Annual General Meeting
Vancouver, Canada
4 June 2007

Good morning and congratulations. In the past year you have made tremendous progress.

Simplifying the Business

Simplifying the Business is a winner. E-T is at 80% 1 . If you travelled here using a paper ticket, frame it and donate it to your local museum. It will soon be a part of our history. And to help make it happen, we have a team of 150 experts working directly with you. In the final lap, they will be working overtime to provide maximum support. Progress on the other projects is good. E-freight will be a reality in five locations this year 2 , RFID 3 will be part of a new approach for baggage handling, 48 airlines are using bar coded boarding passes 4 and CUSS is being used in 59 airports 5 . A US$ 6.5 6 billion revolution is taking shape and we are looking over the horizon to stage two 7 , a strategy for self-service that will define a new age for travel.

Safety

Safety is another big success. 2006 was the safest year ever. In a decade, we cut the accident rate in half to 1 accident for every 1.5 million flights 8 . Working together, IATA members did even better with 1 accident for every 2 million flights. Air is the safest way to travel and we are committed to make it even safer. Last year you made IOSA 9 a condition of membership defining IATA as a quality association. 97.5% of our members credible. Regrettably, we had to terminate 6 members that did not commit 10. Already 153 airlines are on the Registry 11 , transparent for governments and passengers.

While raising the bar on safety, we are working with our members to deliver results. The target is to lower the accident rate a further 25% by 2008 12 .

We are strengthening our Partnership for Safety programme - that has helped 89 member airlines 13across Russia, Africa, Middle East and Latin America - to maintain support for our number one priority.

The Bottom Line

Your hard work is also improving your bottom line. Airlines nearly broke even in 2006 and we expect to make US$5 billion this year. Five years ago it was a different world. We needed an oil price of less than US$20 per barrel just to break even and low cost competition was new and tough.

You worked hard:

  • Labour productivity: up 56%
  • Distribution costs: down 13%
  • Non-fuel unit costs: down 15% 14
  • Load factors: record high of 76% 15

Today we are profitable with oil at nearly US$70 16 per barrel and the low cost sector, 13% 17 of global operations, faces new challenges. For most, the short-haul carnival is over and long- haul will not be any easier. Moreover, the market is recognising your hard work and money is coming back into the industry. Airline stocks are up 50% 18 over last year and we are starting to see some consolidation. We could make a small celebration but hold the champagne: a reality-check is necessary.

Peanuts

We are now a US$470 billion industry 19and a profit of US$5 billion is peanuts. We need US$40 20 billion just to cover the cost of capital. We are moving in the right direction but the financial hole is deep. The industry is US$200 billion in debt. Our financial foundation is weak. Some economists predict another five years of strong growth but nobody can predict shocks and even a small one could have a big impact.

The economic boom could be a boomerang. The increase in plane orders is making efficient aircraft more expensive and harder to get. More importantly, labour pressure on wages could kill productivity gains. The bottom line is tough. You have worked hard and unions must understand that the happy days of the free lunch are gone forever. So, in a difficult environment how do we turn peanuts into sustainable profits? We need to get even more serious about change.

The year ahead

This year we have a tall agenda for you and for your association. The challenges are enormous like mountains. We have almost conquered some:

  • Simplifying the Business
  • Efficiency
  • And safety

These are like the Rocky Mountains. Here in Vancouver, we are close enough to see the peaks. Others such as security and infrastructure costs, are well known. But, like the Alps, they are far away and we cannot see their summits. And finally, the biggest challenges: liberalisation and environment - The Himalayas. Let’s take one peak at a time.

Security

Security first. This is the Matterhorn challenge; well known to all but progress with governments is painfully slow. Nearly six years after the tragic events of 2001 we are much more secure but the system is still a US$5.6 billion 21uncoordinated mess. The common approach to liquids and gels is an improvement. But with more checked baggage, the infrastructure must also improve.

And overall governments have failed. They have forgotten that our success in safety was based on global standards and cooperation. With security we must take the same approach. And where standards exist such as biometric identification, governments must be faster to implement.

IATA is working with member airlines to implement Security Management Systems and we will keep shouting politely to remind governments of their responsibility to provide effective security that is also convenient. Our passengers have been hassled for six years. That’s far too much.

Infrastructure Costs

The next peak is Mont Blanc, enormous but conquerable. The challenge is to make our infrastructure partners share our obsession for efficiency. Last year IATA achieved US$1.9 billion in cost savings 22. Unfortunately, you did not see it. Costs increased US$2.6 billion 23 ,
destroying the gains.

