Will IATA Survive?

A couple of years ago that would have been a ludicrous question, but there are worrying signs that IATA’s best years may be well and truly behind it. As is usually the case, this is due to a perfect storm of circumstances, some of which IATA seems to be oblivious to and others that it is willfully ignoring. Here are five things that could collectively spell the end for IATA.

Loss of Financial Support

The Billing and Settlement Plan (BSP) is a major source of IATA’s income, but technology is making IATA’s grip on that mechanism increasingly tenuous. Lufthansa and Barclays have been trialling the creation of a new BSP that would presumably cut IATA out. Lufthansa is generally acknowledged to have a significant amount of influence within IATA, so to consider moving away from what generally seems to be a beneficial relationship is very surprising.

IATA reported that the 743 million transactions processed through all BSPs in 2018 resulted in an average cost per transaction of $0.07, which totals over $52m. To put that into perspective, Dun and Bradstreet claim the actual number of IATA employees worldwide to be 1200, so losing the BSPs would equate to over $43,300 per employee per year. That’s a big hit in anyone’s books.

Inability to Evolve the Industry

The concepts of Four-Dimensional Trajectory Management (4DTM) have been discussed for over a decade, with many components such as SWIM having been put into place. ICAO, Eurocontrol and other ANSPs are all of the opinion that the only missing piece is the airlines and that’s true – there’s no industry-wide initiative covering it. There isn’t even a unified definition within IATA of what it is – just a collection of disparate concepts falling under the heading of Trajectory Based Operations (TBO). Airlines are in even worse shape, with most of them knowing little more than the acronyms.

Concerns have been raised at the highest levels within IATA but have been met with silence. The only response has been to blame the organisations that have done all the heavy lifting to date for not completing the part that the airlines must contribute to. That might play well to the base, but for those in the know it’s thoroughly disingenuous.

The drone industry needs 4DTM too though, so it’s all racing ahead without the involvement of IATA or the airlines. 4DTM will likely prove to be the biggest development in the history of aviation, so failing to participate may be a massive tactical blunder for IATA.

Inability to Cope with Changed Travel

It’s fairly established that business travel is mostly gone and won’t ever return to the junket level that used to make up such a high proportion of it. What’s less obvious is what’s likely to happen to holiday travel. Nobody really wants to spend 20 hours on planes and in airports to get from Sydney to London. Even if you’re lucky enough to be in First or Business Class, long haul travel is painful. Decades ago, it was common to take stops along the way, but the logistics of clearing customs and getting hotels and activities organised is currently perceived as requiring more effort than just “getting it over with”.

Improved information based on 4DTM concepts will make customs clearance easier and scrambling for relevance will result in travel agents tailoring connection details to a traveller’s personal profile. This is going to result in new mini-hubs being formed in the same way that Dubai and Abu Dhabi rose to prominence. A combination of the popular travel routes and the range of modern aircraft meant that those were natural places to refuel and with a great deal of money and effort, they were also turned into great places to stop for a day or two.

The routes passing through those hubs are going to be dissected further based on the range of newer aircraft, likely electric and quite possibly owned by a drone airline, not a traditional one. A holiday for a Londoner that might previously have comprised of 4 weeks in Australia may turn into 3 weeks in Australia and several hops each way lasting a day or two. Based on the flexible workplace changes that have swept the world due to COVID-19, a 5 week holiday with 4 weeks in Australia and a couple of hops is even more likely, provided the traveller spends a couple of hours a week staying in touch with their job. A trip containing short hops comprising of events such as concerts, sporting events or fine dining will enhance the travel experience. Once the barriers have been lowered, travellers will opt for quality, particularly given the increasing decentralisation of society and a desire to travel by what are at least perceived as environmentally responsible means.

Refactoring the hub and spoke model currently servicing popular routes will have a devastating impact on airlines, as their fleets will suddenly be completely the wrong shape. Recognising this, the drone airlines will have strategic ascendancy in any intermodal negotiations. The message to the public coming from drone airlines will be “do something for yourself and the environment” and from traditional airlines it’ll be the marketing nightmare but dentists’ catchcry of “just get it over with”.

Engagement in 4DTM will at least allow traditional airlines to ride the coat tails of the drone airlines, but IATA’s not buying in. Instead, it’s counting on the public wanting to travel the same way it has for decades, despite there being incredibly attractive new options that have never been available before. What could that strategy be based on?

Environmental Politics

Political imperatives will result in airlines burning aviation fuel being painted as the bad guys. IATA can say what it likes, but unless it can demonstrate real improvement, environmental concerns will wear it down. IATA has consistently railed against taxes, saying that it siphons money away from fleet renewal and clean technologies, but it can’t deny the fact that it’s on the losing side of this argument. The inevitability is that fossil fuels are going to be phased out. The process will be messy, and mistakes will be made along the way, but eventually, fossil fuels will be gone.

There’s no value in debating the merits of that eventuation in this article, but it is worth considering when and how IATA intends to switch sides and what the cost of that will be. Will we wake one day to the news that “IATA has consistently recognised that fossil fuels have to be retired, SAF is not the answer, and technology X is the way to go”? Airlines aren’t going to buy that… in fact, not many people are.

Public Opinion

Drones are to jets what cars were to trains. There’ll always still be a place for them, but the agility and ease of other modes will eventually relegate jets to the status of being a quaint form of transport, akin to crossing the ocean on a container ship. The traditional airline industry has for decades been the sexy form of travel, but all indications are that neither IATA nor the industry recognises that it’s currently being supplanted. Does IATA not see the threat, or does it feel that it can ride it out? It doesn’t seem as though this is being approached strategically.

Conclusion

The conditions can be summarised as:

• IATA permanently loses a significant source of revenue,
• Management of the sky is dictated to the airline industry and IATA is powerless to alter it,
• Changed conditions leave airlines with the wrong fleets and nowhere to go,
• Environmental concerns continuously erode acceptance for aircraft powered by jet fuel,
• The public grows to regard the traditional airline industry as being archaic and unattractive.

Of course, the impact of these factors would be greater or less depending on the timeframe they occur in. Also, IATA isn’t likely to show its hand on strategic direction, so it may not be a dire as this article paints. Maybe all of this is under control and they’re just not telling us about it, but if we learnt anything from the GFC, it’s that a subtle change in perspective can be just as damaging as structural compromise. If IATA isn’t suffering from a lack of strategic direction, it’s got problems with its public image that are potentially more catastrophic. None of this is insurmountable, but every day that passes makes it more difficult. It’s time to stop complaining and start shaping the future.

So is this the perfect storm? That depends on the weather.