Welcome to our Geneva home where our Board met on Friday. Tough times continue. Since 2001, airlines achieved a 13% reduction in non-fuel unit costs, a 19% improvement in fuel efficiency, and a 13% decrease in sales and marketing unit costs. We celebrated a 2007 profit, but almost immediately we were plunged back into crisis as oil rose to US$147 in July. Oil is now near US$40 per barrel but the recession is driving industry losses.
October traffic was down 1.3% for passenger and 7.9% for cargo. Airline stocks are 60% down on last year and we, IATA, had to suspend 31 airlines from our US$360 billion financial systems because they could not pay their bills.
Financial Outlook
Industry losses this year will be US$5 billion followed by another gloomy year with losses of US$2.5 billion in 2009. As Brian Pearce explained, the seeming improvement is due to an extraordinary situation for North American carriers.
With very little hedging, North American carriers were hit with the full impact of high fuel and will post a loss of US$3.9 billion this year. To cope, they cut capacity early and are now benefiting from the full impact of low spot prices for fuel. As a result, they will post a US$300 million profit, but this is still less than 1% of revenue. All other regions will see red in 2009.
Asia Pacific losses will more than double to US$1.1 billion, the biggest next year. With 45% of the international cargo market the drop in freight is hitting hard. Japan is in recession, China is suffering from a major drop in export markets, and India’s carriers, already struggling with high taxes and insufficient infrastructure, can expect a drop in demand from last month’s tragic events.
European losses will increase ten-fold to US$1 billion. Hedges have locked in higher fuel prices, a stronger US dollar is exaggerating the impact, and the recession is hurting demand. Middle Eastern carriers will see losses double to US$200 million. Their challenge is to match capacity to demand as fleets expand while traffic growth slows, particularly on long-haul connections.
Latin American carriers will also see losses double to US$200 million. The downturn in the US economy and a drop in commodity demand have hit the bottom line hard. And African carriers will see losses stay at US$300 million as they struggle to maintain market share.
So, the outlook is bleak and the chronic industry crisis continues as we face the toughest revenue environment in 50 years. Alone airlines cannot overcome the industry’s structural sickness. At our June AGM, our CEOs issued the Istanbul Declaration with a clear call to action. For labour to understand that jobs disappear when costs don’t come down. For industry partners to contribute to efficiency efforts and for governments to stop crazy taxation, fix the infrastructure, give airlines normal commercial freedoms and regulate monopoly suppliers.
To open our discussion, let me address some of our biggest issues including: liberalisation, environment, infrastructure costs, Simplifying the Business, security and safety.
Liberalisation
The Chicago Convention delivers relevant global technical standards, but the 60 year-old bilateral system must change. It denies airlines the basic freedoms to access markets and global capital or to merge or consolidate. Industry losses clearly show that airlines feel the recession like any other business. But we don’t have the commercial tools that other industries take for granted to manage through it.
So, consolidation and partnerships have been restricted to “domestic markets.” Delta with Northwest and Lufthansa with bmi, Brussels Airlines, and Austrian are the most recent. The announcement of merger talks by British Airways and Qantas could help to break the mould, but ownership restrictions and political hurdles will certainly complicate the process. Travellers demand safety and efficiency. Nobody cares who owns the airline. The flag on the aircraft tail is killing the industry. It’s time to move beyond politics and government agreements to brands and business.
IATA’s Agenda for Freedom Summit held in Istanbul in October was an extra-ordinary measure. Fourteen governments and the European Commission came together to discuss expanded commercial freedoms. Governments must regulate safety, security and environmental standards and ensure a level playing field. To move the discussion forward on commercial freedoms we proposed that governments consider selectively waiving restrictive clauses in their existing bilateral agreements.
As governments discuss the waiver proposal they asked IATA to organise a follow-up meeting in early 2009 that will turn discussion into action. They also asked IATA to facilitate a multilateral statement of policy principles and find ways to promote and communicate best practices in liberalisation. The summit was a success. We have achieved momentum for change with a fraternity of countries committed to liberalisation. Already we see progress with a very liberal bilateral between two Summit participants: Chile and Brazil. Carlos Grau will provide you with further details.
Environment
Let’s move on to environment. Even with the drop in the fuel price our commitment to the IATA four pillar strategy on climate change is strong. The pillars include: invest in technology, fly planes effectively, build efficient infrastructure, and use positive economic measures. The IATA strategy is endorsed by governments and industry. Our vision is even more ambitious: carbon-neutral growth leading to a carbon-free future.
