Skip to main content

Test Home
You & IATA

Search

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

Date: 31 August 2006

Foreign Correspondents Club of Japan, Tokyo

Good morning. It is great to be back. Only 15 months ago, we held our Annual General Meeting here in Tokyo. The event highlighted the many issues that face our industry.

Our Paris Annual General Meeting this year reviewed progress since then and I am pleased to be here to provide you with an update. Today I would like to highlight significant achievements and continuing challenges. First, the achievements.

Safety
The accident rate in 2005 was our lowest ever - one accident for every 1.3 million flights. One for every 2.9 million flights if you count just IATA carriers. But recent events remind us that we cannot take security for granted.

The IATA Operational Safety Audit (IOSA) is the first global standard for airline safety management. I am pleased to say that from 2008 it will be a condition of IATA membership. This adds a mark of quality to our association and reflects the remarkable commitment of our membership to our number one priority. Airlines that do not meet this tough standard have no place in IATA. But our mission is not to sideline the unsafe – it is to raise the bar on safety.

So we are working hard with our members to ensure that every one has an equal opportunity. I am pleased to say that JAL and ANA have played leadership roles. ANA was the first Japanese carrier to be IOSA registered. And JAL is not only on the registry, but its leadership on our board was instrumental in launching the programme.

IOSA further strengthens what is already a strong safety culture in Japan and the proof is in the numbers. There has not been a major commercial aviation accident in Japan in 21 years. This is a record to defend and be proud of.

Simplifying the Business

Our second achievement is Simplifying the Business. This is IATA's programme to improve efficiency by using technology more effectively. There are five core projects:

  • Bar coded boarding passes
  • Radio frequency identification for aviation
  • Common-use kiosks for check-in
  • IATA e-freight
  • And 100% e-ticketing by the end of 2007

In total these will save the industry US$6.5 billion annually - US$3 billion from ET alone. Japan is a leader in some aspects. The remodelled Terminal 1 at Narita features 126 common-use kiosks – this is among the most ambitious deployments.

Radio frequency ID trials at Narita have helped to validate the technology but I am concerned about other aspects. Our Japanese settlement system between agents and airlines was the world's first and it handles the biggest volume—US$ 22 billion last year. E-ticketing levels are disappointing - Japan is at 48%. Globally we have already achieved 57%. 100% e-ticketing will be the reality in just 16 months and Japan is too important to be left behind. So we need to see increases of over 3% each month to meet the target.

I am also concerned about e-freight. Air cargo transports 35% of the value of goods traded internationally. It is a big industry in need of change. E-freight is IATA's project to free freight processes of paper. Japan is an economic powerhouse in the region. Narita ranks fourth in world in terms of cargo volume with 2.3 million tonnes handled in 2005 – that is almost 6% of global cargo.

Cargo is an important business. While Japan signed the Montreal Convention that recognises electronic documentation, it is many years away from seeing all the legislation in place to make it effective. The size of Japan's economy will always ensure that there is a large market but Asia is developing fast.

Hong Kong, for example, is already a bigger cargo hub—ranked second in the world. It grew by 10.1% between 2004 and 2005 and they are moving ahead with e-freight. Meanwhile, Narita's cargo volume actually declined by 3.5% in the same period. I urge the Japanese government to speed up e-freight implementation to keep Japan competitive in this important sector.

The Bottom Line

The most amazing achievement is the bottom line of our airlines' balance sheets. Since 2001 labour productivity improved 33%, sales and distribution costs dropped by 10% and overall non-fuel unit costs reduced by 13%.

Load factors are at record levels - 80% last month. And passenger traffic is growing at 6.4% for this year. The rising fuel price is challenging efficiency gains and eating into our profitability, but still there is an incredible story. Let's look at 2005-2006.

In 2005, the industry lost US$3.2 billion and the fuel bill was US$91 billion. This year we predicted losses of US$3 billion with oil at US$66 per barrel for a total bill of US$112 billion. But despite a rise in oil prices, the bottom line improved. The US industry returned to operating profit in the first half. Restructuring cut non-fuel costs, raised load factors and boosted yields.

