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Date: 6 February 2003

World Civil Aviation Executives Forum, Singapore

I would like to thank the Singapore Aviation Academy and the Minister of Transport for inviting me to address this distinguished audience.

  • IATA is following closely the Asian scene.
  • This is part of our new approach to this region.
  • We are paying great attention to Asian development and providing as much support as we can.
  • IATA's Singapore Office is our hub for the region.
  • I personally visited this region four times in the last six months.
  • This is a clear indication of how much Asia-Pacific matters to IATA.
  • At IATA, we think globally but we act regionally!
  • As industry partners, we share an urgent need to address the future of our global industry.
  • A future made of sustainability and constructive change.
  • Our industry has been on a difficult ride.
  • In the past decade we have experienced two major downturns that brought industry losses to $27 billion.
  • And this was just on international traffic.
  • In 2002, airlines sustained losses of $12 billion.
  • With such a difficult present, the future is in real doubt.
  • I will develop five ideas today that I believe will be useful for our future.
  • A stable future requires first:
    • a stronger partnership among airlines, airports and air traffic control authorities.
    • Second, governments must play a different role.
    • Third, our airline industry is too fragmented to be profitable.
    • Fourth, existing regulations restrict access to financial markets.
    • And finally fifth: regulating authorities must control the infrastructure service providers that today operate as monopolies.

THE THREAT OF WAR IN IRAQ

  • And NOW we must face the prospect of armed conflict in Iraq.
  • This is the last thing our industry needs…
    • But we are prepared with alternate routes and contingency plans…
    • And safety and security of air transport will not be threatened.
    • Unfortunately we must anticipate more financial losses, capacity reductions and staff redundancies.
    • Fuel prices have already risen 30%.
    • Every additional cent added to the price of a gallon of jet fuel costs the airlines $600 million  per year.
    • For sure we will need all service providers to "freeze" charges or, better yet, to decrease them.
    • And we will need continued government support for war-risk insurance.
  • Indeed, more than ever, we will need to work together.

THE WAY FORWARD

  • But let's look at the future, beyond the current threats.
  • What can we do to shape the future of our industry?
  • There is no magic formula, but I believe that three important ingredients are essential for solutions:
    • Long term planning – to meet growing demand.
    • Global thinking – to give airlines access to international capital markets
    • Industry Cooperation – to restore a fair partnership across the industry.
  • Aviation is a cornerstone of the world economy.
  • It requires wise, sensible policies.

THE CURRENT STATUS

  • Let me give you some figures.
  • Since September 11, 400,000 aviation jobs have been lost.
  • 200,000 of those were airline jobs.
  • According to the International Labour Organisation, 12% of all travel and tourism jobs have been lost since September 11.
  • The U.S. was the most affected by the crisis, as were all the routes linking the US with the rest of the world.
    • In 2002 US traffic remains 4% below the level of 2001 with similar percentage of losses of passenger traffic on domestic and international routes.
  • Overall European traffic appears down by about 1% for 2002 over 2001.
  • But aggressive capacity cuts have helped maintain yields and a number of carriers are still profitable.
  • Latin American carriers are struggling, many nearing bankruptcy.
  • Africa shows promise in the east and the south, but the overall situation is rather depressing.
  • In the Middle East, they must contend with the negative impact of the political and military crisis.
  • In Asia Pacific, recovery has been the strongest.
    • Leading carriers have done well in 2002.
    • Airline traffic figures are growing – (Jan - Dec 2002, RPK up 5.8 % )
    • Cargo is picking up steadily (Jan - Dec 2002, FTK up 13.3%)
    • China is largely unaffected by the downturn, with traffic in 2002 up about 13% over 2001.
    • Singapore is showing growth of 3%, Korea is up 4%, Thailand is up 5%,
    • While Japan's recovery has been slowed by a weak domestic economy.

LONG-TERM PLANNING

  • And why has Asia Pacific shown better results than other continents?
  • The macro-economic picture is stronger for sure.
  • But importantly, Airline, Airport and ATC investments and well-planned expansion are paying off.
  • Airlines have been healthy and dynamic.
    • New airlines have been created in many countries of the region (In Thailand, Malaysia, Indonesia, Japan) or merged (Australia, New Zealand, Japan).
    • Even after the Bali tragedy I understand that a new airline called Air Paradise is about to start flying.
    • Consolidation in China seems to be on the right track.
  • Airport construction and expansion is ahead of other regions...With a few notable exceptions.
    • Governments recognise the economic and social value of air transport.
    • Infrastructure expansion has helped this dynamic market to meet traffic demand.
    • Major new airports have opened in Hong Kong, Incheon, Kuala Lumpur, Pudong/Shanghai, Chubu will open soon in Nagoya.
    • A new airport is being built in Bangkok.
  • ATC modernisation has addressed current and future needs.
    • New routes will generate financial benefits for airlines and travellers.
    • These routes combined with reduced vertical separation efforts have effectively doubled airspace for this area.
  • Let me expand on one of Asia Pacific's major success stories – EMARSSH
  • It is the result of outstanding cooperation between IATA, ICAO, national governments and our member airlines.
  • EMARSSH is a new network of air routes connecting Australia, Asia, the Middle East and Europe
    • Spanning 21 countries, it brings major improvements in safety and efficiency.
    • Flight times are shortened by up to 30 minutes, between Singapore and Europe
    • An estimated 100,000 minutes of ground delays are being eliminated.
    • Fuel savings alone are estimated at US $55 million per year.

