It’s been 11 months and 11 days since I formally became Director General and CEO of your association. I am very pleased to present the “State of IATA”, a perspective based on my experience over that time.
IATA is 242 member airlines comprising 84% of total air traffic. We cover the world. And I can’t think of another industry association as involved as we are in the business of our members. There are very few parts of global air transport that IATA’s standards, activities, and programs do not touch.
My report this morning is one of the new features of our Annual General Meeting (AGM). It is not a statutory requirement, but I hope that it will contribute to the greater transparency that was called for last year. Even more important, I believe that the more our members understand about IATA, the more engaged they will be in the value that it delivers. That will make our association grow even stronger.
Although I am using the word “our” to describe the ownership that I feel for IATA and its important work, IATA is your association. Your strong support and involvement help me to fulfill my duties, which are to lead your association and deliver value that is relevant to your businesses.
You will also notice that there is a change of focus in the AGM—from the achievements of IATA to the achievements and needs of the industry. That change is also reflected in the Annual Report, which is now the IATA Annual Review. You will see some excerpts from the Annual Review on display here. I highly recommend this as a good read for people in the industry. It is also a useful tool for our stakeholders—particularly governments and partners—to understand the value that airlines create and the issues that we face.
In these first months, I have appreciated the support of our members. I have made it a priority to understand the different needs of our members by getting to know first-hand as many of you as possible. So far, I have taken165 flights and visited 32 countries. If I have not seen you at your headquarters or at a regional association meeting, it is not for lack of effort!
I have also visited many governments to understand their agendas, to advocate for your needs and offer our help in ways that are mutually beneficial.
All of this has been a great education. I brought to this job over thirty years of airline experience. I now have a much deeper appreciation of the many challenges faced by different airlines. I have seen airlines big and small. Each has a unique relationship with its government and operates in a unique environment—some very positive, some less so. We have a diverse global membership. This gives our association strength.
Having listened to our members around the world, I am confident that IATA’s priorities are aligned to support and add value to your business success:
- Constantly raising the bar on safety, security, and environmental sustainability
- Prudently handling $367 billion of your money
- Improving the cost-efficiency of business processes by Simplifying the Business
- Working with infrastructure providers to ensure the right services are offered at a fair price
- And being a passionate advocate for the good that aviation can do with the right business-enabling regulation, a sensible approach to taxation and efficient infrastructure
In his oral report, our Chairman will provide more details on IATA’s activities over the last twelve months, and on our finances, which are in good shape. He will also present governance changes that are being proposed for your consideration as a result of a review that was carried out over the year.
I would like to highlight a few areas where there have been notable changes since our last AGM, and to which I have devoted a healthy share of my time and attention.
Strengthening the IATA Settlement Systems
Among the biggest changes being implemented are those to the IATA Settlement Systems (ISS) that we operate on your behalf. More than 15 years ago the Board decided to incorporate into IATA the settlement activities that were previously run locally and with local rules. The goal was for IATA to deliver value to you by handling your funds more securely and more cost efficiently. Over the years, much has been done to improve, develop, and grow our financial systems. The current leg of the journey is to consolidate all of our settlement operations into five hubs in Amman, Beijing, Madrid, Miami, and Singapore. And we will operate these hubs with modernized controls and standardized business processes.
We are working through this transformation from a strong position in our operational results. In 2011, we handled over $282 billion through the settlement systems, with 99.97% accuracy in the Billing and Settlement Plan (BSP) and 99.99% accuracy in the Cargo Accounts Settlement System (CASS).
We are committed to continuous improvement, including a 23% reduction in the average BSP unit operating charge by 2017 compared with 2010. While improving cost efficiency is at the core of our six-year ISS business plan, I want to emphasize that the modernization of controls is the primary goal of regionalization—not cost reduction.
We are on target to complete the regionalization by mid-2014. And that will bring major changes to our field offices. We have conducted a comprehensive review of our local office roles and resources. The goal of the review was to continue serving our members with ever-improving service levels, particularly in light of two major considerations:
- What do we need to do in each market? And,
- What can we afford, given that BSP and CASS will no longer be paying for the bulk of the office costs?