Major European airlines doubled their profits partly due to the strength of premium traffic growth and partly due to the strength of Asian markets with double-digit growth. Asian airlines did not see the same improvements. Lower hedging meant more exposure to high fuel prices and increased competition lowered yields.

Today we are announcing a re-forecast:

  • Average price of oil at US$68
  • We expect the total fuel bill to be US$115 billion
  • But losses will be cut to US$1.7 billion

We are still in the red. But what other industry could take on an extra US$24 billion cost burden and still improve its bottom line? There are some risk factors.
The long-term impact of terrorism and instability in the Middle East is still being calculated, and the improvement is based as much on efficiency as strong revenues. So, a US-led economic slowdown would be a major threat but, overall, the industry has never been so lean, mean and ready for profitability.

Future Challenges

It is time to look to future challenges. Let me discuss four with particular relevance to Japan:

  • Security
  • Airport Infrastructure
  • Environment and
  • Liberalisation

Security

Recent events in the UK put the spotlight back on security issues. The fact that the terrorists were stopped before they got to the airport is a success story. But it was also a wake-up call to take care of some unfinished business:

  • Contingency planning must improve
  • Governments must take full responsibility for the costs of security
  • And security measures must be harmonised across borders

Contingency Planning

Terrorism is a global reality and it will not go away soon. We must be prepared to operate efficiently at high levels of alert. The authorities were successful in stopping terrorists. But BAA failed miserably in business continuity - they stopped the travellers!

Advance coordination and planning is critical. If they could not handle higher alert levels then arrangements with military or police should have been in place. This is a wake-up call for the entire industry—particularly airports. Review contingency planning and ensure better coordination.

Funding

Governments are spending more to protect their citizens but too many governments single out aviation to pay for its own security. Today, airlines are paying US$5.6 billion more annually for security than in 2001.

Threats to aviation are rooted in national security issues. Governments cannot justify protecting citizens in parks, stadiums and train stations and then pass the buck to the industry when citizens enter airports or board planes.

I see some progress. The US government partially reimbursed the costs to secure cockpit doors. The European Commission recognised that its member states are responsible for the costs of security. Now we need action. This is a wake-up call to governments to pay their bill.

Harmonisation

Finally, governments must coordinate more closely. Air transport is safe because governments and industry share information to standardise procedures across borders. Following 9/11 governments strengthened security, but missed the boat on harmonisation. Even now, airlines battle bureaucracy because governments have not talked to each other.

The International Civil Aviation Organization (ICAO) is now engaging the industry in its discussion on security. Governments must support ICAO's new leadership to move the industry forward. At the same time, the US and Europe must move quickly to avoid a potential crisis over the Atlantic.

Five years after 9/11 and we still have no agreement on common requirements for passenger information. Airlines should not have to decide which country's laws to break. Failure to agree by 30 September could ground up to 105,000 travellers a day. This is a wake-up call for progress - quickly. Governments must now combine their best efforts to standardise and properly fund measures to ensure that we are prepared for the threats of today and those of tomorrow.

Airport Infrastructure

As you know, we have had a long discussion with Narita on several issues. Airlines have improved safety, increased efficiency and reduced the cost of travel to the passenger. Airports must do the same.

The privatised Narita reduced charges by an average of 10% last year and I congratulate them on this achievement. This proves that we are not asking the impossible, and it is not the end of the story. Airlines and consumers expect constant improvement in efficiency from privatisation – and that is not just for Narita.

Chubu did a great job with a pricing level 30% below Narita. Kansai's incentives to stimulate new traffic are effective. These are good, but we need more. It is the job of any business to constantly improve. If you are a monopoly—and airports are monopolies—where is the incentive for efficiency?

