Listen in as Aviation Week Network's David Casey and Victoria Moores speak with Luis Felipe de Oliveira, Airports Council International World director general. Recorded live at Routes World 2023 in Istanbul, the trio discusses the outlook for passenger traffic globally, the major challenges facing airports and how the airport business model is changing.
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Rush Transcript
David Casey:
Hello everyone and thank you for joining us for Window Seats, our Aviation Week Air Transport podcast. I'm David Casey, Editor-in-Chief of Routes. Thanks for being with us today and welcome on board. On this week's episode, I'm delighted to be joined by my colleague, Victoria Moores, Europe and Africa Bureau Chief for ATW Magazine, and we're recording live from Routes World 2023, taking place in Istanbul.
We've recorded from Routes events in the past, but if any of our listeners that are unfamiliar with the events, they bring together airlines, airports, and aviation stakeholders from across the world to discuss new and existing air services that will become vital enablers to increase connectivity and economic growth through job creation, promoting trade and stimulating tourism. We're delighted to be joined by Luis Felipe de Oliveira, Director General of Airport Trade Organization, ACI World. Now, Felipe has led ACI World since June 2020, having previously led the Latin American and Caribbean Air Transport Association between 2017 and 2020. Thanks for being here today, Felipe.
So Routes World this year is the biggest ever event that we've done, there's more than 3,200 delegates, and it's also the largest ever airline attendance with over 260 carriers globally taking part, and it feels to me that these figures are representative of where we're at in the aviation industry at the minute. Although the significant challenges, I'm sure we're going to discuss those during the course of this podcast, traffic's returned really strongly and things are looking far more positive for airlines and airports alike.
Now Felipe, I know you recently released your passenger forecast for the year. Can you give us a little flavor about some of the key findings for that and what the projections are for 2024?
Luis Felipe de Oliveira:
Well, thank you for having me here. I know it is, even for me, is one of the most important meetings for my year calendar because we have the opportunity to see the airlines and the airports working together towards the improvement of the aviation sector, and we are very positive about the future of the industry. We increased the forecast that we have from the beginning of the year that was around 92% in terms of the recovery from 2019 to 94.2%, that's why basically this 2% increase comes from a very positive results from the industry itself and also the perspective of the travelers as well that are coming back, the reopening of China, and other events as well that support this recovery.
We believe that next year we will reach more than 100% of the numbers that we have in 2019. Our forecast today is to represent 102% by the end of 2024 and that will be the beginning of the grow again for the future of the sector. So in all the meetings we are going, all the discussions I have with my CEOs, we have a positive approach that the industry is coming back, and I think the numbers that you mentioned for the people are here today are the clear signal that we are in the right direction.
David Casey:
Okay, fantastic. And obviously you represent airports worldwide, what's the feeling among them at the minute? Are things looking more positive from them? Obviously, there was a lot of challenges during the pandemic, they didn't get the financial support that some of the flag carries got. What's the picture there? Is there a move towards profitability among the airport industry?
Luis Felipe de Oliveira:
We, in the airport industry, we have more than before the pandemic, we have more than 80% of our members that didn't reach the threshold of the profitability, and that comes for many reasons. The airports are key for the connecting the communities, I think connectivity is very important for the aviation sector, and that these airports are there with the social aspects as well to bring the opportunity to people, connect to people, fly to that locations to support with medicines, doctors, and others that we need that in certain parts of the world.
The members suffer a lot during the pandemic because of course the airport, you cannot close an airport. The airport continues to work during the whole pandemic, especially serving the repatriation flights. In addition, the flights to transport cargo, that was a key element during the pandemic period, and we contract a lot of depths during this period of time. That's why to keep the airports open, we need to keep the costs, in most of the cases, very high, and that reflects in the airports' need to borrow money from the markets, and now we need to start to pay back.
The numbers are positive. I think we learn how we can improve our efficiency as well during the pandemic, and we are now, in some of the airports in the world, we are going back in the positive numbers, that is good for us. However, the cost of the debt needs to be paid at certain point and that you generate that you need to increase our revenues as much as we can, not over to cover the debt, but also to continue to invest in the future of aviation.
In terms of our future, we believe that we need to work more close to increase the number on revenues. That is how we can increase the passenger experience, how we can have the passengers more happy in the travel journey, and how can you expand more inside of our buildings. It's proven that 1% more of passenger satisfaction represent 1.6% more in terms of the revenues for the airport, and if you have only 1% of increase of the traffic represents 0.6% in terms of the increase of the revenues. That's why basically, it's something that you need to continue to work, some airports will continue to be in the deficit for the purpose of the business. However, we would like to see more and more airports going to the profitability, continue to support the development of the industry.
