It is a pleasure to be with you on the beautiful Gold Coast. It is no secret that our industry is in crisis. Hopefully we can find some gold here to spread around the industry! We do face enormous challenges—the high price of oil being the latest. Our response has been impressive.
First, airlines continued to invest in safety—the number one priority. The hull loss rate for 2005 was the lowest ever. One accident for every 1.3 million flights. One for every 2.9 million if you look just at IATA carriers. The IATA Operational Safety Audit—IOSA—is at the core of efforts for further improvements. IATA's most recent Annual General Meeting made IOSA a condition of IATA membership from 2008.
Cost R eduction
While holding safety and security paramount, efficiency and cost reduction are critical. Airlines achieved amazing results in the last four years. Non-fuel unit costs decreased by 13%. Labour unit costs decreased by 33%. And distribution costs were slashed by 10%. In the last two years alone, fuel efficiency improved by 5%. To help quantify this, the industry fuel bill went from US$40 billion in 2002 to US$91 billion last year. We expect the 2006 bill to be US$112 billion. The industry is in the red. But losses will decrease despite the rise in fuel prices. And there are some great and profitable success stories. Look at Qantas which just announced their results yesterday. IATA has a key role in improving efficiency.
Simplifying the Business will cut US$6.5 billion in industry costs. By changing the way that people ship and travel with. Radio Frequency ID for aviation. Bar coded boarding passes. Common Use Self-Service Kiosks for check-in. Freeing freight processes of paper. And a commitment to reach 100% e-ticketing by the end of 2007.
We are serious about cost reduction and efficiency. The agenda for change is critical and urgent. We must be fast. And the entire value chain must be involved. Today I want to propose some new and challenging objectives: a partnership for change with ANSPs to build a healthy industry.
Our host—AirServices Australia—recognises this. The ADS-B programme was developed in cooperation with airlines and IATA. And it will bring improved surveillance, efficiency and cost savings. And we were pleased to hear that Nav Canada has adopted ADS-B for its future requirements. Our relationship with AirServices Australia is based on transparency and consultation. We work together to
- Forecast demand
- Determine infrastructure to meet demand
- And agree on the price
AirServices Australia is a model for others to follow. Not surprisingly AirServices Australia won not one but two prestigious Eagle Awards.
Partnership for Change
Our partnership for change must go even further. The pillars of partnership are three:
- Cost Efficiency
- Environmental responsibility and
Cost Efficient Business
Cost efficiency is basic for any business. Competition imposes it on airlines. For monopolies—like airports and ANSPs—the discipline must come from elsewhere. Regulation must play a key role for airports. Light-handed regulation since 2002 resulted in an average rate increase of 40% at Australia's Airports. I am pleased the Minister has referred this to the Productivity Commission to take a closer look. In Europe, we have many issues. Many countries have no regulation. Others have ineffective regulation.
How else could Aeroports de Paris have put up their charges by 44% in five years? Or how could BAA be allowed to make a 32% margin?
We brought this to the attention of the EC. Vice President of the Commission, Mr. Barrot understood the problem. We look forward to a Directive on Charges requiring effective national regulation this fall. Your association—CANSO—has been an effective partner for benchmarking.
Comparing ANSP operations is complex. But we must identify industry best practice. The Performance Review Commission of EUROCONTROL is a good partner. Their work identified where the challenges are. Since 2003 EUROCONTROL unit rates decreased by 12.5%. The cost base reduced and traffic increased. But for 2007 there is a proposal to increase unit rates by 2.4%. This is completely unacceptable.
Privatisation is emerging as a challenge. We are watching the planned privatisation of DFS closely. DFS went from model performer to worst nightmare in a few years—a cost base increase of 15% resulting in a unit rate increase of 12.8%. This is also absolutely not acceptable. The government is fattening DFS for privatisation. There is a pension issue as well. There is no reason why the airlines alone should have to bear the EUR 780 million cost.
Quite frankly, we do not care who owns the ANSP. We just need it to operate with efficient business principles.
I am on the Board of UK NATS. So I have seen this issue from the inside. I have seen the discipline imposed by regulation. More challenging for us than for BAA! We have not produced double-digit margins.
Privatisation needs a strong regulatory framework. The goal must be to constantly improve efficiency, drive down costs—and maintain safe operations. That is exactly what the airlines have done. Now it must be repeated throughout the value chain. And I need ANSP commitment.
There is also a technical aspect to efficiency. It is linked to one of our most important challenges - the environment. IATA airlines are committed to the highest levels of environmental performance. But before we start to explain ourselves a reality check is needed. There are too many myths.
So, let's start by killing some.
Air transport is a major cause of global warming
Not true. We are 2% of CO2 emissions—yet support 8% of GDP.
International Air transport is excluded from Kyoto and doing nothing
Not true. We were concerned about the environment long before Kyoto. Fuel efficiency improved 75% over 40 years.
Aviation is the most polluting form of transport
Not true. Modern aircraft consume 3.5 litres per 100 passenger kilometres. Show me a hybrid car that can achieve that.
