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Date: 29 November 2011

Arab Air Carriers Organization AGM, Abu Dhabi

Good morning. Thank you to Abdul Wahab Teffaha, Secretary General of AACO for the kind invitation to address you today. And thanks also to James Hogan, CEO of Etihad and all of his team for being such great hosts for this event. It is a pleasure to be here in Abu Dhabi, capital of the United Arab Emirates (UAE), for this important meeting. And congratulations to the government and people of the UAE as they prepare to celebrate 40 years of independence this Friday.

I will celebrate a rather less significant milestone later this week. Thursday will mark the completion of five months in office as the Director General and CEO of IATA. Having served on the IATA Board of Governors, including a year as its Chairman, I was quite familiar with the organization. But it has been a steep learning curve as I’ve come to fully appreciate the breadth, scope and complexity of all that IATA does for its members and for the industry.

My focus in running IATA is on delivering value and innovation. You can expect the same great services from IATA in safety, managing the industry financial systems, advocating on your behalf and supporting issues that are critical to your business. On top of that, I will be challenging my IATA team to find innovative ways to deliver these services even more efficiently as technology develops and your needs evolve. And we will be looking at new areas where IATA could help you to do business better.

In the short time that I have been at IATA, one thing that I already recognize is the importance of working together. Aviation is a team effort of airlines, airports, air navigation service providers (ANSPs), regulators, manufacturers and many more. I have made it a priority to reach out to other associations. This includes important partners like AACO and other regional associations as well as those such as the Civil Air Navigation Services Organization (CANSO) and Airports Council International (ACI) which represent important partners in the aviation value chain.

My message to all has been consistent: Aviation is a challenging industry, so let’s work together, where we can, to make it more successful. And I am pleased to say that the response has been positive!
I am particularly looking forward to working closely with AACO. By working together we can add value to AACO’s mission to be a catalyst for the cooperation of its members—most of whom are also members of IATA. This is already the basis for many successful IATA-AACO projects, including our partnerships in the areas of safety, training, business intelligence, and industry advocacy—just to name a few. And cooperation breeds cooperation. I am pleased to see that IATA and AACO are both involved in the Regional Safety Group which involves the industry as part of the International Civil Aviation Organization (ICAO) process.

Over the last months I have deepened my knowledge of the region - my first business trip after I joined IATA was to the Gulf, and since then I have had several meetings with your Secretary General, opened a new IATA Regional Office in Amman, met individually with several AACO members and had the pleasure of visiting Marrakech twice—for annual meetings of the African Airlines Association and ACI.

The region is of course very diverse—from the rapidly developing Gulf Area which is building a role as a world hub for aviation, to the more regionally focused Levant and North Africa. I will try to keep my comments general to the common issues of the region. But as we are in the Gulf area, please excuse me if I use that part of this region as the backdrop for my remarks.

State of the Industry

These are challenging times for airlines. The industry made $15.8 billion in 2010—the most that it had ever made in absolute terms. But the net profit margin was just 2.9%. This year we expect profits to fall to $6.9 billion for a net margin of 1.2%.

For 2012, we expect a further deterioration in profitability to $4.9 billion for a margin of just 0.8%. On the cost side, we see limited relief in oil prices---with a slight slip to an average price of $100 a barrel. That will produce a $201 billion bill that consumes on average 32% of costs. And there is good reason to expect weakness in demand. The European debt crisis continues to deepen. We have not seen the job creation needed to put the US recovery on track. And the challenges of the political situation in the Arab world also could well continue into 2012.

October traffic figures are in line with this expectation. The pace of global passenger traffic growth slowed to 3.6%. And cargo continues in negative territory with October demand being 4.7% below previous year levels.

If we are correct about our 2012 forecast, that will mean that airlines globally since 2001 have lost about $25 billion on aggregate revenues of $5.5 trillion. As I have said many times before, this business is all about turnover….with very little leftover.

We expect Middle East carriers to follow the same trend of declining profitability—from a $900 million profit last year, to $800 million this year and $700 million in 2012.

