Skip to main content

Test Home
You & IATA

Search

You are here: Home » Pressroom » Speeches
  • Print this page
  • Share this page

Date: 15 December 2004

IATA Global Press Briefing, Geneva

State of the Industry

These are interesting times for the industry. Passenger numbers are at record levels—1.8 billion passengers. That is 14% more than in 2003.

 

Our passenger forecast will be released tomorrow. It shows 6% growth per year for 2004 to 2008. But the bottom line numbers are terrible. Between 2001 and 2004 we lost US$ 35 billion.

Airlines are businesses. If the numbers are not right, you need to change.

There are 35 billion reasons why change is essential.

 

We have a vision for a profitable industry. When I joined IATA in 2002 the industry was in crisis. Traffic had not recovered from September 11. Airlines were bleeding red ink. Governments did not understand our need to run our businesses as real businesses. And our partners did not understand our need for a low cost industry. The house was on fire and we needed emergency measures.

 

Leading Change

A stronger IATA was needed to implement change. This came from a Board of some of our industry's top leaders like:

Isao Kaneko of JAL

Jean Cyril Spinetta of Air France

Rod Eddington of British Airways

Geoff Dixon at Qantas

Robert Milton at Air Canada

Dave Bronczek of FedEx

Step one was to create a revolution within IATA. I needed a team that could deliver concrete and relevant results quickly. We changed the corporate culture and 50% of the team. And we began to shout loudly, in a polite way, about our industry's issues. We started in Tokyo, and went on to Toronto, Seoul, Geneva, Sydney, Brussels and so on. I was not afraid to speak up, because the airlines had done their homework:

Restructuring,

Merging

Downsizing

Reducing costs

Fuel is the enemy this year that will steal our return to profitability. I call it the Fifth Horseman of the Apocalypse after SARS, terror, War and poor economies. Our 2004 fuel bill will be US$ 62 billion—US$15 billion more than 2003. More details of our fuel action plan will come later.

Our cost cutting efforts have yielded results. Non-fuel unit costs reduced 2.5% in 2003 and another 3.0% this year. Traffic is now 8% above 2000 levels. Cost cutting is putting our house in order. Our attention is on simplifying industry processes. We are changing the business environment. And we are not shy about demanding that our partners change too.

Particularly, our monopoly partners who live in a completely different world.

They must match the efficiency gains achieved by the airlines. Our partners have key roles in our vision of a profitable industry. Today I will touch on the key policy areas that impact our business:

 

Simplifying the Business

Safety

Cost Efficiency

Environment

Liberalization

Security

And the need for Governments with vision.

 

Simplifying the Business

The vision begins at home—with the airlines simplifying their business. Technology is improving passenger service and reducing costs. At our AGM in Singapore earlier this year we announced 4 major projects;

100% E-ticketing by 2007

Common Use Self Service Kiosks for Check-in

Bar Coded Boarding Passes

Radio Frequency Identification for Baggage Management

Delivering Value

Business processes become complex through time. Our customers want value, not complexity. IATA is the logical leader of change for the processes we standardize, delivered and run. For example IATA operates the industry's settlement system.   We will process over US$180 billion through our 100 offices in 2004.

 

Last month over 450 airline, airport and supplier representatives gathered in this room to implement "Simplifying the Business". They need the cost savings:

 

Each ET saves US$9

Each CUSS will save up to US$ 3.5 over a traditional check-in

Each bag that is not mis-handled saves up to US$100

 

Multiply these unit savings by 1.8 billion passengers and the numbers are impressive. ET alone will save at least US$3 billion. Partnership is critical to success and a cooperative approach is needed. We have broad support from our board, the airlines, the airports and our technology and systems suppliers.

 

Implementation

 

The task will not be easy, but we are making progress. An initial survey showed 80 airlines on a fast track towards ET. Already 17% of settlements cleared through IATA are ET. In three years we will bring another 200 airlines into the ET world and achieve 100% coverage.

 

Our target for 2005 is to have 40% of the 300 million IATA interline tickets ET.

And we are firmly focused on 100% by the end of 2007. Many airlines already use these technologies. But none of these systems are available on an interline basis. Our job is to make conveniences and cost benefits available worldwide.

 

The Future

 

Simplifying the Business will spread to all aspects of the industry. Our Board met in this room on Friday and they are more than excited. Many created "Simplification" managers in their airlines. Two key board decisions that are giant steps forward:

 

We are going beyond ET to paperless travel

And, we will save a US$1 billion by driving paper out of cargo

 

The change process is fast and exciting.

 

Safety

 

Safety is our industry's number one priority. Despite enormous losses airlines did not lose sight of this priority—2003 was our best year ever. Over 1.6 billion people traveled safely in 2003. Tragically 663 people lost their lives.

To put that into perspective, this is a similar number to 1945 the industry carried only 9 million passengers.

 

Since 1994 we cut the hull loss rate in half. Our board committed IATA to achieve a further 25% reduction by 2006. The goal is zero accidents.

