Honored guests, colleagues, ladies and gentlemen.

Last year we survived the four horsemen of the apocalypse—SARS, conflict in Iraq, terrorism and the economy.

This year was meant to be the first profitable year for our industry this century.

But a fifth horseman — the price of oil — could add up to one billion dollars per month to our costs and deny us profitability yet again.

Crisis is forcing difficult decisions on everyone.

Restructuring is not easy. But you are driving change:

Two major mergers, one in Europe and the other in Asia, are shaking up the top ten list.

One of them is writing a new chapter on cross-border ownership.

Some airlines have reinvented themselves in new forms.

Others have drastically restructured to retain profitability.

Alliances have moved from common lounges and frequent flyer programs to joint purchasing, unified IT platforms and common aircraft specifications.

Creative use of subsidiaries is overcoming outdated ownership regulations.

Websites have been transformed into global engines for sales.

This room is overflowing with great people and great ideas. Congratulations —you have done a remarkable job of leading our industry through the most difficult time in its history.

But, as we all know, further change is urgently needed.

The agenda for change is long. It involves all partners in the value chain, governments and your Association.

State of the Industry

To start, let's look at the current state of the industry.

Some challenges — like the high price of fuel — are universal. Our projections of a 3 billion dollar profit this year were based on an average oil price of 30 dollars.

If oil prices average 33 dollars, we break even. At 36 dollars we could expect 3 billion dollar losses.

Traffic figures are more positive. First quarter passenger traffic for this year has been strong. But it is still only 6.5% above the levels of 2001.

At least two years of growth has been lost.

This global figure hides great regional differences.

For North American carriers, traffic in the first quarter of this year was still 2.8 % below 2001 levels.

Chapter 11 has offered some carriers an opportunity to restructure and set new benchmarks for efficiency.

Economic rebounds in key Latin American economies have had some impact on our industry. Yet traffic is only 3.2 % above first quarter of 2001.

About 70% of the region's carriers are posting big losses and a third are technically bankrupt.

In Africa, fleet renewal is improving financial performance and bringing new life to some airlines.

Traffic is 17.5 % above 2001. But the region's accident rate—nearly 10 times the world average—is a great concern.

For European airlines, rapid development of the low cost sector changed consumer demands and price expectations.

Traffic is 7.5 % above 2001 and the integration of 10 Eastern European economies will increase business and tourism opportunities.

But a European Commission that does not understand our industry is burdening airlines with bad legislation and increased costs.

Russia and the CIS countries are showing excellent growth — an 11 % increase in passengers in 2003.

This growth is compromised by the airlines' need to rely on imported aircraft with high import duties.

Middle Eastern carriers are rebounding from the effects of war and political instability.

Expanding regional tourism and transit traffic are fuelling strong passenger growth. Traffic is 42.1 % above 2001.

Asia Pacific is dynamic.

China and India have the potential to re-shape the travel industry.

Infrastructure improvements are needed to cope with the expected growth.

Passenger traffic is 8.7 % higher than 2001 and a recovering Japan could push this even higher. At the same time, the emerging low cost sector in Southeast Asia adds a new dimension to competition.

Overall growth in Asia is also a reminder of a common theme — the importance of cargo. In Asia-Pacific it is 25.2 % above 2001. Globally it is up 15.5%.

Industry-wide, cargo was a financial lifeline for many airlines. But the strength of the cargo business is not an excuse to relax.

We must achieve greater efficiencies to support future growth.


Overall, there is no single state that describes the industry.

The challenges are as great as the opportunities.

Your Association

Your Association has been at your side, fighting the many fires that have affected the industry.

Last year we achieved 630 million dollars cost savings from airports and air navigation service providers.

This year, airports from Vienna to Seoul reduced or rolled-back increases in user charges.

We shouted in a polite way when Toronto gave our industry a Versailles with boarding bridges.

