President Roberto Kriete, Members of the Executive Committee, Alex de Gunten, ladies and gentlemen, good morning.
It is a pleasure to be making my first visit to Panama and a return trip to this very important forum for the Latin America and Caribbean region, one of aviation’s fastest growing markets.
I strongly support the theme of this event, “Working together for a safer more efficient aviation industry.”
Safety and efficiency are core to the value that IATA seeks to bring to our members and to the global industry. The Latin American and Caribbean Air Transport Association (ALTA) shares the same focus. And we have developed an effective working partnership to support our members in this important region.
Aviation is an industry of great promise. It is a catalyst for growth and development. In the Latin American and Caribbean region—which I will refer to as Latin America for simplicity’s sake—aviation supports more than 4.6 million jobs and $107 billion in GDP. Over a third of world trade by value is delivered by air. And if you visit any airport arrivals lobby in the world—or any airport cargo facility-you will see how aviation connects our world.
The value that aviation creates through connectivity extends to almost every aspect of modern life. But as you are all very well aware, it is a tough business. For the second year in a row we will see a halving of global profits. On the $636 billion that airlines will generate in revenue this year we are expecting a profit of $4.1 billion. That’s a net profit margin of just 0.6%.
Against that backdrop, Latin America is a good news story in the industry. With growth of 10.1% in passenger traffic over the first nine months of the year, it is only surpassed by the Middle East among aviation’s fastest growing regions. The combined $400 million profit that we expect carriers in the region to deliver this year equates to an EBIT margin of 2.7%—second best behind North America. And I can tell you first hand that the optimism present at this meeting is a very welcome break from the economic gloom that we have in Europe where I spend most of my time.
But, any business could always be better. And, like all regions, you face challenges. IATA’s job is to help you to meet those challenges. And that unites us in a common purpose—to achieve the promise of aviation.
Today, I would like to address some of these challenges:
- Safety and Security
Safety is our top priority. And 2011 was the safest year in history, with one hull loss for every 2.7 million flights on Western-built jets. That was a 39% improvement over 2010. And if we look at the industry’s safety performance in 2012, we are seeing a continuation of this positive trend.
The performance in Latin America in 2011 was not as good—we had one accident for every 780,000 flights. However, this was a 32% improvement on 2010. And the trend this year is for an even bigger improvement. We are moving in the right direction, but that must not lull us into complacency—globally or at a regional level. There is more work to do. Even with the significant gains that we are seeing this year, the region’s accident rate is still trending around twice the global average.
To ensure that we have the best information to guide our efforts at boosting safety in the region, IATA and ALTA created a safety trend sharing program. And this partnership has already led to workshops on flight data monitoring, runway safety and fatigue risk management strategies.
The mission to improve safety unites not only airlines and their associations. It crosses the entire stakeholder community: airlines, airports, air navigation service providers (ANSPs), safety regulators and manufacturers. The Regional Aviation Safety Group-Pan America is a good example. It brings together IATA, ALTA, the International Civil Aviation Organization (ICAO), Airbus, Boeing, states and others to work on a harmonized safety agenda for the region. Its effectiveness was recently recognized by the Flight Safety Foundation with a lifetime achievement award.
The group’s work is based on global standards—the foundation stones of our safe industry. The IATA Operational Safety Audit (IOSA) illustrates how these are effective. Both IATA and ALTA make IOSA a condition of membership. And this confirms the strong commitment to safety of the airlines in the region, many of which are in this room today. It is worth noting that no IOSA-registered carrier in the Latin American region has had a fatal accident in more than four years. And not one of the four accidents occurring to a Latin American carrier this year has involved an IOSA-registered airline. IOSA is not a guarantee that there will never be another accident. But the strong safety performance of IOSA carriers gives us confidence to encourage governments to incorporate IOSA into their safety oversight programs.
We are making IOSA even more effective with the Enhanced-IOSA (E-IOSA) initiative. This will add a greater focus on organizational management, improved regulatory interface and the embedding of the 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 ALTA and individually—as the IATA Board of Governors confirms an implementation date for E-IOSA that gives sufficient time for airlines to prepare for this important upgrade.
A particular focus in Latin America is to reduce approach and landing incidents and accidents. While the primary motivation for developing Area Navigation (RNAV) and Required Navigation Procedures (RNP) is to boost operational efficiency and reliability, there is a strong safety component as well, since the use of these satellite-based procedures enables a more precise flight path to the runway than is possible using traditional ground-based navigation aids.
Earlier this fall, COPA conducted a validation flight for an RNAV/RNP approach to Juan Santamaría International Airport in San Jose, Costa Rica. This is an excellent example of industry collaboration, as IATA funded the development of this approach, while COPA provided the aircraft and crew to validate it. We have made comparable progress in Chile and Peru. Similar cooperation with authorities is needed to fast track Performance Based Navigation in Guatemala, Argentina and Colombia.
