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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!