It’s a pleasure to be here in Tunis - a beautiful city with more than three millennia of fascinating history. It is also home to our host -Tunisair - that is celebrating its 60th anniversary. Congratulations!
Middle East and North Africa (MENA) is among the most dynamic aviation regions in the world. Since 2001 this region’s share of international passenger traffic grew from 5% to nearly 10%. IATA has supported this region’s rapid development with a strong presence coordinated from our regional office in Amman. Our settlement systems process over US $13 billion in the region at no cost to our member carriers. In fact we provide cash back.
Guiding IATA’s global work is our Chairman Samer Majali of Royal Jordanian. At this time of crisis business as usual is not an option. Samer’s great ability to drive change is helping IATA to deliver relevant results for the industry.
State of the Industry
Let’s start with the enormous shocks since we met in Damascus. In 2007 airlines made US$5.6 billion a 1.1% margin. But with an average oil price of US$73 per barrel for a total bill of US$136 billion, even this was an amazing achievement. It was the result of a strong economy and hard work by airlines. Since 2001 labour productivity improved 64%, sales and marketing unit costs dropped 25% and non-fuel unit costs reduced 18%.
Then the perfect storm hit. First oil prices spiked to US$145 in July. We predicted a fuel bill of US$186 billion, US$50 billion more than 2007. The financial crisis pushed oil below US$90. But even if the price volatility stops and oil averages US$95 for the rest of the year, we still face a US$181 billion bill.
Recession is the bigger threat. A 1% drop in revenues is a US$5 billion hit. Already passenger traffic growth declined to 1.3% and cargo traffic—a leading indicator is down 2.7%. The worst is yet to come. What we save on fuel, we lose in revenue and that means US$5.2 billion in red ink.
While MENA carriers will deliver a US$200 million profit this year, that’s US$100 million less than in 2007. Even these profits are generated by only a handful of carriers, while most bleed red ink. Even tougher times are ahead.
Over the next decade, the region’s fleet will double to 1,300 aircraft. However, passenger growth is slowing. It went from 18.1% in 2007 to 4.3% in August.
Along with the challenge of matching capacity to demand, airlines in this region have some serious homework to do. They must continue to improve safety, focus on efficiency, Simplifying the Business, fuel, monopoly service providers and press governments for commercial freedoms.
Let’s start with safety, our top priority. Air is the safest way to travel. In 10 years we cut the accident rate in half. But today I am ringing a warning bell. There have been 25 fatal accidents this year more than in either 2006 or 2007. MENA had no accidents in 2006, one in 2007 and two already this year. We are safe, but the trend is going in the wrong direction.
So we need to make the most of the IATA Operational Safety Audit (IOSA). It’s a membership condition for IATA and AACO. Our goal is to bring all our members on board. We are funding IOSA audits for members. With our Partnership for Safety programme,10 MENA carriers have benefited from GAP analysis and 700 airline staff were trained in 29 IOSA courses. Today 17 MENA IATA member airlines are on the registry but 13 are still closing their findings. The deadline is near and there will be no exceptions. I need the leadership support of the CEOs to close the findings as soon as possible.
Governments must move faster to take advantage of IOSA. Two years ago ACAC mandated IOSA for all airlines flying into the region. Only one country has delivered – Egypt. Lebanon and Jordan are expected to follow soon. All ACAC member states must deliver on their promise -quickly.
We are using the IOSA approach to improve ground safety with the IATA Safety Audit for Ground Operations. MENA is playing a leading role. The first ground handler audit was DNATA in Dubai. Egypt Air, Royal Jordanian, Saudia and Royal Air Maroc are among the first in the ISAGO pool audit group. Safety is our top priority. With IOSA and ISAGO we are raising the bar.
In this crisis, efficiency is critical. It begins with airlines doing their homework with programmes like IATA’s Simplifying the Business. Working together we achieved 100% e-ticketing in just 48 months saving US$3 billion annually. The carriers in this region were slow to start but in just 18 months went from 16% to 100%. Congratulations!
But there is no time to rest. The target for 100% bar coded boarding passes is 2010. It’s serious business because each BCBP saves US$5 and a total of US$500 million a year on the industry bottom line. Already 19 MENA airlines are among the 176 issuing the IATA standard BCBP.
We need to catch-up on the other projects. Common Use Self Service kiosks save US$2.50 per check-in with a potential of US$1 billion savings annually. But, only 2 of the 119 airports with CUSS are in MENA. With e-freight, 14 locations will be live by the end of the year. But the only participation in the region is Dubai, which is on the list for the next phase. With potential savings of US$1.2 billion e-freight is important to building a competitive cargo industry. Of the 22 MENA states, only 10 have ratified the Montreal Convention or Montreal Protocol recognising electronic invoicing. Again, too slow.
Already we are looking at the next phase of StB. Fast Travel will bring more self-service options throughout the travel process. And our Baggage Improvement Programme will reduce the US$3.8 billion annual cost of mishandlings. MENA’s aggressive US$46 billion infrastructure expansion is a golden opportunity to be a world leader by adopting StB processes and technology. Now is the time to act, not when the airport construction is complete.
Fuel and Operational Efficiency
Every drop of fuel that we can save is critical to our bottom line and our environmental performance. Our four pillar strategy is clear:
- Invest in new technology
- Operate planes effectively
- Build and use efficient infrastructure
- And implement positive economic measures
Governments have endorsed it and all the major industry players have made it an industry commitment. IATA is even more ambitious with a vision for carbon-neutral growth leading to a carbon-free future.