But the story for this region is growth. In 2004 MENA carriers accounted for less than 7% of international traffic. Today it is over 11%. The double digit growth trend of Middle East carriers over the last years has fueled this expansion. That has slowed this year. Over the first 10 months of 2011 Middle East carriers added 8.8% to capacity while demand grew by 8.0%. With that, the region ranks third in demand growth behind Latin America at 11.9% and Europe at 9.3%.

Robust growth will continue to be a major theme for the Middle East industry. For example, the UAE is expecting 8.5% average annual growth through 2015. If that materializes, in 2015 it will handle 86.6 million international passengers—nearly 30 million more than in 2010. And it will be the 8th largest market for international travel—only slightly smaller than China at 90 million passengers and well ahead of Japan at 70 million. This will be an extraordinary achievement.

Building the Future

The expectations for the future of MENA are bright. We saw this confirmed with aircraft orders topping $60 billion at the recent Dubai Air Show.  And the region is preparing well with $100 billion in airport infrastructure investments.

One of the challenges is to handle that growth efficiently. Our host Etihad and Abu Dhabi International airport are a great example of cooperation to deliver efficiency. Working together they are among the first six airport-airline pairs to implement all six self-service options in IATA’s Fast Travel initiative—check-in, baggage tagging, document check, flight re-booking, self-boarding, and baggage recovery. Another example is Emirates which tops the charts of airlines implementing e-freight. Nearly 37% of their eligible freight shipments take advantage of the more efficient e-freight process.

Both show that this region is a leader in adopting global best practices to prepare for the future. And we look forward to working with AACO and the airlines to include these innovative concepts in all the region’s airport infrastructure projects.

Today I would like to discuss the broad agenda of MENA’s potential for innovations in safety, security, infrastructure and the environment.

Safety

Safety comes first. It is the industry’s top priority. Western-built jet hull loss statistics up until October show an industry average of one for every 2.7 million flights. In the Middle East the hull loss rate is one accident for every 1.2 million flights. That is basically unchanged from the October 2010 result. Flying is still the safest way to travel, but there is always room for further improvement.  And the challenge is made more complex with growth.

Global standards are the way forward on safety. The region has done a good job of implementing the IATA Operational Safety Audit (IOSA). AACO has made it a condition of membership. Of the 372 airlines on the IOSA registry, 35 of them are from MENA.

The IATA Safety Audit for Ground Operations (ISAGO) is helping us to tackle the problem of ground damage which, in addition to being a serious safety issue, is also a $4 billion cost. MENA has been very active with 27 of the 132 registrations being in the MENA region. Six of the region’s airlines are members of the audit pool. And, along with being mandated by the government of Lebanon, relevant authorities in Kuwait, Jordan, the UAE and Oman have given ISAGO their endorsement.

Global standards must also constantly improve. I look forward to the support and cooperation of AACO as we move forward with the Enhanced IOSA program which will develop an even greater focus on quality assurance and the implementation of standards within the IOSA audit. We are targeting full implementation within 2014.

Security

We must also take an approach based on cooperation and global standards in addressing security. It is a government responsibility but can only be delivered in cooperation with industry.

This year marked the tenth anniversary of the tragic events of 9.11. Air transport is far more secure today than it was back then. But that has been achieved at an enormous expense—a cumulative total of $100 billion spent by airlines and governments. And at the same time, security has become the biggest point of dissatisfaction for many travelers. Too often it is slow, unpredictable and overly intrusive.

During my time at IATA, I want to see major innovations in the way that we do security—starting with the airport checkpoint. Although we have grafted processes and technology onto it, today’s checkpoint still functions very much as it did 40 years ago--when its purpose was to catch hijackers by detecting metal objects. It works, but it will not be sustainable as passenger numbers grow to the levels I described earlier.

