Date: 23 February 2004
IATA Asian Aerospace Aviation Summit, Singapore
Welcome to the first IATA Asian Aerospace Aviation Summit.
It is a great pleasure to be here in Singapore, IATA's home in Asia Pacific.
In June I will be here again for IATA's most important meeting: the 2004 World Air Transport Summit and the AGM.
Asia Pacific is a vital part of our industry.
The recovery from SARS is a great example of this region's vitality.
Despite SARS we still expect 140% cumulative growth in the region between 2000 and 2007.
In the case of cargo, already over 60% of air cargo is to, from or within Asia Pacific.
The future holds great things for Asia-Pacific and for our industry.
But great potential does not guarantee great success.
Success in business requires meaningful and achievable targets, and a lot of hard work.
Our theme today is "Fixing the Business."
;"Fixing our Business" means that we need to set efficient targets for change.
When I say "we", I don't mean the airlines alone.
The process involves our partners and governments.
Together we must agree on realistic targets.
For the past 2 years, I have been shouting in a polite way to raise the awareness of our industry's most important issues.
This includes addressing the problem of a value chain that today is not balanced.
Now that we have brought some attention to the problems, it is time to work together as an industry.
Today I would like to challenge you with some thoughts on our biggest issues and opportunities:
Cooperation with our partners
Low cost carriers
Let's start by setting the scene.
Where are we now? And what do we see in 2004?
The industry lost so much ground after September 11 that we are only now back to where we were in 2000.
Since 2000 we also lost over US$30 billion.
Global passenger traffic declined 2.4% in 2003 over 2002,.and 2002 was not a great year.
As a result of SARS, Asia Pacific passenger traffic declined 9.4%.
Cargo, did much better, 4.9% global growth and 5.4% in Asia Pacific.
Without surprises, 2004 will be better.
Our expectations include: 7% growth in global passenger traffic and 4% in cargo.
For routes within Asia Pacific we see 14% growth in passenger and 5% in cargo traffic.
2004 may even see cost cutting and growth translate into profit: We expect to make in the range of US$ 2-4 billion.
Too small compared with our revenues, but at least the color of the number is finally black!
Now let's turn to the issues that we need to get right to confirm the transition from red to black .
This is our industry's number one priority.
It is also IATA's number one priority.
In the 1990's we set a target to cut the accident rate in half.and we achieved that.
In December our Board set a new target—a further 25% reduction by 2006.
How are we going to achieve this?
Last June we took a major step forward.
Our members approved the launch of the IATA Operational Safety Audit or IOSA, the first standard international safety audit.
Our commitment to ensure that IOSA delivers benefits for the entire industry is strong.
IATA invested USD 2 million to launch IOSA.
In 2004 we are absorbing all IATA costs to make IOSA as accessible to airlines as possible.
We are offering this program on the same terms to member and non-member airlines.
IOSA will not only improve standard safety practice across the industry, it will rationalize the way we use our safety resources.
Ultimately, our target is to make IOSA the industry standard with the support of our partners.
We have worked closely with ICAO as IOSA was developed. I am pleased that ICAO fully supports IOSA.
The FAA is another great partner in our efforts.
While Marion Blakey is not able to be here today, I look forward to the words of Assistant Administrator, Mr. Douglas Laven.
We express our appreciation to both the FAA and ICAO for their continuous support and encouragement in this important safety initiative.
Security has always been a top concern.
Since September 11, it has taken on a completely new dimension.
The need for international cooperation and the effective use of technology has never been more important.
Cooperation between governments and with the airlines is essential.
Airlines continue to do their part at great and too often unnecessary expense.
If Governments consult with the airlines we can help make the system more effective and efficient!
Right now we are faced with many inefficient situations.
For example, Government requirements for advance passenger information are not coordinated.
Airlines must design multiple systems to deliver the same information to different parts of the same government.
This inefficiency is not acceptable to passengers, and it is not acceptable to the airlines.
Recently I met with the US Homeland Security Department the TSA, Interpol and ICAO and received commitments for better coordination.
Our target is to turn these commitments into greater efficiency.
Another example of where cooperation can take us is the IATA vision of simplified and more secure travel.
Long before September 11 we gathered airports, governments and airlines together to promote Simplified Passenger Travel (SPT).
The core of this vision is biometric passports to eliminate false travel documents.
IATA worked with ICAO to develop the biometric standards that the US is now requiring.
We need to set some challenging targets for the global implementation of biometrics in travel documents.
I must also address the issue of cost.
The cost to airlines of compliance with post-September 11 security measures is well over USD 5 billion.
There is no argument that airlines must bear the cost of ordinary aviation security.
But the situation now is extraordinary.
In many cases we are being asked to pay for what is national security.
This is not fair and must change.
