The Journal The Authority on Global Business in Japan

Aviation as we know it is changing. An unstable political landscape, economic shifts, global security issues, and natural disasters are greatly affecting the industry.

On March 19 at Tokyo American Club, Alexandre de Juniac, director general and CEO of the International Air Transport Association (IATA) and former CEO of Air France-KLM, spoke on these topics at an event jointly hosted by the Tourism Industry and Transportation & Logistics Committees of the American Chamber of Commerce in Japan.

Juniac is the seventh person to lead IATA, and has nearly three decades of experience in private and government sectors, including 14 years at French aerospace and defense company Thales Group.

As a first point, Juniac expressed concern over political developments that could lead to a future of more restricted borders and protectionism. “This denies the benefits of globalization, which is the product of aviation.”

Global trade is heavily reliant on maintaining open borders, and the air transport industry even more so. “Aviation is the business of freedom. [It] is critical to any modern economy.”
Freedom of movement and global standards are critical to global business, Juniac said, outlining IATA’s role in setting and facilitating the implementation of these standards.

Japan’s domestic network, which includes two of the world’s busiest routes—Tokyo–Sapporo and Tokyo–Fukuoka—ranks sixth in the world and stands to benefit greatly from open borders. “One of the biggest tourism stories in the world is Japan. The majority of this country’s 24 million visitors in 2016 arrived by plane,” Juniac explained, predicting that growth in air travel to the country will continue leading up to the Tokyo 2020 Olympic and Paralympic Games.

The aviation industry is sensitive to shocks and uncertainty in the form of political and environmental changes, however Juniac believes it has remained robust. “The industry has done very well in restructuring itself in recent years, and it has significantly improved aviation resilience.”

He referred to steadily rising profitability—particularly from 2011 to 2014—when airlines were profitable even as the price of crude oil was spiking.

“In 2015, for the first time in history, airlines earned a profit in excess of the industry’s average cost of capital,” he said.

Juniac explained there have been major investments in the industry, notably by airlines from North America, which account for more than half the industry’s total profit. These airlines are earning an average of $20 per passenger, double the global average. By comparison, in Asia–Pacific the margin is $5.5 per passenger.

Due to political and security uncertainties, Juniac is cautious about 2017. “This year we will see a slight softening of profitability with slow trade, higher oil prices compared with 2016, and weak economic prospects in [some] parts of the world.”

But he is also optimistic, predicting that the travel experience will continue to get better. He noted that online check-in, e-tickets, Internet shopping, and mobile apps are key innovations that are meeting the needs of passengers and offer the industry a natural partnership with Japan—which he said is “a clear world leader in the application of self-service technology for travel.”

Juniac sees progress and suggested more collaborative thinking for airport infrastructure between Japanese airports and the IATA is on the horizon. Kansai International Airport recently adopted the IATA’s Smart Security principles, and these will soon make their way to Haneda and Narita international airports as well. In addition, Sendai and Kansai international airports have agreed to a reduction in charges, key to reducing costs for airlines and passengers, and to maintaining competitiveness within the industry.

There is still work to be done, as Japan will have to meet the needs of a potential 40 million visitors in 2020. Juniac concluded by emphasizing that preparations must be done as part of a long-term, joint planning process.

Maxine Cheyney is a staff writer at The Journal.
The aviation industry is sensitive to shocks and uncertainty