Victoria Moores:
In amongst that, Felipe, you mentioned connectivity, and clearly connectivity is the service that airlines and airports and the rest of the aviation industry provides, and I'm wondering, post-COVID, specifically about that idea of connectivity, what patterns are you seeing in terms of that being restored or not restored amongst your members?
Luis Felipe de Oliveira:
Well, we have an uneven recovery around the board. Basically, certain regions of the world that were very close at the beginning, like Latin America for example, they are now fully open and they are reaching numbers more than 100% of the 2019 numbers. But other parts of the world that have an late opening, like Asia-Pacific, still suffering for the connectivity, still suffering for the number of the passengers and the flights, because they still in the recovery mode that the other regions reached a little bit early. In that way, what we are seeing, we are seeing that we have routes that we never have before, that's why we have a creation of new routes that were not available to the market before, but we still with certain routes that were not even reinstated basically because of these restrictions that you have in the world.
The geopolitical situation also affect us because basically certain airports in the world have, and airlines, have certain strategic approach towards the markets that now they cannot do. For example, they cannot overfly Russia, for example, that affects certain airports in certain airlines, but also the opportunity to generate more and new routes through the geopolitical situation that we're facing today. In certain ways it's positive, we are seeing a positive approach, but we still have a lot of routes that you need to recover, and especially some small and medium locations around the world, they still with less connectivity than they have before.
Victoria Moores:
Yeah. I'm wondering how the change in traffic mix might also be affecting that. So we've heard a lot during the pandemic about the fact that is business travel coming back. Have we all switched over to video conferencing now? The rise in premium leisure, and therefore the restoration of networks to beach locations for holiday traffic. I'm wondering whether we are seeing that reflected in the network development that because it tends to be more the business travelers who really want the frequent connections, whether because the business traffic isn't coming back, whether the frequencies aren't coming back too. I wonder what your thoughts are on that.
Luis Felipe de Oliveira:
Well, there is two points here. One, I think the leisure travel is the most of these new routes that increased during the last few years because people want to fly more directly to their destination, and basically, if you see around the world, most of the new routes are linking locations that have a certain attractiveness, tourist attractiveness, or others. And in certain ways, the business travel is still in the way of recovery.
But if we see the airplane today is a different approach. We see families flying business class that you never saw before, so people are paying more to have an access to premium services that they didn't have before. There is many reasons for that. They feel that they have more safety and hygiene approach, they have a savings that they didn't use during the last three years that they're expanding that money. If that will continue is a question mark, that if you continue to see families flying on the business class is one thing that we need to see. However, the business class, the business travelers, they will come back, and they are starting to coming back because there is no better way to do business that is face-to-face approach.
And I think the conventions, like yours for example, that you have hear in Routes, is a clear example. We have a record numbers. Our WAGA, in Barcelona, we have a record numbers because people, really the business people, needs to see and deal with people and I think everybody's a little bit tired of the technology. They help us a lot and will continue to help and improve, but never replace the personal contact. That's why the business and the companies that are traveling more today, they're able to generate more businesses. That is clear for many business people that I spoke, that they're continue to travel, let's say, on business, is helping them to get more business because some of the competitors are not following the same path and they're losing ground in the different businesses around the world.
Victoria Moores:
Yeah. One of the comments that really stood out to me historically was that video conferencing calls aren't replacing air travel, they're actually replacing phone calls. So the majority of the conversations that I have scheduled with colleagues now are via video, it would've been a voice call in the past, but then you are making those virtual face-to-face connections that are then supported by the in-person meeting, like you say, at events like this where you can actually have a conversation with somebody and properly connect with them.
Luis Felipe de Oliveira:
And that is true. Even when I see my own schedule, I used to book a one-hour meetings before, that we have one hour video call, we are reducing that for 30 minutes, and probably reduce more and more in the future. Because in the video call you don't have the opportunity to see the body language of the other, we don't have the opportunity to have a side meeting that you have a quick discussion that sometimes help you to define or align a possible business opportunity as well. That's why we will continue to see, and I agree with you, that the video calls are much better than the call. I think it is very rare today that I have a call. I have a WhatsApp call that is a video call, I have Teams or Zoom calls rather than the calls that I have before, but the meetings are much more effective when they are person-to-person, face-to-face, and outside of the meeting's interactions, that is something that you cannot replace for a video call as well.
Victoria Moores:
I've heard it described as the water cooler conversations. It's the conversation that isn't important enough to pick up the phone or to send an email to somebody, but if you're there alongside somebody in the same place at the same time, a conversation that you didn't know that you needed to have ends up taking place and I think that that's one of the interesting parts about face-to-face connection.