To be fair, we are moving in the right direction with ANSPs but too many airports still operate as happy monopolies. While you - their customers, struggle to reduce costs, airports added US$2 billion to your bill. Three are at the top of my special list: Bangkok, London and Paris. Combined, they grabbed US$1.4 billion 24 . This is outrageous and I will continue to embarrass them with figures and facts. I personally battled a long list of airports with margins over 40%: Sydney, Auckland, Hong Kong, Seoul, and Johannesburg. I could go on but hands up: who in this room has reported a 40% margin to their shareholders? I don’t see many hands.

That’s because airlines live in a competitive world and commercial discipline is our regulator. Airport regulators are phantoms. Look at the financial results of airports. Clearly, it’s a dream world for them but a nightmare for airlines that pay the bill. Last year in Paris, Vice President Barrot 25 promised a directive on airport charges. He delivered a draft in January 26 requiring national regulators across Europe. This is progress but it has no cost-efficiency targets. We do not need any more phantom regulators. We need a directive with real teeth.

Fundamental Change

Many battles have been fought since 2002. The Five Horsemen of the Apocalypse 27 did not stop us. Our business is more efficient and delivering a small profit. We have a clear vision for safety, security, and efficiency. Now I would like to focus on the Himalayan challenges that could change the future of our business: liberalisation and the environment.

Liberalisation

The Everest challenge is liberalisation. We compete in a modern world but we are living in a time capsule with sixty-year-old rules. We are trying to climb Everest with equipment from 1944 28. The US-Europe agreement is a step in the right direction creating many new opportunities. But we lost a great moment for fundamental change. Governments must understand that we have a modern business to run and we need the freedom to sell our products where markets exist and to merge or consolidate where it makes business sense.
Let me be absolutely frank, liberalisation is the only way forward. The bilateral system belongs in a museum next to the paper ticket.

Environment

Another challenge is coming into view, the environment. Like the famous mountain K-2, it is potentially the toughest climb. Climate change is a real concern for our customers and a political priority for many governments. As the G-8 prepares to discuss environment later this week, let us clearly state our case.

Our track record is good, reducing noise 75% 29 and improving fuel efficiency 70% 30. The billions being invested in new aircraft will make airlines a further 25% more fuel-efficient by 2020 31 . So even as demand for travel increases, the increase in our carbon footprint will be limited. The UN 32 estimates that we will grow from 2% of total carbon emissions to just 3% by 2050 33 .
But we have been silent in our success and now we have a reputation crisis. That makes us an easy target for politicians who think green and see cash. Look at the UK. For the environment, Chancellor Brown doubled the Air Passenger Duty. We are paying a billion pounds for his green credentials. He helped the UK budget but what has he done for the environment? He hasn’t planted any trees but he is lost in the woods.

Worse many government policies are schizophrenic. Some governments are promoting carbon offsets with no reliable way to measure the impact. And Europe is rushing to include aviation in emissions trading. But when it comes to real measures to help the environment, Europe is dragging its feet.

I was asked not to call the situation a complete mess, so I will be polite and call the actions of governments irresponsible and inconsistent. A Single European Sky could save up to 12 million tonnes of CO2 34but instead of action we have a European circus. Fifteen years of talks, talks and nothing but talks.

My message to presidential candidates, Prime Ministers-in-waiting, and politicians everywhere is simple: we have had enough PR. It’s time to deliver some real results.

IATA’s environmental policy is clear and is aligned with the IPCC recommendations 35 . First, invest in technology. Second, fly the planes effectively and third, make the infrastructure efficient. And only then consider emissions trading, provided it is global, does not distort competition and is open with other industries 36 .

Despite a good track record and a strong policy, we have been weak communicators. So we are working with you and our industry partners to raise the volume of our communications. But this is only part of the solution.

Today, I believe that the industry needs a wake-up call. Our carbon footprint is growing and that is not politically acceptable -for any industry. Climate change will limit our future until we change our approach from technical to strategic. Strategy starts with vision: For Toyota, it’s an Earth Charter, GE has ecomagination and BP has Beyond Petroleum. So what is our vision?

Let me start the debate by aiming high. Air transport must become an industry that does not pollute.

Zero emissions.

I don’t have all the answers but our industry started with a vision that we could fly. The Wright brothers turned that dream into reality and look at where we are now.

