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Date: 10 February 2014

Remarks of Tony Tyler at Singapore Airshow Aviation Leadership Summit, Singapore

Good morning. As a co-host of this bi-annual event, let me also welcome you to this edition of the Singapore Airshow Aviation Leadership Summit and say thank you to our partners—our co-host the Singapore Ministry of Transport, the Civil Aviation Authority of Singapore and Experia Events, who organizes the airshow and facilitates this event—for making the Summit possible.

Just over a month ago, on New Year’s Day, we celebrated the centennial of the first commercial airline flight. On 1 January 1914 four visionaries turned flying into a business that would eventually provide global connectivity.

  • An entrepreneur—Percival Fansler—gathered together the funding to support a business venture that would connect two cities in Florida—Tampa Bay and St. Petersburg
  • Thomas Benoist built the aircraft.
  • Tony Jannus flew it
  • And Abram Pheil—a former mayor of St. Petersburg—could see the value of the business proposition and bought the first ticket.

Commercial aviation began with a single passenger, a single route and a single flight. And it evolved into the global air transport system that will safely connect some 3.3 billion travelers and 52 million tonnes of air cargo this year. This activity drives economic growth, creates jobs and facilitates business opportunities. By value over a third of goods traded internationally are delivered by air and some 57 million people owe their livelihoods to aviation. Moreover, aviation is inspirational—opening the world to personal exploration, the exchange of cultures and building and maintaining of friendships across even the vastest of distances.

Despite the value that aviation delivers, it remains a difficult business. Fansler’s airline folded in its fifth month. And even today industry returns are poor. Yields are wafer thin. We have no control over the price of fuel which on average accounts for a third of costs. Our fortunes are subject to both the economic cycle and frequent shocks.

Our centennial year will be a good one. We expect airlines to produce a $19.7 billion profit. That sounds impressive. Indeed it is a big number. On revenues of $743 billion, however, that’s a net profit margin of just 2.6%.

But aviation is an industry of optimists. So we should celebrate our centennial by looking forward. And today’s Summit gives us the opportunity to do that in a dialogue between partners—industry and government.

Of course, we will not solve all the aviation’s world’s problems in a day. But I am looking forward to a good exchange of ideas on some of our most important issues—improving regulation, building connectivity and managing our environmental impacts. To commence the discussion, I would like to share a few thoughts on each of these areas.

Improving Regulation

Aviation is a highly regulated industry. That should come as no surprise. Regulation on safety is the bedrock of the industry. Last year airlines achieved the rough equivalent of moving the entire population of India three times. And we did that with less than 300 fatalities. Each of those fatalities is a human tragedy that re-dedicates us to keep on improving. Nonetheless last year’s safety record was an amazing achievement.

ICAO, IATA and Global Standards

Many of the global standards on safety were agreed through the International Civil Aviation Organization (ICAO). And I am extremely pleased that Dr. Olumuyiwa Benard Aliu, the newly elected President of the Council of ICAO has joined our discussions today.

When it comes to aviation the interests of government and industry are aligned. Everybody wants flying to be safe and reliable. I am confident that Dr. Aliu will continue the successful tradition of his predecessors of inviting and incorporating input from the industry on the many important issues that ICAO is looking at.

Many of the solutions that we bring to the table are complementary, as is the case with our safety audit programs. ICAO’s Universal Safety Audit Program is focused on government compliance with ICAO’s standards and recommended practices. And the IATA Operational Safety Audit (IOSA) focuses airlines on complying with global best practices, many of which are built on ICAO global standards.

The audits are having a positive impact on safety. But we are not resting on our laurels. We are upgrading to Enhanced IOSA which incorporates systems to monitor compliance across the two-year audit cycle. We are determined to make our safe industry even safer.

The global standard approach to safety is a good model for all forms of regulation. While this may be obvious, I am concerned about the negative impact of regulatory divergence. Even in the realm of safety, we are seeing a proliferation of “op spec” requirements. There is no doubt that all are created with the best of intentions. But they come with the unintended consequences of complexity and bureaucracy. We need to get a handle on this trend—to enforce global standards and ensure that exceptions are indeed exceptional.

Passenger Rights

There is a similar proliferation of “unique approaches” in the area of passenger rights. Both airlines and regulators want passengers to reach their destination on schedule and without incident.

Airlines are well-incentivized in this area. Margins are low and competition is intense. No airlines can afford to lose customers that they have fought hard to win. And they cannot afford the costs of delays or cancellations.