David Casey:
Absolutely. I just want to touch on something that you mentioned earlier, Felipe, and it was about how airports are now having to repay debt, but also they're having to invest in the future as well, there's the net-zero commitment by 2050. And how are airports then managing to juggle the energy needs, the infrastructure needs, the financing needs, with the fact that they now have to repay all this debt that they took on during the pandemic, and what does this mean for your members?
Luis Felipe de Oliveira:
One of the discussions that always comes through is the charges site, how we can adapt and how we can work in the charges that are generated by the aeronautical revenues, that's why basically what the airline space for the use of our facilities, and the second is the non-aeronautical revenues, how we can generate more non-aeronautical revenues in our facilities.
It's clear that we need to work, in the future, that we have more passengers and more satisfied passengers. That's why it is not our intention to raise the charges to cover our debts. However, we need to have a good balance between the charges and the needs of the airports. Nowadays, 55% of the charges comes from higher non-aeronautical revenues, and 45% come from lower aeronautical revenues. That's why the idea is that we need to increase the non-aeronautical revenues. That's why we need to include and work together with the whole airport community, or whole airport ecosystem, to generate more revenues. That is a win-win approach that when the retailers, the restaurants, and other parts of the system make more revenue, we also share this opportunity as well. And why not think about it, have this kind of approach with the airlines as well, that we have an opportunity to generate deals that are more in the risk approach, rather than a very strong and square regulated approach that is basically the basis of the system all over the world?
In other ways, we need to be green in the future, that's why we need to have access to the green finance. This is very important for us, we are running a big project in the ESG, that is a project that we expect to have certain standards that will generate more or easy access to the green finance to the airport, that I think is a very important approach.
However, we cannot just duplicate the size of our buildings. We cannot just duplicate the number of the employees that we have. That's why we need to work with the technology, that's why how we can reduce our costs, improve the efficiency, and have a better service for our passengers, our guests. How we can deploy the human resources in the right way to attend or support that passenger in our buildings, and also how we can improve the capacity of our airports in the way that we have a better use of our facilities.
We cannot construct an airport to only serve peak hours. We need to have a dilution of these passengers during the day that we are able to provide a better service, a better use of our facilities, that you don't need to construct another building, but you have a better use of our building, that you'll be green, that you'll be less investment, and at the end you generate lower costs to attract more passengers as well in the future.
Victoria Moores:
Sounds very much like the idea of decoupling the growth, so it's you're achieving the growth, say like doubling the traffic, without doubling the amount of people that you need to support that growth, the amount of infrastructure that you need to support that. So it's dividing the two and using technology as a tool to do that.
Luis Felipe de Oliveira:
And in certain ways, we cannot do that alone. I think we always discuss about we need to have anefficient immigration system to work better as an ecosystem, we need to have a ground handle that works better and well to have a better use of the system and better passenger experience at the end. That's why, as an ecosystem, we need to find a ways how we can improve that with technology, with people, and at the end with investments that needs to come, and how these investments will be remunerated as well. That's why it's the thing that is clear that we need to do and need to go further.
But as an ecosystem, we also need to work in deficiencies. It's clear that we need to have a better use of the infrastructure in the air, in the infrastructure in the ground. It's very sad when we are inside of an aircraft, everything works perfectly well, but the aircraft cannot take off because of a traffic system cannot accommodate more flights because there is a strike in one of the countries in the system. So we need to find a ways that how we can improve the whole system in terms of the approach of the airline in the airport, the better use of the gates, the fast approach that's in on-time performance as well, and how we can work together as an ecosystem to improve that.
We are working very well with council, that is the International Organization of the Air Traffic Controllers, and we have a program that we call ASCE, that is Airport System Capacity Enhancement. That's why how we can together improve the air and land side of the approach of the airline to the ground, and also the use of the ground in the faster way that you can improve the capacity of the airport, and we improve the time that is precious for our passenger, for our members. We can reduce the consumer fuel that we have, also the green aspect, and many other things. So I basically work as an ecosystem is the best way to achieve that.
David Casey:
I was actually at your annual congress in Barcelona, which took place in June, and one thing I found interesting from that, a key takeaway for me, was about how the airport business model is changing and there's increased focus now on not just being an airport as in something that connects passengers, but an airport that has energy infrastructure on site and can feed into the local community. Can you just tell us a little bit more about how you see the business model of airports changing and what the project that you have with the World Economic Forum is feeding into that?
