Aviation is not a cash cow’, ‘it never has stability’ but is performing at a ‘very high level’ – insights from the CAPA Americas Aviation Summit

This week the CAPA – Centre for Aviation Americas Aviation Summit has been taking place at  a key time in the United States of America (USA) as it approaches the next generation of aviation. As consumer demands change rapidly, as infrastructure needs remain unsatisfied, and as longstanding policies are under attack, the US airlines are unprecedentedly profitable. But, there is much that needs to be fixed if they are not to be marooned in the present, domestically and internationally.

Here’s some initial insights and observations from delegates during the event at the Hilton Americas hotel in Houston…

Volaris says governments need to understand that ‘aviation is not a cash cow’
Volaris CEO Enrique Beltranena Mejicano said Governments do not understand the importance of aviation. He said they need to understand “aviation is not a cash cow, it is one of the fundamentals to grow the economy in a country”. He said Latin American Governments need to introduce smarter aviation regulations and lower taxes imposed on airlines.

Japan Airlines’ primary focus is to ‘polish’ the quality of full service product
Japan Airlines VP marketing and strategy research Asia and Oceania Region Akihide Yoguchi, speaking at the CAPA Americas Aviation Summit, stated (16-Apr-2018) Japan Airlines’ primary focus is to “polish” the quality of its full service product. He noted that approximately 70% of inbound traffic is short haul so yield is not always high. He said cost is a challenge that must be addressed, especially as the market is moving toward lower yielding passengers.

US DoT: ‘We like to see competition to serve public interest’
US Department of Transportation director office of international aviation Brian Hedberg said one of the things about being an economic regulator is that “we like to see competition to serve public interest”. He said part of that includes creating opportunities for different airline business models, including low cost long haul. He added that the Asian low cost long haul model cannot be compared with the trans-Atlantic model, stating: “It’s not comparing apples with apples, not even oranges with tangerines”.

Southwest Airlines says aviation industry ‘never has stability’
Southwest Airlines EVP and chief revenue officer Andrew Watterson said the aviation industry “never has stability. Who knows what the next speed bump will be and how we can handle it. It is all about the unknown unknowns”.

Air China says US-China visa process streamlining in 2012 had positive impact on US-China market
Air China VP and general manager North America Zhihang Chi said the reason why Air China’s Houston service performed so well when it launched in 2013 was due to the streamlining of the US-China visa process in 2012. Mr Chi said the streamlining of the visa process “completely changed the dynamics of the US-China market”, allowing Air China to open new routes. He noted the relationship between China and US has changed over the past few years. Previously the US was “banging” on China’s door for more flights while presently, China is knocking “very nicely” on the US’ door for more flights, he said. On alliances he said that if an airline is not in a JV they’re not “in the game”.

Spirit Airlines open to embracing biometric technology to improve airport experience
Spirit Airlines SVP and chief commercial officer Matt Klein said Spirit Airlines is open to embracing biometric technology if it allows passengers to move faster through airports. Mr Klein said one area airlines and airports should focus on is improving the queues faced by international passengers when they enter the US. He said the 90 minutes a passenger spends waiting in line is 90 minutes they are not spending money. He also said the US ATC system needs to be reviewed.

Volaris says it will be hard for a new political regime to reverse New Mexico City Airport project
Volaris CEO Enrique Beltranena Mejicano said it will be hard for a new political regime to reverse the New Mexico City Airport project as the “runway would already be completed by the time such a decision will be taken”. He said the New Mexico City Airport is required as “there is a limitation on capacity and we can’t fly into the system”. Mr Mejicano noted however that Volaris’ network has developed away from Mexico City Juarez International Airport, with approximately 70% of capacity operating between other airports.

Fisher College of Business: ‘Providing seats is just one component’ for airlines
Fisher College of Business executive-in-residence Nawal Taneja, said “it will no longer be about airlines selling seats, but solutions to mobility problems”. He added: “Providing seats is just one component. It is not that far away as technology grows at such a rapid rate”. He said Governments will always move at slower pace.

Japan Airlines says where to concentrate growth in Tokyo is ‘quite an issue’
Japan Airlines VP marketing and strategy research Asia and Oceania Region Akihide Yoguchi said deciding where to focus in growth in Tokyo Narita or Tokyo Haneda is a significant question for the airline, stating “Where to concentrate is quite an issue”.

InterVISTAS Consulting notes pressure on US airport infrastructure, ATC system
InterVISTAS Consulting executive consultant Kenneth Currie said the US aviation industry at present is performing at a “very high level” with a very level of safety, customer service and a great range of options. Mr Currie noted however that a significant amount of pressure is being placed on US airport infrastructure and the ATC system. He said that while he does not see the US aviation system as broken it does need to broaden its sources of investment in order to ensure it can meet the needs of airlines and users. He said there are many parties who are interested in investing there just needs to be a means to do that.

ICF Aviation says issue with some Latin American airports is structure of concession agreements
ICF Aviation principal Carlos Ozores said the issue with a number of Latin American airports is the structure of concession agreements. Mr Ozores said many concession agreements are based on which company will offer the Government the most money. He said unfortunately for airports a lot of that money is not reinvested into airport infrastructure, stating “it’s a broken model”. He added many Latin American airports are either at capacity or will be at capacity within the near future and emphasised capacity issues need to be addressed if the economic benefits of aviation to Latin American countries are to be realised.

2017 was a fairy tale year – it was not a normal year
CAPA – Centre for Aviation executive chairman Peter Harbison said 2017 was a “fairy tale year – it was not a normal year”. He said the year was remarkable largely due to low oil prices which led to growth in price sensitive markets. Mr Harbison noted airlines witnessed considerable growth in profitability throughout 2017 – “the best the industry has ever seen” – half of which has come from the US alone. He said there is a lot of uncertainty surrounding the price of oil, noting there was a 10% increase in the price of oil over the last week. Mr Harbison said the rising price of oil will change the successful airline profitability equation witnessed in 2017.