Skip to main content

Test Home
You & IATA

Search

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

Date: 20 January 2011

Council on Foreign Relations, Montreal

Aviation and Montreal

Since 1945, Montreal has been a great home for IATA to represent, lead and serve our 230 member airlines. Aviation has a unique role, facilitating the global village by safely connecting over 2.4 billion people and 40 million tonnes of cargo a year. It supports $3.5 trillion in global economic activity and 32 million jobs.

Alongside IATA, Montreal is also home to the International Civil Aviation Organization (ICAO), which was established at the same time as IATA and more recently Airports Council International. Two IATA members, Air Canada and Air Transat, call Montreal home. Aéroports de Montreal is a global leader on the airport side. Bombardier and Pratt & Whitney produce aircraft and engines in Montreal to power the industry and CAE provides the training to build the industry’s future. And this is just the start of a list of organizations and companies that make Montreal a global capital for aviation.

IATA

I am proud of IATA’s important contribution to this industrial cluster with our 250 employees. With our ICAO colleagues, we share the key issues of safety, security and environment. The IATA Operational Safety Audit (IOSA) was developed in Montreal and is the global standard for operational safety management. Preliminary results for 2010 show that compared to a global accident rate of one accident for every 1.7 million flights, IATA carriers—all on the IOSA registry, had one accident for every 3.8 million flights. IOSA is making a safe industry even safer. IATA also trains over 30,000 aviation professionals a year. This includes 25,000 through distance learning managed in Montreal and 600 in our Montreal training center.

And IATA is the financial backbone of global air transport with settlement systems handling a billion dollars a day. With this, airlines have outsourced to IATA the global distribution of their product. This means that a ticket purchased anywhere in the world through an IATA accredited travel agent can be paid for in a single currency and will be globally recognized.

Being a part of our members’ business gives us a unique opportunity to lead relevant and global industry change.  Simplifying the Business is a good example. In 48 months, we converted the world to E-ticketing, bringing convenience to travelers and over $3 billion in annual cost savings to airlines. The scope of Simplifying the Business has now grown to over $18 billion in annual cost savings. This includes everything from self-service options that empower passengers to more reliable baggage management and, an e-freight program to eliminate paper processes in the cargo business. The most recent success was the near 100% conversion to bar coded boarding passes which we achieved at the end of 2010. These are just a few examples of IATA’s unique role.

A Strange Industry

IATA is a strange animal and aviation is a strange but wonderful industry. Despite our critical role, we are constantly challenged on profitability. Over the last decade, airlines lost $50 billion in an extraordinary set of crises - from war, terrorism to SARS and Influenza A(H1N1), and economic crises and skyrocketing oil prices. Airlines responded with dramatic change, improving productivity 63%, driving sales and marketing unit costs down 19% and improving fuel efficiency 20%. IATA contributed with over $55 billion in savings since 2004.This was achieved by our Simplifying the Business program, our work on user charges, fuel and taxation and operational efficiencies. In absolute terms, last year looked like a good year. The industry returned its largest ever profit—$15.1 billion. But for a $565 billion industry, that’s just a 2.7% margin. It’s a pathetic return that does not even cover the 7-8% cost of capital. And we expect 2011 to be even more challenging. Profits will drop by 40% to $9.1 billion which will mean a 1.5% margin.

Vision 2050

How do we give this strange but wonderful industry a sustainable future? IATA is using this window of profitability as an opportunity to look ahead. In June last year, I launched IATA’s Vision 2050. On 11-12 February, I have invited 30 strategic thinkers to join me in Singapore to look ahead four decades. Our mission will be to lay the foundation for the industry to have the technology and infrastructure to meet the needs of 16 billion passengers sustainably and profitably. To help us, we will have the inspirational leadership of Singapore’s Minister Mentor, Lee Kuan Yew, and the competitive expertise of Harvard University’s Professor Michael Porter, the father of Montreal’s successful industrial cluster strategy.

