It’s hard to know what direction the global economy is heading in – and some say forget economists and ask an airline bosses instead.
After all, much of their decision-making takes into account elements such as consumer demand, labor shortages, the regulatory environment and oil prices – factors that ultimately cut across many aspects of the economy.
For better or worse, aviation bosses view much of the above as just part of the job.
“The airline business itself is full of challenges, full of crises,” said Guliz Ozturk, CEO of Turkish low-cost airline Pegasus, adding that that is why she finds the industry exciting.
Ozturk was speaking at the World Aviation Festival 2023 in Lisbon, Portugal last week. Here’s a recap of some of the other comments made by aviation bosses at the event regarding current demand and the economy, artificial intelligence and SAF and sustainability.
No dip in demand
The good news is that right now, and for the foreseeable future, aviation bosses don’t see the economy diving and demand declining.
“I’m not complaining. Honestly, as you said before I think all the economists should be fired, nobody can explain what’s going on. I think demand is not going to fade away that soon. … and if you think about it most of Asia – and Asia is half of the world – is not … traveling massively,” said Luis Rodrigo, CEO of f TAP Air Portugal.
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“Eastern Europe is not a huge market, but there is a significant number of people who would be traveling and they’re probably not traveling. These groups will probably jump in when European and Americans may fade away a little.”
Echoing similar sentiment, Tim Clark, president of Emirates agreed business is exceptional.
“[Exceptional means] very high seat factors, very high profit margins, good cash built up on the balance sheet and the network continuing to grow and expand. Do I see any clouds on the horizon? No,” he said.
Not even rising fuel prices? Clark was asked by Bloomberg anchor Guy Johnson.
“We’ve been at fuel at $100 [a barrel] a few times in the past, we’ve managed that. I heard you mention about $150 and what will this do to the industry. It’s not just the industry, it’s what will it do to the global economy,” Clark said.
“We saw that in 2008-09 – the global economy couldn’t take it and taken with other things at the time it plunged into a recession. So, if you go at $150, the global economy will start to falter, and you’ll have a massive global macro economic problem. In 2009 I knew at $140 we could trade the airline through it, and we did. We still made money that year and we will continue to deal with these bumps in the road, because nothing is going to change with regard to what happens in the future.
“This industry is highly vulnerable in many respects not just for fuel, the changing nature of demand, the sometimes questionable government policies of the countries that we fly to. We deal with all of those, that’s what we get paid to do and you get through it.”
The AI opportunity for airlines
While across the pond at a separate event in New York, Delta discussed the role it sees for artificial intelligence, Luis Gallego, the CEO of British Airways-parent International Airlines Group had this to say about the technology:
“We’re working very hard on it. One of the beauties of a group like IAG is we have the scale. When you have only an airline it is very difficult to invest in something like innovation and artificial intelligence,” Gallego said.
“For us, it’s something that, in the transformation process we have at group level, is key. We see it as an opportunity to improve the revenues, improve the customer experience, reduce cost, and we see areas such as customer experience as we said before, predictive maintenance and even procurement where you can have a big advantage with artificial intelligence.”
But could AI ever do more harm than good to the industry? Willie Walsh, director general of airline group IATA doesn’t think so.
“Let’s look at past experience. I can remember a debate more than 20-30 years ago, and there was a suggestion that the internet was going to lead to the end of the airline industry. We wouldn’t need to travel any more, we wouldn’t need to have meetings face-to-face,” Walsh said.
“I think the internet has been one of the greatest facilitators to the development of the airline industry. Technology always has challenges and opportunities. At the moment I see far more opportunities in AI than I do challenges.”
The cost of sustainability for airlines
Getting to net zero and how much it will cost is never far from the thoughts of aviation chiefs currently. How big is the challenge, are airlines being realistic about it and how much will SAF cost?
“That’s a million dollar question, nobody knows” said Rodrigo addressing the cost of SAF.
“I’m a big believer that we’re going to crack it as far as net zero is concerned before 2050. It’s going to cost and not only because of fuel, because of all the other costs that are going to have sustainability included in the process and that’s going to drive costs up. So, travel is going to be more expensive which probably balances with volume. We can probably do less volume because we don’t have the infrastructure to handle all these people traveling back and forth so the market will balance itself.”
Emirates’ Clark believes airlines do accept the mountain they have to climb.
“If the truth be known, we know exactly that is the case. You have to be very careful you don’t fall into the greenwashing situation. You’ve got to deliver the message, and you mentioned in your opening about eSAF and SAF availability and what the airlines are trying to do in regards to that. We talk about Net Zero 2050 and some countries have taken a more aggressive stance on that. The reality of the situation is that the airline industry is at the behest of technology, of the power producers etc., and what you see now is airlines trying to cross over into these kind of industries,” he said.
“We’ve allocated $200 million to deal with eSAF. In other words, the future – whether it be green hydrogen and you mentioned nuclear – in the end if you’re going to produce green hydrogen you’re going to need nuclear power to provide the huge amount of power to produce eSAF. If you want to decarbonize the global economy and not face the mega trillions that we’re talking about, this is a long expensive part we’re on, you could accelerate that by accepting that nuclear is a way of getting into the eSAF type of fuels. The problem is that nobody wants a nuclear reactor sitting on their doorstep.”