“The only way is up” is how many aviation industry players throughout Asia Pacific (APAC) view their growth prospects in the near term. Key factors supporting their optimism were explained by regional aviation expert, Mohshin Aziz, Associate Director at Maybank Kim Eng Securities, in this interview with him.
In this second part of the interview, Mohshin profiles some of the major trends and technologies that could impact Asia Pacific’s new and frequent flyers in the years ahead.
GE Reports ASEAN (GER ASEAN): In addition to cost efficiency, what other factors impact profitability for airlines – e.g. fuel efficiency and sustainable technologies?
Mohshin Aziz(MA): Fuel is obviously an important cost variable for any airline, but the degree of importance varies from one country to another. In expensive countries such as Japan, Australia, New Zealand, fuel is perhaps the third most important cost factor. This is because the cost of landing, parking, air navigational charges, are much higher than other parts of the region. The most important thing for carriers in these countries is ensuring that every plane is as full as possible, because they need to optimise revenue.
Of course, airlines want a more fuel-efficient aircraft, but what’s more important is ensuring that the aircraft chosen is the right plane for that country. If you’re designing a fleet around a four-hour flight time, you need the aircraft that is the best fit for that mission.
Aircraft manufacturers and engine manufacturers have to work together. They need to work to build a great aircraft, with an engine that’s suitable for the intended mission it will be flying.
There’s a tendency for aircraft manufacturers to try and use one engine for every application, from short to long haul. I understand that argument from an engineering point of view, and the desire to sell as much of a particular product as possible, but I’m not sure if it always provides the best results for an aircraft’s operations.
GER ASEAN: What about currency volatility? Does this impact fuel costs and efficiencies?
MA: Currency volatility is an unfortunate reality, but airlines have become increasingly sophisticated in dealing with it. Today’s computerised business landscape means operators can react quickly to balance out currency movements.
I don’t think airlines necessarily look at fuel efficiency as a way of negating currency volatility. In my view, they look at it as two separate problems. Fuel efficiency is an operational challenge, and currency volatility is one largely dealt with as a financing challenge.
GER ASEAN: Do you think new technologies will push the efficiency agenda forward?
MA: The physics behind jet engines today is unchanged from those developed during the First World War. They still operate on the same fundamentals.
Companies like GE, CFM, Pratt & Whitney, Rolls Royce, they’ve done wonders in increasing efficiency. The flight is smoother, planes are far more efficient at cutting the air. But these tend to be incremental gains, perhaps 2-3% with each new design.
As we reach the physical limit of that technology, I think people are looking for a quantum leap forward. Maybe that’s a radical new aircraft design, perhaps a flatter shape, or variable wings that deliver a huge leap in possibility.
GER ASEAN: Finally, if you could pick out one emerging disruption that could shake up Asia’s aviation market over the next 20 years, what would it be and why?
MA: I think the creation of a smart, integrated booking and scheduling system could be an exciting potential innovation. I’m thinking of a system that merges airlines from all around the world to integrate scheduling, offer a simple ticket price, all in one transaction.
Right now, if you want to fly on a complex route you have to do a lot of manual work, checking various travel consolidator and airlines websites, and your flight can include lots of transit changes and become quite expensive.
The solution I’m thinking of is like an Uber for airlines. You just put in your origination point, input in your destination, and up pops a simple flight and pricing. You might not even know the airline, you just pick business, or economy, and off you go.
If someone can create that seamless, fully integrated system with impeccable scheduling, I think we could see a true disruption in the industry.
GER ASEAN: That’s an interesting take, but I would say it’s a long while until it happens?
MA: At one point I thought Google was halfway to achieving this. Their Google Flight service was on the way to delivering these features, but then they abandoned the project.
I think an organisation like Google, which already has access to a lot of the data, they could provide the final push to this integrated aviation model. Maybe they can even take the leap themselves and lease an aircraft, utilise the data to offer a service on a route from A to B that they analyse as being in high demand?
The truth is that power really is in the schedule. Even with all the airline alliances that exist today, nobody has really been able to deliver this kind of seamless journey. We’ll see, but I really think someone out there will be crazy enough to try this.
Mohshin Aziz has enjoyed a diverse 18-year career to date, working in a range of sectors including engineering, fund management / venture capitalism, and the airline industry specializing in corporate finance, investment analysis, and corporate strategy.