Checkpoint of the Future will bring two important innovations:

  • First, a risk-based approach to differentiate screening based on what we know—or don’t know—about the passenger. This includes the possibility of voluntary known-traveler programs to help expedite the process. And I want to be clear that this is in no way profiling on racial or religious grounds. We only want to use data that is already being provided to and used by governments for immigration processes at the end of a passenger’s journey to support security at the beginning of that journey. And, any additional data requirements for known traveler programs would be completely voluntary.
  • The second element of the checkpoint is technology. We want to enable passengers to move through the checkpoint without stopping to unpack or remove layers of clothing. This is not science fiction. There are developments in the pipeline that could see this realized within seven years.

But there is no need to wait. Repurposing current equipment and using passenger data could reduce current waiting times by up to 30% .We are moving fast. Already 12 states and Interpol have signed a statement of principles supporting the concept. So far none is from this region. I look forward to working with AACO to ensure that your governments become part of this global initiative.

Last year’s Yemen printer cartridge incident reminded us that cargo security must also be addressed with a risk-based approach. But there is no Checkpoint of the Future solution for cargo—nor should there be. The innovation needed is to secure the supply chain. That means shippers, freight forwarders, airports, airlines and regulators working together on a multi-layered approach combining advanced electronic information and physical screening. ICAO is aligned with this vision. And it is already being implemented in the UAE.

I look forward to working with AACO to promote these innovations across the region. Both are critical to securing the region’s future growth.

Infrastructure

One of the biggest challenges that I see for the region is infrastructure. Airports have ambitious expansion plans, but I am concerned for the potential bottlenecks in the sky.

In the Bahrain, the Emirates and Muscat Flight Information Regions, movements are growing by 11% annually. That will double traffic every seven years.  This is made more complex by a growing dimension to the region’s traffic. Traditionally traffic flows have been north-south. Now east-west movements are growing in volume.  And all of this growth must be accommodated in just 40% of the airspace permanently accessible to aviation, whilst the rest is under military control and under restricted access or off-limits to civilian aircraft.

Cooperation in a coherent regional approach is needed to manage the growth safely and efficiently.
There are three priorities: (1) more route options, (2)   harmonization of technology and operations and (3) flexible use of airspace in cooperation with the military.

CANSO is a key partner.  We are supporting their Middle East Regional Airspace Review to provide sustainable air traffic management solutions for the short, medium, and long-term.

And under the acronym MEAUSE for Middle East Airspace Users and Stakeholder Engagement, we are working to link governments, suppliers, ANSPs, the military, airlines and airports to ensure alignment of air navigation and airport investment plans with the needs of the airspace users—both civil and military.
We all have high expectations that this innovative regional approach will clear bottlenecks and ensure that airspace capabilities keep pace with the region’s growth. 

Environment

Environment also needs cooperation but with a global—not regional—approach. COP-17 began in Durban this week. Aviation is represented through IATA and the Air Transport Action Group (ATAG)—engaging with delegates and communicating our strong track record and proactive approach.

Aviation has a good story to tell. As you know, aviation is committed, as a united industry value chain, to improve fuel efficiency by 1.5% annually to 2020, cap net emissions from 2020 and cut net emissions in half by 2050 compared to 2005 levels. To help guide this process, Etihad chairs the IATA Environment Committee, with Qatar Airways as a member, and AACO is a regular observer.

I was at the IATA Fuel Forum earlier in the month where much attention focused on sustainable biofuels. With the potential to reduce aviation’s carbon footprint by up to 80% when calculated over the lifecycle of the fuel, sustainable biofuels are a potentially game changing innovation. They are tested, approved and being used on some commercial flights. The challenge is commercialization—to increase the supply and reduce the cost. To do so, and create jobs in the green economy, we need a united voice asking governments to construct the fiscal and legal frameworks to support the development of a successful biofuels industry.

This region is also involved in the development and testing of the use of alternative fuels, including biofuels. And Qatar Airways is a pioneer in this area. The UAE is also investing heavily in biofuels with its IRENA project.

Unfortunately, the attention of governments is being distracted by Europe’s unilateral plan to include international aviation in its emissions trading scheme (ETS) from 2012. The industry has long opposed this because regional schemes distort markets and open the door to a patchwork approach of conflicting, competing or layered measures including taxation.

But let me also be clear in stating that the industry supports market based measures—including emissions trading—as a key pillar of our environment strategy. But such measures must be globally coordinated through ICAO.

