Good afternoon and thank you for that introduction. Washington’s International Aviation Club is one of the air transport industry’s most important forums in one of aviation’s most important cities. It is an honor to be here on my first visit to the United States since assuming the leadership of IATA.
I am also pleased that leaders of several regional associations are here. Sharing many of the same members and issues, we are a team with a common goal. That is to help our members run their businesses successfully and provide the global connectivity that is the lifeblood of the global economy.
A few words about me…I am an airline person for over three decades. I am passionate about aviation and I believe strongly that it is a force for good in the world. Every airplane that takes off carries with it almost infinite possibilities. It connects people and commerce, creating wealth both physical and of the human spirit.
Unfortunately, in spite of the value aviation creates, it is a very challenging industry, as our financial numbers bear out. 2010 was one of the best years we ever had. Airlines made a collective $15.8 billion. But our margin was a meager 2.9%. This year, we expect a $6.9 billion net profit on revenues of $594 billion. That’s a margin of just 1.2%.
2012 is looking even tougher. The high price of oil and an anemic economic outlook are the biggest issues. Air cargo demand, which had been flat for more than a year, is now declining. September volumes were 2.7% below the previous year. Passenger traffic has been unexpectedly resilient but it is difficult to imagine that trend continuing in the face of rising economic uncertainty and stubborn unemployment levels.
We expect profits to fall further to $4.9 billion in 2012 for a 0.8% margin. The problem with the airline business will continue to be that it’s all turnover, and no leftover!
If we are right about 2012, it will mean that airlines, since 2001, lost $25 billion on $5.5 trillion in revenues. That is not a performance to attract new investment or enable fragile balance sheets to be repaired.
We face these challenges, however, against the backdrop of a world thirsty for our product. This year airlines globally will carry about 7.6 million people a day. In 2015 that number will increase to nearly 10 million. That is equivalent to transporting the combined populations of the Washington and Dallas metropolitan areas every day.
That is great news for the future development of our business. So even if times are tough today, we should have every confidence in our future. We are still a relatively young industry. In 2014 we will celebrate the 100th anniversary of the first commercial flight, when Tony Jannus flew between Tampa and St. Petersburg. We still have enormous potential for growth and innovation. But it rests on our ability to continue to deliver a safe, secure, efficient and environmentally responsible product.
Achieving this is the collective responsibility of airlines, airports, air traffic management, manufacturers, the passenger and cargo distribution chains, caterers, ground handlers, fuel suppliers, regulators and many more. Aviation is a team effort.
One theme that I want to establish early on in my time at IATA is that the aviation value chain must work even more closely together in the many areas where our interests not just overlap…but where they are exactly the same. That was my message to the Airports Council International World Annual General Assembly last week. And it is one that I am repeating to all of our industry partners.
Under my watch, IATA will continue to be a strong advocate of industry issues. But IATA will be even more effective as a voice in a chorus of industry advocates than as a soloist. And of course the message will resonate more effectively with those we seek to influence if the industry is aligned, in harmony and delivering results.
Safety is the perfect example. In the decade to the end of this year, over 23 billion people and nearly 426 million tonnes of cargo were transported safely by air. Those amazing statistics are the result of our rich history of working together to address this fundamental challenge with global standards consistently applied.
The IATA Operational Safety Audit (IOSA) and IATA Safety Audit for Ground Operations (ISAGO) are good examples. Both are global standards developed in cooperation with industry stakeholders—including governments—that are helping to drive safety improvements across the industry.
IATA’s longer-term vision is to develop a Circle of Excellence that covers safety functions with global audit standards. It is an ambitious innovation that will require the cooperation of many partners. But it is a natural progression in our common quest to make our safe industry even safer.
And finally, to ensure that safety innovations are driven by data, we are working with the Federal Aviation Administration (FAA), the European Commission and the International Civil Aviation Organization (ICAO) in a Global Safety Information Exchange.
Environment is another great example of cooperation. A decade ago, we found a solution to noise in the Balanced Approach agreed through ICAO and supported by industry. Today, we are focused on ICAO for a global solution for aviation on climate change.
The industry has done its homework to address the 2% of global manmade emissions that it produces. As I am sure you are all aware, airlines, airports, air navigation service providers and manufacturers have made three sequential commitments:
- To improve fuel efficiency by 1.5% annually to 2020
- To cap net emissions from 2020
- And to cut net emissions in half by 2050 compared to 2005
We are working together with governments to achieve this with a four-pillar strategy of investment in new technology, better operations, more efficient infrastructure and positive economic measures.
