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Date: 2 June 2003

State of the Air Transport Industry

INTRODUCTION

  • We are here to celebrate 100 years of flight.
  • Some may say there is no reason to celebrate? I strongly disagree.
  • There are many reasons to celebrate.
  • Civil aviation is a tremendous factor of social and economic development.
  • It is the backbone of the tourism industry, the number one employer in the world.
  • It makes "just in time" delivery a reality.
  • These are difficult times but there are many reasons to be optimistic.
  • The Wright Brothers gave us wings in 1903 and IATA gave the world a practical way to fly.
  • The first commercial flight took place eleven years later.
  • Tony Jannus flew one passenger on his Benoist flying boat from St Petersburg… to Tampa. The first IATA was founded five years later by six European airlines.
  • Since then, IATA has played a crucial role in the development of civil aviation.
  • IATA has helped make flying a safe experience.
  • From international standards, to safety audits, IATA's contribution to safety has been significant.
  • Safety remains our number one priority and we are certainly proud of our industry's 2002 results.
  • IATA also created a worldwide distribution network for air services.
  • Through IATA you can book a seat and purchase a ticket through a network of over 90,000 agents.
  • The worldwide interline system, the clearing house, the BSPs and CASS, the bar codes for luggage and freight: all IATA systems.
  • In 2002, our BSPs and CASS processed 308 million tickets for a total value of 138 billion dollars.
  • Travelers, shippers, agents and airlines all take it for granted: but can't live without it!

SPEED, PASSION AND COMMITMENT

  • Last year in Shanghai I stressed that in these difficult times IATA must adapt and respond quickly to challenges.
  • These challenges are many.
  • And in order to address them we need: Speed, passion, commitment, knowledge and leadership.
  • IATA must respond to challenges faster.
  • I pointed out that IATA, as the voice of our industry, must communicate strongly and effectively.
  • I hope our Members are already seeing this at work.
  • I also see IATA as an agent of change.
  • Because change is what our industry needs the most.
  • There are many external obstacles to change.
  • Many come from governments.
  • Inadequate regulation, inconsistent policies and misplaced competition worries.
  • Our business has changed dramatically. And it will return to growth at an annual rate of 4% over the next five years.
  • In 12 years, the number of passengers will grow from 1.5 billion to 3 billion.
  • But our regulatory system has not changed since 1944 when passenger numbers were less than ten million.
  • IATA must help modernize this system and remove these barriers.

CURRENT RESULTS

  • Crisis is the only way to describe the state of our industry today.
  • IATA members lost 3.8 billion dollars on their international services in 2002.   That makes over $14 billion dollars in two years.
  • And when we include domestic losses, globally the industry lost almost $25 billion in 2001 and 2002
  • Asia-Pacific did better than other regions because some of the structural problems were hidden by spectacular growth.
  • But SARS is badly hurting the region.
  • IATA has been working with the World Health Organization since the outbreak of the crisis.
  • They have helped us provide proper guidance to our Members and clear messages to the traveling public.
  • We are grateful for their efficient cooperation.
  • We must now gather our travel and tourism partners and help rebuild the trust in these Asian destinations.
  • This work has already started.
  • In North America, where it all began 100 years ago, the aviation market is in great difficulty.
  • The top six US airlines have over one hundred billion dollars of debt but a market capitalization of only 4 billion.
  • Most observers point to a broken business model and the need for massive change.
  • In Europe, most airlines are performing relatively better thanks to a decade of massive re-structuring.
  • Drastic cost reductions, flexible fleets, carefully managed capacity adjustments are part of the solution.
  • A new, more balanced approach to new distribution tools also contributes to success.
  • However with over one hundred airlines, the European aviation market is still far too fragmented.
  • In Europe, like in North America, change is needed.
  • But nowhere is change more needed than in parts of Africa and in Latin America.
  • A third of the Latin American airlines are technically bankrupt.
  • There are only some initial signs of consolidation in parts of Africa.
  • The impact of war in Iraq has also been severe on many Middle-East airlines.
  • A return to peaceful conditions should give some relief.
  • Altogether, an unprecedented number of regional crises has produced a global disaster.

OUR INDUSTRY HAS CHANGED AND ADAPTED

  • Our industry has been hit by the Four Horsemen of the Apocalypse
  • The successive impact of September 11, a world economic slowdown, Iraq and SARS has been devastating.
  • Our industry was like the boxer who gets hit harder after every knockdown!
  • But under tremendous pressure, our industry has also shown the ability to change.   And change dramatically.
  • Famous names such as Swissair, Air Afrique, Ansett, Sabena and TWA are gone.
  • Everywhere airlines are making great efforts to adapt.
  • The network airlines were challenged by the low cost carriers to become more efficient
  • Capacity cuts, fleet modernization, network adjustments through alliances.
  • Our industry, as a whole, painfully lost 400,000 jobs in its drive for more efficiency.
  • Re-inventing the product, meeting the demands of different segments of customers.
  • Our Members have done a great job!
  • A new approach to labor relations has also begun but much more is needed in this area.
  • This is an opportunity for our pilot colleagues to work with management to safeguard this industry.
  • And not hide behind old work rules, such as seniority lists, which are out of touch with today's competitive world.
  • This industry needs flexibility!
  • This industry needs to reward performance, not age or seniority!
  • Our efforts to become more efficient have rewarded both our employees and customers.
  • Too little has been done for our shareholders.
  • Iraq and SARS challenged our industry to react ever faster and speeded our re-structuring.
  • We now have a more efficient industry but more needs to be done.