Today, I would like to address some of the issues on the Vision 2050 agenda in the context of Canada’s aviation industry. Specifically, I will focus on three areas: environment, security and competitiveness.

Environment

One of the cornerstones for my 2050 vision is to find a new power source to replace today’s jet fuel. No industry has a future unless it is environmentally sustainable. This was clear to me when I shocked the industry at our 2007 annual general meeting in Vancouver. I presented a vision for aviation to achieve carbon-neutral growth on the way to a carbon-free future. The industry came together, airlines, airports, air navigation service providers and manufacturers to agree on a strategy and commit to improve fuel efficiency by 1.5% annually to 2020, cap emissions from 2020 with carbon-neutral growth and cut net emissions in half by 2050 compared to 2005. No other global industry is as united or as ambitious. And it is not just words, we have delivered results. Since 2004, IATA led efforts that saved over 75 million tonnes of carbon emissions.

Certification of sustainable biofuels is imminent with the potential to cut emissions by up to 80%.
Governments are also coming on board. Under the leadership of ICAO, governments achieved the first global agreement to stabilize emissions for an industrial sector. With these achievements in hand, aviation went to Cancun with its homework done. The new United Nations Framework Convention on Climate Change Executive Secretary Christiana Figueres is engaging industry to find solutions. Cancun recognized the industry’s commitments and re-confirmed ICAO’s responsibilities.

The challenge is to keep governments focused on effective measures to reduce emissions. For Europe’s cash-strapped governments, environment is an excuse to raise taxes. Last year, the UK raised its air passenger duty, and Germany and Austria announced new taxes. These three taxes alone are a $5.9 billion burden to the industry.

On top of that, Europe still plans to bring international aviation into its emissions trading scheme from 2012. Positive economic measures are part of our climate change strategy but this illegal, unilateral and extra-territorial action is in contravention of the Chicago Convention and a step in the wrong direction. I urge the Canadian government to formally oppose Europe’s plans and support a global approach through ICAO.

Security

Governments must also take a global approach to security. Aviation is much more secure today than in 2001 but at a great cost and with unacceptable inefficiency. In response to threats governments built aviation security measure by measure. They have not optimized the measures into an efficient system. They have not coordinated with industry for efficient implementation and they have not coordinated with each other to harmonize globally.

At the top of our agenda today is building a Checkpoint of the Future. Today’s checkpoints were developed 40 years ago to combat hijacking by keeping weapons off of aircraft. With today’s terror threat, we need to find bad people. Shampoo bottles, belt buckles and shoes are not the problem. The first principle of the Checkpoint of the Future is to move beyond one-size fits all screening. We must use the intelligence from government and airline sources to match checks with the passenger’s risk level. Remember, the terrorists are the minority and 99.999999% of passengers are good people. By confirming this with intelligence at the checkpoint, we can expedite the process.  And when intelligence sets off warning bells, we need more thorough checks.

My long-term vision is for hassle-free tunnels of technology. Passengers would identify themselves with their fingerprint, biometric passport and bar coded boarding pass on their mobile device. Intelligence processes would kick in to identify a risk level and most passengers would stroll through a tunnel of technology that checks for all forms of terrorist elements without unpacking or undressing.

This is not a crazy dream. Many of the technology elements already exist and it is in everybody’s interest to re-allocate the billions already being spent on security to make security better. We are already working with ICAO and the US Department of Homeland Security (DHS) on this important project. In line with this global thinking, we are working with Transport Canada to achieve greater harmonization with DHS to ensure a better crisis response than the thousands of cancellations that arose in the aftermath of the underwear bomber in 2009 and to eliminate redundant checked baggage re-screening.

Competitiveness

Of course if we are sustainable and secure but not profitable, the industry still has a problem. Competitiveness is key to profitability. Here, I would like to discuss changes needed in Canada to keep Canadian aviation competitive and broader industry change to deliver sustainable profits.

