It’s a pleasure to be here in Damascus, a beautiful and historic city with very warm hospitality. I always enjoy coming to this region, one of the most active in the IATA world and as our chairman for 2008 is Samer Majali, the Middle East and North Africa will continue to play a key role.
We just inaugurated a new home for our Amman regional office to house our growing team. BSPs (Billing and Settlement Plans) operate in 13 countries; the latest is here in Syria. The CASS programme is expanding with new operations in Jordan and five Gulf states. In total, we settled US$10 billion of your money in 2006 and some $270 billion worldwide. And as you are all aware, BSP services are free of charge for airlines operating in MENA; in fact we give back US$1 million annually.
State of the Industry
Since we met in Kuwait much has changed. The industry is returning to profitability, labour productivity improved 56%, sales and distribution costs dropped 13%, non-fuel unit costs decreased 15% and we have had record load factors: over 80% in July and August. The fuel bill increased enormously to US$132 billion and we still managed to improve the bottom line. This year we expect a US$5.6 billion profit. Hard work made this possible and we should be proud. But a margin of less than 2% on revenues of US$470 billion is still peanuts.
Many challenges remain before we can achieve financial sustainability. We must achieve 7-8% margins, US$40 billion, just to cover the cost of capital. We have US$200 billion in accumulated debt, so the balance sheet is still not healthy and the US credit crunch puts a question mark over our US$7.8 billion profit projection for 2008. Unlike previous cycles we may be approaching the downturn with no cash in the bank to cushion the fall.
At the regional level we see black everywhere. After 144 thousand job losses, a 26% cut and completely re-engineering their business, US carriers have gone from being the industry’s sick-man to the most profitable this year. We expect North American carriers to post a profit of US$2.7 billion. Europeans are enjoying steady improvement with strength in long-haul premium traffic; they will be US$2.1 billion in the black. Asia profits will decline to US$700 million resulting from more modest yields in the wake of a 42% capacity increase since 2001. MENA carriers will post a US$200 million profit, unchanged since 2005, but growing to US$300 million next year and Emirates remains the leader with an 11.4% margin. Congratulations to all on delivering a positive result.
Your growth continues to lead the industry. Today we are announcing our traffic forecast for 2007 to 2011. MENA growth will be 6.8%--the highest in the world, ahead of the global average of 5.1%. MENA cargo growth of 5.0% is above the global average of 4.8%, but behind the leader—Asia Pacific—which expects 5.4%. Careful capacity management against this growth remains the biggest challenge. So far this year the results are impressive. Passenger growth averaged 14.5% through August and the average load factor was 76.1%, only slightly behind the industry average of 77.2%. The infrastructure developments in this region are supporting your ambitious plans compared to hubs like Singapore. There is still room to improve hub efficiency here with increased frequency. But I am concerned about the bottom line. This region’s share of global traffic grew from 5% in 2001 to 8% in 2006, but your share of global profits is only 3.5%.
So, how do we turn traffic growth into profit growth? The starting point is a level playing field built on global standards. You have some great success stories and there are challenges too. Let’s start with the successes.
Our top priority is safety. 2006 was our safest year ever with one accident for every 1.5 million flights and MENA carriers led the industry with zero accidents. The IOSA registry now includes 15 MENA members, the rest are in the process. Excluding a few carriers in very exceptional circumstances, I am confident that we will have all our MENA members on board for the 2008 deadline. With over 170 carriers on the registry, IOSA covers 78% of scheduled international traffic. And governments in this region are among the biggest supporters. Following on the ACAC recommendation to make IOSA mandatory for carriers flying into this region, Egypt has incorporated IOSA into its regulations and others are in the process. I encourage all governments to follow-up on the ACAC resolution to continue to deliver top results on safety. Congratulations again to all of you.
Simplifying the Business
We are moving in the right direction on Simplifying the Business. A year ago MENA was far behind on E-ticketing at just 13%. By the end of September, MENA stood at 70%, still well behind the global average of 88%, but much improved. Some airlines, including our host, Syrian Air, jumped more than 50% in 3 months. But three AACO members have yet to launch ET: Libyan Airlines, Afriqiya Airways and Air Algerie. The deadline is 221 days away, so there’s no time to relax. IATA’s expert team is here to help. Our greatest satisfaction will be to have all our MENA airlines on board to enjoy your part of US$3 billion ET savings. I see good progress on bar coded boarding passes: 8 airlines are using them; and 2 CUSS projects are running in the region. Elsewhere 6 e-freight pilots are set to go live soon. With your enormous growth in air cargo, I hope to see at least one MENA location in the next wave of e-freight.
Going forward, your biggest challenges focus on the structure of the business, particularly in areas where governments play a role. This region is bound together and defined by strong cultural and religious links. To develop as strong players in the global arena and meet the responsibilities that come with representing 8% of global traffic, you need a solid base for the regional business.
The region is maturing. Airlines are joining global alliances. Congratulations to Samer and to Atef. It is no coincidence that Egypt Air and Royal Jordanian are among the airlines in the region that are privatising along with Saudi Arabian Airlines. You are taking a step beyond expanding your businesses globally to exploring the opportunities that come with global integration. Privatisation and global alliances are not the only way forward, but we have a common interest in preparing for liberalisation. The US-EU agreement on open skies was a sign of the times and we are pushing for even greater change by addressing ownership in the next round of talks.