Our main conclusion was that more of our offices could serve groups of countries. At the end of regionalization we will still serve 229 countries and territories. But we will do it from 45 offices instead of the 59 that we have today.
The regionalization process will strengthen our financial systems. And, with the “back office” work minimized, our local offices will take on a broader role—locally driving global campaigns and bringing the breadth of IATA’s resources closer to members, to add value to your business.
Multi-Year Approach and Stronger Industry Partnerships
When I came to IATA, I found a target-driven culture permeating the organization. The on-time delivery of the ISS transformation is a good example. Targets help to ensure that IATA delivers measurable value on timelines you can count on.
I will continue to use targets as a management tool. But my new colleagues told me when I arrived that IATA was better at hitting its annual performance targets than at setting longer-term goals. The world does not run on a 12-month cycle to suit our targets. Achieving change can be a medium-to-long-term process. So I am setting goals and targets that will drive progress over a longer than annual timeframe.
In line with this, we are re-developing our approach to industry charges for infrastructure, fuel, and taxation. The Board has supported a multi-year approach, which I believe will help us achieve more meaningful savings on your behalf. We have also re-worked how we calculate those savings so that they will more closely reflect the value that you see on your bottom line.
This multi-year work-view will also contribute to another area which I see as strategically important—developing stronger partnerships across the value chain.
Of course, we will always have heated discussions about what our partners expect us to pay for their services. An important part of their revenue is our cost. So it would be strange if it were any other way. IATA will continue to be a strong advocate for the airline interest in building needed infrastructure with cost-efficient charges.
But if we let the issues we have to argue about become the focus of our relationships, we won’t make progress in the many important areas where our interests are aligned.
Environment is an excellent example of what can be done in partnership. Our carbon emission commitments carry much more credibility because the entire air transport sector is united behind industry targets. And certainly the tremendous progress on biofuels could not have happened without a common vision and cooperation by many partners.
It is absolutely vital that we continue to maintain our united approach in tackling the environment challenge. Over the next year, states under ICAO will attempt to agree a global framework for tackling aviation emissions. We will need to keep a strong and united position to ensure the best possible outcome from those negotiations.
The partnership approach can apply even with regard to charges. The Indian regulator’s approval of a 346% increase in charges at Delhi is obviously unacceptable. I have not given up and plan to return there next month. Delhi International Airport has to pay 46% of its total revenues to the government as a concession fee. This is obviously not in the interest of the airlines nor of the viability of the airport. So perhaps this might be some common ground on which to build a solution.
I believe that a partnership approach could also work with governments. Since moving to Europe I have seen first-hand the many frustrations of dealing with the European Commission. Whether it is the Emission Trading Scheme, passenger rights or slots, there is plenty on the agenda to disagree about. But, as I said in my State of the Industry speech, we are also working closely with the Commission to push states towards the Single European Sky and we will continue to add pressure until real results are delivered. And even on some of the more contentious issues we have, I still hope to persuade the Commission to work with us rather than against us.
If we are going to promote partnerships, we must also recognize them publicly when they are successful and particularly when they deliver innovation that adds value to the industry. Today, I am pleased to announce the launch of the IATA Innovation and Partnership Awards. These will replace the Eagle Awards, which were narrowly focused on the cost-efficiency of airports and air navigation service providers.
We have established a highly distinguished independent Selection Panel comprising: Chew Choon Seng, Wolfgang Mayrhuber, Emilio Romano, Jeff Shane and Ashley Smout. Further details of the awards will be released later in the year. And we plan to make the first presentations at our next AGM.
Having discussed organizational changes and our efforts to build stronger partnerships, I would like to update you on four other areas that I am following closely.
The first is safety. 2011 was a record year for safety. But as the two tragic accidents earlier this month in Africa reminded us, safety is a constant challenge. They also remind us that our achievements are not even across all regions. Some regions are struggling. And it is our duty as an industry to ensure that flying is safe everywhere.
