Your excellencies, Ministers, Directors-General, industry colleagues, ladies and gentlemen, good morning. It is a pleasure to be returning to IATA Wings of Change. This is the third time I’ve participated in this event and it is always exciting to feel the energy in one of commercial aviation’s emerging regions.
But before I begin, I want to make special mention of the terrible events in Brussels last week. The attacks were an outrage. As an industry our thoughts are with the victims, their families and friends as we reaffirm our dedication to making flying safer and more secure. Aviation has an important mission to play in connecting our world. And we will be resilient in fulfilling it.
Focusing on this region, Latin America and the Caribbean has a very special place in the history of IATA. This past November I travelled to Havana, Cuba to commemorate IATA’s 70th anniversary in the very hotel where the leaders from 57 airlines founded our organization in 1945. The goals of the Association were clear: IATA was to benefit the people of the world and foster trade and tourism by promoting safe, efficient, and economical air transport. IATA would also support the development of the standards and best practices required for the safe and efficient operation of global air transport.
Our industry has achieved great things since these visionaries came together in Havana. Today, we often take for granted the economic value and achievements of aviation. But if we stop for a moment and imagine a world without aviation, our lives would be very different- and I don’t think any of us would say for the better!
This year the global air transport network will safely connect 3.8 billion travelers and deliver 53 million tonnes of air cargo. This activity spurs economic growth, fosters job creation and facilitates business opportunities. By value, over a third of goods traded internationally are delivered by air and some 58 million people owe their livelihoods to aviation. In Latin America and the Caribbean—which I will refer to simply as the region—aviation supports more than 4.9 million jobs and $153 billion in GDP. All of this would not be possible without the intense collaboration and partnerships between the air transport industry, governments, airports and other key stakeholders.
And while it is encouraging that commercial aviation is expected to be profitable this year, it is something we can never take for granted. After all, our industry has only made a profit in eight years since the end of 2000. On a global level, things are looking good in 2016. Our forecast is for industry earnings of $36 billion. This is positive for airlines and also rewards our investors with returns above the cost of capital for the second year in a row.
Unfortunately, the outlook for the region’s airlines is not nearly as upbeat. Profits in Latin America and the Caribbean will make up a small part of this global net profit- just $400 million. More telling is that, on average you will earn around $1.26 for every passenger carried compared to the global average of $9.59.
You face big challenges. The strong US dollar coupled with a decline in fuel costs have been a boon for carriers in the United States. But for carriers in this region, that means US dollar-denominated costs have risen. This has limited the impact of cheaper oil.
And Brazil, one of the region’s largest economies, is mired in a political and economic crisis. The decline of the Brazilian economy has been detrimental for air traffic demand in a country that is already a difficult place for airlines to do business. Government policies inflate the price of fuel and the country traditionally takes a heavy-handed and uneven approach to regulation, which is blunting the prospects of the industry not just in Brazil but across the region.
On top of that, the region is home to one of the industry’s biggest pain points-Venezuela. The country’s government continues to withhold more than $3.8 billion in airline funds, in contravention of international treaties that Venezuela has signed. To put that in perspective, blocked funds in Venezuela now equal over a tenth of the entire global industry’s expected profit this year.
Fortunately here in Chile the reality is very different. Along with Panama, Chile has taken a strategic approach to ensure dynamic air connectivity which is powering efficient economic and social development in both countries. The pillars of this strategy include:
- A liberal approach to air services
- A regulatory framework that encourages development and investment in aviation
- Local institutions that support aviation
And it isn’t a surprise that these policies have supported two of the region’s most successful airlines, which in turn are creating significant economic and social value in the countries where they operate. Like other parts of the world where aviation is allowed to flourish, a virtuous circle of value creation is put in motion when governments ensure their policies are aligned with global standards and best practices.
The Value of Partnership
In my role as Director General of IATA I have the opportunity to speak with people from all over the world. Some are industry experts while many others are not. But regardless of where I am and who I am speaking to, the value of partnerships in our industry is a recurring theme. And while countries such as Chile and Panama understand the value of partnerships, much of Latin America and the Caribbean has room for improvement in this area.
Simply put, partnerships between airlines, governments and key stakeholders are the pre-requisite for aviation to deliver the unique economic and social benefits our industry generates when it is allowed to thrive. Without effective partnerships our industry struggles, air connectivity dwindles and economies are deprived of the tremendous value we deliver when allowed to operate unhindered by distortions in the market.
