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Date: 5 June 2006

State of the Aviation Industry

Good morning, welcome to Paris and congratulations to all in this room. You have worked hard through challenging times.

We are starting to see light at the end of a five-year tunnel—some cautious optimism.

Since 2001 labour productivity improved 33%, sales and distribution costs dropped by 10%, and overall non-fuel unit costs reduced by 13%. Your efforts have moved the break-even fuel price from US$14 per barrel to US$50. We are en-route to a low-cost industry. We have not yet landed—but the approach is near.

Oil is the wild card. Prices are racing ahead of efficiency gains and robbing our profitability. The industry fuel bill will top US$112 billion this year—US$21 billion more than 2005.

Despite absorbing this enormous cost, profitability did not deteriorate. Losses for 2006 will be slightly lower than 2005 at US$3 billion.

Strong revenues helped. For each of the last three years revenues rose 10%. That is double the historical average. But a weaker global economy could change this dramatically. Change is more important than ever

A Responsible Industry

We are a responsible industry and your leadership is critical. Competition has never been stronger but you also share a common vision.

Together we are leading progress on our most important issues:

  • Safety
  • Simplifying the Business and 
  • Environment

We are a responsible industry with some impressive results. While we shout politely, demanding greater efficiency from stakeholders, we must also shout proudly of your achievements.

Safety

Look at our safety record. Last year we safely transported 2 billion people—the greatest proof of our responsible achievements. Despite the financial crisis, the 2005 accident rate was our lowest ever. Industry-wide we had one accident for every 1.3 million flights. And for IATA member airlines the accident rate was one for every 2.9 million flights. What an amazing result.

And we are committed to doing even better. The IATA Operational Safety Audit (IOSA) is at the core of our efforts. Fully 189 member airlines are now in the IOSA process.

Governments are also coming on board. Chile, Madagascar and Egypt incorporated IOSA in their oversight programmes. Arab countries mandated IOSA for all carriers flying to the region from 2008. These decisions are leading the way for others to follow.

Together, our actions are responsible, raising the bar on safety and adding a mark of quality to IATA membership.

Today you will be asked formally to make IOSA a condition of membership. For some this will be a challenge. But again, our approach is responsible. IATA’s Partnership for Safety has expanded its scope from Africa to include Latin America. Our greatest satisfaction will be having all our members on the registry.

A responsible industry cannot tolerate even a few governments that don’t take safety seriously. The safety record of the Democratic Republic of Congo, Sierra Leone, Equatorial Guinea and Swaziland is an embarrassment for our industry. The last three have taken some action. But we need results fast. Flags of convenience have no place in a safe industry.

Simplifying the Business

And complex processes have no place in an efficient industry. Our approach to Simplifying the Business is something to shout proudly about. Your association is leading efforts to improve efficiency, save US$ 6.5 billion and make air transport more convenient.

Simplifying the Business is IATA’s most ambitious programme. And together we are making progress. Over 70 airlines are implementing bar coded boarding passes. Five airports are testing IATA standard RIFD. And 46 airports are implementing IATA Common-Use Self Service kiosks.

But our biggest challenge is e-ticketing. We achieved our 40% e-ticketing target last November. Today, nearly one out of every two tickets issued is an e-ticket. But to achieve our 70% target for 2006 we need more speed.

Like IOSA, IATA is making sure that no carrier is left behind—investing US$10 million. Over 150 IATA experts are passionate about your success.

Migrating thousands of interline agreements to ET is a huge task. New tools are in place to help the process.

Now I need you—our industry’s leaders—to move faster. Sitting on the sidelines is not on option. Nearly all the external stoppers have been eliminated. We are in the crucial stage. There is no turning back. The deadline is 574 days away. Now, I need something only you can give—your personal commitment. Success on e-ticketing is in your hands.

E-freight is a bigger challenge. And, unlike e-ticketing, it is not entirely within our control. Thirty-five percent of the value of goods traded internationally fly on our aircraft. And we are sinking in a sea of paperwork. Government inaction—not IT—is holding back enormous progress in trade efficiency.

Not a single government has all the legislation in place to support e-freight. In today’s internet world, this is an embarrassment. Governments must not block a responsible industry driving efficiency.

Environment

And governments must not block our progress on environment. The high price of oil highlights our responsible approach. Together, we developed a 3-point programme to improve fuel efficiency.

First we are fighting for more direct routes. In 2005 alone, IATA’s work with governments optimised 300 air routes, saved 6.1 million tonnes of CO2 emissions and saved US$1.2 billion.

