Remarks of Tony Tyler at the 2015 World Passenger Symposium, Hamburg
Ladies and gentlemen: good morning. It’s a pleasure to be with you in this city that has so much history and which has more recently become a global center of aircraft design and manufacturing, employing some 40,000 highly-skilled individuals. I would like to add my thanks to our sponsors for their strong support, which makes events such as these possible.
2015 is a special year for the airline industry. Seventy years ago, the leaders of 57 airlines came together in Havana Cuba to form IATA. The goals of the Association were clear. IATA was to promote safe, efficient, and economical air transport. In doing so, it would create great value—benefitting the peoples of the world and fostering commerce. We would also be a vehicle to support the development of the standards and best practices necessary for the safe and efficient operation of the global air transport network.
The tag line for our 70th anniversary celebration is “Flying better. Together.” This reminds us that IATA was created to be a forum for industry collaboration and partnership. And we are flying better in 2015. Our milestone year is, by historical measures, a very good one for aviation. Demand for connectivity is strong and fuel prices have fallen significantly—although less so for airlines whose home currencies have lost value against the US dollar. Still, after many years of hard work and restructuring, the industry is on a path toward financial sustainability. For 2015, we expect an industry net profit of $29.3 billion on revenues of $727 billion, for a net profit margin of 4%, generating a return on capital of 7.5%.
For the first time, the industry on average will be creating value for its equity investors. Now, for any other industry, earning the cost of capital is the absolute minimum performance expected. So we should not feel the need to apologize for achieving a 4% net profit margin. I suspect future investors will demand more than that after so many years of the destruction of shareholder value!
They will do that as the demand for connectivity continues to grow. This year airlines will carry 3.5 billion passengers and that figure is expected to more than double in 20 years. The task before us is how to work together to accommodate that growth, while upholding customers’ expectations for their air travel experience.
What do customers expect? The fundamentals are safety and security. They demand that we are environmentally sustainable. And they want their travel experience to be pleasant, efficient and with choice among many options. It is a familiar list--and a challenging one. I believe that it is also achievable. Competition will certainly spark innovation, but for a global industry built on global standards, our 70-year anniversary tag line also holds some wisdom. We fly better when we work together.
There is no better example of this than safety, our top priority. By sharing expertise and cooperating with stakeholders to develop and adopt global standards such as the IATA Operational Safety Audit (IOSA) we have contributed to making aviation the safest form of long-distance transportation the world has ever known. Every day about 100,000 flights operate safely. We are not resting on our laurels, nor should we. From 2015 the two-year IOSA audit cycle is being succeeded by Enhanced IOSA with continuous compliance monitoring. And because not all air carriers qualify for IOSA owing to their business model, or type of aircraft, we developed the IATA Standard Safety Assessment (ISSA) to address this segment of the market. And when we have extraordinary challenges—as in the recent tragedies involving Malaysia Airlines and Germanwings, we come together to find solutions. Public confidence in aviation remains high and we must ensure it stays that way.
Arm-in-arm with safety is security. Passengers expect to be kept secure. By and large the aviation industry has met that expectation since 9.11. However, it has come at the price of passenger convenience and efficiency – this is the area where passengers expect us to do better.
After investing billions in airport security processes, it is disappointing that our customers repeatedly tell us that the security checkpoint is a universal pain point. Lack of standardization across countries also hurts us. One in five travelers say they are not sufficiently informed about security screening procedures, according to our 2015 Global Passenger Survey.
Now, States are responsible for security but in order for it to be most effective, governments must treat us as partners. Yet too often we have been left out of decisions that will affect air travelers and airport operations. In doing so, governments are missing out on a valuable resource. After all, airports and airlines are experts when it comes to understanding passenger processes. And we are using our expertise through programs like Smart Security, our joint initiative between IATA and Airports Council International, to work with governments to make airport security more efficient and hassle free.
From a passenger perspective, voluntary known traveler programs are probably the most important security development in recent years. They have changed the security experience for millions of travelers for the better. And their potential is even greater if governments are able to share information across borders.
Of course there are issues with data protection. And maintaining cyber security is an added challenge when information is shared. In the social media world, sharing is the culture. And feedback on known traveler programs shows that passengers recognize the value that they get for sharing their information. So we need governments to listen to passengers—who after all are their citizens—to find ways to improve the security experience.