And it is this collaborative approach that will continue to bring safety performance closer to the global average.
Security is an equal concern. Last year at this forum I discussed the Checkpoint of the Future project. The vision is for a hassle free security experience made possible by marrying advanced technology with the effective use of passenger information to move us away from today’s one-size-fits all approach. Considerable progress has been made with the project moving from theory to trial.
Tests of biometric matching equipment have been conducted at Geneva and Heathrow airports. More than a dozen other trials are planned in 2013. This will put us on track to test a first generation Checkpoint of the Future in 2014. By 2017, we will introduce increased use of biometrics and remote image processing, coupled with advances in screening technologies and other developments to achieve less divesting of clothes and laptops and faster throughput. We should have every confidence that by 2020 a fully developed Checkpoint of the Future will make today’s security hassles a fading memory. By the way, we are actively seeking airports willing to participate in the 2014 trial. I hope we’ll have one from this region.
Another area where strong partnerships are needed is infrastructure. Without airports and ANSPs our industry could not exist. And unless there is sufficient capacity, efficiently operated and at cost effective prices, airlines cannot be successful businesses, meeting growing demands for connectivity.
Airlines can use the most sophisticated computer models and tools to manage our resources; we can hire the best people, but if there are too few runways, if airport terminals are crumbling, or go un-built for lack of planning and funding, if air traffic controllers decide to go on strike, the result is costly delays, cancellations, and damage to trade and tourism. And, of course, airlines bear the brunt of the public criticism for this situation, regardless of the root cause.
It is no secret that Latin American infrastructure development has not kept pace with growing demand. Only one state—Barbados—ranks in the top 25 for quality of air transport infrastructure according to the World Economic Forum’s 2011 Travel and Tourism Competitiveness Report of 139 countries. Panama ranks among the highest at 33. Of the region’s largest economies, Chile ranks 26. But Mexico is 65, Brazil 93 and Argentina stands at 115.
These aren’t just numbers on a page; in real life it means that the airlines and passengers often must contend with over-crowded, inadequate and inefficient airports, while too many ANSPs rely on old equipment and out-of-date procedures that do not take advantage of the capabilities of the advanced aircraft operated by many airlines here.
Later in this forum, IATA will join with ALTA, Airports Council International (ACI) and the Civil Air Navigation Services Organization (CANSO) to sign a joint declaration calling for governments in the region to facilitate development of infrastructure. The joining together of these organizations representing all stakeholder groups is evidence of our unity on this important issue.
When it comes to airports, the deficiencies in this region are extensive—13 airports are at or exceed capacity in Brazil alone—and airports in Lima, Buenos Aires’ Aeroparque, Bogota and Mexico City are bursting at the seams.
Because it is the largest aviation market in the region and because its infrastructure challenges are typical of those faced by other countries, I will use Brazil to illustrate the situation. When we met last year, Brazil was auctioning concessions for Guarulhos, Viracopos and Brasilia airports. Alex, Roberto and I all expressed strong concerns about the process and structure.
IATA is agnostic when it comes to airport ownership and it is clear that a concession model provided the best opportunity to address deficiencies at these airports ahead of the 2014 FIFA World Cup. But the fact that the auctions garnered some $14 billion for the Brazilian government—many times the minimum bid—is a cause for concern. Safeguards were not put in place to ensure that the new owners recover their investment through efficiency gains and traffic growth, rather than by raising non-aeronautical fees that are not capped but only monitored.
Too many times—particularly in Latin America—we have seen privatizations fail for lack of effective economic regulation. Charges rise, traffic growth is stunted, economic opportunities are lost and the airport suffers from lack of sufficient investment. I am not saying that will happen in Brazil. But we need to learn from many bitter past experiences.
Some things are moving in the right direction. We worked with stakeholders and consultants to identify eight key process improvements at Guarulhos requiring little or no investment but resulting in improved passenger throughput by as much as 30% in central processing areas. These initiatives have now been implemented by Infraero and the new airport concessionaire. The work was so successful it was replicated in thirteen other airports that are preparing for the World Cup.
With the next round of airport privatizations underway, it is important that the Brazilian government absorb the lessons of this experience. Selling off valuable airport properties to the highest bidder—with little regard for their qualifications or experience in managing large airports or major infrastructure projects—is not necessarily the best way to ensure the airports are able to fulfill their vital function in the country’s economies.
