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Date: 2 June 2014

Tony Tyler's State of the Industry, Doha

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We work in an amazing industry. Scheduled commercial aviation began with a 23-minute journey across Tampa Bay, Florida on 1 January 1914. Since then, it has changed our world immeasurably for the better. As we celebrate our industry’s first 100 years we can be proud of our achievements.

Flying is a team effort that started with the partnership of four visionaries:

  • Percival Fansler, an entrepreneur who saw commercial opportunity in the technology of flight
  • Thomas Benoist, who built the aircraft
  • Tony Jannus, who safely piloted the plane to destination, and
  • Abram Pheil, the hero of the day who purchased the first ticket

The airline industry quickly grew from a single aircraft, one route and a lone passenger. This year we will connect 3.3 billion (1) passengers and 52 million tonnes of cargo (2) over 50,000 routes (3) with 100,000 flights a day (4).

Today, aviation is the life blood of the global economy. The industry supports over 58 million jobs and $2.4 trillion in annual economic activity. It creates jobs for Kenyan farmers who sell fresh flowers in world markets. It facilitates global supply chains so that workers in many nations can collaborate to build computers, cars and even airplanes. Aviation delivers many of the real world goods that are traded in the virtual shops of internet commerce. As a catalyst for economic and social development, aviation and the businesses that we support have spread prosperity and lifted countless people from poverty.

The intangibles create even greater value. Flying brings people together—families, friends and business colleagues. It helps minds to meet and exchange ideas. It gives people the freedom to be almost anywhere in just 24 hours. And it has turned our wonderfully big planet into a wonderfully small world of enormous and wonderful opportunities.

Second Century Mindset

As we stand at the dawn of commercial aviation’s second century, what will define our future success?

We can take some inspiration from the Chicago Convention—which is marking its 70th anniversary this year. It set the framework for post-war aviation (5). In it governments declared that “the future development of international civil aviation can greatly help to create and preserve friendship and understanding among the nations and peoples of the world.”

We are achieving the vision of the Chicago Convention on an enormous scale. Now airlines fly more people in a day (6) than in the entire year that the Convention was signed. Even with the enormous growth over the last 100 years, there is plenty of potential still to be achieved.

The key to unlocking that potential is a “global mindset”. We are the industry that connects people and business to make “global” possible. Securing our future potential with a global mindset begins with our immediate challenges:

  • To be profitable, safe and secure businesses
  • To provide efficient, customer-focused services, and
  • To be sustainable in all that we do

Challenges

On the first of these challenges—our financial performance—there is much to be done. As a global industry, our financial performance does not yet match the value that we deliver.

This year we expect airlines to achieve a collective global profit of $18 billion (7). That sounds impressive. But the brutal economic reality is that on revenues of $746 billion (8) we will earn an average net margin of just 2.4% (9). That’s less than $6 per passenger (10).

Some airlines will do better. But even if you’re smart or lucky enough to be one of those, every day is still a struggle to keep revenues ahead of costs.

The good news is that airline profits are improving. The average return on invested capital today is 5.4%—up from 1.4% in 2008. But we are still far from earning the 7-8% cost of capital that investors would expect. Airlines are, however, working towards solutions that deliver value to both customers and investors.

Our customers expect efficient global connectivity. But the regulatory structure prevents the global consolidation that has happened in other industries. By creatively working together—through alliances, joint ventures, franchising and domestic consolidation—we are seeing some significant results.

  • Consumers have more choice. The number of city pairs has doubled since 1994 (11).
  • Flying is an even greater bargain. You can circle the world for about the cost of four iPads (12).
  • And passengers are enjoying better products. US airlines, for example, are investing almost $1 billion a month in product upgrades this year (13).

Shortly we should begin to see the impact of the work that we are doing to modernize how airline products are distributed. Late last month, the US Department of Transportation (DOT) gave tentative approval to Resolution 787 (14). It is the foundation document for our New Distribution Capability (NDC) which our last AGM supported so strongly.

