As the Director General of IATA, you see the world more broadly. IATA and ALTA are partners in serving our members in this region. Over the course of this forum I look forward to deepening my understanding of how IATA can better help address your challenges. And, as many of you know, for the third time Mexico will be in the spotlight in June 2017 when Aeromexico hosts the 73rd IATA Annual General Meeting and World Air Transport Summit in Cancun.
Fulfilling IATA’s Mission
I am the seventh IATA director general. Each of my predecessors brought a unique approach to fulfilling IATA’s mission to lead, represent and serve the airline industry. For myself, I see four essential elements in turning our mission into real value for our members.
First, IATA must be highly respected as the representative body of an important global industry. The support that we get from our members matters. The trust that you place in IATA—to manage your money, to advocate for the industry and to serve your needs—helps tremendously. Thank you. We will not let you down.
That respect is augmented by aviation’s unique role. We are in the business of freedom. Aviation makes our world a better place by bringing people together, facilitating trade, and generating prosperity.
Secondly, IATA must be the reference, authority, custodian and innovator of the global standards that facilitate global business. We see that in well-established programs such as the IATA Operational Safety Audit (IOSA) and the industry settlement systems. And we continue to strengthen that position with developments such as New Distribution Capability (NDC) and NewGen ISS. I believe that there is still scope to expand on this. We must continue to innovate to be relevant. And there is always work to do in safety and security.
Thirdly, IATA must be financially sound. IATA’s products and services must create value for the industry — including our members. The success of our commercial offerings gives IATA the capacity to invest in activities to support the industry.
And finally, IATA must be fast. The pace of change is accelerating for almost everything. IATA must be ahead of the curve, not behind it. Nobody knows what the next big industry challenge will be. But whatever it is, we will need to be fast in responding to it.
I am very excited about the prospect of developing this vision for continuity, reliability, flexibility, innovation and speed in partnership with our members here in the region and around the world.
I joined IATA with pretty good timing. One of my first duties as Director General and CEO was to lead the IATA delegation at the 39th Assembly of the International Civil Aviation Organization (ICAO).
At the Assembly, ICAO’s 191 member states reached an historic agreement to implement a carbon offset and reduction scheme for international aviation—or CORSIA. Already some 65 states—including Mexico, Guatemala and Costa Rica—have signed up for the voluntary period beginning in 2021. And it will become mandatory from 2026.
CORSIA is critically important for airlines because it gives aviation a license to grow. Offsets will enable airlines to sustainably meet the growing demand for connectivity. While we continue working with ICAO for CORSIA’s technical preparations, we must be vigilant in our messages to governments:
- We don’t accept climate change taxes or charges. All aviation climate change measures should be aligned with CORSIA, and,
- CORSIA is only a part of the climate change solution. Governments must match the investments that the industry is making in new technology by doing more to improve infrastructure and support the commercialization of alternative fuels.
The momentum from the ICAO Assembly means that we can look forward to a sustainable future with even greater confidence. Aviation is at the forefront of industries in combatting climate change. That is a credit to the foresight and unity of the leaders of our industry working in partnership with governments.
Along with the good fortune of joining IATA at the time of the CORSIA agreement, the industry’s global financial performance is strong. Airlines are set to make a collective net profit of nearly $40 billion this year. This is only the second time in history (and the second year in a row) that the industry’s return on invested capital (9.8%) will exceed the average cost of capital (6.8%).
It is a result of hard work to restructure and re-engineer almost every aspect of the business, supported by lower oil prices and a growing desire for travel. Unfortunately, we cannot expect these “good times” to last forever.
I am also very conscious that Latin America is facing real challenges. The region’s contribution to global profits is expected to be about $100 million—which is completely disproportionate to its size and importance. Part of that is due to the high costs of operating in the region and onerous taxation. On top of that, there are some headline-grabbing reasons for the region’s difficulties:
- Latin America’s largest economy—Brazil—is in intensive care. Sadly the Brazilian government has not recognized that aviation can generate prosperity—if the industry is not squeezed so tightly for taxes, as is the case today. And the government burdens airlines with a costly and complex web of regulation—often ignoring global standards. Next month we will make another effort to bring the government’s attention to the industry’s challenges during an Aviation Day to be held in Brasilia.
