Date: 10 February 2003
IATA Legal Symposium, Singapore
- Facing an audience of distinguished aviation lawyers, I feel that perhaps I should have taken legal advice before accepting this job!
- The fact is, I became Director General and CEO of IATA during the worst crisis in civil aviation.
- In two years, we lost $13 billion internationally and $31 billion including US domestic traffic.
- This extraordinary situation needs extraordinary measures by IATA.
- I should tell you about the direction I am giving to IATA.
- IATA needs to respond quicker to the needs of its Members.
- Speed is now the essence of anything IATA does.
- Speed must be supported by two additional qualities: Passion and commitment.
- Passion and commitment are a must to help our industry recover.
- "Speed, passion and commitment."
- I hope our Members are already seeing this at work.
- Our Members want IATA to take a leadership role.
- Safety, distribution, user charges policy, just are some key areas that need IATA leadership.
- IATA must be an agent of change.
- Air transport needs change but external obstacles make change almost impossible.
- These obstacles usually come from governments.
- They are called inadequate regulation, inconsistent policies and misplaced competition worries.
- IATA's must try to remove these barriers to change.
- Diplomacy if finished. We are shouting in a polite way to get things moving!
WAR IN IRAQ
- Before looking at what is going on in air transport today, I would like to make a couple of points about the threat of war.
- War is the last thing our industry needs.
- But we must be ready for it.
- Alternate routes and contingency plans are in place.
- IATA and ICAO are working closely together.
- Loss of revenue, capacity cuts and staff redundancies will be unavoidable.
- In one area, fuel, the impact of Iraq is already being felt.
- The industry's total annual fuel bill is over $40 billion.
- Fuel prices are now up 30% compared to last year.
- Every cent added to a gallon adds $600 million of costs to the airlines.
- The price of a gallon of fuel has reached 95 cents of a dollar in New York.
- It is difficult estimate the total cost of a war to the industry.
- But it will be severe.
- There are many ways to look at our industry
- Here in Asia, things may appear rosier than elsewhere.
- This region is still experiencing powerful growth at a time when others are struggling.
- China leads the way.
- Its government is planning for 10% annual traffic growth until the end of 2020s.
- By 2010, China could be the world's second civil aviation power.
- You will hear more about this in one of the panels today.
- China is not alone.
- Korea, Thailand, Singapore and Australia have fully recovered from the post 9/11 crisis.
- They are all growing at between 5 and 7% each year.
- IATA is following closely the Asian scene.
- This is part of our new approach to the region.
- We have regional offices in Singapore and Beijing.
- Our financial settlement services and our Safety, Operations and Infrastructure people are all present and involved.
- I visited this region four times in the last six months.
- This is a clear indication of how much Asia-Pacific matters to IATA.
- The European airlines showed great strength and speed in facing the present difficulties.
- A number of European airlines are performing well under difficult conditions
- The U.S. situation is severe.
- Carol Hallett, the outgoing CEO of ATA, said in her farewell speech in November:
- "The U.S. airlines have accumulated $100 billion of debt on their balance sheets and their total equity is only $15 billion."
- Many African and Latin American airlines are struggling…some facing bankruptcy.
MONOPOLY SERVICE PROVIDERS
- At the same time, many monopoly service providers, airports and ATC authorities, are counting their money.
- Their operating margins are spectacular.
- Between 23% and 28% in 2000-01.
- In our best year, airlines made a net profit of 2.9%!
- For some, the answer to falling volumes due to the recession has been to increase charges to make up the difference.
- We are concerned, because we pay the bill!
- Internationally, airlines pay $15 billion annually for airports and ATC.
- The figure over $40 billion if we add in domestic charges!
- I complained loudly over the past few months about this.
- Airports in Japan and Mexico are two of our biggest problems.
- Some Eurocontrol states, in particular Germany, abuse their monopoly position with annual charge increases over 20%.
- We are also fighting a complex battle with the CAA of the UK over Heathrow charges for the new Terminal 5.
- The airport is asking for 9% annual increases!
- I must say…some airports have been good partners.
- Singapore, Hong-Kong, some of the U.S. airports come to mind.
- The responded to our crisis with improved efficiency and lower charges.
- The real issue is the inadequate economic regulation and accountability of these monopolies.
- A number of airports have been privatised and this is not helping the situation:
- They have just become private monopolies.
- In many cases, these private monopolies act as if they received a licence to print money.