 

Our Six Point Safety Plan addresses everything from audits, cargo, inflight, infrastructure and training to data collection.

 

I will highlight one aspect: the IATA Operational Safety Audit—IOSA. IOSA is the first globally harmonized operational safety audit.

And it is now a commitment of IATA's member airlines.

Like Simplifying the Business it will deliver better value by raising safety levels while reducing the unneeded costs of duplicate audits.

 

Cost Efficiency: Our Partners

 

The industry's value chain is broken. Airlines do the flying and everybody else makes the money. Airports make record profits while airlines lose billions.

 

Our partners should be profitable. But happy airport monopolies achieving margins exceeding 25% while airlines lose billions is not acceptable anymore. Toronto is our worst nightmare: out of control spending and no consultation. We needed an efficient terminal and they gave us Versailles with boarding bridges. And we get the bill for C$ 6 billion debt. This is not acceptable and must change.

 

Airports and ANSPs make up 10% of our operating costs. This has not grown in recent years and some will argue this is sufficient. Again, I say NOT ACCEPTABLE.

 

Constant cost reduction is critical to any business—except monopolies. We will no longer accept that airport charges must increase with time.

 

Consumers demand cheaper travel. Competition is stronger than ever among IATA's 270 members. What other industry operating globally is this fragmented?

 

Travel has never been cheaper—yields dropped 30% in the last ten years.

How many of you expect to pay more for your plane ticket next year?

Our job is to negotiate with airports the cost reductions that airlines and travelers de mand.

 

In 2004 we will achieve about US$ 1 billion in cost savings from airports and ANSPs. For 2005 we are committed even greater savings. Our partner Associations-ACI for airports and CANSO for air navigation service providers — are helping. Together we will benchmark the performance of the industry's service providers.

 

Privatization

 

Many saw privatization as the panacea for airport problems. To be honest, in many cases it was a failure. Privatizing a monopoly without effective economic regulation is a license to print money. When privatization only results in cost increases, why privatize? Quite frankly, we don't care who owns the airport, so long as the result is an efficient partner. We took this message to governments from Hong Kong to Latin America.

 

Low Cost Terminals

 

Air transport is evolving to a low cost industry. This is what consumers demand. Airports need to reduce costs for all travelers and all airlines. Building limited use low cost terminals is not the answer. Building low cost airports for all airlines is the target. Where low cost facilities are developed, the bottom line is:

 

They must be available to all carriers

There must be transparency

We will not accept cross-subsidization and

Security charges must be equal.

 

Air Navigation Services

 

We have had major successes with some air navigation service providers (ANSPs). Recently we achieved an understanding with AirServices Australia that is a model for partnership. IATA and AirServices will jointly decide terms of reference for an independent analysis of the main drivers of the business.

The results will guide pricing and investment decisions. The books are transparent and there is a commitment to full consultation.

 

Even in Europe we are making progress. This year average unit rates have dropped by 2.2% and we expect a further 6.9% decrease next year. Progress, but far from a solution. Europe is still 70% less cost efficient than the US. Within Europe there are huge efficiency differences. If all European ASNPs performed at the best-in-class level of their European peers, we would see a 20% decrease in charges. Today the bill is US$5.6 billion. If we are successful, we will save over US$1 billion.

 

We are now benchmarking efficiency and challenging ANSPs to be as good as their neighbors. We will identify the worst offenders. And we will get the regulators involved. Many regulators are phantoms: present but not effective.

We need to give them real jobs!

 

Fuel Action Plan

 

The final area of cost efficiency is fuel. There is not much we can do about the high price of fuel.           But there is much to be gained with efficiencies and cost reduction. Imagine what would happen if we could save a minute on every flight?

 

27 million flights per year multiplied by US$100 per minute is US$2.7 billion in cost savings and more efficient skies.

 

This is our Save-a-minute campaign.

 

In 2004 we saved US$1.1 billion by making air routes more efficient.

We will save even more next year.

 

Environment

 

The environment will be among the winners of a more efficient industry.

Improved technology over the last 30-40 years resulted in

 

A 75% reduction in noise

70% improvement in fuel efficiency

50% reduction in emissions

 

On long haul routes, fuel efficiency is at 3.5 litres per 100 passenger kilometers—that of a compact car. Great progress, but government's need to let us do more. Improving routes cuts emissions as well as time and costs.

 

I am going to tell you about a great disappointment—the European Single Sky.

It is unbelievable that the EU is not able to achieve any results from this initiative. It is a fifteen-year story of failure.

 

Capacity problems continue and the level of inefficiency is incredible. 36 ANSPs when one provider could do the job as in the US. The average impact of delayed flights in Europe is 16 minutes of unnecessary time, fuel, and emissions. Before European governments explore future environmental measures, they need to change Single Sky from a nice word to a reality.