It is fully understandable that governments wish to set some minimum guarantees to protect passengers. Airlines support the concept and at our last AGM endorsed a set of principles for passenger rights which we are asking governments to use.

In the absence of a global framework, already some 50 countries have implemented passenger rights regimes. And what has resulted is—honestly—a mess. In some cases rules are so complex that they are unmanageable. In others they conflict with each other. And in the worst case, they are so prescriptive that airlines cannot go the extra mile for their passengers.

Cleaning this up will not be easy. And we are very grateful that ICAO at its last Assembly has taken on the task of developing some global standards in this area.

There is no magic formula for great regulations totally free of unintended consequences. But there are a few principles which I think could provide some good guidance

  • Consult broadly, including industry and consumers
  • Ensure a rigorous process for analyzing the costs and benefits of any new regulation
  • Don’t conflict with global standards where they exist
  • Harmonize so that regulations are not at cross-purposes with a global industry
  • And think of what is really going to deliver value to the passenger

There is a classic example where dialogue might have saved a lot of grief and misunderstanding—the US tarmac delay rule. It has been nearly 100% effective in eliminating tarmac delays. Events still happen which prevent airlines from operating to schedule. But instead of trying to recover and get the passengers to their destination, the tarmac delay rule incentivizes airlines to simply cancel flights. I suspect that most passengers would prefer a delay—even one of a few hours--over a cancellation.

Europe’s attempt at passenger rights has similar problems. The regulation aims to incentivize airlines to get passengers to their destination on time. It makes the first carrier responsible for what might happen to the end of a long and complex journey. The financial risk discourages regional carriers from wanting to do interline agreements. So connectivity could suffer. And the whole exercise forgets that airlines have an enormous incentive already to fly on time. Delays make passengers unhappy. And they come with high costs when crew and aircraft are out-of-position. We hope that the current review of EU 261 will result in a more balanced approach.

Liberalization

And then there are the totally archaic rules and regulations which—probably for good historical reasons—still apply to modern day aviation.

  • Why do governments restrict foreign capital investments in the airline industry? Banks, telecoms, IT companies are all treated very differently.
  • And could you imagine governments dividing markets in other industries in the same way as they grant international traffic rights?

Liberalization delivers positive results. The European common aviation area fostered huge economic and social benefits through the integration that it enabled. And consolidation in the US—although within a single legal jurisdiction—demonstrates a link to improved profitability and service investments.

Governments will need very determined political will to liberalize aviation across borders. I don’t see it now. And I have no interest in promoting a talk-fest about a big bang change that is highly unlikely. But we should encourage those governments that are moving ahead. This includes the ASEAN region which is looking at building a single market (however that might be defined).

Well-thought out regulations should create a level playing field for an industry that needs to operate globally. And airlines—like any other business—will respond to market forces by providing lots of options for consumers and creating economic opportunity.

I look forward to an energetic debate on the future of regulation moderated by Professor Brian Havel of DePaul University.

Connectivity

We will also discuss connectivity. The basic principle of global standards can be applied. Today there are over 40,000 city pairs. We are more connected than ever. But, at the same time we are nowhere near our potential.

There is tremendous potential in Asia Pacific. To understand just how much, consider this. People who live in the US are among the world’s best traveled. The average person takes about two trips by air per year. It’s a mature market. But if we look at one of Asia Pacific’s greatest potential markets—India—the average is one trip every ten years.

What is holding them back?

The traditional blocker is having the means to buy travel. However that is changing rapidly with the expansion of the middle class—in India and other key markets around the region. The expanding middle, or shall we say traveling, class does not guarantee connectivity will continue to grow. Governments must see the industry as a powerful tool to drive economic development and facilitate its success.

Like any industry, aviation should pay its fair share of tax. But taxing aviation at levels equal to the ‘sin’ taxes applied to alcohol and tobacco makes no sense. Connectivity stimulates business that provides tax revenues. Discouraging travel through draconian taxes such as the UK Air Passenger Duty hurts the UK economy. And every family that forfeits a long-haul vacation because of the tax also impacts jobs in the destination countries. It may be a UK tax, but the impact is global.

In the developing world we see a similar problem where air travel is considered a luxury. So India levies high fuel taxes, and across Africa we see a proliferation of facility fees—often for substandard facilities and occasionally for over-built facilities that don’t reflect user needs.

Taxes are not the only issue. The availability of efficient infrastructure is equally important. In Asia this is well-understood. The region is home to many world-leading airports being developed in line with user needs. Singapore is a good example.

