Good morning. Before I start, I wanted to add my own appreciation to that expressed by Gary for the support of Lufthansa and Air Berlin for this event.
I am very grateful to Lufthansa’s CEO, Christoph Franz, who is one of our most active Board members, for his kind words of welcome. And tomorrow afternoon, I am happy to see that Paul Gregorowitsch, the Chief Commercial Officer of Air Berlin will bring the conference to a close. To them and all of our sponsors: thank you.
On a personal note, this conference is a very interesting experience. I think that it is the first time ever that I have addressed a room filled with Generals Counsel. As some of you may know, I studied jurisprudence at university. It was great training….but when I graduated my ambitions led me towards general management rather than pursuing a career in law. To be honest, three years of law was enough for me! Of course, I’ve had a lot to do with lawyers in the course of my career. So I come to this meeting with tremendous respect for the work that you do. And one only needs to have a quick look at the agenda of this conference to see how broadly your expertise impacts our business.
At the start of your discussions, I am pleased to be able to briefly share some thoughts on how the industry is doing, IATA’s strategic direction and key areas of focus for the industry’s legal community.
You don’t need me to tell you that our industry is going through a tough time. But maybe I can put that into a global perspective. Last year airlines returned an estimated net profit of $6.7 billion. That was on revenues of some $637 billion. Some of you have probably already worked that out to be a 1.0% net profit margin.
That’s not going to impress long-term investors. But given the circumstances—high fuel prices, low GDP growth and lots of economic uncertainty—just staying in the black represents a major achievement by the airlines. Let me make a couple of observations on our performance.
- First, we continue to see airline consolidation and the benefits that it brings to consumers and to the business.
- Second, it is also clear that the need for connectivity is so fundamental to our world that even in difficult economic times demand rises. Of course, the challenge is to meet that demand with sustainable levels of profitability.
This year is looking much the same as 2012. Our latest forecast sees the industry net profit margin improving slightly to 1.3%--that’s an $8.4 billion profit on $659 billion in revenues.
With that as a background, let me reflect on IATA’s role as the industry’s association. IATA’s mission is to represent, lead and serve the airline industry. We are committed to that mission. And that has been the focus of my efforts since I started in this role about 18 months ago.
I have also worked with the IATA team to focus and stretch the organization with a vision to be the force for value creation and innovation driving a safe, secure and profitable air transport industry that sustainably connects and enriches our world.
I am focused on creating and delivering value. That is what has guided me through three decades in business. And working at an association is no different. Our members—you—expect us to help you to do business better. For IATA, that means getting the basics right—constantly improving the reliability of the industry settlement systems for example. And it challenges us to innovate by identifying what is on the horizon and either mitigating the negative impact or deriving industry value from new possibilities.
I know that Gary’s vision for the Legal Committee and the activities of the Legal Department is aligned with the overall IATA vision. We do business in a complex world. And many of the issues—or obstacles—that we face have a legal dimension to them. So the committee plays a key role in guiding IATA both in its mission and vision and I am grateful to the Members of the Committee for their support and effort. Many of them have a long-running commitment to the Legal Committee’s work.
As you know, Gary will be stepping down from his position as General Counsel in a few weeks. That is a great loss for our association, but I fully understand Gary’s motivation and I know that you will join me in wishing him every success in his future endeavors.
Last week we announced a successor to Gary, Jeff Shane, who will be familiar to a number of you from his many years of service with the US government, including his time as Undersecretary for Transportation. Jeff, who will start with IATA on 2 April, will bring a new and valuable perspective to our association and to the Legal Committee. I am sure that his wealth of knowledge and experience will be great resource for all of us.
The foundations for international aviation were laid in the Chicago Convention in 1944. Many of the authors of the Convention were also lawyers. Its global standards continue to guide how aviation connects the world. Of course, aviation today—serving 3 billion people and transporting some 50 million tonnes of cargo—is very different to the fledgling industry of 1944. And the foundations of the industry are solid. But, as with most things in our dynamic industry, there is a constant need to challenge, update, strengthen and adapt to modern times. I am not suggesting that that we re-open the Chicago Convention. But I would point to the Montreal Convention 1999 as a good example of how international civil aviation is evolving. It was also built with the help of many lawyers from government and industry circles. Some of the architects of the Montreal Convention regime are in the room here today and I would like to pay tribute to them. Among its achievements are the standards for e-commerce.
These allowed the introduction of e-ticketing back in 2008 which has changed the way that the industry does business and they facilitate the electronic air waybill (e-AWB) and e-freight initiatives that are transforming the global air cargo business.
If I look at the priorities that our Board of Governors has set for IATA, many have a legal dimension. I would like to discuss two as a means of illustrating how I see expectations of airline CEO’s changing—passenger rights and environment.
On passenger rights, we have a growing problem. The Montreal Convention 1999 establishes the basic principles and responsibilities and has been adopted by 103 States as the global standard for an airline’s liability to its customers. But governments around the world—for various reasons—are creating their own rules and regulations. And such national developments are wreaking havoc on the global system.