The DOT clearly understands the potential for NDC. They stated in their tentative approval that, “the use of common technical standards could facilitate the marketplace development of distribution practices and channels that would make it easier for consumers to compare competing carriers’ fares and ancillary products across multiple distribution channels, make purchasing more convenient, allow carriers to customize service and amenity offers, and increase transparency, efficiency, and competition.”

NDC is clearly recognized as a winning development for consumers and that’s good for the industry too.

Safety

Alongside achieving stronger financial performance we face the constant challenge of safety. It’s been our top priority right from the beginning. I’m told that the aircraft that carried the first paying passenger 100 years ago was even nicknamed “Safety First” (15).

Flying is incredibly safe. In 2013 there were 29 million flights with Western-built jet aircraft and only 12 hull losses. And we are determined to improve on this performance.

The IATA Operational Safety Audit (IOSA) is an example. Our AGM host, Qatar Airways, was the first carrier to meet its global standards and join the IOSA registry. Today, 393 airlines are on the registry. As a group, their safety performance is significantly better than the average for airlines that have not completed IOSA (16).

We are making IOSA an even more effective standard. Enhanced-IOSA will change the audit from a snapshot of an airline’s safety management into a system for constant monitoring. And it will be a requirement for all IATA airlines from 2015.

The loss of MH370 points us to an immediate need. A large commercial airliner going missing without a trace for so long is unprecedented in modern aviation. And it must not happen again. IATA, ICAO (17) and experts from around the world are working together to agree on the best options to improve global tracking capabilities. In September, a draft of recommendations will be given to ICAO.

Data will guide this and other safety improvements. We are moving forward with the Global Aviation Data Management project—known as GADM. This will create the world’s largest resource of operational information (18). Fueled by data collected from partners including ICAO, the FAA (19), and EASA (20), it is perfectly consistent with the global mindset needed for aviation’s second century (21).

Looking further ahead, our ultimate goal is to predict the potential for accidents and so ensure that they don’t happen. This is not science fiction. The growing data in GADM is one of the building blocks. Each new data contribution and every improvement in our analytical capabilities moves this closer to reality.

Security

The second century global mindset extends to the complex challenge of security. Commercial aviation is an instrument of peace. Sadly, it has also been a target for terrorism. And its security must be protected.

Airlines help fund global aviation security with taxes and fees costing $8.55 billion a year (22). Not all of this is even spent on aviation security (23). And passengers still say that security remains their biggest travel hassle. Inconsistencies across jurisdictions defy understanding. The focus on prohibited objects sees law-abiding passengers treated with criminal suspicion. There is waste and inefficiency. We must do a better job.

IATA is partnering with the Airports Council International (ACI) and others to change this. The goal of our Smart Security (24) program is to improve effectiveness, efficiency and the passenger experience.

Governments have the ultimate responsibility for security. Some are embracing the risk-based approach of Smart Security with “known traveler” programs. But, with a few exceptions, these and e-gate border programs are not linked.

We must use the global resources available—and that is not happening now. It was a shock that two passengers cleared checkpoints and boarded MH370 with stolen passports. Then Interpol announced that only a handful of governments use its stolen passport database (25). Airlines go to great trouble and expense to meet government requirements for Advance Passenger Information (26). And we expect it to be used effectively to improve security and the passenger experience.

Passenger security is not the only security issue that must be addressed:

  • Cargo shipments must be made more secure through global standards and cooperation with governments and across the supply chain. That is the framework for the IATA Secure Freight program which now has live pilot projects in 8 countries (27).
  • A similar approach is needed to guard airline and aircraft IT systems against the risk of cyber-attack. Sharing information across the industry and with governments is critical to defending them against this global and dynamic threat.

There is plenty of opportunity for the second century mindset of global collaboration—both among governments and with industry—to make a positive contribution to keeping flying secure. The presence of US Secretary of Homeland Security Jeh Johnson at this AGM signals that international engagement continues to be a priority for his government. That’s good news for us all.