Hong Kong is also taking an equally prudent approach to the development of its airport. Discussions on the development of a third runway demonstrate that the community understands how important it is for Hong Kong to be connected to the world.

Asia Pacific, however, does face some challenges. India remains a problem. The new terminal at Mumbai is a stop-gap measure that will provide some relief. But the long-term solution is runway capacity. And the Navi Mumbai airport project is nowhere near completion. Manila and Jakarta face similar constraints. These are all markets of great potential. But there just is not the infrastructure in place to support the economic benefits that aviation can deliver.

The situation is even more severe in Europe which struggles with two infrastructure issues.

  • Airports in general cannot be expanded fast enough. In fact, I would venture to say that the onerous approvals processes have seen many projects abandoned. According to Eurocontrol’s Barriers to Growth study there are fewer airport infrastructure developments planned today than even five years ago. And if we extrapolate into the future, by 2030 as much as 12% of demand could go unmet. The economic and social costs of that are staggering
  • And then there is the long saga of the Single European Sky (SES). Vice President Siim Kallas is among its greatest supporters. SES could deliver some EUR 5 billion of efficiencies to the European economy and get passengers to their destination in less time and with fewer delays. But state governments are mired in a web of vested interests and this is preventing a much needed advancement

Promoting connectivity is a rich area for discussion. I am sure that Alex Dichter, Senior Partner, McKinsey & Company will skillfully take us through a discussion on these and other points.

Environment

And lastly Paul Steele, IATA’s Senior Vice President for Member and External Relations will lead us in a discussion on managing aviation’s environmental impact.

For me, the greatest challenge is to stay focused on what governments have agreed and what industry has committed to.

We have a four pillar strategy on environment. I am sure that you are all familiar with it, but it bears repeating. Our goals are to achieve a 1.5% improvement in fuel efficiency annually to 2020; to cap net emissions with carbon neutral growth from 2020 and to cut net emissions in half by 2050 as compared to 2005 levels. And we will achieve this through a combination of four elements: better technology, infrastructure and operations and with a global mechanism for market based measures.

If we are successful, aviation will remain at the forefront of industries managing their climate change impact. Governments, through ICAO, have agreed to the same program and principles. And we even achieved agreement at the most recent ICAO Assembly that governments would develop a framework for a global market based measure by the 2016 Assembly.

Through IATA, we achieved a parallel commitment to support a global market based measure and an agreement that a mandatory carbon offsetting scheme is the industry’s preferred option.

Delivering this by the 2016 Assembly is no small task. And governments will need to be working together and concentrating their efforts to move this forward. Unfortunately, Europe has plans to impose its regional Emissions Trading Scheme (ETS) on all aviation in its airspace, and in some international airspace.  This could well de-rail the process. It is ironic, because Europe was the prime driver for global action on aviation and climate change. And, after the whole world told Europe at ICAO that its extra-territorial regional approach was unacceptable, it is sad to see that Europe is not engaging in the global debate. The big prize of a global scheme is within grasp. Europe should focus on making that a success. It is what will drive the greatest benefit for the global efforts on climate change.

The ETS and economic measures take top billing in the newspapers on the environment issue. But there is progress to be made on all four pillars. Biofuels, for example have the potential to cut aviation’s carbon footprint by up to 80%. With a track record of some 1,500 commercial flights already, we know that they work. It is a prize that is at least as significant as a global market based measure, provided we can increase the supply and decrease the cost.

I am sure that Paul Steele will lead us in a lively debate on this critical topic.

Conclusion

I am looking forward to the discourse that will unfold throughout the day. We have a unique gathering of leaders from across industry and government. And we are focused on very relevant topics. If I could add a last touch of spice to the discussions, it is to remember why finding solutions to these issues is so important.

This industry means a lot for people. As part of the celebrations marking 100 years of commercial aviation we have been asking people to share their memories and thoughts on flight. President Obama shared his thoughts on the significance of the first flight writing that the “short trip from St Petersburg to Tampa ignited an industry that changed the way we travel, and helped lead to today’s interconnected world…..While we cannot predict where innovation will take us, this milestone serves as a reminder that when bold ideas unite with a spirit of discovery, the sky is no limit.”

And on the www.flying100years.com website many people have shared their experiences reminding us that aviation has carried people to freedom, better lives and great opportunities. It has united families and created friendships that could not otherwise exist. It has made us a global community.

I am sure that today’s discussions will make a significant contribution to the future of our wonderful industry.

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