Year of the Water Dragon
By Tony Tyler, IATA's Director General and CEO
The start of 2012 is characterized by contrasts. IATA’s outlook is for anemic industry profitability. At best, we expect the year to bring a 0.6% margin for a $3.5 billion profit shared across an industry that generates more than $600 billion in revenue. The biggest global concern is how Europe is coping with its sovereign debt crisis. Should the continent fall into recession, the industry will find itself deeply in the red.
Despite the economic uncertainty, people are flying in increasing numbers. Passenger demand grew by nearly 6% in 2011. For some airlines, that translated into profits that met expectations. For others, as we see with recent high-profile bankruptcies, the situation is still difficult.
Regionally, Europe is at the center of the gloom. Yet one European carrier recently placed a huge order for new aircraft. And last year’s healthy traffic figures were in part a perverse result of the euro’s weakness, which boosted traffic to and from Europe. In general, Asia was much more optimistic, but structural problems in the Indian industry due to bureaucracy, high taxes, rising costs, and inadequate infrastructure stand in stark contrast to China’s robust growth.
In the face of such uncertainty and contrasts, airlines are managing their businesses tightly. The near-term focus is on conserving cash, controlling costs, and matching capacity to demand. We expect our business partners to do the same.
Nevertheless, this urgent short-term action should not come at the expense of a long-term vision. In 2011, 2.8 billion people flew and 31 million tons of cargo was transported internationally by air. In five years we expect these numbers to grow by 700 million people and 6 million tons of cargo. The connectivity that this implies will drive global growth—carrying people to business, travelers to leisure destinations, and products to markets.
For governments struggling with high unemployment and stagnant economies, the message is clear: connectivity drives commerce and wealth creation. The biggest threat to this cycle of prosperity is the failure of many governments to understand the strategic potential of aviation. As a result, they fail to build cost-efficient infrastructure to accommodate growth, or they see airlines and travelers as opportunistic targets for tax-grabs to offset government budget deficits.
History has some lessons for us. Increased connectivity has always made our planet a more prosperous place. Ships pushed back the boundaries of the sea. Railways opened up vast interior lands. Cars increased personal mobility. The fastest-growing economies have almost always been those that were the best connected for their time. Today, aviation connects the globe on a scale that would have been unimaginable a century ago. So it should come as no surprise that China’s economic ascent has been achieved in lock-step with the priority of facilitating aviation’s growth.
This is the year of the water dragon in Chinese culture. These are thought to be special years. Among the most prominent attributes of the mythical dragon are power, intelligence and wisdom. IATA’s 68th AGM in Beijing will showcase a vibrant economy and aviation sector. This should serve as an inspiration for those governments that look on aviation less strategically.