Date: 7 June 2012
Remarks of Tony Tyler at the 68th AGM Curtain Raiser Press Conference
Good morning everyone and thank you for joining us today. As some of you will know, I was just in Beijing a few weeks ago for the China Civil Aviation Development Forum. It is always a great pleasure to visit China and witness the dynamism and growth that characterize this part of the world.
China is playing a key role in global aviation. Last year, Chinese airlines accounted for half of the industry’s global net profit. The scale of aviation infrastructure development that we see here is unprecedented, with plans to open 70 new airports between 2011 and 2015. And of course, IATA has a long history of partnership in the development of civil aviation in China.
Beijing is home to our largest regional office with nearly 100 employees. We have 19 Chinese members—11 of which are based in the Mainland of China. China is also home to our largest volume settlement office in the world when measured by ticket volume. In 2011 we handled some 130 million tickets. And we have a history of working with the industry here on projects ranging from e-ticketing - China was the first country in the world to convert to 100% e-ticketing - to working alongside the Air Traffic Management Bureau and the military authorities to help implement new routes and more efficient procedures to handle China’s phenomenal growth. In fact one of the country’s most important international air routes is unofficially known as IATA-1, owing to the Association’s close cooperation with the Chinese authorities in its establishment.
All that makes China a great choice to host IATA’s 68th Annual General Meeting (AGM) and World Air Transport Summit. For the time between 10-12 June, Beijing will be the capital of the global aviation industry. We expect some 650 delegates from among our 242 members to be in attendance along with the senior management of many of our industry partners—aircraft and engine manufacturers, airports, air navigation service providers, and others.
Our host for the event is Air China. This will be only the second time that the IATA AGM is being held in China. The last time was in 2002 in Shanghai, at the invitation of China Eastern Airlines.
Just to put into perspective the growth of Chinese aviation over those 10 years, in 2002, Beijing Capital International Airport handled 27.2 million passengers, placing it 26th in terms of passengers. Last year, it handled 77.4 million passengers and ranked second in the world, according to Airports Council International figures.
As you will see from the program, we have an impressive line-up of speakers. Along with some key Chinese dignitaries, we will also be honored with the presence of Roberto Kobeh Gonzales, President of the Council of the International Civil Aviation Organization (ICAO) and several of the industry’s most prominent CEO’s will be on panel discussions:
- Liu Saoyong, President and Chairman of China Eastern Airlines
- Akbar Al Baker, CEO of Qatar Airways
- Piyasavasti Amranand, President of Thai Airways
- Alan Joyce, CEO and Managing Director of Qantas Airways
- John Slosar, CEO of Cathay Pacific Airways
- Azran Osman-Rani, CEO of AirAsiaX
- Willie Walsh, CEO of International Airlines Group
- Rob Fyfe, CEO of Air New Zealand
As you will see from the program, they will be joined from leaders in the finance and technical fields.
State of the Industry
Our members will be gathering here in some very challenging times. Our last financial outlook for the industry was in March. At that time we forecast an industry profit of $3 billion on revenues of $633 billion. That is a razor thin net margin of just 0.5%.
Industry profits peaked in 2010 at $15.8 billion. They were halved in 2011 to $7.9 billion. And, as I mentioned, they will be even weaker again this year.
One of the toughest issues that we face is the high price of fuel. Our March forecast was based on an average oil price of $115. For the first five months of the year, Brent crude price averaged just under $118/barrel. And the most recent spot prices are just below $100. That is welcome relief for airlines. But let’s also remember how dramatically fuel costs have risen for airlines. Today fuel represents about 34% of average costs. A decade ago—when our AGM last met in China—that figure was 14%. And as we have seen happen in the past, political events outside our control could push the price higher very quickly.
The other major challenge is the state of the global economy. Since we made our forecast in March, the Eurozone crisis has deepened. The European political landscape continues to change. Should the Eurozone fall into a deep recession the repercussions would be global. Of course, they would be centered on Europe, which is already the weakest major region financially, but we are already seeing an impact in terms of declining demand in Europe for goods made in Asia.
Our March forecast saw:
- Europe losing $600 million
- Asia-Pacific making $2.3 billion
- North America having a profit of $900 million
- The Middle East profitable at $500 million
- Latin America showing profits of $100 million
- And African carriers losing $100 million
On Monday we will announce a revised outlook. It will take into consideration the risks of oil and the Eurozone as well as the positive impact of very strong traffic growth.
April passenger traffic was up 6.1% on the previous year. This was led by Middle East carriers that saw a 16.1% increase in passenger traffic over the previous April. Asia-Pacific was next in line with 8.7% growth. Europe and North America were growing below trend at 5.6% and 1.3% respectively. Africa grew 6.2%.
Strong growth is good. And airlines are exerting very tight capacity management. Against the 6.1% growth in demand, capacity only grew by 3.8%. As a result we saw a record load factor for April of 79.3%.
We have also seen some improvement in cargo. April cargo traffic was down by 4.2% on the previous year. This reflects the sharp drop that we saw mid-year in 2011. But cargo volumes have bottomed out—showing a 2% improvement on November 2011 levels. Most of this improvement—some 80%--has been captured by Middle East airlines.
The combination of strong passenger traffic, a bottoming out of the cargo market, high but slightly softening oil prices and economic uncertainty continue to make this a challenging business.
Financial performance will not be the only issue that the AGM will address.
One of the most topical subjects will be the growing dispute over the extension of the European Emissions Trading Scheme (ETS) to international aviation. China is at the forefront of that discussion. As you know, Chinese carriers are prohibited from participating. Nobody wants a trade war. But China, Russia, and the US are among more than two dozen countries that see Europe’s plans as an attack on their sovereignty.
Even Europe recognizes that the best solution must be globally coordinated through ICAO. We can look forward to some lively discussions on how this might be achieved.
The growing tax burden imposed on aviation by revenue-hungry governments is also expected to be discussed. Too many policymakers in other parts of the world see this industry as an easy revenue source to help refill empty treasuries. They need to understand that aviation’s real value is as a catalyst for economic growth, supporting 56.6 million jobs around the world and 3.5% of global GDP. Fees and taxes that make air travel more expensive are a growth killer. It is a message we will emphasize at the AGM and throughout the next year.
We must also find ways to persuade governments to move beyond simplistic answers to complex operational issues that are often out of airlines’ control. Poorly thought-out regulations that place stiff penalties on airlines for flight delays and cancellations impose a heavy cost on the economy, while doing little to address underlying issues that lead to these situations. The airline industry is among the most competitive businesses in the world. If passengers are unhappy about their experience with one airline, there are quite a number of others eager for their business.
Additionally we will have a series of discussions focused on:
- Doing business in China
- Social Media
- The economic and social benefits of aviation
- Sustainable biofuels
- And the development of new distribution systems