Friends and colleagues. Thanks to Andy Herdman and the Association of Asia Pacific Airlines (AAPA) Executive Committee for the invitation to address you today. It is great to be back in the region—seeing many familiar faces…and meeting some new ones as well.
I have been at IATA for a year-and-a-half now. It’s been a good challenge coming up to speed with IATA’s global focus. Reflecting that, I have come from Algeria; my next stop (after a short touch-down in Geneva) is Panama. Being Director General and CEO of IATA very quickly gives you a deep appreciation of how connected aviation has made our planet. And I am more convinced than ever that aviation is a force for good in our world.
That’s why IATA’s mission—to represent lead and serve the airline industry—is so important. Put another way, we are about delivering value to our members and the industry—value that helps your businesses. And we have reformulated our vision to push ourselves even harder “to be the force for value creation and innovation driving a safe, secure and sustainable air transport industry that connects and enriches our world”.
IATA’s mission aligns well with AAPA’s priorities—to articulate member views, to foster cooperation with relevant stakeholders and to encourage the successful evolution of the travel and tourism industry as a key contributor to economic, social and cultural development. That alignment makes sense. AAPA’s member airlines are also a part of the IATA fold. My philosophy is that we should cooperate as much as possible. We will be more effective in serving our members’ needs as a strong chorus singing in unison rather than as soloists. So it’s great to be here discussing how to best add value to our members’ businesses.
With that background, I will focus my remarks on four key areas:
- New Distribution Capability (NDC), and
The top priority is always safety. Last year was the safest in aviation history. And this year is shaping up to be even better. Safety improvements are not happening by chance. IATA, AAPA, other associations, our members, regulators, stakeholders and partners are united and determined to make our safe industry even safer. The cooperation of IATA and AAPA in the Asia Pacific Regional Aviation Safety Team is a prime example of this joint determination.
One important tool in improving safety is the IATA Operational Safety Audit (IOSA). All 15 AAPA members are among the 386 airlines on the IOSA registry. In 2011 the safety performance of carriers on the IOSA registry was 52% better than that of carriers not on the registry. And that trend is continuing this year. We have an effective tool. And we are making it even better.
The Enhanced-IOSA (E-IOSA) initiative will add a greater focus on organizational management, improved regulatory interface and the embedding of the International Civil Aviation Organization (ICAO) Standards and Recommended Practices in daily operations. E-IOSA trial audits were completed in August. The Federal Aviation Administration (FAA) and the European Aviation Safety Agency (EASA) support the concept. I am sure that I can count on your support—through AAPA and individually. The IATA Board of Governors has not set an implementation date yet. The aim is to evolve to E-IOSA while giving airlines sufficient time to prepare for the upgrade.
As an industry, we share a similar unity of purpose with respect to sustainability. Our commitments on climate change put us at the leading edge of industries in this critical area. And I should offer a special thanks to Andy and the AAPA team for their strong support. We will be counting on that continuing as we face two major challenges.
The first is the European Union’s inclusion of aviation in its emissions trading scheme (EU ETS). Europe can take credit for raising the climate change challenge on the global aviation agenda. But the EU ETS has become a roadblock instead of a stepping stone to the global approach that everybody—including the Europeans—knows is needed. Europe’s plan to tax non-EU carriers extra-territorially is being seen as an attack on sovereignty. China, India and Saudi Arabia are prohibiting the participation of their airlines. The US is moving in the same direction. The risk of a trade war that nobody can afford is real. Already Russia is taking retaliatory measures. To move forward, the Europeans must find a way to relieve the political pressure so that ICAO can make the progress that is needed in time for the 2013 Assembly which is less than a year away.
The second challenge is for the industry to remain united as we build consensus on the fair implementation of market-based-measures on a global basis. Despite the EU ETS political wrangling, technical discussions are progressing at ICAO to narrow down options. Some very pragmatic proposals will be on the table at our December Board meeting. No solution will satisfy every airline 100%. We will need to find the fairest possible compromise. If we fail or lose unity, that opens the door for individual governments to pick us apart and impose solutions that will, quite probably, be more expensive and less workable for our complex global industry.
