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We must not loose our free spirit...

Posted 22 March 2019 · Add Comment

Fuel prices, the need for infrastructure to keep pace with airline growth, and the dangers of protectionism, were among the topics at the annual meeting of the Arab Air Carriers Organization (AACO) in Cairo. Alan Dron reports.

More than 30 of the region’s airlines, both large and small, got together in the Egyptian capital in November to meet fellow C-suite executives and discuss the state of the industry.
As AACO secretary-general, Abdul Wahab Teffaha noted, returning to the city where the organisation was established more than five decades ago, and where EgyptAir was launched in 1932 as the first Arab airline, represented not only a return to its birthplace, but also a milestone to reflect on how far the Arab air transport sector has come – and where it hopes to go in the future.
The past year has seen the sharp rise in fuel prices put a severe dent in the profit figures of even successful Arab carriers; Emirates, for example, reported that its half-year profit for 2018-19 had slumped to $62 million compared to $452 million for the same period a year ago.
However, the most pressing concern expressed in Teffaha’s ‘state of the industry’ speech was the growing threat of the rolling back of the liberalised economic environment that has brought many benefits to airlines and their passengers over recent decades.
The reappearance of tariffs and calls for protectionism, together with increasing costs of investment due to rising interest rates, posed real challenges to an industry that relies for its growth on sturdy and stable economic development and openness, he said.
The global airline industry had grown in tandem with governments adopting liberal policies that eased or removed restrictions on traffic rights and the movement of people and goods, as well as playing down the concept of national flag-carriers and replacing it with brands. This had opened the way for competition and the transformation of air transport from a sovereign activity into an economic one.
For Arab airlines, these liberal policies had allowed giant global airlines and hub airports to appear in the region. “More importantly… these policies enabled the customer to take command and to have the absolute freedom of choice,” said Teffaha.
“Removing protectionism meant that the service provider, be that an airline or an airport or any provider for other services, has to do its best to gain the customer’s acceptance and satisfaction, through the best services and prices. This also compelled the service provider to manage its costs in the best way and to become creative to achieve maximum customer loyalty.
“How would things be if we go back to protectionism? The straight answer is the way it used to be… prior to 1978.
“In those times, airlines used to agree amongst themselves on passenger fares and cargo rates. They also used to agree on the services provided to the passenger: the seat pitch, maximum levels of free food and beverage, maximum weight or number of free bags in accordance with the class of service, and how to construct fares in case the traveller is going to more than one destination.
“There were also undercover enforcement officers who used to test airlines’ adherence to these agreements, where heavy financial fines were imposed on any airline that deviated from those agreements and tried to compete with the others in prices or services.”
Teffaha noted that the global aviation industry was experiencing mixed fortunes.
On the one hand, global passenger numbers now exceeded 4 billion, with Arab airports handling around 370 million – almost equivalent to the entire population of the region. International passenger numbers worldwide grew by 7.9% in 2017, and by a further 5.6% in the first eight months of this year compared for the same period last year.
The Arab region saw an even larger rise in international passengers in 2017 – up 8.2% – although the rise in the first eight months of 2018 was slightly lower than the global average at 4.8%. Tourist arrivals globally grew 6.8% last year and by 7.2% in the Arab region.
This equated to air transport accounting for 7.8% of the Arab world’s gross domestic product (GDP), more than twice the figure of 3.6% globally.
However, growth in the Arab air transport industry was slowing compared to the last decade: “Although crises have never been alien to our region since time immemorial, they have never reached the levels we are witnessing nowadays. This has, of course, had an impact on the economic growth in the Arab world and, consequently, the growth of air transport.
“The Arab air transport market grew by 7.7% in 2017 and 4.7% in the first eight months of 2018, as opposed to an annual average of 10% between 2006 and 2016.
“Revenue passenger kilometres (RPKs) grew by 6.8% in 2017 and 4.8% in the first eight months of 2018, versus 14% between 2006 and 2016.”
However, the biggest adverse impact had been seen on international air transport within the Arab world. This shrank in 2017 by 6.8% and by 4.9% in the first eight months of this year.
AACO members had still been able to achieve a growth in load factor by adding less capacity than the growth in demand. This improved member airlines’ operating results, which increased by 12% over 2016.
Working in these difficult circumstances, AACO has concentrated its efforts over the past year on three major areas:
• On the aeropolitical level, it achieved several successes including agreeing with the Arab Civil Aviation Organization the revision of the 1979 Tunis Convention relating to tax exemption for air transport activities. It also continued to call on more Arab countries to ratify the Montreal Protocol of 2014 about unruly passengers and worked with member airlines preparing for the 2019 implementation of International Civil Aviation Organization (ICAO) carbon offsetting and reduction scheme for international aviation (CORSIA) emissions agreement.
• It assisted member airlines in many areas of their operations, including rationalising their costs in certain areas, within strict adherence to competition and anti-trust laws.
• It raised awareness of the issues that the industry is dealing with through website, social media, and its electronic weekly, monthly and quarterly bulletins
