Looking up

The past few years have been tough for the air transport industry, with high oil prices, SARS and 9/11 among other problems. However, we are starting to see light at the end of the tunnel and there is some room for cautious optimism. The industry has achieved much. Since 2001, labour productivity improved 33 percent, sales and distribution costs dropped 10, and overall non-fuel unit costs reduced 13 percent. These efforts have moved the break-even fuel price from US$14 per barrel to US$50. We are en-route to a low-cost industry. We have not yet landed – but the approach is near.

Oil is the wild card. Prices are racing ahead of efficiency gains and robbing our profitability. The industry fuel bill will top US$112 billion this year, an incredible US$21 billion more than 2005. Despite absorbing this enormous cost, profitability did not deteriorate. Losses for 2006 will be slightly lower than 2005 at US$3 billion. Strong revenues helped. For each of the last three years, revenues rose by 10 percent. That is double the historical average. But a weaker global economy could change this dramatically.

We are a responsible industry that has strived hard to meet its challenges with improved efficiency and cost-cutting, but we have not cut corners in three important areas: safety, simplifying the business and the environment.

First, safety – the 2005 accident rate was our lowest ever. Industry-wide we had one accident for every 1.3 million flights, while for IATA member airlines the accident rate was one for every 2.9 million flights. And we are committed to doing even better. The IATA Operational Safety Audit (IOSA) is the first global standard for airline operational safety management. It is at the core of our efforts on safety, and at our recent AGM IOSA became a condition of membership.

Second, our Simplifying the Business programme to improve efficiency and make air transport more convenient will save US$6.5 billion. Complex processes have no place in an efficient industry. We are making good progress on bar-coded boarding passes, radio frequency identification luggage tags and Common-Use Self Service kiosks. Nearly one out of every two tickets issued is now an e-ticket. By the end of 2007 IATA will stop issuing paper tickets, saving up to US$3 billion per year.

Thirdly, the environment is an issue that is high on our agenda. IATA’s fuel efficiency programme saved 11.9 million tonnes of CO2 emissions last year. This includes working with governments for more direct routes. In 2005 alone, we optimised 300 air routes, saving 6.1 million tonnes of CO2 emissions. Our ‘Save a Minute’ campaign is improving airspace design and procedures. Last year, we eliminated 2.5 million minutes of flight time, saving 1.5 million tonnes of CO2 emissions. And more can be achieved: by removing the 12 percent inefficiency in air traffic management, investing in new technology, and exploring global, not regional, emissions trading options.

Facts and figures highlight our responsible approach to our most important issues. But too often stakeholders, who lack the vision and speed to match our achievements, block our progress. It’s time for some wake-up calls. A responsible industry has the right to demand responsible policy and actions.

The first wake-up call is directed at the airlines, which must keep focused on efficiency, and not be distracted by the strong revenue environment. And record aircraft orders could be our Achilles heel if we stop managing capacity carefully.

The second wake-up call is for our employees – our greatest asset. Productivity increases have been impressive, but have often been achieved after long battles or only with bankruptcy protection. Cooperation, not conflict, will secure long-term employment

Global Distribution Systems (GDS) brought great innovation and a closer relationship with our customers. But GDS have not kept pace with change. Deregulation brought down fees in the US, but elsewhere fees skyrocket. The wake-up call is: deliver value-for-money. Taking advantage of your customers is not responsible.

The fourth wake-up call is for fuel suppliers. Oil companies plan to return US$250 billion to shareholders over the next two years but are failing to invest in new refinery capacity. Profiting without investing is unacceptable and irresponsible. We need more refinery capacity and more research into alternative fuels.

Despite four years of shouting politely, many infrastructure partners still need a wake-up call. Aeronautical revenues per passenger at airports and air navigation service providers (ANSP) increased 27 percent since 2001. While airlines have reduced their non-fuel unit costs, many airports have increased their charges. In Europe, charges have become so high at some airports that we have been forced to take legal action. We have also called on the EC to introduce effective national regulation of airport monopolies. The wake-up call is for all airports not yet on board: efficiency is coming. You can run, but you cannot hide.

Many ANSPs are good and cost-efficient partners. However, the Single European Sky has become a singular European embarrassment – 20 years of discussion for nothing. We are still paying a US$3.4 billion bill for inefficiency. That’s the cost of 35 providers when one could do the job. A new approach – SESAR – is a first step in the right direction. Now we need speed and results.

The wake-up call to governments is two-fold. First, don’t kill us with an overdose of taxation. We are taxed like luxuries or tobacco when we are a mass transit system bringing huge benefits to the global economy. And there is a worrying trend for governments to tax air passengers to fund non-aviation related causes such as development aid or the EU budget deficit. Responsible governments must support aviation’s unique ability to bring people together and goods to markets.

Secondly, governments must let us get on with business. We need the same commercial freedoms as other industries. Governments have a leadership role in safety, security, environment and regulating monopolies, but we don’t need governments to negotiate our markets. Consumer demand is more effective. The bilateral system served us well over 60 years. Now let’s organise a spectacular US$12 billion retirement party. That is the amount of additional profit that it would add to our industry. The positive impact on the global economy would be enormous. Agreement between the US and Europe on open skies would liberalise 105,000 seats each day. Liberalisation is long overdue. And if the US and Europe are not willing to maintain leadership, fast moving India and China are not afraid to drive change.

The list of wake-up calls is long, but there is much room to be optimistic. The industry is working to support quality in safety, drive efficiency throughout the industry, improve passenger convenience, and re-invent industry processes. Now we must wake-up our stakeholders to their responsibilities to face the realities of our industry, have the political courage to change, and understand the need for speed.

This article is an extract from the speech given by Mr Bisignani at the IATA Annual General Meeting and World Air transport Summit in Paris, June 2006.