“MUCH COORDINATION WILL BE NEEDED TO TAKE OFF AGAIN”
1.- ALTA underwent a big transformation with the change of headquarters from Miami to Panama City, hiring more than half of a team that was new to the industry and you also adopted a strategy to be closer to your members and basic audience. How has that process evolved?
Well, when I took over, ALTA was in a crisis of identity because it was a small organization trying to be a big one, competing with the other organizations in the region and that was a big mistake. Basically as an organization, you need to rely on your peers and work together. In addition, we are in the same industry so there is a need to align objectives and join forces to see results in the industry. We were also experiencing lack of confidence in the work of ALTA and that was clear to me as we were losing members. Not just airlines but strategic partners that would have meant we would have not been considered a viable organization. In Miami, we had very high operational costs and we were disconnected from our members by working out of an office outside the region we cover. By being a Latin American Airline Association based in the US, we were foreign to the region that we represented. When I became Executive Director, I saw the need to restructure and become cost-conscious so my view then was that we needed to go to a place where it was going to be more affordable to operate and where we could be closer to our members. Very importantly, we needed to be in a place where the language of the region we work for was spoken and that took us to Panama. We used to have 25 employees and we reduced that to 14. In the existing team only two people remained from the previous one. All others are new and some are even novel to the industry. In the last three years we spent time explaining them how to work as an association, the value you need to add to our members and focus in areas where we could achieve things and advance our agenda. I would like to share an example with you: We are now cenetered around in six committees: Environment, Safety, Maintenance/Technical Parts Purchase, Airport Charges, Aero-political and Fraud. We have managed to be very active in those areas and are grateful for the involvement of not only airlines but also of our associate members as we see that as essential to be able to work together and achieve results. By airlines, suppliers, airports, governments coming together, we can materialize our objectives and that I see it as my legacy. That also made us a more influential organization in Latin America and even in other regions of the world. When I started at ALTA, we had 65 to 70 members including airlines and suppliers, and now we have over one hundred that are very active and have engaged in a very fruitful exchange of information that support ALTA, its project and all the committees that are part of it. At last but not least, all of our communications were done in English, including our website and therefore not in the official languages of our region which are mostly Spanish and Portuguese. Just by introducing that innovation, we managed to improve the flow of critical and first-hand information as we started to understand ourselves more and also we became better communicators. Undoubtedly, that has brought us closer to our members and the society at large. All of that, made a huge difference for us.
2.- How has ALTA dealt with the general tendency seen in Latin America over the last decade with respect to several national carriers merging into multi-national airlines or holdings of companies? Has that been a challenge in terms of the muscle that companies of the likes of Avianca and LATAM have over any decision-making at ALTA?
Historically, the main component of ALTA´s executive committee have been those airlines because they have had a long-term presence as key players of the industry in Latin America. In brief, they have been around for a very long time. Several companies have come and go in this period but the ones that have survived are the big airlines. Those companies are at the heart of ALTA and are keeping us alive in terms of their contributions. By that, I do not mean their financial support because they also provide us with tickets to fly within the region. The mergers and the consolidation is not just a local reality but a world reality when it comes the way our sector has developed. However, LATAM Airlines that has 5 different airlines sit at our table as one single actor so we count them as just one. The same happens with Avianca, so all airlines participate equally regardless of their muscle or structure. At ALTA, we believe that regional and local airlines play a key role in terms of the strength of the industry. Last year for example, two more airlines joined our organization and they are very important for the connectivity of the region. I am referring to Amaszonas in Bolivia that flies domestically and to a few international destinations. There is also TwoFlex in Brazil that nowadays connects 30 cities that lacked air services before they started operations. The mix of bigger and smaller airlines keep the association relevant. Larger carriers are important given the connectivity they offer both locally and internationally but also the smaller ones play an important role in a different reality. In terms of decision-making, all airlines have similar power as they represent one vote regardless of their size ot internal structure. It does not matter if you are LATAM or Amaszonas or Tropic Air from Belize and that helps to keep a healthy representation and has been of great benefit to ALTA. Another important aspect in this regard is that we changed our motto. We are now ‘ALTA on the move’ and that means that we evolve every day, we are open to introduce all necessary changes to keep ALTA going by bringing on board suppliers, governments, etc., apart from airlines and that is of great importance to the advancement of the Latin American aviation industry as a whole.
