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Press Release No.: 19

Date: 2 June 2003

Industry in Crisis, Change Essential

(Washington) -- "Bold changes are needed to ensure the long-term financial sustainability of the air transport industry," said IATA Director General and CEO Giovanni Bisignani at the opening of the 59th Annual General Meeting (AGM) of IATA in Washington D.C.
 
The successive impact of September 11, a world economic slowdown and SARS has been devastating. Industry losses in 2001 and 2002 amounted to US$25 billion. Bisignani characterized the last two years as being like "a boxer who gets hit harder after every knockdown."

Fighting Back

Bisignani noted that the industry is fighting back with change. The industry is re-inventing itself with cost reductions and efficiency gains. But this is not enough. Bisignani outlined the next steps in the industry's fight for survival which include a new approach to labor relations and a new role for governments outlined in the Washington Declaration adopted by member airlines at the AGM.

New Approach to Labor Relations

Labor costs cannot remain immune from the change in cost structure needed by the industry. Cost reduction has seen industry employees accept wage cuts in addition to the painful loss of over 400,000 jobs. "This is an opportunity for our pilot colleagues to work with management to safeguard this industry," said Bisignani. Pilots must "not hide behind old work rules, such as seniority lists, which are out of touch with today's competitive world. The industry needs to reward performance, not age or seniority," said Bisignani.

Washington Declaration

"Outdated government regulations represent the strongest obstacles to change," said Bisignani. In the Washington Declaration, adopted at this IATA AGM, IATA Member airlines called upon governments to help them ensure a sustainable future for international air transport.


The Declaration outlines six measures needed to foster change:

· Liberalization of ownership rules to allow airlines access to global capital markets
· Economic regulation of airport and air traffic services (ATS) providers to eliminate monopoly practices
· Increased cooperation and standardization between national competition authorities
· Government restraint in imposing discriminatory taxes and fees on the aviation industry
· Protecting consumer interests served by industry standardization from unilateral government measures
· Governments assume their responsibility for security and the associated costs.

International air transport is governed by the 1944 Chicago Convention. Bisignani said that "the bilateral system, national ownership rules and the attitude of competition authorities are the three pillars of stagnation in international air transport. There is no need to bring these down, but there is a need to modernize them."

"The key questions are: what should be regulated and how much? Safety and security definitely must be regulated but commercial regulation established in the era of DC-3s is clearly outdated," said Bisignani.

Specifically, Bisignani said that IATA supports regional liberalization as a step towards "wide open skies" and a competition regulatory framework that will allow for consolidation. Further IATA supports liberalization of national ownership and control laws, where feasible, to give airlines the freedom to merge, acquire and go to international financial markets.

While airlines operate in a commercial competitive environment, airports and air traffic service providers are monopolies who account for US$40 billion of airline costs. "Many airports and ATS providers have been good partners but the real issue remains inadequate economic regulation and accountability. Running an airport cannot be the licence to print money that some monopoly service providers believe they have been granted. The industry cannot afford to continue to support 20% average profit margins for airports and ATS providers," said Bisignani.

Call To Action

"We cannot sit back and wait for better times. Air transport must continue to fulfil its role as an engine for global economic growth, and providing jobs to over 1.7 million people around the world. The airlines have adapted to the new circumstances. It is now time for their partners and the governments to do the same," concluded Bisignani.

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