Podcast: What’s On Airline CEOs' Minds At IATA AGM

Editors discuss the themes and challenges raised by airline and industry executives at the International Air Transport Association AGM in New Delhi.

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Rough Transcript

Karen Walker:               Hello everyone and thank you for joining us for Window Seat, our Aviation Week and ATW air transport podcast. I'm ATW and Aviation Week Network, Air Transport Editor-in-Chief Karen Walker. So welcome on board. Now my guests this week are two fellow colleagues, Lori Ranson, who is the Senior Analyst Americas at CAPA and ATW Senior Editor Kurt Hofmann. So welcome both of you. Thank you for joining me. Earlier this week, the 81st annual meeting for the International Air Transport Association or IATA was held in New Delhi with Indian Airline IndiGo, the host. And numbers have just come in. I think the total of attendees was around 1,600. So what we're going to do now is discuss some of the themes and outcomes of this year's AGM. For context, IATA represents some 350 major airlines in about 120 countries. Its current Director General Willie Walsh is a former CEO at Aer Lingus, at British Airways and also their parent company IAG.

                                   The event moves from country to country. Last year it was in Dubai and hosted by Emirates and next year it's just been announced it'll be in Rio de Janeiro and hosted by LATAM Airlines. Now my colleagues here have covered many IATA AGMs. The first one I attended was back in November 1996 when it was staged in Geneva with Swiss Airlines, the host. And the big name speaker then was American Airlines CEO Bob Crandall, who brought with him his own customized podium. Much has changed since those days when it was mostly procedural gathering. Pretty dry to be honest.

                                   But when Giovanni Bisignani became direct general, he made it a much more active and newsy event, bringing in the world's press, which now is in the hundreds and providing briefings on all things related to the global air transport industry. So Kurt, you were there in Delhi and I think as we speak, you're still there. So can I start with you again? You've done a lot of AGMs and what was your first impressions, your main impressions of this year's event? And how did it compare with those that are in other places like Dubai, [inaudible 00:02:57], Doha, Boston, Seoul, Sydney?

Kurt Hofmann:              Yeah, thanks, Karen, to be part of the podcast. This was my 21st AGM, be honest. And as you know, we have, as you mentioned, 1,600 attendees. IATA told me there was 100 more than last year, around 200 airline executives has been here and 300 journalists from all over the world, which was quite an amazing task because the visa issues for journalists this year was quite tough. So it was quite a preparation for that here in Delhi itself, the mood under the delegates was good. There's always a lot of, as you know, bilateral talks, topics all the same. Traffic ride, supply chain was a major topic for many airlines here. So a good exchange, many familiar faces, and I was very happy to be part of the IATA AGM here in Delhi.

Karen Walker:               Kurt, obviously it's in New Delhi and IndiGo is the host airline. So was there a lot of emphasis on the Indian air transport market and what the Indian Airlines are doing?

Kurt Hofmann:              Absolutely. And it demonstrates, especially the Indian Prime Minister Modi arrived to the IATA AGM, which of course was kind of bit of security hassle, but it demonstrates the importance of aviation for India. Peter Elbers told me in an interview, "This is the time of India now for aviation." Of course there are topics like I mentioned, the traffic, right? Supply chain is an issue, but here you realize also the proudness of the people to be able to fly. It's much different where in Europe where I live, where flight becomes... You have to take a train, he has a different people go from the train to the airplane and there's a lot of potential. It's an amazing place.

Karen Walker:               And of course I'll just say, Peter Elbers who just mentioned that he's the CEO at IndiGo, the host airline, and of course he's the former CEO at KLM. So Lori, you and I, meanwhile we're both monitoring the speeches and briefings, etc. Can I just start with you? What were some of the key numbers given in terms of the industry itself? What were the key things that you picked out there?

Lori Ranson:                  Yeah, I mean, two points that stood out to me. So net profits of 36 billion, which is actually slightly down from 36.6 billion projected at the end of last year. And then total passenger numbers are going to reach 4.99 billion, which is actually below the previously projected 5.22 billion, that's a 4% decrease. That really stood out to me because we're only halfway through the year and there's so much uncertainty around trade, around policies and I think that's something to watch out for as more forecasts are released because we just don't know if traffic or passenger numbers are going to improve, stay where they are. And I think that that's really what stood out to me is, okay, we're doing okay on profits, margins are what they are, 3.7%, but if you don't have passenger levels growing, will that affect revenues and margins and all of the financial results as we head into the back half of the year.