3.- Last year you mentioned that you saw the interest of governments from the region in aviation with great enthusiasm. How has that developed and have those cooperation agreements signed with several countries rendered fruits?
The reality was that we had been away from decision-makers at the government and country levels and aviation is very important for the region. They are crucial actors. That meant that we set ourselves to demonstrate our relevance by showing that we have created some 19 million jobs and we represent 10 percent of the combined GDP of the region. One aviation job opportunity means another four related jobs, so there are a lot of other things that we do very well but we were not communicating that very much. The agreements we signed served us to connect better with some governments even in the local level to address specific issues but also to bring together ministries of transport, civil aviation authorities among other actors. We have engaged governments but more importantly we have provided a platform for countries to find common ground, to discuss how aviation operates in a context such as in the air where borders are less well-defined. Let’s not forget that when our core aim is facilitated we are able to do what we know best which is to better connect countries in the region. I am thinking not only in terms of flights between Sao Paulo and Santiago or Lima and Bogota, but between other less known destinations. That is our objective given that there is a lot of work that needs to be done when it comes to connectivity. Sometimes it takes very long to go from one point to another and that has nothing to do with distance but rather with the scarcity of service and that we are trying to improve that every day. That has to do with costs that, at the regional leve, are quite high. Aviation fuel is very expensive locally, there is high taxation, some expensive fees and onerous airport concessions. But we are working with some countries that are doing well in reducing some of those costs, promoting aviation and increasing connectivity with an aim to improve service. There are good examples like Chile where the airport tax has been reduced and that has had an positive impact by increasing the flight per inhabitant index to 0.6 which is the highest in the Latin American region. That is not only good for Chileans who travel to other countries but because this is a two way approach, it has also benefited people from other nationalities going to Chile. Cartagena in Colombia has also seen a reduction of the airport tax and that has boosted tourism as international flight alternatives in and out of that city have increased by 60 percent. Lastly, Ecuador has done a lot of work in establishing new routes that benefit tourism as well. All that has happened in part thanks to the agreements signed which have demonstrated the value of aviation to governments as a way for social and economic development.
4.- Air Safety has seen some setbacks in the world lately and some manufacturers have been challenged due to their possible responsibility. Latin America has been mostly spared of fatal accidents like those seen in Africa and Asia. What has been ALTA’s role to keep such a good safety record and in which ways have you intervened whether with manufacturers or airlines or both if at all?
Two years ago, ALTA was trying to play the role of a big organization in the region of the likes of IATA in the region. The 14 people team that we are is probably smaller than any safety unit of any big Latin American airline such as LATAM, Avianca or COPA. Therefore, we don’t have the ability to advise or to work together with those airlines fully in that respect. However, most of the accidents that have unfortunately happened over the last decade in the region have involved airlines that were or are not IATA members. We are talking about small companies that operate mostly regionally and with small aircraft. So at ALTA we have concentrated in using the knowledge of the big players and create a framework for information sharing with smaller carriers. That has included putting in place a program for them to improve and do better. In 2008, we even signed an Memorandum of Understanding with IATA to promote their safety standards assessment for smaller airlines known as ISSA. That framework covers all aspects that they also look at in bigger airlines but with the exception of some details that derive from the fact that there are some differences given the aircraft they fly. This initiative was carried out by us financing the training needed by smaller airlines to be certified and thanks to that fifteen of them have been part of this project and seven have been duly certified so far. We started to play a part with smaller airlines as that was where we needed to concentrate to improve safety to be able to level it with that of bigger airlines. That has allowed them to operate in conjunction with other carriers so passengers can transfer from one airline to another as part of one journey thanks to their safety standards being aligned. By being able to connect in such a way we have consolidated our industry. Safety then has improved and so has the service that can be provided by our members.
5.- The debate over climate change has incremented exponentially in the world lately with several crucial international gatherings and fora. In what way has ALTA contributed to that discussion?