- Our message is getting through to some governments.
- I met the Minister of Transport for Thailand on Friday to discuss Bangkok's new airport and privatization.
- He took IATA advice on many issues and understood our concern that charges are reasonable.
- For those not listening, the time for diplomacy is over.
- It is time to bang the fist over the table.
- This is on my agenda…I discussed it Prof. Prodi, head of the European Commission last week.
- I am happy to see that this is on your agenda.
- This brings me to the central focus of this event – aviation law.
THE LEGAL SYMPOSIUM
- The title of this event is "The Airline Industry's Next 100 Years: New Destinations, with New Maps"
- A key
navigator to these new destinations will be the
well informed aviation lawyer.
- Lawyers must understand:
- what is
happening to this industry
- where it's going
- what the issues are
- And be able to respond quickly
- Commercial, regulatory and legal issues are
completely linked as you well know.
- The world has changed.
- Air transport security legislation has become ever more complex since Sept. 11.
- Every country seems to have created its own new regulatory regimes.
- In some, government agencies and responsibilities change so often, that it's like going to the theatre – You cannot tell who plays which role!
- This confusion is very costly.
- In 2002, this confusion added $3 billion of security costs to the airlines' bottom line.
- Governments must explain why air transport security is different from other types of security.
- Why don't they cover air transport security costs as part of their national security budget?
- We live in a jungle of security regimes.
- The penalties for non-compliance are severe….so your job is essential.
- International lawyers and the legislative drafter must push States to harmonise their security regimes.
- Let us look at the issue of privacy of passengers.
- What is the balance between passengers' rights and powers of governments?
- Some governments are sending conflicting privacy and security messages.
- U.S. need for information
- European concerns for pivacy
- Airlines will look to their lawyers for answers.
- Competition law remains a central area of focus for airlines, governments and consumer groups.
- The government focus on mergers, code share and other related issues will not disappear.
- Financial pressures within the industry will lead to rationalisation, mergers and new code share arrangements.
- All will be closely examined by regulators.
- Competition authorities are over cautious with air transport.
- Every other industry is more concentrated than ours.
- Many operate as oligopolies.
- Yet, this does not bother the regulators.
- Global harmonization of competition law is a key issue.
- What will be the consequences if the laws are not harmonized?
- GDS, e-ticketing, new products, nothing escapes the review of the competition authorities.
- Your skills are essential to guide us to successful outcomes.
ATC AND AIRPORT PRIVATISATION
- You have already heard my comments on this issue.
- We are subjected to increasing and often unjustifiable charges.
- With a few exceptions, this is a relatively new area.
- There is not much experience in the privatisation of infrastructure monopolies.
- Many laws and regulations are untested.
- Many fee regimes have not
- You can be sure that soon, many will be.
- It could become an issue of life or death for airlines.
- After all, we spend over $40 billion for infrastructure charges.
- Little has changed since the drafting of the Chicago Convention.
- The international air services regime is still that of the bilateral, nationality clauses and cabotage prohibitions.
- All of which complicates the life of our industry
- We are starting to see more activity.
- The recent European Court of Justice decision on open skies with the U.S. may signal a new chapter in this story.
- IATA will submit a proposal to the ICAO ATC5 Conference next month.
- It challenges some of the rules governing national ownership and control.
ASIAN MARKET DEVELOPMENTS
- It is fitting that this event will be looking at the legal issues in the Asian market.
- How will Asian States put their own mark on competition law, liberalisation matters and so forth? What next from Asia?
- China's accession to the WTO leads to a whole new series of implications.
- In our post-industrial society, the consumers' rights lawyer has become the modern saint.
- Has the consumers' rights movement really been "the saviour"...
- Or are these saints merely creating confusion in air transport matters?
- There have been many new consumer protection laws such as:
- Passenger "bills of rights" and denied boarding compensation
- Are these initiatives are beneficial?
- Will price sensitive passengers accept the extra costs?
- At the same time, economy class legroom seems to be a new chapter in human rights for governments and legislators.
- The market is efficient at choosing winners and losers.
- The consumers of 2003 know how to shop!
- I look forward to hearing the results of this symposium and the Legal Advisory Council deliberations.
- The Board of Governors and I value the work you do.
- On behalf of IATA, and our Member airlines, I wish you and this event every success.
Singapore, at the IATA Legal Symposium: "Speed, Passion and Commitment"