Karen Walker:               Right. So yes, it's the uncertainty that we all know is there. There's the global economy concerns about where that's going. Tariffs, all these things that we know. Wars for the airlines, there's nothing worse really than economic uncertainty and therefore what people will do or not do when it comes to air travel decisions. I think you're right, Lori, the numbers you're referring to in that little dip this early in the year is about the airline industry reflecting that uncertainty and not quite being sure where things are going to end by the end of this year. So one of the big pieces of this AGM course is always the director general's speech, opening speech and remarks. Willie Walsh of course gave that. What were your initial thoughts, Lori, on that because he did refer to this as well? So what were your thoughts of his speech this year?

Lori Ranson:                  I thought it was pretty standard for Willie Walsh. He touched on all the points that are important to IATA, challenges, successes. One thing that stood out to me, and maybe it's because I don't follow safety as closely as other people, but he made an interesting point that less than half of accidents investigations over the last six years have produced a final report. And that was just kind of a bit astounding to me. Again, as I said, I don't follow safety as closely, but it's what's happening on the government and regulatory side to make this crucial information unavailable. So that's what stood out to me in the speech. I thought he had other good points that he's made before about overregulation and obviously the sustainability challenges and so I thought it was pretty standard for IATA.

Karen Walker:               Yeah, Lori, I agree. And I thought it was also interesting too, that he actually had safety pretty high in the speech this year because of their concerns. Kurt, you were there. What did you think? What did you make of Willie's speech?

Kurt Hofmann:              Safety and of course, the frustration of the airline CEOs regarding the lack of support in terms sustainable aviation field to produce more of this. This is quite expensive. And he said, especially for airlines which have commitments to 2030 companies regarding stuff and to see that they're struggling to get this stuff available, this really frustrating lots of them. Traffic, right? Geopolitical issues, we also discussed a lot and of course, we expect in Europe... As I mentioned, I'm from Europe, a very, very tough summer in terms of delays. Also, here, Willie Walsh was very critical. If the '80s air traffic control stations made their homework, do they have enough employees available? We expect one of the worst summer this year, the last 15, 20 years in Europe in terms of punctuality.

Karen Walker:               So yes, Kurt. Yeah, absolutely. Europe is faced with a year of summer of congestion, air traffic control delays and it is concerned about that. Concerned for the airlines of course. And of course Willie Walsh also made a dig at London Heathrow Airport. It wouldn't be an IATA AGM with Willie Walsh in charge if there wasn't a dig at Heathrow. So some things stay the same. Kurt, as I said, you are there, you're in Delhi. A lot of the important stuff that's happening at an AGM of course is on the sidelines. It's outside of the speeches. It's where the airlines execs are meeting and they're meeting with the heads of the main suppliers. I talked with the CEO at Boeing Commercial, Stephanie Pope. She was there and was getting her feeling about what the airlines are, what's on their minds.

                                   So there's all of that sidelines talks. Because of course the journalists and yourself are talking to them. Can I just ask you, in some of those sideline conversations with the CEOs, again going back to the economic concerns, was that a theme in terms of what they were raising when they were talking to you?

Kurt Hofmann:              A lot of topics I must outline is that I had around 12 CEO interviews. A lot of topics was the supply chain. The engine issue for the NIOS for seven at sevens, some of the airlines told me it get even worse next year for some C-20 NIOS operators. Some told me they make some temporary roundings of aircrafts to have the NIOs available for next year in the summer regarding the engine issue, this is was one point. Geopolitical of course, but I also learned from the [inaudible 00:11:16] even you do a lot of detouring around Russia to Europe, they still make a lot of money as a good loads. Less capacity are learned again, creates higher fares.

                                   We see more than 1000 aircraft grounded worldwide, which younger than 10 years related to the, I think mostly stage engine issue more or less or maybe they have no cabins. As we learned, there are a lot of things like that. So every airline CEO I talked to and I heard the other discussion, they struggle really to have aircrafts available capacity. On the other side, this brings the yield up in a way because it can raise higher fares and joint ventures between the airlines much more... We see much more cooperation between alliance members with other non-alliance members. So this barrier is falling more and more and yeah, there are always a lot of things to learn about here.

Karen Walker:               Right. Yeah. So there was quite a lot of talk about that as well among the airlines of new partnerships, new alliances, it seems to me that again, what's going on there is that a lesson very much learned through COVID was strength in numbers. If you've got more partners, if you're part of an alliance or you've got a joint venture, you've got multiple ways to attack issues. Does that make sense, Kurt?

Kurt Hofmann:              If I may also found it quite interesting, the traffic right issue. For example, Emirates is complaining since many years to get bought traffic flight India, but the Indian airlines never filled out the whole traffic rights they had. So now they're using it. So they're flying more as they take use of their traffic rights now as they're growing, which creates a bit of how should say frustration on other airlines which want to fly more to India. So it's quite interesting movements we see here and yeah, that's a point we have to follow, I think.

