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Date: 6 August 2003

Australian National Aviation Press Club, Sydney

First, it is a pleasure to be here.

Australia is a pioneer and global leader in many aspects of aviation.

Your reputation for safety is legendary and the regulatory issues currently being debated here are cutting edge.

So, I wanted to visit Australia early on in my life at IATA.

Thank you for your kind invitation to speak here.

This year marks the 100th year of flight.

While this is a time for celebration…we cannot ignore the crises that face our industry.

But this is not the time for complaining.

"Whinging" will get us nowhere.

We must move forward.

First, I must comment on the tragic events in Jakarta yesterday.

Over the last 100 years, air travel has brought our world closer.

Air travel is our strongest instrument of peace.

Yesterday's bombing, however, reminds us that our world is challenged by some who do not want peace.

Our thoughts and prayers are with the victims and their families.

It is clear that our fragile industry has suffered another severe blow to its confidence.

This is a time for courage.

And the role of travel in building bridges around the world has never been more important.

Safety and security are our number one priority.

IATA and our airlines will work with the travel industry to meet the new challenges and continue to build a better world.

OUR VISION

Since joining IATA, I have stressed that IATA must adapt and respond quickly to the industry's many challenges.

IATA must be the voice of our industry and an agent for change.

There are external obstacles to change, many from governments.

Inappropriate regulation, inconsistent policies and misplaced competition worries are among them.

Despite our current difficulties, we will return to rapid growth.

In 12 years, the number of passengers will double from 1.5 billion now to 3 billion per year.

Our regulatory system was established in 1944, when less than 10 million people flew.

It needs to change to keep pace with our industry's challenges.

In 2001 and 2002 airlines lost $25 billion.

This year, we expect to lose between $5 and $6.5 billion on international services alone.

We are an industry in crisis.

I have just come from Hong Kong….another great aviation city that was the center of the SARS crisis.

I learned there that the Chinese word for crisis is made up of "danger" and "opportunity."

We must use this "opportunity" to modernize our industry.

IATA is leading this effort with a clear vision.

I will speak more on this later.

LEARNING FROM SARS

I don't need to tell you how badly SARS affected this region.

QANTAS faced many of the same challenges as your neighbors to the North.

Traffic recovery however is underway.

Today, we will announce January to June traffic results.

May 2003 was 20% below May 2002 for passenger traffic.

June was 12% down on 2003 levels.

Clearly we have turned the corner.

July will certainly recover more traffic.

The strength of the traffic rebound is tremendous.

This is proof that our industry is essential to modern life.

It is also the result of the leadership and hard work of airlines like QANTAS.
For the first half of the year, we remain 7% below 2002.
We will face many challenges on the way to recovery.

COST CONTROL: PARTNERS

Let me remind you that traffic recovery is not profitability.

Repairing damaged balance sheets is a long term challenge.

Under tremendous pressure, our industry showed its ability to change.

Capacity cuts, fleet modernization and network adjustments through alliances are all good examples.

Strict cost control is an industry priority.

Our industry partners must join these efforts.

In the face of SARS IATA led a campaign to get airports and air navigation service (ANS) providers to share our obsession with cost.

The result was US$100 million in cost savings.

We thank them for their efforts.

Now, we must make these temporary reductions permanent.

The industry is moving to a new cost structure and this includes the airports and ANS providers .

There is room to achieve cost savings.

Recently Deutsch Bank compared airline operating margins to those of airports.

Most airports showed 4 year average operating margins over 20%.

Airlines were all under 10% and many were negative.

I am not saying that airports should make less profit…we need healthy and profitable partners.

And airports need healthy airlines.

Together, we must improve efficiency.

And together we must share the benefits of the industry and provide reasonable returns to our shareholders.

In Australia airports share the risk with the airlines.

There may be lessons in this system for airports in other parts of the world.

At first, the Australian solution was privatization with regulation.

Deregulation followed once efficiencies were gained.

Commercial relations between airports and airlines is the goal.

The principle of per passenger recovery of airport costs has served the industry well, particularly in this time of crisis.

But we cannot be complacent.

Since deregulation airport charges in Australia have increased between 40 and 100%.

These charges are paid by the passenger directly.

Like all consumers, airline passengers expect prices to fall over time.

Cost reduction is essential for our long-term viability.

At our recent World Air Transport Summit in Washington, we presented an Eagle Award to Melbourne Airport.

In 1999 we presented and Eagle to AirServices Australia.

Both recognize the innovation of their charging scheme and efforts at controlling costs along with a true spirit of partnership.

Sydney Airport is now facing the same realities that the entire industry is.

There are no easy solutions.

Innovation and cost consciousness are certainly essential.

It would be a pleasure to present an Eagle Award to Sydney in the future.

TRAVEL ADVISORIES

Our industry is vulnerable to crises.

We saw this yesterday.

We have lived with terrorism in many countries for many years.

The events in Jakarta are another reminder that Asia-Pacific is not immune to terrorism.

At the same time, SARS was the first health crisis to cause chaos across our industry…it will likely not be the last.

We need a better system of travel and health advisories.

Travelers need to evaluate and understand the risks of travel.

Travel warnings and advisories are complicated, un-coordinated, and often inconsistent.

Too often politics plays a role.

We need to find a way to provide factual information without causing irrational fear and over-reaction.

The World Tourism Organization will take this up at the UN…and we will support their efforts.

ROLE OF GOVERNMENTS

Iraq and SARS speeded our re-structuring.

Our industry is more efficient, but more needs to be done.

In contrast, governments are 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 in the streets?

Why should they pay for it at airports and not in the rugby stadium or at local pubs….where the risks are far greater?

The US government recently acted to compensate its airlines and paid for extra security costs.

This approach must be followed by other governments, including the Australian government.

Protection of their citizens is a state's responsibility.

THE THREE PILLARS OF STAGNATION

Let's turn our attention to broader issues.

I had the opportunity at a recent ICAO 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".

And we need to modernize them!

Safety and security regulation is needed.

Some commercial regulation, however, is outdated.

We need a framework relevant to the reality of today and ready for tomorrow's challenges.

BILATERAL SYSTEM

Along with bilateral "Open Skies" we should explore regional liberalization—"wide open" skies.

We must continue to open our markets to competition, bilaterally and multilaterally.

NATIONAL OWNERSHIP LIMITS

Airlines also need the freedom to merge, acquire and go to international financial markets.

In short, we need to operate like normal businesses.

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 ICAO conference delegates agreed with us

COMPETITION POLICIES

Dogmatic competition policies restrict our freedom.

Competition is strong in air transport.

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.

Most alliance projects or mergers face long regulatory delays.

The rules need updating and Governments must find a better of way of dealing with aviation.

AUSTRALIA

The Australian government is facing each of these three pillars.

The domestic markets in Australia and New Zealand are among the most liberal.

I cannot think of another country that has no national ownership control rules for domestic airlines.

The result is a dynamic and challenging market that is producing real benefits for consumers.

The future health of this industry now depends on these same principles being adopted in international markets.

The proposed QANTAS – Air New Zealand alliance is a clear example of what needs to happen throughout the industry.

I began by speaking about opportunities.

This is a golden opportunity for this part of the world to lead the aviation world in responding effectively to today's challenges.

I look forward to seeing the results on my next visit.

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.

Governments and our partners need to play their part.

You can be confident that we will keep on working for our industry with the same speed, passion and commitment that you are now seeing.

I am optimistic.

On my next visit I am confident that I will be able to report on positive changes and a healthy industry.

Thank you.

Sydney, Australia, at the Australian National Aviation Press Club
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