#61 Eric Leopold, Threedot (ex-IATA): Air transport in the digital age

Welcome back to The Vertical Space for a conversation with Eric Leopold, a long time veteran of IATA, the International Air Transport Association. We start the conversation talking about the state of the airline industry and its current priorities such as the post COVID recovery, digital transformation and sustainability. As most of you know, there are large regional differences in the maturity of the industry and therefore priorities, so we generalize the discussion on bottlenecks that airlines and airports face as the demand for air travel grows and potentially doubles over the next 15 to 20 years. 

Here we touched on capacity, ground infrastructure, workforce, the IT infrastructure and how advanced air mobility can solve some of these bottlenecks. We also discuss whether the hub and spoke network model continues to be prevalent in the future.  

Another key theme in the conversation is digital transformation. What are the opportunities on the business side and on the operational side? And how airline and airport CIOs are thinking about prioritizing their budgets across projects? Part of the discussion is the role of generative AI in the travel experience. For instance, instead of going to an online travel agent to buy your ticket, Eric suggests we might be able to buy , our flight in a supermarket or a bank or any other retail location for that matter. Or we might use generative AI and a voice interface to guide us through the travel booking process, one that is more personalized and more in tune with our individual preferences. 

If you're looking for an expert and pragmatic opinion of the challenges and opportunities that aviation is facing you're in the right place!

Transcript

Eric: 0:27

Today everybody thinks it's normal to go on an OTA and put three letter code origin, three letter code destination, all of that. That's the way we've been doing for the last 40 years and the reason we do that is because the airline system that were built for travel agents 50 years ago, suddenly 20 years ago, somebody puts this layer of booking engine on top, and consumers had to use the same interface that travel agents were using, but it's never been designed for that. There's an opportunity now to have a new, fresh approach to say, if I'm the customer, the traveler, I want to travel, what is the natural experience for me? And just build something like that for me, rather than here is the system we've built for travel agent 50 years ago, figure out a way to follow the right sequence, to find the right seat and the right destination and the right connection and all of that.

Luka: 1:28

Hey everyone. Welcome back to The Vertical Space for a conversation with Eric Leopold a long time veteran of IATA, the International Air Transport Association. We start the conversation, talking about the state of the airline industry and its current priorities such as the post COVID recovery, digital transformation and sustainability. As most of, you know, there are large regional differences in the maturity of the industry and therefore priorities, but we generalize the discussion on bottlenecks that airlines and airports face as the demand for air travel grows and potentially doubles over the next 15 to 20 years. Here we touched on capacity, ground infrastructure, workforce, the IT infrastructure and how advanced air mobility can solve some of these bottlenecks. We also discuss whether the hub and spoke network model continues to be prevalent in the future. Another key theme in the conversation is digital transformation. What are the opportunities on the business side and on the operational side. And how airline and airport CIOs are thinking about prioritizing their budgets across projects. Part of the discussion is the role of generative AI in the travel experience. For instance, Instead of going to an online travel agent to buy your ticket, Eric suggests we might be able to buy our flight in a supermarket or a bank or any other retail location for that matter. Or we might use generative AI and a voice interface to guide us through the travel booking process, one that is more personalized and more in tune with our individual preferences. If you're looking for an expert and pragmatic opinion of the challenges and opportunities that aviation is facing you're in the right place. As mentioned, Eric is a veteran of the airline industry. At IATA he held numerous roles in strategy, digital transformation and standard development over the span of 15 years. His last role was director industry strategy, focusing on the restart of the air travel industry after the COVID 19 pandemic. Prior to this role, Eric was the director transformation for financial distribution and data services. His team led the transformation agenda for the air travel industry, including change programs and industry standards, such as the new distribution capability(NDC). Eric championed the digital airline vision, enabling airlines to become digital retailers and efficient financial organizations. Eric is now the founder of Threedot a consulting firm, providing services to the travel and tourism industries. Threedot advisers, all companies, including airlines, airports, travel agencies, travel tech investors on their strategy for innovation, growth and transformation. Eric holds a master's of science in electrical engineering from central Supelec. A master of science in computer science from Georgia tech. And MBA from ESEC. And a diploma of the advanced management program in air transport from Nanyang university. Eric is married, has two daughters and lives in Geneva, Switzerland. I enjoyed the conversation with Eric after a brief sponsor message. Eric, welcome to The Vertical Space, it's a real pleasure to have you on the show.

Eric: 5:19

Thank you, good to be here.

Luka: 5:21

Is there anything that few in the airline industry agree with you on?

Eric: 5:25

Yeah, that's interesting. Lately, I would say, when we're talking your future of travel, some people, most people now are quite pessimistic saying that, sustainability, we have to reduce flights, etc. And I think that there's going to be a breakthrough, that will make air travel sustainable. It reminds me when, for cars, you need a Tesla that says, we can do electric vehicles or for COVID you had, you need a Moderna or another one that says, we can have a vaccine in one year and not 10. So you need a breakthrough. So I think we'll see a breakthrough in the coming years, but unless it happens, I understand most people are pessimistic.

Luka: 6:07

What breakthrough do you see happening and how is that different from what most people in the industry think?

Eric: 6:13

Yeah, most people see, that, to make aviation sustainable, so that people can travel in the next generation, we've been using the last two generations, is that unless, you have, sustainable fuels, so two thirds of the fuel will be replaced by what's called SAF sustainable fuel. The rest may be hydrogen or electric for short haul. That to me does not take into account, this scenario doesn't take into account, like a major breakthrough, like conversion of, sun and solar energy into, fuel creation or something that is impossible today. And I think what people are missing is the same people who said solar impulse is impossible. Flying around the world, with a solar plane, everybody said it's impossible. And there was a few crazy people like, like the ones of Solar Impulse, Bertrand Piccard, who said, I think we can do it. And that was the breakthrough. So I think it will come.

