Good morning and welcome to Geneva!
Global Media Day is a highlight of the IATA year. We have prepared a very full day of briefings for you. By the end of the day you should be fully updated on our top priorities and initiatives.
IATA’s job is to help the airline industry connect people and businesses. That’s important.
This year airlines will safely fly 4 billion people and 60 million tonnes of cargo over some 20,000 city pairs. This is a critical activity for the global economy. About a third of the value of goods traded internationally are shipped by air. International air travelers spend about $750 billion annually. And by bringing together people of different backgrounds and cultures to do business, to learn from one another and to solve problems, aviation provides immense value beyond what can be calculated. And that’s why I call it the business of freedom.
Global standards are a key enabler of aviation’s benefits. And that is a prime focus for IATA.
And that focus starts with safety---our top priority. Global standards are at the core of the industry’s strong safety performance.
Aviation is the safest way to travel long distances. Each day more than 100,000 flights operate safely. In the first half of this year there were a total of 3 fatal accidents. That is 3 fatalities too many. Later this morning, Gilberto López-Meyer, our SVP for Safety and Flight Operations will update you on how we are further improving strong safety performance.
Our financial systems supporting the worldwide distribution of airline products are another example of global standards at work. Last year, our systems handled $245 billion in transactions between airlines, travel agents and freight forwarders. Our systems make it possible to buy an airline ticket from any IATA accredited travel agent, pay in one currency, travel on multiple airlines and be assured that your ticket is recognized at the airport.
The system dates from the 1970’s. While we have made changes along the way, we just announced a major innovation of our settlement activity. We call it NewGen ISS. Complementing this are NDC and ONE Order—innovations that will modernize the customer experience and airlines’ back office processes. Already 44 airlines are using the NDC standard to sell tickets.
Aleks Popovich, our SVP for Financial and Distribution Services, will be here with his team this afternoon to explain the latest developments in these important programs.
Aligning the industry with global standards plays a critical role in ensuring a sustainable future for flying by managing our carbon footprint. You may be familiar with the story.
- Our near-term goal is to cap emissions with carbon-neutral growth from 2020.
- And by 2050 we intend to cut our carbon footprint to half of 2005 levels.
Ultimately, we will do that with a combination of more efficient technology, operations and infrastructure. But we also need access to a global market-based measure to fill the gaps until these solutions mature. That’s why the 2016 agreement by governments through the International Civil Aviation Organization (ICAO) on the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) was so critically important.
I want to emphasize the significance of an industry going to governments and asking to be regulated. Having a global agreement on CORSIA allows airlines to pay for their emissions growth, ensures that they pay fairly, and that they know the money will be used effectively to reduce carbon. It is our license to grow.
ICAO will formally adopt the technical requirements for CORSIA in the coming months, and we are working with our members and the rest of the airline community to ensure that they are ready to start reporting from 2019. And we continue to encourage more governments to join CORSIA from the voluntary period. Already, with 72 governments on board, over 80% of the 2020-2035 growth will be covered. We’d like it to be more.
CORSIA is just one pillar of our strategy. There are two other areas in particular where we are working with governments.
The first is sustainable aviation fuels (SAF). Technically, they work. In November we passed the symbolic threshold of the first 100,000 sustainably-fueled flights. About 140 flights a day are powered by SAF. This number needs to grow. But the cost of SAF is still too high. And the supply is too small. It is a chicken-and-egg scenario because higher volumes and lower prices usually come in tandem.
That is why we’re asking governments to provide support as they have for sustainable fuels for road transport. The role of government is to incentivize their use by de-risking investment.
The other area that needs urgent attention is a part of the larger global issue on infrastructure. Governments are not meeting their responsibility to provide sufficient infrastructure for the industry to meet demand. And in the case of air traffic management, that also has an environmental cost. Airlines have invested in planes with amazing capabilities. But we are not able to use them fully to maximize efficiency.
- In the US, the development of NextGen air traffic management continues to suffer in the budgeting process. We support the corporatization of US air traffic management. We know there are high hurdles to achieving that this year, but we intend to continue advocating for it.
- In Europe, narrow national interests are blocking the implementation of the Single European Sky. So we are working with governments to develop national airspace plans that could be the building blocks for a single sky—and with some success. In the last months we have signed agreements with Poland and France to cooperate on developing a national airspace strategy. And we are in advanced discussions with ANSPs in Germany, Italy and Spain. Our Regional Vice President for Europe, Rafael Schvartzman, will discuss this further in his European issues briefing during the coffee break.
The infrastructure challenge also includes airports. In principle, our demands are rather simple. We need capacity to meet demand. Airports must be aligned with user needs for quality and technical specifications. And affordability is key.
But airport infrastructure is not being built fast enough to cope with growth. That’s why airport slots are so important. The scarce supply means that coordination is critical. About two thirds of airports needing slot coordination are in Europe. And there are bottlenecks around the world—Sydney, Bangkok, Manila, Jakarta, Mumbai, Mexico City, New York, Sao Paolo—to name just a few. That demonstrates the size of the infrastructure challenge.
My message to governments is three-fold:
- There is no time to lose. Work with the industry to plan and build the infrastructure that will be needed to power your economies.
- In the meantime, allocate scarce capacity efficiently using global standards. Our head of slots, Lara Maughan will speak about how we are evolving the Worldwide Slot Guidelines after lunch.
- And if you are thinking about privatizing airports to fund their growth
- Be cautious,
- Learn from past mistakes, and,
- Protect this important national asset with ironclad regulation that prioritizes the national interest.