Speaking to the annual meeting, Alexandre de Juniac, International Air Transport Association (IATA) director-general and CEO, noted that aviation was critical to the MENA region, supporting 2.4 million jobs and $130 billion in economic activity across the Arab world. That accounted for 3.3% of the region’s employment and 4.4% of its GDP.
“And this footprint is growing,” noted de Juniac. “Over the next 20 years we expect passenger numbers to rise by 4.3% annually. In 2037 some 630 million air journeys will touch this region – 360 million more than this year. As aviation’s leaders, we must work together and with governments to realise this potential and the economic and social development that it will catalyse.
“It is no secret that this region faces some very difficult security challenges. Last year’s personal electronic devices ban crisis has resulted in stronger links between industry and governments focused on keeping aviation secure. But there is always room for greater co-operation, which we continuously urge governments to do.”
He urged more Arab governments to recognise IATA’s operational safety audit (IOSA) in their safety oversight, given the huge contribution it made to airline safety: airlines that passed the audit process were three times less likely to have an accident.
Egypt had led the way in doing this and Bahrain was the latest MENA state to incorporate IOSA in its regulations, he said.
On the environmental front, he noted that the near-term target to limit emissions was to achieve carbon neutral growth from 2020.
He reminded AACO members that every carrier had to start reporting its emissions for the CORSIA scheme from January 1 2019. “In parallel, we want more governments to sign up to the programme from the voluntary period beginning in 2020. Already some 75 are committed. This accounts for about 76% of global aviation activity.”
As of last November, Qatar, Saudi Arabia and the UAE were the only MENA governments to have done so. While congratulating them, he urged other governments in the region to follow suit.
Turning to the region’s infrastructure, he applauded governments for their foresight in developing airports. “While many parts of the world struggle to build infrastructure, the last decade has seen major investments in Abu Dhabi, Bahrain, Dubai, Egypt, Jordan, Kuwait, Oman, Qatar, Saudi Arabia and elsewhere around the region.”
However, he had a word of caution: “To meet their responsibility to provide effective infrastructure, we see many governments looking to the private sector. And that continues to make us nervous. Airlines have been disappointed many times in the past with privatisations that have failed to live up to their promised benefits.”
An airport’s main value to national development was in the connectivity it provided, not the short-term financial benefits governments might gain from selling it off.
“So, as Saudi Arabia and others across the region consider airport privatisation, our message is clear and simple: talk to all stakeholders – especially the airlines – to ensure that you gain the best long-term economic and social benefits.
“I will be totally frank in saying that we have not seen a privatisation anywhere in the world fully deliver on all its promises. And there is no need for governments in the region to repeat the mistakes that have been made in other parts of the world.”
And, despite the many fine new airports in the region, air traffic control (ATC) provision continued to be a worry, especially in the Gulf. “Capacity has not kept pace with the growth in demand, which is leading to significant delays.”
What he described as “diplomatic difficulties in the GCC” – a clear reference to the dispute between Qatar on the one hand and Saudi Arabia, Bahrain, the UAE and Egypt on the other – had made the problem worse by affecting flightpaths.
“The average delay per flight attributed to ATC issues in the region is 29 minutes. And we could see that doubling by 2025 unless we make urgent progress. The costs of that would be enormous – $7.22 billion in ATC delay costs to passengers due to lost productivity time; $9.12 billion in ATC delay cost to airlines.”
There had been many reports and studies into the problem, together with technical advances in ATC such as improved airspace design, flexible use of airspace and the implementation of performance-based navigation. But the problem literally grows worse each day as traffic increases.
“There is an enormous amount of traffic in a limited geographic area. And the only solution is to manage the area as a whole. Governments must replace political fragmentation with collaborative cross-border decision-making. And this has to happen soon.”
The effective implementation of the Middle East contingency coordination group (CCT) to manage tension points in the Syrian crisis demonstrated that states could work effectively together in the ATC field.
IATA’s final area for concern was costs. Since 2016 airlines had faced an extra $1.6 billion in industry costs in the MENA region, most of it from increased passenger facility costs in the Gulf.
“In coordination with AACO, the message that we are sending to governments is that the value of aviation to a country is not in the taxes it collects. It is in the growth that it enables across the economy. Airlines are like the proverbial goose that lays golden eggs. And if governments choke the goose with taxes and charges, the golden eggs will stop,” said de Juniac.
Finally, he urged AACO members to do more to encourage women to enter the sector.
“Finding a solution is all the more critical because we are facing a skills shortage. In the peak northern summer season, Emirates had to trim frequencies because it did not have enough pilots. Finding a solution for that will require a comprehensive set of actions over a sustained period. And one of them – which goes beyond the pilot shortage – is to enable more women to find careers in aviation.
“We are partnering with Korn Ferry, Airports Council International, Aerospace Industries Association, and the International Aviation Women’s Association in a study that aims to identify best practices in breaking the glass ceiling for women in aviation. We will publish the results in the first quarter of 2019.”
 

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