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Date: 14 October 2011

Remarks of Tony Tyler at the Airlines Association of Southern Africa AGM

It’s a pleasure to address the Airlines Association of Southern Africa. I appreciate the kind invitation from Chris Zweigenthal and the AASA team and I thank you all for a very warm welcome.

It’s great to be back in KwaZulu-Natal - I spent some happy time in South Africa before I went to university.  First as a travelling salesman selling ball-point pens, then as a crane driver a few miles from here in Durban docks! 

This meeting’s theme—Directing and Transforming the Future of the Aviation Industry—means strengthening the foundations for a sustainable aviation industry by:

  • Constantly improving safety and security
  • Furthering environmental responsibility
  • Providing cost efficient infrastructure to support growth
  • And cultivating government support for the industry’s success

From my time at Cathay Pacific I followed events in this part of the world. South Africa was an important market for us. As Director General and CEO of IATA, I look forward not to following but to playing an active role in the successful development of aviation in South Africa, Southern Africa, the neighboring Indian Ocean islands and indeed the entire African continent.

IATA is focused on helping airlines to do business more successfully in all parts of the world. To do that, we need the help of solid partners like AASA who share this focus. IATA has the global view and AASA has the local expertise. Working together with AASA and the other regional associations gives us great opportunities to make progress for our members. 

State of the Industry

Aviation can certainly use all the support that it can get. Last month IATA announced a grim outlook. Global profits will fall to $4.9 billion in 2012 for a margin of just 0.8%. While all regions will see reduced profitability, Africa is expected to fall from breakeven this year into the red with a $100 million loss in 2012.

The industry is fragile. Economic uncertainly continues. Oil prices will stay north of $100 per barrel. And global GDP growth slumped from 3.9% last year…to 2.5% this year. And we expect 2.4% in 2012. Historically, the airline industry falls into losses when GDP growth dips below 2.0%. 

Of course you don’t need me to tell you how difficult and fragile the industry is. Today I want to discuss how we can make the world a better place for airlines to do business.

Safety

Safety is our top priority and Africa’s biggest challenge. Numbers tell the story. The global industry has one accident for every 1.6 million flights. IATA members have one hull loss for every 4 million flights. In Africa accidents happen every 135,000 flights. The continent’s safety record is 12 times worse than the global average.

IATA members are not the problem. They fly western built aircraft and operate to globally recognized IOSA standards. Twenty-four sub-Saharan African carriers are on the IOSA registry (including 3 non-IATA members). World-class safety is possible in Africa and IOSA makes a difference. Eighty percent of African accidents between 2008 and 2010 were with non-IOSA carriers.

But saying that IOSA-registered or IATA carriers have a good record does not address the problem. Every accident is a human tragedy. And every accident in Africa tarnishes the whole of African aviation.

Europe’s list of banned carriers is not the answer. There is little transparency on how carriers get on the list…and no clear guidance on how to get off of it. And having IOSA registered carriers on the banned list certainly diminishes its credibility.

IATA’s approach to improving African safety is to provide and support the implementation of global best practice tools. And IATA is absolutely committed to working in partnership with any airline or government that wants to improve safety.

For example, we provided flight data analysis (FDA) to nine carriers who agreed to take it. The result was a 56% reduction in deviations from ideal flight trajectories.

Sixty percent of African accidents between 2008 and 2010 were runway excursions. FDA, which identified the top five African airports for unstable approaches, is helping us to focus our efforts to deliver the biggest improvements. And we are working with airlines in Africa and around the world to make the best use of our Runway Excursion Risk Reduction Toolkit.

Along with this, we are also working with governments and all stakeholders to make the best use of safety information—now available through IATA’s Global Safety Information Center—and our auditing programs. In particular, IOSA and ISAGO are free tools that can add an effective new dimension to oversight by civil aviation authorities.  Over ten governments have incorporated IOSA into national legislation—including Madagascar and Egypt in Africa. I hope that we can work in tandem with AASA and AFRAA to encourage more governments to use these tools to improve safety oversight and reinforce safety culture.