Infrastructure

There is similar opportunity for the global second century mindset to guide our thinking on infrastructure issues. Airlines need cost-efficient airports and air traffic management services. And these must keep pace with customer demand.

The challenges differ by region.

  • In Europe, there is still paralysis on the Single European Sky (28). The European Commission is pushing it, but the member states seem to be more interested in protecting revenue streams and government jobs. So passengers, the environment and the European economy all suffer.

    The expected shortfall in European airport capacity is so serious that by 2035, we could see a 12% gap between demand and infrastructure capacity (29).

    And the Airport Charges Directive needs to be much more robust if it is to drive cost efficiencies and encourage effective investment.
  • The Gulf governments have understood and acted on the industry’s needs for airport infrastructure. Airports here rank among the most impressive in the world. But air traffic delays result because the region’s governments are not managing finite airspace as a common resource (30).
  • In Asia and Latin America, governments are aggressively pursuing public-private partnerships for airport development. We have seen enough failures of poorly structured initiatives to be deeply concerned about the consequences.
  • And in the United States, despite some important progress, further NextGen investments that are badly needed are just not a high enough priority (31).

The solutions to these challenges all have a political dimension and need government action. That action must be taken with the understanding that these are critical building blocks for efficient global operations. ICAO’s principles on charging provide the global standards which should be followed.

First among equals of these principles is consultation. Through consultation, infrastructure can be developed based on what airlines need and can afford. And that is a guaranteed win-win scenario.

And I must emphasize that the “light-handed” approach has been a dismal failure when applied to the economic regulation of infrastructure. The market power that most airports have needs a counter-balance with effective independent regulators applying well-established international norms. That will bring about fair charging regimes which facilitate the enhanced connectivity that communities everywhere are seeking.

As we look ahead to the second century, the immediate priorities for airspace management are the Single European Sky and NextGen in the USA. Even as we struggle to deliver these, we should think bigger and question whether airspace for global connectivity really needs be managed based on political borders. Long before we mark our 200th anniversary, I hope that we are thinking of airspace in terms of an efficiently-managed global resource.

Customer Experience

Efficient infrastructure will also do much to improve the customer experience. So can technology—from shopping, through the journey and back home again. The basic vision is the same for both shippers and passengers: a hassle-free journey with empowerment to customize and control their experience.

Technology is changing our processes. For example, by year-end over a quarter of travelers will have access to the full suite of IATA Fast Travel self-service options (32). Our customers now take this for granted. In fact they want more.

Today’s travelers expect to be constantly connected with wi-fi everywhere. And they also want all the touchpoints along their journey to be connected and focused on giving them a door-to-door seamless experience. It will take significant collaboration with a global mindset among the industry players—airlines, airports, hotels, hire cars and so on—to satisfy this need.

The expectations of shippers, who are paying a premium for speed, are similar. E-freight will help us to link the process together. And the Cargo2000 master operating plan continues to define industry quality standards. But even after six years of work on e-freight, it will still be a struggle to reach our target of 22% e-air waybill penetration by year-end. A partnership approach is accelerating progress. It will also be critical to the next goal which is to reduce the average shipping time by 48 hours before 2020 (33).

All of this points us to a big picture view of the world in which there is value to be unlocked by working more with our industry partners to meet customer demands. And of course global standards will be needed to manage the interaction efficiently—with our partners as well as with our customers.

Regulation

Partnerships also need to extend to governments. They decide how we are taxed and regulated. Unfortunately, there are many examples of governments getting it wrong.

  • The economic damage of the UK Air Passenger Duty has been acknowledged. But instead of eliminating it, the government is tinkering with the details (34)
  • In the US, safety regulators may allow the use of cell phones on aircraft. If they do, another group of US regulators may disallow it in the interest of “consumer protection.” If safety isn’t the issue, then the market should decide—not regulators (35).
  • In Canada, the Ontario government’s budget proposal allocates billions to bring in new businesses but also more than doubles the tax on jet fuel (36). That can only make it more expensive to do business there.
  • An increase in protectionist measures worldwide panders to local interests at the expense of long-term job creation, economic growth and inward investment (37).
  • And the Venezuelan government takes the top prize for willful irresponsibility. It is wrongly withholding some $4.0 billion of airline funds and putting the country’s connectivity at risk (38).