Air transport is a luxury
Not true. We are a necessity. 80% of our emissions are from trips over 1,500 km for which there is no economic alternative. But killing myths alone is not a solution. We are a responsible industry with a solid strategy.
- Invest in new technology—provided taxes don't rob us of cash
- This includes synthetic fuels with lower greenhouse gas emissions
- Explore global emissions trading options
- Don't get distracted with regional schemes
- The 2007 ICAO Assembly is an opportunity for a global solution that we cannot miss
- Eliminate the 12% inefficiency in air traffic management
As partners, you must be part of the solution. Inefficient air traffic management results in 12% extra CO2 emissions. At current fuel prices the 12% inefficiency is a US$13.56 billion cost. IATA has a fuel efficiency strategy involving more direct routings, improved terminal operations, less radar vectoring, more reliance on avionics, more efficient fuel management by airlines and more effective operations.
We achieved some impressive results last year. 300 air route improvements saved 6.1 million tonnes of CO2 emissions. Working with airlines on best practice for fuel management saved 4.3 million tonnes of CO2. Our "Save One Minute" campaign improved airspace design and procedures and saved 1.5 million tonnes of CO2. The bottom line—savings totaled US$2.4 billion. Asia Pacific has delivered some impressive results in recent years with the redesign of South China Sea airspace, and the introduction of RVSM in many regions. I even understand that Airservices Australia also has its own "Save-a-Minute" campaign – congratulations!
And you have a great model for cooperation in ASTRA—the Australian Strategic Air Traffic Management Group. This is all good, but it is still not enough. Some target areas for Asia Pacific include
The Pearl River Delta
Hong Kong, Macau and the Mainland of China need to agree on better airspace management and cooperation. It is unacceptable. We waste 700 million tonnes of CO2 a year. And US$1 million a day in fuel because of inefficiency.
We had a major success with IATA-1 approval in China. This saves 30 minutes of flight time between Europe and Hong Kong. But it is only the beginning. The priority list for China includes more and flexible entry points and a charging regime that does not discriminate between overflight and landing aircraft. And we need to bring the US$1 charge in line with costs.
It is the promised land for aviation now. But we urgently need infrastructure improvements. In addition to new airports in Bombay and Delhi, a flow management system for ATC is critical. If we don't get the ATC infrastructure right—a great start at liberalisation could turn to disaster. We must pursue efficiency—everywhere. I urge you to work towards and cooperate on regional solutions that are globally harmonised.
The third pillar is liberalisation. Air transport was the first industry to operate globally. But we are among the last to benefit from globalisation. For airlines, we are stuck with a 60-year-old bilateral system. Airlines cannot fly where markets exist without government approval. And we cannot merge across borders even if it makes business sense. Governments play a critical role by providing global standards and harmonisation on regulations, safety and security, leading us to a global solution on environment issues and regulating monopolies.
Airlines need commercial freedom to run their businesses like any other business. Governments must anticipate and lead this change. And I believe that our agenda runs parallel with yours. You are all familiar with Ashley Smout in his roles at both Airways New Zealand and CANSO. I could not agree more with his vision for the consolidation of airspace. There are too many service providers. And national politics and pride play too big a role.
Air traffic management is a service that needs to run with efficiencies and economies of scale. National borders are important. But they should not stop innovation.
And, quite honestly, in many places we have made too much investment in infrastructure. And we cannot afford it. The worst example is Europe. Airspace is 60% less cost efficient than Australia. They have one currency—but 35 ANSPs. And the cost is staggering—up to EUR 1.4 billion or 30% of annual costs. It makes no sense and we cannot afford it!
Progress on a Single European Sky is painfully slow. This was a discussion 15 years ago when I was Chairman of the Association of European Airlines. Today we are still discussing. We may be making some progress with functional airspace blocks following the CEATS failure. But this is only an interim solution.
And my message to you is. Continue to lead the way in terms of
- Airspace management
- Cooperation with customers and
- Cost efficiency
You need to stay ahead of the curve. Don't be afraid to think big.
Contract air services for some of the Pacific Islands provide an interesting model. They address the issue of sovereignty. And prove that there are no technological barriers. Now we need to take advantage of further opportunities for rationalisation. Push the model further. Broaden the shared use of facilities and technology. This region has never been afraid to break the mold. Change, new ideas and leadership are what our industry needs most.
Asia Pacific has some great advantages. Australia and New Zealand are among our most cost efficient and effective partners. You have taken the time to understand your customers to invest prudently to meet demand and technical requirements and to make a great contribution as a model for efficiency. You also are home to our two fastest-growing markets. India and China. Accommodating their growth is a great opportunity to further improve on efficiency. And to ensure that this region maintains leadership based on global standards and a strong commitment to safety.
Our partnership for change is my critical challenge for you
- Environmental responsibility and
These must be the pillars on which our industry faces future challenges. This meeting is the start of an important process of change in this dynamic region. And I am looking forward to closely following the results in the coming months. Thank you.