States are now expressing very clearly their opposition to Europe’s ETS. They see the extra-territorial imposition of taxes as a threat to their sovereignty. The US is debating legislation preventing its carriers from participating. And recently the ICAO Council agreed to a Declaration, sponsored by 26 states, urging Europe to abandon its plans and to support a global solution through ICAO.

Europe is trying to defuse the situation by aggressively promoting the concept of equivalent measures to be negotiated on a state-by-state basis with no defined criteria. Following such an approach would open the door to layered, conflicting and duplicated taxes and measures. It would be a nightmare for the industry and no substitute for a global approach under the leadership of ICAO. We must remain united as an industry and avoid any legitimization of Europe’s extra-territorial approach with the acceptance of equivalent measures. Our message must be clear:

  • To appreciate Europe’s efforts which pushed the issue of aviation and the environment onto the global agenda
  • To strongly urge Europe to change course and put its best efforts towards achieving a global solution through ICAO

Benefits of Aviation

As you can see, I am passionate about the air transport industry. Having spent 33 years in the business, it is only natural.

I believe that every airplane that takes off carries with it almost infinite possibilities. It connects people and commerce, creating wealth—both material and of the human spirit. Aviation is the lifeblood of the global economy, supporting 33 million jobs and $3.5 trillion in economic activity. We are privileged to work in this industry…and share a responsibility to ensure its continued success.

This region is more fortunate than most. Governments here—particularly in the Gulf region—have shown an understanding of the economic value that aviation’s connectivity provides. And they have acted to implement policies to support its success.

Other governments have not been as enlightened. In the absence of an aviation policy, the UK levies the biggest aviation tax in the world—the GBP 2.5 billion Air Passenger Duty. The government has ruled out the building of a third runway at Heathrow and has visions of replacing domestic air connectivity with rail. I am convinced that in a few years when the economic damage of this policy neglect is more apparent, people in the UK will look back and wonder why they failed to foster the growth of such a strategic industry.

Let’s not let that happen here. To provide the industry with the economic facts to convince governments of aviation’s power to drive economic prosperity, IATA has commissioned a series of 54 national studies from Oxford Economics to quantify the benefits of aviation.

We hope to complete studies on Jordan, Lebanon, Saudi Arabia, Egypt and the UAE soon. A study completed for Singapore—which like this region has defined its global role based on connectivity—shows that aviation creates119,000 jobs and 5.4% of GDP is linked to aviation.

We have received excellent cooperation from AACO and the airlines in preparing the MENA studies. Thank you for that cooperation. I am sure that they will produce equally impressive results that will support positive aviation policies to create opportunities across the value chain. So I encourage all of our partners to provide as much input and data as possible to ensure a robust and convincing result.

Conclusion

I am optimistic about aviation in the MENA region and look forward to working with AACO and our members to help it reach its full potential. There can be no doubt that the growth of aviation has helped to transform the regional economy. It is also changing the global industry. Along with the strong growth that we see in Asia and Latin America, aviation’s center of gravity is shifting both to the south and to the east.

IATA, like AACO is your association. WE are at your service—adapting to change, keeping your money safe in our financial systems, providing innovative solutions and promoting global standards as well as supporting regional applications for the safe and efficient development of aviation.

I know how much airlines count on their associations. Under my watch, IATA’s goal will be to add value to our members and to be responsive to your needs. To this end, our Board Meeting later this week will review the work of the Board Task Force on governance. The goal is to bring more transparency and accountability to the association. Several carriers from this region also contributed to this effort, taking the time to visit us in Geneva. I appreciate your support. It assures me that IATA is relevant to your needs.

And I look forward to your continued guidance and feedback on how we are doing.

We are privileged to work in an amazing industry. Aviation has turned our planet into a global community. That is a great achievement, of which we can and should be proud.

It is our responsibility to continue to work together, with a common voice and vision. In doing so, we will achieve a safe, secure, efficient and environmentally responsible aviation industry supporting sustainable economic development in MENA…and globally.  

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