Why do we need IATA’s Vision 2050?
Airlines fight the daily battles to survive in a harsh economic environment that is prone to shocks. In this environment, blue sky thinking time is rare luxury, but it is necessary. Decisions made today will have consequences in 40 years time – just look back 40 years to 1970 when the first B747 commercial flight was completed.
Vision 2050’s goal is to provide an opportunity for us to develop some long-term thinking by tapping into the expertise of a select group of industry leaders.
I hope we can find some common ground among them to be able to propose some big ideas for the industry to focus on environmental policy, the role of technology in the travel experience, and the relationship of airports, infrastructure providers and governments.
I started Vision 2050 with the key ideas of profitability, infrastructure, a new power source and building a better relationship with our customers. These are the cornerstones of my vision but I look forward to robust and challenging debate when we meet in Singapore in early 2011.
Are you heartened to see IATA raising its profit outlook for the year?
Between 2001 and 2009, airlines lost $47 billion as a result of war, terrorism, disease and a poor economy. In order to survive over that period airlines were forced to transform themselves completely. We improved the accident rate by more than a third. Labour productivity increased by 53%. The IATA e-led industry-wide e-ticketing programme is saving airlines at least
$3 billion a year in costs. So a return to profitability is welcome news, but let’s keep things in perspective. The projected $2.5 profit that airlines will make is equal to a return of just 0.5% on industry revenues of $545 billion. To cover our cost of capital, airlines would need to achieve a return of 7%–8% and many challenges remain.
Have you ever seen such large geographical deviations in recovery?
This recession was unusual. It is the most global crisis that the industry has ever faced. SARS was focused on Asia. September 11 was felt mostly in the US. Influenza A (H1N1) hit Latin America. But this recession impacted everybody—albeit with varying degrees of intensity. Economic recovery has produced sharp regional differences. Asia-Pacific stands out as the engine of growth, fuelled by China and India. We expect the region’s carriers to make $2.2 billion this year. The North American economy is recovering more slowly and we expect its carriers to make
$1.9 billion. Europe, on the other hand, continues to suffer with a $2.8 billion loss. Traffic is growing at half the pace of the global average and the economy continues to be dogged by high unemployment and concerns for the euro’s stability. What is unique this time is that regional differences have emerged so sharply from a global crisis.
What is IATA’s work in China and India focused on?
Some people say China and India are the future. For me, they are today. Travel within the Asia-Pacific region has emerged as the industry’s largest single market on the back of strong growth in both countries. IATA has a big presence in both markets and we expanded our regional office in Beijing earlier this year. It is now our largest regional operation and is a centre of technical, training and industry expertise. Our India operation is also growing quickly, fuelled, in part, by an agreement with the Indian Civil Aviation Authority to train its personnel in a broad range of skills.
Our involvement in both countries covers everything from advising on economic regulation to ensure cost-efficient pricing to providing training and consultancy services. Our industry financial systems are the financial backbone of the industry in both countries.
Of course, IATA’s work is based on the importance of global standards. As later-developing markets, there is a great opportunity to leapfrog technology to state of the art solutions. We saw that in China with very quick progress on e-ticketing and IATA e-freight has also been implemented in the country.
In India, several airports, including Hyderabad and Bangalore, have achieved platinum status for bar-coded boarding pass acceptance. As these and other Simplifying the Business programmes are implemented, so the competitiveness of both markets is improving.
We also cannot ignore that both India and China are physically large countries in strategic locations. You cannot get from South East Asia to Europe without overlying India. Polar routes over China are helping to connect ultra long-haul routes in Asia and North America. So another focus of our work is to ensure efficient overflight capabilities. We are also working with both China and India to improve the airspace infrastructure, such as shortening routes. A particular focus in China is to improve the efficiency in the Pearl River Delta region.
What other regions have you earmarked as vital to the future?
This is a global industry. All regions are important, both for their local markets and as part of the global infrastructure and each comes with its own challenges and unique success stories. Latin America is a good example. A decade ago, it was in terrible shape. Safety was an issue. Finances were an issue and infrastructure was in a post-privatisation mess. Today it is a completely different story. It is the only region that we expect to show a profit in both 2009 and 2010. New ownership structures have created multi-national brands. Some of the mistakes of privatisation are beginning to be corrected. In general, governments are beginning to produce a policy framework that exploits aviation as an economic driver. There are still issues that must be addressed.
Brazil’s infrastructure needs an upgrade prior to the FIFA World Cup and axes and charges are still too high. However, Latin America in general is a great turnaround case study.
Why have you demanded that a date is set for the Single European Skies?
No targets, no business. No date, no progress. We have been discussing the Single European Sky for decades. The best that we could do is incremental progress on some functional air space blocks. The Single European Sky is much bigger than that. It is saving 16 million tonnes of CO2 and $6.5 billion in costs. To achieve that, we first need governments to see the SES as a critical component of a united and competitive Europe.
What is your message to governments that continue to impose taxes on air travel?
Stop. It makes no sense. The Netherlands introduced a departure tax a couple of years ago. It wanted to raise €300 million in new cash. But the cost to the economy was €1.2 billion. The Dutch had the good sense to abandon the tax but aviation remains a favourite target for cash strapped governments. What is worse, the environmental agenda is being hijacked to justify cash grabs like we see in the UK with the Air Passenger Duty or in Germany with its proposed aviation tax. As an industry, aviation must do much better at explaining our social and economic benefits to avoid further onerous taxes.
Is IATA making good progress with working with ANSPs and airports?
We are making progress in coming to a common understanding that everybody benefits from cost-efficiency. In 2009, our work directly with ANSPs delivered savings of $550 million but we also saw cost increases of almost the same amount. We are making progress, but there is still more to do. It is always a pleasure to honour the best performers as role models for others to aspire to. This year, NavCanada won the Eagle Award for best ANSP for doing what all successful businesses do – listening to the customer. They worked transparently with airlines to establish groundbreaking programmes like ADS-B. Strong management resulted in charges reductions in 2006 and 2007 and charges have not changed since then. This is a cooperation model that produces results. Others should follow.
This article is featured in Routes News 2010 Issue 5