One thing is certain: we cannot accommodate a doubling of passengers through airports in the next 20 years using today’s processes and procedures without an unacceptable increase in customer inconvenience and loss of productivity at our airports. We’ve simply got to find more efficient ways to manage this challenge.
Our passengers expect aviation to be safe and secure. They also want aviation to be sustainable—alongside all other industries. Sustainability is the license to grow. As an industry we are committed to achieving carbon neutral growth from 2020, with a 50% reduction in net CO2 emissions by 2050 compared to 2005. And we will do that with improvements in technology, operations, infrastructure, and the implementation of a global market-based measure (MBM).
This too is a team effort. For example, the solid work that the industry has done to prove that sustainable aviation fuels are safe and effective must be followed-up by governments with measures to ensure that it is commercially viable in terms of supply and cost. And we are counting on governments to achieve a historic agreement at the 39th ICAO Assembly next year on a framework for a global and mandatory carbon offsetting scheme. As we saw with recent events at Volkswagen, customers expect companies to live up to their environmental commitments. As an industry we are transparent about our ecological impact and methods to manage it. We must remain united and true to our vision and commitments to support governments to do their part.
Even if we get safety, security and environment right—and I have no reason to believe that we won’t—there can be no efficient future growth beyond what the infrastructure is capable of handling. Our progress in this area is mixed. While in some parts of the world—places like South Korea, China, and the Gulf region—governments recognize the importance of infrastructure, many other governments do not. And unfortunately, a lot of these are found in Europe. For example:
In the UK, the decades-long debate about airport capacity drags on with London Heathrow still edging only very slowly towards getting a third runway
The continuing delays to the opening of Berlin’s new airport are a huge setback for the third-most-visited city in Europe. With the latest postponement until late 2017, cost estimates have risen from 4.3 billion euros to 5.4 billion euros, compared to the initially planned cost of 2 billion euros
Furthermore, in more bad news for passengers, figures show that the airport will be operating over-capacity on the day it opens
The categorical ban on night flights at Frankfurt means that flights that are only a minute or two late in departing for whatever reason have to return to the gate and unload, creating huge inconvenience and disappointment for our passengers and raising the cost of providing air transport to the city
Meanwhile, air travelers must endure nearly 18 million minutes of annual flight delays owing to the lack of progress on the Single European Sky.
Notwithstanding these and other challenges to meeting future capacity, airlines and infrastructure providers are working together to deliver a more efficient and pleasant customer experience. I’ve already mentioned our cooperation on Smart Security. Another example is the Fast Travel initiative, which responds to customer demands for more control over their journey through six time-saving, self-service options. For 2015, IATA is targeting Fast Travel access for at least 35% of passengers and by 2020, 80% of air travelers should be offered a complete suite of self-service options based on industry standards.
Fast Travel itself is part of our eleven-year old Simplifying the Business (StB) campaign, which also has improved the customer experience through such things as e-tickets, bar-coded boarding passes and the baggage improvement program. Now in its second decade, StB is looking at delivering a more seamless travel experience. Better communication is central to this. Speaking for myself, I want the ability to be connected throughout my journey and I want to get updates from my travel providers that will affect my travel plans. And I’m not alone. According to our Global Passenger Survey, 35% of travelers prefer receiving their e-boarding pass over their mobile phone and over 90% of travelers expect to be notified proactively of changes to flight status.
As an industry, we need the ability to engage with our customers in real time via text message, email or social media, to update them on their flight status, gate changes, wait times at security and immigration, even what traffic is like to and from the airport. We also need to be able to communicate with other travel providers pro-actively so that, for example, car services and hotels are automatically informed when a customer is delayed or rerouted.
We call the concept Travel Communication. To get there we must move from a model of centrally-controlled, closely-guarded access to data, to a social media model of widely available, open and transparent communication of useful information. Social media already provides ways for large retailers to deliver personalized service. Travel Communications will provide similarly cost effective ways to engage and inform our customers. Stakeholders across the industry and air travel value chain need to work together to accomplish this. Adequate Wi-Fi infrastructure and bandwidth are crucial to this effort.
Innovation and Efficiency
Meeting future demand while satisfying customers’ expectations will also require transforming the shopping and purchase experience. As airlines develop bundled and unbundled fares, passengers need to be able to shop and compare the value of these options across airlines—just as they do when shopping for other consumer goods.
