Good morning. It is a pleasure to be returning to Brazil, one of aviation’s largest and most dynamic markets. Thank you for taking time from your busy schedules to join us.
Not quite two months ago, we celebrated the centennial of the first commercial airline flight, which took place between St. Petersburg and Tampa, Florida on 1 January 1914. From those small beginnings, commercial aviation evolved into the global air transport system that will safely connect some 3.3 billion travelers and 52 million tonnes of air cargo this year. This activity drives economic growth, creates jobs and facilitates business opportunities. By value over a third of goods traded internationally are delivered by air and some 57 million people owe their livelihoods to aviation. In Brazil, aviation and related tourism support nearly 1 million jobs and contribute 1% to GDP.
Despite the value that aviation delivers, it remains a very difficult business with profit margins that--at an industry level--are inadequate to attract the investment necessary for us to meet the rising demand for connectivity. And what is true globally is also true here, where airlines face many of the same challenges.
I have just returned from Brasilia, where I discussed a number of issues with senior government officials that need to be addressed in order to facilitate the healthy development of aviation in Brazil. These included improving regulation, building connectivity and managing our environmental impacts.
Aviation is a highly regulated industry. That should come as no surprise. Regulation of safety is the bedrock of the industry. Last year airlines achieved the rough equivalent of moving the entire population of South America about eight times. And we did that with less than one serious accident per 2.5 million flights.
The global standard approach to safety is a good model for all forms of regulation. Unfortunately, I am concerned that increasingly, governments are diverging from global standards and best practices. The result is growing fragmentation and deterioration in the global air transport system. This is a problem that exists in Brazil as well.
Let’s look at passenger rights. Airlines and regulators want passengers to reach their destination on schedule and without incident. Airlines are well-incentivized in this area. Margins are low and competition is intense. No airlines can afford to lose customers that they have fought hard to win. And they cannot afford the costs of delays or cancellations.
It is fully understandable that governments wish to set some minimum guarantees to protect passengers. But that is not what is happening. Already some 50 countries have implemented passenger rights regimes. And what has resulted is—honestly—a mess. In some cases rules are so complex that they are unmanageable. In others they conflict with each other. And in the worst case, they are so prescriptive that airlines cannot take extra steps to help their passengers.
Brazil is among those considering introducing new passenger rights rules. We appreciate being part of the ANAC process. We view consultation with stakeholders as critically important. And we have let the government know that, for example, we support ensuring passengers have clear, transparent access to the terms and conditions of the ticket prior to purchase – this is part of the industry core principles on consumer protection.
We emphasized that provisions relating to re-booking, refunds, and cancellations should be made clear as part of each airline’s contract of carriage, but should not be standardized -- the marketplace should allow a variety of service offerings to compete.
And we urged adherence to the Montreal Convention, which Brazil signed and ratified in 2006, in order to maintain consistent global liability and baggage regimes for international travelers.
There is no magic formula for great regulations totally free of unintended consequences. But there are a few principles which I think could provide some good guidance
- Consult broadly, including industry and consumers
- Ensure a rigorous process for analyzing the costs and benefits of any new regulation
- Don’t conflict with global standards where they exist
- Harmonize so that regulations are not at cross-purposes with a global industry
- Finally, think of what is really going to deliver value to the passenger. Making airlines liable for compensation in situations where a delay is caused by factors outside the airlines’ control will raise airline expenses without addressing underlying capacity issues and in the long run, will only raise air travel costs for consumers
There is tremendous untapped potential in Brazil. But to achieve this potential, government must see aviation as an enabler of economic growth and job creation, not a luxury item to be taxed like a sin.
The simple truth is that Brazil is a very expensive place for airlines to do business. In fact, according to the World Economic Forum 2013 Travel and Tourism Competitiveness Report, Brazil ranks in the bottom third of 140 countries in terms of its competitiveness in the area of ticket taxes and airport charges.
But the problems go beyond taxes and charges. For example, typically fuel represents about a third of an airline’s operating costs. In Brazil, it accounts for 43%. And I’ve been told by one airline here that in their case it has reached 50%. The government’s import parity pricing formula costs airlines more than $400 million each year--and that’s a tax on Brazil’s global competitiveness.
The availability of efficient infrastructure is also vital to meeting demands for connectivity. Unfortunately, years of under-investment has resulted in a situation where airports are unable to accommodate demand. According to the WEF, Brazil ranks 131st out of 140 countries in the quality of its air transport infrastructure. The government is aware of this shortfall and has embarked on an ambitious program of private concessions to help address the situation.
