by ANIL TYAGI and ANISH GANDHI
THE positive impact of globalisation is undeniable. Since 1990, 1.1 billion people have been lifted from poverty. The world is growing richer and trade, empowered by connectivity, is a leading force in development. But the forces of protectionism are gathering strength. Sanctions, tariffs, and geopolitical conflicts are the mainstay of daily news. The spectre of a trade war looms. Debates on migration and immigration rage. And trust among nations is showing its fragility.
Facts show that aviation has created immense value by bringing people, products and business together. The 4 billion passengers who boarded planes in 2017 demonstrate the human desire to explore, connect, learn and collaborate across great distances.
And the 60 million tonnes of cargo delivered by air accounted for a third of the value of goods traded globally.
Every day, goods, people, investment and ideas are connected by aviation. That directly supports 63 million jobs and improves the quality of life for all. Aviation has a purpose. It spreads prosperity and enriches the human spirit. That truth lays the foundation for a very important message. Everyone is better off when borders are open to people and to trade. And, our hard work as an industry has primed aviation to be an even stronger catalyst for an even more inclusive globalisation.
Aviation’s financial foundation is stronger than ever. Airlines will make $33.8 billion this year. Passenger demand is expected to grow seven percent and cargo by four percent. Airlines are creating jobs, paying-down debt and rewarding investors. Our nine-year run of profitability began in 2010. Return on invested capital will exceed the cost of capital for four years in a row. At long last, normal profits are becoming normal.
This is hard won through major changes—to the structure and its operations. But success is not evenly spread. Almost half the industry’s profits are generated in North America, while better financial returns remain elusive for many. The goal is for the entire industry to operate in solid financial health.
Low-cost long-haul is providing great value to consumers. Protectionism could derail successful international joint-ventures. Jet fuel costs are expected to be up 25% on 2017. But, $7.76 is our only buffer against future shocks. That’s the average profit per passenger that airlines will make this year—a thin 4.1% net margin.
Don’t bank on privatisation
by ANIL TYAGI AND ANISH GANDHI FROM SYDNEY
SYDNEY — a coastal metropolis whose five million residents make it the largest city in Australia — is famous for its glittering harbour, complemented by landmarks like the Sydney Opera House and the Sydney Harbour Bridge. The delegates at the 74th IATA AGM could have enjoyed the city’s fabulous weather, as well as these sites, but the leaders of the $90 billion dollar aviation Industry were more engrossed in serious affairs, i.e. deliberations on illicit trafficking, rising oil prices, privatisation of airports, safety and security, open border policies, and environment impacts. For example, look at these insightful comments on airport privatisation.
“We are in an infrastructure crisis. Cash-strapped governments are looking to the private sector to help develop much needed airport capacity. But it is wrong to assume that the private sector has all the answers. Airlines have not yet experienced an airport privatization that has fully lived up to its promised benefits over the long term. Airports are critical infrastructure. It is important that governments take a long-term view focusing on solutions that will deliver the best economic and social benefits. Selling airport assets for a short-term cash injection to the treasury is a mistake,” said Alexandre de Juniac, IATA’s Director General and CEO.
It is ironical that these concerns come from the powerful aviation sector, which is the loudest votary of capital formation by the private players. The clock, it seems, is turning anti-clockwise. IATA is a confederation of 292 airlines, which carry 4 billion passengers a year, earn $7.76 per passenger, and operate in an environment of cut-throat competition with average profit margin of 4.1%. It’s alarming that it is urging governments not to sell their airport assets, merely to feed cash-starved treasuries. Sadly, IATA’s AGM did not elaborate on the issue.
The IATA CEO made another telling comment. He vigorously defended global standards that have guided the safe and efficient development of the sector. “We must take governments to task. It is unacceptable that global standards are being ignored by the very governments that created them,” he explained. He noted several examples:
- India taxes tickets in contravention of ICAO resolutions
- States are planning new environment taxes even as the ICAO-brokered Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is about to commence as the global market-based measure for managing emissions.
- Nearly two decades after the Montreal Convention 1999 was agreed, it is not universally ratified. Its important modernizations apply in only 130 states.