 

Changing the Rules: Governments

 

Governments must change the way that they look at our industry. We are a global industry in need of an effective global regulatory framework. Instead of a vision and strong policy, we are seeing micro-management of issues best left to markets—particularly in the European Union. We are not asking for subsidies. We are against them. We just want to do business by competing fairly with:

 

Harmonized and liberalized rules

Security costs paid by governments and

Regulations with a global vision

 

Let me tackle these one at a time.

 

Liberalization

 

The bilateral system has been around as long as IATA—60 years. The industry has outgrown the bilateral system. Carriers need the freedom to do business where markets exist.

 

The ICAO Air Transport Conference 5 set a clear direction for the progressive liberalization of the industry. Now we need results.

 

China has shown remarkable leadership in liberalization.

 

We can see progress in the Middle East, Latin America and Asia.

 

Liberalization must happen progressively. But this is not an excuse for some governments to stand still. I see too many lost opportunities and governments failing to act.

 

The failure of the EU/US open aviation area is a huge disappointment. Two markets with similar dimension and similar levels of development have no excuse not to liberalize. With the US election over and a new commission, as a priority the talks must resume.

 

After 60 years it is time to find a new model. We need an agreement that will guide future liberalization around the world. A meaningful agreement on liberalization of capital would be a good start. And it could be the start of much needed industry consolidation.

 

Security

 

Three years after September 11 security is still a mess.

 

We have a higher level of security, but not efficiency. We are battling paperwork instead of terrorism. And our passengers are being hassled. We are confusing inconvenience with effectiveness.

 

Governments have failed miserably at harmonizing security measures. If airlines meet US passenger data requirements, they break European privacy laws. Airlines should not be forced to choose which law to break. This is only the most obvious of many examples.

 

Governments must act urgently to find a harmonized set of rules. Security financing is also a problem. Why do governments pay to keep their citizens safe from terrorism everywhere except in airports or on airplanes? Airlines and travelers should not be the exception.

 

The cost to the industry is US$5 billion per year for extra measures since September 11. The US accepted to take on some of this cost in 2003. All governments must act quickly to pay for what is their responsibility. Finally, effective consultation is needed. We all want a secure aviation environment.

 

Airlines can help make security measures operationally effective and efficient.

Too often we are not involved until decisions have been made. US consideration of the need to provide passenger data 60 minutes before take-off is a clear example. The costs to the industry will be enormous, huge inconveniences await passengers, and major burdens on airport capacity. It could break the network system. I have to ask: what will be gained in security efficiency? Again, we are battling paperwork instead of terrorism.

 

Australia and New Zealand have an efficient system called APP. It was developed in cooperation with the industry long before September 11. Let's not re-invent the wheel, but learn from existing best practice.

 

My message on security has three parts:

Governments need to coordinate and harmonize security measures.

Governments must accept their responsibility to pay for the protection of their citizens

Governments must consult with IATA and airlines to achieve effective solutions.

 

Global Vision

 

Finally, I challenge governments to have a vision for the industry and to think globally. Airlines share a vision of a simplified, liberalized, globally harmonized, environmentally responsible, low cost industry that is safe and secure. I see no vision among governments.

 

The European Commission is the worst offender. Without a vision, they keep busy trying to micro-manage the industry—solving problems that do not exist. Worse, it implements legislation that hurts the industry and the passengers. I do not believe it is intentional. They just do not understand the industry they are mis-regulating.That is the only conclusion that you can draw from misguided legislation on denied boarding and impractical ideas for slot allocation.

 

I hope that the new commission under Mr. Barroso and Mr. Barrot will return to the Lisbon Agenda—to make Europe a vibrant economic force. Where there are problems, let's fix them together.

 

Governments must understand that airlines operate and compete globally. And they must be prepared for an industry that is willing to fight to protect itself and consumers from bad legislation. European Denied Boarding Compensation is an example:

 

Imposing rules that conflict with the Montreal Convention

and making airlines responsible for snow.

 

We accept the need to compensate for over-booking. But this was beyond reason. The net effect is a negative impact on consumers who want efficient connections and low fares. We took the Commission to court in the UK and won the first round. I am confident that the European Court of Justice will also see the reason in our arguments. The point is that we are beyond our tolerance for mis-regulation.

 

Closing

 

I started by saying that there are 35 billion reasons for change in this industry.

Airlines have changed radically. We are making some progress with stakeholders.

 

In 2005 airlines may even make some money—US$ 1 to 2 billion. With revenues exceeding US$350 billion, that is a long way from making us a good investment.

 

Change remains critical. Greater efficiency and the freedom to do business on a level playing field are essential.

 

Along with safety and security, these are the core of our 2005 agenda.

 

One last comment before questions. Those more familiar with IATA will notice a changed approach. I am happy to show you a new look that reflects that change. We call it the IATA Dynamic Sky. It captures the speed, passion and commitment of IATA. And it points to a vision for an air transport industry that is safe, secure, efficient, profitable and that serves passengers well.

 

Thank you.

 

 

 

 

 

 

 

35 Billion Reasons To Change - IATA Global Press Briefing

ADVERTISEMENT


Additional information

© International Air Transport Association (IATA) 2014. All rights reserved.