It is exciting to be here in Singapore, one of the world’s truly great centers of aviation and IATA’s home in Asia-Pacific. The successful growth of the Singapore Airshow Aviation Leadership Summit is an indication of the strong partnerships that IATA has developed with Singapore—the Ministry of Transport, the Civil Aviation Authority and the Airshow. And the strong global attendance from both government and industry recognizes the value of this partnership as well as the leadership and innovation that the forward thinking policies and achievements of Singapore have given our industry.
I attended the previous Summit in 2010 in my capacity as CEO of Cathay Pacific Airways and Chairman of the IATA Board of Governors. Since then, I have moved from Hong Kong to Geneva to take on the responsibilities of IATA’s Director General and CEO. So I am looking forward to participating in today’s discussions from this new perspective.
State of the Industry
This Summit has evolved over what has been the most difficult decade in the history of aviation. Our central scenario for 2012 sees an industry profit of $3.5 billion. That may sound impressive, but for an industry with anticipated revenues of more than $600 billion, that amounts to a meager 0.6% margin. And if we are right about that forecast, then in the years since 2001 airlines will have lost $26 billion on revenues of $5.5 trillion. You cannot sustain a business or an industry that is all turnover with no leftover.
There are lots of reasons for this poor performance, not least of which is the parade of successive shocks that the industry faced—terrorism, war, SARS, new strains of influenza, soaring oil prices, political unrest and a global credit crises—to name just the most memorable!
Fortunately, aviation is resilient. An amazing team effort of value chain partners—in both the public and private sectors--makes aviation an efficient and environmentally responsible industry that connects markets and business across the world. Working together, aviation safely carried 2.8 billion people and 46 million tonnes of cargo in 2011. That’s an incredible achievement by any measure.
And, contrary to some opinions expressed last evening, our member airlines are providing this incredible mobility with even greater value to consumers. My chief economist tells me that over the last decade the real cost of travel has fallen by about a third. Last night I put the theory to the test with some online research on flights from Singapore to New York. The distance is about 15,000 km. And without much effort I found fares as low as $1,500. For 10 cents a kilometer, airlines will transport you with amazingly reliable technology to the other side of world in just over 24 hours. Along the journey, they will provide several meals and even show you a movie or two! No matter how you look at it…that’s value. And if the price of oil was a bit cheaper, we could probably do even more!
That wishful thinking on oil prices aside, for me, this unique meeting of government and industry leaders is about partnerships. Sometimes our agenda seems driven by issues that keep us apart—areas where we disagree. One of the things that I would like to do while I am at IATA is to focus on using a partnership approach to make the most of the areas where we can find some common ground. We won’t agree on everything. And there is a need for a robust exchange of ideas on many issues to find solutions. But let’s not let that get in the way of our common interest to make aviation a stronger industry.
The Power of Partnerships
Safety is our greatest example of partnership delivering success. We have global standards that guide governments and industry. There is a process for constant review and progress. And the results can be seen in the better than 40% improvement in the hull loss rate for Western-built jets over the last decade. We can be proud that together we have made flying not only the safest mode of transport, but also one of the safest things that a person can do.
The cooperation on safety among all stakeholders in the aviation value chain represents the best kind of partnership. We truly are united around common goals and shared interests. But sometimes partnerships need re-balancing. I think that it is a fair statement that airlines have emerged from the last decade with more bruises than most of their partners in the value chain. Every business activity comes with risks. Aviation is no different. But the balance between risk and reward is skewed in our industry. And I hope that in our discussions today we will take a candid look at ways to build a financially sustainable future, shared equitably among all participants in the value chain.
There is also a need to review the industry’s relationship with governments. When it works, the results are brilliant. Look at our Singapore hosts. We have a world class airline and a world class airport. The industry supports 119,000 quality jobs and contributes 5.4% to GDP. The connectivity that aviation provides to Singapore has enabled it to develop as a successful regional hub for sectors as widely different as finance, healthcare, culture and education.
But Singapore’s progressive approach is by no means universal. Look at India. It is a market with enormous potential. But aviation’s development is being held back by government policies. High taxes mean that fuel accounts for an average of 45% of an Indian airline’s operating costs—against an industry average of 32%. A lack of capacity in the country’s economic heart—Mumbai—restricts connectivity, while development of the new Navi Mumbai airport seems to incur a fresh roadblock at every stage of its development. And where world-class infrastructure has been built—as in Delhi—costs are an issue. Proposals to boost charges by 340% may earn it distinction as one of the world’s most expensive airports, but it will destroy Delhi’s competitiveness as a hub.
The stunted growth of Indian aviation comes with an economic cost. India’s population is about 240 times the size of Singapore’s. But the number of aviation jobs is just about 14 times larger at 1.7 million. And the economic contribution of aviation is still only 0.5% of the Indian economy. It is an important 0.5%. But even considering the differential in GDP per capita between Singapore and India, these numbers tell us that there is unused potential in India. There is a need to reassess policies in order for aviation to reach its potential as a primary contributor to India’s economic growth.
