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14 Jun, 2004

Airlines Seek More Efficient Infrastructure, Services

SINGAPORE: Global airlines have challenged their infrastructure and service providers worldwide to start doing their share to make the travel industry simpler and more cost efficient.

At a panel discussion at the International Air Transport Association annual conference here last week, executives of major airlines said airports, immigration authorities, air traffic control providers, global distribution systems and aviation regulators can do much more to help cut costs, simplify rules and regulations and liberalise traffic rights regimes if they truly wish to facilitate movement of people and cargo.

The airline executives said they had been forced to make serious changes to survive following years of external shocks plus massive competition from the low-cost airlines, and it was now time for other industry sectors to follow suit.

Said Mr. Lim Chin Beng, chairman of Valuair, “All of us (airlines) should be appalled at the degree to which we have allowed ourselves to be manipulated by bits and pieces of the value chain. They have done well even as the airline industry has not. We need a regulatory environment that is encouraging of competition and efficiency.”

Added Ralph Norris, Managing Director and CEO of Air New Zealand: “We call it precipice management. When you take the business to the edge of the precipice and show them the big black void ahead, it is amazing what changes can happen.”

The lead was taken by IATA Director General Giovanni Bisignani who, in his opening speech, suggested the need to “rebalance our relationships with our partners in the value chain.” He declared: “We do the flying, others make the money.”

Mr. Bisignani declared, “In commercial markets, competition determines price. Cost reduction delivers profitability. But, many of our monopoly partners still think of “cost plus” pricing. The world has changed. This approach is no longer acceptable for any business.

“Our mission is to convince our partners to set targets for efficiency. Recently, an independent audit of Eurocontrol (the European air traffic control system) providers was conducted. It showed that a 20% reduction in charges would be possible if all States were as efficient as the best European provider.

“IATA is now challenging each of them to meet this target. This could save a billion dollars for our industry. Our plan is to take this strategy to airports and air navigation providers around the world.”

He also challenged governments to simplify the regulatory framework, essentially the bilateral system that is built around the 60-year-old treaty known as the Chicago Convention, today considered largely irrelevant.

In subsequent comments, airline executives pursued this with gusto.

Willie Walsh, Chief Executive of Aer Lingus, said air traffic control costs are “unacceptable.” He said, “We have to drive efficiency right throughout the industry. Airports have to face up to the challenge as well. In 2003, we spent more on airport charges than on fuel. Airports promote the idea that their charges are insignificant. That is a complete fallacy.”

Titus Naikuni, Group Managing Director & CEO of Kenya Airways, said, “We would like to see the airport and navigation providers understand that they are in it just as we are in it, and sit down and share the cake more equitably and get away from the take it or leave it situation.”

Mr Norris of Air New Zealand supported a simplification of the traffic rights environment. “Many people are making decisions for non-commercial reasons, rather than commercial reasons. These uneven regulatory requirements have to be removed,” he said.

Both he and Mr Lim supported simplified immigration procedures. Mr Lim said the technology exists today for processing travellers both before departure and during the flight itself. Why can’t it be done, he asked.

Mr Norris said tightened security at Los Angeles had made “going through LA…atrocious. Transit passengers are treated as if entering the US. That is crazy.”

All the executives were agreed that airlines, too, still have some way to go in cleaning up their own act. Mr Lim said airlines have spent too much time trying to reduce problems for themselves rather than the customers.

Complexity in fare structures is one area. “If you give 10 experts an itinerary, and ask them to quote a fare, you will get 10 different fares,” Mr Lim said. He called for better interface systems between airlines themselves to facilitate seamless flow of passengers.

Mr Norris said low-cost airlines had “managed the expectations of their customers well” to the extent where people believe their fares are the lowest. In fact, he said, many of these fares are being matched by and even improved upon by the traditional service airlines.

He said the next step would be for traditional airlines to start dismantling all the various restrictions on fares like minimum stays and validity periods.

Mr Norris ventured into some sensitive ground, noting the importance of bringing airline staff on board when making internal changes. He said Aer Lingus’ management had taken a pay cut of 20-30 % so that “the rest of the staff could see that management was leading from the front.”

Mr Norris said, “All of us here are role models, and have to set good examples if we want the staff to follow.”

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