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Date: 6 November 2013

Remarks of Tony Tyler at the AACO Annual General Meeting in Doha

Good morning. I am very excited to be with you in the vibrant city of Doha for the AACO Annual General Meeting (AGM). Qatar is known the world-over for its hospitality and recognized as a great aviation state capitalizing on connectivity to drive economic development.  And our host—Qatar Airways under the energetic leadership of Akbar Al Baker—is certainly playing a key role in that wise strategy.

Congratulations to Akbar and all the Qatar Airways team for that and for joining the oneworld alliance. As many of you already know, we will be calling on Qatar Airways’ hospitality again when we host IATA’s 70th AGM here in June next year.

I always enjoy coming to the Middle East. In my life before IATA, I visited from time to time, but heading-up IATA has given me the opportunity to follow developments much more closely. Even in the 28 months since joining IATA, I have seen passenger traffic by Middle East airlines grow from 7.0% of the global total to 8.4%. And the growth in cargo has been even more dramatic—from 9.7% to 12%.

What is even more impressive is the growth in profitability. Next year we expect the industry to deliver a total profit of some $16.4 billion. And we forecast that $2.1 billion of the total will come from airlines in the Middle East—the highest ever absolute profit by the region’s airlines and positively disproportionate to their share of global traffic.

There are, of course, a lot of shades of color in those results as we look across the AACO membership. The Gulf area is growing from strength to strength. But carriers in Egypt, Syria and elsewhere continue to go through some very difficult times.

Together with our strong partner—AACO under the able leadership of Abdul Wahab Teffaha—IATA is committed to serving all carriers across the region. Hussein Dabbas, our Regional Vice President for Africa and the Middle East leads a team of experts in IATA’s regional office who share the common goal with AACO—delivering value to your businesses.

Global Standards

It’s tough to run an airline. I know that first-hand.  While ensuring safety, the goal for most days is to win in the relentless struggle to keep revenues ahead of costs. But the license that we have to run our businesses is grounded in global standards. The year ahead gives us several reasons to pause and reflect on the importance of global standards.

On 1 January 1914 the first scheduled commercial flight took place. Tony Jannus piloted a Benoist flying boat across Tampa Bay with a single passenger who reportedly paid $400 for the 23 minute flight. We started off with higher yields than we have today!

From one flight and a single passenger, over the next 100 years aviation evolved into a safe and reliable global mass transit system. This year airlines will carry over three billion passengers and 50 million tonnes of cargo. Aviation has changed the world for the better. And it is no understatement to attribute a large part of this phenomenal success story to global standards.

Safety—backed by global standards—is the first proof point. Flying is the safest way to travel. And we are making it even safer. The IATA Operational Safety Audit (IOSA) is the global standard for operational safety management. And over the decade since it was established it is clear that carriers on the registry perform better than those that are not.

In fact, in 2012 there was not a not a single western-built jet hull loss among carriers on the IOSA registry. That includes all 35 airlines in the Middle East and North Africa (MENA). Congratulations to all on an amazing achievement.

Of course, IOSA does not guarantee an accident-free future. Several tragic accidents this year serve to remind us that safety is a constant challenge. And we are confident in recommending that governments incorporate IOSA in their national regulatory regimes to help them meet that challenge. In this region, Egypt, Lebanon, Bahrain and Syria have done so. And I urge others to follow.

I also encourage governments and all those involved in ground handling to adopt the IATA Safety Audit for Ground Operations (ISAGO) standards—which takes a similar approach to managing safety on the ground. Already five airlines in the region are part of the ISAGO audit pool (Egyptair, Qatar Airways, Royal Air Maroc, Royal Jordanian, and Saudi Arabian Airlines). So there is a good base to grow from.

IOSA and ISAGO are relative newcomers in the realm of global standards. The cornerstone of global standards was laid with the Chicago Convention in 1944. It established the International Civil Aviation Organization (ICAO) to allow governments to work together to promote the safe and efficient development of global air links. And the industry supports ICAO’s critical decision making with ready access to operation expertise through IATA and other international industry organizations.

With this as background, I would like to discuss the importance of global standards or a global approach in four areas critical to your business: regulation, infrastructure capacity, environment, and distribution.

Regulation

Aviation is a highly regulated industry. From the first principles of where and how often we fly to much more minute parts of the business. Regulation works best when it is aligned to global standards and developed by governments working in cooperation with industry. That is the case with safety as I just mentioned.

But, I have deep concerns that some governments, through national regulation, are introducing fragmentation into our global industry. We see it in passenger rights. With the best of intentions, at least 60 governments have consumer protection legislation specific to aviation. The unintended consequences are extra costs and confusion.