New Distribution Capability
The third area that I would like to brief you on is the New Distribution Capability (NDC). After over a year of collaboration the foundation standard was approved by the Passenger Services Conference last month. Now we have the potential to unleash a revolution in airline retailing.
Of course, airlines individually already retail their products without limits in direct sales channels. But about 60% of air travel by value is sold through travel agents. And they are selling your products with the very limited information that is provided to them by our Global Distribution System (GDS) partners. Your products—no matter how much you have invested in differentiation or to create customized experiences—are being sold as commodities defined by class of service codes. Customers want a better experience with more information because retailers such as Amazon have already raised their expectations. NDC will give the industry the capability to meet those expectations.
People often ask me to describe NDC and to put an estimate on how much it will cost. These are difficult questions. Why? Because NDC is an open set of standards that will enable airlines to retail their products as they would like them to be presented—including customization and value added services. NDC will also allow GDSs and new entrants to develop new retailing experiences to travel buyers—individuals and agents—that respond to market needs.
NDC is similar to the open iPhone standards. These allowed the mobile phone to evolve into a multi-purpose device that can do almost everything—from organizing your calendar to turning on your coffee maker in the morning.
In terms of cost, it really depends on how an airline wants to respond to the market. Some may limit their investment to simply providing inventory data to potential business partners. Others may develop their own applications. And some airlines may stick with the status quo.
We expect to have some prototypes operating within the next 12 months. We are consulting widely with technical experts from across the travel value chain as well as with regulators, agents and technology providers to ensure that we have robust standards that will create revenue opportunities for all.
Lastly I would like to say a few words on infrastructure—on the ground and in the air.
On the ground, many governments are turning to private investors to develop airport infrastructure—particularly when growth outpaces the speed at which governments can move. That was the case in India. Private investment created a world-class hub airport at Delhi. Unfortunately, the structure of the concession is making it unaffordable for the airlines because the government’s concession fee is 46% of the airport’s top-line revenue. The regulator tried his best to balance national interest….but several appeals could only bring the 774% proposed increase down to 346%.
Now, Vietnam, Indonesia and the Philippines are looking at private investors to develop much-needed airport capacity. And even Incheon Airport—consistently voted one of the best in the world—is looking at partial privatization. Further afield, airport concessions for three airports in Brazil were auctioned off for $14 billion—five times the minimum bid. The government is developing different criteria for the second tranche. And let’s not forget that when Hong Kong looked at airport privatization in 2003-4, the conclusion was that keeping it fully under government ownership was the best way to ensure maximum benefit to the Hong Kong economy.
I am not advocating for or against private participation. But there have been enough mistakes made when engaging the private sector in airport development. They should not be repeated. When governments work with private investors to develop infrastructure they must establish an effective economic and service-level regulatory framework to ensure that the national interest of cost-effective and efficient connectivity is met.
We also must not repeat mistakes in the development of air traffic management (ATM) infrastructure. The lessons from the saga of the Single European Sky should be foremost in our minds. We have huge inefficiencies in Europe’s skies because states prioritize what they perceive as “national interest” over the benefits of a fully integrated ATM system.
Asia-Pacific is not immune to congestion issues. And these will grow acute if they are not well-managed with a regional perspective. The Asia-Pacific Seamless Asian Sky initiative is helping to define the way forward, bearing in mind it needs to be cost efficient at the same time. Other parts of the world have civil aviation commissions to unite governments in delivering regional solutions. The absence of such an institution in Asia creates an opportunity for industry to support governments with regional thinking. The IATA team looks forward to working closely with airlines and the AAPA to provide this vital perspective.
As I mentioned earlier, I believe that aviation is a force for good in our world—supporting some 57 million jobs and $2.2 trillion in economic activity. In Asia-Pacific that translates into 24 million jobs and nearly half-a-trillion dollars of GDP. Aviation is a vital part of the economy, a critical link to markets and a generator of wealth—both material and of the human spirit. That is ample incentive to drive our united efforts to ensure efficient infrastructure, respond to market needs with innovation, and drive ever greater levels of safety and sustainability.