Let me illustrate this. Israel is among the latest countries to produce passenger rights legislation. It seeks to protect air travelers departing from or bound for Israel over their entire journey. So a passenger departing New York for Tel Aviv with a connecting flight via Europe is arguably protected by the Israeli passenger rights regime. He or she is also protected by US regulations. And he or she is also protected by European regulations. Trouble is, the regulations are not coordinated. At best they overlap with each other; at worst they are in complete contradiction. That creates confusion, uncertainty and cost.
Of course, airlines have a responsibility to get passengers safely from point A to point B. And when things go wrong (as they sometimes do), passengers should know what they can expect. We have all been in that situation and flight delays and cancellations are hugely inconvenient. It’s not the customers’ fault. And of course they expect to be helped. That illustrates why it is so important for regulations to be clear, fair, recognize what is in the control of the airline - and what is not - and maintain a balance between protecting the best interests of the traveling public and the costs imposed on all passengers and the economy by providing such protection.
When our Chief Economist listed the threats facing the industry in 2013, the potential costs of passenger rights regulations weighed many times higher than the inclusion of international aviation in the European Union Emissions Trading Scheme (EU ETS). The Court of Justice of the European Union is taking us in that direction.
- In its judgment on 23 October last year in the TUI Travel case, the Court confirmed the principle (established in its earlier 2009 ruling in the infamous Sturgeon case) that airlines should pay financial compensation for flight delays in excess of three hours. I should point out that the European passenger rights regulation 261 says nothing of the sort.
- Then in its 31 January ruling in the McDonagh versus Ryanair case, the court said that there are no limits—with respect to time or money—on the obligation on airlines to provide care and assistance to passengers, even in the event of mass disruption caused by the volcanic ash crisis.
The potential costs to the industry of these developments are huge. The problem is not confined to Europe. It is growing worldwide. Within the last 3 years, passenger rights legislation has come into force in Brazil, India, Pakistan, Venezuela, Thailand, Turkey, Israel and the Philippines. And even more countries across Africa, Asia and Latin America are expected to follow suit, adding to the complicated web of passenger rights regulations.
About a decade ago, there was an industry discussion on adopting a global standard on passenger rights. In 2000, the IATA Annual General Meeting (AGM) endorsed a Global Customer Service Framework. It was an admirable move. But we had not achieved a common understanding with governments that it was a robust solution. The industry discussion faded in the aftermath of 9.11. But passenger rights remained on the agenda of governments. And the proliferation of regulations in this area is a growing and costly mess that has caught the attention of the IATA Board of Governors. Finding a common approach among governments on this issue is among the priorities that the Board has given us for 2013.
Contrast that to the industry’s united and proactive approach to environment. We were ahead of the curve in adopting a Four Pillar strategy of technical, operational, infrastructure and positive economic measures. We then committed to carbon-neutral growth from 2020 and to cut our emissions in half by 2050 compared to 2005. These were not easy decisions. But they have positioned the industry well to pursue sustainability within a global framework.
The challenge today, as you well know, is to find a way forward on economic measures. The EU’s unilateral approach to the ETS drew legal and diplomatic challenges. As states made progress through the International Civil Aviation Organization’s (ICAO) process on a global approach, the EU stopped the clock on its ETS plans. Now all attention is focused on achieving a solution through the ICAO process.
Governments are working with the best will in the world to find a solution. But it is not easy. Their interests stretch well beyond the aviation issue to the overall climate change debate. In December, our Board asked IATA to facilitate an agreed industry approach to economic measures—put simply, they asked us to find a compromise that will allow the industry to most fairly distribute the burden of achieving carbon-neutral growth from 2020.
Like any compromise, it is unlikely that all will be completely satisfied. But an industry-led solution stands a better chance of sharing the burden more equitably than one produced by governments. And it could also avoid the development of a patchwork of regulations and costs that ultimately will be more complicated, more expensive and most likely less fair.
We are in the middle of that process today with the participation of lawyers and industry experts. And I am confident that we will have a successful proposal to present to our AGMin June.
In this room we have many of the greatest legal minds of our industry. Over the next few days you will look at some of our toughest issues—the regulatory regime, insurance, unruly passengers, aircraft financing and leasing, dispute resolution, data protection, antitrust standards and so on. It is a full agenda.
As you work through the agenda, I hope that you will keep in mind the examples of passenger rights and environment. We can help influence positive results from governments if we approach them with a united position. Indeed, the Montreal Convention 1999 was largely driven by the airline implementation of the IATA Intercarrier Agreement of 1995.
We must recognize that we work in a complex and interconnected value chain. Sometimes we are tempted to say “no” to a common industry position because our own corporate best interests might be better served that way. That’s understandable, but such an approach will likely not move issues forward. The IATA Board of Governors—and any successful industry association—makes decisions by looking at the value created for the industry as whole. Ultimately, our goal is to achieve industry positions that help governments to find solutions that balance all interests and ultimately create the greatest value for all. Always within the competition laws, of course.
Regulation is not the enemy. Sensible, measured and well-drafted regulation is a good thing. But that does not happen by chance. I hope that this legal symposium provides the opportunity to continue the great traditions of your predecessors….and identify ways of working together—with our vision focused on innovation and value creation—in order to build and reinforce our safe, secure and profitable industry that sustainably connects and enriches the world.