AVIATION is not just connecting people and shifting goods,” said Tony Tyler, IATA’s Director General and CEO in his report on the air transport industry at the 72nd IATA AGM in Dublin. “Our work is building a better future for the peoples of the world.” There are nearly 2,000 government-imposed aviation taxes worldwide, for example. Often, the taxes and charges can make up more than 20 per cent of the cost of air travel, four times the airlines’ annual net margin. Tyler noted that the math simply doesn’t add up, with governments foregoing gains in economic performance and job creation. The UK’s air passenger duty generates £3 billion in revenue for the government, but one study puts the potential gain, if the tax is abolished, at £18 billion.
Similarly, the need for cost-efficient infrastructure to meet demand suffers from short-term politics rather than benefits from a long-term vision. Congestion is seen in all corners of the globe, from London to Sao Paulo to Bangkok. And often the airspace is little better. “Unfettering airlines from infrastructure constraints will facilitate growth and prosperity will follow,” said Tyler.
Here are the excerpts from his speech which gives an insight into challenges faced by the Air Transport Industry:
This year people will make 3.8 billion journeys by air. Among them will be families reuniting, students exploring the world, businesspeople creating prosperity, aid workers responding to crises and political leaders seeking to understand and solve problems. Our fleets will deliver 35 per cent of goods traded internationally some 52 million tonnes of cargo.
Aviation makes our world a better place. In doing so, it supports 63 million jobs and underpins 3.5 per cent of global GDP. This year we expect a collective net profit of $39.4 billion (6). It will be only the second year in our history—and the second in a row—in which airlines will make an aggregate return in excess of the cost of capital. After decades of capital destruction, that’s a significant achievement. But it is still just the minimum performance that investors expect.
On average, airlines will make $10.42 for each passenger carried. In Dublin, that’s enough to buy four double-espressos at Starbucks. Put another way, for every $100 in sales that Starbucks makes, their net profit is over $11. But airlines will only make $5.60. We don’t begrudge Starbucks their profitability. But there is clearly still upside for airlines.
Lower oil prices are certainly helping—though tempered by hedging and exchange rates. And your hard work is strengthening the business. Load factors are at record levels. New value streams are increasing ancillary revenues. And joint ventures and other forms of cooperation are improving efficiency and increasing consumer choice while fostering robust competition.
Our top priority is safety. The Egypt Air tragedy reminds us that safety is a constant challenge. Our thoughts are with the victims, their friends and families; and our colleagues at Egypt Air.
Accidents are extremely rare. And the strength of the foundation stone of safety was clear in our 2015 performance. There was one major accident for every 3.1 million flights—a 30 per cent improvement on the five-year average.
True to that commitment, the IATA Operational Safety Audit (IOSA)—used by over 400 airlines worldwide—now includes continuous compliance monitoring.
Global standards also help us tackle emerging issues.
- Aircraft tracking came to the forefront in 2014 with the loss of Malaysia Airlines Flight 370. Under the leadership of the International Civil Aviation Organization (ICAO), with input from industry, a global tracking standard (14) has been established. And our capabilities may grow more robust in the near future as space-based technologies mature.
- And when we saw Just Culture being threatened by litigious popular culture, relief was found in global standards. Working with ICAO, Just Culture is now protected by an amendment to the Chicago Convention’s Annex 19 on Safety Management. This will ensure that people can share important safety information of any kind without fear of reprisal.
SO too, is the foundation stone of security, although it has been tested by recent outrages. In the last twelve months, terrorists have laid claim to atrocities involv-ing Metrojet 9268, Daallo 159, and Brussels Airport. All are grim reminders that terrorists do not care who they victimise in trying to achieve their ends—including innocent travellers.
The Brussels attack highlighted the importance of security in airport “landside” areas. This is fully within the remit of government—as is any public space. As an industry we certainly do not advocate the pre-screening procedures imposed in Brussels.
Nonetheless, two important IATA initiatives can help mitigate risks with efficient processes that reduce queues and crowds.
- The first is Smart Security, where we are working with Airports Council International (ACI). It will streamline security with a risk-based approach and modern technology, with the triple benefit of reduced queues, more effective screening and a better passenger experience.
- The second is Fast Travel—our initiative to speed-up passenger processing with self-service technology.
- But airport security programmes are not the keystone in the battle against terrorism. Government intelligence capabilities play the biggest role in keeping our societies secure and stopping terrorists far away from airports.
Airlines help support the risk assessments that governments make by complying with requirements to provide Advance Passenger Information and Passenger Name Record data. We have worked with ICAO, and other international agencies on global standards for data collection and transmission. It is paramount that governments implement these standards consistently—or efforts to neutralise terrorism will be weakened by complexity.
ICAO established an online portal for governments to share critical information for airline risk assessments. But governments need to improve the quality and quantity of their contributions.
LASTLY, protecting cyber security is a growing challenge. Our electronically connected world is vulnerable to hackers bent on causing chaos. We are all vulnerable and there is no guaranteed way to stay a step ahead. That makes real time collaboration and information exchange with governments and across the industry critical.
Make no mistake. We face real threats. Government and industry must be nimble, share information, use global standards and keep a risk-based mindset when developing counter-measures.
Global standards and processes are themselves a foundation stone. Many global standards have been built by airlines working together in IATA. And their importance extends beyond safety and security. We could not operate to the scale that we do without them. And we will not be able to accommodate the expected doubling of traffic in less than two decades unless we continuously modernise them.
Airlines began this century by working together to create value by Simplifying the Business. That has enabled a whole new way to travel powered by e-ticketing and bar-coded boarding passes. Popular self-service Fast Travel options emerged that already are accessible to a third of travellers.
