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NOVEMBER 2019

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Seasoned aviation hand

He has been at the helm of the Association of Asia Pacific Airlines for close to 15 years and for the airline body’s director general, Andrew Herdman, the challenges never cease. Despite the many issues facing his member airlines, he says the Asia-Pacific industry’s future is bright. Associate editor and chief correspondent, Tom Ballantyne, reports.

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November 1st 2019

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A stuttering global economy, trade wars, social unrest and extreme weather events. Read More » For Association of Asia Pacific Airlines (AAPA) director general, Andrew Herdman, and his member carriers, they are part and parcel of the volatility of daily airline operations.

But with U.S./Sino negotiations dragging on, the dispute between Japan and South Korea festering and protestors becoming more violent in Hong Kong, optimism must be hard to come by?

Herdman said: “The overall picture is people are still travelling in record numbers and we are still seeing growth in passenger numbers. The last six or seven years have been particularly buoyant with passenger traffic growth rates above the long-term average. It’s been a very strong period and that’s globally, not just in Asia.

“Volatile oil prices, geopolitical risks, weather events and disruptions. These are all part of the challenge of running an airline. The industry is set up to be resilient and responsive to whatever happens and to adapt.

“It’s very hard to predict the nature of these things, particularly geo-political risks. Trade disputes have spilled over and in some cases are affecting consumer sentiment. They are affecting passenger travel plans. We are seeing that between Japan and Korea. At least airlines are in a position to manage capacity.”

Catastrophic flooding affecting airports around the region have become an issue for airport planning, but typhoons are a fact of life for airlines, Herdman said. The industry is adjusting to them with pre-emptive cancellations and quicker recovery and restoration of service after a typhoon has passed.

There are few people with a better understanding of the issues airlines face in the Asia-Pacific than Herdman. A BA (Hons) Oxford graduate with a post-graduate BPhil in management studies, Herdman spent much of his pre-AAPA life in top management aviation roles at companies in the Swire group. His CV with the trade to property and transport conglomerate includes managing director of Cathay Pacific Catering Services, managing director of Hong Kong Aircraft Engineering Company (HAECO), chairman of Xiamen-based TAECO and general manager of Cathay Pacific Cargo. He also ran Swire Pacific corporate communications for several years.

Mixed results for long-haul low-cost carriers
Budget airlines will continue to expand in the region’s short haul markets, he said. “But the majority of traffic and the majority of revenue, if you look at global aviation and in the region, is full-service carriers still operating the dominant business model by serving medium and long-haul routes. There are attempts by some LCCs to expand into low-cost, long-haul. They have had very mixed results,” said Herdman.
“Many network carriers have set up dedicated low-cost subsidiaries or are devoting a certain proportion of economy seats that they are selling at very aggressive prices, facing the fact there is intense competition from low-cost carriers.
“But the low-cost carriers’ results are similarly mixed. They are not immune to the same competitive pressures. It’s not just them competing against each other, but the full-service carriers are also competing by offering a lot of aggressively priced economy seats on routes within the region,” he said.

Since he took charge at the Kuala Lumpur-based AAPA in 2004, Herdman has raised the association’s profile by addressing regional and global policy issues affecting Asia-Pacific carriers and working closely with regulators and industry associations to foster sustainable civil aviation expansion.

“Strong profitability peaked about four years ago,” he said. “North American carriers have been the main beneficiaries of this and they are still doing very well. Asian carriers’ margins have been squeezed by intense competition, although the picture varies from one carrier to another.

“Some airlines are doing relatively well within the region, but others are feeling the pressure from being loss-making. They are in the midst of, or embarking on, restructuring efforts to remain competitive, regardless of the business model being pursued.

“We don’t publish or have access to detailed yield information, but it is evident intense competition leads to pressure on fares, which is good for consumers but depresses margins from an airline’s point of view.”

On another current crisis impacting the industry and many carriers in the region, the Boeing MAX groundings, Herdman is quick to point out safety is always the industry’s number one priority and the AAPA monitors the industry’s record closely.

“However,” he said, “We all operate under global standards promulgated by the International Civil Aviation Organisation (ICAO), but they are implemented nationally by each country, that is 193 member States.

“The interplay between them and the processes different countries use to certify aircraft, or allow operations within their airspace, has a degree of complexity familiar to those in the industry, but it makes it more challenging to explain the workings of the international regulatory framework.

Air cargo: bleak and bleaker
“For almost a year, the cargo side has been very weak. The market has shrunk, which is consistent with stagnant global trade. Air cargo benefits in a global economic upswing and now we are seeing a global economic slowdown, so year-on-year you are looking at negative growth in air cargo demand,” AAPA director general, Andrew Herdman, said.
As the world’s biggest air freight operators, he said, Asian carriers were feeling the effects of the global slowdown. “It reflects the weak trade position. It reflects uncertainty about trade disputes and the lack of progress in resolving them,” he said.
“The uncertainty affects business investment decisions and disrupts global supply chains. Combined it creates a very weak air cargo market. For cargo, there is no escaping the fact it has been a prolonged downturn. And even though we are in the busy time of the year there is no sign of any upturn in air freight demand.”

“If and when things have been found to have gone wrong or misjudgments have been made it means the number of parties involved is much larger than simply looking at it from a single country point of view.