Karen Walker:               And so just going back to sustainability here, I'm curious because of all these other things that are coming up, Lori, you mentioned about Willie Walsh raising safety and of course air traffic control issues that have been raised capacity in the airspace, whether that's restricted because of antiquated ATC systems or wars or whatever. But again, lots of restrictions going on. And then the ongoing supply chain crisis. We all know, all three of us know that the sustainability has been a huge thing for several years. It was back in 2021, again, it's an AGM, the one in Boston where IATA set the agreement to achieve carbon net-zero by 2050.

                                   So that was a big milestone and everybody was really going for that and they still are, but there's a huge concerns now as you've already mentioned. Production of SAF or lack of thereof. I thought it was interesting Lori, that Willie Walsh specifically called out some people on sustainability. He mentioned BP and Shell, the oil companies. He actually said they're not investing or not living up to the promises that they made on SAF production. So my first question to you, Laurie, did that strike you as a Willie Walsh and IATA members making it clear, we can't do this on our own. Governments and other industries need to get their act together fast?

Lori Ranson:                  For sure. You could sort of sense the frustration of the pullback of those companies and production as the industry is trying to work towards its net-zero goal and their patchwork of regulations among governments worldwide. So the commercial production of staff by those companies is really an important factor in meeting those goals. And so as you mentioned, I think this was very deliberate on IATA and Willie Walsh's part to mention those two companies in the speech because without the commercial support, it's not going to happen. I think though what's interesting with the pullback of those two companies, they're doing it out of business and their own commercial interest, it seems like. So how do we balance that going forward to make sure that there's enough staff available and the industry reaches its goals.

Karen Walker:               At the end of the day, airlines are not oil or staff oil producers, that's not their business, but it's become an increasingly difficult proposition as they can't see the staff coming in quick enough. Kurt, when you were talking to airline people, I'm curious as you're talking to airline executives, did sustainability come higher or lower than things like air traffic controls, capacity, congestion and safety? Is there a shift now?

Kurt Hofmann:              Thanks for this question and because a point which I really wanted to add. And I just tell you my personal feeling now from the interviews and from my perspective, this sustainability topic is going down, it's getting weaker. They have to do with wage problems. When you fly over the North Atlantic, as we always talk about the supply chain issue, air traffic control, I spoke to Virgin Atlantic issue revenue drops crossing the North Atlantic, which is 65% of their business. So for Q2 and Q3, the revenue is going down. We try to balance this out with other destinations, but if you are dominating on the North Atlantic, this is not very easy. So from my perspective, I really had the feeling with many airlines, okay guys, here's the sustainability thing. This is nice, but we have other problems to run our business. [inaudible 00:17:34] have two 787s from 10 aircraft grounded, [inaudible 00:17:39] three from eight. These are big challenges for them and I think they don't think about sustainability at the moment. They try to keep the fleet running if possible.

Karen Walker:               Right. Yeah, that's what I'm trying to get at here exactly is by nature of the things that are happening and what they're dealing with and the fact that many of them have still of course not recovered financially from the COVID pandemic. So they're having to be practical. And what's interesting is ICAO will hold their annual summit in September in Montreal, and of course that's the United Nations arm of the global air transport industry. I think it's quite interesting that... Lori, correct me if I'm wrong here, but I'm pretty certain Willie Walsh made specific reference to that in his speech. And he said that this sustainability thing, this SAF shortage has got to be dressed at the ICAO AGM and I just get the impression that people in the air transport industry are saying it's time to get somebody else really, really moving the dial on this. Lori, would you agree?

Lori Ranson:                  I do agree. And he mentioned CORSIA specifically and that whole program. And so yeah, he's definitely asking for help perhaps in his own way in terms of meeting the goals. And it seems like IATA might feel that ICAO, as you said, needs to do more to help the industry meet its goals.

Karen Walker:               Right. So Kurt, can I just ask you, there's often just a moment at these different AGMs, a moment that was not necessarily on the agenda or planned or something, but was there a moment that struck you as a sort of, I'll always remember that about that AGM?

Kurt Hofmann:              When we meet the airline people and they always tell us how to motivate employees and the employees are the most important part to be successful and so on and so on. The first evening there, there was Indian music and Peter Elbers, the CEO of IndiGo enjoys his work with IndiGo. And the dancer was full with his employees and he was in the middle and was dancing with all of them. And the reaction, what I hear from other airline, people say, this is how to motivate employees. And there was so much enjoyment, there was so much proud from the employees working for IndiGo. It is something I don't see very often when you have so many airline people around, they enjoy the CEO dancing, they enjoy working in this case for IndiGo, very proud with the company and this was really delightful and people watch this and there are a lot of videos you can find on the social media. Peter Elbers dancing in Delhi.