Implementing global best practices in safety will help. IATA has nine audit and safety programs that promote such global best practices. But, on average, our members participate in just three. To increase participation—among members and non-members—we are acting locally. Let me highlight a few recent examples:
- In May, the African Safety Summit committed industry and government partners, including the International Civil Aviation Organization, to a five step plan—incorporating many of our existing programs—to address safety deficiencies by 2015.
- In November, I signed an agreement with ALTA, the Latin American and Caribbean Air Transport Association, to make more effective use of safety data to drive improvements.
- And since last year we have been working closely with Russian authorities to incorporate the IATA Operational Safety Audit (IOSA) standards into national regulations.
Checkpoint of the Future
Alongside safety is security. The Checkpoint of the Future is a medium-term project and a good example of successfully working together with experts from the industry—in this case airlines, manufacturers and airports—and with governments. IATA can add value through our unique end-to-end understanding of industry processes through our Simplifying the Business experience. Over the past year, the Checkpoint has evolved from blueprints to a program that is testing processes in some airports.
Direct Data Service (DDS)
Another development that I am following closely is DDS—or Direct Data Service. This is the next evolution in the development of PaxIS. PaxIS adds tremendous value with its unique coverage of travel patterns. It delivers important business insight for airlines and many partners, including airports, tourism authorities, hotels, governments, and others. PaxIS also created a competitive market for business intelligence tools—providing an alternative to the MIDT products of the Global Distribution Systems (GDSs).
The success of PaxIS, however, also brought relentless legal challenges from the GDS community who sought to block the use of airline data for this purpose. To move beyond this and create an even more useful tool, over the last two years we have been working to obtain data straight from the airlines—for both direct and indirect sales. The direct sales data is unique to DDS, making it more powerful than PaxIS or the combined capabilities of MIDT products.
I am pleased to announce that we are launching DDS for sale today.
DDS is, however, only available to airlines that contribute their data. So, thank you to those airlines who are contributing their data to create the critical mass to move forward. And for those who are not yet on board, I encourage you to do so.
Once you participate in DDS you are likely to receive a more “sporty” offer for MIDT, if that is the product you want. We have heard that one of our airline participants has received a substantial discount for MIDT. Competition is good! To get the full benefits, we encourage you to release your data. So please come on board and enjoy the benefits of new competition!
I have also focused on how IATA can contribute to greater innovation in distribution than is currently possible through the GDSs. I understand that airlines cannot afford to miss any more business opportunities while waiting for the GDSs to meet their needs. GDSs and others are of course welcome partners in the process. Our target is to complete the foundation standard for a new distribution capability for approval during the World Passenger Symposium this October.
The new distribution capability will unleash innovation and new entrants that will revolutionize airline relationships with their customers. In parallel with developing the standard, we are evaluating what other innovations IATA can offer to ensure that we are delivering the greatest value to you in this area.
In line with the idea that IATA needs to be as good at thinking long-term as it is at hitting annual targets, I have launched a comprehensive strategy review process. The focus is on how IATA can better deliver value.
The goal is to develop a group of strategic projects that will guide IATA’s activities over a three to five year horizon. Some will be internal—improving how we manage ourselves and our resources—and we will get on with these quickly. Other strategic projects will impact directly what we deliver to members. For these, we will engage with the relevant IATA governance groups and the Board as appropriate.
The process will be successful if IATA is an even better organization in three to five years’ time than it is today—delivering even more value to members through products, services, initiatives, and programs that matter to your bottom line.
In conclusion, I believe that the state of IATA is strong. This association has a highly motivated team of almost 1,400 employees, adept at change and dedicated to adding value to the businesses of our members. The IATA team has given me a very warm welcome and expert support throughout the year. I’m very grateful for their efforts. I’d like to take this opportunity to thank them, and to let them know that I am counting on them for their continued hard work.
I also want to extend gratitude to our Chairman, Peter Hartman, the Board of Governors and to all those who serve on IATA’s committees and working groups. And I want to extend appreciation to all of our members—big and small—for the tremendous support that you lend to make your association successful. And I, and all the IATA team, look forward to your continued guidance.
As I said when you confirmed me in this position a year ago, please help me to help you.