Luis Felipe de Oliveira:
Well, that for us is a big change in the concept of the airports because we are very well known as a passenger hubs or airline hubs. However, we are in the position that you need to be part of this energy transition. And if you see that you need to be part of the transition, we need to see the aspects of how we finance that, how we can innovate, how we can invest in innovation, how we can have the inclusion of sustainable aviation fuels and other source of energy like hydrogen or electric as well in our buildings, and how we can use the technology to reach that improvements on the airports as well. If you see the airport community, 60% of the jobs, and more, sometimes 100 companies work in an airport. If you construct and build an infrastructure just for the airport needs, we are not taking advantage of the scale that we have with all these other partners inside of our buildings.
That's why the Airports of Tomorrow, that is this initiative that we're working together with World Economic Forum, is how we can generate, how we can transform airports in energy hubs or inner hubs for our ecosystem as well. That's why the reduction of the improvement or the increase of the scale of the users of the airport will help us to be more efficient in how we can serve the energy needs and how we can, as an airport, be part of this transition, rather than only being a spectator on that. That's why it's easy to have someone that comes and do that for us, or why we can work together to have an approach that is a community approach, that you help us to bring not only the energy needs for the airports, but how ennerports can help the whole community to improve the sustainable aspects of the industry as well.
Victoria Moores:
So you touched there on the future for airports. I'm wondering about some of the discussions that are going on right now about the future of airports and capacity. We've had the example of the discussion in the Netherlands where there's a question on whether or not there will be capacity constraints put onto the airport, so capping the number of people that can fly, and that's picking up in conversation about the idea of taxing to deter passengers from flying, these ideas of capacity constraints, slot restrictions at airports that are very busy. What are your thoughts on that?
Luis Felipe de Oliveira:
Any kind of restrictions for the business will affect the economy of these places because basically the aviation sector, together with the tourist sector, represents around 10% of the global economy. That's why any kind of restrictions on the air side will reflect, of course, in the reduction of the income of that specific location. The connectivity is always very important for business centers as well, that's why a city is not a business center because they're born to be a business center, they need to have a trade center for something and the aviation sector influence in that a lot. That's why we believe that the capacity restrictions in different parts of the world will definitely affect the system.
In different parts of the world, we have different needs, and different possibilities as well. In Europe, you have maybe the trains that, in certain ways, can replace part of these passengers, but in the other parts of the world you don't have. That's why how we can fly to the middle of the Amazon, the other option is to take a boat that you take three, four days to reach the place. That's why the connectivity or the capacity restrictions need to be treated in a different way in different parts of the world, and not only link it with the aspects of trying to force the reduction of the passengers through taxation or through the capacity restriction.
Any tax that you generate, it's clear that they will reduce the number of the passengers, and reducing the number of the passenger reduce again the socioeconomic benefits of the industry as well. That's why, in any case, capacity restrictions and taxation is not the right approach for the sustainable aspects of the industry. There is many other ways that you can work together and improve that.
And you see, in terms of these slots, for example, in terms of how we can allocate these slots today, we have two interesting groups that work on that. One is the Worldwide Airport Slot Guidelines, that is the airports that support the idea of how we can deal with slots, and also we have the Worldwide Airport Slot Board, that include the airlines and also the administrations of these slots from the governments.
Having seen that, we have a rules that we follow in terms of these slots that usually we work in 80-20 use or not use. But that affect as well the capacity, and that effect as well, because you're not working on 100% of the capacity of the airports. If you even restrict the capacity, we have, in addition to this 80-20 rule, that also probably will reduce more. And that you generate as well increase of the cost of aviation because if you have less competitiveness, we have less competitiveness resulting in increase of the prices of the tickets as well. That's why competitiveness is very important for the industry.
Any kind of restriction we will affect, at the end, the final user, will affect the passenger, and I think that's some things that you need to always be careful as well. The passenger is our reason to exist. There is no airport without an airline, there is no airline without an airport, but there is no industry without a passenger. And that is the focus we need to take and I think these actions could generate or could reduce the number of the passenger and the socioeconomic activity that we have in these specific locations.
David Casey:
So the passenger has to be central in all this?
Luis Felipe de Oliveira:
Exactly. That's the main reason that our existence, and we need to continue to work towards the better passenger experience and the better cost for the passenger to continue to fly and continue to connect, to cope with the growth that you expect in the future, in the sustainable way, of course.
David Casey:
Absolutely. Well, on that note, we are about out of time on this week's episode, but Felipe, thank you so much for joining me and Victoria on Window Seat, and thanks to you, our listeners.
If you enjoyed this podcast, make sure you don't miss us each week by subscribing to Window Seat on Apple Podcasts, or wherever you listen. This is David Casey and Victoria Moores disembarking from Window Seat.
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