Four years ago we launched a programme to complement these travel options with a state-of-the-art online marketplace for air travel. New Distribution Capability (NDC) is now a reality. Twenty airlines are using NDC schemas to sell tickets. We also have launched an NDC certification programme. This will help airlines, IT suppliers and travel agents to find each other.
NDC will also enable further simplification. IATA’s ONE Order initiative will combine and modernise processes for PNR, e-tickets and electronic miscellaneous documents. The result will be one reference number—simplifying life for passengers and streamlining complex and costly reconciliation processes.
At COP 21 in Paris last December, governments reached a landmark agreement to mitigate climate change by managing carbon emissions. Aviation has been a step ahead in understanding that our license to grow rests on being a sustainable industry. In 2009, we committed:
- to improve fuel efficiency by an average of 1.5 per cent annually to 2020.
- to cap net emissions with carbon-neutral growth from 2020, and
- to cut net emissions to half of 2005 levels by 2050.
To meet these challenging targets, airlines and industry partners have been guided by a four-pillar strategy. The first three pillars focus on improving technology, operations and infrastructure. As a result, emissions are growing more slowly than the kilometres we fly, and we are on track to meet our fuel efficiency target On the technology front, airlines continue to invest in new and more fuel-efficient fleets. Over the next two decades airlines are expected to invest in aircraft worth some $5 trillion. And the adoption of a CO2 standard by ICAO this year will ensure continuous improvement in carbon-efficiency for future aircraft generations.
The proposal on the table at ICAO is called CORSIA—Carbon Offset and Reduction Scheme for International Aviation.
We do not want a patchwork of conflicting regimes with overlapping taxes and charges. We need a mandatory global carbon offset scheme that is fair, transparent, effective, and simple.
Force for Good
AIRLINES compete fiercely as individual businesses. At the industry level, airlines coope-rate to be safe, secure, efficient and sustainable. It is a combination that has generated enormous value—helping aviation unleash ever-greater energy for economic and social development with global connectivity.
The question is, are governments aligned with us? Although we share a critical goal—to grow prosperity—too often governments make decisions that weaken our ability to be a force for good. The divergence is clear in three very important areas—regulation, taxation and infrastructure.
We must redouble our efforts to change that—for the sake of the people and economies that depend on air transport.
Taxation is a good place to start. We have nearly 2,000 government-imposed aviation taxes and charges in our data base—of which 230 are statutory taxes imposed on tickets.
Most increases are incremental, but they add up. And it is not unusual for the net impact of government taxes and charges to reach 20 per cent or more of the cost of travel—nearly four times the airlines’ average net margin. Airlines are a force for good creating jobs and spreading wealth. Why then are we taxed as punitively as the “sins” of alcohol and tobacco?
Many governments are simply not doing the maths. The UK government pockets GBP 3 billion a year from its Air Passenger Duty. PwC estimates that the UK economy would be GBP 18 billion more prosperous if the tax was abolished. One can only wonder why the tax still exists.
The same force for good message applies to our need for cost-efficient infrastructure capable of meeting growing demand.
Some governments understand that aviation infrastructure is a driver of national competitiveness. But too many have forgotten. We see that with bottlenecks in global cities as far flung as New York, London, Sao Paulo, Frankfurt and Bangkok.
And in some cases we have the paradoxical situation of world-class airports on the ground and gridlock in the skies. I know the authorities in China are working to improve the frustrating situation there. It’s important that we see improvements in the Gulf as well.
The bigger question is why aren’t government decisions on infrastructure more motivated by seeing aviation as a force for good? Near-sighted short-term politics get in the way of long-term national interest.
To strengthen the force for good argument we have done some work to quantify what’s at stake—jobs, GDP growth, and productivity.
The first focus was Europe where infrastructure deficiencies are acute. Air traffic management is an inefficient mess. The Single European Sky is the answer but there are few signs of progress. And airports are so difficult to build or expand that Euro control expects that 12 per cent of demand in 2035 will go unmet.
The prize for tackling these issues is big. A Single European Sky would add EUR 245 billion to the European economy in 2035 alone. And if Europe could ensure sufficient airport capacity the prize increases to over EUR 300 billion.
Putting into numbers what we—as a force for good—can make possible is important. It should help governments put more muscle into the long-term political leadership needed for infrastructure development.
And that’s as true in Europe as it is anywhere else. Unfettering airlines from infrastructure constraints will facilitate growth and prosperity will follow.
THE last area where our force for good message provides clear guidance concerns regulation in general.
Aviation has been well served by regulation—particularly in safety where everyone is committed to make flying ever-safer. Not all regulation, however, has the same galvanizing clarity of focus.
Passenger rights rules, for example, often seem more intent on penalizing airlines than helping passengers enjoy the benefits of efficient travel. In a more positive light, where economic regulation of airport monopolies takes into consideration the interests of passengers, we have seen reduced costs, service level improvements and efficiency gains. Unfortunately examples of this are all too rare.
As a force for good, we need Smarter Regulation—clearly defined rules easily implemented to solve real issues while respecting global standards. Regulation must stand up to rigorous cost-benefit analysis. And ideally it should be built with plenty of consultation as a joint effort to unlock aviation’s benefits.
- It’s also important for our 264 members and the entire value chain to work together. Because together we can send a proud message that aviation is a force for good. And we can do more good when tax burdens and infrastructure constraints are removed, and when the principles of Smarter Regulation are applied properly.
People are thirsty for the opportunities that aviation makes possible. Every day we safely transport ten million people and 140,000 tonnes of cargo. We are not just connecting people and shifting goods; our work is building a better future for the
peoples of the world.
VOL. 10, ISSUE 4 | JULY, 2016