India is not the only place that could to better. I am pleased to see a very senior contingent of European policy-makers participating in the Summit. I have been spending a lot of time in Brussels since joining IATA. Only last week I delivered a speech there to the European Aviation Club. My message was focused on shoring up the competitiveness of European aviation.
Europe is going through a difficult time. Governments need to restart economies that have been crippled by the sovereign debt crisis. Economic growth is the only way forward and aviation can help. But it can only make a contribution if it is not hamstrung by policies focused on restricting its growth and taxing its every move. I urged Europe to use aviation more strategically through policies that support growth, efficiency and competitiveness.
Aviation is a growing industry. Even in the face of enormous economic uncertainty in 2011, the number of passengers grew by nearly 6%. The connectivity that aviation provides is essential for economic development, modern globalized businesses and human interaction…and demand for it is increasing. And the pattern of that growth is shifting the industry’s center of gravity eastward. Having just moved from Hong Kong to Geneva, I am an exception.
Let’s look at some market share numbers. Admittedly, there is some overlap as a result of travel between regions, but if we set this aside, we can see that in 2010 about a third of all passengers traveled on routes to, from or within Asia-Pacific. For North America and Europe the equivalent number was 31%. But if we look ahead to 2015, we anticipate that Asia-Pacific will represent 37%, while traffic associated with Europe and North America will fall to 29%.
The implication for travelers is impressive. In 2015 we expect over 3.55 billion people to travel by air. That is 877 million more than in 2010. Of those, 212 million are expected to be generated by China alone.
This region—Asia-Pacific—will be in the driver’s seat of global growth. And the potential is huge.
The Organization for Economic Co-operation and Development (OECD) estimated that in 2009 there were 1.8 billion middle-income consumers in the world—those that earned between $10 and $100 a day. About 500 million of those were in Asia-Pacific. By 2030, the OECD expects that there will be 4.9 billion middle-income earners—of which 66% or 3.2 billion will be in this region. That is a six-fold increase in just two decades.
Looked at another way, each year people living in the US take an average of 1.8 trips by plane. In Germany, the average is one trip per year. In China it is 0.2 trips per year and in India it is just 0.1. In general, people reach the threshold of one trip by air per year when average income rises to $15,000 annually. China is expected to reach that within the next decade. And that will generate an extra billion travelers.
The numbers are staggering and the opportunities for growth are great. Growth also presents challenges. Two of these challenges will be discussed here today—security and climate change.
The challenge of security changed dramatically on 11 September 2001. In the decade that followed, we have seen the security of the industry improve dramatically. But improvement came with a steep price: costs to airlines and passengers grew to at least $7.4 billion annually. And the throughput of the system slowed dramatically.
Prior to 9.11 we estimate that the average throughput of an airport checkpoint was 335 passengers per hour. Today that average has slowed to 149. Security is a top priority. And it must not be compromised. But I am sure that every traveler hopes for an early evolution from an airport checkpoint experience defined by queuing, unpacking, removing clothing, separating certain items and possibly invasive searches. The system works, but it is struggling to cope with the volumes of today. And when we add another 877 million passengers to the queues in a few years, the experience is bound to deteriorate even further.
That is why one of my priorities is to build global consensus that will see the Checkpoint of the Future succeed.
The concept has two main elements. First, we want to differentiate screening using passenger information already collected for immigration purposes. Every passenger will be screened to a baseline. Those that we know little about or who appear on a government watch-list would receive enhanced screening. And those who have volunteered for background checks would normally have access to expedited screening. The concept is being proven by a known traveler program that is being successfully trialed by the US Transportation Security Administration. And we are working with Interpol and the International Civil Aviation Organization (ICAO) on global standards.
The second element is a technology solution to enable passengers to walk through checkpoints without stopping or unpacking. Systems are being developed today that could make this a reality in the next seven to ten years.
The key to delivering the Checkpoint of the Future is global coordination with industry and among governments. And it is happening with support from major players such as the European Commission, the Chinese Government, the US Department of Homeland Security and Interpol. Moreover 16 countries have endorsed a statement of principles for such a checkpoint. Of course, moving a global system along will take some time. But I am convinced that with this level of government support, we will be able to make major improvements to the airport security experience and effectiveness. And I look forward to an interesting discussion this afternoon.
I am sure that we will also have an interesting discussion on aviation’s approach to climate change. Alongside safety and security, environmental responsibility is a core promise and top priority of the aviation industry. That is why airlines, airports, air navigation service providers and manufacturers have joined together in a global commitment to reduce aviation’s carbon footprint by:
- Improving fuel efficiency by an average of 1.5% annually to 2020
- Capping net emissions from 2020 with carbon-neutral growth and
- Cutting our carbon footprint in half by 2050 compared to 2005 levels.
We also achieved consensus on a strategy to attain these targets with improved technology, more efficient operations and infrastructure, and positive economic measures.
