Date: 24 September 2012
Remarks of Tony Tyler at a Media Roundtable in Seoul
Thank you for joining us this morning. It is a pleasure to be in Seoul. This is my first visit here as the Director General and CEO of IATA. But it is a city that I visited quite often in my previous life with Cathay Pacific.
Before I address the aviation issues facing Korea, let me first give a quick overview of IATA and the state of the global airline industry.
IATA is the association of the world’s airlines. We were established in 1945—so we have a long history. And today the association represents some 240 airlines—from all parts of the world and with a wide variety of business models.
The work that we do helps to facilitate a safe, efficient and sustainable air transport industry that connects nearly 3 billion travelers and over 47 million tonnes of cargo.
Some examples of how we achieve this include
- The IATA Operational Safety Audit (IOSA) is the global standard for operational safety management. It is a condition for IATA membership and over 380 airlines are on the IOSA registry. Last year, the safety performance of carriers on the IOSA registry was 52% better than the performance of airlines that were not on the registry.
- Many of the technology-enabled changes in the passenger travel experience use IATA standards—from e-ticketing and bar-coded boarding passes to self-service kiosks.
- And we run a global financial system for the air transport industry that annually handle in the range of $350 billion annually. This system allows you to purchase a ticket in a single currency in Seoul for travel in any part of the world.
As we you can see, we are deeply involved in the air transport industry. And that gives us a unique insight into the industry’s challenges and opportunities.
State of the Global Air Transport Industry
In June, we announced that the airline industry will make $3 billion global profit on revenues of some $631 billion this year. That’s a 0.5% profit margin. Asia Pacific carriers will lead the regions with $2 billion profits while Europe’s carriers are expecting to make a loss of $1.1 billion—the result of sluggish economies, high taxes and inefficient infrastructure.
Since June, there have been other developments. On the freight side of the business, traffic growth slowed continuously from mid-2010 until the end of 2011. It has stabilized, but there has been basically no growth since the beginning of the year. Purchasing managers are giving no signs of an imminent return to growth. And stiff competition in the face of weak demand is driving yields down.
On top of slowing demand growth, we are seeing rising costs. Oil prices declined steadily over the first half of the year to a low of $89/barrel in late June. Now Brent is trading around $115/barrel. As fuel accounts for about a third of airline costs you can certainly imagine how difficult the situation is.
These developments will be factored into our revised industry forecast, which we are announcing next week on 1 October. At the same time, we will give a first peek into what we expect for 2013.
Benefits of Aviation
Over the last year, IATA worked with Oxford Economics to quantify the benefits that aviation brings to economies. Fifty eight national studies were completed, including one for Korea. A factsheet on the study is included in your press kit.
Aviation has a significant footprint in the Korean economy. It supports 8.3 trillion won of economic activity in Korea—equal to 0.8% of GDP. In doing so, employment is created for some 140,000 people. And if we add in the impact of aviation-related tourism, the numbers rise to 23.1 trillion won—that’s 2.2% of GDP—and some 488,000 jobs or 2.1% of the workforce.
The impact of aviation goes well beyond what jobs and GDP figures can describe. Aviation enables business. Could Korea have grown to become the world’s 15th largest economy without effective air links? And this year it become the seventh country to join the 20-50 club—having a population of 50 million and average per capita income exceeding $20,000. These are amazing achievements. And they would not have happened without connectivity to world markets.
Efficient connectivity does not just happen. It is the result of the interactions of a complex value chain of airlines, airports, air navigation service providers, agents, freight forwarders, manufacturers and so on. And their activities are deeply impacted by government policy initiatives.
In general, Korea has a created a strong framework for the success of air transport. Air transport contributes 2.2% to Korean GDP compared to the 1.0% that it comprises in Japan. That has not happened by chance. Ticket taxes and airport charges are one component of the World Economic Forum’s Transport and Tourism Competitiveness Index. Of the 139 countries surveyed, Japan was among the least competitive—ranking at 106. Meanwhile, Korea was among the most competitive—ranking at 33.
Incheon airport is consistently profitable and enjoys a great reputation with respect to the quality of the infrastructure and service that it provides. The challenge is to make Incheon even better. The 10% reduction in charges agreed in 2007 for the period from 2008 to 2010 was a boon to the airport’s competitiveness. Reinstating a similar reduction today would again enhance competitiveness even more.
Whether it be decisions on charges, construction or airport privatizations, it is critical that Korea’s competitiveness be the guiding factor.
Along with keeping costs competitive, the other critical element for a strategy to maximize the benefits of aviation in the Korean economy is dedication to innovation based on global standards.
We have some great examples in Korea. Korea is a leader in the air cargo industry. We are working to improve efficiency in the air freight sector by removing paper documents. The program is called e-freight. And Korean Air is among the leaders with their strong support for the introduction of e-air waybills into the Korean market.
Incheon is also playing a key role in using global standard technology to smooth passenger processes with self-service options for check-in, baggage tagging, travel-document checks, boarding, flight re-booking and baggage tracing as part of the IATA Fast Travel program. The use of biometrics is among the most advanced in the world. And to keep that leading edge we are looking forward to working with Incheon and other key stakeholders in our Checkpoint of the Future initiative. The goal is to use technology and intelligence to remove the hassle of security while making the process even more effective.
And lastly, we appreciate the support of the Government of Korea in focusing on the International Civil Aviation Organization (ICAO) for a coordinated global approach for aviation and climate change. As you know, the industry—including airlines, airports, air navigation service providers and manufacturers—has three sequential targets on climate change:
- Improve fuel efficiency by an average of 1.5% annually to 2020
- Cap net emissions from 2020 with carbon neutral growth
- And cut net emissions in half by 2050 compared to 2005
To achieve these ambitious goals the industry is pursuing a four-pillar strategy based on more technology investments, efficient infrastructure and better operations, and a global coordinated approach to market-based measures agreed through the ICAO.
Unfortunately, the EU Directorate General for Climate Action is single-mindedly focused on a unilateral and extra-territorial approach to market based measures that would see the inclusion of international aviation in the EU Emissions Trading Scheme. Under this scheme, Korean carriers would need to buy carbon permits from Europe to cover emissions over the entire length of flights to and from Europe. Europe would be collecting money for emissions over Korea, China, Russia, Mongolia and any other state that was on the flight path.
Korea is part of a group of some 25+ states which have met in Delhi, Moscow and Washington to make clear their opposition to this scheme. I thank the Government of Korea for its strong support of a globally coordinated approach for market based measures through the ICAO process.
Nobody wants a trade war. So convincing Europe to create the space for success in the ICAO discussions by somehow lifting the immediate threat of its unilateral actions is a top priority.
Korea is a competitive air transport market. And as a result aviation plays a key role directly in the economy—accounting for some 2.2% of GDP. And it supports the tremendous economic success story of Korea with cost-efficient connectivity. IATA looks forward to continuing to work with the Korean government, the industry here and our members—Korean Air and Asiana—to make air transport even safer, more secure, increasingly efficient and with higher level of both financial and environmental sustainability.
I am happy to take your questions.