Jim: 7:06

Is your breakthrough, Eric, is it going to enable more sustainable flying? So there are people who question, obviously electric, electric is not going to happen with anything close to wide body for 20, 30 years, and, many question hydrogen for a variety of reasons, and sustainable aviation fuel, although a good idea, it's going to take a long time to get what we need. Is your breakthrough going to enable sustainable flight, or is your breakthrough in that area that, if you agree with you on, enabling some other part of air travel transportation?

Eric: 7:39

But first, I'm not sure what the breakthrough will be, so I know there's many people doing lots of research in many different places, and I don't know which one, will come, but if I look at electric engines and what I studied, 30 years ago, and what I still see today mostly, I don't see major progress. But now with all the attention that you have around those electric engines, I would expect, much progress in the coming years, same thing on batteries and so that's one part. Also on creating new fuels, we had decades of, fuel production one way. And now that we put much more research on that I would expect breakthrough there. So I don't know which one will be, the first one to happen. I just think if you meet again, and we speak again in five or 10 years, we will say, Hey, look what happened. I've been like, post Tesla, post Moderna, it's, or even, the, all the Uber and the, Uber was crazy before it was invented. You would never you put your kids in the car with somebody you don't know, and now it's maybe the safest way to, drive around. So it takes 5 10 years to, shift those mindsets, or to have a breakthrough. So I don't know, what exactly what will be, but there must be something happening in the next 5 10 years that will change the way we look at sustainability in air travel.

Luka: 9:01

It's interesting that you compare this to the vaccine production. Do you feel like the question of sustainable air travel has the same level of urgency in the population? I mean, clearly it doesn't. so the question is, humanity put their brains together when there was an existential threat, which in this case, is probably not at that magnitude.

Eric: 9:26

Yeah, you're right. The, RNA and all the things existed before, but there was no, appetite politically to try to take any risk and fast track adoption. And of course, COVID accelerated that. So there's probably not the same sense of urgency. for, sustainability in air travel. That being said, there's, big diversity, and differences, around the world. There's regions of the world where sustainability is clearly not the priority. Everybody understands what is happening, climate change, global warming, etc. But it's a matter of priority. And I think it's in the regions of the world where sustainability is on top of the agenda. That's where you will see, most of the funding and research, et cetera, going into, that area. Because when they look at the benefits and costs of aviation, benefits are huge, but costs, environmental costs are huge as well. And unless we mitigate that, the cost will be higher than the benefits. And it's true in some parts of the there may be decisions to say, aviation is too costly. so we should, decrease it or stop it.

Luka: 10:37

I'm sure we'll come back to that in a moment, but before we do, let's, just frame the conversation with your assessment of the state of the market for airlines and airports, if you would.

Eric: 10:48

The state, of course, the big topic, in our, I call that sector, if you want, of aviation, is the post COVID recovery, and, that's the big topic. Demand is back, back at, end of 2019 levels. So that's the big topic. what has changed, I think, there's some safety incidents that are happening and that are quite worrying for, I think, people who are watching this closely, but even for the general public. There's, I think, a growing and bigger focus on sustainability, as we just discussed. I think even before COVID, we were still, talking about greenwashing, lip service, due to that. I think now it's, we've moved into real, planned roadmaps, etc. Also the regulatory side, government side, funding, production of staff, etc. So that I see like a real topic now. What's common with other sectors I see is digitization, right? What happened in, during COVID, many people went online and, remote work and all of that. Everything has been digital. We see that also in the airlines and airports, and that's accelerating. There are still parts that are very archaic, but a lot of progress. And the last thing I would say top of my mind is what I just mentioned as well, geographical, differences. You see really, different gaps, for example, between developing countries where, you're building new airports or you're building new runways in the airport or new passenger terminals at the airport. So a lot of still building at infrastructure because, aviation infrastructure builds so much benefits to those, regions and markets. And that's the contrast with the more developed countries where the market is mature, infrastructure is there, it's efficient, reliable, etc. And there's no way you can build a new airport or terminal or a runway or anything else. And, and passenger volumes, you cannot grow anymore. And so you're more like thriving and, Yeah, it's a totally different approach. Last 80 years, I would say, post Second World War, was about, growth of the infrastructure. But it's true in some parts of the world, you've reached the maturity. And so you need to think about what's the next phase of, of aviation.

Jim: 13:05

Eric, boy, a lot of good areas to break down and evaluate there. Talk a little bit about the digital innovations and what part of aviation, do you see it on the revenue side, on the ops side? You probably see it everywhere, but what were two or three areas of digital, optimization that, that have occurred or will occur, and how do you think it's going to affect, profitability, and how do you think it's going to affect the traveler?

Eric: 13:27

All, of the above. that, that's what's, interesting is that it's cutting across. I would say, on commercial side, the way airlines are, selling the product or simply, making them available, until today, you still need to go to a travel agency or a dedicated shop to buy your flights and things because it's traditionally being sophisticated and complicated. You can imagine that in the near future, maybe you can buy your flights in a box in the supermarket or you can buy them in any other sites, banks, anybody can sell your flights because it's easier to sell, to connect, to package, all that. The other thing that is interesting, I see evolution around, Gen AI and those new interfaces, these Rabbits that, It's like a phone with no apps and you just, speak with your little Rabbit and you say you know, take me there and you don't even know, what app will be used. If it's a travel agent, if it's an airline, et cetera, it's an AI, an agent will do that for you and we'll get you where you need to be, et cetera. So you don't even need to think where do I find the flights? How do I buy it? That's right. It's, it will happen with those AI agents working for you. So that, that's, big changes and this can happen, fast in five, 10 years. you can say today, if you want to buy a flight, you go to an airline or a travel agent, and maybe in 5 10 years, this has, completely, maybe not disappeared, but completely, changed. That's on the commercial side, and many other, changes. On the operational side, I think one big topic is the access to data, data from, of course, your aircraft, your engines, your et cetera, and being able to process that and use also the same tools, around AI to, to make, forecast, anticipate maintenance, detect, potential issues, all of that, but also a topic I like as well is, modernization of the atmosphere, anticipating, of course, weather, turbulences, et cetera. So that's, that's fascinating. and yeah, many other topics. Yeah, I don't know how much time we have.