The industry will not pay for extravagance. I will continue to be a thorn in the side of partners who do not understand our needs.

Our protests eliminated cross-subsidy in privatization plans for Narita. In Hong Kong IATA engaged the government to ensure that economic regulation was included in airport privatization plans.

The message must be clear: air transport is the economic lifeblood of a community.

Governments must stop milking the industry to solve their inefficiencies or a city's budget problems.

We are taking the European Union to court to fight misguided regulations concerning compensation for flight cancellations and delays.

They wanted to make airlines take responsibility for snow!

It is high time that European Union regulators took the trouble to learn about the industry they are busy mis-regulating.

Our achievements helped the industry survive three very difficult years. Now, we must move from fighting fires to designing new industry structures.

We must drive rigidity and complexity out of our business.


As an industry, we have always been subject to the ups and downs of business cycles.

The shocks of recent years tested our ability to change and manage costs under extreme conditions.

On top of that, with thousands of aircraft parked in the desert, the barriers to entry have never been lower.

New entrants come with challenging ideas, lower costs and different labour relations.

Cost flexibility has never been more critical—and this includes labour.

It is incredible that airlines can go bankrupt or enter chapter 11 before workers accept the case for change.

We share a common and great future. For those who are ready to change, the future will be bright.


We must also recognize the complexity of our traditional model.

Let's remember that consumers pay for value, not for complexity.

The traditional model is being pressured in all corners of the globe.

The challenge is to retain the value of the network system but eliminate the costs of complexity.

And I believe that the term "low cost carrier" is absolutely wrong. Our future structure is a "low-cost industry", with some airlines offering network services at a premium the consumer is willing to pay for.

How do we get from here to there?

The Agenda

To start, we must shift our agenda from firefighting to building a new industry structure.

The key new design element is "simplifying the business."

To move forward, we need strong leadership and a vision of change that is shared by all stakeholders.

Simplifying our Business

Let's begin by looking under the hood at the systems that keep the industry working.

IATA manages many services we all take for granted: the interline system, the clearing house, the settlement system and so on.

Simplifying the business starts here.

Re-structuring European BSP activities will save the industry 25 million dollars each year.

This is the first step of a global transformation.

All IATA's bank settlement and clearance systems, which handle over one hundred and eighty billion dollars, are now web-enabled.

This sets the stage for even greater gains if we get rid of paper entirely —worldwide.

Paper costs money — a paper ticket is nine dollars more expensive than an e-ticket. IATA distributes 300 million paper tickets each year.

You do not need to be a rocket scientist to understand that up to 3 billion dollars in savings are possible.

Technology can also make us more efficient.

We need to look for similar opportunities throughout our businesses:

  • Radio frequency baggage tags
  • Bar coding technology
  • Sharing self-service check-in kiosks.

All of these can deliver significant cost benefits today. And they will make the travel experience more efficient.

For example, with bar coding, the web and a printer, a passenger can print a boarding pass at home.

We need to think big.

Already the US domestic market is approaching 100% e-ticketing, while internationally we are only at 12%.

But we all know the importance of simplifying our individual businesses.

Now we must have the edge to commit to a vision of simplifying our industry.

Converting individual technology solutions into industry systems is an enormous task.

Your Association is ready to lead this process. With real targets great results are achievable.

The Board report will give you the details of several projects that are ready to go.

Our agenda to "Simplify the Business" includes not only our commercial practices but also:

  • Safety
  • Security
  • a redefined value chain
  • and renewed leadership from governments.


Safety is our industry's number one priority. Our safety strategy is paying off.

You can be proud of your achievements. Last year was our best year for safety ever.

Last year in Washington, your endorsement of IOSA meant three things:

  • Our first global standard for safety auditing
  • A simplified auditing process
  • and a more effective approach to safety.

FAA, ICAO and other authorities are supporting us.

By 2006 we are committed to having all members on the IOSA registry. This will bring new meaning to IATA membership.