We can see potential building blocks for a carbon-free future. Fuel cell technology is here. The first solar powered aircraft is built and we can make fuel from biomass - today. The way forward is marked by four challenges. Let’s start with the short-term.

The first challenge is for governments and ANSPs
To eliminate the 12% inefficiency in air traffic management and cut this in half by 2012 to save 35 million tonnes of CO2 37 annually. Three mega-projects could deliver results quickly:
an efficient Pearl River Delta in China, a next generation air traffic system for the US. The third is a specific challenge for Chancellor Merkel - to commit to a Single European Sky, real environmental progress for her G8 colleagues to follow.

The second challenge is for ICAO and its 190 member States
Deliver a global emissions trading scheme. One that is fair, voluntary and effective. And to set demanding environmental targets for governments and industry. The relevance of ICAO depends on its ability to deliver.

In the longer-term the number one challenge is technology
Build a zero emissions aircraft in the next 50 years. The US, Europe, Canada, China, Brazil, Russia and Japan are the aerospace leaders. They must coordinate basic research and then compete to apply it effectively. To support this, we need a clean fuel but governments have cut funding for alternative fuel research. Meanwhile, oil companies are busy counting US$15 billion 38 - what you paid in increased refinery margins last year. It’s time for governments and the oil industry to make some serious investments so that in 10 years 10% of our fuel is from alternative sources .

The final challenge is for ourselves - the airlines
To implement green strategies across our business your association is developing IATA Project Green. The goal is to help our members implement best practices that put environmental responsibility alongside safety and security. As a core promise to our 2 billion passengers, you have proven that we can deliver amazing results. In just 50 years we went from the Wright Brothers to the jet age. So by working together with a common vision a green industry is absolutely achievable. And if some heavy lifting is needed, IATA is your sherpa.

Leadership

Our journey across mountains, points to the need for strong leadership. IATA has to set tough targets to meet the tough reality of our business. But our biggest satisfaction is having all our members on board so we have a role in building tomorrow’s leaders. The International Airline Training Fund 40 is an important tool, building skills, knowledge and leadership. To help smaller members deliver great results, the challenges will not get any easier. So we are enhancing the Training Fund, to support our members on the most important priorities

  • Safety
  • E-ticketing
  • Environment and
  • Leadership

I am confident that our industry leadership is strong but at government level, there is a crisis. Traditional leaders, the US and Europe, have lost their way. Europe is micro-managing and the US cannot see beyond domestic politics. Meanwhile, the industry’s centre of gravity is shifting East. China and India are the industry’s stars and by 2010, Asia-Pacific will be the single largest market 41. The critical question will be: does Asia-Pacific have the institutions to play a global role?

Because leadership is not just about size, all regions need strong institutions to lead change.

For Africa, we must reduce the accident rate, work hard to retain labour skills, improve infrastructure and move forward with regional liberalisation.

For the Middle East the priority is managing growth effectively without hiding inefficiency and the US$38 42billion of planned infrastructure investments must build a solid platform for the future.

For Russia and the CIS, safety is at the top of the agenda. Bringing business practices in line with global standards is a strong number two.

And in Latin America, government policy must meet with commercial reality. Regional liberalisation is a priority, we addressed the failed airport privatisation in Argentina but a long list of infrastructure issues remains. Challenges are everywhere so we need strong leaders everywhere.

Confident

Industry and government leaders must share a common view from the mountain tops, addressing climate change with global solutions, tearing down the outdated bilateral system,
ensuring cost efficient infrastructure, harmonising security and making travel convenient again. We are a great industry capable of innovation and change. So I am confident in our future: safe, secure, efficient and environmentally responsible.