And we are delivering results. Up to 2007 we have saved US$7.7 billion in fuel costs and 44.5 million tonnes of CO2. Already this year we identified and saved an additional US$4.6 billion in fuel cost and13.5 million tonnes of CO2. Significant savings have been achieved in this region US$38 million with better operational procedures at 15 airports and RVSM in North Africa, US$10 million by re-opening a route from Qatar to Saudi Arabia and US$390 million from our Green Teams that worked with 13 airlines. A further US$46 million is expected from Green Teams later this year and another US$40 million will come when we re-open a route between Syria and Iraq. The next challenge is re-designing the airspace in the Gulf region to deliver three times the capacity while cutting costs with reduced delays and more direct routings.
The last pillar of the strategy is positive economic measures. These can play a significant role. IATA will soon deliver a global carbon offset scheme for the industry to use. We have had positive discussions with a number of airlines in the region including Egyptair, Royal Jordanian and Emirates. I hope that others will follow quickly.
At the same time we must also work to get governments to focus on global solutions. That means not following the crazy approach Europe is taking. National governments have discovered a pot of green gold. The UK, Ireland, the Netherlands and Belgium have or are considering departure taxes in some way related to the environment brand that could total nearly EUR 4.0 billion. On top of this, the European ETS is another EUR 3.5 billion in tax starting in 2012. A fair, global and voluntary ETS could be effective. Europe’s unilateral approach to ETS is not. What right does Europe have to charge a MENA carrier for emissions over Canada on its way to the US from Europe?
Instead of cleaning up the environment, it will be an international legal mess. Article 2 of Kyoto gives ICAO responsibility for aviation’s emissions. ICAO is moving forward with the Group on International Aviation and Climate Change. Saudi Arabia is a member and must play a strong role pushing for a global solution. At the same time, states of this region must challenge Europe’s unilateral action and deliver efficiencies in line with our strategy.
Reducing Infrastructure Costs
We are also pushing for cost efficiencies by challenging our monopoly providers - airports and ANSPs - to deliver the same efficiencies that airlines have achieved. We saved US$3.7 billion in 2007 in charges, taxation and fuel.
In July we wrote 133 airports and 66 ANSPs asking for urgent action in light of the crisis. Some responded positively. Toronto reduced cargo rates 25%, Fraport froze charges until 2009 and Brazil reduced fuel taxes saving US$411 million over the next 3 years.
Unfortunately too many partners don’t share this sense of urgency. In recent years this region has seen some embarrassing developments. Without consultation passenger charges at Egypt’s airports increased 100% and Saudi Arabia increased airport charges by 50% and air navigation charges by 23%. These increases are unacceptable.
Airport Concessions and Regulation
And there are some potential issues on the horizon. Saudi Arabia, Jordan and Egypt have given management concessions to run their airports. When Latin America did this it became a complete disaster. Let’s take the example of Quito where they are building a new airport with the involvement of Houston Airport System and have raised rates by 128%! ICAO principles were ignored. There was no consultation, limited transparency and pre-financing means that today’s users are paying for tomorrow’s customers.
You don’t want this type of abuse here. At key airports, you must ramp up the activities of User Charges Panels and Airport Consultative Committees to identify issues quickly and take action. And, as you start to privatize, you need strong independent regulators to enforce ICAO principles and deliver cost-efficiency. Looking around the region Jordan is starting to prepare but there is a lot more homework to do - quickly.
Another worrying trend in the region is governments levying taxes on jet fuel.
It’s illegal. It is in contravention of bilateral agreements and the Chicago Convention. We fought this in Jordan and won US$15 million in annual cost savings. And our fuel experts are working with the AACO Fuel Committee to identify and fight similar abuses.
Lastly, the crisis highlights the need for airlines to have the same commercial freedoms that other industries take for granted. We cannot serve new markets until governments sign an international agreement. And ownership rules deny access to global capital and the ability to merge or consolidate across borders. So, we are a fragmented industry and a financial basket case. Over 60 years, the average profit margin was 0.3% and today we are US$190 billion in debt. It’s time for change. Who cares who owns an airline if it is safe and provides efficient service? And why restrict market access if governments can ensure a level playing field?
What’s happening in MENA? Domestic liberalisation has sprouted new airlines in Saudi Arabia, United Arab Emirates, Jordan, Morocco, Lebanon, Bahrain and Libya. Open sky policies are delivering economic benefits in Lebanon, Kuwait, Bahrain, the United Arab Emirates and Morocco/ Morocco’s open skies deal with Europe is boosting tourist arrivals towards 10 million a year and Royal Air Maroc is stronger and more competitive.
Despite the clear case that liberalisation will stimulate long-haul markets and help fill the airports being built in the region, progress is too slow. In 2004 the Arab Ministers of Transport signed agreements establishing a goal of open-skies and fair competition and a mechanism for bloc negotiations with EU. Only 6 States ratified and bloc negotiations with Europe are only at the stage of declaring principles. MENA’s governments must think bigger and act faster.
IATA is facilitating this discussion among progressive governments at an Agenda for Freedom Summit in Istanbul this weekend with Morocco and the United Arab Emirates representing MENA. The goal is to build a stronger industry with a level playing field within the bilateral system by allowing airlines to access global capital and take advantage of business opportunities beyond their borders.
This crisis is a turning point. MENA has some key advantages - strong oil economies, top-notch infrastructure and a young fuel-efficient fleet. There are also some big challenges: safety, cost reduction, efficiency and liberalisation. We must work together to move the industry in the right direction.
IATA and AACO are a strong team. Combined with your leadership, I am confident that we can deliver significant change to weather this perfect storm and emerge as an even stronger industry - safer, secure, efficient environmentally responsible and profitable.