It’s been about four years since I addressed the European Aviation Club—shortly after I joined IATA. Thank you for the invitation to return to Brussels shortly before my retirement. The invitation is timely for another reason—the recent terror attacks. It was a horrific reminder that we live in a world in which some have an agenda of darkness.
Crises bring out the best in people. The citizens of Brussels, for example, demonstrated their fortitude with a quick return to normal.
I want to make special mention of our colleagues at Brussels Airlines, Brussels Airport and all the carriers who worked tirelessly to reconnect Europe’s capital to the world. Your impressive team effort has done our industry proud in demonstrating that terrorism will not defeat the values of a free and open society. And that is the best tribute that we can pay to the memories of the victims of that terrible day.
Crises can also be revealing in other ways. I must say that I was shocked and disappointed to see the European Commission’s (EC) communication the day after the attack. It reminded passengers of their rights under EU Regulation 261, for the flight disruptions caused by the terrorist bombings. At that time, the airport was not operational and heartbreaking recovery efforts were still underway.
Why was there no recognition of the extraordinary circumstances or the extreme efforts being made to resume services? How much more encouraging would it have been for the EC to have offered a simple reminder that patience by all would be needed in a situation where there was much uncertainty, severely damaged infrastructure and very few available options.
Of course we should not read too much into a single statement. But sadly, its adversarial tone too often appears in the relationship between European institutions and the air transport sector.
Air Transport in Europe
Air transport plays a critical role in Europe. It connects the continent from within—giving substance to the vision of European integration. It also connects the continent to the rest of the world. In both cases, vital economic and cultural links are created. And in doing so, aviation supports Europe’s competitiveness, 12 million European jobs and 4.1% of European GDP.
The EC’s publication of the European Aviation Strategy last December affirmed aviation’s vital role. Congratulations to all involved in achieving this powerful recognition for the first time. On many issues, however, I must say that the strategy seems satisfied with the status quo. Perhaps that is driven by the reality that the Commission is not the only regulator in Europe. Aligning all the needed institutions behind the strategy—including member states—will take significant cat-herding skills.
The risk is that the strategy becomes perceived as irrelevant or lacking in ambition. So it is important to demonstrate that the strategy is inspiring concrete actions. That will pay big dividends. Backed by the right strategic vision, the continent’s airlines are capable of delivering much more value to the European economy!
The European airline industry faces real challenges. In 2016 we see Europe’s airlines making a 4.3% net profit margin—or $8.80 per passenger. That’s an improvement, but Europe’s airlines still lag those in North America which are set to make a 9.5% margin or about $21.44 a passenger. While that’s an exceptional result for the airline industry, it is pretty much normal for other enterprises.
Financially healthy airlines are better able to contribute to Europe’s economy—building connectivity, investing in more modern fuel-efficient aircraft, improving service quality and so on. So it is important to close the gap by addressing the constraining factors facing Europe’s airlines.
Ask a European airline CEO what’s needed and you are likely to hear (1) reduce high taxes, (2) simplify and harmonize complex and onerous regulation and (3) improve infrastructure that is too often inefficient, costly and in short supply. In other words, they need Europe to become an easier place to do business.
That shouldn’t surprise anyone. Indeed the European Aviation Strategy recognizes these same challenges. But it is light on defining concrete solutions. For example, the word simplification does not appear even once in the document!
The industry has a role to play. Someone reading the strategy might be surprised that taxation hardly gets a mention, given how much we all complain about high taxes in Europe. But of course, taxation is dealt with by the EU member states, not Brussels. And EU rules align with global standards in exempting international aviation from VAT and fuel tax. The strategy committed to creating an inventory of European taxes and examining their impact. We welcome that. And with the aim of delivering concrete results, IATA will partner with the EC to make it happen.
That activity will join the “to do” list for IATA’s Brussels team. Empowering aviation to achieve its full potential contribution to Europe needs industry-government cooperation across a broad spectrum. To illustrate, here’s a small sampling of our agenda in Brussels
- Formalizing the 80/20 rule in slot regulation—one of the many developments that is being held-up by the UK-Spain dispute over Gibraltar
- Reforming EU Regulation 261 on passenger rights so that it has a clear scope, is fair, reflects global principles and delivers real value to passengers. While waiting for this revision, which is also being held up by Gibraltar, we must make sure that interpretive guidelines do not go beyond their purpose by creating new law
- Ensuring that member states implement the PNR directive using global standards for data collection
- Establishing safety regulation for drones without reducing the available capacity of airspace
- Achieving EU-level guidance on cyber security that member states apply uniformly
- Expanding the network of one-stop security airports and promoting the risk-based approach to security
- Monitoring member states’ implementation of the Package Travel Directive which prescribes that airlines need a “security” to protect passengers against their bankruptcy—a tricky one given that it contradicts DG Move’s very sensible determination that regulating airlines’ bankruptcy is not necessary, as the number of passengers involved is infinitesimal
- And lastly, keeping Europe focused on a global approach to managing aviation’s environmental impact—including the European Aviation Safety Agency’s (EASA) as its role in environment evolves.
