Good morning and thank you for joining us at this IATA press conference. It is a pleasure to be in Panama, a country that truly understands the value of aviation and which is maximizing the economic and social benefits our industry helps to deliver. I am also pleased to be here for the launch of a new study which reaffirms the enormous contribution that aviation already makes to the Panamanian economy. Before I respond to your questions I would like to share some thoughts about the state of aviation both globally and in the Latin American and Caribbean region.
Our forecast for 2015 is for industry earnings of $25 billion. Although this is an improvement on recent years, the industry’s profit margins are still thin. A $25 billion profit for an industry that generates $783 billion in revenues equates to an average net profit margin of just 3.2%. That works out to about $7.08 per departing passenger.
In Latin America and the Caribbean we expect airlines to earn about $1 billion this year, up from the $700 million they earned in 2014. But while the trend for the region’s airlines is improving, it is lagging behind the global average. This year, the region’s airlines will earn just $3.53 per passenger or about half as much as the global average.
Certainly the decline in oil prices is a highly welcome development both for our member airlines and our passengers—who will benefit from lower fares in 2015 according to our most recent outlook. But the drop in the price of crude oil does not always have an immediate impact on the bottom line for air carriers. That’s because many airlines hedge their fuel purchases to reduce the volatility in prices and are locked into the higher prices until the hedges expire. Furthermore, fuel is priced in US dollars, and the dollar has strengthened against many of the currencies in Latin America and the Caribbean.
However, if we look at Panama and the rest of the region, there is reason to be optimistic about the future. The connectivity that aviation provides can play a major role in helping to drive economic growth. The airlines here are well-positioned to do so. And the local geography certainly makes aviation the only option for many markets. But for aviation to be able to meet rising demand for connectivity, governments in the region have to do their part too.
I would like to highlight two areas where governments have opportunities to unleash the power of aviation’s connectivity to boost their economies. The first is being smart about how taxes and charges are levied and the second is how to expand infrastructure efficiently and effectively.
Taxes and charges
It is a fact that governments in some parts of the world take a more supportive view of how to maximize the benefits of aviation’s connectivity than others. Panama is one example, and there are others such as Chile, Singapore and Dubai, where governments recognize the value of aviation as an economic enabler and use it to drive development. In other regions, like Europe and North America, governments too often see aviation as little more than a cash cow. They burden passengers and airlines with high fees and taxes to fill government coffers for initiatives that have nothing to do with aviation. Unfortunately, this also happens across this region.
We see an extreme example of that mindset at work in Venezuela, where to support the economy, the government is refusing to permit airlines to repatriate their own money except in small amounts at punitive exchange rates. Currently the amount owed to 24 airlines totals $3.6 billion. We continue to meet with officials to try to resolve this situation and to contest the unequal treatment afforded to the airlines in terms of the approvals.
If we look at the region and the Caribbean in particular, there is a clear trend to burden airlines and their passengers with taxes and user charges. There are some 47 different types of taxes and charges in Central and South America, and 34 more for the Caribbean. Some are meant to foster tourism, but the effect is exactly the opposite: taxes harm tourism and the economy of the states imposing them. And the result is that aviation in the region is unable to play a bigger role in helping to grow the local economies and create jobs.
The same holds true for user charges, which in many cases have no relation whatsoever with services provided to airlines in the region. For example, in Jamaica, Kingston and Montego Bay airports have imposed tariff increases of more than 50%. I cannot avoid thinking of the damaging consequences to Jamaica’s tourism industry as a result of these charges.
Our members’ ability to meet rising demand depends heavily on the availability of suitable airport infrastructure. Lack of adequate capacity is a significant problem across this region. According to the World Economic Forum, only two economies, Panama and Barbados, rank among the top 35 countries for the quality of their air transport infrastructure. Among some of the larger economies, Brazil is ranked 131, Colombia is 105 and Mexico is 64. I am, however, hopeful that by working together using global standards and by sharing our expertise we can find ways to manage the infrastructure shortfall in the region until new capacity comes online.
An example of that working together mindset is found in Panama where all parties, including the country’s main carrier Copa, are cooperating effectively. This approach has delivered strong benefits to the local economy. A new study by Oxford Economics that we will be distributing today quantifies many of these positive outcomes. The economic footprint of aviation in Panama is now $5.1 billion per year or 12.6% of the country’s GDP if the catalytic benefits from tourism are included. This is more than three times the global average of 3.4% of GDP. The aviation industry in Panama also supports 43,500 jobs directly, and a further 137,500 in the tourism sector that would not exist without aviation. Aviation also backs the country’s financial well-being in the form of tax revenues: the industry pays a total of $349 million in indirect and direct taxes to Panama.
None of this would have been possible without the strong partnership between airlines, Tocumen International Airport and local authorities. We’ve been happy with the outcome of our work with Tocumen and the Civil Aeronautical Authority to ensure our members benefit from best practices aligned with global standards.
IATA also welcomes the initiative underway to address the capacity constraints at Tocumen with the needed airport expansion. Again, teamwork is the most effective means to ensure that a modern and highly-efficient new terminal and runway are built which not only meets the needs of future travelers but also is done so at a reasonable cost. IATA stands ready to share our expertise for this important, yet complex infrastructure project in order to ensure the facility is sustainable from an economic perspective for airlines as well as the local authorities, passengers and the citizens of Panama. Already, we have helped to identify potential risks and highlight opportunities to help ensure the new terminal is a top-notch facility, on par with some of the best airports in the world.
In many respects, the decisions made about the airport and runway expansion will determine the degree to which Panama will be able to continue reaping the significant economic and social benefits from enhanced air connectivity.
As an industry, we have come a very long way since the very first commercial flight a bit more than 100 years ago. Aviation is the finest, safest transportation system the world has ever known. This achievement is built on collaboration and global standards. Every plane that takes off does so only because of the efforts of a virtual army of dedicated individuals, many of whom do not even work for the airline—from the travel agent who sells the ticket, to the ground service provider who fuels the airplane, to the air traffic controller who puts it in the departure queue. It would simply not be possible without teamwork and global standards.
Panama is one of aviation’s success stories. The country has been a model in the region of effective aviation development. And if Panama continues to work cooperatively and follow industry best practices, we believe this country will be very well positioned to continue to benefit from the expansion of aviation for many years to come.