The good news is that the path to success is well charted.
Areas where partnership is paramount are:
- Harmonization of taxes and charges with global standards
- Smarter regulation
- The right infrastructure
- Environmental commitment
Safety is the number one priority
Safety is our industry’s number one priority. And it is a great example of how partnerships between airlines, governments and other stakeholders can bear much fruit. Last year, there was only one major accident per 3.1 million jet flights. In the region the rate is almost as good, and best of all it has improved an impressive 42% compared to the average for the previous five years. Behind these numbers there is a determined, united front of airlines, regulators, governments and manufacturers who are working together to ensure air travel is the safest form of transportation known to humankind. And in the region the benefits of this effective collaboration are clear.
The IATA Operational Safety Audit (IOSA), which is a requirement for all IATA members, has played a role in helping the industry become safer. In fact, the region’s airlines which are on the IOSA registry have not had a fatal accident in eight years.
IOSA is designed for aircraft over 5,700 kilos. While that captures the majority of airlines, it does not cover all. Of course there is no weight threshold for safety. And to help spread best practice to smaller operators, the IATA Standard Safety Assessment or ISSA was established. In a visit to Puerto Rico this past November, I was proud to hand over the first certificate for ISSA to the Belize-based carrier Tropic Air.
Collaboration across the aviation industry and with governments has paved the way for significant improvements in safety but we must never become complacent. The 2014 Port of Spain Declaration is an example of how as an industry we are striving to make an extremely safe industry even safer. The declaration commits industry and governments to achieve a 50% reduction in fatality risk by 2020 from a 2010 baseline. And I’m proud to say that owing to the determination of our industry in the region we surpassed this goal last year. Of course, this is no reason to ease up on our efforts, particularly in view of projected air traffic growth.
Fair Taxes and Charges
I wish I could say all facets of our industry were benefitting from the partnership for mutual benefit we see with safety. An area which is ripe for greater collaboration is that of taxes and charges.
Too often in the region we see aviation hamstrung by a myriad of taxes and charges which do nothing to address inadequate aviation infrastructure and are simply an easy source of extra revenue for governments. In Latin America and the Caribbean alone there are a whopping 130 different ticket taxes in place today. Each tax increases the cost of connectivity—for businesses, individual travelers and potential tourists. In doing so, this plethora of taxes limits the ability of aviation to do what it does best—catalyze economic growth. In other words, taxing connectivity shortchanges the economy as a whole.
There are successful examples of countries that have reversed course on taxes and are reaping the benefits. Ireland, a mature market dependent on air connectivity, introduced an air travel tax in 2009. Combined with the impact of the global financial crisis, passenger numbers suffered. To stimulate growth in 2014 the tax was abolished and it worked! Last year 25 million passengers used Dublin airport, more than ever before. And the positive impact is being felt across the Irish economy.
That’s a lesson that should be widely heeded by governments. Taxing connectivity may help government budgets in the short-term. But in the long-run there is much more for everyone to gain by growing connectivity in a competitive cost environment.
Over-regulation can have similar impacts as over-taxation. In that regard, there is rising concern over the region’s growing, and increasingly confusing, mixture of consumer protection legislation.
Airlines want to get their passengers to their destinations, on-time and without incident. Airlines also have every incentive to try to keep their passengers satisfied. But sometimes things go wrong. In 2012 IATA carriers agreed on some core principles of consumer protection. In general it is a practical approach that is premised on keeping passengers informed, with treatment that is fair, efficient, and aligned with global standards and best practices.
Through the International Civil Aviation Organization (ICAO), governments agreed on an approach to liability in the Montreal Convention 1999. And they have agreed to guidance which is well-aligned with the industry’s core principles.
Unfortunately, many governments then decided to re-invent the wheel by passing new regulations that are not aligned with global standards. That causes confusion for passengers and is creating a bureaucratic nightmare for airlines. And the problem is unfortunately growing in this region.
Some examples include:
In Peru the law permits passengers to alter reservations for any reason without penalty, which restricts airlines’ ability to manage their flight loads adequately, therefore increasing costs for carriers and passengers.
And in Colombia, airlines must refund all air tickets up to 24 hours before departure in the case of passenger cancellation. Furthermore the government has recently increased the already punitive compensation airlines must pay in the case of flight delay or cancellation, overbooking and baggage handling delays regardless of the cause.
