Date: 14 October 2014
Remarks of Tony Tyler at the World Knowledge Forum, Seoul
Good morning. It is a great pleasure to be here at the World Knowledge Forum. And I am particularly happy to be making my first appearance at the Forum in this year for a couple of reasons. First, this year’s theme—Invigorating the Global Economy—is particularly appropriate for a discussion of aviation and I will discuss that in detail a bit later. And secondly, this year is a very special one for the global commercial aviation industry. We are celebrating its first 100 years.
Before I get started into my remarks, I would like to play a short video that demonstrates the essence of what we are celebrating.
Flying 100 Video
That 23-minute journey across Tampa Bay, Florida on 1 January 1914 was a momentous event. It changed our world immeasurably for the better. It all began as a partnership of three visionaries:
- Percival Fansler, an entrepreneur who saw commercial opportunity in the technology of flight
- Thomas Benoist, who built the aircraft, and
- Tony Jannus, who safely piloted the plane to its destination.
They could see the value in transporting people quickly over geographic obstacles. The journey across Tampa Bay would have taken a lot longer on land or water.
That value was seen by Abram Pheil. He became the real hero of the day when he purchased the first ticket. And he paid a handsome price: $400. In today’s money, that is the equivalent of $9,500.
Despite the price, Pheil’s journey would not have been very comfortable. He was seated next to the pilot and exposed to the elements. The aircraft flew no higher than about 15m above the water. So he probably experienced about as much spray as he did wind while traversing Tampa Bay.
Flying has changed a lot since then. It has become a lot safer, much more comfortable, and a lot more accessible. On this last point, I did a bit of searching on the internet yesterday and found return fares from Seoul to New York for about $1,200. So one could literally go the other side of the world and back about eight times for the price that Pheil paid to cross a rather small bay!
People caught the flying bug. The airline industry quickly grew from a single aircraft, one route and a lone passenger. This year we will connect 3.3 billion passengers and 52 million tonnes of cargo over 50,000 routes. Since commercial aviation began 65 billion passengers have traveled by air.
At a personal level, flying delivers great value. It brings people together—families, friends and business colleagues. It helps minds to meet and exchange ideas in forums like this. It gives people the freedom to be almost anywhere in just 24 hours. And it has turned our wonderfully big planet into a wonderfully small world of enormous and wonderful opportunities.
I truly believe that aviation is a force for good in our world. I have been in the industry for nearly four decades and have seen that demonstrated in front of my eyes. Last week we saw news that China is now the world’s largest economy. And then were counter-claims that if you looked at Purchasing Power Parity, the US still ranked first. In the 1970’s when I began working in the airline industry in Hong Kong we all knew of the potential for Chinese growth. But it was not even in the top 10. And it is very clear that air connectivity has played a key role in the rise of modern China.
Working for Cathay Pacific for many years, I had a privileged view of seeing many a poorly connected Chinese industrial town blossom into a modern metropolis with the establishment and growth of air links.
And we could say the same thing about South Korea, which is home to world-class airport infrastructure, two strong global network airlines and a growing number of point-to-point carriers. Air links bind the country together and link it to the world. Oxford Economics did some research for IATA on the impact of aviation on the South Korean economy. Aviation and aviation-related tourism support about half a million jobs in Korea. And that can be linked to about 2.2% of GDP.
But that is only the beginning. The global big picture is amazing!
Today, aviation connectivity is the life blood of the global economy. The industry supports over 58 million jobs and $2.4 trillion in annual economic activity. It creates jobs for Kenyan farmers who sell fresh flowers in world markets. It facilitates global supply chains so that workers in many nations can collaborate to build computers, cars and even airplanes. Aviation delivers many of the real world goods that are traded in the virtual shops of internet commerce. As a catalyst for economic and social development, aviation and the businesses that we support have spread prosperity and lifted countless people from poverty.
And if we focus that back down on South Korea, it would be hard to find a successful Korean company that is in some way not reliant on aviation. Equally, it would be hard to pass a day in a developed economy like Korea without touching on something that is transported by air—be it the food that you eat, the phones that you carry, the medicine that you take or many of the elements in your house that make it a home.
To illustrate the point, let me pause for literally a minute to look at two short stories. One is about aviation and the flower business and the other is about aviation and global supply chains.
Benefits of Aviation Video
My answer to Invigorating the Global Economy is connectivity. And I believe that policy-makers should pay more attention to the aviation industry as a catalyst for economic growth. Too often, we see governments eager to pillage the industry for taxes. A great example is the UK which has the largest single aviation tax in the world. Its Air Passenger Duty extracts some $4.5 billion from travelers every year. But by making connectivity more expensive, the UK is sacrificing its competitiveness and missing out on economic opportunities.
