Thank you for that kind introduction. It’s an honor and a pleasure to be invited to speak to this Club, which is one of the most important forums in one of global aviation’s foremost cities. It’s also a relief to be here with the government re-opened and functioning—at least for the time being.
With that in mind, I would like to add my thanks to the thousands of dedicated government employees who kept the aviation system functioning under extreme circumstances. But we should not have to impose on their commitment again. I hope we agree that aviation connectivity is far too important to be held hostage to political disagreements. While our industry was fortunate to escape long-lasting damage during the five-week shutdown, there were some serious impacts. For example:
- Introduction of new aircraft and new route launches were delayed owing to a lack of authorization from the Federal Aviation Administration (FAA).
- Training of air traffic controllers was suspended and progress on NextGen air traffic modernization was put on hold
- Aircraft repair stations which required renewal of their certification during this period, had their renewals delayed impacting the timely repair of aircraft and parts
- FAA was unable to issue new student pilot certificates, halting training for countless prospective pilots.
Additionally, airlines suffered significant financial impacts from tickets not purchased trips and trips not made.
If there is a positive side to this episode, it is that it provided further evidence of the strong need to remove the air traffic control system from the federal budget process and place it in a nonprofit structure that would be immune to these kinds of situations. Unfortunately, this much-needed reform has been blocked through a disinformation campaign mounted by corporate aviation interests.
The shutdown also highlighted the vital contribution that aviation makes to the economic and social well-being of this country-- which is usually only recognized in a crisis. Was it just a coincidence that measures to re-open the government were not taken until after the smooth functioning of the nation’s air transport system began to erode?
Of course, all in this room understand the enormous role that aviation plays in the modern economy, but it’s still worth repeating. The United States is the world’s largest single aviation market. Aviation supports 6.5 million jobs and contributes over $778 billion to GDP including aviation-supported tourism.
Aviation’s contribution to the US market is but a fraction of its total impact. Globally, aviation supports over 65 million jobs with an economic impact of $2.7 trillion, equivalent to 3.6% of global GDP. A third of global trade by value moves by air.
This leads to a favorite theme, which is that aviation is the Business of Freedom. It liberates us from the constraints of geography and distance. In doing so, it empowers us to lead better lives, and makes the world a better place.
Aviation is also a major contributor to the UN’s Sustainable Development Goals, including the top goal of eradicating poverty. Globalization has been shown to be the most successful way to achieve this. And globalization would not be possible without aviation, which connects over 21,000 city pairs for commerce, more than double the connectivity of 20 years ago.
I know globalization has become something of a dirty word in some quarters and this is very troubling. To be sure, we must aim for a more inclusive model. But that will not be achieved with protectionist policies or trade wars. Prosperity will come with borders that are open to the movement of people and trade. We need to state this loudly and frequently.
We have an enormous opportunity to do so, because demand for aviation connectivity is expected to double over the next 20 years, creating a rising tide of global well-being.
But this happy future is not a given. To ensure that the Business of Freedom continues to grow the benefits it generates, it must be guided by some core principles:
- Aviation must be safe and always striving to be safer
- Aviation must be sustainable
- Government policies should encourage competition and innovation; where required, regulations should address real needs, aligned with global standards and principles of proportionality; Finally,
- Aviation must be supported by infrastructure that is efficient and affordable.
Let’s begin with safety, aviation’s highest priority. We will publish the industry’s safety performance later this month. In terms of fatal accidents, unfortunately, we did not do as well in 2018, as in 2017, a year in which we experienced zero passenger fatalities in jet accidents.
Nevertheless, the data tell us that safety continues to improve. For example, if the fatal accident rate had remained constant over the past five years, there would have been 18 fatal accidents in 2018 instead of the 11 that actually occurred, based just on the increase in flights. That’s a 39% improvement. So, we know we are making progress and we remain committed to the goal of having every flight take-off and land safely.
One opportunity we see to improve safety is in the area of inflight turbulence, which is the leading cause of injuries in non-fatal accidents. To help address this, IATA has launched Turbulence Aware, a global platform for sharing automated turbulence reports in real time. We will be conducting operational trials with a number of airlines this year, with full launch planned for 2020.
Aviation also needs to be sustainable, both environmentally and economically. We are making excellent progress toward our environmental targets of achieving carbon-neutral growth from 2020, with a 50% reduction in net carbon emissions by 2050 compared to 2005.
For today, however, I’d like to focus on economic sustainability. This year, we expect airlines to report a net profit of $35.5 billion, up about 10% over the estimate for 2018. It will be the industry’s tenth consecutive year of profitability, which is unprecedented. Moreover, since 2015, airlines have been generating returns in excess of their cost of capital, meaning that they are finally providing a return to long-suffering shareholders.
Carriers in North America are expected to post a $16.6 billion net profit this year, representing nearly half of the industry’s total earnings.
These are strong results, but let’s keep things in perspective. With an average profit of less than $17 per passenger, North American airlines are in a different league than Apple, for example, which makes $400 for every iPhone XS sold. Washington should not view the industry’s better financial footing as a blanket bill of health, nor a blank check to bankroll new taxes and fees!
That brings me to our next principle, which is around competition and innovation.
