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Date: 24 August 2009

JURCA Breakfast, Buenos Aires

Thanks to JURCA for hosting this breakfast and for their great cooperation with many successful joint projects. Having lived here when I was young, I follow Argentine issues closely. It is always a pleasure to travel here, to renew the experience of the passion of this great country and to participate in the discussion of aviation’s current and future developments.

IATA

IATA has a long history in Argentina. Our local office was established in 1995 and today our industry settlements total is over US$1 billion annually with 39 airlines and 855 agents in the BSP as well as 27 airlines and 217 forwarders in CASS. Our local office also makes available all of IATA’s expertise from safety and infrastructure to Simplifying the Business. It is led by IATA’s new Country Manager Maria Jose Taveira. She takes over from Raphael Schvartzman who is now playing a European leadership role in our Madrid office.

Financial Crisis

IATA is a unique trade association because we run many key industry functions as a common service to the industry. Like all of the members of JURCA, we know that times are tough. In 2008, airlines lost US$10.4 billion. It started with high oil prices in the first half of last year. Today the sick global economy is destroying airline profitability. Nobody knows how long or how deep this recession will last.

International freight traffic is a barometer of economic health. Airlines transport 35% of the value of goods traded internationally. Cargo traffic hit bottom in December at -23%. In June it was down 16.5%, which is better, but not a recovery. Passenger demand has stabilized around -7% but heavy discounting means that international revenues are down as much as 30%. We expect a US$9 billion loss this year.

Many thought that 9/11 was the worst that the industry could experience. Today the situation is even tougher. While keeping safety as the top priority, airlines must conserve cash to survive, as well as manage capacity effectively and cut costs. At the same time, we must continue to build competitiveness, face the challenges of Influenza A(H1N1), address climate change by reducing our carbon emissions and find a global industry structure that is sustainable.

Argentina

Argentina faces these challenges at a time when the national economy is still paying for the debt crisis of 2001 and the local industry is in crisis. Aerolineas Argentinas has been re-nationalized and traffic is plummeting with the toxic combination of A(H1N1) fears and the global financial meltdown. Air transport is vital to Argentina, connecting products to markets and people to business. In total, over 8% of Argentina’s economy and 1.7 million Argentine jobs rely on air transport. A healthy and competitive sector must be a critical part of national policy. There are many air transport issues which must be addressed.

Infrastructure

It is no secret that Argentina’s airport privatization created big challenges. The theme of my last visit was to address some of the problems, particularly the high concession fees.

We worked closely with JURCA and all the players: the Ministry, ORSNA, the Congress and AA2000, to achieve a 30% reduction in charges for international flights. This was a major achievement. I publicly thank Julio De Vido, Minister of Federal Planning and Brigadier General Horatio Orefice of ORSNA, the Congress represented by Senator Jorge Capitanich, Ernesto Gutierrez, Gustavo Lupetti and Diego Gonzalez, key negotiators from AA2000, for their support.

Now we need to take a comprehensive view of what needs to be done with infrastructure to ensure the long-term future of Argentine aviation. The key to competitiveness is keeping costs low. There are many areas where we are already working effectively together.  As we follow-up on the positive steps of re-organizing ANAC as a civil organization to comply with ICAO principles, the goal is greater efficiency, better services and a lower cost.

Airlines, governments and infrastructure providers have a common ground: a successful air transport sector benefits all. The key to this success is a transparent consultation process which IATA is very happy to participate in. Together with JURCA, we have made great progress with the 30% discount. This crisis is an opportunity that highlights the need to move forward quickly to resolve these other issues.

Simplifying the Business

Getting the infrastructure right is important but it is only a part of the solution.
A competitive industry needs efficient processes. That is why in 2004 we embarked on our Simplifying the Business program, involving all industry stakeholders. This has been a great global success. In 48 short months we brought e-ticketing to every corner of the planet. Argentina is sharing in the US$3 billion a year that is being saved by eliminating paper. Another US$1 billion is being saved with Common-Use Self Service kiosks in airports around the world, including here at Ministro Pistarini Airport.

There is still US$10 billion waiting to be saved. Our next target is US$1.5 billion savings with bar coded boarding passes by the end of 2010. We are also going to make our kiosks work much harder from document scanning at check-in to helping passengers reclaim mishandled baggage. This will save an additional US$1.6 billion. Getting baggage right is also important. IATA’s Baggage Improvement Program is targeting US$1.9 billion savings by reducing mishandlings. This program includes baggage security and theft which I understand is a concern in Argentina.

I am hopeful we will quickly be able to bring an IATA baggage go-team to Buenos Aires soon to help address this issue. The final component of the Simplifying the Business program is IATA e-freight. There is potential to take up to US$4.9 billion in costs out of the air freight business with paperless processes. I was pleased to learn that Argentina earlier this month ratified the Montreal Convention allowing customs to recognize electronic invoicing. I hope that we can move quickly with all the industry stakeholders to bring the competitive advantage of e-freight to the export industries in Argentina. By the end of 2010, our target is to cover 81% of cargo markets with e-freight capability. Argentina is too important to be left out, but speed is critical.

Influenza A(H1N1)

Another issue that requires speed is the response to the challenges of A(H1N1). Years of preparation for Avian Flu, following our experience with SARS, meant that the industry was ready. IATA worked hard to spread the World Health Organization message that travel restrictions would not help in fighting A(H1N1). Most governments understood the message.

Public confidence is fragile. Even the temporarily uncoordinated approach of Brazil and Argentina saw travel numbers plummet. Arrivals at some of Argentina’s great resorts are down by as much as 40%.

