Listen in as Aviation Week Network's Karen Walker speaks with International Air Transport Association (IATA) Director General Willie Walsh about sustainability, taxation, government policies and air traffic management modernization ahead of the 80th IATA AGM.
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Rush 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 Group Air Transport Editor-in-Chief Karen Walker. Welcome onboard. I am absolutely delighted to be joined today by one of my favorite guests on Window Seat and someone with immense knowledge and experience of the global air transport industry. I'm talking, of course, about Willie Walsh, director general at the International Air Transport Association, or IATA. Willie, it's always great to see you. Thank you so much for joining us.
Willie Walsh:
Thank you, Karen. Good to see you too.
Karen Walker:
Willie became the IATA director general in April 2021, in what could well be described as the industry's darkest days, stemming from the COVID pandemic. His previous roles include CEO at British Airways and BA parent International Airlines Group, or IAG. He was also a pilot at Aer Lingus and a former IATA board of governors’ chair. And he's the holder of a Master of Science in business administration from Trinity College in Dublin. It's quite a resumé. Willie, with everything the industry and IATA—some 320 members—have been enduring since 2020 with the pandemic and the sustainability challenges, I have to still say this is probably your toughest role, despite that amazing resume. And you're about to host IATA's 80th AGM, which this year will be in Dubai, beginning on June 2nd and hosted by Emirates. So can I just start off by asking you what you expect to see as the top issues raised at that AGM?
Willie Walsh:
Yeah, thank you, Karen. Well, it won't surprise you to hear that many of the issues we'll be focusing on at this AGM are similar to prior years. The industry is still very much focused on our environmental performance and our commitment to net-zero in 2050. There's been a lot of debate internally and externally around that, and of course people now are moving the discussion forward to better understand how do we get there? I think the good news is that there's great awareness of the commitment made on the part of the industry and individual airlines, and I think there's growing awareness around the absolute requirement to see further investment and production in sustainable aviation fuel, given that that will be the single biggest source of abatement to get us to net-zero. But lots of other issues—obviously we'll talk around the financial performance of the industry. Despite everybody wanting to forget about the pandemic, there's always a reference back to 2019.
The good news, of course, is that the industry is now, at a global level, operating above where we were in 2019, but we'll be looking at financial performance. We'll be discussing developments, particularly with regulators and governments, and their ongoing desire to see the industry face further taxation, new sources of taxation. And in fact, one of great concern to us is breaking up the whole model of how airlines are taxed with the UN and the OECD, considering that it would be better to tax airlines based on revenues at their source, where the income is generated rather than where the airline is based. Now, that to me is a completely ridiculous move, given that the industry has been taxed based on the residency of the airline for many, many years, and it works very well. I think this will add significant bureaucracy, and in our experience, these shifts in taxation policy or introduction in new taxes tend to hit the developing countries hardest.
Many try and portray this as a way of spreading tax revenues around the world, but quite the opposite often happens. So that's an issue of concern and will be one of the issues that we'll focus in on. And I think there's the new debate around artificial intelligence. I think every conference I go to now, no matter whether it’s in the airline industry or somewhere else, artificial intelligence is one of those subjects. So, we'll have a wide-ranging discussion, but many of the topics, as I said, will be a continuation of debates that we've had in the past.
Karen Walker:
Excellent. Yep. Will be some good debates there, I'm sure. So, I will want to pick up on a couple of those points that you've just raised. Taxation just seems to get more crazy. Nobody, in governments at least, seems to have learned from the pandemic. So, we'll pick up a little bit on that, and of course sustainability because that's huge.
Let's just start with a little bit of that good news that you've just briefly referenced there. The latest statistics from IATA show continued good growth almost everywhere, in terms of demand for travel, and everybody is picking up on—they're gradually picking up on capacity, but it's to meet this big, growing demand. And I think it's also interesting that, despite all the naysayers, at some point, international travel demand is certainly looking very, very good at the moment. So, do you see that continuing through this year? Are any of the geopolitical things that are going on around the world like the wars, et cetera, likely to have an impact on that?
Willie Walsh:
I think it'd be foolish for us to say that there hasn't been an impact. Obviously, it has impacted directly and indirectly on ... Well, indirectly on pretty much everybody and directly on some markets. But the positive, as you point out, is that, at an industry level, we're seeing demand above where we were in 2019 and the capacity is matching that demand. Now, capacity is probably a bit of a struggle at the moment, given the delays in the delivery of new aircraft and the ongoing disruption to supply chain, but the general environment remains quite healthy, despite the very significant increase in the oil price that we've seen and the volatility, particularly as it relates to jet fuel.