Sustainable biofuels have the greatest potential to contribute to these goals with up to 80% CO2 reduction over the lifecycle of the fuel. This is a game changer and US airlines and their partners have been playing a leading role, starting with the certification process. But the industry needs help to turn the potential into reality. Specifically, we must work together to convince governments to take policy measures that:
- Foster research into new feedstock sources and refining processes
- De-risk public and private investments in aviation biofuels
- Provide incentives for airlines to use biofuels from an early stage
- Encourage stakeholders to commit to robust international sustainability criteria
- Understand local green growth opportunities
- And establish coalitions encompassing all parts of the supply chain
A successful sustainable biofuels industry is in the interests of every government, including the US. It would improve energy self-sufficiency and create jobs in the green economy.
Unfortunately, the attention of governments on aviation and environment issues is being distracted by Europe’s unilateral plan to include international aviation in its emissions trading scheme from 2012. The airline industry has long opposed this because regional schemes will distort markets and open the door to a patchwork approach of conflicting, competing or layered measures including taxation.
The aviation industry does support market based measures—including emissions trading—but they must be globally coordinated among governments. And the place to do that is at ICAO.
In recent months, the debate on Europe’s misguided plans has taken on a new dimension.
Governments outside of Europe see its extra-territorial aspects as an infringement on their sovereignty.
The US is debating legislation that would prevent its carriers from participating. And last week the ICAO Council agreed on a declaration opposing Europe’s plans, sponsored by 26 of its member states. Europe’s plans are coming under enormous pressure. Indeed, I cannot think of another issue touching on international aviation, with the exception of safety, on which China, India, Russia, Japan and the US are in agreement.
But there is a way forward. ICAO has already agreed to principles for global market based measures. And there are ongoing discussions towards the agreed goal of presenting a framework for globally coordinated economic measures at ICAO’s 2013 Assembly. The ICAO Declaration urges Europe’s governments to abandon their unilateral and extra-territorial approach and to support the success of a global solution.
Security is an area where industry and government cooperation is an absolute must. It is a government responsibility but can only be delivered in cooperation with industry.
Two months ago marked the 10th anniversary of the tragic events of 9.11. Air transport is far more secure today than it was 10 years ago. But that security has been achieved at enormous expense. Airlines and governments have spent at least a cumulative total of $100 billion. Airlines themselves are now spending $7.4 billion a year. Unfortunately, for many of our passengers that investment has made security the single biggest point of dissatisfaction in the travel experience. It is often slow, unpredictable and overly intrusive.
Part of the problem is that we are working with a 40-year-old concept for checkpoints. It was developed to stop hijackers by detecting metal weapons – at a time when there were far fewer air travelers.
Processes have been enhanced and technology grafted on. It works, but it is neither efficient nor sustainable. In some places throughput rates have dropped by as much as 50% over the last two years.
IATA’s vision is for a Checkpoint of the Future that takes a risk-based approach and uses technology solutions to allow a passenger to walk uninterrupted from curb to gate.
The first element uses passenger data that we already collect for governments to make informed risk assessments. All passengers would get a baseline screening. Those about whom we know little or who appear on a government watch-list would get more rigorous treatment. And those who voluntarily offer background information through the Transportation Security Administration’s (TSA) Trusted Traveler or similar programs could have their checks expedited.
This does not infringe on privacy. Known traveler programs are completely voluntary. And risk assessments would use information that is already collected for governments to use in immigration processes. We simply want to use the same information at the security checkpoint.
I am encouraged by the enthusiastic support of both Secretary of Homeland Security Janet Napolitano and Transportation Security Administrator John Pistole to replace the one-size-fits-all approach with risk-based processes. Moreover there is international support from 12 states and Interpol who have signed a statement of principles.
By repurposing current equipment we could realize a 30% improvement in wait times within two to three years. But we are more ambitious. Within seven years or so technology will be available to screen travelers and their hand baggage as they walk uninterrupted through checkpoints.
During my tenure at IATA, along with improving safety, if there is one change that I would like to achieve, it is the security experience.
Of course, as we were reminded just a year ago with the Yemen printer cartridge incident, cargo security must also be addressed. A risk-based approach is needed here as well, but there is no Checkpoint of the Future solution for cargo—nor should there be. The innovation needed is to secure the supply chain. That means shippers, freight forwarders, airports, airlines and regulators working together on a multi-layered approach combining advanced electronic information and physical screening. ICAO is aligned with this vision. We can see progress in the e-cargo security declaration which offers states data on who is shipping what and where. This provides a globally harmonized format for governments to make risk assessments.
Unlocking Aviation’s Value to the Economy
Many of aviation’s challenges are political. Aviation globally supports $3.5 trillion in economic activity and 33 million jobs. In the US, that means $1.2 trillion dollars a year – over 5 percent of the US GDP – and more than 10 million jobs
Despite our vital economic role, politicians appear to value us more as surrogate tax collectors or as a target of populist regulations that undermine the industry’s efficiency. Too often the chorus of opposition to such measures is not assembled. But when it is, it can be very effective.
