Good afternoon and thanks for joining us.
We have just finished a very important weekend in Singapore. I was joined by 35 strategic thinkers - Minister Mentor Lee Kuan Yew, Harvard University’s Professor Michael Porter, ministers, CEOs of airports and airlines.
It was an impressive group. We gathered to look at the future of aviation in 2050 - IATA’s Vision 2050. We chose Singapore because it is a great example of the positive story of aviation. Global connectivity is a key driver of Singapore’s success. With positive aviation’s policies, Singapore has built one of the world’s great airlines and one of its great airports. Moreover it is an inspirational location between India and China, two of our industry’s largest markets.
Despite the positive story of Singapore, the global situation is very challenging. Aviation is a very special industry. Almost $600 billion in revenues and $205 billion in debt. We support 32 million jobs, facilitating the global village and $3.5 trillion in economic activity. But our margins are pathetic. Over the last 40 years, the average margin was just 0.1%. This is the margin for a charity association, not a business. Continuing in this way is not sustainable. We would need 7-8% just to meet the cost of capital.
The Vision 2050 group looked at ways to improve aviation’s financial and environmental sustainability, ability to meet customer needs and develop more efficient infrastructure and aircraft. Some of the core themes of the meeting include finding ways for airlines to become normal businesses. And finding support among governments for the industry’s sustainability so that we can grow the 32 million jobs and $3.5 trillion in economic activity that aviation supports worldwide.
We left the meeting with lots of homework. Over the next few months, we will consolidate the opinions of the group and present the results at our next AGM in June.
The Importance of Asia
One of the big features of the Vision 2050 discussion was the importance of Asia to the future of the industry. Already it is making an important contribution to the industry’s small profit. This year we expect airlines to make a global profit of $9.1 billion. The dimension of the region’s importance is demonstrated by the $4.6 billion that this region’s carriers will contribute to this global total. North American carriers will make $3.2 billion, Latin America $700 million, Middle East $400 million and Europe $100 million.
If you look at market capitalization, you will also see a shift eastward. The five largest airlines in the world by market capitalization are Air China at $20 billion, the combined LAN and TAM at $15 billion, Singapore Airlines at $14 billion, Cathay Pacific at $12 billion and China Southern at $11 billion. So the profits and the money are in this region.
IATA 2010-2014 Forecast
Asia is also driving growth. We are officially announcing our 2010-2014 forecast. According to the industry aggregate forecast, in 2014 3.3 billion people will fly. That is 800 million more travelers than in 2009, when the forecast period started. Of the 800 million, 360 million or 45% will fly within Asia Pacific. China will be at the centre of that growth, with 181 million more domestic travelers and 31 million new international travelers.
In 2009, Asia Pacific overtook North America as the world’s largest aviation market by a few million people. Both accounted for about 26% of global traffic. By 2014, North America will fall to 23% and Asia Pacific will rise to 30%.
Let me zoom in for a moment on the international growth. The consensus of the airlines surveyed is for 5.9% average annual growth. That means 313 million more international travelers over the forecast period. Four of the top five fastest growing international markets are in Asia – China at 10.8%, the United Arab Emirates at 10.2%, Vietnam at 10.2%, Malaysia at 10.1%, and Sri Lanka at 9.5%.
We see a similar pattern in domestic markets, which will generate 488 million new passengers by 2014. China will lead with 13.9% growth, followed by Vietnam at 10.9%, South Africa at 10.6%, India at 10.5%, and the Philippines at 10.2%.
International cargo growth is also dominated by Asia, with Hong Kong growing at 12.3%, China at 11.7%, Vietnam at 11.4%, Chinese Taipei at 11.3%, and the Russian Federation at 11.0%.
Our press release gives you much more detail on the forecast.
There are at least two conclusions to draw from this rapid growth. The first is that Asia Pacific will become increasingly more important in the industry. With size comes influence and responsibility. I hope that Asia, which understands the importance of aviation, can help us change the rules of the game which were invented 65 years ago and primarily with the leadership of the US and Europe. ASEAN is taking regional leadership in taking away barriers to market access aiming for a Single Aviation Market by 2015. And even with the political barriers that exist, the region has also found solutions to allow multinational brands like Jetstar or Air Asia to grow. So I have great hope that Asia Pacific will gradually take on a more vocal, proactive and positive role in driving aviation’s future
The second conclusion is that our environment commitments become even more important. Aviation is responsible for 2% of global manmade carbon emissions and the industry is united in its commitments to improve fuel efficiency by 1.5% annually to 2020, to cap emissions with carbon neutral growth from 2020, and to cut emissions in half by 2050 compared to 2005. We are committed to achieve these targets even while accommodating the tremendous growth that we are forecasting. I am confident that we can achieve this, but we will need support. I am not asking for handouts, only wise economic decisions.
Sustainable biofuels are a big part of our commitments. They do not compete with food crops for land or water. They have the potential to reduce our carbon footprint by up to 80%. Sustainable biofuels have been tested and work in the current aircraft fleet. And in a couple of months, they will be certified. The challenge then is commercialization. The big oil companies are expected to cash $13.7 billion in refinery margins from aviation. But they are not doing enough to move forward with biofuels. So we need governments to put in place the fiscal and legal incentives that could kick-start the commercialization process. And it will create economic opportunities in almost all locations and help with the security of fuel supply.
With that I will end my comments and look forward to your questions.