We are doing several things. First we are on a different level because we fly very few flights per inhabitant. Going back to that number I gave you on Chile as leading the way, as a region we have a lower rate of flights. In Latin America, we fly 0,5 flights per person. In contrast, in Europe that figure jumps to 2 and in the USA to 2,2. In addition, a simple 40 minute flight for instance from Bogota to Medellin has an alternative bus ride of 11 hours. That has to do with our geography and the lack of different means of transportation. So aviation is not just a way to get somewhere but a need. Then when you fly over the Amazon jungle, you can be in the air for three hours and there is no airport below you nor train link nor roads unlike what happens in Europe. That reality of being at times the only alternative forces us to be very careful about the environment and we take that very seriously. We are seriously mitigating any environmental impact of airlines in the region. We have increased by 1,5% the fuel efficiency this past decade by reducing CO2 emissions and our dependency on fossil fuels. So, as you can see we are working hard on the ICAO goals and we are confident we will meet them. That will be possible because, for example, we have stopped the CO2 emissions net growth from this year onwards.
6.- In particular, some key environmental NGOs have banned their main voices and opinion leaders from flying to be able to advance their agenda throughout the world. How has ALTA addressed their concerns so that aviation is not seen as a great threat to the environment?
Latin America is doing much better than other regions when it comes to the standards that have been set to counteract the environmental impact of aviation. Going back to fuel efficiency, that has improved by 3,5% compared to 1,5% since 2010 which was the initial target and we also have avoided the emission of one million tonnes of CO2, over the last seven years. That has been possible due to the fact that our fleets are very modern in comparison with other regions of the world. I wish to underline that 50% of our fleets are so new that the estimated average age does not surpass 8,5 years. The reality is that over the last ten years we have managed to reduce by 35% in average the age of our fleets. In certain ways, we are doing better than other parts of the world and that will help us to do what we need most which is to grow responsibly. That is a need not from a business perspective but also socially and economically speaking.
7.- The International Civil Aviation Organization (ICAO) has set very ambitious objectives with respect to lowering emissions and they see airlines playing a big role in meeting them. Do you think airlines in Latin America are on the right path to reduce emissions by half in the next three decades?
With respect to the most guidelines that we must follow in accordance with the International Civil Aviation Organization, we are doing very well. For example, when it comes to increasing fuel efficiency by 1,25% as they have requested we do, we are well beyond that target having reached already a 3,5% reduction. On lowering CO2 emissions, as I mentioned before, we are working hard on that to the point that we can show very good levels in light of the 2050 deadline already, because we have not stopped working on that since that goal was set in 2005. Fifteen years have already gone by and we are on the right path to meet our commitments.
8.- While the price of oil is quite volatile as so many factors can affect it, we have still seen a tendency in the last few years of figures dropping at times quite dramatically. Do you expect that to continue to be the case and will this continue to translate into more competitive air fares for the general public?
Jet fuel is the main cost for any airline depending on the region of the world where you fly. For a number of reasons, in terms of how that affects airfares in Latin America we see a greater impact. If we compare the incidence of the cost of jet fuel for the operation of an airline, 20 years ago that item just represented 5% of the expenses across the industry. Maybe 7% at the most. Ever since, that has grown to be around 35% nowadays which is astonishing. In Latin America, that percentage is made even greater due to local monopolies, higher taxes and the lack of openness of the fuel market. Having said that, now we are seeing we are seeing a huge reduction on the price of jet fuel due to the present circumstances but the problem is that we are not flying. Now if this was to continue over the last several months or for a year and we manage to start flying again, that will be very positive for the industry. Moreover, that would help airlines to recover from this current health crisis and push them towards a healthy recovery and a path of growth. However, we cannot be certain that will indeed happen. Let´s not forget that demand for anything tends to set prices of anything. If the demand is low, prices will also be lower and if demand is high, then that will mean a price rise. We are now experiencing a very low demand hence the lower price of jet fuel. But let’s not forget that the aviation industry is very well known for sharing its cost reductions with clients. That is thanks to our undeniable competitiveness overall. What benefit us, very soon ends up benefiting passengers. Tickets go down and more people can access aviation as a way to travel. Prices have gone incredibly down from 10 or even 20 years ago. Again, that is a result of competitiveness and our ability to reduce costs something we always pass on to passengers, who end up strengthening the industry by choosing our services and making it grow rather constantly.
9.- The world is undergoing what some have described as the greatest challenge of modern times and this has heavily impacted the aviation industry in the past few weeks. Air traffic is at its lowest levels, many fleets have been grounded, etc. Do you expect that once the health crisis derived from the global pandemic is over, airlines will bounce back swiftly and will return to a path of growth and job creation?