Delivering aviation’s economic and social benefits requires a policy framework that supports competitiveness. Competition unleashes innovation and helps drive prices lower. In 1978, the US government recognized this fact and deregulated the airline industry. Today, the Airline Deregulation Act is widely regarded as one of the most successful pieces of legislation of the 20th Century, as ticket prices fell and access to air travel increased.
Yet some in Congress are trying to turn back the clock on this amazing success. For example, a measure was introduced in the FAA Reauthorization Bill to require the Department of Transportation to issue regulations prohibiting airlines from imposing any fees that are not “reasonable and proportional” to the costs incurred. Clearly the intent was to eliminate the fare unbundling model that has allowed airlines to keep fares low by asking consumers only to pay for those things they value.
Fortunately, the proposal did not find its way into the final bill. But it should never have been introduced in the first place. On principle, it is outrageous that airlines were singled out in this manner. Has Starbucks been asked to justify the price of a Java Chip Frappuccino, or Apple the price of an iPhone?
Moreover, the market has already spoken—the fastest growing and most profitable segment are the ultra-low fare airlines. This demonstrates that there is a huge appetite for an absolutely basic travel experience.
Let me be clear. Airlines do not oppose sensible, well thought out regulation based on open dialogue, rigorous cost-benefit analysis, global standards, and proportional compensation when needed. These are all elements of what we call Smarter Regulation and they were taken into consideration when member states of the International Civil Aviation Organization (ICAO) agreed to their own principles on passenger rights.
Despite this, many governments persist in going it on their own when it comes to passenger rights. And too often they do so in a knee-jerk response to an isolated incident.
Canada is the latest example. In response to a 2017 event that everyone agrees was deplorable, the Canadian government decided to establish a passenger rights regime. Smarter Regulation principles were ignored in favor of an approach that is punitive as well as extraterritorial in its reach. To provide one example, delays exceeding nine hours require compensation that is well over double the average fare. Airlines are already highly incentivized to run on-time operations. Penalties will add costs. But that is not a solution for improving the passenger experience.
There is another area of consumer protection I would like to address, which is the issue of unruly passengers. No passenger or crewmember should have to put up with verbal or physical threats, harassment, violence or assault. Last November, Transportation Secretary Elaine Chao announced the creation of the National In-Flight Sexual Misconduct Task Force to evaluate how US airlines address this issue and to determine best practices.
Both IATA and ICAO have been urging states to ratify Montreal Protocol 2014 (MP14) which enhances the ability of carriers and law enforcement to address unruly passenger behavior on international flights--including sexual harassment and assault.
MP14 will close jurisdictional loopholes in the existing international treaty governing offenses on-board aircraft, ensuring that perpetrators will face justice regardless of where they are flying. Sixteen countries have ratified MP 14 of the 22 needed for it to come into force. We urge the US to join with these countries and ratify MP14.
Finally, if aviation is to grow the benefits it delivers we must have adequate airport and air traffic infrastructure. We are approaching an infrastructure crisis. In some locations we are already there. While the US is in a better position than most, the fact is that no major new airport has opened here in almost 25 years. With the US market expected to add an additional 481 million passengers by 2037, that just won’t do.
Airline needs are simply summarized as:
- Sufficient capacity
- Alignment with airline technical and service level needs, and
Getting these right, however, is a difficult long-term challenge. Decisions must be made today if we want infrastructure to be in place a decade from now. And planning by most governments is not ambitious enough to meet that demand.
In the absence of new infrastructure, capacity around the world increasingly needs to be managed, which we do through the Worldwide Slot Guidelines (WSG). This is a well-established global system for allocating airport slots. Today the WSG is being used at about 200 airports around the world--including New York JFK--accounting for 43% of global traffic.
While there may be local variation in how slots are managed, the system will only work if the parties at both ends of a route are using the same rules. Tinkering by any participant messes it up for everybody. Therefore, we cannot turn a blind eye to one country or one airline over another.
At the same time, we recognize that like any system, the WSG can always be improved. That’s why we are working with Airports Council International on optimization proposals to ensure the WSG remains fit for purpose for years to come.
Before I leave you, I would like to update you on a critical issue for this industry, which is Brexit. The proposed guidance from the EU Commission in the event of ‘no deal’ calls for the current level of flights between the UK and the EU to be maintained; but it does not allow for an increase in flight numbers this year.
We estimate that up to 5 million extra seats are scheduled for 2019 compared to 2018 and these are at risk if a ‘no deal’ Brexit occurs. Furthermore, while the US and UK have reached a tentative air services agreement that will enable continuation of air services between the two countries after Brexit, the status of alliance flights between the EU, UK and third countries needs clarifying.
In the small time left before Brexit, it is imperative that the EU and UK prioritize finding a solution that brings certainty to airlines and alliances planning growth to meet demand and to travelers planning business trips and family holidays.
Brexit, of course, is illustrative of the trends I highlighted earlier—rising protectionism and disenchantment with the forces of globalization shaping the modern world. IATA is a trade association. Our primary aim is to help our member airlines to deliver connectivity safely, efficiently, and sustainably. IATA has no political agenda and takes no sides in political disputes. But we know that aviation can only deliver its benefits with borders that are open to the movement of people and to trade. And so, in these challenging times, we must all rigorously defend the Business of Freedom.