ROLE OF GOVERNMENTS

  • In contrast, governments are still moving slowly.
  • New security regulations cost airlines 5 billion dollars in 2002.
  • Why are people paying for their own security in the air and not on the road?
  • Why should they pay for it at airports and not in train stations?
  • The US government recently acted to compensate airlines and paid for extra security costs.
  • This approach must be followed by other governments.  Protection of their citizens is a state responsibility.

MONOPOLY SERVICE PROVIDERS

  • As airlines struggle, governments allow monopoly service providers to count their money.
  • Airports and ATC operating margins are spectacular.
  • Over 20% on average for the past three years.
  • In our best year, airlines made an average net profit of 2.9%.
  • For some, the answer to falling traffic has been to increase charges to make up the difference.
  • Why not increase efficiency instead?
  • We are concerned, because we pay the bill!
  • Internationally, airlines pay 15 billion dollars for airports and ATC.
  • The figures jump to 40 billion if we add domestic charges.
  • I have complained loudly several times this year.
  • Airports in Japan and Mexico are some of the biggest offenders.
  • But we also have serious problems in Argentina, Zurich, Toronto and London, to name just a few.
  • Some Eurocontrol states, Germany in particular, abuse their monopoly positions with annual charges increases of over 20%.
  • What are the regulators doing to stop these abusive practices?
  • And what are European governments doing to replace the puzzle of national skies with an effective "Single Sky"?
  • European ATC prices are 62% higher than US ones.
  • When will we see the cost efficiencies of the "Single Sky"?
  • I must say…some airports and ATC have been good partners.
  • The Eagle Awards provide a good list
  • The winners have responded to the crisis with increased efficiency and lower charges.
  • But the real issue remains inadequate economic regulation and accountability of these monopolies
  • Again, a government responsibility.
  • A number of airports have been privatized. It does not help …they just become un-regulated private
  • It is a license to print money.
  • We run a business in a highly competitive environment.
  • But 40 billion dollars of our costs are still being paid to monopoly services providers operating under 50 year-old rules!
  •  I have said loudly and clearly: The time for diplomacy is over, now it is time to shout in a polite way for a new balanced approach.

THE THREE PILLARS OF STAGNATION

  • I had the opportunity at the recent, very successful ICAO Air Transport Conference to talk about the obstacles to change.
  • The bilateral system
  • National ownership rules
  • The attitude of competition authorities.
  • I called them "the three pillars of stagnation".
  • No need to bring them down, it would take too long.
  • But one needs to modernize them!
  • The key questions are: what should be regulated and how much?
  • Safety and security: definitely YES!
  • Some commercial regulation, however, is outdated.
  • It was established when we were still flying DC-3s
  • So governments: The message is clear.  We must seek a new way.
  • We must build a framework relevant to the reality of today and ready for tomorrow's challenges.
  • On these issues, for the first time, we have been heard at ICAO.

BILATERAL SYSTEM

  • From bilateral "Open Skies" we should now move to regional liberalization.
  • The "Open Skies" must now become "wide open."

NATIONAL OWNERSHIP LIMITS

  • Airlines also need the freedom to merge, acquire and go to international financial markets.
  • Airlines need more freedom of action.
  • National ownership limits should be liberalized wherever governments think it is feasible.
  • And no state should block those who want to liberalize further.
  • I was pleased that the recent ICAO conference agreed with us

COMPETITION POLICIES

  • Dogmatic competition policies restrict our freedom.
  • Competition is strong in air transport.
  • There is tough competition between hubs and the low-cost carriers in the US, in Europe and now within Asia.
  • This competition has made our industry more dynamic and strengthened those airlines that reacted effectively.
  • But our industry is still too fragmented.
  • It needs economies of scale.
  • Competition authorities world-wide are over-cautious with our industry.
  • No global business is as fragmented as air transport.
  • But most alliance projects, or mergers face long regulatory delays.
  • We must update the rules, governments must take a hard look at the whole sector.

CONCLUSION

  • Yes, we are going through the worst crisis in aviation history.
  • But our global economy needs air transport.
  • 100 years after the Wright Brothers, the world is inconceivable without aviation.
  • Aviation is the backbone of our global village.
  • Our global village is made up of people.
  • Some of these extraordinary individuals have left our industry over the past year or will leave soon after our AGM.
  • I would like to pay tribute to a number of them whose contribution has been outstanding.
  • Don Carty, Fausto Cereti, CK Cheong, Xabier de Irala, and Jürgen Weber.
  • Thanks to them and many others, our industry is adapting quickly.
  • Now governments and our partners need to play their part through a new balanced approach.
  • You can be confident that we will keep on working for our Members, and for our industry with the same speed, passion and commitment that you are now seeing.
  • I am optimistic, this is a vital, dynamic sector.
  • If obstacles to change are removed and the global economy improves, this industry will blossom again.
  • IATA is eager to be part of this future success!
  • Because our Members' success is IATA's top priority!
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