On top of direct lobbying, we have told the world through the media that Venezuela is not playing by the rules. It's not surprising that some airlines have stopped flying there: airlines cannot provide a service if they don't get paid. The government has responded with more promises than action. In the meantime the country’s connectivity declines and the economy suffers. I again urge the Venezuelan government to resolve this quickly and fairly.

We will continue to fight each ill-conceived action. But it would be much easier if we found a way to persuade governments of the value of taking a long-term view, abiding by global standards and using aviation as an economic catalyst.

Our partnership with ICAO is an effective vehicle to incubate change with a global second century mindset. At its Assembly last year, governments agreed to address the unmanageable confusion of some 60 national passenger rights regimes by developing harmonized guidance. Just last week an ICAO Panel proposed a set of principles that found their first expression in a resolution of our last AGM.

And in response to another industry priority, last year’s Assembly also called for a tightening-up of the legal framework on unruly passengers. ICAO promptly convened a diplomatic conference at which the Tokyo Convention was amended for that purpose.

Experience teaches that we achieve the best results when governments:

  • Use regulation to solve real, not imagined, problems
  • Take full advantage of expert advice and consultation
  • Calibrate regulation and taxation appropriately to facilitate global connectivity
  • Ensure that the costs imposed by regulation do not exceed its benefits, and
  • Respect global standards wherever they exist.

If we can establish this global mindset approach with all our government partners, we will be well on our way to establishing a solid footing for aviation’s second century.

Sustainability

Encouragingly, that is the way that our approach to sustainability is developing. Sustainability is our license to grow and last year saw landmark progress.

When we last met, we asked governments for a global market-based measure to manage our carbon footprint. This is essential if we are to meet our commitment to carbon neutral growth from 2020 (39). At the ICAO Assembly, governments agreed to develop a proposal for such a measure by 2016 (40).

Turning the Assembly’s laudable intention into a more specific agreement on an actual mechanism will be a challenge. We need to support that effort. It will be as difficult for airlines—who will foot the bill—as it will be for governments.

A global mandatory carbon offset scheme is just one transitional element of our strategy. Our ultimate goal is to achieve sustainability by reducing carbon emissions through improvements in technology, operations and infrastructure.

Continued industry unity is needed for success. Airlines, airports, air navigation service providers and manufacturers are united by a global strategy and targets. This puts the entire industry at the forefront of the debate on sustainability. It is the perfect example of the second century global mindset. Now we must stay the course.

The Future

As we embark upon commercial aviation’s second century, we carry an important responsibility. Aviation is critically important to humanity. And we must continue to make flying safer, more secure, increasingly efficient, and sustainable.

There are some pre-conditions for that. The first is that we need to be profitable businesses. The second is that we join with our industry and government partners in a global effort to resolve today’s issues in preparation for tomorrow’s successes.

Aviation faces many challenges. But we should never lose sight of the fact that we are privileged to be leaders of a truly great industry.

Among those who witnessed the Benoist Air Boat carry a single passenger across Tampa Bay in 1914, who could have imagined what aviation would look like today?

At least one person could see that something incredible would evolve. “What was impossible yesterday is an accomplishment today, while tomorrow heralds the unbelievable.” Prophetic words from Percival Fansler, the visionary entrepreneur who launched our industry.

A century later, aviation is powering economies and lifting the human spirit. We have broken the bounds of speed and distance with ubiquitous global mobility. This very day, 100,000 flights will take nine million people to somewhere that they want to go…to do something that they want to do. Aviation’s greatest contribution is the freedom it gives people to follow their dreams and change their lives.

In 100 years we have turned our enormous planet into a small world. In doing so, we have created a very big future for us all.

Thank you.