I think everybody is familiar with the volatility in the price of crude as it impacts petrol prices at the pumps when you're filling your car, but we've seen even greater volatility with the differential between crude and jet fuel, and that's something that actually the industry hasn't seen to this degree before, but we're coping with these challenges. So still some challenges out there. I've described these as business-as-usual challenges, unlike the very severe crisis that we faced at the beginning of the pandemic. So, I think the industry deserves great credit. All of the airlines, and everybody working in the airlines, deserve credit for being able to recover as quickly as we have and continuing to meet the growing demand for air travel.
Karen Walker:
As you say, not easy, but it's happening.
Willie Walsh:
Yeah, no, it's certainly a challenge on a daily basis, but airlines are delivering, and I think the interesting thing that we see in surveys that we do is that the vast majority of customers are happy with the service that they're getting. So, I think it's fair to say the industry is delivering to meet the demands of consumers across the world.
Karen Walker:
And good to see that people do want to get back to travel, get back to normal themselves. So that's a big positive there. Let's talk about sustainability, which in itself is a positive. I think it's hard to sometimes remember that. It's a hugely difficult challenge for the industry, but it's a positive ... Somebody I was talking to just the other day, an official in Japan, was just saying a lot of this is about the will. If the will is there, and I would argue the will is very much there and has been for a long while for the industry, to be a sustainable industry or a more sustainable industry. So, what are now the critical drivers to meeting the industry's decarbonization targets?
Willie Walsh:
Yeah, you're quite right in saying this is an opportunity and a positive. And if you think of it in terms of our cost structure, fuel is the single biggest cost that the industry faces. So, we've always been focused on operating as efficiently as possible because there's a direct benefit to our cost base, but also a direct benefit to the environmental impact that we have. And I think that awareness has been there for many, many years. We've talked about the pathway to net-zero. It is going to be challenging. We don't have any easy options available to the airline industry, unlike some other industries. So sustainable aviation fuel is the area that we focused on most because it is an option that's available to us in the short term. We know that the existing aircraft fleet can operate, quite safely, with sustainable aviation fuel, and what we need to see now is greater production of sustainable fuels.
As you know, current sustainable fuel that's available to the industry today is very expensive. That can be two to six times the price of traditional jet kerosene. And despite that, the industry is utilizing every single drop of sustainable fuel that's available, but we want to see more production, and more production will require investment and, I think, a policy framework from governments around the world that will encourage that investment. Now we are seeing, I think, much greater awareness on the part of governments of the opportunity that sustainable aviation fuel represents—not just the environmental benefit but also job creation, which is something that governments are always focused on, and we have seen some significant progress. I would highlight the systems in the United States, both at a federal and state level, which is leading to investment in facilities to produce more sustainable aviation fuel, [and] recent developments in Singapore. So there is movement in this area.
We'd like to see the pace of investment accelerate significantly. We'd particularly like to see the traditional fuel producers invest in the production of sustainable aviation fuel because, let's be honest, they have made significant profitability off the back of airlines. The fuel that they're producing today has to be replaced. We have to move away from this fuel source and move to a more sustainable fuel source. And therefore, I think it's incumbent upon the traditional suppliers to start investing more money in the production of sustainable aviation fuel.
Karen Walker:
And, of course, that transition from conventional oil and dependency on that, which isn't just the airline industry. In general, right? To a bigger, more affordable supply of SAF, a lot of that, as you say, that's a government role. And we are seeing some movement in some places as you say, maybe not as fast as we'd like, but it does seem to be going in the right direction. But there's also a lot of key presidential and other elections going on this year. It's a pretty big year when it comes to those elections. So, are there any concerns among IATA members that that could result in shifts in policy when it comes to aviation, sustainability, those sorts of policies that are needed more than ever? And as you say, they need to be happening quicker.
Willie Walsh:
No, we've not had anybody express any concerns at this stage. And we've seen governments change around the world many times. It's nothing new. But the interesting thing is the focus on sustainability, particularly with the airline industry, has remained strong. So, I think we're well aware, those of us in the industry, that this is an issue that we have to address. Clearly [it] would be much easier for us to do so if we have strong support from governments, all moving in the right direction, but I think there are positives.
