Challenging times continue for our industry. Airlines are improving their prospects. But the price of oil remains a wild card. None-the-less some cautious optimism is beginning to return to air transport. This is important for the global economy. Airlines are the US$450 billion heart of a value chain that
- Employs 29 million people
- Generates nearly US$3 trillion in output
- That is 8% of global GDP
Demand for our services continues to grow. Over two billion passengers will fly this year. 7.6% more than in 2005. Freight growth slowed to 3.2% in 2005. But we see demand increasing over 6% annually through 2009.
Cost reduction and efficiency remain priorities. We are on track to deliver US$6.5 billion in cost savings and customer convenience by Simplifying the Business
Work with monopoly partners—airports and ANSPs—delivered US$2 billion in savings last year. Airline results have been particularly impressive. Labour productivity improved by 41% in 5 years. And the break-even price per barrel for oil jumped from US$22 to US$48 in just three years.
We still need greater freedom to run our business as real business. A US-European agreement on open skies and regulatory convergence could move this forward significantly. If it is a first step towards a truly liberalized environment—including ownership.
Despite the optimism, many challenges still remain. Environment is among the top. In part because of some misperceptions of our industry. So, let's start by killing some myths.
Myth 1: Air transport was excluded from Kyoto and doing nothing on the environment.
Fact: Domestic aviation is included in Kyoto
International air transport was excluded but with a commitment to find a solution through ICAO. The process is moving forward. And I will speak more of this later
Let's remember that airlines took environmental performance seriously long before Kyoto. 70% decrease per passenger kilometer in emissions over 40 years.
Myth 2: Air transport is a major source of Greenhouse gas emissions
Fact: Our contribution is 2%--a small part of global CO2 emissions. But we support 8% of the world's economic activity. Within the trnsport sector, aviation is responsible for 12% of CO2 emissions. Road generates 80%.
In the EU, aviation accounts for 3.4% of CO2 emissions. Compare that to power generation at 39% or road traffic at 22%. Demand is growing, but let's keep things in perspective. It is growing, but from a small base. So even if we stopped all flying completely, the result is only a 2% global improvement.
Myth 3: Air transport is the most polluting form of transport.
Fact: Airline fuel efficiency improved 20% in the last decade, nearly 5% over the past 2 years alone. Fuel consumption by modern aircraft is 3.5 litres per 100 passenger kilometers. That is similar to a small compact car—but with 6 time the speed. And the Boeing 787 and Aibus A380 will take this well below 3.0 litres.
Myth 4: Air transport gets a free ride—it does not pay fuel tax
Fact: Air transport pays entirely for its own infrastructure. This is different from road or rail. And it is a US$42 billion bill each year. We pay when we land, when we fly, when we park. On top of that many governments still treat us like luxuries. The average tax on a US$200 ticket in the US is 26%. In Europe every rail journey is subsidized between 2.4 and 7.4 Euros. But every air journey deposits between 4.6 and 8.4 Euros into government accounts.
Myth 5: Air transport growth is not sustainable
Fact: Air transport is essential. Air transport brings
- people to business
- products to markets
- tourists to holiday destinations
- and families together
We made the global village a reality. And 80% of aviation emissions are related to flights for which there is no alternative mode of transport.
Clearing-up myths is important, but it is only part of the answer. We must be proactive in mapping the way forward with a clear vision. If not the agenda will be driven by politics that too often misses the mark on technology.
So along with setting the record straight, we must also strike an effective and sustainable balance. Air transport—like all industries—will face increased pressure to further improve performance. In December our Board approved a four point strategy to take us forward.
1. Technology is Key
Technology has driven much of the tremendous progress made so far
- Fuel efficient engines
- Lighter materials
- Aerodynamic air frames
Now we must add alternative fuel sources to that list. The high price of oil provides a unique opportunity. Our partners in the oil business are making huge profits.
And plan to return US$250 billion to investors in the next two years. The high price of fuel is not the only factor. Refinery margins jumped from US$6 to US$16 per barrel in 2 years. And the oil companies pocketed US$14 billion. Instead of just words, Governments must be more effective in promoting.