Jim: 15:36

Got a lot of time.

Eric: 15:38

Yeah. it's fascinating, areas, digitization. We were just scratching the surface. We are beginning of it.

Jim: 15:45

Two things, one on the commercial side, the, AI, let's say I I want to fly from one place to another, and you're saying that could be automated. Who will win and who will lose, for example, how will the global distribution, companies, is it possible that they as middle people could be vulnerable if that kind of AI revolution may occur? It's a great value to the user, who wins and who loses there?

Eric: 16:09

Yeah. that's certainly the right questions to ask. I think we cannot have, simple answers like, the middleman will lose cause we've seen, many cases, you have suppliers on one side, customers on the other side, and suddenly you've got an Amazon in the middle or Uber in the middle. Whoever will facilitate supply and demand, becomes a marketplace, et cetera. But still there's this idea that if you've got those smart agents, know, AI type things, that knows what you like, how you like to travel, so it knows about you, and know about all the travel suppliers, hotels, airlines, but also, rail, railways. The distribution system today, they are limited to the data that's been, filed and provided to them. And now you have AI that is, not limited by that. They could find an itinerary. Maybe you should tell them I'm not in a hurry. Maybe I have a stopover you in city. I found a nice hotel. You don't know. So I'm just curious to see how will develop and what will be the new experience. Once have some use cases, then you can see, and it could be business travel, be others. Because you see the pain when you travel for business. You see the pain, in booking the flights, in changing the flights, finding the hotel, all of that.

Peter: 17:30

Yeah, Eric, been looking at the rabbit too. The booking is pretty steep hill to climb you that it could are a You It's All those things, you know, I just feel like I'm sitting there in the airport, I'm fighting with my phone, trying to navigate through these ever changing, menus and app pages. And if the rabbit could step in and just do it for me, I'd get my head out of my phone. That would be a huge win and, that's it's like first base, right? It's an easier hurdle to get over and, get people accustomed to the AI and allow the technology to be exercised and matured. So, I'm with you in that. I think that there are hopefully going to be a lot of these little steps, a lot of these little points of friction that get taken out by it.

Luka: 18:38

You're saying, Peter, as opposed to using the rabbit for the actual booking, where you might want to actually see and put eyes on the different options or pictures of hotels and whatnot.

Peter: 18:49

Yeah. the actual booking, I mean, that's such a multidimensional sort of decision that people make, and there's a lot of stuff that the rabbit wouldn't know. It wouldn't have, it wouldn't have that contextual awareness of everything that goes into selecting the flight. But there are these other things that are so painful, and so tedious with the phone, if the rabbit could just step in and do it, that would be awesome.

Luka: 19:14

Eric, what do you think about using a voice interface for the actual booking part of the travel planning?

Eric: 19:22

Yeah. if I take one example here, SeatGuru, SeatGuru, it's nice. You just need either the app or know how to use it and again, input your flight details and look at different configuration. All of that is painful. Now, either you have a travel agent who knows all that stuff. Fine, good luck, some do, or I say, call it Rabbit, call it Siri, call it any of those AI. And if you train them well, so they will be like, I remember, speaking with the guys at Alexa, they said, I don't remember how they call it, like a skill, there will be a skill in Alexa that understands, travel experience. It's trained and it will go through SeatGuru, it will go through all of that, it will learn your preference, etc. And it will help when you're doing the booking, and maybe some people will say, I still want to do my booking, and see the seats, and see options, and see, fine. But maybe while you're doing that, if you have like voice over, you can also use additional assistants that will do all the, as you say, tedious things to improve it. This I don't see like major breakthrough, like you have a new energy or new, other things, but it will evolve, the behaviors and preference of the travelers. And, today everybody thinks it's normal to go on an OTA and put, three letter code origin, three letter code destination, all of that. Yeah, the way we've been doing for the last 40 years, and the reason we do that is because the airline system that were built for travel agents, 50 years ago, suddenly, 20 years ago, somebody puts this layer of booking engine on top, and consumers had to use the same interface that travel agents were using, but it's never been designed for that. So that's why I say there's an opportunity now to have a new, fresh approach to say, if I'm the customer, the traveler, I want to travel, what is the natural experience for me? And just build something like that for me, rather than here is the system we've built for travel agent 50 years ago, figure out a way to follow the right sequence, to find the right seat and the right destination and the right connection and all of that.

Jim: 21:38

I heard, Eric Schmidt speak a couple of years ago, and he was talking about, when I wake up in the morning. I can say, where I want to be able to go. It'll know the delays. It'll know the traffic it'll automate the entire process. So let me ask you this. Who is most likely to develop this, and then who's most likely to be harmed from it? You've already said you're not sure, but let's face it. There's a lot of organizations that make money from that friction. There's a lot of organizations that might make money as you step of the way. If we don't want to talk about who will be harmed, who's most likely to make that innovation do you think?

Eric: 22:14

It's the Apple and Google of the world, who've got the maps, they've got access to data, they've got all of that. I think that's it. The only reason you know, most people would give you that answer to come back to your first question. Maybe I have a different answer. I think those, Google and Apple, they focus for the right reasons on more generic approach, they give you a map, they give you something generic, but I've never seen them really focusing on travel, the travel experience, all of that, because It's a niche, if you want, and it's complex, and it's etc. I still see an opportunity for, a new brand, a bit like an Uber, Airbnb, if you want, that would come. And the opportunity you have, something I believe since I was working at IATA, it's a digital identity. When you travel, long distance, road, cross border, your identity is key if you want, because you need to identify yourself at the airport with the airline through immigration all the time. So that's the one thing you need with you. If you, if this, key, this identity that, could be, what is going to be what everybody has when they travel, and if you find, could be again an agent, AI agent, managing your identity, from there you can build on that. You say, now I know who's traveling, and I know your, how to contact you, and I know your trips. Then I can start anticipating disruptions. I can anticipate all of that by connecting to, all the parties. And I centralize. Remember App in the Air? that was that type of disruptive app. The App in the Air could have been that. and there's others, apps like that, that could be the breakthrough I'm talking about. Like suddenly all international travelers, they say, hey, that's the key to have a smooth travel experience.