The fact that CORSIA [carbon offsetting and reduction scheme for international aviation], which is a government agreed process, agreed at the United Nations that you can reach a global agreement on an issue like that, is a real positive. And I think we've got to build on those positives and look to the future rather than be overly concerned about what might be short-term changes in some policies. I expect governments [to] continue to focus on sustainability, if not for everyone, certainly for the airline industry. So, we're very committed to achieving net-zero and we know we need to make progress now. People will be watching what happens within the industry. I think in the next five years especially, people will want to see where are we in 2030 and does that give us confidence to be able to achieve the critical net-zero in 2050? And I'm very confident we can do it.
Karen Walker:
It seems to me that it should be obvious, that what we're seeing is what we just talked about earlier, this big increase in demand. It's a back-to-normal type of demand going on. People are saying, hands up, “We want to travel, we want to get back to that.” So, governments should see that, and it's those same people that's electing them, yes, and saying, “We want to travel.” And the industry is saying, “We'll do that and we want to do it sustainably.” So, it should be a good message for governments to grasp.
Willie Walsh:
I believe it is, and again, I point to the opportunity that sustainable aviation fuel represents, where countries [that] don't have a traditional source of oil can now invest in an industry to produce a fuel source for a critical service: air transportation. It will increase their energy independence and generate jobs. So, it's a real win-win. So, I don't see the focus changing, and when you look around the world, I think the debate that we have in Europe is very different to the debate that we have in Asia. And I think you can understand that.
I was in India recently and you look at what's happening there, I've been highlighting India as an area where I expect to see very significant growth and opportunity. But you look at the demographics of that country, you look at the geography of that country, you look at what's happening politically, India will not be able to achieve its true ambition without air transportation. It just can't happen. So, the government will have to depend on a growing air transport system in India to enable them to unleash the economic opportunity and to continue to grow the Indian economy, and clearly the massive benefit that comes with that for the Indian population. So, when I look around the world, I look at places like India, I look at China, I look at Africa, Latin America, where I think air transportation is still in a very early stage of development. Even China, it's very significant. The size of the domestic market, 11-12% of full global commercial aviation in 2023, but the potential that exists there is huge.
So, sometimes in the developed markets like Europe and the US, we forget about the economic benefit and we forget about the critical dependence on air transportation. But you travel to India and you can see how important transport is going to be to that country.
Karen Walker:
Absolutely, huge for their economies and therefore huge for the people living there. And why should they be denied that?
Willie Walsh:
Well … they're not going to be denied it. And I think that's the thing, and I think it would be arrogant of us to try and deny them of the opportunity. I think that would be absolutely wrong. And that points again to the need to have a sustainable future for the industry because it's going to grow. It may not grow at the same pace in Europe and the US, but you look at Asia, you look at Latin America, you look at Africa, it is going to grow there. And we have to facilitate that growth because that growth will have massive socio-economic benefit. And that's important that we understand that and not try and restrict or stop these countries' availing of the economic opportunities that exist.
Karen Walker:
And that's an important role for IATA, I assume— delivering that message on behalf of all the airlines so that it's not just all the individual airlines going off with their individual messages. That's important, that's local, but what IATA can do is get that message over in a unified way.
Willie Walsh:
Yeah, because as I said in Europe and as a European, I've seen how Europe has been transformed as a result of liberalization in the market in a way that would never have happened [otherwise]. And quite honestly, I believe it has been the key to the success of the EU, that freedom of movement that came from the growing network of flights that Europe has, and we need to protect that. And yes, we can have a discussion around the train versus the plane, but that's largely irrelevant in many parts of the world, including in many parts of Europe. So, I think sometimes people try to gloss over the importance of aviation. And you made the comment: People want to travel, people need to travel. In many cases, it's not just a want, it's an absolute need because they don't have an alternative means of transport available to them. And that's why the focus on sustainability is very important, and I think we'll continue, regardless of the general political mood out there.
Karen Walker:
Politicians need to travel more as well ... As you've mentioned Europe, I'm just going to ask you about the European Travel Information and Authorisation System. I think it's called ETIAS, like the last thing this industry needs is yet another acronym, but it's around the corner after a lot of delays. Can I just ask you what that means for the airlines and travelers? In terms of, is it going to be another set of bureaucracy, if you like, that essentially the passengers are supposed to deal with, but we all know that it becomes the airline's problem, really?