Perspective is important. Each year seasonal influenza results in thousands of fatalities in Argentina.  WHO has pointed out that normal life must go on. Travel restrictions will do little to stop the spread. This pandemic is far from over. The WHO six-phase scale efficiently tracked A(H1N1)’s geographical spread but it did not indicate the severity of the disease. This is a critical element for industry and government to react appropriately. One longer-term solution could be a color scale to indicate the severity of each of the six phases.

The immediate challenge for all is to communicate effectively and coordinate globally under WHO’s direction. Argentina can play a leadership role in helping to align the response of Latin American governments to this ongoing crisis.

Safety

Air transport is a global industry with some big global challenges and the most important of these is safety. Flying is safe but the Air France Flight 447 tragedy was a reminder that safety is a constant challenge. Two other tragedies followed, with one in Iran and one in the Comoros. In total there have been 49 accidents this year, 11 fatal. That is fewer than at the same point last year so the accident rate has improved, but the number of fatalities is now over 650.

Our target must always be zero accidents and zero fatalities. So we have more work to do on our number one priority.

The IATA Operational Safety Audit (IOSA) is a condition of IATA membership. Since April, all of our members are on the registry. Aerolineas Argentinas, Austral and LAN Argentina are all on the registry which now includes 327 airlines. Argentina’s carriers have demonstrated their commitment to global standards in safety. I urge the government of Argentina to leverage on this commitment and join other governments in Latin America such as Brazil, Chile, Panama and Mexico and make IOSA a requirement to fly.

Environment

Addressing climate change is a top global political priority. Aviation has a good track record that has limited our carbon footprint to 2% of global emissions. Like all industries, we are challenged to improve performance. Later this year, governments will meet in Copenhagen to plan for the post-Kyoto period. According to the Kyoto protocol, the International Civil Aviation Organization is responsible for aviation’s international emissions. IATA has taken a leadership role in building a global united and cross industry approach for aviation.

Two years ago, I announced a vision to achieve carbon neutral growth on the way to a carbon-free future. In June of this year, at our Annual General Meeting in Kuala Lumpur, airlines committed to three targets:

  • A 1.5% annual improvement in fuel efficiency to 2020
  • A 50% absolute cut in emissions by 2050, compared to 2005
  • And carbon neutral growth by 2020

Carbon neutral growth was a bold decision. No other global industry has committed to achieve this, let alone in 11 short years. The industry - airlines, airports and manufacturers - is united in its four-pillar strategy to achieve them by investing in new technology, more effective operations, more efficient infrastructure and positive economic measures.

This year we expect our carbon footprint to shrink by 7%, including 5% from the recession and 2% as a direct result of the strategy. Now we need governments to be equally committed. To start, governments must improve air traffic management and provide the appropriate fiscal and legal framework for more serious investments in biofuels which have the potential to reduce our carbon footprint by 80%.

Most importantly, we need governments at Copenhagen to adopt a global sectoral approach for aviation which was recently endorsed by G8 leaders in L’Aquila, Italy. This considers two important facts: a single flight can cross many borders and aviation is an industry that was built on global standards. Accounting for aviation’s emissions at a global level as a sector rather than by state makes sense and is in the best interest of the environment. We count on Argentina’s support for the aviation industry’s ambitious global goals and targets.

Liberalization

Lastly, I would like to spend some time on liberalization. Like all businesses, airlines live in a competitive world. But unlike almost any other business, we do not have all the tools to compete. Airlines cannot sell our product internationally without inter-governmental agreements. And airlines cannot merge across borders because of outdated ownership restrictions. The result is an industry that is structurally weak with poor profitability in good times and massive losses when times are tough.

The industry cannot be sustainable with the current structure. Change is needed. Passengers do not care who owns an airline, government or private, national or multi-national. What is important is safety and service. In the Latin American context, there is a clear correlation between liberal policies and growth. Using 2001 as a baseline, Chile’s industry has grown by 60%, Brazil’s by 25%, and Argentina’s by 10%. This shows that aviation’s ability to drive economic growth is greater in liberal markets. Latin America is playing a key role in moving the industry forward. Panama is probably the most liberal country on the planet, exploring the possibility of no ownership restrictions. Other parts of the world are also changing.  The US and EU are now looking at Stage 2 of their Agreement on Open Skies and the ASEAN nations are moving towards implementing an open skies deal.

At the global level, IATA’s Agenda for Freedom is working with 15 key governments to develop a multilateral statement of policy principles to help guide the liberalization process.

On Friday I met with the President of the Argentine Nation. We discussed the difficult decision to stabilize air services by re-nationalizing Aerolineas Argentinas. This was the result of an unsuccessful privatization that started nearly two decades ago. The company lost many years of growth and opportunities, leaving it and the government with very few options.

IATA agreed with the government to work as its consultant. We will present the government  with a study outlining the social and economic benefits of liberalization. And we will help the efforts to put Aerolineas Agrentinas back on its feet by rebuilding competitiveness so that it can compete in an open market.

Conclusion

The situation today is urgent. Many critical issues are on the agenda from infrastructure and A(H1N1) to safety, environment and liberalization. Air transport is a resilient industry. We will survive this crisis in one form or another. How we deal with these issues today will determine if we emerge as a stronger industry capable of driving even broader economic benefits.

Argentina is a great example of what can be achieved by working together. The discount agreement between ORSNA, AA2000 and the airlines with the help of JURCA has addressed major infrastructure problems. Now we are pleased to broaden our cooperation to build a stronger Argentine aviation sector that will be greener, safer and a profitable driver of the economy.

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