“At some point, the Federal Aviation Administration (FAA) and other regulators will certify the aircraft as airworthy again and it will re-enter service.

“The industry faces some significant challenges, including ensuring the travelling public will fly on the aircraft with confidence.”

The recent ICAO conference in Montreal attracted plenty of attention with protests led by teenage climate activist, Greta Thunburg, and criticisms repeated by China, India and Russia that some of the content of the industry’s CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) emissions mitigation strategy was unfair to emerging economies.

Herdman said: “The outcome was fair enough. It reaffirmed support for CORSIA, which has been implemented. It also was agreed to explore a long-term aspirational goal for reducing emissions.

“Disagreement about the scheme from China, Russia and India was expected,” he said. “They were putting forward views they had expressed at previous assemblies. The question is did the CORSIA deal, determined in 2016, strike the right balance between the different views? It was a compromise agreement and the design of the scheme reflects that.

'Growth is still above 4% and for Asian airlines international passenger numbers are up on last year. But the rate is below the long-term average and below what we have been enjoying in recent years. Although people are still travelling in record numbers there’s an element of caution about the outlook for the global economy and some signs that it is beginning to affect consumer confidence, including the appetite for travel'
Andrew Herdman
Association of Asia Pacific Airlines director general

“At this assembly, the big issue was to decide to reopen discussions about the design of the scheme. There was a very strong majority view that to do so would risk undermining the entire scheme and that would be not desirable.

“It was why the final vote, a vote put [forward] by China, Russia and India to delegates, determined by a strong majority not to change the scheme.

“There are provisions in CORSIA for reviews. I think the first review is scheduled for 2022. There is a mechanism to review the nature of the scheme as it is implemented. The debate will continue, but key points are that even those countries [objecting to some terms of CORSIA] are implementing it for all international airlines and the scheme is going ahead.”

At every AAPA assembly, it is inevitable that progress or lack thereof, of sufficient ATM and airport infrastructure will be close to the top of the discussion agenda.

Still not enough is being done, said Herdman. “We continue to focus on it. Even though growth rates are moderating this year ensuring infrastructure expansion keeps pace with demand is as important as ever.

“The new Beijing Airport just opened. There is a lot of other airport infrastructure under construction in Hong Kong, Singapore, Vietnam and Indonesia. And the green light has been given to a new Manila airport. It’s a constant focus on managing future growth.”

Overloaded ATM systems are another perennial Assembly topic. “It’s easy to come up with a slogan like ‘Seamless Asian skies’. It sets the way forward as a common goal. Delivering on it, as we learnt in Europe, is much more challenging,” Herdman said.

“Efforts to update systems are continuing, but the pace of progress has been disappointing and that has been acknowledged. Longer term, the challenges will be to cope with double the capacity of today, modernize ATM infrastructure to do that and improve co-ordination between different ATM providers. The technology only takes us so far. There are different organizational and institutional factors around collaboration across different FIRs (Flight Information Regions).

“From an airline point of view, it’s clear what we want. In practice, no matter whether you are in North America, Europe or the Asia-Pacific, modernizing ATM is challenging.”

In the end, while airlines will continue to confront existing and unpredictable challenges, Herdman said: “Airbus and Boeing have just updated their annual market forecasts for the next 20 years. We study them closely for any changes in perceptions. But overall the picture remains bright, with continued growth. This means discussions about sustainability and the environmental impact of aviation must have high priority.

“Attitudes towards climate change and appropriate responses to it vary between regions. Particularly, as signaled in Montreal, in large developing countries where there is more focus on economic and social development. Environmental impact is a factor for them, but it is not a dominant factor. It has to be weighed against other economic and social development objectives for developing countries.

“Their position contrasts with the debate in Europe in particular, and certain countries in Europe where green movements are pushing very hard for more ambitious efforts to curb CO2 emissions, not just from aviation but from power generation, ground vehicles, agriculture and so on.

“It comes back to the fact climate change is a global challenge and it needs a global response. The global debate amongst developed and developing countries has to continue about the most appropriate responses to it in all sectors.

“The industry has a good story to tell but it’s a complicated one given the number of technical issues and other factors involved. It’s an important debate. Asian airlines and Asian governments need to be active in discussing the best approach to mitigating climate change.”

Where we are today?
• Air Traffic Management
“Essentially, ATM is not an automated business. You have got ground-based air traffic controllers using the latest technology, but it is still very labour intensive. It relies on processes and procedures.
“The integration is not so much about technical integration but the organizational and institutional factors around collaboration across different Flight Information Regions.”

• Emissions reduction battle
“Climate change is a global challenge and needs a global response. The debate among developed and developing countries has to continue to reach agreement about the most appropriate global response to climate change in all sectors, not just aviation.”
• Aviation infrastructure
“Although growth rates are moderating this year, the longer term outlook is bright so the challenges of ensuring infrastructure keeps pace with growth are as important as ever.”
• MAX return to service difficulties  
“I have always been of the belief it will be very hard to co-ordinate a simultaneous recertification and re-entry into service for the MAX. Even after all the modifications and training requirements are completed, implementing them across the world with multiple airlines returning hundreds of aircraft ready to fly is a logistical challenge.”

 

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