Luka: 24:06

Eric, do you think that this is necessarily going to be a new entrant in the industry that brings this technology to market?

Eric: 24:14

My guess, based on my experience, is that it's easier for new entrants to innovate and go across what they do. I see airlines, it's very difficult within an airline to rethink different You know, activities on an airline, whereas if you're, even if you're Apple, you say, you know, I make computers, but tomorrow you can make, you know, movies, or if you're Amazon, you can make whatever you want. You're not limiting yourself, in, in one sector, whereas airlines, apart from AirAsia, tend to say, I'm an airline, so I'm in the business of flying, Metal Tubes. And except AirAsia who says, yeah, I can deliver food as well, I can be a bank, so that's why I say I don't see airlines doing it. Digital companies, even the innovative ones, again, Apple, Google, they are, it's not because, Google want to do social media that they are good at it. So, you know, Again, they are at their limit. So, I think the best way is to, find a few innovative people put some capital behind and build something scalable. That's how I see, again, all the examples we know. I mentioned Tesla or SpaceX. You know, AirBnB and Uber. We have, in the last two decades, we have lots of good examples of you start from scratch, you build the thing that people need and want. And in one or two decades you bring it to maturity. So that's what I see coming. That's what I call the breakthrough. And we've seen a lot in the last, 10, 20 years enabled by technology. There will be a lot. And like all the eVTOLs, all those new electric aircraft vertical takeoff landing, maybe it's going to be, Airbus, Boeing or NASA, but again, they've got lots of other issues. So I guess we will see one of the new entrants. One of the new players, having a breakthrough and building the one that has, good batteries, good efficiency, low noise, good range, all of that. And you say, wow, that's good. whether they will acquired by somebody else that I don't know. There's not many who say I go from zero to 1 trillion all the way. But that is, I think, innovation usually tends to come from innovative companies that don't have all the bureaucracy and burdens of all the big companies.

Luka: 26:26

Eric, when we think about the growth of the industry, are there any drivers of this growth in the post COVID era that are new to the industry as opposed to what we have observed in the past? I mean, Traditionally, it's been the growth of the middle income class. It's been urbanization, and it has followed roughly GDP growth. Is there anything different, outside, let's park the decarbonization, new drivers that are impacting the industry.

Eric: 26:57

Yeah, the short answer is that the usual drivers, you mentioned GDP, the reasons why people travel, and why it's convenient to travel by air. Those fundamentals, don't change because of COVID. I would just maybe give one example where it's changing. Is, the relation of people to work and work has been, something you do in one place, more or less. And, with remote work, and we need to see where remote work goes. But with all technology that enables you to work, from anywhere. This may have a significant impact, and even on, most importantly on business travel. Because sometimes you don't need to travel for business as much, et cetera. But then there are some people, because they don't see each other as often, maybe they travel, for meetings differently. So again, maybe it's too early to say the shift in business travel. That would be something that's different post COVID, because the relationship to to work where you work remote work, has changed. But for the rest, I think, fundamentals have not dramatically changed to covid, I mean not, not impacting the growth. What is impacting the growth, as I said before, is that I think we've reached in some, markets, not completely, but at least the infrastructure that was growing. population is not growing anymore, why grow the capacity if GDP is not growing as fast as before? And the population is not growing, et cetera. And it's, aviation is moving people in goods. That's it so it's growing in the regions where you still have that GDP growth.

Luka: 28:38

Right. But arguably people in those other regions want to come and visit as well. So you end up perhaps having an infrastructure problem. That's a question actually that we wanted to also discuss. what do you see as the major bottlenecks to the growth of the industry?

Eric: 28:53

Yeah, bottlenecks. what you need to run this industry, so you need aircraft. So if you have two aircraft manufacturer and one is not able to deliver, you've got a problem of aircraft. Infrastructure in general, as we said, how many people you can accommodate through the air, you have the routes, through the airport, you have enough runways and, passenger terminals and baggage systems and all that. Then you have all the workforce. During COVID there were, young people training for being pilots and then they said maybe there's no, no more airline by the time I finish my training. So they go to something else. So if you don't have enough pilots and all technicians and all of that, then you need, fuel, you need sustainable fuel in the future. And where is the, production of fuel? So that, that's a bottleneck if we don't produce, new fuel fast enough and to fund all this, you need capital. So if the industry is profitable, it's fine. If it's not profitable, who's going to fund it? And some governments, fund it because it's critical to tourism, because tourism is 30, 40, 50 percent of GDP. So they need to flight. Some others, they will say it's not cost effective and, it's not. So was the cost of capital and, and we don't invest. So that's, There's a lot of bottlenecks, lots of challenges.

Luka: 30:06

According to market forecasts, the industry might double over the next two decades. And so when we think about the infrastructure that is at some places already at capacity, when we think about accommodating double the traffic in the existing air traffic system and airspace, what needs to change to accommodate double the traffic that we have today?

Eric: 30:34

Yeah. So yeah, double the traffic is more top down, right? So if you say I grow, 3% per year of, 15 years, or I should say 4% or 4%, you double in, I think 15 years and 3% is in, 20 years or something like that. That's top down, you assume that everything stays the same and you grow at, 3 4 percent a year for the next 15 years, it doubles. What I was showing in terms of challenges and obstacles is more bottom up. You say, GDP grows, that's fine, there's demand, but are you able to deliver, right? So that's where I see the challenges. And, in some parts of the world, where you have is still high GDP growth and a lot of people don't travel. I think it's quite consistent. I don't know, like even Saudi Arabia now to plan 2030, they got huge plans and they are creating new airlines and buying lots of aircraft and all of that, putting all the resources. It looks like they've got a plan to manage that. I'm, indeed, I'm more concerned in some parts of the world where aviation is more mature. There's no new terminal, no new runway, no new nothing. But still, there will be a growth in demand. But is it a big issue though? I think if you have already some airports that are saturated, And what will happen is, if, demand is higher than supply, then, fares will go up. And a bit what we see in post COVID, while the fares are up, is because demand is big after COVID. Most people want to travel again and supply is not there because, not all the aircraft and crew and everybody is back there. This I think that's how it will regulate. I don't see fares going down in some parts of the world.