It is not clear to passengers which regime should apply. And it is difficult for airlines to effectively manage the multiplicity of requirements across their international operations.  And often the regulations are so prescriptive that even if the jurisdiction is clear, what needs to be done is not. These go beyond the simple guarantees that governments should provide and what is imposed on other industries.

There is no regulation magic wand that we can wave. But there are some basic ideas that we should be trying get across to governments.

  • First and foremost, is to make it clear that airlines want to operate to schedule and get their passengers to destination without incident. The operational costs of not doing so are significant—particularly for an industry that will only make about $4 per passenger carried this year.
  • Second, we need governments to understand that the industry is eager to be consulted. To show that the call for consultation is not just words, the IATA AGM in June unanimously adopted a resolution on principles on passenger rights for governments to use when regulating in this area. These principles will be taken into account by ICAO as they develop critically-needed policy guidance in this area.
  • Third, we must encourage a thorough cost-benefit analysis before any regulation (or indeed tax) is implemented. Recently the Irish government repealed an aviation tax because of the negative impact that it was having on its economy. It was a good decision. The message for all governments is to do the calculation before the economic damage is done.
  • And lastly, where there are global standards, it is important that governments use them. The Montreal Convention 1999 provides a basis for a harmonized liability regime and sets a critical part of the framework for important industry programs such as e-freight. So far, only 103 of 191 ICAO member states have ratified it. Most states in MENA are on board. But several—Algeria, Libya, Yemen, Tunisia and Iraq among them—have still to ratify the Convention. And it should be noted that even among the states which have ratified, few have actually adopted local laws to facilitate implementation. This is holding back critical efforts—including e-freight and e-Air Waybill among them. Global standards only deliver their maximum benefit if they are globally implemented. We look forward to working with AACO and our members to make MENA 100% compliant.

Talking about the need for industry-government cooperation in building effective regulatory regimes aligned to global standards may seem out-of-place in this part of the world. The Gulf success story is well-grounded in precisely in that spirit of cooperation. In fact the Gulf example is best practice success story that we are asking all governments to take note of.

At the same time, I would suggest that the positive working relationship between government and industry is this region is not one that should be taken for granted. By keeping its importance top-of-mind, I hope that it will long-be a driving force of success in this region and an example for others.

Infrastructure Capacity

In that spirit of understanding I would like to look at one area where I do see a risk in this region—the management of infrastructure capacity.

With some $40 billion being invested in airport infrastructure in the Gulf alone that may come as a surprise. But even when the new airport in Doha opens in 2014 runway capacity will not meet demand during all parts of the day. I am sure that the government will find a solution that will eventually add capacity ahead of demand growth. But the important message for states in the interim is to use the global standard to manage scarce capacity both efficiently and fairly.

The IATA Worldwide Slot Guidelines (WSG) are the industry standard used to manage capacity at 165 slot constrained airports. Casablanca and Rabat are the latest to join the list of airports requiring slot coordination—so the issues of growth are not limited to the Gulf region. And any deviation from the WSG is unhelpful. Efficient global connectivity is critical for all economies. The system is efficient in direct proportion to the degree of global implementation.

In the Gulf area, I see another issue to be carefully watched and managed—air traffic management capacity. This region is a hub for global connectivity. And it offers a high level of service to global standards. But, there is a huge amount of capacity in a relatively small area. That area is further limited by military airspace. In fact only about half of the airspace across the region is open to civil aviation. Already we are seeing delays becoming common place. And delays will only grow as operations grow.

The operations in the Gulf are largely hubs. And the efficiency of any hub is limited by its ability to operate to schedule. If we don’t nip the proliferation of delays in the bud, the system will slowly disintegrate—bringing down the efficiency of airlines and connectivity with it.

One key is unlocking military airspace. This is not unique to this region. The progressive opening of military airspace to civilian operations over time has plenty of good examples in Europe, the US, Asia, and indeed even in this region. The question is how do we accelerate progress?

If I refer back to the Chicago convention, its premise is that states must work together for the safe and efficient growth of air transport. Working together is the solution. There is cooperation. IATA participates with states in the Middle East Air Navigation Service Provider Airspace User and Stakeholder Engagement initiative. The lesson to learn from Europe’s long-delayed Single European Sky initiative is the need for political will to back change.

Governments across the region have recognized the importance of civil aviation in their national development plans. It now needs to manifest itself in cooperation across the Gulf to manage air traffic efficiently for everybody’s collective benefit.

The Environment

At the global level, we have recently witnessed a powerful example of how governments can make decisions in the collective best interest of all. The ICAO Assembly agreed an historic agreement on climate change that will set the industry on the path to achieving the Carbon Neutral Growth from 2020 (CNG2020) target.

