This year we expect airlines to make a 4% net profit margin on $727 billion in revenue. It’s a good year. For the first time in IATA’s institutional memory airlines will on average earn their cost of capital. That’s revealing of how fragile and difficult the business is. Of course, the performance is not uniform. There is great disparity from airline to airline and from region to region.
Even so, the impact of aviation is broad and positive. The numbers are well-known—58 million jobs and $2.4 trillion in economic activity are related to aviation. A good many of these activities count solely on aviation for their existence. Those important facts only begin to describe the positive impact of aviation. Airlines are the core of the aviation value chain which is nothing less than a sustainable development machine generating economic and social benefits.
We all recognize that. It’s why we are here. Our challenge is how to draw the greatest social and economic benefits from aviation-enabled connectivity. At a high level, the answer is simple. Ensure that the industry is safe, secure, sustainable and profitable and the rest will follow. To flesh that out, I want to make four points:
The first is the need to respect and implement global standards, best practices and approaches. Connectivity cannot flourish if the system itself does not connect. Rightly, developing and promoting global standards are at the heart of the work of both IATA and ICAO. The first proof of this is that, in general, the success of a country’s aviation sector correlates strongly to its level of compliance with global standards. This is particularly true for safety. You can also see the importance of this in the global approach that we are taking on climate change under the strong leadership of ICAO. This global approach is playing a critical role in managing our climate change impact while preserving the industry’s ability to deliver value and operate efficiently.
The second point is that aviation delivers its greatest benefits when regulators make it feasible for airlines and our partners in the value chain to do efficient business. Regulation plays an important role in safety, security and sustainability, for example. But, not all regulation is as well fit for its purpose as it could be. That’s why IATA launched its Smarter Regulation campaign. Smarter regulation is essentially regulation that is built in consultation with all stakeholders affected to ensure it serves its intended purpose. And, importantly, we must ensure that that the benefits of regulation outweigh the burden it creates to the air transport system as a whole.
The third point that I want to mention is taxation. Some governments see aviation as a soft target for taxes. While over-taxing aviation may generate a short-term budget boost, in the long-run it forfeits development opportunities by dampening demand. The most successful governments value aviation as a broad economic catalyst supporting long-term development. It contributes massively to their coffers indirectly through tax receipts generated by the businesses that connectivity enables.
And the last point that I want to make is about partnership. Aviation is a team effort. That includes a complex value chain of business partners as well as government stakeholders. A safe and successful air transport sector is a common goal for all of us. So the more we work together, the better the results will be. That is the premise on which IATA was founded by its members. It is the same for ICAO, for ACI, for CANSO and for WTTC. And, it is also a compelling case for the strong cooperation that exists among these organizations.