Date: 15 September 2007
McGill Conference, Montreal
It is a pleasure to be here in Montreal, IATA’s home. A home that we share with some very important partners: ICAO and McGill University.
The good news is that hard work is improving airline prospects and the industry will show a combined profit this year. But running an airline remains a tough business. A US$5.1 billion return on revenues of US$450 billion is no reason to celebrate. The credit crunch shows how quickly fortunes can change. Between fuel and infrastructure, 39% of our cost base is out of our control. The outdated bilateral system limits commercial freedom and despite important recent developments we have US$200 billion of debt.
Fortunately, some important changes are happening. IATA launched the Simplifying the Business initiative in 2004 just before the last Assembly.
Just look at what we have achieved since then:
- E-ticketing went from 16% to 84% and paper tickets will disappear worldwide in 259 days. So, if you travelled to Montreal using a paper ticket, frame it, it will soon be a nice souvenir!
- E-freight pilots are underway in five key markets: Singapore, Hong Kong, the UK, Canada and the Netherlands and others are lining up to make it a reality by 2010.
- Common Use Check-in Kiosks operate at 78 airports.
- 68 airlines issue bar coded boarding passes and four airports are experiencing the benefits of RFID.
Most importantly, passengers are enjoying greater convenience as the industry reduces costs. IATA is now looking to the next stage: A global self-service strategy to join the technology elements into a seamless process and a new approach for baggage management.
Governments and the ICAO Agenda
With global standards, air transport has grown into a mass transit system used by 2.2 billion people annually, supporting 32 million jobs and US$3.5 trillion of economic activity annually. Air transport is crucial to our planet so decisions made in the coming weeks will have an impact far beyond the industry itself.
Today I will address the top three agenda items for the Assembly:
Safety, security and the environment
Let’s start with safety—our number one priority. 2006 was the safest year ever with 1 hull-loss for every 1.5 million flights. The accident rate improved 50% in the last decade but every accident reminds us that we must do better. We have had many reminders recently and it will take all of our efforts to keep driving the accident rate down.
IATA and ICAO are effective partners on safety. Together we are addressing critical situations in Africa, Brazil, Indonesia and Russia.
ICAO’s Global Aviation Safety Plan is based on the Safety Roadmap developed by IATA and industry partners. Our common target is zero accidents. Transparent global standards are the only way to get there. ICAO’s Universal Safety Audit Programme plays an important role, growing in relevance with increasing transparency.
IOSA, the IATA Operational Safety Audit is a complementary programme for airlines - with over 160 airlines now on the IOSA Registry. Many governments from Chile to Turkey use IOSA to enhance their safety oversight. It’s free and it’s effective and I encourage all governments to make use of this great tool. To help airlines implement IOSA standards, IATA developed and published the Integrated Airline Management Systems. And where extra help is needed our Partnership for Safety Programme is helping cover the gap in Latin America, Africa, Indonesia and Russia.
Today, I am pleased to announce that we are expanding on the success of IOSA. To improve safety amongst ground handlers, we are launching ISAGO - the IATA Safety Audit for Ground Operations. It is the only global safety standard for this important part of the industry. It will help reduce the US$4 billion in costs from ground handling accidents, US$11 billion if you include personnel and medical costs. We will publish the standards this year and the first audit will take place in 2008.
Like IOSA, our goal with ISAGO is to improve safety and quality while reducing the number of redundant audits. I will be encouraging the Assembly to recognise the benefits that IOSA has delivered and support our efforts on ISAGO.
Global standards are critical for security. Airlines are much more secure today than in 2001 but the system is still a US$5.6 billion uncoordinated mess. The industry is spreading global best practice with Security Management Systems that complement ICAO’s security programme. They are now an IOSA requirement - mandatory for all IATA members. Governments are not moving fast enough or broadly enough. Two examples:
- First, the US-EU agreement on passenger data was important, ensuring that airlines will not break European privacy laws to comply with US security requirements. However, there is no global harmonisation of data requirements.
- Second, the common approach to liquids and gels is a step in the right direction, but the screening process is not harmonised: shoes on or off? Laptops in or out?
And there are still too many unique rules. The UK’s one-piece restriction for hand luggage is inconvenient and counter-productive. I do see some hope in ICAO. The success with liquids and gels proves that ICAO can deliver results.
It is time to build on that.
Annex 17 gives ICAO a platform to develop a more relevant role by promoting a risk-based approach to security among governments. We need a constant level of vigilance that is constantly adjusted to deal with specific threats or events. To achieve this, we must develop a common risk-assessment methodology. Identifying high and low-risk passengers and freight will allow us to devote time and resources better. Known-shipper and known-traveller programmes help identify the low-risks.
Advanced Passenger Information and Passenger Name Record access will help find the high-risks but we need data exchange and protection protocols. So we will be asking the Assembly to endorse a risk-based systems approach to security for states and establish a common risk assessment methodology.
Achieving this will be a giant step forward to cleaning up the mess and to making security both effective and convenient.
Environment tops the industry’s political agenda—despite our good track record. We are 2% of global carbon emissions. Fuel efficiency improved 70% in the last 4 decades. The IATA fleet will achieve at least a further 25% improvement in fuel efficiency by 2020 and new aircraft are expected to be 50% more fuel efficient in 2020.
Demand for travel is growing at 5-6% a year but efficiency will limit our contribution to global CO2 to 3% even in 2050. No matter how you look at it
airlines are a small part of a big issue. Unfortunately, we were silent in our success and now we have a potential nightmare of taxes and charges.
It started with the EU draft proposal on Emissions Trading followed by a billion pound addition to the UK’s Air Passenger Duty.