In the interim, capacity will have to be managed among the airlines that are connecting Brazil internally and to the world. The IATA Worldwide Slot Guidelines (WSG) are the industry standard used to manage runway capacity at 165 slot constrained airports.
We are gratified that Brazil will adopt them to manage traffic at 22 airports during the World Cup. Because slot-constrained airports around the world apply the WSG, any local proposals that deviate from them have a major impact on airline operations and schedule planning.
For example, Brazil is considering introducing punctuality as a criterion in the granting of airport slots. There already are mechanisms to address punctuality in the WSG. Changing the way that punctuality is addressed in one country risks creating problems for airlines and airports in other countries.
We appreciate that ANAC has postponed consideration of changes to the WSG until after the World Cup. IATA has offered our full support to the regulator to demonstrate how they can achieve their reliability objectives by using the WSG.
We can also work together to address aviation’s impact on the environment. We have a four pillar strategy on environment. Our goals are:
- To achieve a 1.5% improvement in fuel efficiency annually to 2020;
- To cap net emissions with carbon neutral growth from 2020 and
- To cut net emissions in half by 2050 as compared to 2005 levels.
To the best of our knowledge, aviation is the only sector to make such commitments on a global basis. Aviation stakeholders largely at their own expense drove the development and certification of sustainable biofuels suitable for aviation. I should add the Brazil’s airlines have been leaders in biofuel activities.
Unfortunately, since 2010, the Public Prosecutor in the State of Sao Paulo has filed legal proceedings against more than 35 airlines, alleging environmental damages linked to their CO2 emissions. Although a number of these cases have been dismissed, others are proceeding. Any judgments against international airlines will have the potential of seriously affecting the Brazilian aviation system given the important role these airlines play in providing global connectivity to Brazil.
Indications are that airlines are not in breach of any environmental laws and there are no legal grounds for the imposition of compensatory measures for CO2 emissions;
These actions disregard Brazil´s international commitments made in multilateral forums, including ICAO. They also undermine Brazil’s strong role in opposing the EU’s unilateral attempts to impose its Emissions Trading Scheme on international aviation.
We welcome the recent requests from ANAC and the Federal Government to intervene in the legal process as a third party/co-defendant. IATA stands ready to work with the Government to bring closure to these cases in a timely and satisfactory manner.
The Aviation Cup
Finally, a few words about the World Cup. In the same year that we are commemorating 100 years of commercial aviation, Brazil will host one of the world’s largest events. In no other World Cup has aviation played such a vital role, owing to the large number of host cities, the large distances between them and the lack of transport options. As a result of aviation’s role, some have called this the Aviation Cup.
The 12 host cities of the 2014 World Cup are responsible for 75% of all passenger transportation in Brazil so you can understand that accommodating the additional traffic with the minimum inconvenience is a major undertaking. The government has expressed confidence that nearly all of the airports at World Cup cities will be fully ready. We understand that this may include providing temporary and short-term facilities such as has been done to handle major events in other countries.
I know the airlines will do their utmost to deal efficiently with the additional traffic. Nearly 2,000 new flights will be included in the Brazilian route network to meet the demands of fans, from July 6 to 20. It is important that Brazilian authorities recognize the major effort that airlines are making to readapt their route networks in record time. But what worries us is the application of criteria that imputes responsibility to the airlines, even if no flaws in the operation have occurred. Another point is how to accommodate passengers in the event of disruptions, when it is widely understood that there is a serious lack of hotel rooms and airport infrastructure in the case of flight cancelations.
IATA stands ready to assist the government and other stakeholders further in helping to deliver a successful World Cup from an aviation perspective. Furthermore, IATA is establishing a Liaison Desk at DECEA/CGNA’s Command Center to help coordinate communications between ATC and international airline ops centers during the World Cup.
Our industry has come a long way since that first airline flight 100 years ago. The world is a far better place for aviation. And aviation is far better for global standards that have enabled the creation of an integrated worldwide transportation system. It is important as we begin the second century of airline service, that we re-emphasize the important—even unique—role that global standards have played for our industry.
Brazil has a unique place in aviation’s heritage, dating back to Alberto Santos-Dumont. Working together, we can ensure this heritage is honored and maintained in the second century of commercial aviation.