Governments must anticipate and lead change, setting a clear agenda and targets to prepare the industry for intensified global competition. On the infrastructure side, you are well prepared. There were 120 million departing passengers in the Middle East last year. The new airport at Jebel Ali is being built to serve exactly this number of passengers. Expansion plans at airports in the region amount to US$38 billion. In 2012, the 10 leading airports in the region will have a combined capacity of 320 million. But without further liberalisation this will be under-utilised. I am encouraged that Air China will set up hub operations in Dubai and AirAsia in Bahrain. They will bring competitive challenges and new business opportunities with access to bigger markets. I am also encouraged with the follow-up to the ACAC agreement for the liberalisation of air transport, already ratified by 6 Arab states.
So, what’s next? The region must move forward with bloc negotiations with Europe to stimulate long-haul markets. But we must also remember that there is an imbalance with regional markets. Intra-Asia markets are 6 times larger than the long-haul traffic that feeds them. Visa-free travel among ASEAN nations has played in important role in this development. The intra-Middle East market is only three quarters the size of its feeder markets. Although there has been some easing of requirements in the Gulf States, using technology effectively with biometric passports makes travel more secure. And working to broaden this could play a big role in stimulating third and fourth freedom markets.
Environment is at the top of our agenda. As with almost any human activity our business has an environmental cost. CO2 emissions from aviation impact climate change. Like all industries aviation must respond responsibly. Let’s start with some facts. Aviation is 2% of global carbon emissions according to the Nobel Prize winning IPCC. Emissions are directly related to fuel consumption, so our 70% improvement in fuel efficiency over 4 decades is a major achievement. The IATA target is a further 25% by 2020. Efficiency gains will limit our global CO2 contribution to 3% in 2050. The biggest green incentive is our US$132 billion fuel bill. That is why MENA airlines alone spent US$80 billion on aircraft to be delivered over the next 18 years. What next?
Environment: The Strategy
IATA’s 240 members agreed a four-point strategy:
- Invest in new technology, both new aircraft and research into next generation technology.
- Build and use efficient infrastructure to eliminate the 12% inefficiency that the IPCC has identified.
- Operate planes effectively where we see the potential for another 6% efficiency gain.
- Once we have achieved these three let’s look at economic measures.
First, positive measures to encourage technology investments: tax credits for re-fleeting and grants for research; but also working with governments to define an emissions trading scheme that is fair, global and voluntary. The strategy is not just words—we have delivered real results. In 2006 IATA’s fuel programme saved a lot of CO2: 6 million tonnes by shortening 350 air routes; 8 million tonnes by our GO Teams working with airlines on best practices; and 1 million tonnes through better operational procedures.
In this region, 11 routes were shortened, saving US$31 million a year. Our Go Team worked with 4 MENA airlines to save US$47 million in fuel costs and we worked with 8 airports to publish RNAV procedures. This year our work on 2 routes in Iraq and Syria, combined with Go Team visits to 5 airlines, could net up to US$300 million in savings. This is good news for your business and good news for the environment. We took our strategy with specific demands to the ICAO Assembly in September. All 190 States endorsed our four-pillar strategy, including our 2020 fuel efficiency improvement target of 25%.
Our biggest disappointment was Europe. It is pursuing a unilateral emissions trading system. This is completely political and totally irresponsible. Europe gets credit for pushing the environment issue, but charging airlines to pollute without fixing the mess in air traffic management does nothing to improve environmental performance. We need to turn the 15 years of talks on a Single European Sky into progress that could save up to 12 million tonnes of CO2 annually. Instead we are getting taxes in the UK, the Netherlands and elsewhere. I asked Mr. Brown—then chancellor—how many trees he was going to plant with the billion pounds he will collect from travellers. I got no response and now his successor is making matters worse by complicating the calculation. In Europe we are fighting to regain leadership on the debate. Politicians are building their green credentials at our expense.
Environment: The Vision
To recover ground we are pushing politicians towards more ambitious goals. We recognise that our carbon footprint is growing and this is not politically acceptable—for any industry—so we must do more. At our AGM in June this year I put forward a vision to become carbon neutral in the medium-term and zero emissions in the longer-term. Our technology partners, engine and airframe manufacturers, agree that we must ultimately aim for zero carbon emissions and the fuel suppliers recognise that this is a priority for their customers.
Already some of the potential building blocks for a carbon-free future are here: fuel cells, solar powered aircraft and bio-fuels. I don’t have all the answers, but I have faith in this great industry. Our history is built on turning dreams into reality. The Wright brothers first flew in 1903. No one could imagine at that time that in 50 years we would welcome the jet age or that in 100 years we would be an industry that flies 2.2 billion people safely each year.
The Future is in Your Hands
This region is in a unique position to take a leadership role. Airlines must help governments from falling into the same political trap that has paralysed Europe. It starts with communication and IATA has some tools to help. 3 MENA airlines are using their in-flight opportunities to support our ad campaign and others are using our cross-industry campaign www.enviro.aero to set the record straight on our performance. You have a good story to tell. The MENA fleet is among the youngest and most fuel-efficient in the world and investment in infrastructure capacity will avoid the inefficiencies we see elsewhere. The MADSAR initiative in the UAE is a beacon for the future. The plans to build a zero emissions, zero waste city fit perfectly with our vision. It is an ideal place to develop a zero emission substitute for jet fuel. I challenge the governments of this region to invest today’s oil money, to build a greener, sustainable future by developing our next energy source.
This is a truly great and exciting industry and MENA is one of our most dynamic regions. Global standards are driving amazing progress on safety and security. The next challenges will be on leadership, yours and governments, to push forward the agenda on liberalisation and environment. Our common goal is to continue to be an industry that is safe, secure and profitable and acting with environmental responsibility. IATA is your Association and we will be working very closely with AACO to deliver the results that your businesses need.