Aleks Popovich - IATA · Innovation Flow Discovery / Ideation 1 Registration and Qualification 2...

World Financial Symposium 2018

Welcome AddressAleks Popovich

Senior Vice President, Financial and Distribution Services

IATA

World Financial Symposium 2018

Host Airline

Platinum Sponsors

Principal Sponsor

World Financial Symposium 2018

Gold Sponsors

World Financial Symposium 2018

World Financial Symposium 2016

World Financial Symposium 2018

World Financial Symposium 2016

World Financial Symposium 2018

Sustain Airline Financial Health

INNOVATE

ACCELERATE

DELIVER

SINGAPORE 2016

BARCELONA 2015

ABU DHABI 2014

DUBLIN 2017

MADRID 2018

SINGAPORE 2016

BARCELONA 2015

ABU DHABI 2014

DUBLIN 2017

BE HERE TOMORROW

TO FIND OUT !

MADRID 2018

World Financial Symposium 2014

World Financial Symposium 2014

4 General Industry Meetings

10 Working Groups

2 specialized Tracks

7 Meet the Experts Sessions

1 High Impact Seminar

THANK YOU!

7 Myths around Digital

Transformation and its

finance impacts

Madrid, September 17-20th 2018World Financial Symposium

2018

01Myth“Innovation and customer

investments have no clear ROI”

In our case, financials and Customer + Transformation have proven to be strongly correlated

-2,1

10,4 13,719,6

28,6

2013 2014 2015 2016 2017

Iberia NPS evolution

-165

50

247 271373

2013 2014 2015 2016 2017

Iberia EBIT evolution

CAGR 29%

CAGR 65%

02Myth

“Being part a of a Groupjust slow you down”

IAG Digital is really supporting our innovation model and growth…

Han

gar 5

1 2

01

7

450 applications from 45 countries, over target (200)

Just 1/4 Spanish applications (c.100)

Successfully launched 5 products with customer, from 5 Selected start-ups (100%):

New program in progress, Headquarters in London. New batch of start-ups soon to be communicated

0. Applications

1. Qualified

2. Shortlisted

3. Selected

4. MVP Live

350

100

30

5

5

Chatbot

Hangar 51 examples. The aim: “build a real product in 10 weeks”Post booking optimization tool

Payment in Installments Virtual Reality

…and helping us achieve better financial strength every year

IAG GBS – Centralized Finance, IT and Procurement functions

IAG GBS is really supporting our strategy, is agile, flexible and drives efficiency

«Right model for new global rules»

03Myth

“Innovation can’t be measured”

Innovation Flow

Discovery / Ideation1

Registration and Qualification

2

Prototype / Testing

3

Further Product Flow

Implementation

4

Execution / BAU (Agile)

5

Approval Approval

Stage

Research / Benchmark / Trend

Startups, Hangar 51

Employees, Open Innovation

IATA

Partners / suppliers

…

1€ 4€

Corporates can/should manage innovation investment as a Venture Capital Fund

04Myth

“Corporations cant work with/as startups, we are not

internally prepared”

The right balance from inside to outside

Go Digital outside & Be digital inside Optimal digital organization for Iberia

Transformation.

Area 1

Digital Ambassadors

Digital Transformation Team

Creative

Analytical, business vision

“Get things done”, agile, scrum

Tech/trend passionate

Design, User exp., product

Commercial, marketing

Industry knowledge

Good network

Change enabler

Persistence, energy

Skills for Digital Transformation

Area n

Go Digital | Innovation digital status

Be Digital | Cultural and Ops change digital status

Balanced

Pureinnovation

Pureinternalchange

Current IB

Future IB

− Organization is not ready

− Things don't happen

− No scalability− Partners get the

value

− No real impact on revenue

− Business as usual, marketshare loss

(80% focus on culture/ops)

(80% focus on innovation)

05Myth

“Technology is first”

Digital Culture is the real innovation and foundation of transformation

Digital Connected Airline

IT “Revolution”

Digital Culture (D-Mindset)

Digital Customer Digital Operations New Businesses

Innovation, Startups, New partners

Examples of Initiatives

Voice

Chatbot

Big Data, Analytics

Next Gen Apps

VR/AR/MR

Block chain

New ways of working (agile, collaboration, creativity…)

Illustrative initiatives around Culture

New ways of working Collaboration Tools

Smart spaces New digital devices

“Breaking the silos, leveraging

spend on collaboration tools

(O365)”

“The workplace is not a soft

thing…can really drive new mindset”

“Mobile, Tablets…for operational,

commercial and corporate staff.