Jim: 32:19

And Eric, some of these locations you're talking about where there's, demand is exceeding capacity, almost today, are some of the same areas where, the advanced air mobility companies want to be able to concentrate their services. And, there's a perception that, we're not going to get in the way of the, existing demand for commercial air traffic in these areas, but they are with today's air traffic system, and we heard Paul talk about where we're at capacity today with air traffic, and then you want to introduce, eVTOLs into these very busy corridors. So this will all have to play together, and there'll have to be some breakthrough on the air traffic control and air traffic management side, you would think, to be able to accommodate it.

Eric: 32:59

Yeah, that's definitely an area where you need to break through because, air traffic management, is built for, certain types of, aircrafts and pilots, etc. Once you have new aircraft where either remotely piloted and pilot is not in the aircraft or even autonomous aircrafts, there's no pilot. All that, you don't have an infrastructure that's ready. If have more companies going to space and crossing, the space where aircraft are flying, you need also to accommodate all that. So there's many changes. Are we ready today? No. is that a challenge for the next two decades? Yes. and I agree. Here where the market, is for all those, new electric aircraft, short haul, that's definitely where you have the most crowded place, more, more mature, what time is of the essence. And what's interesting is that the, aircraft that are electric, the eVTOL, there are some hybrid, but the electric one, they have a proposition as well in terms of sustainability that's much better and acceptable by the public in those regions. So that's an evolution, but the number of challenges is still big.

Jim: 34:09

It'd be interesting, some of our guests have argued, Eric, for some of the value of advanced air mobility is that the regional airports around these big hubs could act as ways of distributing that traffic. to the regional airport, and even though today it's a less convenient airport than what the major hub would be, with advanced air mobility, because of its speed and because of its ease, let's put cost aside for a second it's possible that you could spread load some of the demand of these big airports to the regional airports. What are your thoughts on that, as part of the value of AAM? I,

Eric: 34:45

I would say I have different thoughts, all right? I, at least, is my wishful thinking is that I see the opportunity to, bypass or get rid of the airport and get rid of baggage sortation system, get rid of all that complexity. I'm assuming that those, new type of aircraft will be smaller, more agile if you want, they don't need a runway. So to me, the concept of airport was because you need a runway. So I'm curious to see, those vertiports and other types of places where people can catch, those, new aircraft, but to me, success is that you don't need airports for that, right? and the only reason you go to an airport is because you need to catch, long haul flights. The one that will still use the SAF and will, take you for 12 hours in the air. But all the other ones that are, one or two hours, these, I don't see them going to airports. And baggage, also because it's smaller, so we need to find ways to baggage. And baggage, I see it, I don't think, we need to keep baggage to, traveling with passengers, that's a headache, coming from, regulatory, regulatory times, but I think with, we talk about passengers, but I like to talk about, goods and cargo and baggage. I think the, the new aircraft will carry the, the baggage and carry passengers. They will carry, bags separately. So wherever you go, you drop your bag. like a robot, a humanoid, something like that will pick up your bag, load it into a drone that will, carry the bag, and the bag will not follow you necessarily. The bag knows where you're going, and the bag will meet you at your hotel, your destination, wherever, and you don't need to travel with your bag. And it's not been the case because for security reasons, but I think we can have advanced screening systems that will solve that. So that's more where I see the future. We have, if we just replicate airport baggage systems, all of that, I think we missed an opportunity.

Peter: 37:00

Eric, the technology community a lot who are working on these technologies think about the hurdles to adoption primarily as other technology hurdles this is how design new AAM vehicles routes for their early deployment or strategies for early decarbonization and changes to operation and infrastructure that would, take place commensurate with that. But in reality and from your perspective, you see the other non technological hurdles, the, organizational hurdles, the groups whose jobs are, going to face a lot of change that they're resistant to, etc. we've discussed a number of these in, this talk so far. When you look at it from that perspective, what do you see in terms of those other types of hurdles and what areas are going to, surprise us and encounter a lot more resistance from your perspective than perhaps, others assume.

Eric: 38:12

Yeah, there's a lot. Yeah, technology to me is always, just, one element, but when technology comes with a breakthrough, that can change the whole game. I think we talked about demand. Is there demand in many markets to have different type of travel experience? In terms of speed, experience, comfort, also cost, etc. So this, I would tend to say yes, and I would guess most people would say same thing. Talking about hurdles, I can see how regulation is going to be a hurdle. Now, I don't see that as a negative, so what I mean is that the day we manage to have the regulation in place, it's going to accelerate. I remember, before GDPR, there was no regulation on data and you could do anything, but it, I think, was not good. And once you play rules, then everybody can play, and it can accelerate the spread. And I see if we can have global and harmonized regulation for AAMs and all of that. That, to me, would be a big accelerator. Most people see, a regulation as painful. I see it sometimes in something as standard. it can accelerate global development, global rollout. I see a lot of innovation and where I see a challenge, it's, bridging innovation. So many, innovation in airframes, engines, batteries, everything, but bridging them with the operators. And by the way, who are going to be the operators of the AAMs? is it going to be airlines? Is it going to be the aircraft manufacturers themselves? Remember when Tesla, created Tesla, and they say, the robo taxi, we are going to operate the taxis, because they can automate themselves and drive themselves, so if if you're a manufacturer of drones, are you going to become the operator of the drones, or will there be other operators? As long as that is not, clear. if you have new technology, who do you sell it to?

