Date: 30 May 2013
Remarks of Tony Tyler at the 69th AGM Curtain Raiser Press Conference, Cape Town
Good morning and thank you for joining us today. It is a pleasure for me to be back in this beautiful city so soon after my visit in April, when I spoke to the Cape Town Press Club.
We are on the eve of the opening of the 69th IATA Annual General Meeting (AGM) and World Air Transport Summit. From Sunday to Tuesday, Cape Town will be the global capital of commercial aviation. Nearly 700 industry leaders will be gathering here for deliberations on the industry’s top issues. They will come from our 240 member airlines and their many business partners and suppliers. And their decisions will be reported globally by nearly 200 of your colleagues in the media.
It is a big event for a very significant global industry. Airlines generate some $670 billion in revenue. And their activities are the core of a value chain that supports some $2.2 trillion in economic activity and 57 million jobs. In Africa aviation supports $67 billion in economic activity and 6.7 million jobs. And in South Africa the industry supports 350,000 jobs and contributes ZAR 74 billion to the country’s economy.
This is only the third time that the IATA AGM is being held on African soil. The last was in Nairobi in 1991. And before that it was in Cairo in 1946. But we are coming to Africa at a time of enormous promise. Aviation is a catalyst for growth and development. And, as the African Union celebrated its first 50 years last weekend it is the perfect juncture to focus on the important role of aviation—both for integrating the continent and connecting it to the world.
Along with the growing economic optimism, there are also signs that Africa is on the cusp of making great progress on one of its toughest issues—safety. IATA’s 20 sub-Saharan member airlines are performing well. As are all 24 sub-Saharan airlines among the 387 airlines that have met the over 900 standards of the IATA Operational Safety Audit (IOSA).
Neither group lost a Western-built jet in an accident in 2012. Earlier this year, African governments committed to the Abuja Declaration on safety. A key element of that plan is making IOSA mandatory across the continent. During the AGM, Africa and African safety will be the focus of much discussion.
Our presence here in Cape Town should send a clear signal to governments of our commitment to working with airlines, governments and all stakeholders to help aviation reach its potential to drive progress in Africa.
Our host for the AGM is South African Airways, one of the continent’s largest airlines, and one of its oldest, with a heritage of 79 years. And we have lined up an impressive array of speakers including South Africa’s Deputy President Kgalema Petrus Motlanthe and the Minister for Public Enterprises Malusi Gigaba.
State of the Industry
Airlines will be gathering for the AGM amid some modest signs of improvement in the industry’s fortunes. Traffic demand is one measure of that. Today we released passenger traffic results for April, showing that total global passenger demand rose 3.2% compared to the year-ago period. Had Easter occurred in April this year (as it did in 2012) we would have seen even more impressive growth.
The real story is in the details. The industry is growing strongly on routes linked to emerging markets. We see strong growth among African (4.6%), Asia-Pacific (4.7%), Middle Eastern (10%) and Latin American (2.8%) airlines. Growth is slower in Europe (2.2%) due to the ongoing crisis in Eurozone economies and in North America (0.6%) where the market is mature, carriers are tightly managing capacity and there are still questions about the strength of the economic recovery.
If we look at air freight markets, we see some added caution. Global freight markets were up just 1.4% in April. That comes after a 2.6% contraction in March. So that is good news. But if we look at the last 18 months, freight markets basically have been flat.
On Monday, we will announce a revised industry outlook. Our last forecast was for a $10.6 billion profit on $671 billion in revenues. And that would be a 1.6% net profit margin.
Razor thin margins are characteristic for the airline industry. But achieving profits with the continued weakness in the global economy is a major achievement. And if you add the impact of oil prices at over $100/barrel (Brent), the achievement grows. Remember that fuel accounts for about a third of industry costs. The AGM will certainly feature much discussion on how airlines are improving their performance to generate profits in such a difficult environment.
The updated outlook will take into account all of these factors. That should set a cautiously optimistic tone for the discussions over the next days.
Before taking your questions, let me just give you a brief overview of three issues that will be discussed.
At the top of the list is environment. I am sure that you are aware that airlines take their environmental responsibility very seriously. We are focused on managing our climate change impact with improvements in technology, infrastructure and operations. And we will need market-based-measures (MBMs) as a temporary gap-filler until we have long-term solutions through the other three elements…again, technology, operations and infrastructure.
We have three targets:
- A 1.5% average annual improvement in fuel efficiency to 2020
- Capping net emissions with carbon-neutral growth from 2020 (CNG2020)
- And cutting net emissions in half by 2050 compared to 2005
We are achieving the first. The last is a long way in the future. And the immediate focus is on CNG2020.
MBMs are a temporary necessity to meet our CNG2020 target. And they are at the top of the political agenda. South Africa played a key role in averting a trade war and fending off the inclusion of international aviation in the EU Emissions Trading Scheme (EU ETS). Late last year, Europe “stopped the clock” on implementation and that created the space to find the global solution that is needed. The discussion is focused on the International Civil Aviation Organization (ICAO) which is where states agree on global matters concerning aviation. And it will be the biggest discussion item at their upcoming Assembly later this year.
MBMs are about money. And we need to find a solution that does not distort competition. That’s difficult. We have been working with our airlines to help governments by coming up with an industry agreed solution on how to share the burden of carbon-neutral growth from 2020. But there are some fundamental issues that need to be resolved on how we split the bill.
Some airlines are growing slowly. Others are growing quickly. Paying for growth has different and costly implications for both groups. Finding a compromise is a challenge. But the industry is taking the challenge seriously. If we don’t come up with a compromise to present to governments, we would be taking a big risk. Governments could take uncoordinated measures that would leave the industry with a patchwork of unmanageable and costly measures. So we will be trying hard at the AGM to reach the fairest possible agreement.
We will also be looking at providing industry solutions to the expanding patchwork of overlapping and often conflicting passenger rights regulations among states. Rather than trying to dictate the business practices of a deregulated industry, governments should be removing obstacles to getting our customers where they need to go on time by investing in airport and airways infrastructure. Then they should step back and let the free market does what it does best: reward those companies that succeed in meeting customer expectations and punish those that don’t.
The New Distribution Capability (NDC) will create a new XML-based standard for communications between airlines and travel agents. With NDC, air travelers working with travel agents will have access to all the products and services being offered on airline websites. They will also be able to receive options for customization and personalization not currently available unless they go directly to an airline website.
That is a very high level view on the major issues that you should be watching for.
With that, I’m happy to take your questions.