Canadian Competitiveness

When I joined IATA in 2002, Canada was the 8th most visited country in the world. Today, it’s 15th.
Aviation is the engine for tourism which accounted for 650,000 Canadian jobs and $71 billion in spending in 2009. But instead of having policies to welcome more visitors, Canada’s excessive taxes turn them away. Compared to the US, a visit to Canada is $160 more expensive. The World Economic Forum’s Travel and Tourism Competitiveness Report puts Canada at 106 in terms of cost competiveness below Japan at 86, the UAE at 50, India at 46 and China at 20. In ticket taxes and airport charges, Canada ranks a poor number 98.

Canada has good airports. Vancouver and Toronto won IATA’s highest honor—the Eagle Award , and Montreal is a great example of an airport working with airlines to cost efficiently improve facilities. But the Crown rent bill that was $257 million in 2009 is an unnecessary competitive disadvantage. No other country in the world uses this archaic scheme to tax infrastructure. Along with discouraging visitors, the added costs encourage Canadian travelers to start their journeys from the US. Canada is a wonderful country and a great place to visit and to do business. Air transport is key to its economy. It needs a comprehensive strategy as outlined by the National Travel and Tourism Coalition, of which IATA is a member, to keep it competitive in the world market.

Global Competitiveness

Aviation also faces global competitiveness issues. Airlines cannot compete like normal businesses because governments are far too involved in the industry. Airlines cannot sell their products internationally without a formal government agreement and they cannot consolidate across political borders because of ownership restrictions. The result? Sixty-five years of destroying capital with margins of less than 1%. Governments must ensure a level playing field and regulate safety and security. After that, airlines need the same commercial freedoms that every other business takes for granted. Look at how fragmented the industry is - 230 IATA members and at least one thousand players in total. Compare that to pharmaceuticals or auto manufacturing which are structured around a dozen or so global brands.

The recent wave of consolidation included Lufthansa and SWISS with bmi, Austrian and Brussels Airlines, British Airways and Iberia, Delta and Northwest, and United and Continental. All of these are somehow within political borders. But politics should not define business. Airlines need the freedom to consolidate wherever it makes business sense. Airports don’t face the same restrictions. Spain’s Ferrovial owns London Heathrow and Australia’s Macquarie owns airports in Europe and elsewhere. But the airlines that facilitate globalization are stunted national businesses because of government protection.

This must change and in fact it is changing. LATAM—the LAN-TAM merger announced last autumn, is starting to break the mold. We also see it in Asia where Air Asia and Jetstar are developing as a regional brand of linked companies from different companies. These Asian and Latin American innovations show leadership for an industry trying to rebalance itself. North America and Europe were the traditional leaders of aviation but in 2009 the 662 million intra-Asia travel travelers surpassed the 655 million who traveled within North America.

Where investors are putting their money is also changing. The top airlines by market capital are Air China at $20 billion, Singapore Airlines has $14 billion, Cathay Pacific $12 billion and China Southern $11 billion. The combined LATAM company will rank among these at $15 billion and Delta and Lufthansa follow at $10 billion each. The industry’s center of gravity is shifting to the East and to the South, and the industry’s leadership is globalizing.

These are positive developments. Traditional leaders like Canada will be challenged to improve competitiveness with change and innovation. Too often governments try to live off past glory by protecting the status quo and avoiding change. Airlines are delivering profits but the industry is sick. Our global challenge is to improve competitiveness on a level playing field with airlines competing profitably like any other business.

Conclusion

Aviation is the world’s most exciting business. Through successive crises and financial turmoil, aviation kept focused on powering the global economy with safe, efficient and environmentally responsible mobility. Now governments must deliver their share with a harmonized approach to security and environment and exploit the industry’s economic benefits with policies to support competitiveness. I am confident of aviation’s future and of Montreal’s leadership role in shaping an industry that is safer, greener and much more profitable.

ADVERTISEMENT


Additional information

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