Second, IATA Go Teams are working with your operations departments to spread industry best practices. Last year we saved 4.3 million tonnes of CO2 and US$ 850 million.

Third, the IATA “Save a Minute” campaign is improving airspace design and procedures. Last year we eliminated 2.5 million minutes of flight time, saving 1.5 million tonnes of CO2 emissions and US$300 million.

In total, working together we saved 11.9 million tonnes of CO2 emissions and US$2.4 billion. We could do much more. But too often governments base policy on myths and don’t worry about the inconvenient facts. So, let’s kill some myths.
Myth 1: Air transport is a major cause of global warming. Not true. We are 2% of CO2 emissions—but support 8% of GDP.

Myth 2: International Air transport is excluded from Kyoto and doing nothing. Not true. We were concerned about the environment long before Kyoto. Fuel efficiency improved 70% over 40 years.

Myth 3: Aviation is the most polluting form of transport. Not true. Modern aircraft consume 3.5 litres per 100 passenger kilometres. Show me a hybrid car that can achieve that.

Myth 4: Air transport is a luxury. Not true. We are a necessity. Eighty percent of our emissions are from trips over 1,500 km for which there is no economic alternative.
But killing myths alone is not a solution. We are a responsible industry working on solutions with a solid strategy.

  • First, eliminate the 12% inefficiency in air traffic management. 
  • Second, invest in new technology—provided taxes don’t rob us of cash. 
  • Third, explore global emissions trading options. Don’t get distracted with regional schemes. The 2007 ICAO Assembly is an opportunity for a global solution that we cannot miss.

Let’s have a serious debate and deliver serious results

Time for Some Wake-Up Calls

Facts and figures highlight our responsible approach to our most important issues. But too often stakeholders, who lack the vision and speed to match our achievements, block our progress.

It’s time for some wake-up calls. A responsible industry has the right to demand responsible policy and actions.

1. Airlines

Let’s start at home. Sometimes we have been our own worst enemy—chasing growth instead of profitability. As discussed, we changed after 2001. But let’s be frank. We are now benefiting from a strong global economy. And record aircraft orders could be our Achilles heel if we stop managing capacity carefully.

The wake-up call is: keep focused on efficiency. Don’t let a strong revenue environment distract us from further change.

2. Unions

The second wake-up call is for our employees—our greatest asset. Enormous productivity increases since 2001 must be recognized. But too often these gains have been achieved after long battles or only with bankruptcy protection. Cooperation, not conflict, will secure long-term employment.

The wake-up call for unions is: to share success, you must be part of the solution. Anticipating change will deliver the best results

3. GDSs

GDSs are also on the wake-up call list. They brought great innovation and a closer relationship with our customers. Now they are important partners in Simplifying the Business. But GDSs have not kept pace with change. Deregulation brought down fees in the US. Elsewhere fees skyrocket.

The wake-up call is: deliver value-for-money. Taking advantage of your customers is not responsible.

4. Fuel Suppliers

The fourth wake-up call is for fuel suppliers. Two disasters in 2005 highlighted the need to work together responsibly—hurricane Katarina and the Buncefield explosion. But failure to invest in new refinery capacity is not responsible—especially when oil companies plan to return US$250 billion to shareholders over the next two years.

And you—the airlines—paid an unacceptable bill. Increased refinery margins put US$14 billion directly into oil company pockets. And what did you get for it? The same process and the same product

The wake-up call: profiting without investing is not acceptable. We need more refinery capacity. And more research into alternative fuels to replace 10% of fuel needs in 10 years.

5. Infrastructure Providers

Despite four years of shouting politely many monopoly infrastructure partners still need a wake-up call. Aeronautical revenues per passenger at airports and air navigation service providers increased 27% since 2001. Meanwhile airlines reduced non-fuel costs 13%.

Figures don’t lie. The 40% reality gap needs urgent bridging. We cannot go on paying for inefficiency.

The different approach of airports and ANSPs is like night and day.

Air Navigation Service Providers: CANSO is a good partner with a global vision. We are speaking the same language of efficiency. Benchmarking is the basis of a common agenda for change.

But where politics and governments get involved, the picture is different. Look at the Single European Sky. It is a singular European embarrassment—twenty years of discussion and we are still discussing. And we are still paying a US$3.4 billion bill for inefficiency. That’s the cost of 35 providers when one could do the job. A new approach —SESAR—is a first step in the right direction. Now we need speed and results.

