Date: 5 May 2011
Remarks of Giovanni Bisignani at a Press Briefing in Johannesburg
State of the Industry
Last year was a great story: traffic was up 10%, capacity 5%, yields up 6% for passenger and 10% for cargo, and airlines made $16 billion profit.
But 2011 is more challenging. In March we forecast profits will fall to $8.6 billion on a 1.4% margin. And even that weak profitability is under threat. Events in the Japan and the Middle East knocked 2% off traffic growth in March, and oil prices in the $110-120 range are threatening our profits and the global economy.
Positive factors are supporting South Africa’s aviation growth, with an expanding middle class, GDP growing 3.7%, and increased intra-African trade.
The optimism is clear. With South Africa joining the BRICS nations, it will play a key role in linking the African continent to the world’s fastest growing economies. And the Government’s New Growth Path has identified travel and tourism as a key contributor to achieving its target to create 5 million new jobs by 2020, including 235,000 in tourism
The government estimates that for every 16 tourists visiting South Africa, 1 job is created. So facilitating a successful aviation industry should be a government priority.
IATA is driving initiatives that will improve South African competitiveness. South Africa ranks 72 out of 125 countries on ‘openness to trade’ in a World Economic Forum index. The WEF report identified the complexity of import procedures, which can take up to 35 days, as a major bottleneck. IATA’s Simplifying the Business program is helping to tackle this issue.
The E-freight program went live in Johannesburg in November last year, and in Cape Town from March. Electronic documentation will make the shipping process more efficient. We are also improving passenger convenience. South Africa met the global deadline for implementing bar coded boarding passes in December last year. Now passengers can get their boarding passes at airport kiosks, at home, or on their mobile phone.
But along with optimism, I also have concerns. While the industry is leading efforts to make it easier and more efficient to visit and do business in South Africa, some government decisions are making it more expensive….and less competitive.
The cost of airport infrastructure is the first concern. South Africa has done impressive developments in Johannesburg and Cape Town. But the benefits are being severely compromised by the South African economic regulation process, which is not effective. It is allowing Airports Company South African (ACSA) to increase charges 129% for 2010-2015. This is below the 190% ACSA request, but adding $1.2 billion to airline costs is a big burden for airlines to bear.
Johannesburg charges will rank among the most expensive for airports of similar size. As the increase is primarily driven by two things: poor business performance in the previous regulated period, and the cost of the unnecessary King Shaka Airport in Durban, the charges are still under dispute, with ACSA taking legal action to achieve their original 190% request.
No increase beyond regulatory limits should be allowed. And we must correct the regulatory process
to make it stronger. ACSA should be prevented from driving business away from South Africa with high costs.
The situation with Air Traffic and Navigation Systems (ATNS) is mixed. In line with international standards, price differentials between international and domestic operations are being phased out. And we are working cooperatively on many issues including the development of communications infrastructure to link the African continent.
But ATNS costs are rising unacceptably: ATNS requested a 77% increase for the 2010-2015 period, and the regulator granted 71%. Again, this is not effective regulation, or an acceptable result.
ATNS let costs get out of control and missed its targets for 2007-2012…why should airlines get stuck with the bill? South Africa needs a better regulatory process to drive efficiencies and strengthen competitiveness.
South Africa’s target to cut emissions to 42% below business as usual levels by 2025 is impressive. The aviation value chain is committed to improve fuel efficiency by 1.5% to 2020, cap net emissions from 2020 with carbon neutral growth, and cut net emissions in half by 2050.
Already we have saved over 76 million tonnes of carbon, and we are aggressively pursing the commercialization of sustainable biofuels which could cut our carbon footprint by up to 80%.
We are supporting the UN’s specialized agency for aviation, ICAO, in developing a global framework for economic measures. And we appreciate the support of South Africa in opposing the EU’s unilateral imposition of emissions trading from 2012. It is illegal, counter-productive to our global efforts, and will create competitive distortions.
With this background it is incredibly disappointing that South Africa is implementing its own unilateral carbon tax from 2012. As host of the COP 17 later this year, South Africa must show global leadership to build global solutions. And it should not undermine aviation’s efforts, which have been commended as a role model by UN Secretary General Ban Ki-moon.
Africa must improve safety, the industry’s number one priority. Last year the African accident rate was 12 times the global average. IATA African members, who are all on the IOSA registry, performed better – but aviation must be safe everywhere, and for all airlines. Africa cannot and should not be the exception.
The recent extension of the European Blacklist to include some IOSA registered carriers shows the limitation of the EU’s approach to safety. IATA is here to help, and IOSA is the flagship. It’s tough but achievable: 22 sub-Saharan African airlines are on the registry. Six African airlines did not meet the IOSA deadline to keep IATA membership in 2009, but we are working to bring them back on board.
To drive improvements in safety we also need governments to be committed, and we are working with governments across the region to promote the use of IOSA. I urge South Africa, as the region’s largest economy, to join IATA in taking a leadership role in promoting safety throughout the continent.
To do business with the rest of the world, Africa needs a safe aviation industry operating to global standards.
This will be my last visit to South Africa as Director General and CEO of IATA. After nearly 10 years in IATA I will retire later this year to take up other positions in the industry teaching and on Boards.
It has been in incredible decade. The industry faced almost every challenge imaginable: war and terrorism, SARS other pandemic fears, natural disasters
(from earthquakes and tsunamis to volcanoes), rising fuel prices, and the global financial crisis.
IATA played a key role, helping airlines to survive through extreme uncertainty. Firstly we kept the industry’s money safe, processing over $2.5 trillion through our financial systems.
Secondly we changed the industry: Our call for more efficient partners brought over $19 billion in savings. We met rising fuel prices with operational efficiencies, netting $18 billion in savings. And we changed industry processes, making travel and shipping more convenient with a further $18 billion in savings.
Add it up, and IATA’s work saved the industry $55 billion since 2004. Considering that airlines lost about $50 billion since the tragic events of 9.11 our role has been enormous.
But the greatest satisfaction is with safety, and the 42% global improvement realized over the last decade.
On 1 July I will hand over IATA to Tony Tyler, who will be confirmed at our AGM next month. I am sure that he will deliver change and leadership, to make IATA even more relevant. And I know that he will continue to pay special attention to this amazing and wonderful continent.
I am happy to take your questions.