Date: 27 September 2012
Remarks of Tony Tyler at a Media Roundtable in Manila
Thank you for joining us this morning. It is a great to be in Manila. While this is my first visit here as the Director General and CEO of IATA, I had visited Manila quite often in my previous life with Cathay Pacific. And Manila has a special place in my heart as it was my first overseas posting in my career with the airline.
Before I address the aviation issues facing the Philippines, let me first give a quick overview of the state of the global airline industry.
State of the Global Air Transport Industry
Let me start with a brief word on the industry’s financial performance. Our latest forecast was made in June when we held our Annual General Meeting in Beijing. At that time, we saw the world’s airlines returning a global profit of $3 billion. That may sound like a healthy profit. But keep in mind that this is the outlook for a capital intensive global industry that is expected to take in about $631 billion in revenues this year. So the result is a 0.5% net margin—average on a global basis.
We will be revising our forecast next week. That will take into account
- Volatile oil prices which recently peaked at $115/barrel (Brent) after reaching a low of $89/barrel in late June.
- The complex global economic situation—with slowing growth in China, a Japanese economy that faltered after a strong start to the year, the emerging European sovereign debt crisis
- And the continued stagnation in cargo while growth in passenger traffic slows
It will be interesting to see how all of these factors interact. And I do hope that you will follow the announcement on Monday 1 October.
Benefits of Aviation
The aviation industry faces many financial challenges. And despite its low margins, it plays a critical role in economies around the world—the Philippines included. To measure the industry’s impact, 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 the Philippines.
Aviation is an important contributor to the Philippines’ economy. It supports 35.5 billion pesos of economic activity in the Philippines—equal to 0.4% of GDP – and created some 123,000 jobs. And if we add in the impact of aviation-related tourism, the numbers rise to 192.2 billion pesos—that’s 2.4% of GDP—and some 874,000 jobs or 2.5% of the workforce.
In fact, if we look at tourism, over 98% of foreign visitors arrive by air—as you would expect for a nation of islands. The tourism industry in the Philippines is among the most dependent on air links of any country on the planet.
But the footprint of aviation goes well beyond even that. Millions of people from the Philippines work overseas. Their remittances, as you know, are an important part of the economy. And when you think of it, that is basically an aviation-enabled source of income.
Aviation is a catalyst for economic growth. Its success brings opportunities, business and jobs. And I would argue that air connectivity is an irreplaceable lifeline for this great country.
As I mentioned, I lived here. It was a fantastic experience. I enjoyed the people and the culture. I became a friend of this country…returned many times and can very much relate to the tourism slogan: “It’s more fun in the Philippines”.
As you know, sometimes friends have to say difficult things. And that is what I have to say today. Later today I will meet President Benigno Aquino III. And I will carry with me an important message:
- The Philippines is missing out on great economic opportunities that could be facilitated by air transport.
- This is because the industry has been neglected by successive governments.
- And the result is that aviation in the Philippines has a bad reputation for safety, inadequate airport capacity and high taxation.
- It’s time for change.
Let’s start with safety…our number one priority.
The Philippines has been on the Category 2 list of the US Federal Aviation Administration (FAA) International Aviation Safety Assessment Program since 2008 as a result of deficiencies identified in the Universal Safety Oversight Audit program of the International Civil Aviation Organization.
The Philippines has also been on the EU banned list since 2010. IATA believes that
the EU banned list is not the right approach to improve safety. Regardless, there is a lack of confidence in the safety oversight capabilities of the Philippines. And, although the listings are related to government oversight capabilities, it is the airlines that suffer.
IATA does not produce banned lists or rankings. Our focus is on raising the bar on safety. One of our main safety programs is the IATA Operational Safety Audit (IOSA). It is a condition of IATA membership. It is an open standard. We have 240 airline members. There are 380 airlines on the IOSA registry. Many governments—Brazil, Mexico, Turkey and Egypt among them—use IOSA as part of their safety oversight requirements. And the safety performance of the carriers on the registry in 2011 was 52% better than that of those airlines not on the registry. So IOSA makes a positive difference.
Philippines Airlines (PAL) has met IOSA’s 900+ standards and has been on the IOSA registry since 2006. That means that it is operating to the highest standard of global best practice for operational safety management. Even so, PAL is not able to expand its operations to the US. And it cannot fly to Europe. And—along with the rest of the Philippine air transport industry—it is tarnished with the stigma that comes with being on these two lists. And I would argue that the stigma extends to the tourism industry. China and Japan are among the main source markets for tourism to the Philippines. Both are very sensitive to safety issues.