Airports: I wish I could be positive about airports, but too many still hide behind their monopoly position.

Some are good partners—understanding our needs. Changi Airport is cost-efficient and popular with passengers. Singapore’s Minister for Transport recently said that the quality of an airport's relationship with its partners distinguishes the outstanding from the mediocre.

We are making progress with individual airports from Japan to Denmark. But many are still in the dark.

The world’s most expensive airport is now New York—Newark. There is no excuse for being about 60% more expensive than Chicago’s O’Hare. Politics not business is driving the airport’s management.

Being in Paris, I should say some kind words about Aéroports de Paris. But I prefer to be honest. Charges at Charles de Gaulle increased by 26.5% since 2001. And the government approved 5% annual increases through 2010. A shortsighted government is fattening the airport for privatization.

As we say in Italy “Basta”—enough.

We have taken the French State to court. And Paris was among several case studies we brought to Brussels to support our appeal for more competitive infrastructure. The gap between airline cost reduction and airport cost increases is not acceptable and it is not responsible.

Airlines delivered a 30% drop in consumer prices for air tickets while improving our safety record and investing in new capacity. So airports cannot tell us that we are asking the impossible. Airlines have proved that it can be done.

We appreciate Vice President Barrot’s leadership to find a solution to this problem. We need effective national regulation of airport monopolies.

The wake-up call is for all airports not yet on board: efficiency is coming. You can run, but you cannot hide. This is one wake-up call you cannot turn off.

6. Governments:  Our agenda with governments also includes taxation and liberalisation.

Taxation: Airlines are the heart of a US$3 trillion value chain—29 million jobs. We make the global village a reality—2.2 billion passengers will fly this year. But we are taxed like luxuries or tobacco. Last year President Chirac proposed an aviation tax to support development. The world understood our important role in development. And the proposal is not effectively flying anywhere outside of France.

But this is a small victory in a war with many fronts. India proposes a 12% tax on business travel. The Austrian Chancellor wants to tax aviation to solve Europe’s budget problems. In the US taxes add 26% to the average US$200 ticket. And Sweden is the most inconsistent. To help the environment they plan to further tax aviation to reduce demand. But offer tax incentives to buy fuel-efficient cars. And the list goes on.

The wake-up call: don’t kill us with an overdose of taxation. Responsible governments must support aviation’s unique ability to bring people together and goods to markets.

Liberalisation: Governments must also let us get on with business. We need the same commercial freedoms that other industries take for granted. We are a responsible competitive industry producing enormous benefits. Governments have a leadership role in safety, security, environment and regulating monopolies. Full stop.
We don’t need governments to negotiate our markets. Consumer demand is more effective.

An agreement between the US and Europe on open skies would liberalise 105,000 seats each day and set the stage to address ownership. The European Commission is pushing in the right direction. But fear and local politics are excuses for the US not to move forward. Responsible governments anticipate and lead change.

The bilateral system served us well over 60 years. Now let’s organise a spectacular US$12 billion retirement party. That is the amount of additional profit that it would add to our industry. And the positive impact on the global economy would be enormous.
The wake-up call: liberalisation is long overdue. And if the US and Europe are not willing to maintain leadership, fast moving India and China are not afraid to drive change.

6. The Customer: The last wake-up call is for our most important stakeholder—our customers.

You should be angry. Your choice is restricted by an outdated bilateral system. Your cheap tickets are expensive because politicians add taxes. Your time is wasted because governments cannot organise direct, environmentally friendly routes. Your money subsidises airport inefficiency because governments have failed to regulate monopolies. And you wait too long for shipments to arrive because governments are not living in the internet world.

If airlines are the heart of the value chain, our customers are the lifeblood.
The wake-up call to our customers: speak-up. Let’s shout together—politely but loudly for better value and for better treatment from governments and industry stakeholders.

A responsible industry is delivering impressive results. We have every right to demand change. The list of wake-up calls is long, but there is much room to be optimistic. You have entrusted your association with a leadership role.

We are working together to support quality in safety, drive efficiency throughout the industry, improve passenger convenience, and re-invent industry processes.
Now we must wake-up our stakeholders to their responsibilities to face the realities of our industry, have the political courage to change, and understand the need for speed.

And let’s not forget passion. We are the world’s most exciting industry. We know how to deliver. So there is every reason to be confident about our future and to remove the caution from our optimism.

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