Security of an effective air transport system is no different from securing any other essential piece of the national infrastructure.
Our target is to get Governments to accept the extra-ordinary cost of security like they do for any other national security issue.
Cooperation with our Partners
I have talked a lot about the need for our industry partners to feel the same commercial pressure as airlines.
IATA members aggressively cut costs and re-engineered their business.
This and a better operating environment may result in the USD 2-4 billion profit in 2004 I referred to earlier.
That would be the first positive result in four years.
But it will take several years to rebuild the balance sheets that have been ruined by over USD 30 billion in the last three years for the industry as a whole.
For this to happen in today's competitive world, the industry must move to a new cost structure.
And our partners must be a part of this new reality.
This is particularly true for airports and air navigation service providers which operate as monopolies.
Globally the airlines spend USD 40 billion on airport and air navigation fees.
USD15 billion of this on international services. And these numbers are rising.
This message is taking root.
Things can be done differently.
The USD 100 million in savings achieved by airports in this region during SARS is a clear example.
In fact at a global level, airports and ANS providers showed they could reduce charges by over USD 300 million in 2003.
And they rolled back planned increases of another USD 400 million.
More is needed in 2004 and beyond.
But we have seen that it can be done.
Its not just airports that IATA is challenging.
Eurocontrol services cost over $5 billion last year.
We benchmarked industry best practice for cost efficiency in Europe and are now asking the less efficient ANS providers to meet this target.
An initial 2004 target of a 3% reduction has already been identified.
A good first step—but we believe that more aggressive targets can be established.
We are not asking the impossible the targets are achievable.
IATA recognizes airport and ATC suppliers who share and live this vision with our annual Eagle award.
Changi Airport here in Singapore was an Eagle winner last year.
Airways New Zealand won our Eagle award last year in the ATC category for its efforts at providing efficient service at reasonable costs.
Ashley Smout of Airways New Zealand Bob Aaronson of ACI and Robert Martin of SALE are here with their ideas on fixing the business.
I look forward to hearing their strategy and their targets.
Low Cost Carriers
I am also pleased to see that one of Asia's most talked about aviation personalities is joining us today: Tony Fernandes of Air Asia.
Last night Singapore Senior Minister LEE reminded us of the he challenges that low cost carriers bring to our industry.
They are setting new cost targets for airlines around the world.
They are also setting targets that are challenging the network carriers to simplify their business.
Along with Air Asia, Singapore Airlines, QANTAS and THAI Airways are all in the process of setting up low cost subsidiaries.
We wish them all well.
We also wish them fair competition.
For example, landing fees and other infrastructure charges must be equally charged.
Where this has not happened in Europe, we have fought and won.
Our target is fair and healthy competition.
Many of our targets represent difficult challenges and decisions.
Although the situation is still fragile, there is some good news.
The industry is rebounding and it is clear that Asia will be a leader.
China and South Asia are our greatest potential markets.
The Middle East may be less talked about but it is equally a centre for growth.
I am extremely pleased to welcome Stanley Hui of Dragonair, Peter Hill of SriLankan and James Hogan of Gulf Air to update us on their targets for China, South Asia and the Middle East.
The final part of the picture is our relationship with governments.
Airlines compete fiercely, but with outdated restrictions that prevent them from acting as normal businesses.
Ownership and control restrictions prevent airlines from tapping into global capital.
All other businesses take this for granted.
The solution will not be easy, but I have hope.
The 5th ICAO Air Transport Conference in Montreal agreed to the principle of liberalizing ownership and control – fully supporting our position.
We owe great appreciation to Minister YEO Cheow Tong of Singapore for his leadership in this area which is helping to shape the future of the industry.
Individual governments must decide their own timeline, but the direction is clear.
This is a very significant step forward.
The next step is to set regional targets for liberalization that we can work with governments on achieving.
We are all watching the US and EU negotiations with great interest and we have already seen movement in other parts of the world too.
In addition to our distinguished panel of Maurice Flannigan of Emirates, Jaan Albrecht of Star Alliance and Avelino Zapanta of Philippine Airlines, I am sure that Minister YEO will touch on this in his remarks.
Our discussions today go to the heart of our industry's future.
Each partner has a role to play for the success of our industry: airlines, airports, air traffic control, leasing companies and so on.
Like profitable business, we all have to set targets and be accountable.
Let us remind ourselves that the success of our industry goes to the heart of global prosperity and development.
Senior Minister LEE's impressive remarks last night made this clear.
My goal for today is to place our industry on target to fix the business.
I look forward to an engaging discussion.
With that, I invite Mr. YEO Cheow Tong, Minister for Transport, Singapore to make his remarks.
"FIXING THE BUSINESS-Setting the Right Targets-" IATA Asian Aerospace Aviation Summit, Singapore, 23 February 2004