I could not end my discussion on infrastructure without bringing up the subject of how much airlines are charged. There are a number of challenges that we are working with governments to address:
- Revenue diversion
- Cross-subsidization of airports
- Lack of financial transparency
- Taxes and charges not related to costs
Investment in infrastructure is a critical need for the region, upon that there is consensus. Yet diversion of aviation tax receipts and other charges to the general treasury is widespread. Furthermore, as is the case in Brazil and other countries, charges at major airports are used to subsidize other airports. Additionally, airlines often face rate hikes that do not appear to be aligned with a business case or discussed with airlines. For example, Mexico’s air traffic control provider SENEAM increased fees by 13% in January 2012 with no consultation or transparency. Brazil’s air traffic charges rose by 150% in January, boosting costs for airlines by $220 million a year.
Airlines understand that infrastructure is not free. But it is important that users have a formal role in the setting of fees and charges and in the case of airports, of capital investment decisions. That is very clear in the ICAO principles for setting infrastructure charges. Furthermore, money raised from aviation needs to stay in aviation and not go into the general fund.
Efficient infrastructure also has an impact on environmental performance. We are committed—with airports, ANSPs and manufacturers—to:
- Improve fuel efficiency by 1.5% a year to 2020
- Cap net emissions from 2020 with carbon-neutral growth and
- Cut net emissions in half by 2050 compared to 2005
We are making progress on the technology, infrastructure and operational improvements to achieve these ambitious targets. These are the first three of our four pillar strategy on environment. Today, the fourth pillar—market-based measures (MBM)—is the focus of much attention.
The big news this week is that the EU announced that they would “stop the clock” on the inclusion of international aviation in the EU emissions trading scheme (EU ETS). Europe can take credit for raising the issue of aviation and environment on the global agenda. And this move to help facilitate a global solution on MBMs is a much welcomed development. We are still working with the EU to understand exactly how this will be implemented. But it should deflate much of the tension that has built up among governments over this issue—at least temporarily. And we hope that it can create the space for the ICAO process to deliver a global agreement on MBMs.
At the technical level much progress has been made and a High Level Meeting will take place at ICAO on 12-13 December. The aim is to achieve a political agreement to frame the technical progress. I believe that the EU’s pause in their ETS plans will have a positive impact on these discussions.
But, the EU decision also puts pressure on the industry. IATA, ALTA and all the industry have been united in our position on the EU ETS. Now we must find a common position on how MBMs can be most fairly implemented. Some very pragmatic proposals will be on the table at our December Board of Governors meeting. No solution will satisfy every airline 100%. We will need to find the fairest possible compromise, remaining consistent at global and regional levels. 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. ALTA has been a great supporter in the process so far. And I am sure that we can count on the continued support of Roberto, Alex and all the team in this next phase.
Until now I have focused on the importance of cooperation to boost our performance on safety, security, infrastructure and the environment. In the time remaining, I would like to turn to a topic that receives less attention, but is very important to helping aviation achieve its promise. That subject is improving how we distribute our products and services.
Last month in Abu Dhabi, the Passenger Services Conference agreed to a foundation standard for a New Distribution Capability (NDC) that will enable travel agencies to give consumers the same shopping options and choices they currently enjoy when they visit an airline website. In other words, NDC is about filling the gap between sales from airline websites that account for approximately 40% of airline tickets by value and sales via agencies powered by the global distribution systems (GDSs) that account for 60%.
NDC will offer product differentiation, personalization and sales of ancillary products and services, advantages that are already standard on airline websites but which have proven very difficult to implement through the GDS/agency channel.
As you know, the agency channel uses a different model. The travel offer is put together outside the airline by third parties. The customer is anonymous to the carrier until the transaction occurs. Thus it is impossible for the airline to tailor its offer to the customer. Furthermore, this model is focused only on finding the lowest ticket price. This has resulted in the commoditization of air travel.
We will change this by developing an open XML standard for airline distribution, enabling innovation and new market entry by all interested parties. For agents this means the ability to make the same offer to a customer that is being made via the airline website.
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 basically a set of standards that will allow airlines to make their inventory available to the outside world in the way that they would like to sell it. These same standards will allow GDSs and new entrants into the market to develop vehicles to capture that standardized data and make it available to travel buyers—individuals and agents. Market needs will determine what form this takes.
We hope to have some pilot projects operating within the next 12 months. We are consulting widely with technical experts from across the travel value chain as well as with regulators and technology providers to ensure that we have robust standards that will create new opportunities for all.
Commercial aviation is not quite100 years old and yet in that relatively brief period the global connectivity it enables has transformed the world for the better. Air transport connects commerce to markets, brings cultures together and reunites friends and families. When disaster strikes it provides the vital link to quickly bring relief to the stricken.
Aviation’s value as a driver of economic wealth and job creation takes on even greater significance in Latin America, a region in which at least one third of the population—an estimated 185 million people--live in poverty.
The global economy depends upon aviation for its growth and prosperity. The promise of this industry is enormous. Working together with our partners in the aviation value chain, we can ensure that we are prepared to meet the challenges that we face to ensure that the second century of commercial air service is even better than the first.