increasing by at least 6% every year since 2015.

Orlando has deepened its network breadth, securing a wide range of new services in recent years, including Emirates’ flights to Dubaiand a recent build up by US ULCC Spirit Airlines. In addition to Dubai in the Middle East, Orlando’s international network now encompasses 20 destinations in Europe and 26 in Latin America, a remarkable feat for a non-hub airport. International traffic is on pace to reach 6.5 million passengers in 2018 compared to less than 3 million in 2009.

The airport is now planning a major capital improvement programme that will culminate in the planned opening of a new South Terminal in 2021. JetBlue, which is planning to pursue further rapid domestic and international expansion at Orlando, will be the anchor tenant. JetBlue is already the largest international airline at Orlando; another LCC, Southwest, is the largest domestic airline.

Orlando International is also at the forefront of technology adoption. The airport is positioning itself as the first US airport to fully deploy the Custom and Border Protection’s biometric entry and exit programme for the arrival and departure of international travellers.

“Orlando International has experienced a remarkable period of rapid growth that has positioned it as one of the ten largest airports in the US.  Mr Harbison said. “The airport is well positioned to enjoy more rapid domestic and international growth and is also leading the way in customer processing efficiency with its adoption of biometrics technology.”

This award is given to the airline, airport or supplier responsible for the most powerful innovation in the industry over the past 12 months.

Winding Tree was selected for developing innovative blockchain technology for the travel ecosystem.

Winding Tree is a non-profit foundation that drives the development of open-source protocols to allow any company, big or small, or even an individual developer, to try them out and integrate with its blockchain-based decentralised open-source travel distribution platform.

Blockchain is one of the buzzwords of today and could help replace older legacy technology across the travel and air transport sectors. Winding Tree has already secured agreements with the likes of Air France-KLMAir New ZealandLufthansa and Swissport as it works to develop blockchain technology for the industry.

“Blockchain is being used globally to build encrypted, shared platforms, providing a secure and efficient way to track the exchange of goods or information,” Mr Harbison said. “Winding Tree plans to open the door for innovation in the travel industry.”

The CAPA Turnaround Airline of the Year is awarded to an existing airline that has turned around through innovative strategic changes and/or a restructuring exercise.

Air Malta was selected for its successful transformation, resulting in transformation from a heavy loss-making to a break-even result for the fiscal year ending Mar-2018.

Air Malta had been unprofitable for nearly 20 years as it struggled to overcome multiple challenges, including increasing competition from LCCs, outdated work practices and tensions in the North Africa market, which impacted its traditionally strongest routes. The flag carrier accumulated operating losses of more than USD300 million over the 10 years ending Mar-2017.

The airline has rebuilt its operations with a financially viable business model and hybrid product that now allows it to compete with LCCs. The transformation included a cost control mindset, increased aircraft utilisation, improved staff productivity and the move to a hybrid business model to serve today’s increasingly price-driven industry.

After a period of consolidation, in 2018 the Airline increased significantly its routes, fleet and passengers to continue supporting the Maltese economy. Air Malta is planning further expansion in 2019, while renewing its current fleet with modern A320 neo aircraft and leveraging its new cost efficient hybrid model, while it supports the continued emergence of Malta as one of Europe’s fastest growing holiday destinations.

“Air Malta is a classic example of the need to remain relevant in the airline sector,” Mr Harbison said. “For a long time it had seemingly ignored the competition and accepted its own slow decline. But, with some brave decisions it has been reborn and is now profitably flying the flag for Malta. The higher fuel price and volatile currency rates are dark clouds, but Air Malta is now better positioned to weather these market forces.”

The Start-up of the Year award is for the past year’s airline start-up that has been the most innovative and had the greatest impact on the industry since launch.

International Airlines Group (IAG) low cost unit LEVEL was selected for its innovative strategy and rapid growth since launching in Jun-2017.

Born as a brand, but developing what is a new type of airline management model, LEVEL is IAG’s strategic response to the changing dynamics of the sector. Initially flying long haul from Barcelona and more recently Paris, it has this year deviated from that structure to introduce short haul operations out of Vienna.

All three initial operations are very different: there is the external production model where Iberia operates under the Iberia operator certificate out of Barcelona El Prat Airport; the subsidiary model with OpenSkies operating in France as LEVEL France; and the franchise model operated by Anisec Luftfahrt and branded as LEVEL Austria.

“LEVEL is an example of a fluid and highly adaptable approach to airline management and a strategy that is key for a disruptor brand in an enormously competitive market,” Mr Harbison said. “It neatly complements the operations of other airlines under the IAG umbrella, which can feed its own development.”

This award is presented to the regional airline that has been the biggest standout strategically, has established itself as a leader, and demonstrated innovation in the regional aviation sector.

CityJet was selected for its successful strategic transformation that has resulted in its emergence as Europe’s leading third party provider of regional airline capacity under ACMI arrangements.

