The International Air Transport Association (IATA) called on the global aviation industry to build a platform for a sustainable future based on renewed leadership, continuous innovation, and a united stand in addressing challenges and finding solutions.
These bold steps were spelled out by IATA Director General and CEO Giovanni Bisignani in the annual State of the Industry address at the Association’s 67th Annual General Meeting (AGM) and World Air Transport Summit in Singapore. Bisignani also reported on the results of Vision 2050—IATA’s initiative to determine a long-term vision for the air transport industry—and reviewed the past decade to highlight achievements and unfinished business.
“After a decade of crises and shocks, airlines today are safer, stronger, leaner, and greener. But sustainable profitability remains elusive. We expect airlines to make just $4 billion profits this year on revenues of $598 billion. The challenge is to prepare to handle 16 billion passengers and 400 million tonnes of cargo by 2050 with efficient infrastructure and effective technology, while making sustainable profits and satisfying customer needs,” said Bisignani.
Since Vision 2050 was first outlined at IATA’s 2010 AGM in Berlin, a group of 35 strategic thinkers have developed the Vision and agreed that many things must change to better serve our customers and build a stronger industry. “We need efficient processes to cope with the volumes and evolving customer demand. We need technology-based solutions for the environment and security challenges, and we need air traffic management that goes beyond national borders. We need airport development that is smarter in meeting future demands. And we need sustainable profitability to support innovation and reward shareholders,” said Bisignani.
Sustainable Profitability: Bisignani noted that sustainable profitability would be the biggest challenge for an industry with a net return of 0.1% over the last four decades. “We know what will not work. Cost-cutting alone does not increase long-term profits. Unbundling erodes the value of the base product. And re-regulation would kill efficiency and innovation,” said Bisignani.
The key conclusions of Vision 2050 are the need for stronger partnership across the value chain and a more proactive role for governments. “We must break down silos in the value chain to rebalance financial reward with risks, and create a new value proposition so that competition is not just based on price. And governments must deliver policy decisions that replace intervention with commercial freedoms, reduce barriers to exit, and allow airlines to restructure like normal businesses,” said Bisignani.
Moving Forward: Many elements outlined in Vision 2050 already exist. “We must combine the proactive policies of Asia, the coordinated planning we see in the Middle East, the great ideas that drove innovation in North America and Europe—like open skies and single markets—and the trans-national approach to air traffic management that we see with the Agency for Aerial Navigation Safety in Africa and Madagascar (ASECNA). At the same time, we must reject ideas that cling to the outdated ownership restrictions of the bilateral system and any view that does not put safety first,” said Bisignani.
To advance Vision 2050, Bisignani drew three personal conclusions based on industry unity, renewed leadership, and constant innovation.
Unity: Industry leaders must resolve tensions around the rapid growth of the Gulf carriers. “The solution to call in governments as advocates or referees has not worked. And it will not work. As leaders of a global industry, we must find a fair and reasonable way forward ourselves,” said Bisignani.
Leadership: China and India must take on a greater leadership role. “With size comes responsibility. In place of our traditional leaders, I am convinced that China and India will soon become the driving force of aviation in this century. They will grow aviation stronger through change,” said Bisignani.
Innovation: Innovation and openness to change will determine the future. “We must continue the momentum of the last decade to drive change across the value chain, not as a response to crises but as a new way of doing daily business,” said Bisignani.
A Decade in Review
This was Bisignani’s last State of the Industry address as he will retire as Director General and CEO from 1 July 2011. Over the last decade, IATA led major change in at least three main areas:
Safety: Safety improved 42% with a 2010 industry hull loss rate for Western-built jet aircraft of 1 accident for every 1.6 million flights. IATA member airlines made the IATA Operational Safety Audit a condition of membership and outperformed the industry, with an accident rate of just 1 western-built hull loss for every 4 million flights.
Cost savings: Over the last decade, airlines radically restructured to slash non-fuel costs 9%, increase fuel efficiency 24%, and deliver a 67% improvement in labor productivity. IATA contributed to a more cost efficient industry with $59 billion of savings over the period 2004–2009: $7 billion in reduced taxation, $17 billion in cost efficiencies by monopoly suppliers, $17 billion by Simplifying the Business, and $19 billion in fuel efficiency gains and other cost reduction initiatives.
Environment: IATA led industry consensus to address climate change by improving fuel efficiency an average of 1.5% annually to 2020, capping net emissions from 2020 with carbon-neutral growth, and halving net emissions by 2050 compared to 2005.
However, some important unfinished business issues require immediate solutions:
IATA urges the development of a Checkpoint of the Future for aviation security. “Aviation is much more secure today than in 2001, at a cost of $7.4 billion annually. But our passengers only see hassle because governments are not working together. Passengers should be able to get from curb to gate with dignity—without stopping, stripping, unpacking, and certainly without groping. We must make coordinated investments for civilized flying,” said Bisignani. IATA called for security improvements that focus on replacing the 40-year-old airport checkpoint with a modern approach that is risk-based and powered by intelligence and technology.
IATA calls on Big Oil to commercialize sustainable biofuels at competitive prices. Sustainable biofuels, with their potential to cut the industry’s carbon footprint by up to 80%, could make a major contribution to the industry’s program to fulfill its climate change commitments. “Big Oil is green in its advertising but not in its actions. It prefers to pocket the $1 trillion in profits that the Big 5 made over the last decade, than to invest in green initiatives,” said Bisignani as he called for targets to provide aviation biofuels at competitive prices.
IATA demands that Europe abandon its plans to include international aviation in its Emissions Trading Scheme (ETS) from 2012. “Uncoordinated and punitive regional measures distort markets and undermine global efforts to reduce emissions. The EU ETS is a $1.5 billion cash grab that will do nothing to reduce emissions. BASTA! (Enough!) to Europe’s short-sighted actions. It’s time to be serious about climate change and honest in developing global solutions,” said Bisignani.
IATA asks governments to stop compromising economic growth with aviation taxes. “Governments need a textbook on aviation’s role as an economic catalyst. The first chapter is entitled Basta to More Taxation,” said Bisignani, noting specifically:
The UK for its $4.5 billion Air Passenger Duty, the highest aviation tax in the world
Germany for its $1.3 billion departure tax announced in June 2010
Austria for following Germany with a $119 million departure tax
And India for the $450 million impact on aviation of its Service Tax
The Dutch Government repealed a $412 million departure tax because it cost the Dutch economy $1.6 billon. Similarly, the Irish Government is planning to cancel its $165 million Travel Tax because it has cost the economy $494 million and 3,000 jobs.
“Don’t kill the goose that lays golden eggs. Aviation facilitates the global trade that is stimulating economies and restoring government budgets. Tax the bankers who created the mess. Their billions of dollars in bonuses should help clean it up,” said Bisignani.