I am delighted to be back in Bangkok. While I have been before many times while I was with Cathay Pacific, this is my first visit since taking over as IATA’s Director General and CEO.
I’ve had two productive days meeting with the airlines, AOT, DCA, discussing the state of the industry.
In my new role, I have a new perspective on the industry….one that is global.
State of the Industry
2012 continues to be challenging for the airline industry. 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 is a small 0.6% margin. And if Europe cannot resolve its sovereign debt crisis and the continent falls into deep recession, then the industry will most certainly fall into losses.
Even if there is a European solution and we make $3.5 billion this year, it will not correct a very difficult record. In fact, 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.
Nonetheless, there are some opportunities in the region. By 2015, 37% of all passengers (up from 33% in 2010) will travel on routes to, from or within Asia Pacific, compared to 29% for Europe and North America (down from 31% in 2010). 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 means Asia-Pacific will be driving global growth.
Looking at the propensity to travel, each year people living in China take 0.2 trips by per year, while in India it is 0.1. Compare this with an average of 1.8 trips in the US and one trip per year in Germany. You can quickly see that there is tremendous potential.
This is all good news for Thailand….a great tourism and business destination. But of course, aviation does not just happen. It needs a strong and coordinated policy framework to prepare to handle growth successfully.
Using Aviation Strategically
On Monday I spoke to aviation leaders attending the Singapore Airshow Aviation Leadership Summit. There were participants from Thailand (DCA and Aerothai). My message to the participants was simple. Aviation is a key contributor to national economies. IATA had commissioned Oxford Economics studies to demonstrate to governments the catalytic impact of a healthy aviation sector on national economies:
- In Singapore, aviation supports 119,000 jobs and 5.4% of the GDP
- In India it is 1.7 million jobs and 0.5% of GDP
In Thailand, aviation contributes 1.5% of GDP, and supports 393,000 quality jobs directly, with another 1.8 million jobs through the tourism effects of aviation.
Aviation is vital to the Thai economy. It needs to have the right policies in place in order to reap the full benefits that aviation can bring as a result of this growth.
Capacity is one area that needs attention. Bangkok is one of the main aviation hubs in the region – alongside Hong Kong, Incheon and Singapore. It is also well placed to be a hub to the CMLV states – Cambodia, Myanmar, Laos, Vietnam – as their economies develop.
Bangkok needs to keep building a strong hub. In the long-term, that means focusing on one airport, not two.
The capacity issues in Bangkok do need urgent attention….so in the short-term Don Muang is fulfilling a vital role with relieve capacity.
But let’s not let that distract us from the long-term solution which has to be a single strong hub for this city.
Why? First it gives passengers opportunities to make more convenient connections. Secondly, it improves the cost-efficiency of operations because airlines do not need to support the costs of duplicate infrastructure.
As I mentioned, Suvarnabhumi as it exists today is struggling to accommodate the demands of today—let alone future growth. So we need to urgently look at expansion projects. This must all be done in full consultation with the airline users to ensure that costs and design are in line with the needs of those that will pay the bill—the airlines. And of course we need consultation on airport and air navigation charges to keep flying to Thailand competitive.
That will be a win-win-win outcome – the airport strengthens as a hub, passengers enjoy easier and more connection opportunities, and the Thai economy derives further benefits from aviation growth
There is also a lot of efficiency that can be gained within current facilities with streamlined processes that take advantage of technology.
One of our main focuses is on Fast Travel which uses the e-ticket, bar coded boarding pass and kiosk technology as enablers for self-service options for check-in, baggage tagging, document check, flight rebooking, boarding, and baggage recovery. Working with their home airports, six airlines have completed implementation of all six elements: Scandinavian at Copenhagen, British Airways at London Gatwick, Air New Zealand at Auckland, Lufthansa at both Munich and Frankfurt, Etihad at Abu Dhabi and Air China in Beijing. I urge AOT to look at implementing Fast Travel solutions at Suvarnabhumi.
For cargo, we are improving efficiency through e-freight. Thailand is live on e-freight. And just this afternoon, I presented a certificate to Thai Cargo to express our appreciation for their support of e-freight. In 2012 we will focus on the e-air waybill. This is critical component of e-freight that can be implemented by airlines. The e-air waybill will bring further benefits for the Thai cargo industry. We are working closely with the airlines and stakeholders in the cargo community. But first we need the government to urgently ratify the Air Carriage Act as soon as possible. That will facilitate the adoption of a paper-free process.
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.
Thai Airways has been in the forefront. It is one of the first airlines to implement the industry carbon offset program. And they are a strong supporter in the development of sustainable biofuels for aviation - seen in their biofuels demonstration flight, as well as their biofuels conference in March.
Sustainable biofuels have the potential to reduce emissions by up to 80% over their lifecycle. For economies, developing a sustainable biofuels industry will create jobs and reduce dependence on oil supplies while shrinking aviation’s carbon footprint. This is an opportunity for Thailand as a sustainable biofuels industry could bring benefits to the Thai economy. Thai has demonstrated this with their recent biofuels flight. With the many options for biomass—from urban waste to algae, jatropha or camelina— it means that production can concentrate on the source crop or material most suited to local conditions.
To move beyond demonstration flights and into general usage, we need the price to drop and the supply to increase. That requires cooperation across the value chain supported by government policies to ensure aviation has access to its share of available biomass and investment. I encourage the Thai government to consider policy measures that de-risk the investment needed for the scaling up of commercial aviation biofuels projects.
European Union Emissions Trading Scheme (EU ETS)
No discussion on climate change can be without mention of the EU ETS. It was one of the top stories developing at the Singapore Air Show. Let me be clear. Positive economic measures such as emissions trading are a necessary, if temporary, bridge to reach aviation’s climate change targets. But 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. But its unilateral approach is problematic. And airlines operating to Europe, such as Thai Airways, are at a disadvantage when flying direct compared to those that have a stop just outside European airspace.
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. 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.
We have a full agenda for aviation in Thailand. I am happy to take your questions.