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Date: 27 February 2013

Remarks of Tony Tyler at a Media Roundtable in Taipei

Good morning and thank you for joining us this morning.  It is great to be in Taipei. While I have visited many times during my over 30 years at Cathay Pacific, this is my first visit as IATA’s Director General and CEO.

IATA

IATA is the trade association of the world’s airlines and was established in 1945. Today our 240 member airlines, including China Airlines, EVA Air and TransAsia Airways, account for 84% of global air traffic. We have a long relationship with Chinese Taipei, having set up our office here in 1990.

IATA’s mission is to represent, lead and serve the airline industry, and our vision is to be the force for value creation and innovation driving a safe, secure and profitable air transport industry that sustainably connects and enriches our world.

State of the Industry

From that vision, you can clearly see that one of our aims is to deliver value that helps our members to do business effectively. And the aviation industry is a tough business to be in. In the decade between 2003 and 2012, only five of the years saw profits. And calculating the cumulative profit of the last 10 years, the industry barely broke even on revenues of $5 trillion. 

In 2012, airlines managed a profit of $6.7 billion. Given headwinds that airlines faced—particularly weak economies, high fuel prices and a stagnant air cargo sector—it was amazing that they made any money at all. Improvements to the industry structure and careful management of costs combined with continuously growing passenger demand for connectivity kept airlines in the black with a 1.0% net profit  margin (on revenues of $637 billion). 

This year, we expect a slight rise in profits to $8.4 billion for a net profit margin of 1.3%. 

Asia-Pacific carriers have been consistently profitable. But these profits have become increasingly thin. In 2010 the region’s airlines made $11.4 billion profits. That fell to $5.4 billion in 2011, then to $3.0 billion last year. Soft cargo markets and slower economic growth in China, on top of the weak global economic situation and high fuel prices, are behind this downward trend. For 2013 we see a slight increase to $3.2 billion.

Overall, 2013 is going to be another difficult year for airlines—in Asia-Pacific….and in most markets for that matter.

Sustainability

Yesterday I spoke at the Greener Skies conference in Hong Kong.  Environment is a top global issue and airlines take their responsibilities very seriously.

Aviation represents some 2% of global manmade carbon emissions. Aviation’s license to grow is contingent on our ability to do so sustainably. Airlines, airport, air navigation service providers, and manufacturers have agreed to a four pillar strategy of:

  • Investment in new technologies
  • More efficient operations
  • Better infrastructure
  • And positive economic measures—now more commonly known as market-based-measures or MBMs.

MBMs have been in the news—particularly Europe’s plan to include international aviation in its Emissions Trading Scheme (ETS)—unilaterally and extra-territorially. Last November the European Union “stopped the clock” on extending its ETS plans for international aviation.  This was welcomed by governments and industry as it defused a potential trade war. With the clock stopped, governments can focus on finding a global solution through the processes of the International Civil Aviation Organization (ICAO) for approval at the ICAO Assembly in late September.

Reaching a global deal will not be easy. But aviation has a history of agreeing and implementing global standards. It started with safety…and air travel is incredibly safe as a result. And the same tradition is extending to environment.

Work is going on in earnest in advance of the ICAO Assembly. Specifically, ICAO is exploring three options for a global MBM:

  • A carbon offsetting scheme where an airline would have to buy carbon credits to cover any excess emissions over an agreed baseline.
  • A carbon offsetting scheme combined with a revenue generating component. A further charge would be linked with credits being bought, and the extra revenue would be used to support further environmental mitigation projects.
  • A non-discriminatory, non-distortive global ETS.

An agreement on MBM’s will be critical if the industry is to meet its target of Carbon Neutral Growth (CNG) from 2020. And to help governments in their process, we are working with our members, and under the direction of our Board of Governors, to find an agreement on the fairest way to share the burden of CNG 2020 among airlines. That will require a compromise because the implications of CNG 2020 will impact airlines very differently depending on their circumstances. The situation for airlines in fast growing regions will be very different from those in mature markets, for example.

Finding a compromise among the airlines will not be easy. But it is essential in order to present a unified front as an industry. Otherwise, there is a very real risk that we will end up with a patchwork of measures that would be a disaster for our global industry.  

MBMs are only intended to be a temporary measure until technology, operations and infrastructure can provide the long-term solution to managing aviation’s emissions. We need governments to support the development of sustainable biofuels and sort out more efficient air traffic management.

Benefits of Aviation

The Asia-Pacific region is the largest regional market for air transport in the world. In 2011, the region represented 29% of global passengers. This will increase to 33% in 2016, ahead of North America and Europe both of which will represent 21%. 

By 2016, airlines are expected to carry some 3.6 billion passengers. This is about 800 million more passengers than the 2.8 billion carried in 2011. Passenger growth within the Asia-Pacific region is expected to add around 380 million passengers. Routes within or connected to China will account for 193 million new passengers. And if we look at international freight, 57% of global cargo will be carried on routes within and connected to Asia-Pacific. 

Chinese Taipei is very much a part of the Asia growth story. We expect international passenger growth of 5.8% annually (compounded) over the five-year period. And international freight is expected to grow by 2.1% annually over the same time frame.

Aviation is an important contributor to the economy.  IATA commissioned a study by Oxford Economics to understand the benefits aviation brings to Chinese Taipei. The study found that aviation and aviation-related tourism support some 2.6% of GDP in Chinese Taipei and 2.7% of jobs here. In real numbers that’s NT$357 billion of business and 281,000 jobs.

Aviation is a catalyst for economic growth.  Its success brings opportunities, business and jobs.  Hence it is critical to ensure that the right policies are in place to support the sustainable growth of aviation to reap the maximum benefits that it can bring to the economy.

Capacity and Cost Effectiveness

One area that needs effective policy measures is infrastructure development.  The Taoyuan Aerotropolis Project was launched last year to transform Taoyuan International Airport into an aviation hub in Asia-Pacific. This includes the construction of a third terminal and runway. 

Investing in additional capacity will ensure Chinese Taipei has effective global connectivity and is able to handle the additional traffic projected for the region. Other airports in the region are also doing so – Singapore is building a fourth terminal while Hong Kong is planning a third runway. It is important that infrastructure here keeps pace with Asia’s growing demand.

But success is not just about expanding infrastructure and getting bigger. It is critically important that the facilities meet the real requirements of the customers – the airlines operating at the airport. I would urge the airport authority to engage airlines in consultations through well-established IATA forums that have provided positive feedback to successful airport projects around the world.

It is also critical that the airport is cost efficient.  The airport charges at Taoyuan International Airport are competitive with hubs in Bangkok, Hong Kong and Singapore. It needs to stay that way. The airport was corporatized in 2010. If that brings a stronger customer focus and the flexibility to meet market demands more quickly, that’s great. But there is a need for oversight to ensure that the airport continues to balance many interests, not take advantage of its natural monopolistic  situation, act as a catalyst for economic activity, remain competitive and serve the needs of its customers with high quality services. In other words, the focus of the corporatized entity must be broader than profit maximization. For that, I would urge the establishment of a strong independent economic regulator. And I will be bringing this to the attention of officials in all my meetings here today.

I am happy to take your questions.

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