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Cautious Optimism…For a Fragile Industry

By Giovanni Bisignani Director General and CEO, IATA

Finally, we are seeing some cautious optimism around the globe. Both cargo and passenger traffic had returned to pre-crisis levels by May. And, we now expect the industry to return a profit of $2.5 billion this year. This is good news, but we must not forget that our industry is fragile.

Here are  some sobering facts about the recovery. Airlines have lost two years of growth. In May, premium travel was still 10% below pre-recession levels. Europe’s carriers are expected to lose $2.8 billion. And the industry’s combined $2.5 billion profit represents only a margin of 0.5% on revenues of $545 billion.
How do we strengthen the foundations of the recovery? The answer is the hard work of keeping costs under control and improving efficiency. But not all of our stakeholders and partners have a common understanding—particularly governments.

Among the first declarations of the new UK government were two related to air transport. They have abandoned plans to improve the efficiency of London Heathrow with the construction of a third runway. And the coalition is threatening to make the $3.85 billion (GBP2.5 billion) Air Passenger Duty even more onerous by applying it per plane instead of per passenger.

During our AGM in Berlin, the German Government presented the industry with an unwelcome surprise. It announced plans to slap a similar $1.29 billion (EUR1 billion) tax on travelers as part of measures to balance its budget. They branded the proposal “green” in a feeble attempt to make it seem positive for the environment.

Governments have two problems. First, they have gone $2.7 trillion in debt to bail out the bankers, stimulate economies and support currencies. They need to fill the budget gap. Second, governments need to face-up to the challenge of climate change. But targeting air travelers with taxes is not a solution to either.

At the start of the crisis, the Netherlands tried to tax aviation in order to raise $388 million (EUR300 million) in new annual revenue. But the tax cost the Dutch economy $1.55 billion (EUR1.2 billion) in lost business. Moreover, it sent travelers over the border to start their journeys from more tax-sensible regimes.

Aviation supports $3.5 trillion in global economic activity. To restart their economies, governments should foster the power of aviation not cripple it with taxes.

The entire aviation value chain has agreed to the most ambitious global targets on climate change of any industry—carbon neutral growth from 2020 and a 50% cut in emissions by 2050. Governments should support these commitments with strategic investments in biofuels instead of robbing us of the cash we need to improve efficiency.

It is time for governments to re-focus. We must replace the policy myopia of taxes with a long-term vision that supports aviation both as an economic catalyst and as an environmental role model.

 

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