In February, we signed a partnership with Solar Impulse, a project to fly around the world in 2011 day and night using only the power of the sun. The pioneering spirit of Bertrand Piccard and the Solar Impulse team reminds us that air transport was built by turning dreams into reality. That’s how - 50 years - moved from the Wright Brothers to the jet age. Unfortunately, we are drowning in environmental taxation because governments are focused only on punitive economic measures.
The most recent example is the UK. The GBP 2 billion Air Passenger Duty already covers aviation’s carbon footprint. But increases announced last month will see long-haul travellers paying between GBP 60 and 170. It is scandalous that none of the billions collected will plant trees or help the environment in any way. It’s time that the NGO’s join industry to demand some environmental accountability for the billions collected. Even more scandalous is the absence of a commitment to end APD in 2012 when aviation joins the European Emissions Trading Scheme (ETS).
Aviation must pay its fair share once, not several times. Governments should act as quickly to deliver 16 million tonnes of CO2 savings with a Single European Sky. There is hope to have Europe’s commitment by January to achieve 9 Functional Airspace Blocks, a European network manager, and binding efficiency targets. All this must be in place by 2012 when aviation joins the European ETS. It would be hypocrisy to force airlines to buy permits for emissions that are not their responsibility.
We have also not given up on a global solution in line with the Kyoto Protocol and the Chicago Convention brokered through ICAO’s Group on International Aviation and Climate Change (GIACC). Governments must ensure that its action plan to be issued in September will be challenging and effective. In the meantime, IATA is delivering significant results. Since 2004 we have saved over 59 million tonnes of CO2 and over US$12 billion by shortening routes and improving operations.
IATA’s Green Teams played a critical role by working directly with airlines to implement best practice. Our track record shows savings of between 2% and 12% on the fuel bill, saving 28 million tonnes of CO2. In 2009 we will work on timelines and costs to achieve the 30% per plane fuel burn reduction by 2020 identified in our just-published Technology Roadmap. We will also work with governments for quick certification with a global standard for Second and Third Generation bio-fuels as outlined in the IATA Report on Alternative Fuels and deliver an industry Carbon Offset Programme that will grow from a pilot of 9 airlines to 15 by year-end. Paul Steele and Juergen Haacker will give you further details on our environment activities.
Infrastructure
Our infrastructure cost campaign intensified as the price of fuel rose. The good news is that this year IATA saved US$2.8 billion in costs with the biggest savings - 1.2 billion - in fuel fees. The bad news is that cost increases, excluding the APD, are US$3.8 billion, with US$3 billion of that in taxation.
We salute partners who understood the need for efficiency. In advance of Jeff Poole providing you with details, let me name a few. Toronto reduced cargo rates by 25%, Nigeria dropped en-route charges by 9%, Seoul Incheon cut charges by 10%, Bulgaria delivered a 20% reduction savings in ANSP charges, Brazil reduced fuel taxes by US$400 million and Belgium stopped its proposed EUR 132 million departure tax. Along with fighting tax increases our 2009 priorities are a quick start for AERA, India’s infrastructure regulator; the break-up of BAA and reform of the UK’s phantom regulator; and working with the Chinese authorities to restructure airport charges.
Simplifying the Business
IATA is delivering efficiencies as well through our Simplifying the Business Programme. In June we achieved 100% e-ticketing saving US$3 billion annually. What is left to do? There are billions more in cost savings to be achieved.
Common-Use Self-Service Kiosks (CUSS) are a success story. About 30% of passengers check-in using kiosks and by year-end and we will have 2,400 CUSS kiosks at 138 airports. At San Francisco International Airport the kiosks have gone wireless. The mobility allows them to be deployed when and where they are needed. The potential overall savings from CUSS is US$1 billion a year.
Bar Coded Boarding Passes (BCBP) is the IATA 2D bar code standard, which facilitates check-in online, on your phone, or at a kiosk. 194 airlines use the standard, capable of covering 40% of all travel. Tanzania is the first all BCBP country with both international airports having eliminated their magnetic stripe readers. By 2010 the magnetic-stripe boarding pass will disappear everywhere like the paper ticket saving US$1.5 billion annually.
Fast Travel will give passengers even more self-service options from tagging your own bags to self-boarding and recovering lost baggage. A further US$1.6 billion can be saved here every year.
Baggage Improvement Programme (BIP): Working directly with airlines and airports we estimate cost savings of US$1.9 billion by reducing mishandled bags. Travellers to Seattle can see an early result where a new bag drop at the transfer desk keeps passengers and bags together even with missed connections. All of these you will experience as a passenger.
