Annual General Meeting
When we first planned this press conference, it was to announce that the IATA Annual General Meeting and World Air Transport Summit will take place here in Berlin from 6 to 8 June 2010. For those three days Berlin, will be the capital of global aviation. We are expecting over 700 delegates to attend, including the CEOs of IATA’s 230 member airlines. We are doing this with the help of Lufthansa, our gracious host airline. Without a doubt this will be the biggest event on the aviation calendar. It is completely open to journalists and I look forward to seeing many of your there.
The Dimension of the Crisis
But more than the AGM, I am sure that your biggest interest today is the crippling impact of the Icelandic volcano eruption on the air transport industry. On Friday last week we released an initial estimate of the cost of the crisis to airline revenues. Based on several key European hubs not operating during the crisis, airlines lost $200 million in revenue per day. This was a very conservative estimate. Since then the crisis has grown in scale. During the peak cancellation period, the crises affected 29% of global scheduled flights and 1.2 million passengers per day.
This is a much larger crisis for the industry than 9/11 when the US closed its air space for three days. At the peak of cancellations over the weekend and on Monday (17-19 April), airlines were losing US$400 million in revenues a day. We estimate that cumulative lost revenue through Tuesday is over US$1.7 billion. There are some cost savings. Fuel purchases, for example, are down by US$110 million a day. But there are added costs for providing passengers with care
Europe’s Airlines
The greatest impact is on European airlines. Even before the crisis, we expected airlines to lose US$2.8 billion. Of this global total, the largest losses were expected from European carriers -- US$2.2 billion based on Europe’s sluggish economy. This crisis is hitting while the industry is weak and at its weakest point. Once it is over, we will revise our financial outlook at the AGM here in June.
Re-Opening the Skies
On Monday, I was in Paris and I criticized Europe’s governments for their slow response, and for the ineffective decision making. Airspace was being closed based on theoretical models, not on facts. Test flights by our members showed that the models were wrong. Test flights showed no irregularities in the engines. That means it is safe to fly. Our top priority is safety. It is the same priority for governments and for passengers. We are proud that aviation is the safest form of travel. We achieved this record because we base our decisions on fact, not theoretical fiction.
Without compromising safety, I demanded that governments take responsibility for the decisions to open or close airspace. After a meeting of Europe’s Transport Ministers on Monday—five days into the crisis—the Commission announced measures to re-open airspace based on three categories: full restriction, some restrictions and no restrictions. This risk based approach was a step in the right direction.
Some airspace re-opened on Tuesday. About half the flights in Europe -- about 12,000 -- were able to operate. Unfortunately not all governments are applying the methodology uniformly. Re-opening the UK airspace was a big step forward. But the situation continues to be an embarrassment for Europe. Industry’s calls for a Single European Sky for decades could have prevented some of the chaos. Once this crisis is over I hope Europe’s governments will move this forward with greater urgency.
Mitigating the Financial Impact
In the meantime, as we count the costs of the crisis, we must also look for ways to mitigate the impact. Some of our airport partners are rising to the occasion. Dubai and London Heathrow are waiving parking fees for stranded aircraft and not charging for repositioning flights. All airports should follow this best practice. All industry partners must realize the severity of the situation and look for ways to provide cost relief.
There is also a big role for governments, particularly in Europe. Some regulatory relief is very badly needed.
First, we need to relax Europe’s airport slot rules. Airlines should not be penalized with the loss of landing slots when they cannot fly.
Second, curfews on night flights must be lifted temporarily. This will allow airlines to take advantage of every opportunity to get stranded passengers back home as soon as possible
Third, we must address the application of care requirements in Europe’s passenger rights regulation. This is an act of God, completely outside of the control of airlines. Insurers are looking at it this way. But with the current regulation, airlines are bearing the complete burden for hotel, food and telephone. The regulation was never meant to be applied to these situations. It is urgent that the European Commission finds a way to ease this unfair burden.
Finally, we must look at government compensation for lost revenues. I am the first one to say that this industry does not want or need bailouts. But what is happening today is an extra-ordinary situation and an unprecedented emergency. This crisis is not because we have been bad at running our business. It is beyond our control.
This is the seventh day that airlines have not been able to do business normally. That is a week with virtually no revenues. That has not stopped costs for passenger care and refunds, as well as fixed costs and salaries. Governments must take some responsibility, starting from the fact that their methodology for closing airspace with no risk assessment is very badly flawed. There is precedent for governments helping in extra-ordinary situations.
After September 11, the US government provided its carriers with US$5 billion. This was provided almost immediately to cover the costs of grounded flights. The European Commission also took a decision to allow its states to assist carriers. I remain against bailouts, but I do believe that governments must help carriers to recover the costs of the disruption. What quantum should that be? That depends on how long the disruptions last. But it is critical for governments at this stage to start acting. The longer this lasts, the cash positions of many airlines will become severe.
The Future
Before taking your questions, I would like to leave you with one thought. We were six days without aviation in much of Europe. Things are finally improving after enormous disruptions. Business meetings and conferences were cancelled, supply chains disrupted and vacations postponed. Mobility over short and long distances that we take for granted is not available. This is the top story on the news because aviation is vital to normal life.
If anything good can come from this crisis I am targeting two things. First, governments must understand the economic urgency to deliver a Single European Sky. Second, aviation must move higher on the government policy agenda - not as an industry to be over-taxed and over-regulated, but as an industry whose social and economic benefits are so critical that they must be supported with sound policies and effective regulation
