Good morning and thanks for joining this opening press conference of our 69th Annual General Meeting (AGM).
It is great to be meeting here in Cape Town. It’s been a long time since the IATA AGM has been held on African soil. And we are here at a time of great optimism about the prospects for African aviation and African development in general.
As you heard in my opening remarks it is also a time of some optimism for the airline industry’s financial prospects. I won’t repeat myself, but I would like to provide a little bit more context to our industry outlook before we move on to your questions.
First, let’s be clear that a 1.8% net profit margin is an improvement, but it is not satisfactory. To put that into perspective, last year airlines made about $2.5for every passenger carried—about the price of a coffee. This year we might make $4.0—less than the cost of a sandwich in most places. This is a tough industry.
But the outlook is telling us that airlines have made fundamental adjustments in their businesses in order to generate profits with oil expected to be $108/barrel and the global economy expected to grow by just 2.2% this year.
What has changed?
First, we have seen a significant increase in the load factor. Airlines, through structural changes and careful capacity management, are putting more people in seats. We expect them to fill 80.3% of seats this year—a record high. The industry is still expanding….this year we will see a record 3.13 billion passengers. Connectivity continues to improve with city-pair connections topping 40,000. And airlines are doing all of this with innovation and partnerships that are providing value to travelers…while improving the utilization of their assets.
Second, airlines have found new value streams and these are contributing significantly to the industry bottom line. In 2007 ancillary revenues were $2.5 billion—just 0.5% of total revenues. Last year ancillaries generated some $36 billion or 5% of revenues. And we expect that figure to grow significantly again this year.
Of course, there are lots of other developments in the industry. But where we stand now, these are the two most significant factors that are driving improved performance.
But I will repeat that this is still a tough business with very poor returns. The constant challenge to keep revenues ahead of costs has not become any easier. And there are some airlines that are struggling, particularly in Europe where the industry is plagued by high taxes and onerous regulation. But there is a core of airlines that are showing how strong performance can drive profits even in difficult circumstances.
This will be a decision-making AGM. As you heard in my State of the Industry speech, there will be three resolutions for IATA members to decide on in the next session—on New Distribution Capability (NDC), environment and passenger rights.
The environment issue will clearly be the most difficult. I have made my thoughts quite clear. But I am running the association and not the airlines that will have to stand by the financial repercussions of whatever is decided. As you can imagine there have been vigorous discussions among the airlines. We should have clarity on the result in the next session.
Regardless of what the members decide, we must keep in mind that deciding on Market Based Measures is fundamentally the responsibility of governments. We have seen how difficult it is for them to come to an agreement on climate change. ICAO has a successful track record on finding the way forward, even in very intense situations. It facilitated the only agreement among governments on managing the emissions of an industrial sector at the last ICAO Assembly in 2010. That is when they agreed to principles for market-based measures and to a 2% average annual fuel efficiency improvement. They also endorsed the goal of Carbon-Neutral Growth from 2020.
But there is also a partnership element. Governments are looking to industry for a signal on how we want to divide up the bill for growth from 2020. I am hopeful that we will be able to provide that. There is a chance that we can’t because the issue is just too difficult for commercial businesses to come to an agreement on. Even in that case, we remain the only industry with clear targets and strategy that is agreed by all partners in the value chain. Our commitment will not falter. But our expectations of governments to live up to their responsibilities and come to an agreement will be even higher.
I will ask our Chairman, Mr. Joyce to say a few words…and then open for your questions.