Date: 26 March 2013
Remarks of Tony Tyler - Aviation Day India
Good morning and thank you all for attending this inaugural Aviation Day for India. It is great to see such an august audience led by the Minister of Civil Aviation, Mr. Ajit Singh.
It is a great pleasure to welcome you to the Aviation Day. To have the Union Minister for Civil Aviation makes this indeed a unique occasion and an example of the kind of collaboration and joined up approach that the industry so dearly hopes will help us move forward.
On behalf of IATA, I am extremely pleased that we have partners in the GMR Group and the Confederation of Indian Industry (CII) jointly hosting today’s Aviation Day in Delhi
Today will be my third major speech on Indian aviation in less than a year. I have not spoken this much in or about any other country in my time at IATA. The reason is two-fold. First, India is a great potential market that has only just begun to realize its enormous promise. Second, to realize that potential some huge issues must be overcome.
In the eight months since my last visit, there have been some remarkable developments.
- Air India seems to have come back from the brink. It is starting to address cost and personnel issues while solidifying its domestic market position. It may even be headed for a small operating profit in this fiscal year.
- Jet Airways has attracted the interest of a suitor and could be the first Indian airline to benefit from the relaxation of rules on foreign direct investment, an initiative for which the government deserves congratulations.
- This is also spurring developments in the point-to-point sector as we see Tata group looking to team-up with AirAsia to start a new competitor in the sector.
- That follows, of course, the strong performance of existing carriers in the sector such as IndiGo and Spicejet
But 2012 also brought some big shocks. Over the year, Kingfisher all but disappeared. And the high cost of operating in India—owing in large part to excessive taxes on fuel and rising infrastructure fees—took its toll on domestic connectivity. Against global growth of 4.0% in domestic markets, we saw the Indian domestic market contract by 2.1%.
Running an airline is a tough business. And operating in India presents bigger challenges than most other markets.
And those airlines must compete in a global industry characterized by intense competition and thin margins. Last week we revised our 2013 outlook with the expectation of a $10.6 billion profit. That sounds impressive; until you consider that it is on $671 billion of revenues. The net profit margin is a rather unsatisfying 1.6%.
The Indian Agenda
To be successful in such a difficult environment my previous speeches in India have presented an agenda based on:
- Improving Infrastructure: The most urgent need is to move forward with Navi Mumbai to provide India’s financial capital with the connectivity that it will need for continued success.
- Reducing Costs: Indian infrastructure in general is expensive. Our concerns over the charges increases in India are well-known. And there seems to be a growing list of airports asking for what can only be viewed as unreasonable increases.
- Lowering the Tax Burden: Taxes on aviation in India are an onerous drain on competitiveness. State taxes on fuel can be up to 30%. Globally, fuel averages a third of an airline’s cost. In India it accounts for 45%. And on top of that India imposes a service tax on international travel which goes against International Civil Aviation Organization (ICAO) policies. A similar tax on air navigation services is in direct contravention of the Chicago Convention to which India is a signatory.
Solutions to these must be coordinated across all ministries and levels of government. That is why I have called for India to formulate a national aviation policy. The call was not for special favors or preferential treatment. But rather for a coordinated policy framework that would facilitate growth.
Growth is important for India—not just the aviation industry. Indian economic growth is running at about 5%. That’s near-half of what it used to be. And Finance Minister P. Chidambaram had a difficult job finding the right levers to pull in order to move towards a more balanced budget which creates the conditions for growth and prosperity.
Sadly, once again the Finance Minister did not include the aviation industry in his plans, as a strong catalyst for economic growth—continuing to see it only as a source of taxation.
Benefits of Aviation
It must be recognized that aviation is an important contributor to India’s economy. Aviation and aviation-related tourism in India supports:
- 1.5% of GDP—that’s over 900 billion rupees of business
- and 1.8% of the workforce—which is 8.8 million jobs
And these are good jobs. For those 1.7 million directly employed in transport, each generates about 1.3 million rupees in value added to the Indian economy—or about ten times the Indian average.
Moreover the sector’s growth is a catalyst for economic activity. Think of all of the things that aviation enables. Some are obvious—like connecting finished products to consumers or bringing in tourists. But the impact of aviation is much more ubiquitous. Any foreign direct investment venture probably started with a face-to-face meeting made possible by aviation. Training and skills building most likely involves an exchange of experience and ideas that are facilitated by aviation. Successful product innovations are almost always supported by cultural awareness that can only be learned first-hand. Connectivity means global opportunities. And the impact permeates throughout the economy—well beyond what we can measure in jobs and GDP.