Unfortunately there are many more onerous and counterproductive regulations like these across the region. What is the solution? We are working with governments in an effort to fix the problems that misguided regulation has exacerbated. More importantly, we are trying to build better regulations by engaging with them on the principles of Smarter Regulation.
The idea is to ensure that regulations solve real problems, are aligned with global standards, and can be implemented efficiently. The key to achieving this is consultation and rigorous cost-benefit analysis.
A Smarter Regulation approach can certainly deliver value in how this region approaches consumer protection. Applying it broadly across all regulations will help build a much more competitive environment in which the benefits of aviation can be realized in the region’s economies.
The right infrastructure
With that same focus on the future, I should say that the prospects for aviation in Latin America and the Caribbean are bright. By 2034 we see passenger numbers doubling to 525 million. That assumption, however, comes with a major caveat—that the right infrastructure is in place to support that growth.
This is another area where partnerships are critical. Governments, airlines, airports and other members of the air transport value chain must unite to ensure the right infrastructure is put in place and in a timely matter. Already there are examples around the region where capacity constraints are thwarting the growth of air service and diminishing the economic benefits our industry is capable of generating. Airports in Lima, Bogota, Mexico City and Buenos Aires’ Aeroparque are just a few of them.
The roadmap for successful infrastructure development exists. As a starting point, States must ensure that the principles of non-discrimination, cost-relatedness, transparency and consultation with users are respected. Ultimately the users of air infrastructure are some of the best sources of information. The new passenger terminal in Pisco, Peru was designed to attract airlines from the congested Lima airport about 230 kilometers to the north. But I would hazard a guess that no airlines were consulted during the design phase. If they had, airlines would have explained that modern hub-based air routes need to operate from the country’s main population center of Lima. 50 million dollars later, not a single airline has a scheduled service from Pisco.
Fortunately, there are a number of governments around the region that are following global best practices to ensure they reap the benefits of the passenger growth in a cost-effective manner. Mexico is one of them.
Mexico City has planned a much-needed new airport and has done so with the guiding principle of teamwork in mind. Airlines and other stakeholders have a voice in the design and construction which will ensure the airport is the right match for airlines and the flying public. We are a bit concerned by the delays in the construction of this major infrastructure project but if the Mexican authorities continue to heed the input of the industry I am certain the airport will be a success.
Another area in which our industry has achieved great things through partnerships is environmental sustainability. And I’m proud to say aviation is the first to commit to voluntary carbon targets of:
- A 1.5% annual average improvement in fuel efficiency to 2020
- A cap on net CO2 emissions with carbon-neutral growth from 2020
- A 50% reduction of net CO2 emissions by 2050 from a 2005 baseline
These collaborative efforts are bearing fruit. Fuel efficiency is improving and sustainable fuels are transitioning from the test and demonstration phase into the early production phase, although we still need governments to step up to incentivize industrial-scale levels of production. And just last month a CO2 standard was agreed that will institutionalize the continuous technical improvements that come with every new generation of aircraft and engines.
This progress is being driven by our four-pillar strategy. Improved technology, operations and infrastructure are driving major progress. However, the fourth pillar—market based measures—will still be needed to help us reach our targets, at least in the short- to medium-term.
That is the basis for our call to governments to establish a framework for a market-based measure at the 39th ICAO Assembly in September of this year. Our preferred measure is a mandatory global carbon offset scheme.
This would have the merits of being simple, effective and easily implemented.
This is in the hands of governments. I will take this opportunity to encourage you to ensure that your government is fully aware of your support for our industry’s united position. We need the industry to stay united and governments of Latin America and the Caribbean to be on board!
Last year we celebrated the value IATA members create working together with the tagline “Flying Better. Together.” It is also a concise, yet accurate, description of a path forward for aviation. We’ve achieved great things as a united industry in places where we work with governments and stakeholders as partners in pursuit of common goals.
This region faces real challenges. But I am confident in its future because of the common interest of governments in ensuring that it is connected safely, efficiently and sustainably.
The theme for this conference is “Putting Aviation at the Forefront”. We have a great opportunity over the next two days to debate our most pressing issues, challenge blockers to success and build alignment on the way forward. And in those discussions let us keep in mind that by “putting aviation at the forefront” we will be helping to build a brighter future—not only for the industry, but for the people of Latin America and the Caribbean who will benefit with greater prosperity through jobs and opportunities.