Good morning. It’s a pleasure to be here among so many familiar faces. Luis Felipe, thank you for inviting me. Our two organizations share much in common, including many of the same members. And we complement each other’s activities. IATA brings a global perspective, while ALTA provides a focus on the key regional issues. Together, we make a strong team for supporting aviation to do the most it can for the region’s economies.
This month, the Air Transport Action Group, of which our organizations are both members, released the latest figures charting the benefits aviation brings. The report shows that air transport supports 7.2 million jobs and $156 billion in economic activity across the Latin American and Caribbean region, which I will refer to as Latin America for simplicity’s sake. That represents 2.8% of all employment and 3.3% of all GDP in the region.
These are very impressive numbers -- but with a more accommodating environment, aviation could contribute even more. For example, in the Middle East region, air transport supports 3.3% of all employment and 4.4% of GDP. Achieving the same levels in Latin America would mean another 1.3 million jobs and an additional $52 billion in GDP contribution.
So how can we help aviation to do more for the region? I believe the key is to get the fundamentals right, by which I mean Safety, Sustainability, Competitiveness, Infrastructure, and Regulatory Harmonization.
Let’s begin with safety, our industry’s highest priority. And with the news of the Lion Air crash today, it is a sad day for all in aviation. Our thoughts are with all those involved, their friends and loved ones. Like all accidents, this recommits the industry to the challenge of being ever safer.
If we look specifically at Latin America, the region recorded zero fatal accidents in 2017. However, the region lags the overall industry performance in terms of accident rates. And we took a step back this year with the tragedy in Cuba and a near-tragedy in Mexico. There definitely is more work to do. And experience shows that we are most successful when we embrace global standards and best practices.
The IATA Operational Safety Audit (IOSA) is the gold standard—and a requirement for membership in both ALTA and IATA. This is producing results. Between 2013 and 2017, IOSA airlines in Latin American had an all-accident rate that was more than four times better than the rate for airlines not on the IOSA registry.
And for carriers not eligible for the IOSA audit, IATA and ALTA reached a pioneering agreement to promote the IATA Standard Safety Assessment (ISSA). This sets a global standard benchmark for airlines that operate aircraft which have a lower maximum take-off weight than the threshold for IOSA; or for operators whose business models do not allow conformity with IOSA’s standards. Already more than six airlines are committed to undergo ISSA and others are in the pipeline.
Sustainability is another area where we are collaborating. Ten years ago, the industry committed to a joint strategy to achieve carbon-neutral growth from 2020 and to target a 50% reduction in CO2 emissions by 2050 compared to 2005.
We will do this with a combination of actions: improvements in technology, operations and infrastructure and a global market-based tool. The key to keeping our carbon neutral growth goal is the historic agreement reached at the International Civil Aviation Organization (ICAO) Assembly in 2016 to create the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).
The priority is to successfully implement CORSIA as the single global market-based measure. Already 75 states have volunteered for the scheme. That will cover more than 76% of aviation activity. Unfortunately, this includes just seven governments in this region and just one is from the South American continent. This is very disappointing.
To make CORSIA as comprehensive as possible we want more governments to join. That means redoubling our efforts, particularly in this region. In tandem, we are working with governments to prevent actions that undermine the agreement, such as the unilateral implementation of environmental taxes.
There is another type of sustainability. Our ability to deliver rising benefits to local economies depends on generating a return that will satisfy investors. If we cannot, they will invest their money elsewhere and aviation will be unable to fund the growth required to meet an expected doubling in regional demand by 2037, compared to today. Unfortunately, while some airlines are doing well, the region as a whole is lagging when it comes to achieving financial sustainability.
Our current economic forecast shows that the region’s airlines are expected to post a combined net profit of $0.9 billion US this year. Although this is an improvement over the past two years, it represents a net profit margin of just 2.3% and net profit per passenger of just $2.95 US. This compares to a global industry net margin of 4.1% and a profit per passenger of $7.80 US.
The simple fact is that Latin America is a very expensive place to do business. Taxes, fees, and government policies impose a huge burden on airlines and stifle air travel by making it more costly than it would be otherwise. Here are just a few examples:
- Brazil’s jet fuel pricing policy adds an extra $255 million per year for airlines serving the country.
- A handling fee in the fuel pricing formula in Mexico adds an extra $45 million per year to airline budgets.
- Peru has a tourism promotion tax on tickets (which seems to defeat the purpose of promoting tourism) and collects VAT on overflight charges and international tickets in contradiction of ICAO standards.
- Barbados recently imposed a staggering $70 per ticket tax for long haul flights and $35 for travel within the Caribbean community.
- In Venezuela, the government continues to implement policies that are isolating the country from the rest of the world.
There are many other examples, all illustrating the same problem: far too many governments in the region see aviation and air travel as a target for heavy taxes and fees. In doing so they are killing the golden goose.
Because the value of aviation is not in the tax receipts that can be squeezed from it, but rather in the economic growth and job creation it supports. Cut taxes and fees and the industry delivers more value.