The other issue that we often face is infrastructure constraints. Building aviation infrastructure is a strategic state investment. But for many countries, it is a struggle to ensure that there is sufficient airport and airspace capacity available to meet demand. It is a perennial problem in Europe. And a recent study shows that by 2035 there will be a 12% shortfall on capacity. The economic cost will be huge.
Normally, when I have opportunities to address a broad audience about the value of aviation I spend quite a bit of time trying to convince them to let the industry blossom and do its economic magic by lowering taxes and upgrading its infrastructure. South Korea, however, is a global leader in creating the environment for the success of aviation. South Korea is the 26th largest country in the world by population, but the 15th largest economy. The prosperity that indicates is at least partially enabled by policy decisions to ensure effective connectivity. That’s how Incheon managed to grow to be the world’s 9th most important airport in terms of passenger numbers and fourth for air cargo. Punching above its weight in aviation gives Korea a tremendous economic and competitive advantage.
My message to Korea is a hearty: Keep up the good work. And if you are visiting Korea, please use this opportunity to see and experience the key role that aviation plays in this economy and carry that message home to your government—particularly if you are from Europe!
And what I would like to do with the rest of my time with you today is to look at some of the challenges that we are meeting as we enter into the second century of aviation:
Flying today is extremely safe. It wasn’t always that way. In the early days it was a risky business. But right from the beginning there was an understanding among governments and industry that safety was not a competitive issue. And there has always been great cooperation among all the industry’s stakeholders in efforts to make flying ever safer.
In 2013 there were some 36.4 million flights and 16 fatal accidents. If you were flying on a jet aircraft, your chances of being involved in a major accident were one in 2.4 million. And among the three billion passengers that flew (the equivalent of about 40% of the world’s population) there were 210 fatalities. There is no safer way to get from A to B than by plane.
But accidents do happen. And this year we had some sad reminders of that reality. The two tragedies involving Malaysia Airlines are still fresh in all of our minds. And our hearts go out to the victims and their families. Every day some 100,000 flights take-off and arrive safely at their intended destination. What happened with MH 370 and then MH 17 is absolutely unprecedented in aviation history. And we will honor the memories of those involved by re-doubling our efforts on safety.
IATA is working with our partners towards some recommendations on how to track aircraft better. There is some promising technology that will become available in the near future. And we are also looking at some interim actions which will be considered by our Board of Governors in December.
MH 17 brought to light the need for better information for operations over conflict zones. Everyone in the world was angered that a civilian aircraft—an instrument of peace—could be shot down in airspace that was declared safe. The responsibility for improving the information needed to avoid a repeat of this tragedy rests firmly with governments. In fact, through the International Civil Aviation Organization (ICAO--IATA’s United Nation’s counterpart) governments are working on ways to fill the gap in an otherwise robust system.
In parallel, we are calling on governments to look even more broadly and develop an international protocol to manage the design, manufacture and deployment of weapons with anti-aircraft capability. We have it for other categories of weapons—chemical weapons, land mines, nuclear warheads etc. Anti-aircraft weapons should be no different.
These efforts are important. But I should emphasize that they are in response to very rare and I hope never-to-be-repeated events. But every day the industry is working to improve safety. For example, each of IATA’s 240 members is required to pass and maintain the 900+ crucial standards of the IATA Operational Safety Audit (IOSA). They are seen to be so important that even airlines that are not members of IATA are also on the IOSA registry which includes over 400 airlines.
As we look to the future, auditing will continue to be an important safety tool. But the real advancements in safety will be driven by data. An enormous amount of data is generated by every flight. Governments, airports and air navigation service providers also have data. IATA has data from our safety audits and reporting programs. Engine and airframe manufacturers have important safety data. There is probably no other industry on the planet that generates so much data.
IATA has invested to build the world’s largest database of safety information. We call it GADM for Global Aviation Data Management. As we (and others) develop the analytical capability to perform deep queries of the data we are coming up with the insights that will lead the next generation of safety improvements.
I hope that I have conveyed to you the deep sense of responsibility and commitment that the aviation industry has towards safety. For passengers, safety is something that you can take for granted. And that is the way that it should be.
You should also take a hassle-free and convenient experience for granted. I travel a lot, as I am sure many of you do. The experience of travel has improved tremendously over the years. The quality of airline products provides a huge range of choice from absolute luxury to a very basic seat. But I have certainly experienced moments of frustration with the processes that have been put in place around the actual flying experience.
We have a vision for the future flying which we are building today. Some elements already exist. In 2008 we made e-tickets the global standard. Just over six years later it is already difficult to remember the days when you had to worry about taking your ticket with you to travel. That was an important element in realizing our future vision. And I would like to share that with you in a short video about a business trip to India that illustrates what flying could be.