  • 1Percentage of tickets processed in IATA BSPs as at end April was 80.4%.
  • 2Pilot locations include Canada, Hong Kong, the Netherlands, Singapore, U.K.
  • 3Radio Frequency Identification.
  • 448 airlines currently use bar-coded boarding-passes and 94 are forecast to enabled by year-end.
  • 5CUSS is live in 59 airports around the world, with 91 forecast to be operational by year-end.
  • 6ET $3 billion, CUSS $1 billion, RFID $760 million, BCBP $500 million, IATA e-freight $1.2 billion.
  • 7IATA is examining other opportunities to streamline processes and improve convenience using technology, including security and facilitation.
  • 80.65 accidents per million flights on western-built jet aircraft.
  • 9IATA Operational Safety Audit.
  • 106 airlines that did not commit to an IOSA audit by 31 December 2006 had their memberships terminated on 31 March 2007. The next deadline is to complete all audits by 31 December 2007 and close all findings by 31 December 2008. Any airlines that fails to meet either deadline loses its IATA membership.
  • 11125 IATA member airlines and 28 non-member airlines.
  • 12For the full-year 2008 performance.
  • 13Partnership for Safety is a joint effort led by IATA with Pratt and Whitney and Boeing Commercial Airplanes. It provides gap analysis and skills training in targeted regions to help carriers reach IOSA standards. As of 31 May 2007: 170 airlines participated in Partnership for Safety Awareness seminars, of which 89 were IATA members and a total of 53 airlines have undergone gap analysis.
  • 14Note all figures are 2006 compared to 2002.
  • 15Average international passenger load factor reported during 2006.
  • 16Projected break-even oil price per barrel Brent for 2007 is $67 per barrel. Average oil price Jan-May 2007 is $61/barrel. IATA forecasts average price of US$63 per barrel for 2007.
  • 17Measured by available seat kilometres in April 2007.
  • 18Bloomberg World Airline Index comparing a basket of 37 shares for April 07 vs April 06.
  • 19Expected airline revenues in 2007.
  • 20Industry net profit required to deliver a return on capital employed equal to the average cost of capital of 7-8%.
  • 21Each year airlines pay US$5.6 billion for additional security measures implemented since 2001.
  • 22Achieved in 2006, from infrastructure providers. US$863 million from airports, US$140 million from fuel suppliers and US$931 million from air navigation service providers.
  • 23Increases recorded in 2006, from infrastructure providers. US$1.97 billion from airports, US$15 million from fuel suppliers and US$640 million from air navigation service providers.
  • 24Breakdown of top three airport cost increases: Bangkok $499 million, Paris $634 million, London $188 million.
  • 25At the IATA AGM in Paris (June 2006) Jacques Barrot, VP of the European Commission and Commissioner responsible for Transport and Energy, announced his intention to introduce a Directive on airport pricing in Europe.
  • 26The European Commission published a draft directive on airport charges on 24 January 2007. It would create national authorities to settle disputes, and requires transparency, user consultation and non-discrimination when calculating charges.
  • 27At the 2003 AGM the issues of SARS, war, terrorism and an economic slowdown were analogised to the Four Horsemen of the Apocalypse. At the 2004 AGM, the high price of oil becomes the fifth Horseman.
  • 28The Chicago Convention and bilateral system date from 1944.
  • 29Modern aircraft are 20dB quieter than comparable aircraft 30 years ago.
  • 30Achieved over the last four decades.
  • 31Current aircraft on order (up to 7,000 in the next 10 years) and fleet planning projections indicate that by 2020 the global fleet will be 25% more fuel-efficient than in 2005. Additionally, the European aerospace industry has a target to have technology available in 2020 that is 50% more fuel-efficient than what was available in 2000.
  • 32The UN’s Intergovernmental Panel on Climate Change (IPCC).
  • 33In 1999 the IPCC projected that aviation CO2 emissions would grow from 2% of the total man-made total in 1992 to 3% by 2050.
  • 34The IPCC calculated that improvements in ATC and infrastructure could lead to a 12% fall in aircraft emissions. In Europe aviation accounts for just over 100 million tonnes of CO2 so 12% would be around 12 million tones of CO2.
  • 35In its Summary for Policy Makers following the meeting of Working Group III in Bangkok on 4th May 2007, the IPCC stated “Medium term mitigation potential for CO2 emissions from the aviation sector can come from improved fuel efficiency, which can be achieved through a variety of means, including technology, operations and air traffic management. ”
  • 36An open emissions trading scheme allows airlines to trade allowances with other industries.
  • 37IPCC 1999 estimate 12% inefficiency. At current industry size, that is estimated to be equal to 73 million tonnes of CO2 annually.
  • 38Increase over 1990’s average margin.
  • 39IATA’s 2007 fuel campaign target is to achieve up to 14 million tonnes of CO2 (US $1.5 billion) in savings through operational efficiencies, new routes and infrastructure enhancements.
  • 40The International Airline Training Fund provides skills and knowledge for airlines in developing nations.
  • 41By 2010, intra-Asia Pacific travel will be 33% of total rpk.
  • 42Figure includes $6.8bn in Abu Dhabi International Airport expansion project, $4bn for expansion of Dubai Airport, $6.8bn-$8.2bn for Jebel Ali International Airport development, $ 5.5 billion at Doha International Airport, $8 billion in Saudi Arabia airport expansion among others.