Working Together, We Can Change the World
By Giovanni Bisignani Director General and CEO, IATA
Aviation is an amazing business. The past decade illustrates the point. Airlines have survived an incredible rollercoaster ride of crises and shocks. And the industry emerged transformed.
To support air transport through these difficult times, IATA led important changes that have saved more than $59 billion since 2004. Simplifying the Business drove $17 billion in cost efficiencies and brought new convenience to travel and shipping. Our work with monopoly suppliers and governments netted an additional $24 billion in reduced charges and taxes. And our work to improve operations generated $19 billion in fuel and other cost savings.
These changes took place against a backdrop that was growing increasingly connected. Compared with 2001, freight shipments expanded by 17 million tonnes to more than 46 million. And nearly 2.6 billion travelers are expected this year—an increase of 900 million.
With the industry’s commitment to safety, we achieved all of this while reducing the accident rate 42% compared with 2001.
The financial story is less impressive. Airline revenues nearly doubled from $307 billion in 2001 to an expected $594 billion this year. But even in the best year of the decade—2010—profitability was only $18 billion. That’s equal to a pathetic net margin of just 3.2%, and far less than the 7-8% needed to cover our cost of capital.
Many factors contribute to aviation’s chronic destruction of capital.
The first is that the value chain does not work effectively. Aviation exists because people want to fly. If they did not, there would be no need to build planes, develop reservation systems, build airports, or prepare airline catering. Airlines do the flying. And the whole chain lives off the value that airlines create.
The problem is that most of the value chain has very limited competition, while the airline business is among the most competitive around. The result is that almost all the efficiencies that have been achieved have been either retained by our partners or passed on to our customers.
The solution for a normal industry would be consolidation. We have seen some important consolidations creating strong regional players. But, despite our role connecting the world, airlines are not able to develop into global players. This happened by design in the 65 year-old bilateral system that includes national ownership restrictions.
It was probably the perfect system for 1946. Today’s world is dramatically different but the basics of the Bermuda agreements, the first air transport bilateral, have not changed. So aviation has been stuck in a slowly suffocating time capsule.
Finding the leadership to change will not be easy. We lost our best opportunity when the United States and Europe failed to address ownership in their open skies agreement. But I have confidence.
The enormous changes of the past decade have shown the industry that when we work together with common purpose, we can change the world. And new markets—particularly those in Asia-Pacific that have rapidly grown up in modern business reality—now have the critical mass to lead. So I am confident that my successor, Tony Tyler, will witness even greater changes.