Willie Walsh:
Yes, you're quite right. So, the passenger will have to have the authorization. And if you're somebody traveling to the US or Canada [or] Australia, these e-visa systems have been in place for many years. So, it's nothing new for a lot of people, but you're right, the airlines will now have to satisfy themselves that the individual passenger has the right authority to travel. I think what it points to actually is the need to accelerate the digital transformation, particularly when it comes to serving the customer and trying to do as much of this activity away from the airport, because airports aren't designed ... And we saw that when we had to revert to paper-based systems during the pandemic. Even though the passenger numbers were a fraction of what they were during the peak of 2019, the transaction times at airports when you had to go through and check all the papers, and ensure people had the right reasons to travel, and the right things ... What you call them? Vaccinations. Checking that, it was chaos at airports.
So, to me, this just reiterates the benefit of digital transformation, but also the absolute need. And the critical issue here is we need systems that can talk to one another. It's, yet again, an example of where a common approach, where we can share data in a safe and secure way and where people are comfortable sharing the data, becomes more and more important. And all the research that we've done shows that people are comfortable if they're satisfied that the data will be used for the right reason and in a secure manner. So, [that is] another little challenge for airlines, but one that I've no doubt we will overcome. In the short term, it's a little bit of a challenge. Longer term, there has to be a digital solution.
Karen Walker:
So, it's, as you say, that whole e-visa system, ultimately it makes life easier for everybody. People want that. People want to be able to get through the airport system. We know that, we've seen the IATA surveys again and again, people just say that's a top priority, getting through that system easier. So, they're willing to do their bit for that, but they need to know that this is coming, and what they need to do, and be aware of it so that, as you say in the near term, you don't end up with more hassle.
Willie Walsh:
Well, I think we've all learned from our experience of going through the early stages of the pandemic when requirements for travel were changing on a daily basis. So, certainly from an IATA point of view, we're set up to assist the industry to make this as easy as possible, but it does add another layer of complexity. But as I said, I think the solution will be an accelerated drive towards digital solutions for the benefit of everybody.
Karen Walker:
I'd like to ask you another question about something specific—in this case, the US. It's a bit confounding to me, some of the shifts in approach to US aviation, probably one of the most successful industries ever, in terms of what it's done for people to be able to travel. And now there's these moves that I would call a return to regulation in the industry.
Willie Walsh:
Yeah.
Karen Walker:
Right? And we've got this proposal now, going on from the DOT to regulate airlines' ancillary fees. A4A, Airlines for America, which lobbies on behalf of the US airlines, has decided it needs to sue the DOT for this, which is quite an unusual step, a big step for them to take. May I ask your view on this?
Willie Walsh:
Well, like you, Karen, I'm absolutely amazed that we appear to be going back to re-regulate of an industry that has been so successful through deregulation, and the massive consumer benefit that has been achieved as a result of that. I don't understand the current administration's policy in relation to this. And the bottom line here is airlines are absolutely dependent on every single cent of revenue that they generate. In our very best time, that 10-year period between 2010 and 2019, at an industry level, net margins were just above 3%. So, this is not a high-margin industry. Operating margins [are] just over 5%. So, if you try to regulate aspects of the fare structure, you may as well go back to the days where everything was regulated. I don't think anybody wants to see that. You could argue, maybe, profitability for the airline industry will improve as a result of that, but I don't think that's what anybody wants, and I certainly don't believe it's in the consumer's interest.
So, we often get these politicians saying that this is for consumer benefit, but who pays? The airlines aren't going to be able to absorb the drop in revenue that they're generating from ancillary. Ultimately, the consumer pays, and quite honestly, the arguments that I think the low-cost carriers, in particular, have made, and I have to give credit to [Ryanair Group CEO] Michael O'Leary for this, is why should everybody pay the same when not everybody is using the same facilities? If you want to do extra things, should you not be required to pay for that, rather than the cost of that being borne by everybody. And I think there's a lot of merit in that argument and politicians gloss over this because they have sound bites that make them look concerned about the consumer, but they forget to ... I don't think they're being honest with consumers and say, “You're going to have to pay anyway.”
Now, you have a choice in how you pay, we can regulate it, or you can choose what services you want and if you don't want all of the services, well then you can travel at a cheaper price. So, I'm amazed. I really am, but I think it is disingenuous of politicians when they're pursuing these policies, believing that there's no negative consumer impact. I think actually the consumer's going to learn very quickly, because you're not going to get cheaper fares. You're going to get higher fares, and that's the reality of this situation. An industry making margins, net margins at 3%, is going to have to generate the same levels of revenue. In fact, you can argue we need to generate more revenue. So, there's more work that we need to do, but, yeah, this is definitely not a move that will benefit consumers.
