Thank you for the invitation to be with you this evening. Joining with aviation colleagues is always inspirational. And it is at events like these—with the broad membership of ATAC assembled—that you really see the spectrum of partners who make flying possible. We are privileged to work in an industry that is truly a force for good in our world.
IATA-ATAC Cooperation for a Safer Industry
There is very little overlap between the membership of ATAC and that of IATA, but our agendas align in many critical areas. That is the basis for the growing partnership between our two organizations, which we formalized in the signing of a Memorandum of Understanding last year.
Safety is the top priority of everyone involved in aviation. So our cooperation on the IATA Standard Safety Assessment (ISSA) is a fitting early outcome of this agreement. I thank John McKenna for recognizing the value of this program earlier today.
The IATA Operational Safety Audit (IOSA) has been the acknowledged global standard of airline operational safety management for more than a decade. It is also a condition of IATA membership. But, for very valid reasons, it does not cover airlines with aircraft below a maximum take-off weight of 5,700kg.
Of course, safety has no weight threshold. And we had many requests from smaller airlines asking us to apply the knowledge gained through IOSA to their operations. Recognizing that a safer industry is in everybody’s interest, our Board of Governors fully supported the development of ISSA. And we look forward to working with John and the team to unlock ISSA’s value for ATAC members.
I would be remiss if I did not also commend IOSA to the ATAC members that qualify. And, as IOSA is also a critical step in the IATA membership process, I will also be a bit cheeky in extending a membership invitation to First Air, Porter and Sunwing. What better way to cement the cooperation between IATA and ATAC than having a few more members in common!
Air Transport in Canada
As I move into the main part of my remarks, let me assure you that my general thinking is that the best dinner speeches are brief. My plan is to keep true to that principle this evening. With your indulgence and in anticipation of tomorrow’s announcement of Prime Minister Trudeau’s cabinet I would like to share some thoughts on where I believe the new government has opportunities in the air transport sector.
I hope that the government chooses to aim for big changes. They are needed. The orientation of Canada’s current air transport policy seems more focused on revenue generation for the government rather than on catalyzing economic growth that will create jobs. I’ve mentioned this issue many times before, so in preparing this speech did some homework on the tax level for two important items—air travel and beer.
- I found a $286 return fare for Montreal-Toronto, of which $101 was taxes and charges. That’s over a third.
- To evaluate beer taxes, I found a 2-4 of Molson Canadian at a Montreal supermarket for about $35 (excluding deposit). From what I can decipher, the various taxes applied amount to just under a third of that final purchase price.
Comparing tax levels is a tricky game. But given that Canadian air travel taxes are pitched at the level of a “sin tax”, it is clear that the government still sees aviation as a cash cow. And it is hard to understand how that approach can be sustainable in a large country where connectivity is vital for business and modern life. Something is out-of-balance. And for the record, I am not advocating for higher beer taxes!
Improving Canada’s competitiveness was a top priority during the election. A strong air transport sector will play a role. I hope that the Liberal government will understand this and take comprehensive action—action that must include reducing the onerous tax burden.
Some of the homework is already being done with the review of the Canada Transport Act (CTA) which will be presented to the government in December. As you know, its aim is “to support Canada’s international competitiveness, trade interests, and economic growth and prosperity.”
We have high hopes for a positive outcome. The starting point of the review already recognizes that aviation has more value as an economic driver than as a source for tax revenue. That should shift government policy to focusing on how to make the sector more competitive. Alongside alleviating the tax burden, there is much work to be done on airport infrastructure.
Canada has a world-leading air navigation service provider in NAV Canada. It’s one of the examples that we use when we speak to your neighbors south of the border as they look to reform US air traffic management and funding. Having gotten it so right with NAV Canada, how did government policies get it so wrong with airports?
Airports are usually monopolies. And the system of checks and balances on airport charges is not working. Basically, airlines have no recourse. You may remember IATA’s battle with the Greater Toronto Airports Authority (GTAA). That was over a decade ago and we have since developed a strong relationship with the GTAA. But the crown rent issue has not been resolved. And it is but one example of where federal government policies shortchange the competitiveness of Canada’s air transport sector.
Under-investment in infrastructure is another competitive handicap. The new government has earmarked $120 billion for infrastructure spending—double the current level. Investing in air transport would be money well-spent.
I encourage the new government to engage in an intensive dialogue with the air transport sector as it considers the CTA review report. Such a dialogue can establish a clear understanding of aviation’s potential economic and social contribution to Canada. On that basis, policies and investments can be aligned to achieve it.