We are experiencing the toughest times in aviation history and we have not yet seen the worst of it as our industry is so dependent on the good health of economies worldwide. We are still at a very early stage to know for how long this situation will last. That means it is difficult to predict when we will go back to some sense of normalcy or when will we recover the capacity to add value and support the economy by our people going back to work and have our business running again. I am not just thinking about passengers and airline employees but also about the complexities of our supply chain. There are two issues that clearly lie ahead. The first one relates to some external conditions to operate in the sense that we will fly again when people can go back to work, rely on income from their jobs to get back on a plane or, simply said, to choose flying over other means of transportation. And secondly, there is the issue of public opinion relating to people start feeling again that they are safe on an aircraft sitting a few centimeters away from others who they do not know if they have a flu or so. It would be natural for people to be scared about that for some time. Considering that, my prediction is that we will be smaller than what we are today but even then, it will be complicated for over one hundred countries to agree how to restart aviation in a context where they have been taking their own measures and precautions. We will need a lot of coordination in the region to take off again and that will be time-consuming. Some countries will be better than others, some will take shorter but that will still need work among all interested parties as it is a very interdependent industry. I think to get back to the levels of movement we had prior to this crisis, it will take at least two years. There is a study by the consulting firm McKinsey that anticipated that it will take at least one year to reach the 40-60% range of the operations we saw before this emergency. Then there is a difficult task ahead of us as associations, governments, airlines and airports to work together towards recovery and to take as little time as possible. That will translate into tough time for travelers, tourists, world trade, economic growth everywhere and so on. The tourism industry and countries that depend on it will see a lot of job losses as confidence among consumers will have to be reinstated. I could not say the exact time this will take as it will depend on our ability to act in a coordinated manner but it will be a difficult path to walk and we will see smaller airlines that will need at least three years to be able to offer what they used to. All of that in the event that everything goes well with this ongoing pandemic and we can overcome it..
10.- Due to this very same challenge, several airlines in the Latin American region have turned to governments in order to remain operational through this very difficult period. Has ALTA played any specific role given that some carriers are key to maintain connectivity within countries where at times air travel is the only means of transportation?
We have contacted several governments in the region to support the sustainability of aviation through these very difficult times. I have personally spent a great deal of time addressing this issue over the last few weeks. That has to do with the fact that the decision to ground fleets is made by governments. They have the power to stop airlines from flying but at the same time it needs to be understood that they share part of the responsibility to support the industry. Grounding an airline affects many areas of the economy and not just our business. For example, the impact on tourism in our region is enormous as it represents 10% of GDP or higher like in Mexico where it reaches 15% of GDP. Exports such as salmons from Chile, flowers from Colombia, computer components from Brazil and other products cannot be moved from one point to another at this time. If we do not fly, there is no revenue and 50% of our costs remain the same. They include items such as leasing, parking fees and the salaries of even the essential workers we are trying to keep hired. So far, all we have mostly requested from governments is to act constructively and support us in the short term as there will be a point when we will run out of money and something crucial like keeping a country connected will no longer be possible. We have not requested bailouts but loans at an interest that can be paid in the current circumstances rather. Also, we have expressed our desire for taxes to be made partial or deferred given that if any carrier files for bankruptcy, no taxes are paid under that provision. So we are suggesting reductions such as taxes on fuel, air traffic control, airports, airport concessions, etc. I can tell you that some governments have been quite proactive because they understand what is at risk. They have even offered loans to support some companies in the short term as we do not know for how long this complex and volatile reality will last. We have expressed our concerns about the social cost that this is having on our workforces as there are a lot of charges on their salaries that they do not perceive but go to governments and maybe by easing those, we can keep people at work and avoid massive job losses. One also has to think that when it was decided to ground airlines, some 35 million dollars of ticket purchases had been processed. Well because we have been forbidden to fly, some passengers have requested their money back and maybe governments could enact some type of legislation so that we do not need to pay back and instead we could offer the same service in the future. There have been 95 requests in the form of letter to some 20 countries so far. Our requests are quite reasonable considering the current state of affairs and of course they relate to one very simple fact: how long will airlines remain grounded. Again that is for governments to decide.