- There is not a 100% compliance with Chicago Convention Annex 13 requirements for complete accident investigations. Of the approximately 1,000 accidents over the last decade, only about 300 accident investigations have been concluded with published reports.
- Annex 17 of the Chicago Convention sets baseline security requirements. Yet ICAO audits reveal that 28% of the states meet them; 37% fail on security resolutions.
Diversity, specifically the lack of it, was a resonant theme – even before the storm when the board chairman, Akbar Al Baker, responded to a question on gender equality, by saying that “Of course”, his own carrier Qatar Airways, “has to be led by a man because it is a very challenging position”. His Excellency Al Baker assumed his duties as Chairman of the IATA Board of Governors (BoG) for a one-year term. He is the 77th chair of the IATA BoG, and the first CEO from Qatar Airways to hold the position. He has served on the BoG since 2012. He succeeds Goh Choon Phong, CEO of Singapore Airlines.
Korean Air will host the next IATA AGM and World Air Transport Summit from 2-4 June 2019. Book your tickets, tighten your belts, see you in Seoul.
Aviation’s new-found financial health is rewarding consumers. With money to invest in new aircraft, the global network has grown to over 58,000 routes. Airlines have invested to develop options that meet every travel budget, shipping requirement, or business need.
We are also making progress on safety. In 2017 for the second time in three years, there were no passenger fatalities in accidents on jet operations. The recent Cubana crash, however, was a human tragedy that sharpens our determination to make our safe industry even safer.
That’s why our Global Aviation Data Management program (GADM) is so important. The vision is to use data to mitigate risks before they can become accidents. Predictive analysis tools we are developing with the Singapore government will make this possible.
Working effectively with regulators is more demanding when the subject is security. After some challenges over the last year, our partnership with governments has deepened. It helped the US Transportation Security Administration to replace its PED ban with measures that have improved security globally.
Sustainability is also central to our future. From January 1, 2019, all airlines must report fuel consumption in preparation for the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). This scheme will keep our promise to cap net emissions, achieving carbon neutral growth from 2020.
But the commitment to sustainability must be shared by governments. The 73 governments already signed on to CORSIA cover 88 percent of aviation. We want more to join. It’s not just about signing-up. Under the leadership of ICAO, governments agreed to CORSIA as a universal measure to address aviation’s carbon footprint. We also want governments to step up on sustainable aviation fuel (SAF).
On aviation’s core mission to deliver safe, secure, accessible and sustainable connectivity, the state of our industry is strong and getting stronger. And with “normal” levels of profitability we are spreading aviation’s benefits more widely.
Looking to the future, I will highlight three key challenges: Avoiding creeping re-regulation Maintaining the integrity of global standards, and Finding sufficient capacity to affordably accommodate growth
We are working in partnership with governments to ensure that “smarter regulation” principles are at the core of regulations. This common-sense approach asks them to align with global standards, take into account industry input and analyse the costs of regulation against the benefits. Flying is more accessible. In 1978, when deregulation began, the average person flew once every 6.6 years. Now the average is more frequent than once every two years. But a worrying counterpoint of creeping re-regulation cannot be ignored.
As part of promoting smarter regulation, we must vigilantly defend global standards. The Chicago Convention set global operating standards that have fostered aviation’s amazing success story. We could not safely operate on the scale of today if each country made up its own rules.
Global commercial standards are the backbone of a distribution network enabling passengers to buy a ticket at any accredited agent, pay in a single currency, and travel the world with confidence.
While the Worldwide Slot Guidelines are great at managing scarce capacity, they are not an alternative solution for building more airports. We are in a capacity crisis. We don’t see the required airport infrastructure investment to solve it. Govern-ments struggle to build quickly. With cash-strapped finances, many are looking to the private sector for solutions. Our message: we need airport capacity. But be cautious. Expecting privatisation to be the magic solution is a wrong assumption.
We are the business of freedom. There should be no tolerance for those who use our networks nefariously. Our decision a few years ago to take a stand on the illicit trafficking of wildlife is bearing fruit. IATA’s Eyes Open campaign is now raising awareness on human trafficking.
The Business of Freedom
There are challenges. We will meet them head-on. By building partnerships and understanding needed to expand the benefits of the amazing industry.
VOL. 12 | ISSUE 3 | JUNE 2018