Peter: 40:10

the type And, I think it's clear that most well capitalized of those companies have generally been ones who are talking about model where they operate the vehicles that they manufacture. adds complexity, it does allow them to, capture a second node value chain and they would argue, create a lot more value along with you end up with the, the technology being brought into the market in a very prescriptive way. I have just, for a long time thought that we're going to learn a lot from customers and operators in terms of how they are going to use these aircraft and, in what scenarios and what new opportunities it will create for them. Things that they can see from their vantage point that, those of us, even in the aerospace industry, are just too far away from it to see it. And so I'm really interested in the companies that are bringing forward something that is a little more multi purpose, placing it in the hands of customers and then, seeing what happens and improving the product and building version 2 on the back of those insights. But, something I'm interested in your thoughts on are what might be, from your vantage point, the use cases for these aircraft, even in the early days when manufacturing volumes are necessarily going to be, pretty moderate, tens or maybe hundreds of units produced per year, but certainly not high scale for, high scale mobility networks or for deploying across many, urban areas in the world in the early days. And so is there a use case that you see from your vantage point that is inherently compatible with that? And that, in fact would deliver insights and also help build the maturity and the conviction around it to, fuel the scaling.

Eric: 42:06

What makes sense to me in terms of use case, I would say, use case for passenger and use case for goods. For passenger is, where time is of the essence and where connectivity as well matters what makes sense is like feeding airport. So if you have long haul, connections and, how do you increase your catchment area and you control, who's going to be there on time because the traffic in the air is, quite more predictable. That I see, a good use case, and that's what to me justifies why some of the, current airlines, see that as an extension of their business, but it's just, one. And that is an example that does not address, what we were saying is that if you're a manufacturer of, of the AAM, or the new aircraft, and you want to operate them, themselves. And if you have some operators who say, but I'm only interested in, I want to operate them. so what happens? All right. So that's why I see room for manufacturers and I see room for operators and maybe some would combine, but some won't. So I see both happening. And on the cargo side it's even more interesting, I think, because you have cargo operators, you have manufacturers, and both may operate, the, the cargo drones.

Peter: 43:23

It's interesting what you observe about the catchment area, because for a major hub that's a high density place and it's going to be difficult to integrate a significant amount of AAM traffic into that airport, even if that traffic is from further away, regional air mobility providing connectivity into the airport I do see the opportunity for an aircraft that could deliver value because it can fly a longer distance than people comfortably want to drive to get to the airport, but not so far that someone going to take an existing connecting flight today then there's an opportunity, but integrating into a busy hub is going to be hard. So maybe it's medium sized airports or airports that are aspiring to take on a hub role in the network as it grows, but they're not there yet. And, they want to serve a larger distance around them in that area, or there might be bodies of water or other geographic hurdles that make it harder to access that airport from a wide range of areas via car. Maybe that's the early sweet spot for where to sort of build the repetitions and the experience with these operations rather than doing it in, you know, like New York or other giant cities.

Eric: 44:43

Yeah. I'm curious as well. I see it happening in New York. I mean, You know, because it's congested and traffic is an issue and you want something, you know, predictable, reliable to go to the airport. so that, that's one thing. And also it depends if you can have an experience, smooth experience. So, where you land at the airport is convenient. are you already airside when you land? that type of things could be, you know, small things, but that. Make a difference if security is a pain point. So you can imagine you clear security, and even immigration. I don't know, when you board the smaller aircraft. So this to me, yeah, it needs to be looked at. That's for the large hubs, New York and others and also smaller, like, Nice in France, near Monaco, meaning that you commute, by car, it takes, an hour or two, and, flying takes five minutes. So that already exists with helicopters today. Where I live is in Geneva, Switzerland it takes, two or three hours to go in the mountains it will take, 15, 20 minutes. Which is, changing the patterns. You don't go there for the weekend because it's, it doesn't make sense, but maybe tomorrow you will do. I think there's different use cases per, I'd say, geographical situation and size and etc. And I know there's many people who've done all those analyses. Maybe I don't see, consistency. back to what should I have to do? But this, you know, ways the association, that comes with, harmonized, data sets around, what, how AAMs will, operate that. I think that's still up for discussion and the sooner we have some clarity and alignment between stakeholders on that, grow. myself in the shoes of an investor, america too much uncertainty. So you that where to your money, with i, I think one of the challenges that is reduce uncertainty. We need to regulate makes sense on safety, security. We need to harmonize standards, all discussions, more we clarify, the more we use you better it will be investors and the faster it will take off.

Peter: 46:54

If you look over the longer time horizon, and looking at the air transportation network whether in Europe or North America do you see we are, locked in with the existing number of hub airports or should we expect small airports are going grow their traffic and become additional hubs and will this hub system persist? Or do you think it, it will have more of a point to point element in its structure, especially as regional air mobility, is added to the network in addition, just assuming that. What do you think?

Eric: 47:38

So there's the hub and spoke and point to point so that's one topic that's a lot of discussion around that. I still see the hub and spoke connecting short haul, regional and that type of aircraft to long haul for people and goods that need to travel long distance because it's still different types of aircraft and now fuel etc. So this I still see. In the market that I would say already mature, it's not the same airports that will be developed. I think it's a new, type of mobility that, that will be developed. That's where I don't think we should call them airports. We need to find a different word because there's no runway, there's no baggage system, there's no, so it's a different animal there. Whereas in some part of the world, we're still developing countries, where they still need to grow the infrastructure they are building and they will continue to build for the next 10, 20 years, more airports, passenger terminals, runways, etc. The way we know them today. until they reach something in infrastructure that covers their travel needs. Now, if I compare, railway infrastructure, the time it takes, the cost, again, in some parts of the world, you've got mature railway infrastructure, high speed rail, etc. Fine, it's mature, it's there. In the rest of the world, it's still faster to create a new, route connection, point to point, by air then to build a high speed rail. Now, China has demonstrated they can do it fast but not every country has the same resources. This will be interesting to go, market by market. I'm doing some work in India right now. I see air growing faster than railway for sure, and new markets, like Saudi Arabia and others. It would be interesting to see if there's a coordinated plan to grow, roads, rail, and air in a coordinated way under transport, or is it going to be, you know, chaotic at different speeds? So all of that, and I don't have the answers, but that's all the topics that I'm interested in and I'm watching.

