Having discussed air cargo in some detail, I would like to focus on Malaysia—particularly important as this is my first visit to Malaysia since taking on the job of IATA’s Director General and CEO.
State of the Industry
The industry’s outlook for 2012 continues to be challenging. 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.
When we made the forecast in December, the Europe sovereign debt crisis was the biggest risk. Financial disaster seems to have been avoided for now. But the rising price of oil has emerged as new risk. Fuel is about a third, on average, of an airlines cost. And prices are up about 10% on a year ago.
We will be revising our forecast on Tuesday next week. But whatever the new number, 2012 will remain a challenging year for airlines. Consistent with our history, it will be one that is all about turnover, with very little leftover!
Asia’s Growth Potential
The prospects for Asia-Pacific are better than for the rest of the world. Our December forecast saw the region’s carriers making $2.1 billion. One of Asia Pacific’s biggest advantages is the strong growth potential. 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 Malaysia….a great tourism and business destination.
I have had meetings with Transport Minister Dato’ Seri Kong Cho Ha, Malaysia Airports Holdings Berhad’s (MAHB) Tan Sri Bashir, as well as the team at Malaysia Airlines led by Ahmad Jauhari Yahya. From the meetings and this morning’s speech by the Transport Minister, it is clear that the government sees aviation as a vital contributor to Malaysia’s well-being.
IATA had commissioned Oxford Economics studies to demonstrate to governments the catalytic impact of a healthy aviation sector on national economies. In Malaysia, aviation contributes MYR 7.3 billion to the economy, or 1.1% of GDP. The industry supports 102 thousand quality jobs directly, with another 243 thousand jobs through the tourism effects of aviation.
The development of the National Aviation Policy indicates that the government sees aviation as a strategic asset. I encourage the government to engage the broader aviation industry, including IATA, in the development of the policy so that it is a win-win-win for all the stakeholders in Malaysian aviation. I hope the following areas will be addressed in the policy.
Safety and Security
Safety is our top priority. Last week IATA announced that the 2011 accident rate for Western-built jets was the lowest in aviation history. The 2011 global accident rate, measured in hull losses per million flights of Western-built jets, was 0.37. Put another way that is the equivalent of one accident for every 2.7 million flights. This is a 61% improvement over the last decade. Asia-Pacific’s hull loss rate (0.25) improved compared to 2010, and was better than the global average.
Malaysia has not had western-built jet hull losses since 2007. Nonetheless, I encourage the government to use the IATA Operational Safety Audit (IOSA) and IATA Safety Audit for Ground Operations (ISAGO) to enhance safety oversight capabilities, and continue to make a safe industry safer.
We are making good progress on cargo security, with the signing of the MOU with the Department of Civil Aviation (DCA) this morning for the full implementation of secure freight in Malaysia.
One of my priorities is a Checkpoint of the Future, which rests on two pillars. The first is to differentiate screening using passenger information that is already being collected for immigration purposes. Then we combine this with technology that allows passengers to walk through checkpoints without stopping or unpacking. I hope that Kuala Lumpur International Airport would be one of the airports to test components of the Checkpoint.
Charges and Taxes
We have a good relationship with MAHB, which has engaged and consulted with the industry on charges. Though the increases in airport charges announced in 2011 may have a negative impact on the industry, we appreciate the two years delay in the implementation even though they were approved in 2009, in view of the weak economic situation then.
I urge the government to look at reducing the cost burdens on airlines operating in Malaysia. Specifically, withdraw the landing and parking charges increases planned for 2013 and 2014. MAHB is still expected to be profitable, given the anticipated traffic growth projections for 2012 as well as charges increases last year. The planned restructuring of air traffic control services should not lead to drastic and sudden increases in costs to airlines.
And any funding for the Advanced Passenger Information system at Malaysia’s airport should be from the national budget, and should not be imposed on the industry.
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
- 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.
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.
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.
This is an opportunity for Malaysia. While Malaysia has a robust biofuel industry based on palm oil, I encourage the government to consider policy measures that de-risk the investment needed for the scaling up of commercial aviation biofuels projects based on sustainable sources, such as urban waste, algae, jatropha or camelina.
European Union Emissions Trading Scheme (EU ETS)
Europe’s unilateral and extra-territorial approach to including international aviation in its emissions trading scheme from the start of this year is driving discord at a time when we need harmony. Non-European states see the intention to tax non-EU airlines for emissions over non-EU territory as an attack on their sovereignty. Airlines operating long-haul to Europe, such as those based in Malaysia, are at a disadvantage when flying direct compared to those that have a stop just outside European airspace. Indeed, Air Asia X cited the ETS as one of the reasons for terminating flights to Europe.
Malaysia was among 24 nations that met in Moscow recently to discuss counter-measures. A declaration was issued urging a global solution through ICAO and outlining possible actions if Europe continues on its unilateral and extra-territorial path.
Nobody wants a trade war. That is why we are focused on ICAO, where governments meet to deliver global solutions for the air transport industry. I believe that Europe has understood that a global solution is better than a regional one. We continue to encourage Europe to be a sincere participant in the ICAO process. Their task is to facilitate agreement on a global framework for market based measures by the 2013 Assembly based on principles which states have already agreed on.
We have a full agenda for aviation in Malaysia. I am happy to take your questions.