Fast Travel Video
Wouldn’t it be great if every trip could be hassle free? As you can see, we are very optimistic about mobile technology helping us to meet the passenger expectation to be constantly connected, well informed and in control of their journey. Some of what you saw is already in use. Other elements will take longer. Some of the challenges that we still face are:
- Finding a framework on which to share the crucial data among all those involved in the passenger’s travel.
- A smarter approach to security that is informed by what we know about the traveler.
The good news is that the future of travel is full of innovation.
Of course there can be nothing guaranteed about the future of aviation if the industry is not sustainable. And I would briefly like to touch on two dimensions of sustainability before I close—environmental and financial.
Any business is expected to be sustainable. But it is particularly challenging for airlines that burn fuel to propel their aircraft. Nonetheless, the industry (not just airlines but the whole value chain) has committed to some very ambitious goals. From 2020 we will cap our emissions and our growth will be carbon-neutral. And by 2050 the aspiration is to cut our net emissions back to half the levels that we emitted in 2005.
We also have a plan.
A key driver will be technology. Modern aircraft entering into airline fleets today bring with them fuel efficiency gains of 20-30% over their predecessors. Billions of dollars are being spent on this each year.
Another example of the role of technology is the development of sustainable biofuels. Over 1,500 commercial flights have been fueled by sustainable biofuels. The challenge is that biofuels are in short supply and expensive. It’s a chicken-and-egg situation. The high cost is being driven by the small quantities being demanded. And demand is low because of the high cost. We are calling on governments to incentivize the use of sustainable biofuels as they have done for other alternative power supplies such as solar. The good news is that distribution will be relatively easy. If we can get biofuels to just 190 airports, we will cover about 80% of potential demand.
The second pillar of our strategy is infrastructure. We’ve all probably been on a flight that has to circle an airport before it is cleared to land or has to reduce speed before entering a busy air corridor. In both cases, the aircraft is burning more fuel than it should have to because the infrastructure cannot handle the demand. Estimates are that there is about 12% efficiency that could be gained if air traffic control systems worked at their optimum level. And every minute that is saved, reduces fuel burn and emissions.
The third pillar is more efficient operations. A very simple example of this is a program that we are working on worldwide so that airlines can land in a continuous descent. Traditionally, aircraft have been guided to land in a series of descending steps. There is nothing wrong with the procedure, but it burns more fuel than the alternative.
And lastly, we are asking governments for a global mandatory carbon offset scheme. Airlines recognize that we will have to pay for at least some of our emissions until the other pillars of our strategy fully mature. This important work is being done through ICAO. We hope to have the framework agreed in 2016 and to be able to implement from 2020—just in time for our carbon neutral growth commitment.
The other vector of sustainability is profitability. Over the last century airlines have just broken even. Despite all of the value that they bring to the world—as we have discussed—they have basically destroyed a vast amount of capital. It is a very competitive and very tough business.
That is not to say that people have not made money on airlines. Stocks are volatile—just look at what is happening now with the threat of Ebola. And some people make money on that. There are also some solid performers operating in aviation-friendly environments that generate significant profits year on year. There is a great turn-around story in the US where the industry is now leading the world in profits after a very difficult decade that began with the 9.11 tragedy.
But, on average, airlines make less than $6 per passenger. On about $750 billion in revenue, we expect a net profit of just $18 billion. For those of you who are good at arithmetic, you will have calculated that it is just a 2.4% profit margin.
The good news is that this is an improvement on the recent past. And continuing strong demand for passenger travel—despite economic uncertainties—shows that the world’s thirst for connectivity that only aviation can provide is still growing. I am an optimist about the future and I hope that you are too.
As we embark upon commercial aviation’s second century, airlines carry an important responsibility. Aviation is crucially important to our humanity and to invigorating the economy. And so the industry is continuously trying to make flying safer, increasingly efficient, and sustainable.
Among those who witnessed the Benoist Air Boat carry a single passenger across Tampa Bay in 1914, who could have imagined what aviation would look like today?
At least one person could see that something incredible would evolve. “What was impossible yesterday is an accomplishment today, while tomorrow heralds the unbelievable.” Prophetic words from Percival Fansler, the visionary entrepreneur who launched our industry.
A century later, aviation is powering economies and lifting the human spirit. We have broken the bounds of speed and distance with ubiquitous global mobility. This very day, 100,000 flights will take nine million people to somewhere that they want to go…to do something that they want to do. Aviation’s greatest contribution is the freedom it gives people to follow their dreams and change their lives.
And I will leave you with one last video clip from a film that will be released next year. It’s called Aviation: The Invisible Highway. It captures well the incredible contribution that aviation makes to modern life. In 100 years aviation turned our enormous planet into a small world. In doing so, we have created a very big future for us all.
Aviation: The Invisible Highway trailer