For the average traveller, booking a flight appears to have become a very simple process. Open a browser, select one of various travel search engines, select your preferred flight, time, price and airline, input your credit card details and pack your bags.
The process has become so efficient the average consumer doesn’t think twice about what lies behind the process, or how it has changed so many business models and so many people’s lives.
Behind the scenes is the strength and resilience of a worldwide system built on the type of global standards for performance, safety and security that give investors and consumers a quiet confidence in the industry, according to Andrew Herdman, Director General of the Association of Asia Pacific Airlines (AAPA).
Herdman believes the power of aviation is that it’s an interconnected, global system with many moving parts within the supply chain: manufacturers, airlines, airports, air navigation service providers, etc.
“It is the system that provides the service and the reliability,” he said on the sidelines of this year’s Willis Towers Watson’s aviation conference in Singapore. “That is what the consumer is getting — even if they just buy a ticket on one airline, one sector — they are really accessing all the services that are embedded in the system.”
That system provides consumers with safe, secure, reliable, convenient and relatively affordable air travel on a global basis. For travellers, the benefits represent themselves on their browsers or through efficient intercontinental flights. The benefits of the system can also manifest in ways that are less visible, but arguably even more powerful.
Simply put, without leveraging the connectivity and third-party investment in the system, emerging nations would struggle to make the business case for building the world-class airports or new aircraft fleets they need to support the economic growth that improves quality of life.
“The big shift over the years is that aviation went from being something that developed countries had to something that is now seen as universal,” Herdman said.
“Vietnam is a good case study, a market that has gone from being a very poor country to one with rapidly rising incomes … and a growing middle class. Aviation has played a big, big part in providing the domestic connectivity, and connecting the country with the rest of the region and the world. The fact that it has a world-class airline and airport infrastructure is an example of how the power of modern aviation is a key catalyst to modern economic development. It transcends the potential of one country; it is the system at work.”
Aviation, he said, can be a catalyst to economic and social development, and even though there are countries at different stages of development, the system makes it possible to rapidly implement world-class aviation services and infrastructure. He gives credit to the industry’s regulator, the International Civil Aviation Organisation ICAO, for working with the industry to establish the range of global standards that support consistency of performance and market confidence in an industry that is doubling in size roughly every 15 years.
An operating model as complex as the global aviation system is clearly not without related risks for its investors: Dependence on third-party suppliers and national infrastruc¬tures; shifting market conditions and security-driven disruptions all ranked highly among the concerns of the 350 ‘C’-suite executives that took part in the recent Willis Towers Watson’s Transportation Risk Index.
Despite pockets of geopolitical turbulence, Herdman says Asian airlines have largely navigated those— and the intermittent inter-regional dispute — without significant effects on trade or tourism. The airlines remain wary, however.
“Given what happened politically in other parts of the world last year, there is a sense of a heightened level of uncertainty over geopolitical risks, but I don’t think that will prompt [AAPA] businesses to change their position,” he said. “I would not take the pessimistic view that mistakes uncertainty for the knowledge that something bad is going to happen. Political uncertainty is a fact of life. The world adapts and moves on.”
Herdman called Willis Towers Watson’s annual aviation conference an “important event, which has grown in strength over the years” and suggested that the benefits of the insurers’ role in it may — like the larger aviation system — go unnoticed by many consumers.
“Integrated conferences provide reinforcement for the notion that the industry deserves credit for what has been achieved, because every time an underwriter points out that the premiums are falling, it is an affirmation that the industry’s safety performance is improving the risk profile.
“People may underestimate the extent to which insurance plays an economically important role [in aviation], which underpins confidence in the whole system. The purpose of the capital markets is to price risk, offer diversification — effectively through insurance— and to allow people to share their risks and not limit that to a single line of business. Consumers may not fully understand those subtleties.”