Environment: The Strategy
IATA’s 240 members agreed to a four point strategy to guide us:
- One: Invest in new technology
- Two: Build and use efficient infrastructure
- Three: Operate planes effectively
- Four: Once we have achieved these three let’s look at economic measures. First, positive measures to encourage technology investments but also working with governments to define a global voluntary emissions trading scheme.
The strategy is not just words - we have delivered real results. In 2006 IATA’s fuel programme saved a lot of CO2:
- 6 million tonnes by shortening 350 air routes
- 8 million tonnes from IATA GO teams working with airlines to implement best practices
- A million tonnes through better operational procedures
We did our homework, but two critical components were missing: effective communications and a vision. We are working with our members to communicate with passengers and through the media correcting false reports and underlining achievements. In the coming months IATA will have information stands at airports across Europe and our cross-industry partnership—through the Air Transport Action Group (ATAG) is helping all industry partners to speak with a unified voice.
Environment: The Vision
Aviation’s carbon footprint is growing and that is no longer politically acceptable for any industry. We must develop a common vision for where our industry should be in 50 years.
For me, there is only one answer which I presented at our AGM in June. We must become an industry that does not pollute with carbon neutral growth in the medium-term and zero emissions in the longer-term. I don’t have all the answers but some of the potential building blocks for a carbon-free future are here:
- Fuel cells
- Solar powered aircraft and
Importantly our vision has strong support from our technology partners. Engine and airframe manufacturers agree that we must ultimately aim for zero carbon emissions and the fuel suppliers recognise that this is a priority for their customers. If we are to make this vision a reality, ICAO leadership is critical, setting challenging but achievable environmental targets for both governments and industry. This will help states that are truly concerned about the environment to make progress with current technology and plan future programmes against a technology roadmap.
I see targets working in three core areas:
1. Infrastructure Efficiency
The IPCC estimates that we could improve our environmental performance by up to12% simply by eliminating inefficiency in air traffic management. A further 6% could be gained with improved operations. Combined, that is about 120 million tonnes of CO2 every year. Airlines have the right incentives: improving efficiency saves fuel costs but too often. ATM is a different story.
ICAO adopted a Global Air Navigation Plan which would have enormous environmental benefits. But after 15 years of talks, the 12 million tonnes of annual CO2 savings from a Single European Sky is still far from reality.
ICAO must set the right incentives and targets for environmental improvements. Let’s cut the infrastructure inefficiency in half in five years. Much of the ground work is already done with the Global Air Navigation Plan. Now states and ICAO must set realistic implementation targets.
2. The second element is technology
By using existing technology short-term gains can be achieved: 10% efficiency from better aerodynamics and 5% from weight reductions. In the medium-term, fleet renewal will improve fuel efficiency 25% by 2020.
In the long-term we need to build greener aircraft and find better ways of powering them.
What is ICAO’s role? First, it is to set performance indicators in the short, medium and long-term for alternative fuels, engine performance and CO2 emissions. Similar to the way it handled the noise issue a decade ago.
Secondly, ICAO must promote a stable regulatory environment with a predictable investment horizon. Technology investments are enormous
and if the regulatory framework changes mid-way, all is lost. Governments must commit and stick to technology goals—set by ICAO or the financing for serious R&D will be too risky.
Thirdly, ICAO should develop a role in encouraging states to invest in research. Governments have cut their R&D funding to half the 1980 level. This must change.
3. The final element is economic measures
These are not a part of the vision - when we achieve a carbon-free industry they will be irrelevant. But they are a political reality for many governments. And the drafters of Kyoto identified ICAO as the organisation to lead the industry. Already we have a great incentive to reduce fuel consumption. Fuel is 28% of our costs.
Positive economic measures can play an important role. Governments can encourage airlines to re-fleet with tax credits or fund basic research in green technologies. The most pressing economic issue today is emissions trading. The European proposal was a wake-up call but the environment is a global issue for which regional schemes will have limited impact. If these are implemented unilaterally the result will be legal and diplomatic fights. ICAO’s role here is absolutely critical. We need a voluntary global emissions trading scheme that is compatible with carbon offset schemes and that charges fairly. Airlines should not have to pay for emissions resulting from infrastructure inefficiency. CAEP (Committee on Aviation Environmental Protection) delivered the technical guidance. The Assembly must deliver the political solution with a global system based on mutual consent.
The core promise that airlines make to their customers has three dimensions: safety, security and environmental responsibility. A common vision and global standards are the key to success.
Environment is the issue of the day. We can choose to follow our successful model for safety or we can repeat the mistakes made in security. This Assembly is the last opportunity for ICAO to deliver global leadership. To be blunt, if ICAO member states miss this opportunity they put the relevance of ICAO at risk along with 32 million jobs and US$3.5 trillion in economic activity.
IATA’s vision is the commitment of an industry going beyond carbon neutral growth to a carbon-free future. ICAO and its member states must overcome local politics and share in this global vision. Airlines can run their own business—like any other business but it is the responsibility of governments to provide a stable regulatory environment. Failure to agree on the way forward with ETS would certainly lead to legal battles between Europe and the rest of the world, the US included. For an industry that is only now returning to profitability this is an uncertainty that is unacceptable.
This Assembly is an opportunity to work together—industry and government, to deliver great results that provide a solid platform for the future growth of this great industry. This Assembly has a lot of hard work to do. I know that ICAO’s member states share our sense of urgency on the environment and understand their responsibility to show leadership.
IATA and the industry are here to support and I am confident that in two weeks time we will have many positive results to discuss.