Karen Walker:
Exactly. It's about less choice and fewer options for the customer. If you look at what people were, their options back before deregulation in the US, there were far fewer. There were far fewer people [who] could even contemplate going on a flight, let alone taking their family somewhere.
Willie Walsh:
Yeah, and it's a fascinating one because it plays into the whole issue of taxation as well. I was doing some research and looking back at the industry and how industry seat factors have developed over the years. And I was genuinely surprised because, as you know, I've been in this industry now for 45 years, but average seat factors for the industry in the 1990s was 67%, just over 67%—67.3%. And in the 2000s from 2000-2010, it was 74%, and it was from 2010 that we really started getting to levels of seat factors where I think you could say we were being efficient when we achieved just over 80%. So, in the days before deregulation, you had a lot of aircraft flying with a lot of empty seats, and that's inefficient and it displays to taxation.
Governments who believe that taxation can address the environmental issue are again misleading people because all it will mean is some people cannot afford to fly. It's not going to stop the flights operating. It'll just mean there are fewer people sitting on those flights that are operating. And this is why I think we need to be very, very careful and we have a role, as IATA, to ensure that people understand the consequences of the decisions that they're making. But increasing taxation is not going to be a solution to the environmental challenge that we face, and regulating ancillary options is not going to be a solution for the consumer. So, I think the consequences as a result of these changes need to be understood, need to be debated, and need to be properly introduced so that the consequences are the consequences that we all desire. So, I think it's a very important point in the journey for aviation, that governments get a better feel for what some of these decisions will mean.
Karen Walker:
Absolutely. One last question, if I may. It's related to government priorities and sustainability, the whole thing of ATM modernization, which in itself, if they just got on with it properly in Europe and North America, in particular in the US, could make such a huge difference to the messes that we see in the peak summer time, but also to, of course, sustainability because you'd be so much more fuel-efficient if you had a more efficient ATM modernization system—ATM system, I'm sorry. What's the reality on that? When’s it going to happen in Europe and the US?
Willie Walsh:
That's a great question, Karen. We're bitterly disappointed that the politicians in Europe have kicked the can down the road, if you like, on the Single European Sky [initiative]. For us, we can't give up on this. People keep saying to me, “Look, give it up, Willie, it's never going to happen.” That's just unacceptable. We're going to have to continue to highlight this one. We have to shine the spotlight on this issue because the environmental benefit is just too big to ignore. In Europe, it's well documented that we could reduce CO2 by at least 10%. This is a win that’s available to us almost overnight, and we can't let that go. So, we're going to have to continue to highlight this issue. It's in everybody's interest.
I struggle to understand why people are happy to force an industry to operate in an inefficient manner. That makes no sense to me whatsoever, and this can be achieved. There's no investment, there's no capital cost to achieving this saving. The investment has already been made. So, it's disappointing that it hasn't happened, but we're not going to give up. We're going to continue to highlight this issue. We're going to continue to call out politicians, and I'm convinced that it will happen in time because you look forward 10, 15 years, it'll have to happen because if it doesn't, the level of inefficiency is just going to continue to grow. And I think the demand for change is just going to get louder and louder. So, we're absolutely going to continue to focus on this issue and demand, in the interest of the environment, demand that these changes be introduced.
Karen Walker:
The irony is, of course, if governments did this, right, it would answer one of the biggest complaints by customers, by traveling passengers who don't want to be delayed and have flights canceled and delayed. So, it would also be a win for the politicians in terms of what they're delivering to the customers. And it would be huge in terms of those steps towards 2030 and 2050 targets, yes?
Willie Walsh:
Yep. Yeah, or 10% reduction, it's just too big a price to ignore.
Karen Walker:
Willie, as always, it's a huge pleasure talking with you. I greatly look forward to seeing you in Dubai, and I wish you and the IATA team a very successful AGM. Thank you also to our producers, Cory Hitt and Guy Ferneyhough, and of course, a huge thank you to our listeners for following Window Seat. Remember to follow us on Apple Podcasts or wherever you like to listen, and so until next time, this is Karen Walker disembarking from Window Seat.
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