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Cautious Optimism is Returning to Aviation

By Giovanni Bisignani Director General and CEO, IATA

A strong traffic trend at the end of 2009 has extended into the first quarter of 2010. Load factors are at record levels. Premium traffic grew 5.5% in January. And we expect yield improvement of 2-3% over the year.

As a result, we have cut our 2010 loss forecast in half, to $2.8 billion. That’s good news for a beleaguered industry. But it’s still a red number. And there are risks.
The oil price remains a wild card. We anticipate an average price of $79 per barrel for the year—$17 higher than 2009. The risk is that the oil price rises faster than airlines realize the benefits of the economic recovery.

Matching capacity to demand is a challenge. Last year’s 2.5% fall in traffic was met with a 2.1% reduction in capacity. To achieve this, the efficiency of the long-haul fleet was reduced 7-8%. There is latent capacity in the system and 1,400 aircraft are scheduled for delivery this year.

Cost control is essential everywhere. This is no time for airports and air navigation service providers to raise charges. And it is no time for strikes. Unfortunately, we have seen evidence of both recently.

Infrastructure run wild

South Africa is the most egregious example of infrastructure run wild. If the providers have their way, in five years South African airports will be 130% more expensive and air traffic control will cost 65% more. This would be completely unacceptable even in the best of times. In present circumstances, it is outrageous.

Cost control also extends to labor. The year has started with a disappointing contagion of strikes and threats of strikes across Europe. Economic reality must prevail. Europe’s airlines have the highest losses—$3.8 billion last year and a further $2.2 billion in 2010. And the pace of the jobless European economic recovery is among the slowest with an expected GDP expansion of only 0.9% this year. This is not the time for strikes. More belt tightening is urgently needed.

This is a two speed recovery. Asia-Pacific and Latin America will post profits but the rest of the world is stuck in losses. Such stark regional contrasts result from the archaic bilateral system that prevents airlines from taking advantage of global opportunities with restrictions on market access and ownership.
Governments must modernize the rules of the game. Successful global enterprises cannot be run based on politics and diplomacy. Brands and good business must be the drivers.

There is hope. Last November, Chile, the European Commission, Malaysia, Panama, Singapore, Switzerland, the United Arab Emirates and the United States of America signed the multilateral statement of policy principles of IATA’s Agenda for Freedom. These forward-looking countries see aviation’s future with normal commercial freedoms. The consensus is growing, with Bahrain, Kuwait and Lebanon joining the group.

The challenge for 2010 is to move from words to action. The second stage talks of the US and EU agreement on open skies is the biggest opportunity for change. Their recovery from the financial crisis of 2009 is the most sluggish. Following liberalization of market access by addressing ownership could give airlines on both sides of the Atlantic a boost at a critical time. And it would send a strong signal for much needed change globally. I remain cautiously optimistic.

 

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