Certainly South Africa is seen as one of the leaders in African aviation. With this comes a responsibility for government and industry to help drive global standards across the continent. IATA is eager and willing to help in that effort.

Security

Security is also an issue where leadership is needed. The Yemen printer cartridge incident a year ago and the underwear bomber who commenced his journey in Lagos are two reminders that security is also a constant challenge.

Both of these incidents highlight that security is a global challenge. Regulators must take a global view to securing the system for both cargo and passenger traffic.

On the passenger side, IATA is contributing with a new vision for a risk-based airport checkpoint that makes use of the passenger data that we collect. This will allow us to differentiate security—on top of a baseline level—into three categories:

  • Normal security for travelers about whom we have sufficient information
  • Enhanced security for those that we know little about or who appear on a watch list
  • And “known traveler” security for those passengers who have volunteered background information to government-run programs such as the US “Trusted Traveler” programs being trialed now.

I was at the AVSEC World conference in Amsterdam last week. There was enormous support for this approach from John Pistole, head of the US Transportation Security Administration, the European Commission, other governments, airports and of course airlines. We have a great opportunity to make some positive changes in how we deliver security.

Let me be clear, we are not suggesting racial or religious profiling. We simply want to use the information that helps customers and immigration officials to do their job at the end of a journey to help security screeners to their job at the start of travel.

Over the next three to seven years we want to introduce technology that will allow passengers to pass through the checkpoint without stopping, disrobing or unpacking. Together with the progress that we are making by Simplifying the Business, this will be an enormous positive change in the airport experience of our passengers.

What is Africa’s role? To start, I hope that Southern African governments will sign on to the principles of the Checkpoint of the Future. This will be an important sign of commitment to show that Africa is on board to improve security.

In parallel, we must also improve on cargo security. There is a growing discussion on so-called “red lists” of states that cannot be trusted to participate in the global air transport system. This is a counter-productive move that will isolate those states that most need the help of global standards.

IATA’s Secure Freight program is a template to help states enhance their supply chain security regime in line with global best practice. His Excellency the Premier of KwaZulu Natal, Dr Mkhize and his Excellency and MEC for Economic Development and Tourism, Michael Mabuyakhulu personally attended the Air Cargo Summit in Durban last month and agreed to work with IATA on a Secure Freight pilot project in Durban 2012. This is a positive development reflecting the determination of the region to achieve best practice and meet the standards sought by their key trading partners US, UK and EU.

Environment

South Africa will be playing a leadership role in the global debate on environment when it hosts COP 17 in Durban next month.

Aviation will be showcasing its progress to

  • Improve fuel efficiency by 1.5% annually to 2020
  • Cap emissions from 2020
  • And cut emissions in half by 2050 compared to 2005

African aviation is a small contributor to the 2% of global manmade CO2 that aviation is responsible for. But it could play a big role in the solution.

This year we had a successful trialing of the iFlex route concept on flights from Johannesburg to Atlants. We saved an average of 8 minutes per flight simply by formalizing existing procedures and standards to the best advantage of flying conditions. That is 900kg of fuel savings and a 2.9 ton reduction in carbon emissions. What is good for the environment is also good for business.

But the real game changing role that Africa could play is in the development of sustainable biofuels. A few years ago, biofuels were not much more than an interesting concept that had technical and political hurdles to overcome.

Today sustainable biofuels are a tested reality. They have powered commercial flights. And they hold tremendous potential in Africa. Of course South Africa was a pioneer in the development of alternative fuels. So you are at the forefront of technology. We are looking at source crops that do not compete with food for land or water and are working with governments and ICAO to develop global sustainability criteria.

In the meantime, we need to work together to get governments—including those in Africa—excited about biofuels. They have the potential to reduce our carbon footprint by up to 80%, so they would be a game changer in meeting the industry’s ambitious targets. And importantly for governments, they will provide economic opportunities in even the most difficult of climates—using of course the right source crops.

