Date: 15 November 2009
Agenda for Freedom Summit, Montebello
Welcome to the second Agenda for Freedom Summit. Thank you for accepting our invitation and traveling to Montebello.
We have come a long way since our meeting in Istanbul. I want to personally thank you for making the journey. We met last October as the industry crisis of high oil prices was turning into a disaster of falling demand and yields, and mounting losses.
Today we are still in crisis. All the parameters of the industry are moving in the right direction. But the fall in demand, fares and yields was unprecedented and dramatic in scale and speed. It will take years to recover.
To illustrate the dimension of the crisis, look at what happened to industry revenues. In 2008 airline revenues were US$535 billion. This year we anticipate that they will be US$455 billion. That is a drop of 15% or US$80 billion.
The good news is US$57 billion in relief from lower oil prices. That could be temporary as we see them rising in anticipation of a recovery. The bad news is the bottom line. Airlines remain firmly in the red with global losses expected to be US$11 billion this year and a further loss of US$3.8 billion in 2010.
But let me assure you that we have not invited you here to spoil your weekend with depressing numbers. We are here to drive change and celebrate a job well done.
When we began this process I had many concerns. How could IATA, a trade association, facilitate a discussion among governments? It was not our natural role. But the grave industry situation meant that we could not wait-and-see.
A hyper-fragmented global industry was struggling for its survival. National flags were originally put on the tail to protect the airlines. That was an age of regulated travel for the rich. Today we are an industry that moves over 40 million tonnes of cargo and 2.2 billion people annually. Our activities support 32 million jobs and US$3.5 trillion in economic activity.
Sixty-five years ago visionary governments signed the Chicago convention. The basic principles promoting safety worked. Air transport became the safest way to travel by improving safety in good economic times and in bad.
But governments could not agree on multilateral economic regulation. So the US and the UK concluded an agreement that started the bilateral system. It was a good system for its time. For the most part, governments were our owners. Airlines were regulated and prices were set by adding a margin on top of costs. Our business opportunities were restricted but it did not matter because the system compensated.
Over six decades later, we live in a different world. Thousands of airlines compete for razor thin profits. Global competitiveness is the key to success.
The rules set to protect this industry do not work in today’s environment. Even in good economic times, the industry has not covered its cost of capital. Restrictions on ownership and market access have prevented airlines from growing into strong global businesses.
The latest crisis is yet another reminder that there is no policy purpose in keeping the industry financially weak with outdated restrictions.
Everybody loses. Airlines lose because they cannot grow their businesses profitably. Passengers lose because choice is limited. Governments lose on many fronts. Airlines cannot drive economic growth if they are in financial intensive care. Subsidies are an expensive hobby for cash-strapped governments and distort industry competition. And bailouts are costly, particularly when the global economy is in crisis.
The industry drowns in red ink with every economic crisis because airlines do not have the commercial tools that every other industry takes for granted.
It is in everybody’s interest to move the industry from the false protection of flags to embrace—with governments—brands and real business opportunity.
If I had concerns about hosting the Agenda for Freedom Summit, I am sure that you (governments) had concerns about attending and what we could achieve. I thank you for having had the vision to attend Istanbul and the courage to work with us over the last year.
Tomorrow you will sign a Statement of Policy Principles regarding the Implementation of Bilateral Air Service Agreements. This will enable a major step forward—moving the industry towards becoming a normal business.
That statement is based on fair competition and deals with three fundamental freedoms which are critical to running successful global businesses. These are (1) the freedom to access global capital (2) the freedom of market access and (3) and the freedom to price services in line with market conditions.
Your signatures will support the good work already recognized with ICAO’s Fifth Air Transport Conference (AT Conf/5) in 2003. AT Conf/5 marked a shift in government thinking from discussing whether liberalization was needed to identifying ways to make it happen. The policy principles that you will sign tomorrow are aligned with that vision.
We are pleased that Roberto Kobeh Gonzalez, President of the Council of ICAO, is joining us. I hope that the principles will play an important role in ICAO’s liberalization agenda.
Liberalization will not happen because of one document or one ICAO initiative. It can only happen with the commitment of people like you—visionaries who can see a brighter future for aviation.
Today is not the end of a process. It is the start of a battle. To build a solid future for a key driver of the global economy, we need visionary leaders who are committed to effect change. You are the people who can make a difference.
You have the critical mass to send a strong signal that liberalization is the future for aviation. States represented here account for 60% of the global aviation market which today accounts for 2.2 billion passengers.
Our common vision must now deliver results. That means moving from talk to action. Every negotiation that you enter is an opportunity to spread change further and bring more countries on board.
That is the focus of our discussions today. I look forward to working with you to understand how we can use these principles and other tools to take the vision for change beyond these meeting room walls to every corner of our planet. And let me assure you that the industry appreciates and supports your efforts.
Airlines are a diverse group. But regardless of business model, size or location, the ability to compete with modern commercial freedoms in a level playing field is critical to the successful future of every airline.
Thank you again for participating. I look forward to some exciting discussions at this critical moment in aviation history. As with last year, this is your meeting. I am pleased to call on Jeff Shane to chair the discussions.