The New Distribution Capability (NDC) is intended to give them this ability through the development of a modern, internet-based data standard for communications between airlines and travel agents. As a result, air travelers will benefit from greater transparency and access to all of an airline’s offerings when shopping via a travel agent or online travel site, which is not the situation today. And airlines will be able to move beyond the mostly commoditized displays of fares and schedules in the travel agent channel, to present their products in a more attractive and competitive manner.
We are making strong progress on NDC. Some 24 airlines are undertaking pilots or implementations. A major milestone was achieved at the beginning of September when the first official set of NDC messages were approved by the IATA membership, with a second version to support interlining expected before yearend. We are also seeking to broaden the capabilities of NDC through the NDC Innovation Fund. A joint venture with Travel Capitalist Partners, the NDC Innovation Fund will foster innovation and creativity through investments in small and medium size companies seeking to develop capabilities and solutions using the NDC Standard. Later today, we will announce some important news related to the fund.
NDC has also inspired us to look more deeply into other out-of-date or legacy processes that are ripe for re-invention. An example is the order process that dates back to the era of paper tickets and that was never updated when the industry moved to e-tickets. One Order is an industry-led initiative intended to modernize the multiple and rigid booking, ticketing, delivery and accounting methods with a single, flexible order management process. The basic concept is a single customer order record holding all data elements required for order fulfilment across the travel cycle.
One order will greatly simplify the passenger experience as travelers will no longer need to juggle between different reference numbers and documents. All they will need is their order reference number to be easily recognized and served by all. Airlines and travel agents will also benefit from simplification, greater efficiency and reduced complexity, resulting in significant cost savings. It also has the potential to facilitate greater interoperability between traditional and ticketless carriers-bringing further benefits to air travelers in terms of network opportunities.
Value of Aviation
The final area in which we need to work together to deliver on customer expectations is in persuading governments that the real value of aviation lies in the value it creates, not in the fees and taxes that can be extracted from it.
I know that this sounds obvious. After all, over a third of global trade by value is transported through the skies; while aviation contributes some $2.4 trillion to global GDP and supports some 58 million jobs around the world when we include the benefits of aviation-related tourism. Yet too many governments take a short-sighted view of air travel as an easy target for revenue. An example is the German government’s one billion euro Air Transportation Tax that was ostensibly imposed to address aviation’s emissions. In reality, it goes into the general treasury and does nothing to support aviation’s efforts on the environment.
Concurrently, we need to take a new approach to regulation. Now, the industry does not oppose sensible, well thought-out regulation, developed with participation from all stakeholders. Indeed, regulation advanced in partnership with industry and based on global standards is a cornerstone of our success in making aviation so safe.
But when it comes to consumer protection legislation we are not seeing this partnership approach or reliance on global standards. Instead, we have a proliferation of prescriptive, unharmonized passenger rights regimes around the world that create difficulties for the industry and confusion for customers. Furthermore, the purpose of many of these regulations appears to be to defend passengers from airlines. This results in rules which reduce consumer protection and convenience – through higher fares, less choice, and more confusion—and which raise costs for airlines that must comply with a plethora of differing and often conflicting regulatory regimes.
Let’s be clear: airlines, governments and passengers share a common goal of getting to destinations safely, reliably and on-time. Airlines already have many policies in place to ensure passengers are looked after, for instance the voluntary commitment to repatriate passengers in Europe. IATA members have also unanimously agreed core principles on consumer protection that are aligned with the International Civil Aviation Organization (ICAO). These examples, and others, show that the industry is able to safeguard passenger interests without the need for overly prescriptive and punitive government regulation. We are here to support this message, but to be truly effective it needs to be communicated by everyone in aviation.
I have said that aviation is a team effort. Airlines compete intensely for each passenger, but as an industry, we also work together to develop the global standards and best practices that enable connectivity around the world. Over the next few years, we have the opportunity and ability to transform the passenger journey, providing a more comprehensive and transparent shopping experience and a more pleasant and predictable trip. In doing so, we will also position the industry to manage the forecast doubling of air travel in the next two decades.
Aviation is a force for good in this world. It connects businesses to markets, re-unites families and friends and creates opportunities for greater cultural understanding. We have an enormous responsibility to ensure that we continue to make this possible. I’m confident we can achieve it.