Karen Walker:               Yeah, you don't often see an airline CEO dance... Probably not well when they are doing it, but it's fun. So that's nice. Lori, as I mentioned earlier, they also announced of course where next year's AGM will be in Rio with LATAM Airlines. And you cover that area Latin America a lot as well. I know. And it will of course likely be the last AGM for Willie Walsh. He has stated that he expects to complete his term after that AGM. So Lori, how do you feel about Rio and LATAM being the host?

Lori Ranson:                  I think it was probably a pretty logical choice. If you just think about the last three or four years, it was in Doha, Istanbul, Dubai, and then Delhi this year. So I think just in some informal conversations that I've had with people, I think there was a desire to move it maybe back to the Americas and Brazil is Latin America's largest aviation market. There are some definite challenges in running an airline in Brazil, but there's a lot of potential. I think it's interesting that... Because know LATAM is Latin America's largest airline and has franchises all over South America. And I think that it's interesting that they pushed for Rio and Brazil because I think it shows the importance of the market to LATAM as well. So I think it's a pretty logical choice just given where it's been over the past three or four years. The locations.

Karen Walker:               Yeah, I think if you look to... There's some comparisons here, isn't there? From India and then Latin America, in particular, Brazil. And as you say, it's interesting because LATAM is actually based in Santiago, Chile, so they still clearly felt that Rio and Brazil was the place to be, but you've got emerging markets, big growth potential here, lots of interesting airlines now across Latin America. So I think it will be very interesting from that perspective. Also that region has so much potential on South production. I just can't think that's not a coincidence. I think that's a 0.2. Yes?

Lori Ranson:                  Yeah, I think I agree with you on the South production, there are challenges because the governments don't really cooperate very well in that regard. So [inaudible 00:23:17] next year and see if South is discussed in the region and if there's a push for more government cooperation, more government support. Because you're right, it's probably the potential for South production in Latin America is huge, but it just needs to be formalized. People need to start cooperating. So I think that will be very interesting to watch over the next couple of years.

Karen Walker:               It's also been a long time since IATA has been in Latin America and given how important that market is to North America, let alone the rest of the world. And very interesting what's happening on the southern transatlantic market now with TAP Portugal and its links with Brazil in particular, but there's a lot more focus now on that southern transatlantic market that I've not seen for a long while. So I think 1999 was the last time it was in what I would call true South America and that was also in Rio. Of course it was in Cancún, wasn't it? Cancún, Mexico a few years ago, but you don't really think of that as Latin America. That was a bit more Caribbean. So I think Rio has potential to be quite a meaty AGM. Kurt, are you looking forward to going to the Rio one?

Kurt Hofmann:              Yes, absolutely. I like Brazil, as I like South America and I'm looking forward to Rio, let's see. Maybe we can also visit Embraer at the same time as a Brazilian aircraft manufacturer. And I'm sure there's also, again, a lot of interest. And as you mentioned, more and more airlines realize the potential of South America, even the Lufthansa Group ceased to grow is better now in this region as well. Now they do this with the ITA group, but Lufthansa itself likes to do more. You mentioned TAP, Air Europa is one of the leading carriers from Europe to this region. Interesting. Let's see what will happen this year until the Rio IATA AGM starts. I think we will see a lot of movements.

Karen Walker:               Yeah. And Argentina, I must mention that one too. I mean, that's a place that's changing a lot in the aviation industry and liberalizing a lot. So I suspect there'll be quite a major participant in all of this. Do you think, Lori?

Lori Ranson:                  I do. No, the current government has said it wants to privatize Aerolíneas Argentinas. We'll see if that happens. But there's a definite commitment there. They've done other things to allow airlines to come in and establish themselves. Previous governments allow for an establishment of a true low-cost industry in Argentina. So yes, I agree. I feel like Argentina will have a big presence there and it's an important market for the region. And as you say, there's also going to be potential if this liberalization continues, there could also be potential for more long haul intercontinental from Argentina.

Karen Walker:               Excellent. Okay, well, I look forward to having a Caipirinha or two with you both in Rio. So Lori, Kurt, thank you so much for joining me today. My thanks also of course, to our producer Cory Hitt for this week's edition of Window Seat and a huge thank you to our listeners. Remember to follow us on Apple Podcasts or wherever you like to listen. Until next time, this is Karen Walker, disembarking from Window Seat.