It is a pleasure to be here this morning. To share with you our priorities for next generation ATM systems. Let me begin with an update on the state of the airline business. The situation is tough. There is some good news. Efficiency gains are impressive. Airlines achieved an average 3.5% decrease in non-fuel unit costs. In each of the last five years. The most impressive gains are in labour productivity. 33% improvement since 2001. And the most impressive increase is fuel cost. In 2001 the industry bill was about US$40 billion. In 2006 it was US$112 billion. Airline turnover is US$450 billion. Fuel is now 26% of our costs. The drop in the price of fuel is good. But it is still in the US$60/barrel range. More than double what we paid in 2001.
So it is extremely impressive that the bottom line is improving. 2006 operating profits were US$10.2 billion. With a net loss of US$500 million. This year we expect the same operating profit. And a bottom line profit of US$2.5 billion. The black number is good news. But this is just 0.55% of revenues. And not a healthy situation. 2007 will be difficult. The revenue cycle has likely peaked. And there is little cushion in the balance sheets for a downturn in revenue.
Simplifying the Business
The focus is on efficiency. It’s the core of our Simplifying the Business programme. We will eliminate paper tickets at the end of this year. Already we have reached 74% ET penetration. This will contribute US$3 billion in cost savings. And we are pushing ahead with the other projects. For a net annual cost saving of US$6.5 billion. We take efficiency seriously.
And we take safety even more seriously. The hull loss rate for western built jets in 2006 was the best ever. 0.65 hull losses per million flights. IATA members did significantly better at 0.48. Our target is a further 25% reduction in the accident rate by 2008. That means addressing some fundamental concerns. Level busts. Runway incursions and excursions. The start point is to have a common vocabulary. IATA is developing an integrated safety data portal for incidents to
- Immediately capture critical safety data
- Identify contributing factors
- And mitigate risks to prevent accidents
The IATA Operational Safety Audit (IOSA) is leading our efforts on safety. It is a condition of IATA membership. 98% made the first deadline to contract for an audit by 31 Dec last year. I wrote letters terminating the memberships of the 6 airlines that did not sign . We are working hard to have all our members complete an audit by the end of this year. And the target is to have all on the registry by the end of 2008.
Now let me turn to ATM issues. Airlines and ANSPs are partners. We provide safe transport for 2.2 billion passengers a year. The global impact of our work supports US$2.9 trillion in economic activity. Working together is important. CANSO is an effective partner. Alexander ter Kuile, Ashley Smout and all the CANSO team. They are leading progress on benchmarking and customer relations.
Our Eagle Awards are proof that we can deliver results. Last year we awarded the ANS division of LFV Sweden for their value for money approach. That delivered a 17% unit rate reduction in 2006. And we gave special recognition to the Performance Review Commission of EUROCONTROL. For benchmarking, the starting point for transparent consultations. I hope for strong competition for the 2008 Eagle Awards.
At the end of the day we must together meet travellers’ expectations. They want to travel safely. We discussed this already. They want to arrive on time. Here the situation is urgent. Delays in Europe were over 18 million minutes last year. That is the equivalent of 35 aircraft providing no value for an entire year. Just waiting on the ground or in the air. To put that into perspective. That is half the fleet of SWISS. No improvement is forecast for this year. If we have full staffing and 4.3% traffic growth. But already traffic increased by 5% in January. Effective planning for cost efficient capacity expansion is essential to deliver on the second expectation.
Finally our passengers are price sensitive. And ATM is a rising cost component. IATA’s efforts last year saw US$433 million in real cost reductions. But our members did not notice. Because cost increases totalled US$639 million. One and a half times the reductions. Our industry is reducing costs and increasing efficiency. We must do better to achieve a net reduction in ANSP costs in 2007. In Europe, we have a Partnership Agreement with Austro Control. Covering charges and operations to 2011. We are also working with ROMATSA. To agree on improvement targets over the same period. But such developments are the exception. We must make them the rule.
Our priorities for ATM are similar to our industry priorities. The key concepts are:
- Cost-Efficiency—said another way—value for money
- Global harmonisation
- Environmental responsibility
- With capacity to match demand
How do we translate this into an achievable agenda? Particularly when we are discussing investments in next generation ATM systems. Let me suggest three focus areas
- Route Optimisation
The most efficient way from A to B may not always be a straight line. Minimum time tracks are the goal. You will all be aware that our industry is taking a beating in the environmental debate. Our critics may have lost perspective. Exaggerating our role in climate change well beyond our 2% contribution to global carbon emissions. But they are absolutely correct in demanding more efficiency. Airlines are investing billions in new aircraft. That has helped improve fuel efficiency by 10% in the last five years. And by 2020 our fleet will be 25% more fuel efficient.
The UN’s Intergovernmental Panel on Climate Change (IPCC) estimates that there is 12% inefficiency in Air Traffic Management globally. That 12% translates into up to 73 million tonnes of CO2 emissions and nearly US$13.5 billion in unnecessary fuel costs. Every minute of flying time that we can save. Reduces fuel consumption by about 62 litres. And CO2 emissions by 160 kilograms.
In 2006 IATA worked with ATM providers worldwide on 350 routes. Reducing CO2 emissions by 6 million tonnes. Some highlights included.
- The IATA-1 route in China - Saving 30 minutes on a roundtrip between Europe and China
- A new route between Cairo and Tripoli that cuts 16 minutes of flight time
- Or the implementation of user preferred routes in Canada
- So that we save between 4 and 7 minutes on North Atlantic flights
- Savings in 2006 were US$27.4 million
- And we expect more when the fourth phase is implemented later this year
This is all great news. But it is just the tip of the iceberg. There is much more to be done. And I don’t understand why every time it has to be a battle. Technology exists. It is a matter of political will. Look at the Pearl River Delta area of China. We could save 530 thousand minutes of flight time annually. By optimising approach and departure procedures. We have a solution. But it has been a 9-year struggle!