Behind the scenes is the IATA e-freight revolution saving up to US$4.9 billion annually by removing paper documentation from freight processes. Already we are live at 16 locations with 13 documents converted to electronic messages saving 52% of the paper. By the end of 2010 we will be live with at least 44 international locations, the five biggest domestic markets and 20 documents converted to electronic messages. That means that we will have the capability to eliminate 64% of the paper for 81% of all cargo. By 2016, the benefits of e-freight could be US$4.9 billion based on 24-hour decrease in delivery times, a 22% reduction in shipper inventories, a 25% reduction in customs penalties, and a 1% increase in market share against sea shipments. These are the highlights. Philippe Bruyère will give you the details of this industry-changing programme.
Security
Global standards will also deliver benefits in security. Our focus is on a risk-based approach for both intelligence and passenger screening. Advance Passenger Information (API) is critical to intelligence efforts but governments have not harmonised their approach or adopted international standards.
In the last year IATA had to intervene in the UK, Brazil, El Salvador, Mexico, Indonesia, and South Korea to stop non-standard data exchange requirements. Priorities in this area are to further develop and promote global data transmission standards for API and PNR, and to work with the US Government to harmonise the requirements of its various agencies.
On screening, governments have created a security-monster by piling measure-upon-measure. Our priority is to promote Security Management Systems and One-Stop-Security, risk-based with effective global standards. Georgina Graham will provide further details.
Safety
Safety is proof that global standards and government cooperation can deliver good results. The safety record as of 1 December this year is 0.77 accidents per million flights, improved from 0.82 last year. IATA members did even better at 0.47, significantly better than the 0.68 last year.
The regional picture is mixed. North Asia led the industry with zero accidents this year. At 0.48 and 0.45 respectively, the US and Europe did better than the world average. Runway safety issues are the focus for this year. Asia Pacific saw the accident rate improve to 0.32 from 3.01. Our focus continues to be Indonesia with a tailored safety initiative based on IOSA.
Africa is at 2.11 accidents per million flights, which is much better than the 4.46 last year. Through our Partnership for Safety programme we worked with airlines, providing training and Safety Management Systems. Middle East/North Africa is at 2.22 up from 1.18 last year. We are implementing a regional strategy with a special emphasis on Safety Management Systems.
Latin America is at 2.77 up from 1.76 last year. We continue to work closely with Brazilian authorities to resolve operational and infrastructure issues. CIS has the highest rate of 7.92. Four accidents on a very small base of operations spoiled a perfect record in 2007.
The IATA Operational Safety Audit (IOSA) is leading our efforts. In five years, IOSA has gained tremendous respect. Eight governments currently require IOSA in their national legislation. Others, like the US, recognise IOSA for code-sharing. It is also requirement for IATA membership from the end of this year. By year end, we expect over 260 airlines on the registry, including 210 IATA members.
IOSA sets tough and transparent standards. IATA’s biggest satisfaction is to bring all our members on board, but for those that do not make the standard, there is no place in our association. Nine airlines that did not make the interim targets have lost their membership. Despite our best efforts, between 10 and 20 airlines will likely not make the registry and will have their membership terminated.
From January, IATA membership will be a transparent mark of quality reassuring travellers that an airline has achieved the highest global standard for airline safety management. We are now taking our IOSA expertise to ground handling where the IATA Safety Audit for Ground Operations (ISAGO) is the first global standard. By the end of the year we will complete 20 headquarters audits and 23 station audits and have a pool of 200 trained auditors. This is the basis of our ambitious target of 80 audits in 2009.
In 2009 we will also launch the IATA Global Safety Information Centre. Data analysis is critical to further safety improvements. IATA collects an enormous amount of safety data. The Safety Information Centre will be an important on-line resource for airlines and regulators. Guenther Matschnigg will give you a full update on this and our safety strategy.
Conclusion
There is a lot more that I could say but I will stop for now. Air transport is an important industry driving US$3.5 trillion in economic activity and employing 32 million people. At this challenging moment IATA plays a relevant role in the industry: US$360 billion financial systems, US$12 billion in fuel savings since 2004, US$3 billion saved every year with e-ticketing, and US$2.8 billion in savings from our industry costs campaign.
Thanks to all of you for your interest and joining us today. I hope that you will continue to follow us closely as we navigate this crisis to emerge even safer and more secure with higher levels of efficiency and environmental performance and with the commercial freedoms to achieve a financially sustainable future.