Date: 16 March 2005
European Aviation Club, Brussels
Thank you for your warm welcome. It is a pleasure to be here in Brussels. Let me begin with a 5.9 billion Euro question. It is not the industry losses for last year—they were not that high. This is the annual cost that the Commission inflicts on aviation. Let me break it down:
- 600 million Euros for new regulations on compensation for denied boarding, cancellations and delays
- 1.9 billion Euros for failing to take responsibility for war risk insurance and security issues
- 3.4 billion Euros for inefficient infrastructure and regulation
So, 5.9 billion Euros in cost is the legacy of neglect left by the previous Commission. This is a clear burden on the competitiveness of European airlines. Airline efficiency has overcome some of this. But we need for urgent action to restore a balanced playing field. If not the European industry will be damaged, not by competition, which is very strong, but by inefficient European systems. So, I wanted to come here with some clear messages and a sense of urgency.
I recently had an open and constructive meeting with Mr. Barrot, Vice President of the Commission. And I am hopeful that his leadership will regain some lost ground. What are my messages? The first message is that aviation is critical to Europe's economy. Globally, airlines are responsible for 1 trillion Euros of economic activity. In Europe,
- 4.3 million jobs are supported by the
- 330 airlines that operate at 488 commercial airports
- carrying over 400 million passengers last year
- And by 2020 we expect 800 million people to travel by air
Air transport has done more for European integration than any mountain of unsold butter or lake of milk. The industry is beginning to recover after 4 years of crisis. Airlines lost US$35 billion and three years of growth since 2001. Three European flag carriers disappeared and 35,000 European jobs in airlines were destroyed. Traffic is now 8.8% above 2000 levels. But yields fell 10% in the last five years. And with oil prices continuing over US$53 per barrel, the situation remains urgent. Barriers to entry into the industry are low. As a result, competition is strong and consumers are benefiting from cheaper air travel.
Unfortunately, the previous Commission did not even have the vision to see this reality! The need for efficiency gains and cost reduction has never been greater. Governments have not understood what makes airlines competitive. On top of that, they fail to regulate our monopoly suppliers.
Role of Governments
Now my second message: We Can and Must Do Better with aviation policy. What have governments and the commission achieved? In general, not enough—or worse they have done the wrong thing. The 5.9 billion Euro question highlights the cost that airlines pay when governments fail to act, or act inappropriately. Every regulation has a cost and hopefully a benefit. The Commission must balance these. If not, they will kill Europe's competitiveness.
I was very pleased to hear Commissioner Verheugen's voice of reason. All regulations should pass a jobs' test. And, let's also ask three other questions from the Commission's strategic Objectives:
- Are new regulations necessary?
- Are they simple and effective? And
- What impact will they have on competitiveness?
This is a common-sense approach that will achieve regulation that supports competitiveness and economic expansion. Europe badly needs both. This would align with the Lisbon agenda, which I hope has not been forgotten.
Compensation for Denied Boarding, Cancellations and Delays
This new regulation fails this test. The regulation was implemented in response to 700 annual complaints on this topic. That is two complaints per day or one complaint for every 570,000 travelers. The regulation contravenes the Montreal Convention that all European States signed.
Airlines are now required to compensate for situations outside our control—air traffic delays or snowstorms. Airlines cannot make the sun shine or air traffic control efficient. And we will not fly if it is not safe.
Safety is our industry's number one priority.
- We achieved our safest year ever in 2004 when 1.8 billion people flew safely.
Regulations that would compromise this priority are irresponsible. We took the Commission to court. We expect a final decision by the European Court of Justice later this year. In the meantime, we are stuck with bad consumer protection that adds no value to the industry. We must do better than increasing industry costs simply to keep the Eurocrats self-satisfied.
Pamphlet Campaigns: We Can Do Better
The Commission's interest in public campaigns is impressive—particularly commissioners distributing pamphlets at airports recently. I have 4 pamphlets for very relevant campaigns that our industry needs. This is our "We Can Do Better" campaign.
1. Save a minute and the environment
The first pamphlet is multi-purpose: how to save the environment and make European travel more pleasant. A real Single European Sky will move us forward in both areas. Why do we have one European currency and 34 providers of air navigation services?
I remember starting this campaign as Chairman of the Association of European Airlines in 1991. But not much has changed: lots of bureaucracy and no efficiency. It has become a 15-year story of failure. Simply eliminating delays in Europe would also eliminate annually:
- US$1.5 billion in wasted operating cost
- More than 1 million tons of CO2 emissions waste
- 15 million minutes of unnecessary flight-that is a plane flying nonstop for 173 days, or half a year.
The environment and our passengers are paying for the cost of this inefficiency. Inefficiency compromises the investments we are making in new aircraft with are more fuel-efficient:
- Modern aircraft have a fuel efficiency of 3.5 litres per 100 passenger kilometres.
But in the case of the Single European Sky, the benefits of greater operational efficiency are obvious and achievable. We can and must do better.