There are still hurdles—the biggest being cost. Biofuel is still 3-5 times more expensive than traditional jet fuels. We need sustainable biofuels at prices that make sense for an industry making a 1.2% margin and for which 32% of costs are in the fuel bill. That is not insurmountable if governments commit to a legal and fiscal framework that supports their rapid development and use in aviation. 

I encourage the South African government, as host of COP 17, to take a leadership role in this. Not only would it support aviation’s ambitious efforts to reduce its emissions, it could set a precedent that transforms African economies with local production of fuel.

And finally, we will need Africa’s support to stop Europe’s misguided approach to bringing aviation into the EU ETS. Let me be clear. We support and need positive economic measures to achieve our emissions reductions commitments. But a unilateral regional scheme implemented extra-territorially is not the way to go.

There are many reasons that the industry opposes this—distortion of markets, failure to allocate funds to environmental initiatives, lack of coordination globally to ensure that airlines are not billed twice (or more) for their emissions…and so on.  But the arguments that stand the best chance of stopping Europe are those being raised by states. They see this as an attack on their sovereignty. South Africa was among over 20 countries that signed a declaration in Delhi last month putting Europe on notice that they will cooperate to oppose Europe’s plan. They will meet again early next month to plan further action.

For our part, the industry’s message is clear. Europe should not risk a further escalation of tensions among states that would see airlines caught in the middle. States have already agreed to the principles for a global approach to economic measures through ICAO and have committed to delivering a global framework by 2013. Instead of dividing and distracting the world with its unilateral scheme, it is time for Europe to put its full support towards a successful, global and effective solution through ICAO.

This is also in line with our opposition to South Africa’s plans to include aviation in its economy-wide carbon tax. On top of being competitive disadvantage for South African carriers,  it will add to double counting of emissions under conflicting measure including the EU ETS proposals as well as the environment-related departure taxes that we see in the UK, Germany, Austria and elsewhere. We cannot afford to waste money on complex measures that will not deliver the environmental benefits that they promise. This is yet another reminder of why a global approach through ICAO is the way forward.

Infrastructure

Infrastructure is another important issue that must be addressed. First, kudos to ACSA for transforming South Africa’s airport infrastructure—particularly in Cape Town and Johannesburg where traffic growth demanded better—world class—facilities. And similarly ATNS is a leading air navigation service provider.

But if I look at the total picture with respect to airport infrastructure in South Africa, there is much that must be reformed. The 161% increase over 5 years in ACSA charges is a clear example. The result was not satisfactory. But, I am not here to re-open that battle. It is over. The challenge now is to find a better way forward….because the current situation is not sustainable.

If ACSA increases charges as allowed over the next five years, it could have the world’s highest charges. This unenviable title will be a drag to the South African economy—deterring both business and leisure travelers and making high value South African goods exported by air less competitive.

The situation is not irreversible. And I am eager to engage in a positive dialogue on how we can move forward and make South Africa’s infrastructure more competitive.

First, we need to ensure a critical review of capital expenditure. We don’t believe that the new mid-field terminal at Johannesburg or the Cape Town runway re-alignments need to be included in the next price permission from 2013. And proceeds from the sale of the old Durban airport should be allocated to pay down ACSA’s debt. After all, airlines paid for the asset through charges.

Second, pricing must reflect costs incurred. This means following the good work of ATNS and ending differential pricing between international and domestic services at its airports, which contravenes ICAO principles. Moreover, we need to move to a transparent system with no cross subsidization and much more consultation with airlines.

And third, we need a strong independent regulatory framework for both ACSA and ATNS. Included in this should be improved consultations with industry on capital expenditure planning and a process that is free from political influence.

The next pricing permissions will be for 2013-18. Our dialogue with governments should aim to resolve these issues quickly so that process can proceed more effectively.

Benefits of Aviation

Whether we are talking about safety, security or environment or if we are looking to improve the infrastructure on which we operate, governments are more than idle stakeholders in our business. The decisions that they make about the industry have a tremendous impact on our business…right down to the bottom line.