Real time info and communication”

“Agile, Design thinking, Product

orientation Huge

impact on productivity”

Illustrative initiatives around Digital Customer

International Digital Press New Wi-Fi and Entertainment

Next Gen App

“Thousands of new digital content for customer, less cabin waste + NPS and

- fuel consumption reduction”

“Improve User Experience,

increase downloads, active

users and conversion. Digital

Customer Experience ”

“Improve connectivity in both LH and SH, boosting entertainment and digital capabilities.

Connected everywhere, all the

time”

“App to be the single point of

contact and be a travel concierge

through touchscreen and

voice”

Illustrative initiatives around Digital Customer

Virtual and augmented Reality Door to Door Delivery

Voice

“Immersive experiences for our customer…and employee training”

“Travel luggage free until final

destination +

NPS and potential

ancillaries”

“60% of people use an Assistant at least some times”

“15% of searches are voice, today and 60% in 2 years”

“50M Amazon Echo (70%) and Google Home (30%) sold just in the US. 13% of

families have one”

More to come…

06Myth

“There is no way we can align airlines”

Keep on working together to build a better

aviation industry

Just some examples of current collaboration

Shop Order Pay (SOP)

Block chain Finance Trial for Invoices

Payments of the future

Biometrics, Identity

…

07Myth

“Transformation leaders know nothing about

finance”

In a world full of uncertainties like the digital one, Transformation Leaders can drive bigger impact if they have been part of the “dark side of the force”

Consultant for Airline Industry

FinancePlanning / Controlling

Director

FinancePlanning /

Controlling & “Transformation

Plan”Director

Chief of Customer& Business

Transformation

Imagine this background…

Thank you so much

The key issues facing

airlines’ financial

performance

Brian Pearce,

Chief Economist,

IATA

www.iata.org/economics

Financial markets have been negative on airlines, so far this year

Source: Thompson Reuters Datastream

90

100

110

120

130

140

150

160

2014 2015 2016 2017 2018

FTSE All World $ World airlines $

Index (Jan 2014=100)

Yet performance is still vastly better than just 4 years ago

Source: IATA Economics using data from McKinsey, The Airline Analyst and our own forecasts

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

% o

f in

vest

ed c

apit

al

Return on capital invested in airlines and their cost of capital

Cost of capital (WACC)

Return on capital (ROIC)

No longer are we destroying investor value at a rate of $20bn a year

Source: IATA Economics using data from McKinsey, The Airlines Analyst, IATA forecasts

-40

-30

-20

-10

0

10

20

30

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

US$

bill

ion

Difference between investing in airlines and investing in similar assets elsewhere

It is true that performance is not evenly spread by region

Source: IATA Economics using data from The Airline Analyst

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2010 2011 2012 2013 2014 2015 2016 2017

% o

f in

vest

ed c

apit

alReturn on invested capital

N America

Europe

Industry average

L AmericaAsia-Pacific

Cost of capital (WACC)

Middle East

Free cash flows have been strong, but just in N America and Europe

Source: IATA Economics using data from The Airline Analyst

-20

-15

-10

-5

0

5

10

15

2010 2011 2012 2013 2014 2015 2016 2017

US$

bill

ion

Free cash flow

North America Europe Asia Pacific Latin America

So balance sheets are in two groups, one still vulnerable to shocks

Source: IATA Economics using data from The Airline Analyst

0

1

2

3

4

5

6

7

8

2010 2011 2012 2013 2014 2015 2016 2017

Rat

ioAdjusted net debt/EBITDAR

L America

Middle EastAsia Pacific

Europe

N America

Investmentgrade

And margins came under greater pressure in 2018 Q2

Source: IATA Economics using data from The Airline Analyst, airline releases. Note: This data is from airlines report quarterly only

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2011 2012 2013 2014 2015 2016 2017 2018

% o

per

atin

g re

ven

ues

Quarterly EBIT margins, global airline industry sample

EBIT EBIT_SA

Because unit costs are now rising faster than unit revenues

Source: IATA Economics using data from The Airline Analyst

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2011 2012 2013 2014 2015 2016 2017 2018

Year

-on

-yea

r %

ch

ange

Industry wide growth in unit revenues and unit costs, in US$

Unit cost growth

Unit revenue growth

Fuel prices continue to trend upwards

20

40

60

80

100

120

140

160

Se

p-1

1

Ja

n-1

2

Ma

y-1

2

Se

p-1

2

Ja

n-1

3

Ma

y-1

3

Se

p-1

3

Ja

n-1

4

Ma

y-1

4

Se

p-1

4

Ja

n-1

5

Ma

y-1

5

Se

p-1

5

Ja

n-1

6

Ma

y-1

6

Se

p-1

6

Ja

n-1

7

Ma

y-1

7

Se

p-1

7

Ja

n-1

8

Ma

y-1

8

Se

p-1

8

Jet Fuel and Crude Oil Price ($/barrel)