We saw that with the reaction to US proposals to double the passenger security fee and impose a $100 charge on every aircraft that takes off. The purpose was primarily to generate funds for the treasury at the expense of travelers. IATA joined an opposition coalition of 30 organizations representing all aspects of the industry, its customers and employees. Congratulations to Nick Calio and the ATA team for leading the effort and awakening strong resistance in Congress.
There are good reasons to oppose aviation taxes. When the Dutch government imposed a EUR 300 million departure tax, EUR 1.2 billion disappeared from their economy. On the other hand, from my first-hand experience in Asia, I have seen aviation act as a catalyst for economic growth in China - and elsewhere across the region. Governments in Singapore and South Korea have built strong economies on global connectivity. The expansion that we are seeing in the Middle East is the result of a similar strategic approach.
I am not saying that governments should run our businesses. That is not what is happening in these regions. But governments should not bury us in taxes that compromise our ability to drive growth and generate jobs. That is a message that the industry and all those who depend on connectivity need to send loudly and clearly to governments.
Our challenge with governments is not just taxes. We suffer equally, if not more, from bad regulations.
The near complete closure of European air space as a result of the Icelandic volcano eruption last year was a double example of regulation gone astray. First, governments should not have closed the airspace, but rather left it to the operational expertise of the airlines—as you do here in the US. And secondly, under the EU’s punitive passenger rights rules, airlines paid millions in compensation to passengers. But an act of nature made worse by the decisions – or indecision – of politicians and regulators is certainly not the airlines’ fault. And the cost to the European economy over the week was estimated at $4.7 billion. Bad regulation has a very real cost.
We see that here in the US as well. The FAA estimates that delays and flight cancellations cost the US economy some $31.2 billion in 2008. Yet we see regulation that is meant to protect passenger rights actually provide incentives to airlines to cancel flights because penalties for extended delays are so costly.
The US Government Accountability Office (GAO) recently estimated that the number of flight cancellations increased by more than 5,000 over similar time periods before the DOT passenger rights rule went into effect. Not only that, the regulation puts the entire burden on the airlines even though the responsibility for delays is often beyond their control.
Look at the recent JetBlue tarmac delays in Hartford. An American Airlines flight was at their gate and was not permitted to disembark international passengers because Customs was not prepared to process them. Furthermore, power failures caused by a once in a century October blizzard made refueling impossible.
I used to run an airline. We wanted to get our customers to their destinations on schedule as much or more than they did. But aviation is above all a collaborative endeavor and it is both unfair and unproductive to lay all the responsibility and financial liability for an irregular operation on just one participant in the process.
I am not arguing that airports and government agencies should also be subject to draconian fines for equipment failures or personnel shortages. I am suggesting that we need to innovate our thinking and replace a rigid culture of blame with a flexible structure mandating collaborative decision-making among all the stakeholders.
Airlines are required to have formal contingency plans for handling extended delays. Shouldn’t the same be required for airports, TSA, FAA and the Customs and Border Protection (CBP)? And shouldn’t these be synchronized so that everyone knows each others’ plans in the event of a disruption? If our goal is to solve the problem—not just wave the finger of blame—then this is the answer.
I also believe that we need innovation in aviation’s economic oversight. Deregulation started in the US over three decades ago and spread around the world. But it is only half-baked because governments are unwilling to cede to the marketplace their control over competition.
We see it in fare unbundling. It is taken for granted in the telecom, hotel and car rental industries. But governments want to regulate the product offering of airlines. Of course, no one likes paying for things they used to receive for free. But it is unrealistic to expect a deregulated industry to maintain the business practices used when airlines were quasi-public utilities with a regulated cost-plus pricing model. Governments should not deny airlines tools which are taken for granted in other industries.
The success of the anti-taxation message that we were able to deliver to policy makers is a potential turning point. In the US we should seize the momentum to launch a broader dialogue of innovation with government focused on enhancing competitiveness. Given the gloomy economic outlook, there could not be a more opportune time to bring solutions that could positively impact jobs and the economy. It should also be an inspiration to the industry everywhere of the impact that we can have when we act with a common voice for a common purpose.
I have witnessed vast changes in the aviation landscape since I joined this industry in 1978. The disappearance of some of aviation’s greatest names has been accompanied by the rise of new liveries, some in regions that previously were considered aviation backwaters.
Through it all, there were at least two constants. Innovation made aviation safer, greener and more efficient. And aviation made the world better— with connectivity driving both economic and social progress.
Working together, we can overcome the challenges we face and enable aviation to continue to transform our planet into a global community.