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Date: 30 November 2005

AACO AGM, Yemen

It is a pleasure to be here with you in Yemen—a country of natural beauty and friendly people. IATA has a great partnership with AACO.

Together we are deeply committed to serving the Arab region.

Today I would like to use this opportunity to do three things. Describe the global state of the industry and our regional analysis

  • Update you on IATA's developments in the Middle east and North Africa (MENA) and
  • Discuss the implications on MENA of three of our most important issues
    • Safety
    • Liberalisation
    • Simplifying the Business

The global industry remains in crisis.

The extra-ordinary price of oil is destroying the industry's profitability. Airlines will lose close to US$7 billion this year. That is if the average price per barrel for Brent crude is US$57; but a decline in fuel prices will have a positive influence over our losses. Airline achievements on efficiency are significant. Fuel efficiency improved by 3.4% in 2004. Non-fuel unit costs will drop 4.2% this year. And the break-even price for oil has risen from US$33 per barrel to US$50. These are impressive numbers—but still not enough to pull the industry out of the red. We should take note of some important regional differences.

  • US carriers will lose in excess of US$8 billion
  • Europe will break even
  • And Asian carriers will make a billion

It is interesting to note that this aligns well with labour costs which are

  • 38% of operating cost in North America
  • 30% in Europe
  • And about 20% in Asia

Successful partnership with labour is a key challenge for our industry's profitability. That of the situation in the Middle East?

The Middle East is an oasis of good news

With the region's economies expanding at 5.6% there are tremendous opportunities. Middle Eastern carriers have topped the industry in cargo growth. Today we are announcing traffic figures for the first 10 months of the year. Global cargo grew by 2.6%, while Middle East carriers posted a 14.1% gain. And you also outperformed in passenger traffic with growth of 12.6% against an industry average of 7.9%. Our five-year forecast shows this trend continuing. Our global growth forecast for passenger traffic is 5.6%.

  • We expect over 6.5% growth on routes between the Middle East and both Asia and Europe

Cargo is the same.

  • The global forecast is for 6.3% growth
  • But we expect cargo growth between the Middle East and Asia to grow at 8.8%.

Many of you have announced profits this year—some even record profits. This region is leading the world in aircraft orders. US$ 60 billion by just three airlines. And of this US$27 billion took place so far in 2005. Many of your governments have the correct understanding of the economic impact of aviation. They are taking strategic decisions to invest in infrastructure to support growth with US$30 billion. More than half of this—US$17 billion—is in the United Arab Emirates.

This is all great news. Congratulations on your achievements. But there are some words of caution. High growth rates present unique challenges and can hide many problems.

  • Matching capacity and demand at economic pricing levels will not be easy
  • Keeping labour costs under control while earning profits will avoid many future problems
  • As this region takes on a greater role in the global industry, demands for greater financial transparency will surely follow

Many are carefully watching developments in this region with anticipation. Don't avoid tough decisions simply because times are relatively good. Strong traffic growth should be an opportunity to build a robust industry for the future.

And IATA is working with you to build that future.

We are expanding our resources and operations in the region to better serve our 34 members based in the Middle East and North Africa. Your priorities are our priorities. And we are implementing these locally with 9 IATA country offices in the region. Our new team of country managers are bringing new passion and better results to our activities. And our regional office in Amman, under the leadership of Majdi Sabri, is expanding to ensure that they are well-supported. y early 2006 the office will have 20 staff covering all our major activities. Efficient settlement systems is a US$ 225 billion global activity. In the region, our 9 BSPs and 3 CASS operations cover 12 countries and settled US$ 7 billion last year.

We just opened an office in Yemen today, next year we will bring BSP operations to Algeria and Syria. We are examining the feasibility of CASS operations to cover the 5 Gulf states and Jordan in 2006. The high price of fuel has made efficient operations an even higher priority.

  • We are moving forwarded with targeted implementation of RNAV procedures at key airports in the region.
  • RNAV is already implemented in Dubai and Bahrain and we are now discussing this in Yemen
  • IATA worked with governments to cut 106 minutes off of routes in the region
  • That means US$22 million in annual savings

The agenda for 2006 is ambitious.

  • We are working to implement RVSM for Iraq as soon as the security situation allows
  • Our manual for best practices in fuel efficiency has been distributed throughout the region
  • And IATA GO teams will be working individually with airlines in the region to help with implementation
  • On average our GO teams identify 3% fuel savings
  • In some cases savings of up to 8% have been identified

As you can see, IATA's partnership with this region is stronger than ever. Together there is much for us to achieve.

As I mentioned I want to address the role of MENA in three key industry issues;

  • Safety
  • Liberalisation
  • Simplifying the Business

Safety

Safety is our industry's number one priority. 2004 was our best year ever. The global accident rate was 0.78 per million flights. And we are determined to reach 0.65 for 2006. In 2004 the accident rate in the Middle East increased to over 5 per million sectors. So far this year there have been 7 accidents involving MENA carriers, three of which were fatal. And globally August 2005 was among our worst months ever. Our safety record is good and air transport is the safest form of travel. At the same time we must remain focused on constant improvement. The IATA Operational Safety Audit (IOSA) is core to our safety efforts.

IOSA standards were developed in cooperation with ICAO and leading regulators as the first global standard for airline safety management. The IOSA standards manual is free for any airline—IATA or non-IATA. And our 7 accredited audit organisations ensure a competitive market for IOSA services. By the end of this year we will have audited 140 airlines—representing 70% of total scheduled traffic. Of these, over 80 will be on the IOSA registry. 8 Arab airlines have completed the audit process.

