Giovanni Bisignani: Flight path to survival
The Business Interview: The worse the crisis for airlines, the bigger the opportunity to make governments let them behave like normal businesses, says the Iata director general
Friday 19 June 2009
Recent news from the airline industry is uniformly dire: a litany of bankruptcies, £1bn increases in fuel bills, and misfiring takeover plans. But in a luxury Kuala Lumpur hotel, overlooking the Malaysian capital's Petronas towers, Giovanni Bisignani, the impish director general of the International Air Transport Association (Iata), is buoyant.
"Every crisis is an opportunity for change," the slight, former chief executive of Alitalia, says. "Unfortunately last time, after 9/11, we didn't see enough change."
The good news, pursuing Mr Bisignani's logic, is that this time the crisis is much worse. After 9/11, airline revenues dropped by 6 per cent in three months, and took three years to recover. This year revenues will collapse by 15 per cent, leaving losses of $9bn, according to Iata. Some 50 airlines have already gone under, and this week's Paris Air Show was far from the usual order bonanza.
The opportunities of such a catastrophe are nothing short of global restructuring, a final push to make airlines a commercial business. Of that, more later. The other big priority is the environmental agenda.
As well the gloomy predictions at the Kuala Lumpur AGM, Iata set a target for carbon neutral growth by 2020. And although it was the loss forecasts that the press contingent sent reverberating around the mediaverse, it is the green story that Mr Bisignani wants for his legacy.
Behind the undoubted charm, the 63-year old Italian has a fearsome reputation. He has blown through the once-sleepy trade organisation like a tornado since his arrival in 2002. Back then, Iata had 1,900 staff. Now there are 500 fewer, and 1,200 of them are different. "After a year, half the organisation was different," Mr Bisignani acknowledges. He tries, only partially successfully, not to criticise his predecessors. "When I joined, Iata was more of a club," he says. "I changed the management not because it was no good, but because it didn't have the edge required to run Iata like a business."
Iata represents 230 of the world's airlines – carrying 93 per cent of international scheduled traffic – as well as monitoring safety programmes, providing a global $239bn (£147bn) per year payments system and pushing through technology standards. "We are a special animal," Mr Bisignani says. "And as a special animal, we can do special things."
Mr Bisignani's strategy has some considerable successes, and he is widely supported by his members. But the top job is a strange mixture of a role – part ambassador, part parent, part bulldog. The plan to introduce e-ticketing across 200 countries was widely considered impossible. But that was without reckoning the man that some Iata staff reportedly dub "Napoleon". "I told members that if they didn't get it right they would stop flying because we would not be distributing any more tickets," Mr Bisignani shrugs, with some satisfaction. "My job is to build consensus, but if that takes too much time I have to take a risk and lead the change." Carbon neutral growth by 2020 may be a repeat of e-ticketing.
In its transformation from torpid bureaucracy to a commercially run organisation, Iata parallels changes in the industry it serves. Gone are the state-owned carriers. Instead, the airlines are listed companies, walloped by everything from oil price fluctuations to pandemic fears. As things stand, it is simply not a profitable business to be in. Over the last 60 years, the margin has averaged just 0.3 per cent, with $1 trillion in revenues producing profits of just $32bn.
Mr Bisignani fought hard to change the culture of Iata. "At the start everyone said it was impossible, but I had to have the courage to do things differently," he says. Post-privatisation, the same is true of the airlines. "If we were allowed to run airlines as normal businesses there would be consolidation, there would be access to international finance and there would be many failures."
There are two major hurdles. One is the disconnect between the competitive airline market and the monopolistic infrastructure of airports. Iata is incensed that airport charges are up by $1.5bn, despite six months of unprecedented crisis. "Everyone in the value chain except the airlines makes money," Mr Bisignani says. "It is not our management skills that are the problem, it is that we are the only ones that compete. We don't want a bailout, we want airports to be more efficient and regulators to be real."
Unlike his predecessors, Mr Bisignani knows how to apply pressure. Six months after taking the top job, addressing an airports conference in Japan, he took a sufficiently truculent line on the fees at Tokyo's Narita airport that the first three rows of the 1,000-strong audience walked out of the auditorium. "I was expected to make a speech on the partnership between airports and airlines, but I said that the government had given Narita a licence to print money," Mr Bisignani says, grinning. "My tools are to embarrass governments with figures and facts." He is also a canny media operator. At this year's Iata AGM there were 250 journalists. In 2000, there were 12.
But a shake-up of airports and their regulators is still only a small step compared with the heady issue of liberalisation. Despite recent attempts to open up the international market – most notably last year's Open Skies treaty – airlines are still bound by laws governing national ownership. "There has not been the courage to liberalise the whole system," Mr Bisignani says. "Airlines are the weak part of the value chain because others are not playing the same game. It's like boxing with one arm tied behind your back, you start as a loser."
There is quite a prize at stake. Pre-crisis numbers predict Asia will be the biggest market by 2010. And while the West succumbs to regulatory sclerosis, Far Eastern governments such as Singapore and Malaysia are liberalising apace. "Europe and the US once played an enormous role in aviation and set the rules," Mr Bisignani says. "Now they are becoming irrelevant."
All of which leads back to the prognosis for the limping industry. Freight may pick up towards the end of the year, but cargo only brings in about 10 per cent of revenues. When the high-margin passenger numbers will start to improve is anyone's guess. "If this crisis is prolonged then it won't just be the small carriers failing, national carriers will go too, and that will be a problem for governments," Mr Bisignani says. He certainly knows how to apply pressure.
Giovanni Bisignani: The CV
2002-now Director general, Iata
2001-2 Chief executive, Opodo
1989-94 Chief executive, Alitalia
Other posts include: chairman of the Association of European Airlines; chairman of Galileo International; president of Tirrennia di Navigazione, one of Europe's largest ferry operators; chief executive of SM Logistics, part-owned by GE Capital
Married with one daughter. Enjoys golf, tennis and horse-riding
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