Welcome Address Aleks Popovich Senior Vice President, Financial and - - PowerPoint PPT Presentation

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Welcome Address Aleks Popovich Senior Vice President, Financial and - - PowerPoint PPT Presentation

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Welcome Address Aleks Popovich Senior Vice President, Financial and Distribution Services IATA World Financial Symposium 2018 Host Airline Principal Sponsor Platinum Sponsors World Financial Symposium 2018 Gold Sponsors World Financial

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World Financial Symposium 2018

Welcome Address

Aleks Popovich

Senior Vice President, Financial and Distribution Services IATA

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World Financial Symposium 2018

Host Airline Platinum Sponsors Principal Sponsor

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World Financial Symposium 2018

Gold Sponsors

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World Financial Symposium 2018

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World Financial Symposium 2016

World Financial Symposium 2018

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World Financial Symposium 2016

World Financial Symposium 2018

Sustain Airline Financial Health

INNOVATE ACCELERATE DELIVER

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SINGAPORE 2016 BARCELONA 2015 ABU DHABI 2014 DUBLIN 2017 MADRID 2018

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SINGAPORE 2016 BARCELONA 2015 ABU DHABI 2014 DUBLIN 2017

BE HERE TOMORROW TO FIND OUT !

MADRID 2018

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World Financial Symposium 2014

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World Financial Symposium 2014

4 General Industry Meetings 10 Working Groups 2 specialized Tracks 7 Meet the Experts Sessions 1 High Impact Seminar

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THANK YOU!

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7 Myths around Digital Transformation and its finance impacts

Madrid, September 17-20th 2018

World Financial Symposium 2018

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01

Myth “Innovation and customer investments have no clear ROI”

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

  • 2,1

10,4 13,7 19,6 28,6

2013 2014 2015 2016 2017

Iberia NPS evolution

  • 165

50 247 271 373

2013 2014 2015 2016 2017

Iberia EBIT evolution

CAGR 29% CAGR 65%
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02

Myt h “Being part a of a Group just slow you down”

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IAG Digital is really supporting our innovation model and growth…

Hangar 51 2017  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
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SLIDE 17 Chatbot

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

Post booking optimization tool Payment in Installments Virtual Reality
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…and helping us achieve better financial strength every year

IAG GBS – Centralized Finance, IT and Procurement functions

IAG GBS is really supporting

  • ur strategy, is agile,

flexible and drives efficiency «Right model for new global rules»

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03

Myt h “Innovation can’t be measured”

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SLIDE 20 Innovation Flow Discov
  • very
ery / Ideation eation 1 Regist istration ration and d Qual alific ification ation 2 Proto toty type pe / Tes estin ting 3 Further Product Flow Impl plem emen entati tation
  • n
4 Exec ecutio tion / BAU (Agile gile) 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

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04

Myt h

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

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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 Pure innovation Pure internal change 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)
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05

Myt h “Technology is first”

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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…)

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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
  • perational,
commercial and corporate staff. Real time info and communication” “Agile, Design thinking, Product
  • rientation Huge
impact on productivity”
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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”
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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…
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06

Myt h “There is no way we can align airlines”

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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 …

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07

Myt h “Transformation leaders know nothing about finance”

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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 Finance Planning / Controlling Director

Finance

Planning / Controlling & “Transformation Plan” Director Chief of Customer & Business Transformation

Imagine this background…

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Thank you so much

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The key issues facing airlines’ financial performance

Brian Pearce, Chief Economist, IATA www.iata.org/economics

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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)
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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 % of invested capital Return on capital invested in airlines and their cost of capital Cost of capital (WACC) Return on capital (ROIC)
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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
10 20 30 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 US$ billion Difference between investing in airlines and investing in similar assets elsewhere
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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 % of invested capital Return on invested capital N America Europe Industry average L America Asia-Pacific Cost of capital (WACC) Middle East
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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
5 10 15 2010 2011 2012 2013 2014 2015 2016 2017 US$ billion Free cash flow North America Europe Asia Pacific Latin America
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So balance sheets are in two groups, one still vulnerable to shocks

Source: IATA Economics using data from The Airline Analyst 1 2 3 4 5 6 7 8 2010 2011 2012 2013 2014 2015 2016 2017 Ratio Adjusted net debt/EBITDAR L America Middle East Asia Pacific Europe N America Investment grade
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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
  • 2%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 2011 2012 2013 2014 2015 2016 2017 2018 % operating revenues Quarterly EBIT margins, global airline industry sample EBIT EBIT_SA
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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-year % change Industry wide growth in unit revenues and unit costs, in US$ Unit cost growth Unit revenue growth
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Fuel prices continue to trend upwards

20 40 60 80 100 120 140 160 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jet Fuel and Crude Oil Price ($/barrel) Jet Fuel Price Crude Oil Price (Brent) Source: IATA Economics using data from Platts
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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 cents per ASK Unit cost changes between 2016 Q1 and 2017 Q4 51% 30% 11% 8% % contribution to increase in CASK
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As spare capacity disappears at the late stages of the cycle