CityJet was a loss-making franchise operator and also had a spell as a scheduled regional operator under its own brand before adopting the ACMI model 2017. Its airline customers now include Brussels AirlinesSASAir France and Aer Lingus.

CityJet also has emerged as a leading consolidator in the European regional airline market, having acquired Blue1 in 2015 and Cimber Air in 2017, both from SAS. In Jul-2018, CityJet pursued further consolidation by announcing a proposed merger with Air Nostrum that would create Europe’s largest regional airline.

“CityJet has very astutely pioneered a new vision of regional airline operations in Europe, focusing on third party wet leasing to offset revenue risk and driving consolidation in pursuit of greater efficiency,” Mr Harbison said.

This award is for the airline executive who has had the greatest individual influence on the aviation industry, demonstrating outstanding strategic thinking and innovative direction for the growth of their business and the industry.

Jozsef Varadi was selected for growing Wizz Air into the largest airline in Central/Eastern Europe. Mr Varadi co-founded Wizz in 2003 and the airline now carries over 34 million passengers per year with a fleet of 105 aircraft.

Wizz won the CAPA Low Cost Airline of the Year in 2016. It has since grown, profitably, by nearly another 50%, recording passenger growth of 24% in 2017 and 20% through the first 11 months of 2018.

In the the decade to FY2018, Wizz Air’s fleet increased from 18 to 93 aircraft and its passenger numbers grew at an average of 21% pa, while its load factor rose from the low 80s to more than 91%. The airline has managed this growth, while also developing a consistent track record as Europe’s second most profitable airline company by operating margin over the past four years.

Wizz’s very low unit cost defines it as an ultra-LCC, which allows it to drive demand with very low fares, and its commercial focus means that ancillary revenue is 42% of the total, the highest such share among European airlines. Wizz Air has more aircraft on order, 264, than any other airline in Europe as it seeks to transform its fleet from A320ceo domination to one that is dominated by A321neos in search of even lower unit costs.

“Jozsef Varadi has shown remarkable courage and vision in building a profitable low cost airline in a market historically associated with state owned, bureaucratically run, loss-making flag carriers,” Mr Harbison said.

The man who has spearheaded the rise of LCC Wizz Air, Jozsef Varadi, was awarded the prestigious Airline Executive of the Year 2018 trophy by CAPA – Centre for Aviation at its Awards for Excellence gala dinner, held alongside its CAPA World Aviation Outlook Summit in Berlin, Germany, in late Nov-2018. Jozsef Varadi was selected “for growing Wizz Air into the largest airline in Central/Eastern Europe.”

Gulf Air may have a long history, but has lived in the shadows of its younger and now much larger regional rivals over recent years in what has become a highly competitive landscape across the Cooperation Council for the Arab States of the Gulf. Now, its CEO Krešimir Kučko is working to deliver a new business strategy, using a fleet renewal process and a product and service focus to stand out from the crowd, in what he describes as #yearofchange.

CellPoint Mobile is on a mission to help airlines, passenger transportation providers, and hospitality companies across the globe to thrive in the mobile economy. It is clear that more digital and ecommerce teams within airlines are looking at how they can increase conversion rates and reduce costs in the direct channel. This topic comes up most often in discussions with European low-cost carriers (LCCs), the company’s CEO Kristian Gjerding explains in this video, as he discusses what digital transformation means for airlines, how they going about it, and what they can do to be more competitive, increase revenue and prepare for the future.

Bluebox Aviation Systems is one of an emerging group of specialists providing alternative in-flight entertainment (IFE) options for airlines using the latest technology to offer tablet-based and wireless IFE solutions (fitted and portable) as cost-effective alternatives to the traditional seatback IFE systems. The CEO of the Dunfermline, Scotland-based business, Kevin Clark, explains how these new platforms can be exploited to offer service enhancements, service recovery, accessibility services (for passengers with hearing and visual impairments) and ancillary revenue generation.

Aviation has a long history in Berlin and the city is actually the original home of flag carrier Lufthansa, but Berlin’s airport system has been the talking point of the world due to the delayed opening of the new Berlin Brandenburg Airport. While Berlin is not among Lufthansa’s hubs, it remains a major destination for travellers and is now on track to bring the Brandenburg project to fruition in Oct-2020. Patrick Muller, was appointed head of operations at Berlin Brandenburg Airport in Jun-2018 and provides an update on developments, reinforcing that Oct-2020 opening date.

Air Malta has for a long time struggled to find its own identity in an increasingly competitive market, suffering years of unprofitability and struggling to overcome multiple challenges, including increasing competition from LCCs, outdated work practices and tensions in the North Africa market, which have impacted its traditionally strongest routes. Dr Mangion, chairman of the airline highlights how the airline has rebuilt its operations with a more financially viable business model and hybrid product that now allows it to compete with LCCs. He explains the transformation has included a cost control mindset, a reduction in the fleet, increased aircraft utilisation, improved staff productivity and the move to a hybrid business model to serve today’s increasingly price-driven industry. “If you don’t change, you die,” he says.