Getting these right is difficult to do. To be blunt, we have not seen an airport privatization that has fully lived up to expectations. And our members are very frustrated. Airport privatization is an issue that needs careful attention and urgent thinking. It will be a main focus for IATA in the coming years.
In my job as IATA DG, I spend a huge amount of time speaking with governments about regulation. Aviation is a highly regulated industry. And in many cases, regulation has been highly successful. Safety is a great example of this.
There are a few global standards that we would like to see incorporated into regulations globally.
- To date 130 governments have adopted Montreal Convention 1999. This year we’ve seen our advocacy effort to promote ratification of this treaty pay off, with Indonesia, Russia, Uganda and Thailand amongst six States that signed on. MC99 sets standardized liability limits ensuring fair compensation in the case of accidents and incidents. And it is a critical enabler of modernization in the cargo industry because it facilitates electronic air waybills, the cargo equivalent of e-tickets. So it’s key to our e-cargo initiatives and for the success of the Word Trade Organization’s (WTO) Trade Facilitation Agreement.
- We are also asking governments to adopt Montreal Protocol 2014, which gives States the legal jurisdiction they need to deal with unruly passengers. Portugal and Uganda are the latest to ratify this important treaty that we believe will help deter disruptive behavior and we expect Turkey to do so in the next few weeks. At lunchtime, Tim Colehan from our External Affairs team will give you a full update on the numbers of reported incidents and a demonstration of some of the work that airlines undertake to help prevent and manage these difficult situations onboard aircraft.
Global standards such as these are at the heart of our Smarter Regulation initiative. We are asking governments to
- Focus regulations on solving real problems,
- Make decisions based on rigorous cost benefit analysis
- Align actions proportionally
- Keep the burden of compliance to a minimum, and
- Meaningfully consult the industry.
The importance of these principles is illustrated in the evolution of passenger rights regulations. We have a terrible situation in Europe. EU Regulation 261 on passenger rights continues to cause harm because it ignores global standards, imposes complex and disproportional penalties, and does nothing to address the root cause of most delays. And those are just a few of its faults.
Its much-needed revision remains politically blocked by the Gibraltar issue. But there are still options to improve the clarity and guidance of its implementation. This was demonstrated in the very helpful criticism by the Commission of the work of “claims farms” earlier this year. And, we are warning governments around the world not to copy the EU’s mistakes.
In 2015, ICAO adopted core principles on passenger rights, which are broadly aligned with a framework produced by IATA. Fundamentally we believe that passenger rights are one area where market forces do a better job of protecting passenger rights than regulation. But if governments insist on regulation, these principles should be the starting point.
We are concerned about developments in Canada, Mexico, Philippines, and South Korea which are all planning or have recently implemented passenger rights regulations. We made progress in Brazil where the civil aviation authority recently aligned baggage laws with global standards. But we are concerned that this important step forward could be reversed, reducing consumer choice.
A recent trip to Africa reminded me of another element of regulation that we are intensifying our work on—the freedom for airlines to do business. Regulations should fundamentally enable airlines to provide connectivity. To do that we need borders that are open to people and trade. Remember, we are the business of freedom.
In Africa we need governments to pursue policies that free-up the industry and unblock intra-Africa connectivity. Between the UK and Europe, urgent action is needed to negotiate the provision of connectivity post-Brexit. And, as a general rule, the business of freedom is at its best in creating value for the world in a liberalized framework. That’s a message that I intend to push quite strongly in the year ahead.
Just before we get into the hot topic of the day—the outlook—I would like to comment on one of the biggest news items from this year—security. Flying is secure. But keeping it that way is a constantly evolving challenge.
The ban, earlier this year, on large Portable Electronic Devices in the cabin is a great illustration of the challenges that we face in dealing with governments—who have the prime responsibility for security. The initial actions by the US and the UK were taken unilaterally and caught the industry by surprise. And the implementation was painful for all concerned. After dialogue started, however, alternative measures to the ban were found. The key message here is the importance of industry consultation.
We had some good news last month when the ICAO Council approved the Global Aviation Security Plan (GASeP). It is a framework for security focused on:
- Improving government-to-government cooperation,
- Enabling the universal application of global standards,
- Promoting better information sharing among governments and with industry, and
- Facilitating the use of technology to address emerging issues in a timely manner.
GASeP will move us in the right direction. But implementation is critical. Today it is only words. The benefits will come when governments incorporate GASeP into their National Civil Aviation Security Programs and cooperate through ICAO to make sure that the global system works. Nick Careen, our SVP for Airport, Passenger, Cargo and Security, will provide a more detailed update on security later today.
I’ll close this part of my remarks with a brief comment on the industry’s financial performance.
Aviation makes the extraordinary normal. Safely crossing continents and oceans in a matter of hours are amazing technical accomplishments that were unthinkable less than a century ago. And they happen reliably many thousands of times a day.
For most of our history, our financial performance has not matched the value that we create. But in the last years airlines have dramatically improved profitability. Airlines, collectively, have been in the black since 2010. And in the last three years airlines have made an aggregate industry profit in excess of our cost of capital—something that has never happened before. For any other business, that’s normal. For the airline industry, it’s an extraordinary achievement! And hopefully, we are on the way to normalizing it!
I will turn over to Brian Pearce, our Chief Economist, to take you through the outlook.
Thanks Brian. Indeed, things are looking optimistic. But just before taking your questions, I would like to emphasize that our forecast record profit of $38.4 billion for 2018 is for an entire industry. And it is still $10 billion shy of the profit that Apple—a single company—announced for 2016. Per passenger, airlines on average will make less than $9.00. And the net margin of 4.7% is hard won.
I look forward to your questions.
Press release: Strong Airline Profitability Continues in 2018