  • An industry-led solution produces real benefits for consumers, for the environment and for the industry.
  • In Asia Pacific the physical infrastructure is ready for the 21 st century.
  • But keep in mind that:
    • The Chinese government forecasts that China's air traffic will grow at an average annual rate of 10 percent until the end of the 2020s.
    • This will mean huge numbers of outbound travellers.
    • It is a great opportunity but also a great planning challenge for all of us to cope with.
  • Now let's look at the market framework in which airlines operate.

GLOBAL THINKING AND LIBERALISATION

  • Each crisis teaches us lessons.
  • Those learnt from the 1997 Asian financial crisis helped Asia-Pacific to recover after September 11.
  • It is time to apply other lessons learnt from September 11.
  • We must look at national restrictions on ownership and control.
  • They have hurt our industry's ability to tap international financial markets.
  • The current ownership and control rules do not allow our industry access to global capital markets.
  • Most other industries take that access for granted.
  • The liberalisation on the North Atlantic market between Europe and U.S. could soon be underway.
  • The Asia Pacific market, however, remains very fragmented, based on national boundaries and champions.
  • The alliances tend to be European and North American driven.
  • Asia Pacific must not miss the boat on liberalisation.
  • In March of 2003 ICAO will discuss this issue.
  • IATA is proposing a broad-based solution that would allow States to liberalise their ownership rules.
  • They could do it bilaterally with States that have common interests.
  • And they could do it on a 'plurilateral' basis.
  • The IATA proposal is voluntary: no State would be obliged to liberalise.
  • We need a level playing field, so we can do business like other industries.

NEED FOR A REAL INDUSTRY PARTNERSHIP

  • What defines a sustainable partnership?
  • Stable, mutual benefits are the basis of a sustainable partnership.
  • If one partner is losing money while the other is turning strong profits, it is not a partnership!
  • Airline Business magazine, in a survey covering 2000/01, reported operating margins of 27.6% for airports and 23.4% for ATS providers.
  • Compare those figures to the airlines' low net profit of 2.9% in 1997 – our most successful year!
  • While the airlines struggle to earn a profit they often deal with unregulated monopoly suppliers.
  • Infrastructure privatisation requires vigilance or else we get problems.
  • We have had two bad examples in Asia:
    • The original plan for Narita airport privatisation would have worsened the problems the airlines face.
    • We are glad that the Japanese government has now decided to follow IATA's advice.
    • A second issue is the high price paid for Sydney airport.
    • Experience tells us that this usually leads to unreasonable charges.
    • We are monitoring the situation closely.
  • We will also need to keep a close eye on the privatisation process in India and Thailand.
  • But if we work together, it's to everyone's advantage.
  • We proved this after September 11.
    • When faced with the crisis, airlines, airports and governments pulled together.
    • They implemented new security measures in record time.
    • Singapore, Kuala Lumpur and Hong Kong airports acted immediately to reduce charges to the airlines.
  • What the airlines are asking to their partners is:
    • increased efficiency to cover their costs and
    • strong, independent economic regulators.
  • But there is one additional topic that requires our planning and co-operation.

SECURITY AND TERRORISM

  • The tragic events in Bali have greatly impacted the travel and tourism industry in the region.
  • We need accurate and meaningful information to reassure the traveller.
  • We must support the use of biometrics and other new technologies to increase effective security systems.
  • We have success stories in Asia Pacific : In Japan, Singapore and Australia working with airlines, airports and governments.
  • Let us not lose sight of the fact that security is a government responsibility.
  • Airlines paid $3 billion in added security measures for 2002 alone.
  • Why are airlines paying this exorbitant amount?
  • Shouldn't governments pick up the cost of security?
  • Government requirements for passenger profile information are yet another costly item, especially for airlines flying to the U.S.
  • All in all, the lack of international harmonisation of security is a terrible drawback for an industry that relies on global standards.

CONCLUSION

  • Our goal is to deliver a safe, secure and high quality service to our customers at a reasonable price.
  • When I began I spoke of three ingredients for success.
  • First, partnership: We need to ensure successful partnership between airports, airlines and ATC providers.
  • Second, liberalisation: Air transport needs further liberalisation to realise its full potential as an industry.
  • Third, industry cooperation: We make great gains when we work together.
  • Singapore, our host today, puts these principles to work:
    • Due to great foresight, Changi airport is capable of absorbing rapidly growing traffic.
    • Government, service providers and carriers demonstrate full understanding of a partnership approach to aviation.
    • Changi charges reduced landing charges after September 11 brought $20 million in savings
    • The Singapore Aviation Academy provides international training programmes and a forum for information sharing.
    • Singapore favours a liberal approach to the future of air transport.
    • Minister Wong Woon Liong has clearly defended this approach in international forums.
  • Finally, I would like to pay tribute to the extraordinary success of Singapore Airlines.
  • Its CEO, my friend, Dr. C.K. Cheong, is one of the truly exceptional people that have significantly contributed to the development of air transport in Asia.
  • He is a tremendous credit to this region.
  • I also want to use this occasion to say that I am looking forward to work closely with Mr. Chew Choong Seng.
  • I am sure he will continue the great Singapore Airlines tradition.
  • You show us that the future can be robust.
  • We thank you for this opportunity to meet and work together.
Singapore, at the World Civil Aviation Chief Executives Forum: "Foresight and Partnership: The Right Formula for Air Transport's Future"
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