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Date: 28 February 2019

Remarks of Alexandre de Juniac at the Aviation Summit Mexico

Translation: Discurso de Alexandre de Juniac - Aviation Summit Mexico  (pdf) ​

Aviation is the Business of Freedom.

It liberates us from the constraints of geography and distance. It connects people and businesses globally. And, in doing so, it generates prosperity, and empowers us to lead better lives.

The benefits of aviation are clear. Globally, aviation supports over 65 million jobs with an economic impact of US$2.7 trillion, equivalent to 3.6% of global GDP. A third of global trade by value moves by air.  

Aviation has been a major force behind globalization—globalization that has lifted over a billion people from poverty since 1990. We expect the industry to double in size with an expected 8.2 billion people taking to the skies in 2037. This will make our industry an even more powerful driver of an even more inclusive globalization.
 

Aviation's Fundamental Needs

To ensure that the business of freedom reaches this potential, there is a fundamental need for borders that are open to people and to trade. To counter the forces of protectionism and trade wars, I deliver this message at every opportunity available.  And I invite you to join me in this effort.

To be successful, aviation must be safe. It must be sustainable. It needs a cost-competitive environment. And it requires the right infrastructure.

So how does Mexico measure-up?

Aviation is critical to Mexico and its development. Airlines are at the core of a value chain that contributes some US$38 billion to the Mexican economy and supports 1.4 million Mexican jobs.

Aviation's footprint crosses the country. It brings tourists to explore this country's fabulous beaches, amazing cultural heritage and vibrant cities. It also supports global supply chains that feed factories. And it connects Mexican businesses to a world of opportunities.

And let's not underestimate the value that aviation brings to people. This is not an industry for the rich. Intense competition—including from the rapidly growing low-cost sector—has benefitted consumers at all levels of society. You can travel to Miami and back for less than the cost of a night in this hotel. And domestic destinations are half that cost if not cheaper.

To clearly present the positive economic impact of aviation, today we are releasing an updated economic study on the value of aviation in Mexico.

Safety

Mexican travelers can rely on a safe industry. Safety always needs to remain the top priority of aviation and global standards are the key to continuous improvements. That is why the commitment of the member airlines of both IATA and ALTA to the IATA Operational Safety Audit (IOSA) is so important. And I encourage the government to make use of these audits to add another dimension to the country's safety oversight. That would complement the recent good news that the government plans to create an independent Federal Aviation Agency along with a commitment to modernize regulations and oversight.

Sustainability

On sustainability we look forward to the continued support of the Mexican government for the Carbon Offsetting and Reduction Scheme for International Aviation or CORSIA. This was a landmark agreement reached through the International Civil Aviation Organization (ICAO) that will stabilize aviation emissions at 2020 levels. And we commend Mexico for its leadership in joining the scheme during the voluntary implementation period.

CORSIA is a fantastic story. Airlines understood early on that sustainability is their license to grow and so they committed to carbon neutral growth from 2020. They worked through IATA with governments around the world to achieve CORSIA in the ICAO process. CORSIA has put aviation at the forefront of industries in managing their climate change impact. And with sustainable aviation fuels and other technological advancements, our 2050 aim is to cut our net carbon footprint to half of what it was in 2005.

Cost-Competitive

Costs are also important. To remain competitive, airlines do their very best to keep their costs under control. But some costs are completely out of their control—especially those set by governments in the form of regulatory costs, taxes and charges.

Mexico is generally seen as a good "value for money" destination. Yet it is still ranked 89th out of 136 countries in the World Economic Forum's Competitiveness Index on ticket taxes and airport charges. An example of the kind of costs that contribute to this low ranking is the handling fee in Mexico's fuel pricing formula. It adds US$ 44 million in annual costs to airlines but contributes no value.

We fully understand the government's priority on investments that develop the nation. What policymakers must realize is that a competitive aviation industry contributes to that goal by catalyzing growth in jobs and economic activity.

Look at what happens when taxes are reduced. In 2015, Cartagena, Colombia, reduced its airport fee from US$92 to US$38. And tourism arrivals rose by 38%. That additional tourist spend did much more for the economy than the airport fee ever could have done.

There is an important lesson in that experience. 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.

Airport Infrastructure

But the most urgent matter impacting Mexican aviation is airport infrastructure.

Mexico has around 50 airports which each handle 100,000 annual passengers or more, including about 20 major ones which each surpass the one million passenger mark. They all help in fulfilling the vital role of efficiently connecting the country both internally and with the world.

Still, when comparing the number of commercial airports to Mexico's population, the World Economic Forum's Index ranks Mexico at 103rd out of 136 countries. That suggests a broad need for the government to look at and prioritize airport infrastructure investments across the country.

But one city tops Mexico's infrastructure priority list—Mexico City. 

When Mexico decided to build a new hub airport to serve Mexico City (NAIM) the industry breathed a sigh of relief. The current Mexico City airport was designed for 32 million passengers annually. And last year it handled 48 million. It has been bursting at the seams for many years.

The ambitious NAIM project was designed to eventually serve 120 million passengers annually. This would have secured Mexico City's long-term position as a major global player in the aviation industry. But with the election of the new government, a different course has been charted.

It is no secret that we are disappointed with the decision to discontinue the NAIM project. Our analysis shows that it puts at risk 200,000 future jobs and an economic boost of US$20 billion annually by 2035. This will no doubt have profound long-term negative impacts on Mexico's economy, its aviation industry and its people.