It is clear that our efforts to improve technology, operations and infrastructure will not be sufficient to achieve CNG2020. A market-based measure (MBM) will be needed to fill the gap, at least temporarily. And that was always envisioned in our four-pillar strategy.
In that context, the agreement at the 38th ICAO Assembly on the development of a global market based measure for implementation from 2020 was a major step forward. It is an historic achievement—the first such global agreement among governments to manage the emissions of a major global industrial sector.

Governments agreed that the next Assembly in 2016 will look at a detailed proposal. And the industry—having called on governments to adopt a mandatory global carbon offset scheme to manage growth post-2020—will be fully supporting ICAO in this effort.

I should emphasize that reaching agreement was not easy. The many states in this region that took an active role in the discussions are fully aware of the many pressures to deviate from a global approach. In the end, all attempts to seek approval for regional approaches—even if defined by airspace as proposed by Europe—were rejected by the international community.  And a clear way forward was mapped out.

Everybody—Europeans included—returned home with a sense of great accomplishment. So it is no exaggeration to say that the European Commission’s proposal basically to ignore the work at ICAO and include the portion of international flights within European airspace in its ETS from January next year was greeted with disbelief, shock and horror—pretty much in that order.

Governments will need to sort this out. And we call on them—particularly European governments—to keep the global and long-term view that underpinned the success at ICAO. The big prize is a global agreement to manage aviation’s emissions post-2020.

As an industry we should remind governments of this at every occasion. In parallel we must keep unified and focused on driving the other pillars of our strategy—technology, operations and infrastructure improvements. Ensuring environmental sustainability is our license to grow. And we must stay the course and keep focused globally and for the long-term.

Distribution

And lastly, I wanted to update you on the third of our AGM resolutions—the development of a new distribution capability or NDC.

Essentially, NDC is about closing the gap in the shopping experience for air travel between what is available on an airline’s website and what is available through travel agents. Let’s take a moment to visualize what NDC could be capable of doing with this short video.

Video Presentation on NDC

I hope that you will agree with me that the potential for NDC is exciting and could deliver enormous value to consumers and create new opportunities across the travel chain. I should emphasize that IATA is only working with the industry to set the standard. The innovation that will follow using that standard—what you saw in that video—will be driven by businesses seeing commercial opportunities.

There is a lot of mis-information circulating about NDC. So I will take the opportunity to set the record straight on a few key issues:

  • NDC will operate within the same privacy laws that govern every other business. That is no change from today.
  • NDC will bring greater transparency to shopping for travel—giving travel agents the potential to access a full range of an airline’s product and ancillary offerings.
  • And NDC will permit richer comparison shopping not just the base fare, but the entire spectrum of offerings.

Some are concerned about the implications for the existing business model. This is something for the market to sort out. What IATA can do is facilitate a dialogue. But XML is coming to airline distribution. Customers are demanding the value that it can give them access to.  And a common open industry standard will support this transition more efficiently than a multiplicity of closed proprietary efforts.

Where are we now? Our application for approval of Resolution 787 on NDC is being reviewed by the US Department of Transportation. Without taking anything for granted, we are optimistic of a positive outcome before year-end. And in order to move ahead as swiftly as possible after that, the NDC pilot program was launched in February 2013. Five pilots are underway and a number of others are in the process of getting started. These involve airlines, technology companies, agents and GDSs. The airlines involved are American Airlines, Air New Zealand, Hainan Airlines, China Southern Airlines and Swiss. We would certainly welcome participation by airlines from this region.

If all goes well, the pilot phase should last through 2014. In 2015, the initiative should move into a deployment phase, in which a number of airlines will have adopted the initial version of NDC. A global roll-out is expected to begin in 2016.

Conclusion

The innovation that a new global standard in distribution could bring to our industry is an appropriate theme on which to transit back to the developments in this region—particularly the Gulf. This region is in the global spotlight and developing quickly.

The diversity of how that development is taking place reminds us of the dynamism of aviation. As I mentioned, our hosts—Qatar Airways formalized their membership with the oneworld alliance last week. Etihad is evolving through bilateral equity partnerships. And Emirates is carving its own unique path through organic growth and a strategic partnership with Qantas. But, regardless of the model, this region is making its mark on the industry. And global standards are underpinning its successful growth.

And that is my message today. Global standards are a strategic asset for our industry. They support our global operations. They give us guidance in solving complex problems. And they are worth protecting and fostering.

The positive impact of global standards on safety is irrefutable. And it makes sense to use them as a framework for cooperation to ensure our broad future success. That means regulations that fit together to support the global system, air traffic management systems that work together for the greatest efficiency, a global approach to environmental sustainability and modernized standards for distribution that will serve our customers even greater choice.

Thank you.

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