Diversity, specifically the lack of it, was a resonant theme at this year’s IATA annual general meeting in Sydney – even before the storm created when the association’s board chairman for the next year Akbar Al Baker responded to a question about gender equality, by saying that “of course” his own carrier Qatar Airways “has to to be led by a man because it is a very challenging position”.
Al Baker, who minutes earlier had pledged to avoid making controversial statements, subsequently expressed contrition. “I would like to offer my heartfelt apologies for any offence caused by my comment yesterday, which runs counter to my track record of expanding the role of women in leadership throughout the Qatar Airways Group and has been sensationalised by the media,” he says in a statement.
He adds that almost half the airline’s workforce are women and that he considers that “no role is too tough for them, at any level of the organisation”. He also pledged to support “all IATA initiatives to support advancement of women in our industry”.
Al Baker – flanked by IATA director general Alexandre de Juniac (left) and Qantas boss Alan Joyce – at the AGM closing press conference, where he caused a bit of a stir
IATA
Damage-limitation exercises can be enacted quickly, but the scale of the problem to be overcome in correcting the industry’s lack of female representation was highlighted by the IATA board photo taken during the AGM. It features just one woman: Flybe chief executive Christine Ourmieres-Widener, who was elected to the board this year.
“We have two females on the board now,” says IATA director general Alexandre de Juniac, quickly acknowledging this “is not enough”. He points to wider issues, such as the need for more female representation in science, technology, engineering and mathematics (STEM) subjects, creating long-term challenges to address. “We have to push at all levels, but it’s going to take time to fix,” he says.
“I don’t underestimate the scope of work needed to address the gender challenge – changing processes, policies and mindsets,” he added in a subsequent blog post. “Strategies for this were discussed at the AGM. A combination of individual action by airlines and collective action as industry are needed to make aviation a more equitable place for all those who want to make a career in it.”
He highlights the positive example of Qantas, where 44% of the managers directly reporting to group chief Alan Joyce are women.
Joyce, at the IATA press conference, had noted that the diversity debate for the industry is wider – covering race and sexual orientation. “If you are not tapping into diversity and inclusion, you’re at a disadvantage,” he says.
UNEASY PEACE
Before the late controversy stoked by Al Baker’s comments, the IATA AGM had been a relatively low-key affair. For an industry riding high in a period of almost serene profitability, and used to its fair share of shocks, this was probably pretty welcome.
Several recent AGMs have exposed some of the wider issues or faultlines within or impacting the industry which threaten to derail – at least parts – of the industry.
Notably, the AGM in Miami three years ago was overshadowed by the escalating subsidy row between the US and Gulf majors. A year ago in Cancun, the sudden eruption of the diplomatic spat between Qatar and several of its Gulf neighbours resulted in Al Baker flying home early to tackle the closure of airpsace by four Middle Eastern states.
Tensions between the US majors and their Gulf rivals have been eased by the open-skies agreements struck this year by the US government with both Qatar and, more recently, the UAE. But given these are in part based commitments by these Gulf carriers that they “currently” have no plans to add more of the controversial fifth-freedom flights which have so enraged the US majors, a watchfulness prevails.
“We were pleased with what we saw from the agreements which include, not commitments, but statements from those carriers that they don’t have any intention to fly fifth-freedom routes, and that gives us comfort,” notes American Airlines chief executive Doug Parker, he adds that it is too early to say if these agreements would be positive for US carriers.
Meanwhile, the Qatar air blockade remains in place – with the airline’s loss of 20 local routes in the process. That continues to have a look of permanency about it.
Plenty of other political uncertainties remain, not least of which are the heightened rhetoric and risks around trade wars – or even actual wars. But despite the shocks of Brexit and Donald Trump’s election, the last 18 months have done little to quench the public’s increased thirst for air travel as global economies enjoy relatively widespread growth.
This is the propelling force behind the strong fundamentals that continue to drive industry profits. IATA sees passenger traffic growing 7% this year – slightly below last year, but well above the 20-year average. Air freight is also rising, albeit at a slower pace than the restocking-fuelled growth of last year. Collective industry profits in 2018 are thus set to yield returns above the cost of invested capital for a fourth year in succession.
FUEL LINES
Against this backdrop, it is rising oil prices that represent the biggest threat to airline fortunes. IATA did wipe more than $4 billion from its previous outlook for 2018, projecting a collective industry net profit of $33.8 billion in its updated forecast.
While it took $1.4 billion and $800 million from its expectations for North American and Asia-Pacific carrier profits, respectively, it is Europe where IATA tempered its optimism the most. It took almost $3 billion off its profit expectations for the region’s carriers compared with its earlier forecast.
This leaves the industry in a familiar position where North American carriers account for almost half the industry profit, at $15 billion. That is almost the same as European and Asia-Pacific carriers combined – regions where profits remain driven largely by a relatively small number of operators.
By contrast, IATA actually raised its forecast from December for carriers in the Middle East, where the oil economies help drive demand.
IATA’s forecast last December had worked on the basis of an average of barrel price of $60 for Brent crude – up around $5 on 2017. It now expects an average barrel price of $70 for 2018. It means fuel is likely to account for almost a quarter of airline costs this year.
“We are coming back to the [oil price] levels that were problematic a few years ago, but in the meantime the airlines have been very active in trying to clean their balances, restructuring their operations, reducing their costs and being more competitive and resilient,” says de Juniacs. “So we think the fuel-price increase shouldn’t have the same consequences it did [a few years ago].”
AIRPORT CHARGES
But it is not just fuel where costs are rising. “It is a challenging industry in which to operate,” says de Juniac. “High taxes, costly and ill-conceived regulation, infrastructure, capacity constraints, markets shifts and the demands of labour are the ‘normal’ repertoire.”
Much of IATA’s focus at the AGM was on airport infrastructure – both the struggle for it to keep up with demand and the cost of delivering it.
“We are in a capacity crisis. And we don’t see the required airport infrastructure investment to solve it,” de Juniac says. “Governments struggle to build quickly. But with cash-strapped finances, many are looking to the private sector for solutions.”
IATA, though, is urging caution from governments when it comes to airport privatisation, which, the association argues, fails to deliver the required efficiencies.
“The key question is why,” asks IATA chief economist Brian Pearce. “I think the big difference with what we saw happen with steel, the airline industry and airports, is competition. Because we see in the airline industry a lot of competition, and that’s the thing that drives management to deliver efficiency gains
“That typically is not the case in the airport sector, where competitive pressures by the very nature of their business are much less.”
While regional airline association Airlines for Australia and New Zealand (A4ANZ) had ahead of and during the AGM complained about charges at airports in those two countries, the UK decision on 5 June to clear the path for the building of a third runway at London Heathrow brought one of the highest-profile examples of airport capacity woes back to the surface.
ONE-CHINA
Airlines are regularly caught up in wider political challenges, and one such live issue at the time of AGM has been China’s move requiring airlines to comply with its One-China policy.
China has given foreign airlines until 25 July to change how they refer to Hong Kong, Macau and Taiwan on their websites and promotional material. Eighteen of the 44 airlines it wrote to have already complied, whilst the remainder have sought an extension for technical reasons.
Airlines say they will be guided by their own country’s policy on the issue. “It’s clear airlines don’t decide what a country is called, governments do,” says Qantas’s Alan Joyce. He notes that Australia has a One-China policy with which Qantas is complying.
Likewise, Parker at American says: “This is an issue between countries. We received the notice but then the United States has replied to the Chinese government, and as a result we’re following the direction of the US government.”
For more stories from this year’s IATA AGM in Sydney, visit flightglobal.com/IATA
Source: Cirium Dashboard
