REPORT BY KEVIN O'TOOLE IN GENEVA
Pierre Jeanniot has seen through almost a decade of change as director general of IATA. Here he talks about the challenges still facing both the industry and his association, as well as the response to the recent crisis which has ushered in the 21st Century
If all had gone to plan, Pierre Jeanniot would already have said his farewells as director general of the International Air Transport Association (IATA). Yet the usual hiccups over succession led him to stay for another year. In the light of recent events, that hiccup has proved fortunate. The industry has needed the calm experience of its elder statesman at this time of crisis and Jeanniot, one of the most familiar faces in world aviation, has not disappointed. This September he was able to witness how the organisation that he has helped to build at IATA over the past decade was able to mount a real-time, international response to the catastrophe as it played out on television sets around the world.
Jeanniot is characteristically calm about events in the industry since. "I'm not overly pessimistic," he says. "I think that we have a tendency in this business to be overly optimistic when things are going well and too pessimistic when they're going badly." In any case, Jeanniot acknowledges with a smile that he has been in the industry long enough to have lived through at least four previous down-turns. The last of those was still in full progress as he arrived to head-up IATA in 1992. With a certain symmetry he is destined to leave a decade later at more or less the same point in this cycle. Back in 1991 it was the Gulf War that sent the world heading towards recession. This time the 11 September terrorist attacks provided the trigger to break the building economic storm.
If he is optimistic then it is because, while the shock this time has been shorter and sharper than anything in the past, the industry's reactions too have been quicker. "Today the industry is reacting a lot faster than it did in previous cycles. It gives me some degree of confidence that the airlines will be in a better position in 2002," says Jeanniot. If the recovery is slow, then the industry at least will have been early in achieving a better operating base. If business returns more quickly, recovering in the second half as some predict, then perhaps the airlines will be a little "closer to profitability".
He has been in the industry too long to talk of an early return to profits. Even before 11 September, IATA was predicting that its members would lose $2.5 billion on international operations. Now the best guess is for a net loss of around $7 billion, assuming that the slide in international traffic for the fourth quarter is held to 15%. That is before the $3-5 billion loss likely on US domestic operations. Yet the industry reaction has clearly been equally decisive. Within a couple of weeks, IATA members had shed around 120,000 jobs or 7% of the workforce. In the last recession that took a year.
If airlines are more responsive, Jeanniot is in little doubt that among the key factors are the pressures of private ownership and the disciplines of the market. It is a discipline that Jeanniot has long advocated. Back in the late 1980s he was the chief executive who led Air Canada through privatisation and lived through three strikes along the way.
At IATA he has long warned of the need for more market discipline and has not been afraid that there are simply too many airlines all competing for the same prize. "There's a tremendous amount of market chasing that goes on," he says, adding with a sigh that "I don't know how many times I've said this, but if you add up all the market penetration plans for all the airlines they must make 180% of the market." The industry has for too long focussed on the promise of future growth rather than the current bottom line, he believes.
The dot.com boom was perhaps a caricature of the same philosophy that has propelled growth in aviation he muses:"We're going for growth today; it may not be profitable but once we control the market we will make profits. But you never do hang onto the market." The frequent flier programme may have engendered loyalty among seasoned travellers, but a solid 40% of travel hinges on leisure and therefore price. "Low-cost operators can come in and clean up. That is the part of the market where you've got to look for growth,"he says, noting that the track record of majors getting involved in this low-cost competition has not been great.
Market discipline
Rather than compete with carriers - easyJet for example is taking youngsters out of Geneva for the day to sun themselves on the beach in Nice - Jeanniot believes that the majors need to sell their real benefits of frequency and flexibility. Interlining, for example, which he argues is one of IATA's most precious gifts, is not free to the airlines, yet estimates suggest that it also saves the consumer $3 billion a year.
But if the airlines need to focus on profitability, the rest of aviation needs to respond to the same market disciplines and especially so in the current crisis. Jeanniot insists that airlines cannot be treated in isolation and is strongly critical over the lack of joined up thinking when it comes to government aviation policy. "I'm a little disappointed that I don't find too many people in government that have a full understanding of all the relationships and who can make sure that all the regulation is coherent and focused," he says. Policy on areas such as airline competition, infrastructure provision or the environment appear to be pulling in different directions. So there is the contradictory sight of transport ministers desperately trying to keep their national airlines flying at all costs, while at the same time other arms of government are bowing to the "dark greenforces" of the environmental movement keen to curtail any future growth in air transport.
And neither should airlines be alone in having to face the harsh market realities of cost cutting and consolidation. "To deliver the aviation product you need airports, air traffic control (ATC) and distribution mechanisms. You need a regulatory framework and you need the rules of the game," he says. "It's quite strange if you stand back outside the industry and look at the actions that governments have taken over the last 20 years to make airlines respond to the customer and become more commercial. Because when you look at what is required to deliver their product, most of it is not driven by the marketplace at all.
