Annual General Meetings - An Agenda for Change
The State of the Industry speeches given by IATA Director General and CEO Giovanni Bisignani at IATA Annual General Meetings provide a snapshot of a decade of change in aviation.
SARS and a global economic slowdown were adding pressure to a struggling industry.
Bold changes are needed to ensure the long-term financial sustainability of the air transport industry. Governments are moving slowly and allowing monopoly providers to count their money. Airports and air traffic control operating margins are spectacular—20% on average over the past three years. In our best year, airlines made an average net profit of 2.9%.
The Washington Declaration: outdated government regulations were the strongest obstacles to change. The bilateral system, national ownership rules, and the attitude of competition authorities were deemed the three pillars of stagnation in international air transport. Bisignani insisted they be modernized.
A call to action: “We cannot sit back and wait for better times. Air transport must continue to fulfill its role as an engine for global economic growth, and providing jobs to millions of people around the world. The airlines have adapted to the new circumstances. It is now time for their partners and the governments to do the same.”
Traffic was increasing but so too was the price of oil
In 2003, the industry survived the four horsemen of the apocalypse—SARS, conflict in Iraq, terrorism, and the economy. We must move from fighting fires to designing new industry structures. We must drive rigidity and complexity from our business. Cost flexibility has never been more critical—and this includes labor. And let’s remember that consumers pay for value not complexity.
Simplifying the Business: four projects were approved—E‑ticketing, common-use self-service kiosks, bar-coded boarding passes, and radio frequency identification (RFID). Aside from enhanced passenger convenience, they offered airlines savings of $6.5 billion per year (including e-freight).
Security: government measures were still highly fragmented, and it was costing the industry $5 billion a year.
Ill-advised government regulations topped the industry agenda as airlines met in Tokyo. Misregulation by the EC alone was costing the industry about $7 billion (EUR5.9 billion) a year.
Governments have lost their way. They are not delivering the change that the industry, customers, and the global economy demands. They are delivering half measures: creating a mass transit system but taxing air transport like a luxury item; intensifying airline competition without regulating monopoly partners; preaching competition but subsidizing competing modes of transport; freeing markets but micro-managing the business; and talking liberalization, but keeping nationalistic ownership rules.
IATA’s 60th Anniversary: “Air transport has never been safer, more environmentally responsible, more accessible or more vital to the global economy.”
Environment: in 2004, the industry achieved a 3.4% improvement in fuel efficiency. A manual detailing best practices for fuel efficiency was released. With the industry fuel bill at $60 billion, it was calculated that a 10% improvement in fuel efficiency would bring a 2% improvement in the bottom line.
Cautious optimism stemmed from increased demand and significant IATA-led improvements on key issues, such as air routes over China.
Together with IATA, airlines are supporting quality in safety, driving efficiency, improving passenger convenience and re-inventing industry processes. Now we must wake up our stakeholders—to have the political courage to change and to understand the need for speed. Air transport is the world’s most exciting industry and airlines are delivering great value. There is every reason to be confident about our future and to remove the caution from our optimism.
Safety: the 2005 accident rate was the lowest to date. IATA’s Operational Safety Audit (IOSA) had 189 member airlines in the audit process. It was agreed to add a mark of quality to IATA by making IOSA a condition of IATA membership.
Customers were asked to voice their anger. “Your choice is restricted by an outdated bilateral system. Your cheap tickets are expensive because politicians add taxes. Your time is wasted because governments cannot organize direct, environmentally friendly routes. And you wait too long for shipments to arrive because governments are not living in the Internet world.”
Airlines met in Vancouver with the environment top of the agenda. IATA reminded all industry stakeholders that each minute in the air counted towards emissions.
The industry has changed tremendously in five years. Labor productivity is up 56%. Distribution costs are down 13%. Non fuel unit costs dropped 15% and load factors are at record highs—76% in 2006. Airlines needed an oil price of less than $20 per barrel in 2002 to break even. Today we are profitable at nearly $70 per barrel.
Infrastructure costs: $1.9 billion in cost savings from infra-structure partners in 2006 was wiped out by $2.6 billion in increases. “Airport regulators are phantoms. Their financial results—with EBITs of more than 40%—prove that it’s a dream world for airports and a nightmare for airlines that pay the bill.”
Environment: zero emissions became the goal of the industry. Aviation was the first sector to announce its commitment to such a challenging target.
Oil prices once again became the focus of attention as $150 per barrel loomed.
Our industry is like Sisyphus—after a long uphill journey a giant boulder of bad news is driving us back down. Governments must stop crazy taxation, regulate monopolies effectively, ensure that the cost of energy reflects its true value, fix the infrastructure, and change the rules of the game. Labor must understand that jobs disappear if costs don’t come down. And to our partners a simple message—we are in this together so don’t bite the hand that feeds you.
Monopoly suppliers: the UK Civil Aviation Authority was given the ‘World’s Worst Regulator’ award. It had increased charges at Heathrow by 50% over the previous five years and planned an 86% increase over the next five. “Could anyone in this room ask for a fare increase of 86%? What can I say? BASTA!”
Simplifying the Business: more than 235 million tickets had been converted to ET, from a remote island airport in Kenya with no electricity or access road to the fast growing markets of China and India and the mega-hubs on each continent. 100% E-ticketing had become a reality.
2009 Kuala Lumpur
Every IATA airline was listed on the IOSA registry. But the global economic recession was having a deep impact on the industry.
The landscape is harsh. How long must we travel the desert of global recession? There is no modern precedent for today’s economic meltdown. Cargo remains a good leading indicator. Its 23% freefall in December was a clear sign that the global economy was collapsing. Our industry is in survival mode. Whether this crisis is long or short, the world is changing. Even if we try to look beyond the crisis we must recognize that it will not be business as usual.
The IATA Wall of Shame: BAA and the UK CAA for London Heathrow’s 86% increase. Delhi and Mumbai airports for their 207% increase. Quiport in Ecuador for its 79% increase. ATNS (South Africa) for proposing a 44% increase. The Eurocontrol states of Denmark, the Netherlands and Poland for proposing charges increases between 27% and 32%.
Environment: the IATA Board agreed a target of carbon-neutral growth by 2020. Airlines were the first global industry to make such a bold commitment.
A strong rebound was halted in its tracks by the eruption of an Icelandic volcano, which stopped virtually every European flight for five days.
The time has come to think big. My vision for aviation in 2050 begins with safety. We will be very near zero accidents. We will use technology to drive change in the air and on the ground. We will emit half the carbon flying very different aircraft and using biofuels. We will have eliminated queues with integrated systems ensuring security as we process passengers. We will operate with almost no delays in globally united skies. We will share costs and profits equitably across the value chain. We will be a consolidated industry of a dozen global brands supported by regional and niche players. And we will deliver value to investors. In just over a decade, I can see $100 billion in profits on revenues of $1 trillion. As we near 2050, this 10% margin will become much more robust.
Risks to growth: capacity, labor, taxes and oil price volatility were all listed. Bisignani made special mention of global distribution systems. “They are leeches charging at least $4 per transaction when China Travel Sky does it for just $1.20. On top of that, they sell you your data with a seven-digit price tag. That is pure profit. We will break their monopoly on your data with a cost-effective solution.”
Iceland volcano: “April gave us a vivid picture of life without aviation. Ten million people stranded. Hotels and convention centers empty. Seafood and flowers rotting and just-in-time production delayed. The volcano cost the economy $5 billion, far more than the $1.8 billion of lost airline revenue. The eruption was a wake-up call. The message was clear: without air connectivity, modern life is not possible.”