- Investment in new refinery capacity
- And research into alternative fuel sources
2. Infrastructure and Operations Must Be Part of the Solution
Airlines made a voluntary commitment to a 10% increase in fuel efficiency between 2000 and 2010. We are on track to beat that target in 2006. Last year fuel efficiency rose by 1.8% alone. Airlines have done everything they can to squeeze the most from every drop of fuel. Governments, air navigation service providers and airports must deliver better results. IATA is making some progress with governments. The opening of the IATA-1 route in China this month is a good example. It will reduce flight times between China and Europe by 30 minutes. Annually it will also eliminate
- 2,860 hours of flight time
- 27,000 tonnes of fuel consumption
- over 84,000 tonnes of carbon dioxide emissions
- 340,000 kg of nitrogen oxide emissions
- and US$30 million in cost.
This is just one route! We worked on 300 routes last year to deliver US$1.2 billion savings. IATA has targeted another 200 routes in 2006 for an additional US$500 million in savings. Globally, we estimate that optimized ATC procedures could deliver up to 12% more fuel efficiency. Too often governments are a part of the problem when they should be a part of the solution. Europe is a classic example.
There is a single major currency but still 35 air traffic control organizations. Airlines pay a high price for this inefficiency—EUR 2.1 billion per year. And the Environment suffers. Simply eliminating delays in Europe would save half a million tonnes of carbon dioxide. It is time for Governments to stop talking and start moving. A Single Sky should not take 15 years to move from concept to reality.
3. Taxes are NOT a Solution
Increasing industry costs does nothing for the environment. And it kills the social and economic benefits that our industry brings—particularly developing countries. Sweden provides a perfect example of a confused approach.
- Car drivers get tax breaks to help them purchase more fuel efficient cars
- But it plans to tax airlines to discourage air travel
- Why must air travel be treated differently?
We need a common-sense approach that does not limit airlines ability to invest in new technology.
4. Emissions Trading May be a Part of the Solution
I say "may" because the devil is in the details. As a concept it is certainly better than taxation. We may even be able to develop a system based on voluntary measures—as we see in Japan and Canada. I am sure that Robert Milton will give you more details on this.
As governments consider emissions trading several principles must apply. First ICAO must take the lead. We need a global approach. IATA fully supports ICAO's commitment to achieve a solution and deliver solid guidelines to states in 2007.
Governments must remember their commitment to support this process. It is no time to get distracted with local or regional schemes that cannot deliver global solutions. A global solution will deliver the best results for the environment. And it will preserve a level playing field among airlines.
Secondly, any emissions trading scheme must
- Allow airlines open access to trading markets
- For greatest efficiency, aviation emissions allowances must be interchangeable with other trading schemes
- Begin with a grandfathered distribution of allowances
- Auctioning allowances would simply be a cash grab for governments
- And it would rob airlines of the funds to invest in new technology (similar to taxation)
- Cover Carbon Dioxide emissions only
- Other emissions are best addressed with tailored solutions, for example through ICAO standards
- And treat airlines equally with respect to targets and baselines
Our history of efficiency improvements must be taken into full consideration. And we must not be held hostage to infrastructure inefficiency beyond our control.
Conclusion
We have come a long way since our first Summit last year. The G8 in Gleneagles last July, supported a climate change position very much in line with our proposals. As industry partners we—airlines, airports, ANSPs and manufacturers —must move forward with governments. We must all be a part of the solution. And the solution will definitely not come from finger pointing.
I am honoured that Dr. Kotaite is joining us again this year. We appreciate his important role in the industry over so many years. And particularly at the 2004 Assembly which committed to a 2007 solution.
And we also welcome regulators and NGOs to this important debate. Environmental responsibility is a pillar of our industry, along with Safety and Security.
Air transport is the safest form of travel because of global standards, harmonization and cooperation. We are pushing for the same approach for environment. And this conference provides a unique opportunity to progress an industry strategy.
Together we must
- Boast our achievements—which are truly impressive
- Dispel the myths—which cloud political decisions
- And implement practical solutions
I wish you a productive two days of discussion.
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Debunking Some Persistent Myths about Air Transport and the Environment