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Date: 16 December 2002

Annual General Meeting of AFRAA, Harare

Introduction

  • I would like to thank you for inviting me to join you here today.

  • This invitation is a reflection of the excellent state of relations between IATA and AFRAA, on which Christian Folly-Kossi and I have agreed to build.

  • Christian will be giving you a detailed update on Africa in aviation this morning. I would like to give you an overview of the global scene and IATA's role.


State of the Industry

  • I don't need to mention the difficult market environment in which our Member airlines are operating.

  • 400,000 aviation-related jobs have been lost.

  • 200,000 of these jobs were airline jobs.

  • Airlines lost $18 billion in 2001 – $12 billion alone on international scheduled services.

  • That is more than we have made in the history of our industry.

  • We expect further losses of $5 billion in 2002.

  • U.S. airlines alone are losing $9 billion this year.

  • Looking forward, we hope that 2003 will see an end to these massive losses, at least as far as international traffic is concerned.

  • Traffic is expected to increase by 6% in 2003, then average 4% per year to 2006.

  • The forecast for Africa to 2006 is comparable: Africa-Europe routes are expected to grow at a rate of 5.2% annually, Africa-Middle East at 3.6%, and traffic within Africa at 4.0%.

  • These forecasts are based on the assumption that we will avoid war and will not see a repeat of the terrorist attacks.

  • Your region exemplifies the challenges we face as our revenues decline steeply and costs, most recently for fuel, increase.

  • Although top African carriers are showing some profits, aging fleets, under-capitalisation, uncoordinated national transport policies, wars and now terrorism remain serious concerns in the region.

  • Indeed, I would note the geographic differences that are emerging.

  • In Asia, carriers like Singapore Airlines, Cathay Pacific and Qantas are reporting healthy profits.

  • In Europe, Air France, Lufthansa and Iberia are all expected to post profits this year, while British Airways, KLM and Alitalia will probably break even.

  • Meanwhile, airlines in the Americas are still struggling to avoid bankruptcy.

  • In Latin America, 36 of our 39 Member airlines are losing money, while 19 of them are either in bankruptcy protection or should be.

  • In the U.S., the crisis has reached catastrophic proportions with U.S. Air and now United in Chapter 11.

  • The nine largest passenger airlines now carry over $100 billion of debt compared with a total market capitalisation of $15 billion!

  • The threat of war with Iraq has also pushed the price of crude oil above (US) $30.00 per barrel.

  • Every additional penny per gallon that is added to the price of jet fuel costs the airlines (US) $600 million per year.

  • Our costs have grown to the point where they can no longer be covered by the price the customer is willing to pay.

  • Our revenues and yields have fallen short of what we need, because our pricing and yield management systems are broken.

  • Has the time come to reconsider the business model on which our airlines are based?


IATA

  • In this environment, IATA's role becomes even more important.

  • As airlines reduce their costs, they  rely increasinglyon IATA for information and services.

  • IATA needs to adapt to this new environment.

  • We certainly have the knowledge and experience.

  • What I seek to add is both speed and passion to become faster and more efficient in responding to your changing needs and priorities.

  • And I intend to do this with a passion that motivates the entire industry.

  • Here in Africa, our activities are now concentrated in our Regional Office in Nairobi. These activities are designed to bring IATA closer to you and to remain more than ever focused on meeting your needs and priorities.

  • Your priorities are our priorities.

  • We are pleased to welcome Peter Chikumba as our new Regional Director for Africa. He will be working closely with AFRAA, AFCAC and the other key groups in the region.
     

Safety

  • I am also eager to strengthen IATA's role as a global leader in airline safety.

  • Safety is the first priority of our Member airlines and therefore of IATA as well.

  • An important initiative is the IATA Operational Safety Audit (IOSA) programme. It is designed to cut safety audit costs and improve safety.

  • The formal launch of the program will take place in June 2003, and we want all Member airlines to become IOSA-registered within a period to be determined by the Operations Committee.

  • Here in Africa, good progress has been made in many areas over the past 15 years – from ground aids to Air Traffic Management, and from fixed and mobile communications to radio navigation aids.