  • QATAR -- the first airline to be audited – has been certified a second time
  • Royal Jordanian
  • Emirates
  • Egypt Air
  • Oman Aviation Services
  • Gulf Air
  • Saudi Arabian and
  • Royal Air Maroc

Middle East Airlines had just been audited.  And two more—Kuwait, Jordan Aviation—are expected to be audited by year-end. And a further three—Afriqiyah, Etihad and Yemenia are confirmed for 2006. In two weeks our board will review the 2006 deadline for IATA members to commit to audits. While I believe that they will extend the deadline, I also believe that they will set a challenging target. I encourage AACO to make IOSA registration a condition of membership. And I challenge all carriers in this region to commit to IOSA by the IATA AGM in June next year.

At the same time I also encourage the region's governments to make use of IOSA in their safety oversight programmes. We have already held discussions with the government of Egypt to include IOSA in their AOC certification process. This is a strong and positive signal for European governments that continue to move forward to create a common blacklist. We don't feel that a blacklist—common or otherwise—makes any positive contribution to safety. But it is a political reality. And so we are promoting IOSA to European governments as a transparent tool to assess an airline's safety management capability. All IATA members should be proud of the great tool that we have developed with IOSA. It is an industry standard that will raise the bar on safety. Now it is up to you—member and non-member airlines—along with your governments, to make the best use of it.

Liberalisation

We must remind governments that air transport is of critical importance. Globally we generate 29 million jobs and nearly US$3 trillion in economic output. In the Middle East alone we estimate that air transport is in some way responsible for

  • 450,000 jobs and
  • over US$16 billion in economic activity

So it is important that governments support our industry with policies that support a healthy air transport sector. The vibrant air transport industry in Dubai is a direct result of visionary government policy. It is ironic that airlines facilitated globalisation but we are among the last to benefit from it. We need the freedom to do business like any other business. But we are stuck with a regulatory framework that is from another age. Change is critical—but it is far too slow in coming.

In the last weeks the US negotiated agreements with Canada and the EU to further liberalise air services. Both are important to make steps in the right direction. But both fall short of the fundamental change our industry needs and we will continue to urge further liberalisation in these key markets. Two pan-Arab agreements endorsed in Damascus in December last year could move the industry forward by

  • Establishing open skies and a fair competition within the Arab world and
  • Creating a mechanism for bloc negotiations with the EU

They will help position this region as a policy leader alongside its rapid expansion. A year later we are still waiting for some states to approve. I urge governments to view this as part of the global process of progressive liberalization. Closed markets offer little protection for airlines that compete in global markets. Fair competition combined with the freedom to do business must be at the heart of any vision for an efficient and successful industry.

Simplifying the Business

Finally, I would like to discuss IATA's biggest project ever—Simplifying the Business. This is a programme of 5 core projects aimed at achieving US$6.5 billion in savings while making travel more convenient for the passenger. Using existing technology more effectively is at the core of;

  • 100% e-ticketing by the end of 2007
  • taking the paper out of freight processing
  • radio frequency identification for baggage management
  • bar coded boarding passes and
  • common use of self service kiosks for check-in

Philppe Bruyère, our programme director, is here to explain the details of the projects and where we are in Middle East and North Africa region. And he is available to address your concerns . But before he starts, I want to ring a warning bell. By the end of 2007, IATA will no longer print paper tickets. This is a firm deadline—and it was the unanimous decision of the IATA membership at our 2004 AGM. The savings are enormous—US$3 billion annually. For many airlines the deadline may seem too soon. But for many others it is too late.

Without ET many of you will lose your interline revenue. That is anywhere from 10 to 30% of your revenue. To keep our global system working, IATA took the lead in bringing the industry to an achievable compromise. And we are investing US$10 million this year to ensure that we bring all carriers successfully on board.

Philippe has a team of 140 staff worldwide to push Simplifying the Business forward. As of today, globally 37% of the tickets IATA issues are electronic. For MENA carriers the figure is just 2.54%. This is disappointing and among our biggest worries. IATA is paying special attention to this area—with seminars, a buddy system and individual consulting. I am determined to keep this region in the global system. And I have come here to ask for the one key ingredient that only you can provide—your personal commitment. I have a strong commitment from the AACO team to work together. Together we held a workshop tailored to this region in Amman in September.

IATA is doing the maximum to make sure no carrier is left behind. Now I need you—the leaders of aviation in the Arab World —to start moving fast. Sitting on the sidelines is not an option. I personally fought to have the original date of 2005 extended to 2007. We gained two precious years but we are in the final stage. There will be no extension. 100% ET will be a reality in 760 days.

In closing, my message to you is to:

  • Move fast to meet the 2007 ET deadline
  • Make good use of IATA's resources to drive efficiency gains
  • Use IOSA to drive improvements in safety and
  • Remind your governments to pay more attention to liberalisation and to give you the freedom to do business

Our common goal is to build a successful air transport sector in MENA that is

  • globally integrated
  • efficient
  • and that delivers widespread economic benefits

IATA has never before mobilised more staff and resources to assist you, our members. IATA is your association and your partner in achieving these goals. Having you all on board will be our biggest satisfaction. Finally, I wish your AGM every success.

Shukran (Thank You)

 

Remarks to the AACO AGM, Yemen
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