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
- 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.
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.
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.
- 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
- 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
- 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
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.
- 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"