Luka: 49:46

Let's, talk about digital transformation, Eric, how do you see the state of digital transformation of the airline industry? How far is the industry in this process? What's proving to be easy? What's more difficult?

Eric: 50:00

That reminds me of a project, it was just before COVID, it was, digital maturity of the airline industry. Because in one of the meetings, and we, we said, but how mature is the industry? And how do I know if my airline or my airport is more digitally mature? And what's the end game? how do I know that I'm a hundred percent digital and stuff? What's a digital airline? And so all those questions. We had no answer. So I said, we're doing to my knowledge. It still doesn't exist. so I don't have the answer but I remember when doing the exercise, yeah, you clearly have a industry agenda in terms of digital transformation. What are the top 10 things to do if you're an airline and if you are a CIO, where do you put your money in the next, five, 10 years? So yeah, this exists, in my previous life I was running the digital group, in IATA. So it was, 15 CIOs of airlines. And that's exactly the topic, we discussed is, what are the priorities that are, valid for, airlines in terms of digital transformation? But the name of the group was the Digital Transformation Council, so that was, that was it.

Luka: 51:09

So what are you hearing from the CIOs at airlines and airports? How do they view the priorities in terms of allocating capital?

Eric: 51:18

I still, do that, now, interviewing them and, looking at it So, you still see differences between regions, between size of airlines, et cetera. So of course that varies, but overall, you can categorize different ways, but I would say there's, something we touch upon, so there's everything on the commercial and, customer side, how do you make the experience better? How do you sell more? How do you grow revenue? So that's, there's a lot around and we talked a bit about, retailing and talked about identity. We didn't speak, for example, about, Virtual Interline, but how do you connect all the different modes of transport? And that would be true as well if you have different type of operators that are created. So that's interesting. And data, we talked a little bit, but all data analytics, AI, all of that. So that's interesting. So that's all on the commercial, customer side.

Luka: 52:13

Sorry to interrupt you, Eric, but do you mind going just a few levels deeper and maybe give some more concrete examples?

Eric: 52:21

Sure! Yeah, so first, first topic, was the retailing part it was, how do I sell, more and better? What we mean by that is You know, airlines have more or less fixed assets, so you have this number of aircraft and seats, this number of rotations, so how much revenue can you generate per seat, more or less, right? That has not been a question for a long time, it was regulated. But in the last, 20, 30 years, and with the low cost carriers, et cetera, it's been a race to say how much you can generate. And that's the growth of ancillaries, the unbundling of the products and all of that. And I think we are just scratching the surface. It's the beginning. other industries that are much better at selling, cross selling and all that. And many industries are better also, understanding customer preference or building subscription and many other things. So it's just the beginning of that. So that's, I would say, high level on the retailing side generating more money per seat, per customer. The next one was, digital identity. So I touched on that. What's interesting is the, on the, ICAO side, so on the United Nations, on the passports, is the, the future passport we were, we had the basic paper passport, then we have the biometric ones, and now we are moving to, the virtual ones, but really the ones that you can put on your phone. Alright, so you don't need any physical documents at all. So that will be interesting in the way to dematerialize the identity and how you can connect that with other forms of ID yeah, so that connect to loyalty, connects to payment, connects to many other things in the airline. So that's, one big topic. Next one yeah, we said interlining, virtual interline. So, airlines are quite good and they've been good the last, I dunno, 50 years connecting, traditional airlines together. So you can buy one ticket from one travel agent on multiple airlines and you pay once for one ticket, one currency, and to travel on different airlines from different countries. And your bag is going from airport to airport, and all that. So that's what's called interline. So it's the equivalent of roaming in telecom, or bank transfers in banking, etc. How to extend that beyond the traditional airlines to any other mode of transport? So that's interesting area and the last one was, on data. Yeah, data analytics. So that's, understanding, customer behavior and then there's a lot of things there. But also understanding, all the flight data. what's amazing is the tracking real time of aircraft. How you see those pictures of, 20, 000 aircraft in the same time. And how you have more and more, data, about flights, about passenger preference about, and all the analytics and what you do to create better offers, that are more relevant. Some people say, oh, you're trying to increase the fares. What's increasing the price and the fares is supply and demand. But it's more, if you understand better what they need, you're going to make the right offer. If you know somebody wants to save time, you're going to sell something that saves time. Or if they want to carry luggage, you sell that. So how do you understand the travel patterns and the customer needs?

Jim: 55:49

Ryan on our podcast thought that was one of the big opportunities for innovators, is the use of the data to better serve the customer and lower costs.

Eric: 55:57

Yeah, I fully agree.

Luka: 55:59

Eric, the ones that you mentioned, what strikes me is that most of them, especially on the data side, benefit from data coming off of existing infrastructure and systems, whether this is aircraft, different parts of the airline, operations, airports, et cetera, but I haven't heard many examples of data coming into this system and integrating new technology into what most would say are fairly fragile and antiquated IT systems at airports and airlines. What opportunities do you see there, or, is this such a lot more significant challenge of modernizing these systems that the CIOs are not really prioritizing that kind of innovation.

