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Press Release No.: 16

Date: 5 June 2006

Cautious Optimism:State of the Air Transport Industry

(Paris) "We are starting to see some light at the end of a five year tunnel—some cautious optimism" said Giovanni Bisignani, Director General and CEO of the International Air Transport Association at the opening of the World Air Transport Summit and IATA Annual General Meeting in Paris.

Bisignani noted tremendous progress in airlines since crisis struck the industry in 2001. "Labour productivity improved 33%. Sales and distribution costs dropped 10% and non-fuel unit costs reduced 13%," said Bisignani.

"Oil remains the wild card. The break-even fuel price increased from US$14 per barrel to US$50 since 2001. But in just one year, the fuel bill ballooned US$21 billion and is expected to top US$112 billion this year," said Bisignani.

"While the fuel price continues to race ahead of efficiency gains, it is truly amazing that profitability has not deteriorated from last year. Losses for 2006 will be US$3 billion, slightly less than the US$3.2 billion recorded for last year," said Bisignani.

"We must remember that the strong revenue environment—10% annual growth over the last three years—is also fragile. A weaker global economy could change our prospects dramatically. Change is more important than ever," said Bisignani.

Bisignani highlighted the industry's responsible achievements in three critical areas: safety, Simplifying the Business and the environment.

Safety: "Despite the continuing financial crisis, the 2005 accident rate was the lowest ever with one accident for every 1.3 million flights. IATA carriers achieved an even better result with one accident for every 2.9 million flights. IATA's Operational Safety Audit (IOSA) is driving further improvements with 189 member airlines now in the audit process. So we cannot tolerate even the few governments that don't take safety seriously. Flags of convenience have no place in a safe industry," said Bisignani.

Simplifying the Business: "We are on track to achieving US$6.5 billion in cost savings by simplifying industry processes to make air transport more convenient. Over 70 airlines are implementing bar coded boarding passes. Five airports are testing IATA standard radio frequency identification baggage labels (RIFD) and 46 airports are implementing IATA Common-Use Self Service kiosks. We met our electronic ticketing (ET) 40% target for 2005 in November. And now nearly one of every two tickets issues is an ET. But we need more speed. The deadline for 100% ET is 574 days away. E-freight is an even bigger challenge, dependant on other stakeholders. Thirty-five percent of the value of goods traded internationally fly on our aircraft and we are sinking in a sea of paperwork because government inaction prevents us from using electronic documentation. It is an embarrassment that not a single government has all the legislation in place to support e-freight," said Bisignani.

Environment: "IATA's work on fuel efficiency saved 11.9 million tonnes of CO2 emissions and saved US$2.4 billion in 2005," said Bisignani. Citing the proactive record of air transport on environment issues, Bisignani noted the disproportionately low contribution of air transport to climate change. "We are 2% of CO2 emissions, but we support 8% of global economic activity," said Bisignani. "Air transport is a responsible industry with a solid strategy to deliver global solutions. First, we must eliminate the 12% inefficiency in air traffic management.  Second, investment in new technology will improve fuel efficiency—provided taxes don't rob us of cash. And finally governments must focus on achieving global solutions—including exploring emissions trading options—at the 2007 ICAO Assembly. It is no time to get distracted with regional schemes that are no solution at all."

Looking forward, Bisignani issued a series of challenges to industry stakeholders in the form of 8 wake-up calls. "A responsible industry has the right to demand responsible policy and actions."

1. For airlines: "Airlines have recently benefited from the robust global economy. We must keep focused on efficiency and not let a strong revenue environment distract us from further change.

2. For unions: "Enormous productivity increases since 2001 must be recognised.  But too often these gains have been achieved after long battles or with bankruptcy protection. Cooperation, not conflict will secure long-term employment.  To share success, unions must be part of the solution," said Bisignani.

3. For GDSs: "GDSs brought great innovation to our industry, but failed to keep pace with change. While deregulation is bringing fees down in the US, elsewhere fees are skyrocketing. GDSs must deliver value-for-money. Taking advantage of customers is not responsible.

4. For fuel suppliers: "Failure to invest in new refinery capacity is not responsible, especially when oil companies plan to return US$250 billion—US$14 billion of which comes from increased refinery margins—to shareholders over the next two years. We need more refinery capacity and more research into alternative fuels to replace 10% of fuel needs by 2016," said Bisignani.
5. For infrastructure providers: "Despite four years of shouting politely, many monopoly infrastructure partners still need a wake-up call. Aeronautical revenues per passenger at airports and air navigation service providers increased 27% since 2001, while airlines reduced non-fuel unit costs by 13%. The reality gap must be bridged urgently. We have made good progress with air navigation service providers and their association—CANSO—is a good partner with a global vision. Political issues like the European Single Sky remain unresolved. But with the providers themselves, we are now speaking a common language of efficiency.

6. For airports: "Airports are a completely different story. While we are making progress from Japan to Denmark, many airports are still in the dark. The gap between airline cost reduction and airport cost increases is not acceptable and it is not responsible. Airlines delivered a 30% drop in consumer prices for air tickets while improving our safety record and investing in new capacity. So airports cannot tell us that we are asking the impossible. We need effective national regulation of airport monopolies to ensure efficiency," said Bisignani.

7. For governments: "Governments must let us get on with business. They have a leadership role in safety, security, environment and regulating monopolies.  Full stop.  We don't need governments to negotiate our markets. Consumer demand is more effective. An agreement between the US and Europe on open skies would liberalise 105,000 seats each day and set the stage to address ownership. The European Commission is pushing in the right direction but fear and local politics are excuses for the US not to move forward.  The bilateral system served us well over 60 years. Now let's organise a spectacular US$12 billion retirement party. That is the amount of additional economic activity that global liberalisation could generate. Liberalisation is long overdue," said Bisignani.

8. For customers: "You should be angry. Your choice is restricted by an outdated bilateral system. Your cheap tickets are expensive because politicians add taxes.  Your time is wasted because governments cannot organise direct, environmentally friendly routes. And you wait too long for shipments to arrive because governments are not living in the internet world. The wake-up call to our customers is to speak up. Let's shout together—politely but loudly for better value and for better treatment from industry stakeholders."

"Together with IATA, airlines are supporting quality in safety, driving efficiency, improving passenger convenience and re-inventing industry processes. Now we must wake-up our stakeholders—to have the political courage to change and to understand the need for speed. Air transport is the world's most exciting industry and airlines are delivering great value. There is every reason to be confident about our future and to remove the caution from our optimism," said Bisignani.

-Ends-

Editor's notes

1. The full text of Mr. Bisignani's speech is at www.iata.org/pressroom/speeches/index

2. IATA's latest forecast of the airline industry shows a slight improvement in financial performance this year to a net loss of US$3 billion, as a significant increase in the expected price of oil in 2006 to $66 a barrel almost totally offsets stronger revenue growth and efficiency gains.  Cost cutting has been greater than expected in the past year and economic growth around the world has also been stronger, in spite of high energy costs.  This allowed a US$1 billion improvement in profitability at the operating level last year, even though fuel costs rose US$30 billion. 

table1
Source: ICAO data to 2005. IATA forecast 2006. US distorted by restructuring costs.

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