I believe that the IATA Smarter Regulation principles can make a valuable contribution to such a dialogue. Smarter Regulation means solving real problems while respecting global standards and consulting the industry. The aim is to achieve efficient policy outcomes that avoid unintended consequences. The concept is getting traction. The Civil Aviation Safety Authority of Australia recently formalized regulatory principles which are very much aligned with Smarter Regulation. Working with the government to establish a similar set of principles for Transport Canada could play a vital role for future developments.
At the international level, the new government is coming to power at a critical junction in the debate on managing aviation’s climate change impact. The Prime Minister has already signaled that Canada will take a more active role at the Paris COP later this year. The pioneering progress that aviation is making should be reassuring.
That progress is being made outside of the COP framework, under the leadership of the International Civil Aviation Organization (ICAO). The industry has long recognized that sustainability is our license to grow. In 2009 we agreed three sequential and challenging targets:
- Improving fuel efficiency by 1.5% annually to 2020
- Capping net emissions with carbon neutral growth from 2020, and
- Cutting net emissions to 2005 levels by 2050
And the industry is aligned in driving progress towards these goals by advancing technology, improving operations, squeezing efficiency out of the infrastructure and using market-based measures. On the latter point, IATA members are encouraging governments to implement
a mandatory global carbon offset scheme from 2020.
Progress is being made on all fronts. Billions are being invested in more fuel-efficient aircraft. Combined with efficiencies in operations and infrastructure we are ahead of our 1.5% fuel efficiency improvement target. Sustainable biofuels will make a substantial contribution to eventually reducing emissions—provided that governments adopt policies favorable to commercialization of production. Essentially we need to increase volumes and reduce the cost.
The immediate focus, however, is on market-based measures and the ICAO Assembly which will conclude just down the street from here about this time next year. There’s fervent support for a successful outcome. I am optimistic for a positive outcome. I am also realistic in knowing that it will be a challenge to build consensus among 190 different states.
There will be some difficult decisions for airlines as well. They will pay the bill for whatever is decided by states through ICAO. And agreeing how we divide that bill will need compromise.
As we approach the Assembly, the industry must remain united. It has successfully taken us from struggling on the back foot of environment issues to being at the forefront. Any crack in our unity is an opportunity for governments to move forward with a patchwork solution that eventually will be a disadvantage to all. Staying the course is the only option.
IATA 70 and State of the Industry
The value of association and industry unity is clear in our success so far on the environment. The value that is created by airlines working together is much broader. That is the focus of IATA’s 70th anniversary celebration under the theme “Flying Better. Together.” The post-war IATA began at a meeting of airlines in 1945 in Havana—when ATAC had already been around for more than a decade.
The industry that we jointly represent will safely transport 3.5 billion passengers and 50 million tonnes of cargo this year. It is an amazing activity that could only be achieved through partnerships based on global standards.
Running an airline is a difficult task. I know that from experience. Keeping revenues ahead of costs is much easier said than done. And then there are the constant competitive challenges of product innovation, network development, fleet planning, labor relations among many others. These are areas where airlines compete—ferociously in many cases. Consumers benefit from great opportunities at ever more accessible prices.
And finally, this year it looks like airlines will provide a “normal” return to investors. We anticipate that airlines globally will cover their cost of capital while earning a 4% net profit margin. There is a lot of texture in that statement. Airlines in North America are generating the bulk of industry profits. For others the commercial environment is much more severe.
But there are some vital parts of your business where cooperation—not competition—holds the day. Aviation is built on a unique foundation of industry cooperation based on global standards—safety, security, slot coordination, settlement systems, fuel quality, e-tickets, and so on. These are the bread and butter of IATA’s work and they are the nuts and bolts of the global system—the value that the airline community has built together.
My last thought for the evening. While celebrating our 70th anniversary and the milestone of sustainable profitability levels, let’s also take time to be inspired by our amazing industry.
Aviation generates prosperity. We create jobs. Some 58 million livelihoods worldwide are supported by our industry. Hundreds of millions more jobs depend on businesses who rely completely on connectivity to build products and to access global markets, talent and ideas. At least $2.2 trillion in economic activity can be traced to aviation and it is the method of delivery for over a third of world trade.
Prosperity extends to uplifting the human spirit. We help our planet to know and understand itself. This is done by connecting people and cultures in far-flung places for study, exploration, business and simply continuing human relationships.
The challenges that we face are big. But the purpose of our industry is even bigger. The expressions on the faces that you will see in any airport arrival hall demonstrate the vitality of our industry to modern life. Working in partnership with ATAC, our members and the government as it takes office, there is much that we can achieve which will be good for the Canadian economy and the Canadian people.