There is proof within this region. In 2015, Cartagena airport reduced its airport fee from $92 to $38. What happened after that? Tourism arrivals rose by 38%. The additional tourist spend will do much more for the local economy than the airport fee ever could.
I would also like to recognize the government of Argentina for its “La Revolucion de los aviones” initiative to open hundreds of new routes, deregulate domestic pricing and encourage the arrival of new entrants. These moves are very positive for Argentina, but more remains to be done on the cost side to further boost competitiveness.
Competitiveness also depends on having adequate infrastructure. Our requirements are not complicated. We need sufficient capacity in terms of runways, terminals and airspace. Quality must be aligned with our technical and commercial needs. And it all must be affordable. I believe, however, that we are headed for an infrastructure crisis--and that includes in Latin America.
The capacity challenges at key hub locations such as Buenos Aires, Bogota, Lima, Mexico City, Havana and Santiago are well documented. Unless they are addressed, the region's economies will suffer. If planes cannot land, the economic benefits that they bring will fly elsewhere. Do governments truly understand this?
Sometimes it’s hard to tell.
- In Mexico, everybody knows the results of the public consultation on the fate of the Texcoco airport project. It will be a big setback to the airline industry and to the Mexican economy if this leads the cancellation of this much-needed project.
- In Peru, delays in constructing a new terminal and runway at Lima continue to impact the country’s development as a regional hub, although we have recently had indications that construction may start shortly.
- In Jamaica, the government plans to invest $60 million in funds raised from passenger charges for an unnecessary runway extension at Montego Bay. The money could be better spent on improving the passenger experience at the airport.
These are just a few examples but there are many others. Certainly, one issue within the region is airport privatizations that have not lived up to their promise. User costs rose, but efficiency and service did not keep pace and in some cases declined. What’s needed are regulatory and concession structures that do a far better job of balancing the interests of investors for a reasonable return and that of airlines and air travelers for modern, affordable, and efficient airports.
I do not want to create the impression that all the news is bad, so I will point out that we have partnered successfully with the Argentine, Aruban and Brazilian authorities to support their efforts in adopting a modern and collaborative approach to airport planning that benefits all stakeholders.
Furthermore, we welcome the Chilean government’s recent reductions in the airport facility charge that will save the industry almost $418 million through 2022, compared to the original charge schedule. The government has also asked for input to improve future concession contracts.
Here in Panama, congratulations are due to the government for the construction of a new terminal. The next requirement is to move forward with urgently-needed airspace improvements to accommodate the increased terminal capacity and eliminate delays and inefficiencies.
Finally, I would like to address the issue of regulatory harmonization. Airlines in the region are at the forefront of creating multi-national business models. Consumers have benefited with access to bigger route networks and more connecting options. However, the full scope of potential efficiencies is not being realized, because regulations remain nationally-based in areas like training, licensing and aircraft registration. This denies opportunities such as the ability to easily move aircraft and staff around an airline’s network to match market requirements.
Recently we have seen some positive steps. Brazil has liberalized its regulations on aircraft interchanges, making it easier to transfer aircraft belonging to the same parent company into the country. And in Central America, the six member states of the Central American Corporation for Air Navigation Services (Cocesna) unanimously passed legislation that standardizes the requirements for all aeronautical licenses—pilots, cabin attendants, technicians and so forth--so that a license in one state is valid across all Cocesna states.
But far more needs to be done. It is past time for a serious discussion among regulators and stakeholders to find ways to unlock additional value from the restructurings that have taken place through a regime of mutual recognition of common standards for training, licensing and registration of aircraft and crew.
There is another example of harmonization that I will only touch on briefly—and that is that this region is increasingly out-of-step with the rest of the world when it comes to commercial regulation. The lesson of airline deregulation is that it creates market opportunities and encourages new business models. Unfortunately, across Latin America, lawmakers and regulators are trying to turn back the clock to a regulated era by introducing restrictions in the name of passenger rights. These limit the ability of airlines to reach out to potential new markets. For example:
- In Peru, in certain circumstances, a passenger flying domestically can endorse his ticket to another traveler.
- In Colombia, airlines are required to offer full refunds on non-promotional fares if a passenger cancels the ticket up to 24 hours before the trip.
- In Brazil, ANAC is working to harmonize rulemaking procedures with global best practices, but these efforts are being undermined by lawmakers and courts.
The examples I’ve cited raise the cost of travel for all, by limiting airlines’ ability to differentiate themselves through individual customer service offerings. Passengers should have the freedom to choose an airline that corresponds with their desired fare level and service standards.
We are the business of freedom. We can improve lives and livelihoods across the region. We are committed to being safe and sustainable
But to really grow the benefits we bring, governments must provide:
- Harmonized regulation that enables growth.
- Competitive cost structures that promote growth, and
- Infrastructure that can accommodate growth.
Lastly I would like to share a very short video that captures the value of the Business of Freedom and which you are welcome to use in your activities to promote understanding of our amazing industry.
Read the press release
Read the full press release