(Singapore) "Airlines have lost US$42 billion since 2001 and we expect another US$4 billion in losses again this year. Something is wrong with the air transport industry," said Giovanni Bisignani, Director General and CEO of the International Air Transport Association at the opening of the Second IATA/Asian Aerospace Aviation Summit.
"While Asian passenger traffic is expected to grow at 6.5% and cargo at 8.5% each year until 2009, growth is not profitability. Some of Asia's carriers are among the industry's most profitable, yet the average margin is 2%—far from the 7 to 8% needed to cover the cost of capital," said Bisignani. Boosted by the fast expanding markets of India and China, Asia is home to the industry's greatest potential markets. "Turning growth into profitability will be the challenge," said Bisignani.
Bisignani identified three threats to the industry. "Low cost competition is adding a new dimension to competition in Asia. With an average cost of US$0.06 per ATK on routes over 1,500 km, Asia's carriers have some of the lowest costs around. But Asia is also home to the low cost carriers with the lowest costs. There is no finish line in the race for efficiency," said Bisignani
With an order backlog of 4,000 aircraft, equivalent to 29% of the existing fleet, careful capacity management will continue to be an issue. "The good news is that carriers are managing capacity as carefully as they are managing costs," said Bisignani. In the next two years the industry will see deliveries equal to 5.7% of the fleet which compares conservatively to the 7.5% and 6.5% recorded after the peak order years of 1991 and 1999 respectively.
" Avian influenza is the wild card. Currently the disease is confined to birds. But if we see efficient human-to-human transmission develop, the impact on airlines and the global economy could be enormous. We have the experience of SARS behind us and we are working closely with the World Health Organization to ensure that the air transport industry is prepared," said Bisignani.
Mapping the Future
Bisignani identified four key areas critical for Asia to take full advantage of its tremendous potential:
- Safety: "This is our industry's number one priority. Air transport is already the safest mode of transport, but we are committed to even further improvements. The IATA Operational Safety Audit is the first global benchmark for airline safety management and is recognised by the FAA, CASA, Transport Canada and others. By the end of 2007, it will be a condition of IATA membership. Already over 140 airlines are in the process, representing over 70% of international aviation. We are committed to being a quality association and urge governments to make use of IOSA data in their safety oversight programmes," said Bisignani.
- Simplifying the Business: IATA launched its Simplifying the Business initiative in Singapore in June 2004 with the twin goals of improving convenience for passengers and shippers while saving the industry US$6.5 billion in costs. "At the top of the agenda is 100% e-ticketing by the end of 2007. This alone will save US$3 billion annually. We made our global target of 40% e-ticketing by the end of 2005 and are well placed to achieve 70% by the end of 2006. But Asia ended 2006 at 34%. It is not moving fast enough. We need to have all carriers on board and on target," said Bisignani
- Value for Money: The bill for airports and air navigation service monopolies is US$42 billion each year. "While we have some great partners, many are living in a different age of monopolistic bliss. Last week IATA brought its concerns about airports to the European Commission, highlighted by the outrageous 5% per annum fee increase that has been approved for Paris Charles de Gaulle Airport. The good news is that the European Commissioner for Transport and Energy, Mr. Jacques Barrot agreed that airport fees seem arbitrary and there is a need for greater transparency. IATA is calling for a European regulator and dispute mechanism that is fair, transparent, independent and quick. Running an airport cannot be a license to print money," said Bisignani.
- Commercial Freedom: "Airlines were among the first companies to operate globally, but we are among the last to benefit from globalisation. Deregulated by half-measures, governments are far too involved with an industry that is intensely competitive and consistently reducing costs. Airlines cannot live with the 60-year-old rules of the game—the bilateral system—that were developed for another age. Governments must move forward with progressive liberalisation to build a stronger industry. Particularly urgent is the US-EU agreement on open skies and regulatory convergence. This will send a strong signal about the way forward for aviation," said Bisignani.
"The agenda for a successful airline industry is not complicated. But it has three dimensions—airlines, partners and governments. If these three dimensions are correct—the chances for a safer, more secure, environmentally friendly industry that produces a US$6 billion profit in 2007 are good. That is still only a 1.5% margin—but will signal a move towards a more stable industry," said Bisignani.