Jet Fuel Price Crude Oil Price (Brent)

Source: IATA Economics using data from Platts

And cost pressures have emerged across most inputs

Source: IATA Economics using data from The Airline Analyst

7

7.2

7.4

7.6

7.8

8

8.2

8.4

CASK 2016 Q1 Fuel Labour Infra- structure Other CASK 2017 Q4

US

cen

ts p

er

ASK

Unit cost changes between 2016 Q1 and 2017 Q4

51%

30%11%

8%

% contribution to increase in CASK

As spare capacity disappears at the late stages of the cycle

Source: IATA Economics using data from Datastream

0

1

2

3

4

5

6

7

8

9

-5

-4

-3

-2

-1

0

1

2

3

4

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

% o

f la

bo

ur

forc

e

% g

ap b

etw

een

GD

P a

nd

fu

ll ca

pac

ity

OECD unemployment and capacity shortage in the economy

Unemployment(right scale)

Capacity shortage in the economy(left scale)

The question is can these costs be recovered?

Source: IATA Economics using data from PaxIS

70

75

80

85

90

95

100

105

2011 2012 2013 2014 2015 2016 2017 2018

Global average passenger base fare yield (US$ terms)

Premium-class base fare yield

Indices (Jan 2011=100), seasonally adjusted

Economy-class base fare yield

Ancillaries are helping

Source: IATA Economics using data from ICAO, IATA Statistics, IdeaWorks and our own forecasts

0

10

20

30

40

50

60

0

20

40

60

80

100

120

140

160

180

200

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Car

go, a

nci

llari

es U

S$ p

er

pas

sen

ger

Bas

e f

are

US$

per

pas

sen

ger

Airline revenue per passenger

Base fare(left scale)

Cargo & other(right scale)

Ancillaries(right scale)

More rational asset utilization is also helping

Source: IATA Economics using data from ICAO, IATA Statistics and our own forecasts

58

60

62

64

66

68

70

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

% o

f A

TKs

Load factor (passenger + cargo) versus breakeven

5.8% pts

4.7% pts

Passenger + cargo load factor

Breakeven load factor

The key will be the strength of demand…cargo reflects inventory cycle

Source: IATA Economics using data from IATA Statistics, Markit

-30%

-20%

-10%

0%

10%

20%

30%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

% year-on-year % year-on-year

Growth in industry FTKs (RHS)

Global PMI new export orderscomponent (LHS, adv. 2 months)

Air travel demand is buoyant at present…

Source: IATA Economics using data from IATA Statistics, Markit

-12%

-8%

-4%

0%

4%

8%

12%

16%

30

35

40

45

50

55

60

65

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Diffusion indices % year-on-year

Growth in industry RPKs (RHS)

Global composite PMI index (adv. 2 months, LHS)

…But risks are building in the wider economy

Source: IATA Economics using data from ICAO, IATA Statistics, IMF and our own forecasts

50

60

70

80

90

100

110

120

130

140

135

140

145

150

155

160

165

170

175

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Outstanding debt held by non-financial private sector, % GDP

Developing economies

Developed economies

Need to reinforce structural gains - economic upcycle unlikely to last

Source: IATA Economics using data from ICAO, IATA Statistics, IMF and our own forecasts

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

GD

P %

ch

ange

yea

r ag

o, M

argi

n %

rev

enu

e

Global GDP growth and average airline operating marginOperating margin

GDP growth

Stanislav Petrov

mauritius images/Alamy

Questions to Leaders from 4th

Industrial Revolution Paolo Gallo @World Financial Symposium – Madrid 19 September

4th Industrial Revolution

Job Markets, Life expectancy, AI,

Learning, Trust and…our choicesPaolo Gallo @World Financial Symposium – Madrid 19 September

Megatrend 1- High unemployment

with skills shortages- Gig Economy

https://www.cnbc.com/video/2018/02/27/drones-carried-handbags-at-the-dolce-gabbana-fashion-show.html

Megatrend 2 – Increasing life

expectancy

Photo: Gold Sakazuki cup

The top 10 skills

Source: Future of Jobs, World Economic Forum

Megatrends 3. A.I & Learning

Van Gogh or AI?

It’s now possible to Telepathically communicate with Drones (BCIs)

Facial recognition @Schools

“Microsoft has not given Tay an understanding of unappropriate behaviour”

Megatrend 4: From Information to

Reputation – Trust in the digital age

https://www.youtube.com/watch?v=WEw-GjTriIo

…it was 10 years ago…..

Trust in the digital age

Are algorithms the ‘New Gods’ ? Social credit system

Photo: Archive Photos/Getty Images

What is our moral compass?