Don’t worry, I am not going to spoil your lunch by delving into a detailed discussion of each of these. IATA’s team in Brussels, led by Monique de Smet, Director for EU Affairs and Giancarlo Buono, Regional Director for Safety and Flight Operations, address these and other issues with the relevant stakeholders and decision-makers on a daily basis. My objective is to demonstrate the scope of issues where IATA’s expertise and global view is being tapped in the context of Europe.
I’ll focus the rest of my remarks on infrastructure and smarter regulation—areas addressed or intimated in the EC Strategy where I see particular potential to create value for Europe if we can make progress.
Airlines cannot function without infrastructure. Without airports and air traffic control we are, literally, going nowhere. And both must be cost-efficient and capable of accommodating demand.
Single European Sky
After decades of discussion, there is nothing that hasn’t already been said about the importance of a Single European Sky. Progress is frustratingly slow. I struggle to identify any since I last spoke to this audience. Over those four years, failure to achieve SES has cost European competitiveness at least EUR 20 billion and the environment has suffered many millions of tonnes of unnecessary carbon emissions.
We cannot change the past but we have a duty to shape the future. With that in mind, IATA commissioned a study on opportunities that airspace modernization would bring. Achieving the Single European Sky would make Europe a more prosperous place. If we look ahead to 2035, the boost to GDP would be EUR 245 billion in that year alone.
The impact of that on European lives would be significant. The EUR 245 billion would come from two sources. A million extra jobs would account for EUR 64 billion. And improved productivity would translate to a further EUR180 billion in new GDP. That comes from time saved, more connectivity options and lower costs from improved efficiency.
The study is comprehensive and available on our website if you want to examine the data. There is lots of it!
The potential impact on quality of employment in high value generating industries is particularly impressive. With airspace modernization we can expect employment in knowledge-intensive sectors to grow 1.3% faster in 2035 than otherwise. That would lead to faster annual growth for trade in services, increased R&D expenditure and more patent applications.
My message is that Europe will be a more prosperous place if we can achieve SES. The Commission clearly understands that. The stumbling blocks are the individual member states who are holding Europe to ransom with a misguided perception of what is in their national interest. The hope is that EUR 245 billion is a hard number to ignore. And I wish my IATA successor—Alexandre de Juniac—extreme stamina in reminding member states of what is at stake when they pander to self-interested, highly-compensated air traffic controllers. For too long they have isolated themselves from change—and the European economy can ill-afford to continue to pay the price.
Given that we are in Brussels where the controllers continue to thumb their noses at the efforts of everyone else to recover from last month’s terrorist attacks, I want to make one further point. It’s time to find a way to mitigate the devastating effects of ATC strikes. Let controllers strike if they want to, but we need to develop contingency arrangements that guarantee service continuity. When Belgian controllers suddenly and simultaneously all feel too ill to work there is no technical reason why other European ANSPs couldn’t do the job for them--with a little advance planning.
Before leaving the topic of infrastructure, I should make two points about airports.
The first is to express concern that Europe is falling behind in capacity. Eurocontrol estimates that by 2035 there will be a 12% shortfall in capacity. And I can see why. It is very difficult to build or expand airport infrastructure in Europe. Of the 168 slot-constrained airports in the world, 101 are in Europe.
Our study estimates that addressing airport capacity constraints will add nearly EUR 60 billion to Europe’s 2035 GDP. I don’t think that the European Aviation Strategy sufficiently recognizes what is at stake. It talks about efficiency gains, capacity management and incentives for under-utilized airports. These may have some minimal impact. But the only durable solution is to build.
There is no time to lose. Already there are lots of eager competitors in the Gulf or closer—such as Turkey—who are building big hubs. Their strategy is to make aviation a driving force in their economies. If Europe wants to realize the benefits of a competitive air transport sector, it needs to build airports—and do so with shorter timeframes than today.
The second point is on cost efficiency. Since 2000 we have seen airlines cut their non-fuel unit costs by about 40% while airport costs have increased by well-over a third. Europe recognized this problem in the Airport Charges Directive (ACD). Where the ACD has been implemented we have seen improvements with advances such as service level agreements, more effective user consultation and independent regulation.
Let me be clear. Airports and airlines are partners. The best relationships are where we consult transparently to agree on what kind of infrastructure needs to be built, at what cost and at what service levels. But it is not a partnership of equals. Airports are monopoly providers. With a few rare exceptions where market power assessments reveal that there is competition between airports, an independent regulator is needed to balance the airline/airport relationship.
That delivered a breakthrough at Heathrow where charges were at last capped at 1.5% below annual inflation rates—this was meant to drive efficiency even while proceeding with agreed capital expenditure. All of Heathrow’s issues have not been magically solved, but it is significant progress. And it shows that we need tougher incentives for all EU member states to implement the Airport Charges Directive.
