Date: 16 April 2009
Press Conference, Moscow
It is a pleasure to be in Russia, a key part of the global aviation community. In the last days I have met with our member airlines, Minister Levitin and Tatiana Anodina of the Interstate Aviation Committee. The purpose of the visit is to lay the foundation for even greater IATA engagement in Russia’s aviation industry. Before discussing the outcomes of these meetings let me update you on IATA and the global aviation situation.
State of the Industry
Air transport is in a crisis. Airlines lost US$8.5 billion in 2008 which started with a fuel price crisis and ended with a revenue crisis that is ongoing. We expect airlines to lose a further US$4.7 billion this year. This smaller loss hides enormous changes. Fuel costs will drop by US$52 billion but industry revenues will fall faster from US$530 billion to US$467 billion. That US$62 billion drop means that 12% of our revenues disappear. Demand is falling. FAAT recently announced that for Russian carriers passenger traffic for this year is down 20% and cargo dropped 34%. This is more severe than the 10.1% fall in global traffic in February.
And today we are announcing our premium traffic numbers. This is where airlines make money. And in February the number of travelers on premium tickets was down 21.1%. Cargo was down 22.3% in February. It's been relatively stable for the past several months. Air cargo accounts for 35% of the value of all goods traded internationally, so we are watching the cargo numbers very carefully as the first signs of economic recovery will likely be seen here.
In the meantime all regions will experience a tough 2009. Asia will have the highest losses at US$1.7 billion - even the growing giants of India and China are not immune. Europe will see losses of US$1.1 billion as its GDP turns negative this year. The US will be the best performer basically breaking-even as a result of the drop in fuel prices. The priorities are shared by all regions - efficiency, cost reduction, careful capacity management and constant attention to safety.
The survival of many airlines is at stake. IATA is taking an active role. Our 224 member airlines operate services that represent 93% of scheduled international traffic. Throughout our 65 year history, the number one priority had always been safety. IATA’s various safety programmes help our members deliver results.
In 2008 IATA airlines had 1 accident for every 1.9 million flights. The global average was of 1 accident for every 1.2 million flights. IATA’s financial systems which handled US$350 billion in 2008 are the most important revenue stream for airlines. Even in the crisis with travel agents, airlines and even banks going bankrupt we did not miss a single payment. Finally our efficiency programmes help reduce costs and improve service. Our 2008 achievements include:
- US$3.0 billion in cost savings by implementing 100% e-ticketing as part of our Simplifying the Business programme.
- US$3.5 billion in cost savings by asking our airport and air navigation service partners to match airlines’ efficiency gains
- And US$5 billion in fuel savings by working with our members on global best practices in fuel management and by implementing 214 new routes and better terminal area air traffic management at 103 airports.
IATA and Russia
Russia has benefited from IATA’s programmes and global standards since 1996. We have 8 Russian members - Aeroflot, Aeroflot-Don, Rossiya, Transaero, S7-Siberia, UTair Aviation, Vladivostok Air and Volga-Dnepr under the leadership of Dimitri Shamraev, And with the great cooperation and support of Aeroflot, other Members, our partner bank VTB and our data processing center, Multicarta ISS, we launched a BSP office in 2006.
Today 62 airlines and 517 travel agents are benefiting from this global standard business practice. Our Russia BSP was among the first in the world to be completely e-ticketing. Implementing e-ticketing in Russia was IATA’s biggest challenge. National fiscal legislation had to change to make it possible. This happened in February 2007 leaving just 16 months to meet the 1 June 2008 deadline. All 8 of our Russian members and 7 more Members in the CIS also made our 1 April deadline for the IATA Operational Safety Audit-IOSA. You can find their names on the IOSA registry on our website along with 3 non-member CIS carriers who have achieved this global standard. With all of our programmes, our goal is to use global standards effectively so that Russia’s aviation industry can successfully compete internationally and deliver benefits to Russia’s economy.
Framework for future development
We have made much progress, but there are many issues needing urgent attention. This formed the structure of my discussions with both the Ministry of Transport and the Interstate Aviation Committee. Building on the key successes of e-ticketing - IOSA and the BSP - we discussed a framework to make IATA an even more important partner in the development of aviation in Russia and the CIS. Let me briefly highlight some of these areas, starting with safety.
Despite having 8 carriers on the IOSA registry, Russia’s safety record is well below international standards with 1 accident for every 155,000 flights on western built aircraft. This is far worse than the global average of 1 accident for every 1.2 million flights. This must improve. We signed an agreement with the IAC to promote IOSA and our ground handling audit-ISAGO and we are discussing with the Ministry to move beyond support and make IOSA mandatory for all Russian carriers. We are encouraged by the Ministers response and hope to see progress in the near future.
Air Navigation - Operations
We are also working on support for improved air navigation. Russia and its Central Asian neighbors have not yet converted to Reduced Vertical Separation Minima or RVSM. Using modern technology we can organise airspace more efficiently, improving safety while reducing delays and flight time. The process is underway and this was a component of our agreement with IAC along with other air navigation modernizations.