So, the Minister of Finance would have a huge stake in a coordinated national aviation policy. But the impact would spread much more broadly. External Affairs, Home Affairs, Human Resources Development, Commerce and Industry, Rural Development, Urban Development and Agriculture are only the most obvious of cabinet responsibilities that are in some way enabled by aviation connectivity.
The agenda to improve infrastructure, reduce costs and evolve a more reasonable taxation structure remains absolutely critical to India’s long-term success. It bears repeating— which I have done—because it is important. But I also recognize that Big Bang comprehensive overnight changes are very unlikely to happen.
Incremental changes—steps in the right direction—are more likely. And these steps are probably going to involve joint efforts of the various industry sectors with each other and with government. Indeed we are seeing this kind of progress already….
- A few weeks ago many long discussions with the Indian military by the Civil Aviation Ministry resulted in an agreement on the flexible use of airspace that will shave millions of dollars in fuel costs.
- Airports Authority of India has spearheaded efforts that included 14 countries to introduce user preferred routes in the Indian Ocean and Arabian Sea airspace.
- The Civil Aviation Ministry’s continued efforts have seen the Petroleum and Natural Gas Regulatory Board now deliberating on a policy allowing a competitive aviation fuel market with third party access to pipelines that supply airports.
- The interventions on the airport development fee have provided some relief to the passengers as well. But there is, of course, a need to do more.
- And I also congratulate the Minister on his disbanding of the aircraft acquisition committee last week, giving airlines in India control over a critical commercial decision.
Each of these is significant and moves in the right direction. But they have by no means or measure solved all of India’s problems. Without losing sight of the overall critical agenda items of improving infrastructure capacity and quality, reducing costs and achieving reasonable levels of taxation, today I will propose a series of measures that industry and government could take on as near- to medium-term projects to deliver tangible benefits.
The first concerns safety. Safety is the top priority for aviation. And industry and governments are aligned on this worldwide. And it is no different in India. As a result of this common focus, the safety record of commercial aviation is excellent and constantly improving. In 2012 there was an average of one Western-built jet hull loss for every 5 million flights. And there was not a single hull loss with Western-built jets among the IATA members or among the airlines on the registry of the IATA Operational Safety Audit (IOSA).
Safety regulation falls squarely within the remit of government. And India is in the process of moving from the DGCA to a Civil Aviation Authority (CAA) allowing more functional and operational autonomy to the regulator. The terms of reference for the CAA reflect the priority on safety for airlines, airport operators, air navigation service providers and other stakeholders.
The industry fully supports the move to establish a CAA for India based on global standards.
The skill sets of the regulator will need to be built. I fully recognize that the regulator must maintain a healthy distance from the regulated. But there is a lot that the industry can share.
I mentioned earlier that there was not a single Western-built hull loss among the 384 airlines on the IOSA Registry in 2012. In fact, the total accident rate for airlines on the registry outperformed those not on the registry by 77%. From this it is clear that compliance with IOSA’s 900+ standards makes a positive difference on safety. I would urge the new CAA to consider joining the 11 other states that have incorporated IOSA into their safety oversight framework. And I would urge a similar consideration for the IATA Safety Audit for Ground Operations (ISAGO).
As India turns a new page in its safety regulation I encourage it make the best use of all the available tools—including IOSA and ISAGO.
Security is also a priority for both governments and regulators. As with safety, it is primarily a government responsibility. But airlines want to keep terrorists off of airplanes as much as governments want to keep them out of their countries. So we are aligned and it makes sense to work together.
Industry is working with regulators globally to find a better way to keep the industry secure. The current one-size-fits-all proscriptive approach to security for both cargo and passenger is not sustainable. We need an approach that focuses on outcomes not process. And we should make the best use of scarce resources by taking a risk-based approach—recognizing that the vast majority of cargo and passengers pose absolutely no threat to aviation or national security.
As an important global player, I encourage India to be a strong participant in two key programs. Secure Freight is a supply chain security program that is a ready-made template for governments. And Checkpoint of the Future is an initiative where we are working to evolve and enhance passenger security with advanced technology and better use of passenger data to drive risk-assessments—data that is already collected for border control purposes. We are already testing technology components and are planning for first generation operational testing this year. It would be great if India commits to be an early mover.
Before that can happen however, we have an important issue to address. Both these programs are underpinned by global standards. And India is unfortunately well known across the industry for the non-standard advance passenger information (API) that it requires airlines to transmit—and in a non-standard format I should add! API standards were established through the ICAO and the World Customs Organization. Since 2008 we have had promises that India will bring its requirements in line with the standards. It’s time to deliver the long-promised result.