And that brings me nicely to my second big message—which is the need for Smarter Regulation. Air transport is highly regulated. Regulation on safety has been a great success story. But we are far from being able to apply that statement universally across all forms of regulation. And the complexity of the European system makes it even more difficult.
EU 261 is the favorite unequivocal example of bad regulation in Europe. With the best of intentions, the Commission created a complex regulation on passenger rights. The European Parliament added even more complexity to it and increased the burden to industry. And the courts all over Europe continue to expand its scope with each new decision that they take.
The result is a regulation that goes far beyond its original intent. It adds considerable cost to the industry. The penalties are often disproportionate. It creates an atmosphere where airlines become the adversaries of their customers. It does nothing to solve any of the root causes of delays or cancellations. And I bet that if the authors of the regulation could see it now, they would have taken a different approach.
There is no recipe for perfect regulation, but we have worked with our members to formalize an approach to Smarter Regulation which includes principles like:
- Making sure that the regulation is solving a real problem
- Doing a rigorous cost/benefit analysis to understand its impact
- Aligning with global standards
- Making it simple and easy to implement
- Focusing on desired outcomes—not prescriptive micro-management, and,
- Most important of all, conduct thorough and sincere consultation with industry before drawing it up
None of this is rocket science. But it is a formula that is all too rarely followed. As a result, we spend as much time trying to amend ill-conceived regulations as we do trying to build useful ones. Again we see this in Regulation 261. Once a regulation is on the books, it becomes very difficult to control, let alone amend.
I have to say, however, that I was pleased we didn’t see a knee-jerk reaction on security regulations across Europe following the terrorist attack at the airport here.
Extending the security perimeter, as some have suggested, is not the solution. Look at what the pre-screening has done at Brussels Airport. It’s created large and dense crowds that could be targeted. Not to mention the huge inconvenience to people who want to travel. I experienced that myself last Friday. And I will experience it again this afternoon—likely in rain, but possibly in snow as well.
The focus surely has to be a return to normality as soon as possible. And by normality I mean ensuring that the airport doesn’t have artificial restrictions on its capacity just to reduce the queues. People want and need to travel. Normality means meeting that demand.
In the long-term we all know that an intelligence-powered, risk-based approach will keep us secure. The goal is to stop terrorists before they get to the airport.
It is reassuring to see Europe and other governments are also continuing to evolve the risk-based concept for what happens at the airport in consultation with industry through known traveler programs, one-stop security agreements and other initiatives. These focus resources where the risk is greatest. Of course we must always keep in mind the need for harmonization—a concept that is particularly relevant in this case as states expand PNR requirements. Security will be best served by one European standard followed by all its member states.
I believe that we are on the cusp of a great example of Smarter Regulation in another important area—managing aviation’s climate change impact. Later this year, governments will be asked to agree on a framework for a global market-based measure (GMBM) at the 39th ICAO Assembly.
Most governments – especially here in Europe – and industry are aligned. We share the same Four Pillar Strategy—of technology, operations, infrastructure and market based measures. And we are committed to the same targets, the most immediate of which is capping net CO2 emissions from 2020 with carbon-neutral growth. Global Market Based Measures form one pillar of the strategy and are essential to achieve carbon-neutral growth.
I am under no illusions that reaching agreement at ICAO will be easy. But I feel positive about the prospects of success. The industry is doing everything that it can to support success—including agreement on a global mandatory carbon offset scheme as the preferred option.
How does this fit with the Smarter Regulation model? Well, it’s solving a real problem. Offsetting creates real benefits through measurable reductions with the big advantage of being easy to implement with minimal cost. It is being pursued as a global standard. The industry is engaged in the discussion with the governments. And we are working together to solve a common challenge. So it ticks all the boxes for Smarter Regulation.
The industry is united. And I hope that we can count on Europe to be a positive force for agreement at ICAO. And I will go further. Europe has been instrumental in raising climate change on the global agenda. It needs to put some muscle into its fervor. Specifically, I will repeat the call to deliver the millions of tonnes of annual CO2 savings that the Single European Sky will generate. And Europe must also become much more of a driving force in making sustainable alternative fuels commercially viable.
Vision for the Future
As you may have heard me say, I believe that aviation is a force for good. I have been privileged to work in aviation for nearly four decades and to serve in the unique role of IATA’s Director General and CEO for five years. In all my travels and experiences, I have seen examples of aviation as a force for good in every corner of our planet. And, more importantly, I see enormous potential for it to deliver an even more positive impact.
These past five years have been challenging for Europe—economically and socially. In my interactions with the Commission, parliamentarians and national governments over that period, I have always been proud to advocate for aviation—because whatever we ask is ultimately mutually beneficial. Europe’s fortunes grow more positive with a strong aviation sector.
Aviation is important to Europe today. I believe that governments will gain tremendously by recognizing our common interests and paying even more attention to the sector’s needs. And by addressing infrastructure challenges, building a Smarter Regulatory framework and earning a license to grow from achieving its sustainability targets, there is nowhere to go but up for aviation—in Europe and globally.