Eric: 56:46

That takes me to maybe the second type of priorities. I call that really IT infrastructure type, right? And that's how you bring, AI into your, all your software. So everything has been rule based, everything has been, process based, et cetera. And also, access of data is, most airlines don't have a lot of access to their own data for various reasons. How do you want to train your AI or do anything like that if you don't have access to it lots of questions around AI. And, I would say, also in terms of, very old software, there are still airlines out there that have systems running from, the 60s, 70s, which at the same time it says how amazing it was because, people built software systems, 50 years ago to run this global industry and it still runs perfectly today. So that, that's quite impressive at the same time, it's scary because you don't have any programmers who understand the code anymore. And I know some, they try to, redevelop it, rebuild it from scratch. They cannot. So that's scary. All right. a good exercise is, when you do your cloud migration and you need to make sure that you have, systems running in the cloud. I would say that's a big, I would say big programs, all those cloud migration. Now if I look at more futuristic topics, so this was more like, infrastructure one, but there, there's still on the IT side is, what will come with like quantum computing what is the next breakthrough? Say if you have, better, faster, algorithms and, computing power. What else can you do? So that, that's also quite interesting. And I would put next to that a topic that, most people don't talk about anymore, which is, Web3, blockchain, and all that. I'm quite convinced it will come back, after all the hype, is gone because what I like there, on the blockchain side, is everything around contract automation, right? And in the aviation industry, there's lots of contracts that is not automated. The ticket itself, when you buy a ticket from an airline, it's a contract, right? And there's conditions attached to it, and if it's all delivered, you pay for it, and if there's a problem, you get refunded. All of that is mostly manual today. It's not manual, I would say. It's not fully automated, right? the dream here is to say, every contract, it could be maintenance contracts, a contract could be, ground handling, could be ticketing, could be all of that. You put everything, every contract, and you automate it, so it's a smart contract. And if there's if it's completed, there's a way to know it's been completed, if it's successful, and there's a payment and settlement, also automated with it. And that will be, again, a major breakthrough once there's a system that can do all of that in many sense, it's still very archaic, the way the whole thing works. It's amazing to think that, many people 50 years, 60 years ago designed and built all that technology that will last so long but it also means that there's a major opportunity to have, massive breaks through there.

Luka: 1:00:07

Given some of the recent disruptions in airline operations due to software. What's the level of urgency when you talk to CIOs and broadly executives around finally modernizing the IT infrastructure.

Eric: 1:00:22

What's interesting there is the level of support the CIO gets from the, CEO and the board, right because the day the whole thing collapses. It's not only the CIO who's a problem. And you see that occasionally. It's true for airlines. It's true for airports. It's true for navigation service providers. If you have the ANSP in the UK and they have a problem you're grounding all the flights in the UK until they have reboots, right? So I think, and something, airport baggage system can be completely blocked and nobody gets a bag and, check in can fail and nobody can board the aircraft and same thing with airlines. So I think we've reached a point where the CIOs are doing their best, to prioritize, to find solutions, et cetera. But unless there's somebody, at least the CEO and the board says, we cannot take more risk that we have a major failure that would ground the entire airline for we don't know how long, we need to make this major transformation, digital transformation program that would put us in a safe ground. Once you said that, you say, I wish I could start an airline today. And the question is, if you start an airline today, what system do you take? Right? So you've got two options. Either you take the systems that are proven, that were built, 50 years ago, and you say, wow, I'm going to do that. And the day I finished implementing, I already start thinking how I phased out. Or do you go with the new generation of systems? But it's unproven at scale, I would say. It's proven in the sense that it works, but it's not been proven at scale for decades like the rest. So that's, I think, fascinating times. And I see CIOs in a difficult situation, not only to find solutions, but to find the support they need to do what they need to do.

Luka: 1:02:23

Do you see consensus on those two paths?

Eric: 1:02:26

I see consensus in acknowledging the issue. The issue is different from one airline to the other some airlines, they had their own IT, some airlines outsourced to one player, etc. So the situation is different from each airline. That way, there's most diversity is in terms of skills and visions of the CIO, support from the CEO, and knowledge at the board level. So that's why I would say almost every airline is in a different situation.

Luka: 1:02:59

Correct me if I'm wrong, but I think that while you were at IATA, you managed a project to replace the boarding passes with magnetic stripes printed on paper to an electronic boarding pass. And that took about five years. What are some of the biggest insights from this project and something that you would advise entrepreneurs, as they think about innovating in airlines and airports.

Eric: 1:03:24

Yeah, that's, that was an example where somebody had the vision, it was not me arriving and I was told, this is what you do, but somebody had the vision to say, what if we could dematerialize the boarding pass and then we said, when we, it's the airlines and the, when they had that, say, yeah, we think it would be something we can do in five years. And it was a major opportunity for a lot of, of course, airlines and airport benefited and travelers also benefited. Each time you have a barcode on your phone, that is your boarding pass and that, comes from there but also lots of, data, the one developing the software, the one developing the scanners, etc. once you have an entire industry that agrees on a new way of doing business or operating, it means that you are going to have hundreds and hundreds of customers around the world that need to comply with it. And it's compliance in the good sense, meaning that it's the, this project of the mobile boarding pass, we estimated we would be saving 1.5 billion dollars every year to airlines and airports, right? So you had the a good reason to do that. There was a very strong business case for that. So yeah, that's the advice. Keep an eye on any shifts in, standards and technology that is happening because it means that everybody in the market will need to change their equipment or their software in the next five years. So thanks for giving me the opportunity to look at the big picture. Sometimes it's scary because you look at all the challenges that aviation is facing and you say, Oh my God, it's, it's going to be difficult and also take the opportunity to dive into some of them. And think positive, what we said about think differently and remember that there's been breakthrough and there will be more coming. And also see, standards and regulations sometimes as the catalyst and the enabler for a lot of innovation.

Luka: 1:05:40

What's the one point that you would, want the audience to take away from our discussion today?

Eric: 1:05:45

I would say one thing that's for sure is a change is coming in this industry of what we discussed. And when change is coming, you've got like two sides of it, so I've chosen the, call it positive way to see the change. You say change is going to improve things. And be part of that change, innovate, build new things, support the implementation and all that. I, that's why I encourage people, I say, take the opportunity to be, the drivers of the change. It's such, it's also much more comfortable than being the recipient and, and that's it. And I would say I see travel as a force for good that's coming from, you know, 1944, heads of state said, we need to build, international travel, and they recognized that. And now there's a challenge, is sustainability yeah, we need to address this challenge and make sure that travel is a force for good and is sustainable. So we don't have to choose travel and sustainability.

Luka: 1:06:47

Great. Thank you very much, Eric. We appreciate you taking the time being with us on the show.

Eric: 1:06:52

Thank you guys.