But, how much do governments know about our business and the impact that a successful aviation industry can have on national economies?

Aviation brings economic and social benefits. We all know that. Globally aviation supports 33 million jobs and $3.5 trillion in economic activity. But the decisions that affect us are much more local. If we can quantify the benefits that we bring on a national level, we stand a much better chance of getting better national policy.

That is why IATA commissioned Oxford Economics to complete a series of 54 national studies on aviation—one of which is for South Africa. Thanks to AASA, airlines and all stakeholders who contributed locally to ensure a robust, accurate and relevant document.

The findings are impressive.

  • Aviation contributes 2.1% South African GDP…some ZAR 51 billion directly through the output and employee spending of the supply chain—including airlines, airports, ground services and aerospace.
  • In terms of people, aviation provides livelihoods for 227,000 South Africans in fulfilling high productivity jobs. The average aviation employee generates ZAR 21,000 in gross value added—making them over 4 times as productive as the average South African job.
  • Tourism enabled by aviation generates a further ZAR 21 billion in economic activity and 116,000 jobs.
  • Aviation makes a substantial contribution to government coffers—paying ZAR 6 billion in tax, including ZAR 2.4 billion in VAT and departure taxes.

What I find even more interesting is the analysis of what aviation makes possible. Last year 21 million people and 240,000 tonnes of freight traveled to/from and within South Africa.  Oxford Economics estimates that the value of the benefit to travelers of flying exceeds ZAR 100 billion—half of which is retained by South Africans.

This tells me…and hopefully decision makers as well…that aviation is a critical strategic component of the South African economy. The connectivity of a strong air transport sector was certainly a supporting factor in South Africa joining the BRICS grouping.

But are decision makers fully aware of this? That is the basis for an important joint project by IATA and AASA. We are working together to launch the Benefits of Aviation campaign in South Africa. This is not an IATA campaign. We have a tool…built as part of a global effort…that quantifies the basics of aviation’s contribution to South Africa.  Now we need you—AASA, airlines, partners, stakeholders—to work together to use this document to support better policy decisions based on solid facts.

For example, we all know that global connectivity opens up new markets, offers the possibility to improve supply chain efficiency and generates employment. Our study estimates that a 10% improvement in connectivity generates a ZAR 1.5 billion per annum increase in long-term GDP for the South African economy. That is a hard fact for politicians to ignore when they slap on a new tax or fail to take a long-term view on developing efficient infrastructure.

What we want to avoid are repeats of the situation we see in the UK, where government policies are strangling the industry. The GBP2.5 billion Air Passenger Duty is the highest aviation tax in the world. Failure to build a third runway at Heathrow will limit growth in the Southeast where the demand is greatest. And the intention to replace domestic services with high-speed rail will only enhance the attractiveness of non-UK hubs for long-haul connections from secondary airports.

I am sure that in 10-15 years time when these policies have turned the UK from an aviation leader to a fringe player, people will look back and wonder how it happened.

So it is critically important for this part of the world not to fall into the same pattern. The Benefits of Aviation study is certainly not a silver bullet. But it is a key tool to start a dialogue among policy leaders on what aviation contributes to the national economy….and how we could make that better.

Conclusion

Having spent over 3 decades of my life in aviation, I am passionate about this industry. Every plane that takes off does so carrying almost infinite possibilities—bringing people together, reuniting families, facilitating business, carrying important cargo. Aviation is an instrument of peace that unites the world into a global community and creates enormous wealth—both material and of the human spirit.

That is as true in Africa as anywhere else on the planet. During my time at IATA I want to ensure the integrity of a global air transport system that provides safe, secure and environmentally responsible connectively to this continent. That means working in partnership. It is too big a job to do alone.  Airports, air navigation service providers, manufacturers, ground handlers, caterers—the whole value chain—and governments need to work together. With a common understanding of the issues and the potential I am convinced that we can direct the future of a sustainable air transport industry that is an even more successful driver of national and global economies.

 

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