- And then there is Venezuela. The country is an economic basket-case. And it is digging itself deeper into a hole by withholding $3.8 billion of airline funds. It is robbing itself of an opportunity of revival because airlines cannot provide connectivity if they can’t repatriate their own funds.
Of course there is also some good news….
- The re-establishment of links between Cuba and the US has the potential to unleash tremendous opportunities, and
- The recently installed business-friendly government in Argentina could boost its prospects with pro-aviation policies and actions.
Earlier I mentioned that we are in the business of freedom. This is a powerful message that must be understood by governments. Our dialogue with governments is not a selfish one. The success of the business of freedom generates jobs, growth and prosperity. So our proposition to governments is for a mutually beneficial partnership. In looking at Latin American and the Caribbean, I believe that the biggest opportunity for such a partnership is with infrastructure.
There is no better example of the region’s infrastructure deficiencies than here in Mexico City. The current airport is bursting at its seams. The Worldwide Slot Guidelines are the best way to manage scarce capacity. It is crucial that they are implemented. And real relief with a new airport is years away—at best.
Mexico City is not unique. Airport and air traffic management capacity issues are persistent across the region—in Peru, Argentina, Colombia, Brazil and Cuba to name just a few examples.
We expect passenger demand in the region to double from 298 million in 2015 to 658 million in 2035. If that demand is met, the number of jobs supported by aviation in the region will grow from 5.4 million to 8.4 million. And aviation’s contribution to regional GDP will grow from $176 billion to $380 billion.
To unlock these economic and social benefits, governments have a responsibility to accommodate growing demand with cost-efficient infrastructure. Doing that successfully requires close and constant consultation with industry.
What does the industry need?
The first is effective planning. Aviation facilitates trade. Despite protectionist rhetoric—which we must be robust in countering—economies need connectivity to grow and integrate with world markets. So infrastructure capacity must grow in line with demand—not too far ahead and certainly not behind.
Argentina is the region’s poster child for the necessity of capacity improvements. Its airports and air navigation infrastructure have been neglected for decades. The government has plans to expand and modernize. Now, we need to work with them to find ways of aligning the necessary improvements with airline needs, and without disruptions in service.
In Colombia, our concerns are slightly different. The government is looking to address deficiencies by building a second airport. The industry’s view is that the current facility has lots of unused potential. Maximizing the current airport is probably a more cost-effective way forward and should be the first step.
And Chile demonstrates the need for effective regulation of monopoly infrastructure providers. Overall, Chile is a role model for its forward-thinking approach to a competitive aviation industry. But its continued success is at risk because of skyrocketing airport charges in Santiago as the concessionaire prepares to expand the airport. Pre-funding infrastructure programs flies in the face of global standards established for a very simple reason. It’s not fair to ask today’s users to pay for benefits that will be enjoyed by future travelers. You don’t charge a bridge toll before the bridge is operational. The same principle applies to airports!
More generally, after decades of hard experience with airport privatizations, we can sound a strong note of caution to governments on infrastructure privatization. Harnessing the efficiencies of private enterprise to improve infrastructure may sound like an excellent idea. But without iron-clad regulation to protect airport users, the result is an out-of-control monopoly. And the government, in allocating concessions, must have the right priorities. The aim should be to facilitate broad economic growth. Awarding concessions to the highest bidder —if that is the main consideration—does not serve long-term national interests.
Spreading the word and multiplying the benefits
There is plenty to do on infrastructure in this region. Our regional office, led by Peter Cerda, is working with ALTA and our members to move forward a regional agenda that will facilitate growth with sufficient cost-efficient infrastructure capacity.
Of course, infrastructure is not the only issue here. We also need governments to be strong partners working with industry to gain the broad economic benefits of Smarter Regulation and lower taxes. Keeping governments focused on the benefits that aviation—the business of freedom—can make possible is our most powerful tool.
The global numbers are impressive—63 million jobs and $2.7 trillion in GDP. But the stories behind the numbers are even more moving. Every day our industry has at least ten million stories to tell—one for each traveler who boards an aircraft. Working with our members we will soon launch a campaign to remind people of what a positive force aviation is. And in doing so we will advocate to make your job easier while multiplying the benefits of safe, efficient and sustainable air transport here and around the world.