These commitments offer great opportunities to governments everywhere. Sustainable biofuels are a good example. Over their lifecycle, biofuels have the potential to reduce emissions by up to 80%. And developing a sustainable biofuels industry will create jobs and reduce dependence on oil supplies while shrinking aviation’s carbon footprint. For Asia-Pacific the possibilities are particularly attractive. A sustainable biofuels industry could lift millions from poverty. And the many options for biomass—from urban waste to algae, jatropha or camelina—mean that production can concentrate on the source crop or material most suited to local conditions.
Biofuels are also technically proven. And I believe that they are a political necessity if aviation is to meet its climate change commitments and retain its license to grow.
But to move beyond demonstration flights and into general usage, we need the price to drop and the supply to increase. And that requires cooperation across the value chain supported by government policies to ensure aviation has access to its share of available biomass and investment. Policy measures that de-risk the investment needed for the scaling up of commercial aviation biofuels projects are crucial to achieving that outcome.
The excitement over sustainable biofuels should not cause us to overlook the tremendous potential offered by operational measures. Last week I was urging Europe to move forward on the Single European Sky which has the potential to save 16 million tonnes of carbon emissions annually. We recently had the good news of the US Federal Aviation Administration re-authorization, which I hope will pave the way for swift progress on NextGen for the country’s air traffic management system. And I am pleased that the discussion of a Seamless Asian Sky is gaining momentum.
These are all win-win-win-win solutions. The environment benefits from fewer carbon emissions. Airlines operate more economically. Travelers get to their destinations faster and with fewer delays. And national economies benefit from more efficient connectivity.
And of course it is not just these mega-projects. The industry is working together, route-by-route and procedure-by-procedure, to eke out efficiencies that save both fuel and emissions. And airlines continue to invest in new aircraft—each generation of which historically brings efficiencies in the range of 20%. And I am sure that our manufacturing friends have some impressive orders lined-up over the next days that will illustrate the commitments that airlines are making to fuel efficient fleets.
European Union Emissions Trading Scheme (EU ETS)
We recognize, however, that it will take time for these technical, infrastructure and operational improvements to allow us to meet our targets. Positive economic measures such as emissions trading are a necessary, if temporary, bridge to reach aviation’s climate change targets. But as with our other top priorities of safety and security, these measures must be globally coordinated to be effective. And in the case of economic measures also to avoid market distortions.
Europe deserves much credit for pushing this issue up the international agenda. So it is no surprise that Europe is at the forefront on emissions trading, but its unilateral approach is problematic.
IATA and its members supported the EU ETS when it was proposed as a solution for intra-European travel. This was with the understanding that it would avoid the proliferation of environmental taxes and charges. Then the scope was extended beyond Europe’s borders and there was no let-up in taxation. Departure taxes in the UK, Germany and Austria—introduced as environmental measures—amount to well over EUR 4 billion. At current market prices for UN issued Certified Emissions Reductions, that would offset all the world’s aviation CO2 emissions about one-and-a-half times. And ETS is being added on top of all that!
Non-European governments see this extra-territorial tax collection as an attack on their sovereignty. And they are taking action.
- The ICAO Council has adopted a resolution urging Europe to change course
- Last week China declared that its carriers could not participate
- The US is processing similar legislation for its carriers
- And in fact at least 43 states are publicly opposed. They will shortly meet in Moscow to plan next steps. Some are threatening retaliatory measures against European carriers or other European business sectors.
Aviation can ill afford to be caught in an escalating political or trade conflict over the EU ETS.
There is a way forward—ICAO. About a decade ago, ICAO achieved a globally accepted balanced approach to noise that averted a conflict over Europe’s unilateral plans. ICAO can do the same for climate change. The 2010 Assembly agreed to 15 principles for economic measures and committed to develop a framework for a global trading or compensation scheme by the next Assembly in the third quarter of 2013. There is widespread agreement that ICAO is on the right track, even if the pace of progress is not sufficient for some European politicians. What is needed is continued patience to enable the international process to run its course and for European states to be wholehearted participants in that process.
In Brussels last week, I sensed a growing recognition that a global scheme, developed and implemented through ICAO, would provide a superior solution to the problem of airline emissions. It would also offer a solution to the political impasse caused by the inclusion of extra-European aviation into the regional European ETS.
IATA will do all it can to support the development of a global scheme. I can’t help feeling this would be easier if other states did not feel they were under duress from Europe, but we will do all we can to promote a pragmatic solution.
Time isn’t on our side. I’ve already mentioned that airlines from Europe may face some form of retaliatory action. And that some airlines from outside Europe may have to choose whether to obey the law of their own land or that of Europe.
We have an interesting and challenging day ahead of us. I look forward to a vigorous and animated discussion. Aviation is a great industry. It is a force for good in the world that generates wealth—both material and of the human spirit. It has enormous potential—particularly in this region. And aviation’s success depends on our ability as industry leaders to cooperate as we have done throughout our history—across business interests and political borders. Our goal is to drive change and overcome challenges together—the theme of this conference. That will enable us to build our future by continually improving the safety, security, efficiency and sustainability of our industry.