And while we are talking about streamlining processes and policies, I must mention the policy disarray in the area of ground handling in India. Airlines are denied the right to self-handle. There is discriminatory policy between how security functions are handled by the domestic airlines versus the international. And the concessions awarded by the airports, the legal challenges, the multiple government notifications and their different interpretations has all made ground handling an area suffering from deep policy confusion. This is not an environment where safety and security can thrive.
Minister, I think it is time to relook at the whole issue afresh – maybe a clean sheet exercise or a ground handling policy which is in the best interest of Indian aviation.
And lastly, I propose that we urgently combine forces to modernize cargo processes. You will recall that in 2008 we collectively said good-bye to the paper ticket. By 2015 we are trying to do the same thing for cargo with a 100% conversion to the e-Air Waybill—an important step in the overall e-freight vision.
It is incredible that in the Internet age the 50 million tonnes of air cargo shipments still rely largely on paper-based processes—even more incredible for India which has tremendous IT experience and skills. India has ratified the Montreal Convention 1999 which recognized electronic invoicing. It has also ratified the Kyoto Convention 2005 which has recommendations for paperless e-Customs procedures.
India Customs has agreed in principle to creating a paperless environment. That’s encouraging. But progress is too slow. To be blunt we need a show of political will to kick-start the process. IATA is ready and willing to provide resources to help. And one of the goals of this visit is to secure the commitment of authorities at the highest level to support implementation of e-freight.
So my proposed agenda of relatively quick wins is:
- Cooperation to ensure the successful launch of the CAA by making use of IOSA and ISAGO
- Standardizing API requirements
- Taking a leadership role in Secure Freight and Checkpoint of the Future
- Clearing-up policy confusion on ground handling
- And, moving forward with e-freight within 2013
And of course, I will remind you again that these will take place within the context of an overall agenda focused on ensuring adequate infrastructure, reducing costs and easing the tax burden.
Before I conclude, I would like also to extend whole-hearted appreciation to the leadership of India in its opposition to the EU’s misguided attempt to include international aviation extra-territorially in its emissions trading scheme. The EU has stopped the clock. This averted a trade war and created the space for governments to agree on a global approach for managing the 2% of global carbon emissions attributed to aviation.
Environmental sustainability is the aviation industry’s license to grow. As I have described today, the sustainable growth of aviation has much to contribute to India’s future development and prosperity.
Recognizing the importance of environmental responsibility, airlines have committed:
- To improve fuel efficiency by a 1.5% average annually to 2020
- To cap emissions from 2020 with carbon-neutral growth (CNG 2020)
- And to cut net emissions in half by 2050 compared to 2005 levels.
We also have an agreed strategy focused on improvements in technology, operations and infrastructure as well as having access to positive market-based measures (MBMs) which are agreed within a global framework.
I fully believe that MBMs will only be a temporary measure until technology, infrastructure and operational solutions can solve the environmental challenge. I also believe that such solutions could open up tremendous opportunities for India—the development of sustainable biofuels for example. But there is also a critical need for MBMs if we are to make our CNG2020 target.
The debate on MBMs is focused on the ICAO Assembly in September/October. To help facilitate a positive outcome, our Board of Governors tasked IATA to find an agreement among airlines on how to share the burden of CNG2020. Weaving through the various conflicting interests is not easy, but we are making progress.
But whatever support is given by industry, an agreement at ICAO can only be achieved if governments are focused with a common purpose in a sincere effort to find a solution. That includes India. That means follow-up on the important role that India played in steering Europe towards ICAO for a global solution by being a strong leader among the BASIC countries with a genuine effort to make the ICAO process work.
The stakes for India in the climate change debate are high. And it is a persistent defender of the Common but Differentiated Responsibility principle which accommodates developed and developing nation needs within the United Nations Framework Convention on Climate Change (UNFCCC) process.
But there is good reason for ICAO having the responsibility for aviation’s international emissions. ICAO has a successful track record of facilitating global agreements and standards which take into account the needs of developed and developing nations—even on difficult issues such as noise.
I am not an expert in international law, but I am sure that there must be a way to find an agreement within ICAO for an aviation solution on environment which will be insulated from setting broader precedents.
With that I will conclude my remarks with a reminder of how important it is that India gets its aviation policy correct. Aviation is a force for growth and prosperity that can positively contribute to the development of this incredible country. IATA is committed to being a strong partner in moving the industry forward. That’s why I have visited as often as I have. And I look forward to celebrating some quick wins on my next return….as well as setting the stage for further industry-government partnership progress.
I look forward to today’s discussions and the follow-up.