THANK YOU

World Financial Symposium 2018

th

17 – 20 September 2018 Madrid Marriott Auditorium Hotel & Conference Center

5World Financial Symposium

World Financial Symposium 2018

Michael DoersamChairman of IATA Financial Committee

SVP Group Finance, Emirates

Innovate.Accelerate.Deliver

Supporting Sustained Financial HealthOur journey so far

SIN 2016

DUB 2017

2016 HIPO

2017 Innovate .

Accelerate .

Deliver

2014Sustainable

Financial

Health

2015 Sustainable

Financial

Health

MADRID 2018

Innovate . Accelerate . Deliver

World Financial Symposium 2018

The Inside view The Outside view

Where did we stand last year on industry Initiatives ?

2018 - Decline in airline profitability

70

75

80

85

90

95

100

105

0

20

40

60

80

100

120

140

Jan/11 Jan/12 Jan/13 Jan/14 Jan/15 Jan/16 Jan/17 Jan/18

Brent crude oil (left axis)

Global ave. pax yield (right axis)

Index, Jan11=100, seasonally adj$US

Source: IATA Travel Intelligence, EIA

2016White Paper

2nd Edition

Supporting Airline Industry Achievement of Sustained Financial Health

1 Smarter RegulationsHarmonizing the regulatory framework making it supportive and conducive to sustainable growth

2 Value Chain OptimizationOptimizing the value chain, making it reflective of relative risks

3 InnovationEnabling innovative and competitive customer centric products

4 Efficient ProcessesEnabling efficient, secure and seamless end-to-end industry processes

5 Strategic Pillars

5 High Performing Finance OrganizationA journey for the finance department from an accounting department to a value manager

How did we progress since DUB ?

Losing distributionpower & paymentsprocess control

NDC & ONE ORDER Eco-System

BLOCKCHAINData – Power/Ownershipof 3rd parties and High volume analytics

Future GAFAstrategiesDISRUPTION

ZOOM-IN: OUR STRATEGIC FRAMEWORK

↗ One Order -

Settlement for orders

↗ NDC -BSP for NDC

↗ Easy Pay

↗ TIP

↗ Reso 890

↗ BSP Direct study

↗ e-Aircraft data

↗ Open APIs

↗ NewGen ISS

(Trvl Agency accreditation,

RHC, Global Default

insurance, EasyPay)

↗ Real-time sales monitoring

↗ Global real-time settlement

↗ New BSP/CASS markets

↗ IFSS in-country compliance

↗ Common fuel supplier training

↗ IBSPS

↗ Dish23

↗ Blockchain

↗ AI

↗ R&D

↗ Talent

↗ Digital Airline (ITG)

How did we progress since DUB ?

Losing distributionpower & paymentsprocess control

NDC & ONE ORDER Eco-System

BLOCKCHAINData – Power/Ownershipof 3rd parties / highvolume analytics

Future GAFAstrategiesDISRUPTION

TOP Formula for Accelerated Innovation

Think Tanks

Open IATA

Partners at

Speed

Actors: Airlines, Agents, Partners, IATA• Brainstorming Sessions around a problem statement/ challenge• Development of solutions together• 5 areas from Strategic Framework

Actors: IATA, Airlines (IATA Transformation Group, ITG)• IATA Innovation Ecosystem for acceleration of projects through 3 steps:

Ideation including partners Accelerated project process Airline/Industry Adoption

Actors: IATA, Airlines, Partners• Small team in IATA as main point of contacts for Partners• Airlines Leaders at speed (Leaders/Followers concept) • Alignment of IATA’s Strategic Partnerships Program• Common KPIs agreed with Partners

CO

MM

UN

ICA

TIO

NZOOM-IN: TOP framework

How did we progress since DUB ?

Losing distributionpower & paymentsprocess control

NDC & ONE ORDER Eco-System

BLOCKCHAINData – Power/Ownershipof 3rd parties / highvolume analytics

Future GAFAstrategiesDISRUPTION

HIPOInnovationCorner

HIPO

ZOOM-IN: WFS ‘Booster’

FINCOMWGs

High Impact

Seminar

Meet the Experts

World Financial Symposium 2018

What we want to achieve in MAD

Learnings from how AIRLINES drive Financial Digital TRANSFORMATION

The role INDUSTRY PARTNERS can play to support TRANSFORMATION

Enablers to increase INNOVATION SPEED at INDUSTRY level

World Financial Symposium 2018

Results playback

Join us at tomorrow’sClosing Plenary session

MADRID 2018

Innovate . Accelerate . Deliver

35 Airline Executives

22 Partners

HIGH IMPACT SEMINAR NEXT ACTIONS

World Financial Symposium 2018

Thank you!