To demonstrate IATA's commitment to safety, we are now offering IOSA to all airlines — members and non-members — without re-charging our costs.


Along with safety, security is the promise we make to the 1.6 billion passengers every year.

Simplifying our approach to security with standardization of rules is essential.

The urgent situation following September 11 resulted in uncoordinated actions by governments.

We kept pace with often chaotic results.

After two years, governments' approach to security is still fragmented.

This is not acceptable.

We need to battle terrorism, not paperwork.

The US is at the forefront of many of our industry's security efforts.

Leadership to build consensus needs to replace unilateral action.

Moreover, it is time for governments to accept responsibility for the costs of national security.

Last year, the industry paid over 5 billion dollars for security measures.

States must defend their citizens — in trains, discos, public parks or at home.

Why are citizens who travel by air forced to pay for their own security?

Here the US has set the example for others to follow.

Paying for security is not a subsidy — it is a State responsibility.

Rebalancing the Value Chain

As we simplify our business, we must rebalance our relationships with our partners in the value chain.

We do the flying, others make the money.

In commercial markets, competition determines price. Cost reduction delivers profitability.

But, many of our monopoly partners still think of "cost plus" pricing. The world has changed. This approach is no longer acceptable for any business.

Our mission is to convince our partners to set targets for efficiency.

Recently, an independent audit of EUROCONTROL providers was conducted. It showed that a 20% reduction in charges would be possible if all States were as efficient as the best European provider.

IATA is now challenging each of them to meet this target. This could save a billion dollars for our industry.

Our plan is to take this strategy to airports and air navigation providers around the world.

Renewed Leadership from Governments

The final agenda item is directed at governments.

Last year we spoke of the three pillars of stagnation:

  • Unrealistic competition policies
  • Outdated ownership restrictions
  • and a bilateral system in desperate need of modernization.

Basically we need to simplify our regulatory framework. Unfortunately, not much has happened since last year.

The bilateral system is built around the Chicago Convention. It is 60 years old.

Many parts of this structure are no longer relevant.

We live in a different world and our industry demands change.

Trans-Atlantic governments helped shape much of our industry. However they appear to be lost at sea.

The discussion of an open aviation area is more about politics than business.

In Europe, Brussels is focused on re-regulating the industry by grabbing power from national regulators.

We don't need rules on seat pitch. We need vision and we need policy.

The US cannot even implement a meaningless increase in foreign ownership to 49%.

The focus on great new ideas is lost. Marginal progress is a long way from the leadership we need.

Governments need to be involved in safety and security. And they must give us the commercial freedom to run our business.

This is the vision of ICAO's Fifth Air Transport Conference.

  • Access to global capital
  • Freedom to operate wherever markets exist
  • and the ability to consolidate and to cooperate.

There is nothing sexy about it. Every other business has access to these commercial tools.

We need to incorporate these in a simplified structure for the future success of our industry.


There is no doubt that the last few years were traumatic.

There is also no doubt that our industry is more relevant than ever and the opportunities are enormous.

By 2010 we will have 600 million more passengers and 7 million more tonnes of cargo than today. If we don't make fundamental changes to simplify our business, our future is at risk.

Change starts now, and we all have a role to play:

  • IATA is committed to simplifying the systems that support the industry.
  • Airlines must remain vigilant on costs and collectively support the drive for change.
  • Labour must understand that there are great opportunities ahead.
  • But we urgently need to build a different and more effective relationship.
  • Our partners must change with us.
  • And we will not stop until the last barrier to change disappears.
  • Governments need to demonstrate leadership for the future, not defend status quo.
  • But they need to give us the freedom to change, and let us run our business like real businesses.

If everybody delivers, I am confident we will share a bright future. Let's combine our passion and edge with some of the heat of Singapore:

  • to speed-up change;
  • to build a new, more profitable industry.
State of the Air Transport Industry
Report by the Director General