"We don't have much of an overview or coherent policy. We have policy in chunks and it is very fragmented," he says. "The whole thing should be consumer driven." While governments need to work closely with industry to lay down regulation in areas such as safety and security, Jeanniot believes that is where state intervention should end. "Government should step out completely from the operations areas," he argues, including the provision of ATC in that bracket.
Jeanniot is an enthusiastic supporter of the UK public-private partnership initiative that saw National Air Traffic Services (NATS) become a commercial company with airlines among its shareholders. Jeanniot himself sits on the board. Already in the present crisis, he detects signs of how attitudes are changing. The old bureaucratic instincts would simply have been to meet the fall in revenues from reduced flying by raising ATC charges, despite the damage it does to the industry. "At NATS the management discussed how to maintain quality while cutting costs, which is exactly what the airlines also have to do," he says.
Jeanniot is quick to acknowledge that ATC and airports are to an extent monopolies and should not be run just to make money for investors. But neither, he argues, does that mean that they should be managed unprofessionally. "Teams need to be incentivised to provide good management, quality and safety, and not necessarily just to make profits," he says.
Perhaps, he suggests, a handful of efficiently managed airport and even ATC groups would be a better model than the hundreds of state bodies that currently run aviation infrastructure. The objections, he argues, are rooted in ageing and increasingly irrelevant arguments over national sovereignty. The same is true of the airline industry itself.
"Why do we still have limits on ownership? The US keeps thinking about it as a security issue, but it's a left- over national thing, a gut reaction," he says, pointing to the emotional scenes now being played out around Europe as countries such as Belgium or Switzerland attempt to save their flag carriers. The question is whether they need indeed need to be saved at all? On that issue, the European transport commissioner Loyola de Palacio appears to be making a brave stand against further state aid, even if the carriers are lost. "They are saying 'let it happen'. The world is different today, "says Jeanniot, adding that the current economic pressures are helping make the choice.
"Europe needs to grow up," he adds, arguing for a view of the region's majors in terms of "European carriers" fighting in a world market, rather than as flag-carriers with individual national identities to protect. He concedes that it could be argued that consolidation has already narrowed the US market to half a dozen carriers of sufficient scale. Yet IATA has around a hundred members across the whole of a much smaller European market.
Jeanniot is convinced that change will come, aided by progress towards liberalisation on the transatlantic. He sees the world developing in terms of "bloc-laterals "with the European and North American trading blocs eventually moving towards open skies. At that point, national distinctions would matter little.
A future role for IATA
So is there still a need for IATA in such a world, dominated by alliances, open skies and commercialised service providers? In many ways Jeanniot believes that its role could be more important than ever, not least in times of crisis. Handling of the millennium bug (to which debate Jeanniot believes IATA added a rare "sensible voice") was in some respects a dry run for the shock that was to hit on 11 September.
Like the rest of the world, he thought it was a tragic accident as the first aircraft hit the World Trade Center. As it became apparent that it was not, IATA started to respond. A crisis centre was set up within hours at the base in Montreal, aimed at acquiring and disseminating information - including briefings from the US security agencies. Jeanniot himself sent a message to airlines urging heightened security and to pay attention to codeshare partners who could also be "at risk". Meanwhile, the IATA security committee, which had been virtually dormant, was reactivated and a tele-conference set up to link Montreal with directors of security at the major carriers. IATA's headquarters in Geneva became a communications centre handling enquiries from around the world.
In the aftermath of the attacks, as everyone scrambled to restart operations, Jeanniot personally intervened with the Federal Aviation Administration to ensure that others got treatment equal to the US carriers, which were getting the information first. He notes that IATA even received calls from European airlines asking why their US partners were able to fly - a sign perhaps of the fragility of communications within the global alliances. Jeanniot has just received a letter from FAA administrator Jane Garvey apologising for any confusion in the rush to get things moving.
A further intervention came as insurers withdrew war risk. IATA sought to secure a delay on their initial deadline; it used the Geneva centre to track the support being provided by governments around the world; and worked to build a consensus on the degree of cover that should be offered.
Jeanniot is clearly proud of the way that his team responded. It is a far cry from the organisation first set up by bureaucrats in 1945 to focus on enforcing regulations and setting tariffs. It is also a large step forward from the organisation that Jeanniot inherited a decade ago. Like the industry itself, the organisation has had to adapt to the customer. "If you look at the operation of IATA over this crisis I don't think that this real-time response and reporting could have happened under the past bureaucratic structure," says Jeanniot. "It's a new dimension for IATA. Our industry runs 24 hours a day and its support organisation has to be able to gear up in a global crisis and do the same."
And if Jeanniot has advice for his successor, then it is to focus on this real-time dimension: "The 21st Century has started and the real time crises that we've been involved in are not going to go away. The industry has to react instantaneously." Perhaps a second area is to bring infrastructure in from the cold. Jeanniot is justly proud that it was IATA that laid the first communications link between North and South Korea as a step in getting the airspace opened up. Perhaps another lesson that Jeanniot leaves to a successor is to stay calm and always retain a sense of humour.
Source: Airline Business