And we see issues on all Continents. Every flight from Lima to Sao Paolo is 9 minutes too long. Annual cost is over US$1.5 million and 9 thousand tonnes of CO2. Flights from Johannesburg to London are 10 minutes too long. Annual cost is US$5 million and 28 thousand tonnes of CO2. Flights from Japan to Manila are 5 minutes too long. Cost is US$16 million and 87 thousand tonnes of CO2. We should not have to battle for a win-win situation. 75 routes are on the target list for improvement in 2007. We must do better together.
National sovereignty is confining our vision. Even though our industry by its nature operates across borders. Airlines are pushing to tear down the bilateral structure. To achieve the commercial freedoms that other industries take for granted. I challenge ANSPs also to think beyond national borders and challenge governments. There is no technical requirement that every country must have its own ANSP. In the South Pacific there are some good examples where air navigation services are contracted to neighbouring states. With full respect to both National sovereignty and cost efficiency.
Long-term, we need to think of the future of ATM. And then look at how it can fit with national egos and agendas. In the short-term, we need to fix Europe. That means a Single European Sky. This is a 15 year battle. And I don’t see many positive results. Costs are 30% higher than the US. And 60% higher than Australia. We still have 34 ATC organisations—when all we need is a few. It is Europe’s biggest embarrassment. Its inefficiency costs airlines an additional EUR 3.3 billion each year. And it costs the environment 12 million tonnes of CO2 annually. As Europe considers including aviation in its emissions trading scheme. The costs of the inefficiency will be multiplied.
The time for excuses is over. We all know that the technical solutions exist. It is simply a matter of political will. The vision must come from the top. I wrote to Chancellor Merkel. Presenting this as an opportunity for the German Presidency of Europe. Meanwhile, benchmarking, in partnership with CANSO, gives us direction at the working level. The first task is Functional Airspace Blocks. These are the building blocks for a Single European Sky. It is a crucial step forward. We must not let this effort end in fiascos. Such as the US$60 million wasted to date on CEATS. You have been playing politics for 2 years. Airlines have been paying the bill. And we don’t see any results. Only 1 FAB is showing real promise. We must be a lot more ambitious.
States must focus on targets. 20% improvement in controller productivity. 25% reduction in support costs. And a handful of FABs operating in Europe by 2010. To achieve this, we need three things
- The commitment of ANSP CEOs
- A stronger role for CANSO
- And a simplified decision making process
CANSO must unite its members behind the FAB concept. With a real sense of urgency for essential airspace restructuring. If not, local battles will spoil overall progress. Compromises will be necessary. But it is the job of CANSO to unite its membership with a common vision and deliver performance improvements.
To move forward, decisions are critical. The current structure in Europe is far too complex and too slow. Does anybody really understand the roles of
- The European Commission
- The SESAR Joint Undertaking
- And the 34 national supervisory authorities?
It’s a confusion that guarantees failure. IATA and CANSO are represented on Vice President Barrot’s High Level Group. An encouraging initiative with a mission to provide recommendations on the future regulatory framework for European ATM. IATA is pushing for radical simplification based on separating the role of governments from industry. The new structure must be an efficient structure that is able to deliver effective results quickly.
Finally, let’s not forget first principles. Harmonisation. Air transport was built on global standards. And this is why we have been able to deliver the great results on safety that I discussed earlier. And it is what must drive our consideration of next generations systems for ATM. The global system must improve. The US system is struggling to keep pace with growth. The NGATS discussion is absolutely critical. And we joined in November 2006.
I have described the mess that is Europe. And success on SESAR—the way forward to a Single Sky—is also critical. The two projects must function together. Elsewhere, Russia is moving to repair its crumbling system by 2025. It’s important because it covers an enormous air space between Europe and Asia and between Asia and North America. Harmonisation is critical. Australia is an industry leader and model for partnership between ANSPs and airlines. They, along with Nav-Can, are pushing forward with systems based on ADS-B. Harmonised global certification and separation standards are the next step. IATA members are investing millions in the technology. We need to see the benefits as soon as possible.
All of this is good—but some reminders. First—remember your customer. Airlines pay the bill for your services and equipment and to equip our planes. So we must be a part of the process. Our relationships with AirServices Australia and NavCan are models to follow . We sit together with complete transparency. Understanding the demand forecasts. Planning adequate infrastructure to meet demand. And agreeing to the price. Other ANSPs should take note on the positive progress that is being achieved .
Second—individually you are responsible for geographic areas. But if your services do not connect seamlessly. We—your customers—have a big problem. Global harmonisation is absolutely critical for safety and efficiency. But too often I see national egos protecting their patch of ground. And CANSO must be stronger in pushing the global agenda. Through ICAO we agreed to a Global ATM Roadmap. A roadmap sets the way forward based on globally agreed standards. So there is no excuse to get lost. There is an MoU between the US and Europe to harmonise. Nice words. But at the working level, I don’t see any progress.
The great changes that are taking place are a great opportunity for CANSO to take a leadership role. Working with its members to develop a harmonised vision for the future. And then taking concrete steps to deliver a globally harmonised next generation system.
The challenges that we jointly face are many. But they will not disappear. So they must be solved. Working together with a common vision is the only way forward. Our good relationship with CANSO is a good starting point. But a good relationship is not enough. Good results are needed in a performance partnership. Nobody disputes our common goals. A safe, cost efficient, globally harmonised ATM system. That is environmentally responsible. IATA—representing your customers—is a willing partner. But it is up to you—the leaders of the ANSP community—to deliver results. The technical solutions exist. Your biggest task is to find the political will to move further forward.