  • In 1988, the territorial coverage of the continent in all these areas was less than 15%. Today it is close to 90%.

  • Satellite-based Approach and Landing Procedures, developed by IATA, will be implemented 2003 by 18 States at 40 international airports in the region.

  • The accident rate is still a matter of deep concern. Overall, the hull loss rate in Africa is close to 14 per million departures, which is significantly higher than in other regions. For IATA Members, it is 2.3 per million departures.

  • IATA considers that new initiatives are needed in the region to bring down this rate. Therefore, IATA proposes establishment of a Regional Safety initiative under which IATA and AFRAA would work together, along with other industry partners, to achieve continuous improvement in regional safety.

  • Such regional initiatives have proved useful in other regions, including Latin America and Southeast Asia.

Security

  • The frightening incident in Mombassa is a clear reminder that aviation security remains a high priority for all of us.

  • Over the past few years, we have seen missiles and mortars aimed at civilian airliners, and aircraft themselves have been turned into weapons of destruction.

  • In this climate, it is not surprising that we are all seeking ways to continually improve aviation security.

  • It is vital that any new security measures be effective, internationally harmonized, and implemented in consultation with the airline industry.

  • It is equally important for governments to recognize their responsibility to pay for these measures. Airlines have already borne (US) $3 billion of costs for extra security.

  • There is no reason why this responsibility should change when these individuals enter an airport or aircraft.

  • Terrorism is not aimed at airlines or aircraft, but against States or societies.

Insurance

  • As all of you know, third-party war risk liability insurance remains very difficult to procure – and expensive.

  • Today, some governments provide coverage to their airlines, while others are unable or unwilling to do so. This situation introduces serious competitive distortions.

  • Even if the insurance market seems to have come back, will it be there when the next crisis occurs?

  • A global response to this situation is needed for all partners.

  • Fortunately, a global solution has been developed in consultation with ICAO.

  • IATA supports the Globaltime Scheme.

  • States representing over 40% of ICAO funding have approved the scheme.

  • Only five African States have responded positively to ICAO thus far.

  • We would like to see many more African States speak out.

ATConf/5

  • Finally, I would like to say a few words about an upcoming ICAO conference in March 2003.

  • The Fifth ICAO Air Transport Conference will consider how to further liberalize air transport's international regulatory environment.

  • IATA and AFRAA discussed the matter in November in Nairobi and the IATA position was presented recently to AFCAC in Arusha.

  • Africa has started to liberalise the industry through the Yamoussoukro Declaration.

  • Liberalisation also fits well with the aims and objectives of NEPAD (New Partnership for Africa's Development).

  • A key issue for IATA at the conference involves removing restrictions on foreign ownership of airline stocks.

  • The IATA position is to encourage States to liberalize ownership and control.

  • Countries wishing to enable their carriers to tap international capital markets should be able to liberalise their ownership and control regulations, so that airlines can behave like "normal" businesses.

  • IATA believe, however, that no one should be forced to change.

  • States electing not to go that way may, for example, keep their restrictions on inward investment laws.

  • If ICAO fails to accommodate its more liberal members, they may take these issues to another forum, such as the WTO, where aviation's interests would be mixed with those of other sectors.

  • So it is important that we find a solution in ICAO that allows States that wish to liberalise, to do so.

  • And the support of African governments for IATA's position will be useful. You will be hearing more on this tomorrow.


IATA/AFRAA Cooperation

  • In closing, I would like to take a moment to pay tribute to the great contribution Sassy N'Diaye has made to civil aviation on this continent.
  • Peter Chikumba is now stepping into these big shoes and I am confident that, with his significant airline experience, he will build on IATA's excellent record in Africa.

  • With this transition and Peter's location here on the continent, our focus will be increasingly on you, our Member airlines, and on how we can best support you.

  • To this end, we will continue to build upon the already close relations that exist between IATA and AFRAA to ensure that we serve you as fully and efficiently as possible.

  • Thank you for your attention.

Harare, at the Annual General Meeting of AFRAA
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