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Date: 25 April 2003

CNS 13th Partnership Conference, Miami

I will try to provide IATA's view on the state of our industry and the most urgent challenges it faces.  I will also talk about some of the initiatives that IATA has taken to improve our industry's future.

I would like to begin by stressing my own personal approach to the role of IATA.  Last June, I became Director General and CEO of IATA during the worst crisis in the history of air transport.  In two years, the airlines lost over 30 billion dollars worldwide.  This extraordinary situation needs extraordinary measures by IATA and I should tell you about the direction I am giving to IATA.

IATA needs to respond quickly to the needs of its Members. Speed is now the essence of anything IATA does.  Passion and commitment are also a must to help our industry recover.I hope our Members and industry partners are already seeing this at work.

Our Members also want IATA to take a leadership role.  Safety, security, distribution, user charges policy are some of the keys areas that need IATA leadership.

IATA must also be an agent of change.  Air transport needs change but external obstacles make change almost impossible.  These obstacles are called inadequate regulation, inconsistent policies and misplaced competition worries.  IATA must fight to remove these barriers to change.

SARS AND WAR AND LOSSES

This was the year in which we were supposed to celebrate the Wright Brothers and 100 years of flight.  Instead we got war and SARS.

All continents are affected in one way or another by the crisis.  Asia-Pacific was doing better than the other regions until it was hit by SARS.  Asia-Pacific still has a tremendous growth potential and a fantastic future but the future will have to wait a little bit.

In the meantime, IATA organized a meeting for our Members, WHO and the Center for Disease Control in Bangkok to review the situation.  We have established a task force and a crisis center in Geneva and Singapore in order to liaise with our Members and the relevant organizations.

The good news is that WHO is telling us that here are only 3 to 5 suspicious cases of possible SARS contamination on an aircraft. And we have transported over 200 million people since the outbreak.

I do not have to say much about North America to this audience.  North American air transport is in great need of change and we are seeing it already in the area of labor relations.

In Europe, on the other hand, the top airlines are still performing well thanks to a decade of massive re-structuring.
Drastic cost reductions and flexible fleets, combined with a new approach to distribution are all part of this success.  However, with over one hundred airlines, the European aviation market is still far too fragmented.  2003 was promising in Europe; we know now that it won't be a glorious year.

Nowhere is change more needed than in West Africa and in Latin America. A third of the Latin American airlines are technically bankrupt.

Famous names such as Swissair, Air Afrique, Ansett, Sabena and TWA are gone.  In the last two years, the industry has lost 31 billion dollars.  Given the current situation, Iraq, SARS and the economic slow-down, 2003 could well be another year of heavy losses.  They point to a loss of over 6 billion dollars on international services.

If we look at cargo alone, the picture is slightly different.  In 2002, international freight grew by 8.3% over 2001.  This compares to a passenger growth of only 0.1%

North American carriers saw their international freight traffic grow by 9.4% last year.  Passenger traffic fell 0.9%.

Asia-Pacific is where all this freight growth was going with a Transpacific growth of 14.2%.

And here comes my worry!  60% of all freight is carried in the hold of passenger flights.  Given the drastic capacity reduction caused by SARS, how is all the freight to Asia going to get there.

Freighter operations alone cannot pick up the slack.  Therefore, a healthy air freight industry needs a healthy passenger airline industry.  And both need the medicine called  'CHANGE' to become healthy again!

We must, therefore, remove the obstacles to change that are keeping our industry from moving on.  In Montreal last month, at the ICAO conference I talked about the obstacles to change.

THE THREE PILLARS OF STAGNATION

They are, I pointed out:
 
· the bilateral system,
· national ownership rules
· the attitude of competition authorities. 

I called them the three pillars of stagnation.  Don't get me wrong. We don't want to bring the system down.  We want to modernize it to meet the economic reality of this century.

Governments must continue to strictly regulate safety and security.  Governments must keep on controlling the licensing process.  Let me be clear, IATA firmly opposes any "flags of convenience" idea. 

But key parts of commercial regulation are outdated.  We need government leadership to initiate the process of change.  I said it loud and clear: we must seek a new way. 

We must modernize the three pillars of stagnation and build a framework relevant to the reality of today and tomorrow.  We now need regional liberalization.  But remember, our industry is global.  Our job relies on worldwide standards and rules.  Players from all regions must be involved in the change process.

Airlines should also be free to merge and approach the international financial markets for capital.  The wave of globalization must eliminate national ownership limits wherever they represent an obstacle to development. 