Source: IATA Economics using data from Datastream 1 2 3 4 5 6 7 8 9
  • 5
  • 4
  • 3
  • 2
  • 1
1 2 3 4 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 % of labour force % gap between GDP and full capacity OECD unemployment and capacity shortage in the economy Unemployment (right scale) Capacity shortage in the economy (left scale)
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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

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Ancillaries are helping

Source: IATA Economics using data from ICAO, IATA Statistics, IdeaWorks and our own forecasts 10 20 30 40 50 60 20 40 60 80 100 120 140 160 180 200 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Cargo, ancillaries US$ per passenger Base fare US$ per passenger Airline revenue per passenger Base fare (left scale) Cargo & other (right scale) Ancillaries (right scale)
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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 % of ATKs Load factor (passenger + cargo) versus breakeven 5.8% pts 4.7% pts Passenger + cargo load factor Breakeven load factor
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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 orders component (LHS, adv. 2 months)
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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)
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…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
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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 GDP % change year ago, Margin % revenue Global GDP growth and average airline operating margin Operating margin GDP growth
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Stanislav Petrov

mauritius images/Alamy
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Questions to Leaders from 4th Industrial Revolution

Paolo Gallo @World Financial Symposium – Madrid 19 September

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4th Industrial Revolution

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Job Markets, Life expectancy, AI, Learning, Trust and…our choices

Paolo Gallo @World Financial Symposium – Madrid 19 September

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Megatrend 1- High unemployment with skills shortages- Gig Economy

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

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Megatrend 2 – Increasing life expectancy

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SLIDE 67 Photo: Gold Sakazuki cup
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The top 10 skills

Source: Future of Jobs, World Economic Forum
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Megatrends 3. A.I & Learning

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Van Gogh or AI?

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

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Facial recognition @Schools

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

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Megatrend 4: From Information to Reputation – Trust in the digital age

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SLIDE 83 https://www.youtube.com/watch?v=WEw-GjTriIo
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…it was 10 years ago…..

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Trust in the digital age

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Are algorithms the ‘New Gods’ ? Social credit system

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SLIDE 88 Photo: Archive Photos/Getty Images
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What is our moral compass?

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THANK YOU

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World Financial Symposium 2018

th

17 – 20 September 2018

Madrid Marriott Auditorium Hotel & Conference Center

5 World Financial Symposium

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World Financial Symposium 2018

Michael Doersam

Chairman of IATA Financial Committee SVP Group Finance, Emirates

Innovate.Accelerate.Deliver

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Supporting Sustained Financial Health

Our journey so far

SIN 2016 DUB 2017

2016

HIPO

2017

Innovate . Accelerate . Deliver

2014

Sustainable Financial Health

2015

Sustainable Financial Health

MADRID 2018

Innovate . Accelerate . Deliver

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World Financial Symposium 2018

The Inside view The Outside view

Where did we stand last year on industry Initiatives ?

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2018 - Decline in airline profitability

70 75 80 85 90 95 100 105 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
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2016

White Paper 2nd Edition

Supporting Airline Industry Achievement of Sustained Financial Health

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1 Smarter Regulations

Harmonizing the regulatory framework making it supportive and conducive to sustainable growth

2 Value Chain Optimization

Optimizing the value chain, making it reflective of relative risks

3 Innovation

Enabling innovative and competitive customer centric products

4 Efficient Processes

Enabling efficient, secure and seamless end-to-end industry processes

5 Strategic Pillars

5 High Performing Finance Organization

A journey for the finance department from an accounting department to a value manager

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How did we progress since DUB ?

Los Losin ing di distribu butio ion pow power & & pa paym yments pr proc
  • cess control
ND NDC & & ONE NE ORDER Eco-System BLOCKCHAIN Data – Pow
  • wer/Ownership
ip
  • f
f 3rd rd par partie ties and nd Hi High volu volume e analytic lytics Futu ture GAFA str trategie ies

DISRUPTION

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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)
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How did we progress since DUB ?

Los Losin ing di distribu butio ion pow power & & pa paym yments pr proc
  • cess control
ND NDC & & ONE NE ORDER Eco-System BLOCKCHAIN Data – Pow
  • wer/Ownership
ip
  • f
f 3rd rd par partie ties / hi high gh volu volume e analytic lytics Futu ture GAFA str trategie ies

DISRUPTION

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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

COMMUNICATION

ZOOM-IN: TOP framework

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How did we progress since DUB ?

Los Losin ing di distribu butio ion pow power & & pa paym yments pr proc
  • cess control
ND NDC & & ONE NE ORDER Eco-System BLOCKCHAIN Data – Pow
  • wer/Ownership
ip
  • f
f 3rd rd par partie ties / hi high gh volu volume e analytic lytics Futu ture GAFA str trategie ies

DISRUPTION

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HIPO

Innovation Corner HIPO

ZOOM-IN: WFS ‘Booster’

FINCOM WGs High Impact Seminar Meet the Experts

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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

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World Financial Symposium 2018

Results playback

Join us at tomorrow’s Closing Plenary session

MADRID 2018

Innovate . Accelerate . Deliver

35 Airline Executives 22 Partners

HIGH IMPACT SEMINAR NEXT ACTIONS

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World Financial Symposium 2018

Thank you!