I will be urging the President to personally intervene to sort this out. IATA certainly stands ready and willing to help. IATA has been providing support to improve the safety and efficiency of the air traffic management through observation programs of air traffic control (ATC), training for Civil Aviation Authority of the Philippines (CAAP) personnel and development of procedures to improve operational efficiency. We have also facilitated working groups to identify airport safety hotspots and review ATC procedures.
But it will take more resources and a stronger commitment to close the oversight gaps—including staffing and training of oversight personnel. I would also urge the government to make IOSA and the IATA Safety Audit for Ground Operations (ISAGO) requirements to operate in the Philippines. There is no cost to the government. PAL has already proven that the IOSA standard is achievable. Filipinos live on thousands of islands spread far and wide. Air transport provides crucial connectivity. They expect the government to provide oversight in compliance with global standards.
The Philippines also deserves better airport infrastructure. Arriving at T1 yesterday brought a very strong sense of deja-vu. It was being constructed when I worked here in 1979. It has not changed much since that time. For me that brought back some fond memories. But for arriving tourists and businesspeople it is a memorable welcome—and mostly for the wrong reasons. It is a congested and chaotic experience.
The airport is operating near capacity. And there does not seem to be any possibility for significant expansion at the current site. Some say that Clark has potential to provide capacity relief. But it is 100km away with very inconvenient surface transport links.
Failure to make appropriate investments in air transport is leaving the Philippines behind in the Asian economic growth story. Look around the region. In the last 15 or so years we have seen whole new airports open in Hong Kong, Nagoya, Seoul, Kuala Lumpur, Shanghai, Guangzhou and Bangkok. These countries place aviation connectivity as a core component of their economic strategy. And they have invested in the infrastructure to support the air transport links. And they are reaping the economic benefits.
The World Economic Forum’s Travel and Tourism Competitiveness Index ranks the Philippines 112 out of 139 countries for the quality of its air transport infrastructure. The only Asian countries to rank lower are Nepal, Bangladesh and Mongolia.
The Philippines has a rich aviation history. PAL was the pioneering airline in the region. Considering this, the state of air transport infrastructure in Manila is nothing short of a travesty.
And this is holding back the development of this great country.
So I will be urging the President to make a hub airport for Manila a priority. Building a secondary airport or increasingly splitting the traffic with Clark in its current form will not be sufficient to put the Philippines on the same playing field as its much more competitive neighbors.
Of course, that is not going to happen overnight. And in the interim period we need to maximize the potential of the current facilities—both the terminal building and airside. The implementation of the IATA Worldwide Slot Guidelines is now complete. And we are eager to work with the authorities on further solutions. And at the same time we need to unfreeze a major upgrade of the air traffic control system which is badly needed.
Lastly, I will be urging the President to keep a watchful eye over excessive tax burdens on air transport. For example, elimination of the Common Carrier Tax (CCT) and Gross Philippine Billings (GPB) will create “win-win” opportunities by lowering the total cost of international passenger travel by 2.5%, and increasing the number of international arrivals and departure in the Philippines by 1.9%. Removing the CCT and the GPB taxes would mean a potential gain of up to US$78 million for the wider Philippine economy from increased tourism. And there would be a positive impact on cargo and exports.
IATA has been working closely with the Board of Airline Representatives in the Philippines on this issue. I am hopeful of speedy progress on the tax issues. I wrote to President Aquino earlier this year to bring his attention to the urgency of eliminating these taxes. I am encouraged that the lower House of Congress has passed a Bill to eliminate these taxes and it is now with the Senate. I look forward to the speedy passing of the Bill.
I have said some tough things this morning. I am passionate about aviation and the good that it can do—being a catalyst for economic opportunities that will create jobs and support social development.
In February, Transportation Secretary Manuel “Mar” Roxas II urged his counterparts in the member-nations of the Asia-Pacific Economic Cooperation (APEC) to align policies and programs on air transportation to open more markets and exploit the growing air passenger traffic in the region. He made this call at the opening of the APEC Tourism Destination Conference here in Manila.
I fully support that vision and IATA continues to work with APEC and the Philippines government towards this goal. But the work needs to start at home. And the Philippines needs a vision for aviation that is big, tied together with joined-up thinking and with a long-term focus on enhancing competitiveness. Only then will the Philippines fully achieve the economic benefits that aviation makes possible.
We are making some progress on long-standing tax issues. But to be really effective, the Philippines must get to global standards on safety oversight and provide the air transport infrastructure needed to welcome growth and development. I hope that newly appointed Secretary for Transport, Joseph Emilio Abaya, will make aviation a priority.
For tourism, “It’s more fun in the Philippines” is a great motto. For aviation, the goal should be to be able to say that “It’s more competitive in the Philippines.” We have a long way to go and some big issues to tackle. But connectivity is so fundamental to this nation. We cannot afford to fail.
We have a full agenda for the Philippines. I look forward to your questions.