Nonetheless, we accept that a decision has been made. But the decision to stop NAIM does not resolve a critical challenge. That is how to accommodate growing demand with an infrastructure that is already operating well-beyond its capacity?

Mexican passenger traffic is expected to grow by 3.6 % annually over the next two decades. So there is no time to lose.

Ironically, some relief may come from competing hubs. The investments being made in Panama City, Panama and Bogota, Colombia, to create bigger North-South connecting hubs is positioning them to capture some of the business that might have more naturally been served by Mexico City. But even in the most optimistic scenario for this, there will still be more demand for infrastructure in Mexico City than available capacity.

IATA is eager and fully committed to work with the government to find the most effective way to prepare Mexico City—and indeed the entire Mexican industry—to meet the growing demand to fly. I hope that today's summit is an important step forward for a deep and constructive dialogue between industry and government that will be needed to do what is best for Mexico in the current circumstances.

IATA stands ready to bring its knowledge and global expertise to the table. Our aim is to help the Mexican government and the airlines serving Mexico to meet the needs of passengers, shippers, investors, tourists, and businesses for efficient air connectivity.

So, where do we go from here?

The government's plan is for three airports to serve Mexico City: the current one, Toluca and the Santa Lucia airbase. I will be frank. Making this work will be challenging.

  • Mexico City International Airport is already operating above its design capacity. Converting the government hangar to a terminal is unlikely to meaningfully improve the situation when there is no practical way to add a third runway.
  • Toluca Airport's single runway can certainly be utilized more fully. But it is likely to be only point-to-point traffic. The 70 kilometers distance to the current Mexico City International Airport makes efficient connections nearly impossible.
  • Converting Santa Lucia airbase to a civilian airport will take time and significant investment. And the military will have to gain experience in running a civilian airport—which is a very different thing compared to an airbase.

Even when we resolve the airport issues, we have a potentially even bigger challenge to provide safe and efficient air traffic management. The three airports are in very close proximity and the runway orientations are not parallel which makes it complex. Landing and take-off paths are further restricted by mountainous terrain. And high altitude with seasonally hot temperatures are an additional factor which need to be taken into account.

I cannot over-emphasize the need for technical coordination with operators to carefully manage these parameters.  Safety must never be compromised. And we don't want to find that investments in these three airports are compromised by air traffic management requirements that ultimately limit their utilization. Getting air traffic management right is mission-critical.

As part of this, we also need to ensure the correct management of slots. With the expected scarce capacity, these need to be allocated in complete compliance with the Worldwide Slot Guidelines (WSG). This is a fair, transparent and global system that works on accepted global standards at over 200 airports. It is good to see that the present Mexico City Airport is already progressively moving to align to WSG, especially since every slot impacts two airports there is no tolerance for tinkering with the rules.

We eagerly await more details on how the government intends to overcome these challenges as they develop this three-airport solution, In the meantime, here are some principles that can help the government's consideration. 

  • Sufficient infrastructure to meet demand must be made available, matched to user needs, and at costs that are affordable. 
  • Airlines have vast experience in understanding both passenger and market needs. So they are also in the best position to make decisions on which airport to serve in light of commercial realities.

We need to bear in mind, that an airline's hub-and-spoke system is finely calibrated. Moving certain routes from a main hub to another airport can unbalance this. And cutting too many spokes could see the whole hub begin to fade.

International airlines flying into Mexico City will have many passengers with the city as their final destination. But the route's viability will also depend on passengers and cargo being able to make easy domestic connections. So, separating airports for international and domestic traffic will not work either.

Policymakers should also not be tempted to think that placing all low-cost and point-to-point traffic at one airport is a great idea. The business models are converging. And commercial necessity is seeing both models increasingly looking for ways to cooperate with each other.

My point is to say that airlines urgently need to know what infrastructure will be available and when. Then we can start a dialogue focused on the best way to use it. If the decisions are politically motivated or bureaucratically assigned, the results are likely to be sub-optimal. And we have seen this in other parts of the world.  Tokyo is an example. When government policies were changed to open the domestic airport to international traffic there was a boom in air traffic and inbound tourism.

And lastly, let me add that there is a thin margin to get things wrong.  While airlines are enjoying a better financial performance than at any other time in their history, we still only make on average less than US$7. And that reduces to just over US$2 when we look specifically at Latin American airlines.

Aiming for Success

Aviation—the business of freedom—has an important role to play in our society. Running an airline carries an important responsibility. It is also a tough business. That's why it is important that policymakers understand the challenges airlines face.

The decision to abandon NAIM makes life more difficult for airlines. It will also negatively impact the entire Mexican economy. The alternatives to NAIM are far from ideal. But we need to work together with a focus on making the best of the hand that we have.

Already we can see a "to do" list for the new government.

  • Consult and work with the industry
  • Keep safety as the top priority—especially when re-designing the complex airspace around Mexico City
  • Respect airline commercial realities and the neutral Worldwide Slot Guidelines when allocating capacity
  • Stay the course on CORSIA
  • Don't impose new taxes that hamper industry. Reduce them if you can.
  • And, take a holistic approach to aviation in the entire country, as many other airports also play an important role in the country's economy.

If we can achieve this, I am convinced that aviation will continue to play a vital role in Mexico's economy and national development.

Thank you.

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