There are challenges with the older aircraft in operation here. The investment in technology is made up by savings in fuel. We have had some good results with FANA, working together to open 131 new and more efficient routes last year. Another 42 new routes will take effect in April and May along with three new entry points for polar routes in the Russian Far East. So I am confident that we will make progress on more routes, continuous descent approaches and on RVSM, possibly starting in the Arctic Ocean, which has an important role for safe and efficient polar operations.
We also discussed infrastructure charges. Russia’s importance in international aviation goes beyond geography. It is a signatory to the Convention on International Civil Aviation. This provides the international legal basis for international civil aviation. Russia is also a key member of the Council of ICAO, the United Nations body responsible for aviation. ICAO has set global principles for airport and air navigation charges to ensure a level and fair playing field. Russia does not yet comply with one of the most fundamental principles - non-discrimination between local and foreign carriers. This must change. It is an obligation of international law which they signed up to as a major aviation nation. Russia should follow all ICAO principles. This includes transparency and user consultation. Why? Because if airlines are going to pay for infrastructure then we need to ensure that it meets our needs, is cost effective and charged in a way that does not distort competition.
Times are tough for all aviation players. The situation in Russia is further complicated by currency fluctuations. But even in these difficult times we must find solutions, including efficiency gains, to fund infrastructure investments and operating costs. By following the ICAO principles our goal is to build a competitive base for future aviation growth.
Fuel prices also need attention. Despite being a major fuel producing country in September last year fuel at Moscow’s 3 airports was on average about 12% higher than in Western Europe. For Russian airlines fuel can be up to 40% of operating costs compared to a global average of 25% this year. This is a major competitive disadvantage for Russian aviation. We raised this with the Federal Antimonopoly Authority and the Ministry of Transport asking for greater transparency. I am pleased to say that the gap has narrowed since September. Three things are on the agenda for fuel pricing - formalising the requirements for transparent pricing, opening access to all for competition in the fuel supply at airports and finding a more efficient system to ensure that international fuel is truly VAT-free in line with Russia’s international obligations. I am already encourage that the Minister will move fast to help lower prices with a simplified distribution structure.
Efficiency - Simplifying the Business
Efficiency is the goal of our Simplifying the Business programme. 100% e-ticketing is helping the industry, including Russian carriers, to save US$3.0 billion annually. We want to save an additional US$11 billion with bar coded barding passes, kiosks for Fast Travel, baggage improvement solutions. E-freight - taking paper out of the cargo processes - could help us save up to US$4.9 billion. By the end of 2010 e-freight will be live in 44 locations giving us the capability to cover 81% of all air shipments. But Russia cannot yet participate, because it has not agreed to the global standard allowing Customs to accept electronic documentation. Customs is eager to participate and we are urgently working with the Ministry of Transport to ratify the Montreal Convention. Russia’s cargo market is too important to be left out of the global system.
As part of the global aviation community Russia also has a role to play in aviation’s response to climate change, which is a global political priority. Aviation is responsible for 2% of manmade carbon emissions and we are taking this very seriously. In 2007 I announced a vision for aviation to reach carbon neutral growth on the way to a carbon-free future. To achieve this, we have a four pillar strategy - technology investment, effective operations, efficient infrastructure and positive economic measures.
We are delivering impressive results, saving 15 million tonnes of CO2 in 2008 with best practice in fuel management and more efficient air traffic control. The new routes in Russia, that I just mentioned have contributed to this impressive figure. As a result of these efforts aviation’s global carbon emissions will decrease by 7.8% in 2009 - 6.0% is from reduced capacity and 1.8% resulting from progress on our four pillar strategy. Working together to implement the four pillar strategy is part of the Memorandum of Cooperation. Russia has an enormous responsibility as a Council member of ICAO and one of 15 countries represented on ICAO’s Group on International Aviation and Climate Change-the GIACC. GIACC is meant to deliver a global solution on economic measures to the UNFCCC’s December Copenhagen conference on climate change. We are counting on Russia to be a strong voice, first by opposing Europe’s unilateral and illegal emissions trading proposals and second by marrying the approach of ICAO with that of UNFCCC so that we have an effective conclusion for aviation in Copenhagen.
Finally, I would like to highlight one last point looking forward, that is Liberalisation, particularly of ownership and control rules. Under the current bilateral system which is applied globally, foreign ownership in aviation is limited. Russian carriers cannot accept majority foreign ownership and they cannot buy airlines overseas. The result is a hyper-fragmented industry that is notoriously unprofitable. This crisis highlights the need for this air transport to modernize with consolidation facilitated by more modern rules. With Russia’s carriers active in seeking international partnerships I hope that the government will help facilitate by signaling strong support for liberalization.
IATA has been an important part of Russian aviation. I appreciate the role that Minister Levitin and Tatiana Anodina have played. We are aligned on many of our key issues especially improving safety. Over the last days I have become even more convinced of what IATA can do by working with our members and the government to build an even more competitive aviation industry by looking ahead with global standards. Our common goal is a successful Russian air transport industry, contributing to Russia’s economy, competitive internationally and operating with best practice global standards.
I am happy to take your questions.