These limits are denying airlines the freedom of action given to all other businesses.  Dogmatic competition policies also restrict our freedom.  Where are the multi-national players, the Daimler-Chrysler's of air transport? 

In spite of that, most airline alliance projects face long delays.  We need the economies of scales that mergers or acquisitions can provide with the proper competition supervision.  Here again, the regulators must take up the challenge of change.

LEVEL PLAYING FIELD

The airlines are vigorously competing with each other.  While this battle continues, they are also the victims of monopoly operators of aviation infrastructure: airports and air traffic management companies.

The liberalization process has failed to provide a level playing field for all parties in the civil aviation sector.  Regulators have not protected the airlines and their customers from the monopoly infrastructure providers.

Some may be tempted to take it easy.  They are charging the cost of their inefficiency to the airlines and their customers.  And this must end.  Airlines can no longer pay for their inefficiency.  As monopolies, and often, private monopolies, they can easily abuse that position. 

To be fair, they don't always do so; there are exceptions.  In Singapore and in a number of cases in the US and in Europe, national or local authorities have been wise.  They treat aviation infrastructure as an asset in order to foster economic and social development.  Nor does this approach keep them from being profitable.

In a few cases, infrastructure providers are kept from abusing their position by effective economic regulation.  Our industry needs an effective economic regulation of infrastructure providers.  It cannot survive without it!

SECURITY

Since September 11, the world has changed.  Air transport security legislation has become ever more complex.  Every country seems to have created its own new regulatory regimes. This confusion is very costly. In 2002, this confusion added $5 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. Unilateral measures imposed on cargo security could put us all out of business.  Security measures could end up killing the industry they are aimed to protect.

Early this month, I met Admiral Loy in Washington and I raised these issues with him.  I told Admiral Loy that TSA needed to consider air cargo security as different from passenger and baggage security. 

100% screening is not technically or operationally feasible at this time for cargo.  Suggestions that cargo be banned from passenger aircraft altogether are obviously a non-starter!  Cargo needs the flexibility and choice of destinations that only the passenger network brings.

Air cargo needs alternative solutions.  Work is ongoing into R&D and new systems and technology.  It also needs global standards and coordinated global measures for its global network.

We also touched on the "known shipper" system and its advantages.  Admiral Loy was receptive to IATA's ideas and I do believe we have now established a fruitful dialogue.  A dialogue is fine but we will be monitoring the results! 

TECHNOLOGY

Let me say a few words about how technology is changing the world in which we operate. 

The internet revolutionized most industries.  In a previous job, I led an industry-wide project for internet distribution.  The cargo sector is just as affected by technology as the passenger market.  The ratification of Montreal protocol 4 opened the way for such a revolution.  I don't believe our industry reacted quickly enough.  Remember, speed is always the essence!

EDI systems and paperless processes are now moving forward. They represent progress for our industry.  Let us make up the lost time.

Industry innovation is still taking place.  The CNS e-billing system will mark a significant change in industry practice.  It will deliver benefits to both airlines and forwarders.

Let us keep on developing the collaborative platforms that bring together all the actors of our industry.  In these times of crisis, we must work together to meet our customers' expectations.

THE FUTURE OF THE CARGO INDUSTRY

The theme for this Conference is "Air Cargo Matters".  It worries me that anyone would doubt it!

It matters because international trade is a vital component of your company's efforts to achieve profitability.  In value terms, 20% of all freight is carried by air. 

It is an essential part of the world economy and especially of its high-tech sector.  The logistic chain is essential to today's economy. The high-tech sector relies on "just-on-time" delivery in order to work with no inventory.

Airlines, integrators and forwarders are all confronted to the same challenges.  These challenges are called costs, competition, capacity, security, technology, alliances, government rules and regulations.

Air Cargo, in spite of the current downturn, still holds great opportunities for the far-sighted and the pragmatic.  This year's program is aimed at helping you face the challenges of 2003 and beyond.  CNS will try to provide answers to the questions you are asking today.

Above all, and this is the essence of partnership, CNS will give the opportunity to network.  I have been told that these Partnership Conferences often produced lucrative deals and cooperative arrangements.  They also helped settle differences.

I am sure you will have a stimulating conference that stresses that air cargo really matters. I wish you all great success in the cargo business for the sake of our common future.

Miami, Welcoming Speech at Cargo Network Services (CNS) 13th Partnership Conference
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