Nobel prize winner Joseph Stiglitz recently recognised this when analysing the performance of BAA, "unless incentives are better aligned, privatisation will continue to be a disappointment." In Europe we are asking for effective economic regulation of airport monopolies to challenge airports to improve efficiency. We expect Vice President Barrot to present his proposal in the next months.

This is relevant to Japan as Narita approaches its 2009 IPO. Investors are reassured by a transparent mechanism to determine airport charges. Aand efficiency as a result is good for everybody.

The second point to raise is the need to ensure that infrastructure does not limit capacity:

  • A fourth runway at Haneda
  • Lengthening the second runway at Narita
  • A new runway at KIX
  • New airports for Kobe, Kita-Kyushu and Nagoya

All of these clearly show that there is a willingness to invest in infrastructure but it must be the right infrastructure in the right markets. It is time to start looking beyond the 8th Airport Expansion Plan to a long term-vision. For Tokyo the current expansion plans will only meet demand for the next 10 to 15 years. While in Kansai, we may well end up with under-utilised facilities. We need a grand plan for both key markets.

In Tokyo the priority is cost-effective infrastructure to meet demand by completing projects at Haneda and Narita and planning for the next stage of infrastructure development.

For Kansai that means sorting out the over-capacity issues. An effective hub collects and distributes air traffic. Opening Kobe, and expanding Kansai while maintaining Itami is a lot of high-priced capacity. The more fragmentation you have, the higher the costs and you have a less efficient operation. We need a long-term policy vision that supports realistic growth.

Environment

If Japan needs a grand plan for airports, the industry needs a grand plan for the environment. First we must set the record straight with facts – and we must balance that with a positive strategy going forward. Let's start by killing some common 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 is doing nothing about the environment.
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. 80% 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:

  • Eliminate the 12% inefficiency in air traffic management.
  • Invest in new technology—provided taxes don't rob us of cash.
  • 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. I believe that there is a strong role for Japan in this discussion. Japan has been an industry leader on noise issues and Narita airport is a model for the balanced approach to noise management. Japan was instrumental in the debate at Kyoto that tasked ICAO with finding a solution. With the 2007 ICAO Assembly one year away, it is more important than ever to focus on a global solution for a global industry

Liberalisation

Finally, let me focus on liberalisation. Air transport is a business like any other. To be successful airlines need commercial freedom to serve the markets where they exist and to merge or consolidate when it makes business sense – even if it crosses borders. What is the problem?

International air transport is governed by a bilateral system that is 60 years old. It was designed for government owned airlines flying DC-3s at a time when air travel was a luxury. Today, we are a mass transit system transporting 2 billion passengers. The rules must change.

Governments have a clear leadership role in safety, security, the environment and regulating monopolies. It is also the role of governments to anticipate and lead change. I was impressed with the commitment of governments to liberalise air services in 2003 at ICAO's Air Traffic Conference, but the follow-up has been disappointing.  Even the two largest and most developed aviation markets—the US and the EU—are still only talking about an agreement.

It is time for the US and Europe to make real progress on open skies and regulatory convergence. I am an optimist—but the window of opportunity will not stay open forever and we need to see some results.

It is encouraging to see pockets of action here in Asia. China continues to grow with double digits and they are accommodating growth with a clear plan that includes a progressive approach to liberalisation. India is growing at similar speed as a result of a government policy decision to let airlines run like businesses.

We need more. Traditionally Japan has been cautious. Our industry needs courage and vision. There is a tremendous opportunity for Japan to take a leadership role in shaping liberalisation in this region. You have strong carriers, ample resources and an economy that is turning the corner.

Conclusion

I am optimistic. Our industry has dealt with some enormous challenges in recent years and we are emerging stronger and more efficient. We are still vulnerable to external shocks. The price of oil, terrorism, and the economy are wild cards but I am convinced that if the industry—airlines, partners and governments—work together we will be successful. That means having a common vision of efficiency, the will to deliver results with speed and the courage to change.

Thank you.

Giovanni Bisignani addresses the Foreign Correspondents' Club of Japan
ADVERTISEMENT


Additional information

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