2. Effective Regulation of Monopoly Suppliers
My second pamphlet concerns regulation of monopoly suppliers. Governments fostered airline competition but forgot to regulate monopoly suppliers. In most of Europe the regulators for airports and air navigation service providers are phantoms. Let's focus on ANSPs first. We pay US$5.6 billion for air navigation in Europe. The global total is US$8 billion. Within Europe unit rates range from 26.6 Euros in the Czech Republic to over 70 Euros in the UK, Switzerland, Belgium, Germany and Spain.
Clearly not all operate at the same level of commercial efficiency. Eurocontrol benchmarking data helped us to identify inefficiencies. And we are challenging ANSPs to a 20% efficiency gain simply by performing at the best-in-class level. This would not close the 70% efficiency gap with the US. But it would be a step in the right direction.
It is the same story with airports. Increases at major European hubs are out-of-line with the cost reduction that competition has forced on the airlines. Yet we see Heathrow, Paris, Amsterdam and Frankfurt all planning increases in 2005. Remember, airlines are cutting costs to keep pace with yields that declined 10% in the last 5 years.
Instead of promoting efficiency, we see the Commission exploring ways to subsidize so-called start up routes. The Commission must do better with a robust regulatory system that challenges our monopoly partners to be more efficient.
3. Equal treatment of air and rail
The next campaign is to level the playing field for all modes of transport. The Commission's was right to eliminate subsidies from the airline industry. Fair competition is what makes us stronger. The single market for aviation in Europe provides the consumers with enormous choice. The benefits to the consumer are clear. The cost of European air travel reduced by a third over the last 13 years.
We are fighting airports to focus their attention on reducing costs for all airlines before constructing any low cost facility. And we cannot be silent when governments heavily subsidize other modes of transport, or other airlines. There is no justification for the subsidies that our rail colleagues receive. We compared the level of taxes and charges collected by governments for rail and air transport to the cost of infrastructure. Air transport is a profit center for many governments.
In Germany the government makes a net profit of 11 Euros for every 1,000 passenger kilometers traveled by air. But it pays 51 Euros for the same distance traveled on rail. In France the government makes a net profit of 67 Euros for every 1,000 passenger kilometers traveled by air. But it pays 78 Euros for the same distance by train.
Airlines pay when we park, fly, land or take-off. Why do we have to pay for our competitors? The sum of European rail subsidization is US$50 billion per year. We can do better to level the playing field.
4. Free the Industry from Outdated Regulation
The next pamphlet seeks to educate governments in the airlines' need to run their businesses as real businesses. We need to modernize the sixty-year-old rules of the Chicago Convention. We are a completely different industry than we were in 1944. The future of our industry should be defined by competition and by markets. We support the vision of progressive liberalization that came from the Fifth ICAO Air Transport Conference in March 2003.
Two years later I see very few results. Contrast that to China where a clear plan is being implemented. Along with progressive liberalization the government is investing in 40 airport projects to cope with 30% growth. European governments must show similar leadership. They lost a great opportunity with the failure of the US-European talks on an open aviation area.
I hope that the new Commission will make this a priority. Airlines need the freedom to run their businesses as real businesses. The US and Europe are mature markets with similar size and levels of development and technology. Why should outdated bilateral agreements determine what services are offered? We can do better to put Europe on track to lead the changes that our industry needs.
Simplifying the Business
I have highlighted four pressing items from our long list of action items for governments and the Commission. We expect governments to change because the industry is changing. And we are changing as well. Air transport is evolving to a low cost industry. But airlines have many processes that are paper based, complex and expensive.
We must Simplify the Business to reduce costs and enhance service. IATA is leading a revolution in the way people travel and ship with:
- 100% e-ticketing by 2007
- paperless cargo
- bar coded boarding passes
- common use kiosks for check-in
- radio frequency identification for baggage management.
Most airlines have a piece of the benefits of this technology. Our job is to make them available industry wide. This is the job that only IATA can do. We print over 300 million tickets and handle over US$183 billion in industry settlements. The benefits of e-tickets to the passenger are enormous. And the cost benefits are at least US$3 billion per year for e-ticketing alone. The task is enormous, but the benefits are worth the effort.
A New Partnership
I hope that some of you have noticed a new and bolder approach by IATA to these issues. We needed to change and to "do better" to lead and serve our industry with a strong voice. I am shouting, in a polite way, to ensure that governments address our most pressing issues. The Commission is one of our most important partners. We have been disappointed in the half-measures of the past;
- Intensifying airline competition without effective regulation of monopoly suppliers.
- Penalizing airlines for delays but failing to effectively implement the single sky.
- Regulating without understanding.
Today we have a new IATA that is tough and focused on delivering relevant results. And today the new Commission has an opportunity to set a new direction and build a new relationship with an industry that is changing fast. Europe's network airlines are competing, without subsidies, in a global market. Restructuring, consolidation and careful cost management helped them cope with extra-ordinary fuel prices. But they have a limited future if European policy does not support a competitive industry.
I am confident that the new Commission and Mr. Barrot will do better to understand the leadership and change that our industry needs. Air transport is a great industry….and it is worth campaigning for.
Working together "We can do better".
'We Can Do Better', European Aviation Club, Brussels