1. IATA Economics
2. IATA Economics
3. 49,871 routes (IATA Economics)
4. 36.3 million flights in 2013 according to Ascend Flightglobal
5. The Convention on International Civil Aviation was adopted on 7 December 1944 and signed by 52 States. It established the International Civil Aviation Organization (ICAO) and the “rules of the road” for international air transport.
6. In 1945 we carried about 9 million passengers. Today it is 3.3 billion or 9 million/day
7. IATA Economics Forecast
8. IATA Economics Forecast
9. IATA Economics Forecast; net profit margin represents net profit expressed as a percentage of revenues
10. $5.65 per departing passenger based on 3.3 million passengers; IATA Economics Forecast
11. For 2014, the number of unique city pair connections is estimated at more than 16,161, 95% more than in 1994. Source: IATA Economics; OAG.
12. Star Alliance round the world fair for GVA-Dubai-Bangkok-Sydney-Los Angeles-New York-Geneva is CHF 4157 including taxes and carrier charges. Apple Store quote for a 128GB iPad with wifi and cellular is CHF999
13. Airlines for America presentation  
14. Tentative approval was granted on 21 May 2014. Further comments are due by 11 June 2014 and final approval is expected thereafter.
15. http://www.tampapix.com/jannus.htm
16. In 2013 the total accident rate (all aircraft types) for IOSA-registered carriers was more than two times better than the rate for non-IOSA carriers (1.46 per million flights vs. 3.60).
17. International Civil Aviation Organization
18. Operational and de-identified, non-commercial data
19. US Federal Aviation Administration
20. European Aviation Safety Agency
21. The commercial airline industry began on 1 Jan. 1914
22. IATA Economics survey
23. Examples include that US Transportation Security Administration airline security fees also go to pipeline and passenger rail security; in Equatorial Guinea, Côte d’Ivoire and Senegal security fees are used to fund immigration systems and border controls
24. IATA release of 12 December 2012
25. Lost and Stolen Travel Documents database
26. Advance Passenger Information (API) refers to a passenger’s identity such as full name, date of birth and nationality. API is typically obtained from travel documents such as passports
27. The eight countries currently piloting Secure Freight are: Mexico, Chile, Egypt, UAE, Jordan, Bahrain, Brazil, Turkey. Two other pilot projects have been completed, in Malaysia (2011) and Kenya (2013).
28. In addition, SESAR, the Single European Sky ATM Research program, needs to continue to develop in step with regulatory oversight, operational and efficiency reforms.
29. Eurocontrol ‘Challenges of Growth’ Report, 2013 (pdf)
30. For example Tony Tyler’s comments at Abu Dhabi Global Aerospace Summit:
31. The Obama Administration’s FY2015 budget proposes to spend $1 billion for NextGen and $19 billion for projects related to High Speed Rail.
32. The full suite of IATA’s Fast Travel services focuses on six separate steps within the passenger journey: Check-in, Bags-Ready-To-Go, Document Check, Flight Rebooking, Self-Boarding and Baggage Recovery.
33. Current average end-to-end shipping time is about 6.5 days
34. In March 2014 the upper two APD bands C and D, for journeys over 4001 miles, were abolished. However, bands A and B rose in line with inflation, ensuring travelers to the United States and the Middle East, for example, were worse off.
35. US Dept. of Transportation Advance Notice of Proposed Rulemaking Concerning the Use of Mobile Wireless Devices for Voice Calls on Aircraft, Docket DOT-OST-2014-0002. Comments of IATA and Airlines for America, DOT-OST-2014-0002-1757
36. IATA release of 2 May 2014
37. For example, each dollar of increased protection leads to a drop of 66 cents in gross domestic product, and an increase of $1 in tariff revenues can result in a $2.16 fall in world exports and a $0.73 drop in world income. (Source: OECD)
38. IATA release of 29 April 2014 summarizes the situation, although the funds withheld continue to increase.
39. See resolution passed at 69th IATA AGM on Implementation of Aviation Carbon Neutral Growth Strategy (pdf)
40. ICAO Press Release - October 2013

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