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The International Air Transport Association (IATA)
has called on governments and industry partners to address the fuel crisis that is
pushing airlines into the red. IATA forecasts a loss of US$2.3 billion for 2008 based on an average oil price of US$106.5 per barrel Brent
crude. The association sounded a warning that this year’s loss could be even higher
- potentially US$6.1 billion with an oil price at US$135 per barrel for rest of the year.
In the State of the Industry address at IATA’s 64th Annual General Meeting and World Air Transport Summit in Istanbul, Turkey, the
association’s Director General and CEO, Giovanni Bisignani compared the airline industry to Sisyphus - a mythical character whose fate
was to constantly carry heavy loads uphill.
“Over the last 60 years the industry made US$11.5 trillion in revenues, but only US$32 billion in profits. Average margin for the entire
industry has been just 0.3%. And the industry is US$190 billion in debt. Since 2001, airlines achieved massive change. Fuel efficiency
improved 19% and non-fuel unit costs dropped 18%. The skyrocketing price of oil has eaten these gains and left the industry in the red
again. Oil prices at US$130 a barrel are changing the game for everyone. The situation is grim,” said
Bisignani.
Bisignani sounded the alarm in a stark declaration to governments, industry partners and labour. “Airlines are struggling for survival and
massive changes are needed. Governments must stop crazy taxation, change the rules of the game and fix the infrastructure. Labour must
understand that jobs disappear if costs don’t come down. And to our partners, the message is simple. We are in this together. Don’t bite the
hand that feeds you,” said Bisignani.
The greatest call for change was with governments. “Re-regulation or re-nationalisation is not the right answer. But it may be the only one
unless we change the rules of the game. The Chicago Convention is not the problem. It’s the bilateral system that was designed for another
age. The Freedoms of the Air are only restrictions on our business. Airlines cannot look beyond national borders to manage risk, access
global capital or consolidate. To fight crises effectively, brands not flags must define our business,”
Bisignani said.
“We must communicate clearly to governments the dimension of the oil crisis, the potential impact on the global economy if the air
transport industry fails, the measures that airlines are taking to survive and the action we need from them. To achieve this, IATA is
organising an Agenda for Freedom Summit in Istanbul in the fourth quarter of this year. The invitation is open to any country with the
courage to change. Already 12 countries have agreed to participate,”
added Bisignani.
“The Agenda for Freedom Summit will build on the pockets of progress on liberalisation that we see around the world and drive even bigger
change to overcome the limits of the bilateral system, free airlines from national flags, secure financial stability and create global
opportunities. It’s time to tear-up the 3,500 bilateral agreements and replace them with a clean sheet of paper without any reference to
commercial regulation. Airlines would be free to innovate, compete, grow, become financially healthy or even disappear. Governments also
have an important role: to ensure a level playing field and regulate safety, security and environmental
performance,” said Bisignani.
Bisignani also called for change in three other key areas:
Security: “Security is an uncoordinated mess. Since 2001 airlines and their customers have paid over US$30 billion for security measures.
For this we get more frustration than value. Passengers face a maze of duplication, bureaucracy and hassle. This must change,” said
Bisignani. The IATA-led Simplifying Passenger Travel programme helps points the way to
effective but more efficient and convenient
security. “Now governments must do their part and focus on risk management, harmonise global standards, make better use of technology,
and take responsibility for the bill,” said Bisignani.
Regulation of
monopolies: Bisignani reported that IATA’s work achieved a record US$3.7 billion of cost savings in charges, fees and
taxation. “But airport cost increases of US$1.5 billion show that still too many monopoly suppliers live happy days isolated from
commercial discipline. Governments must deliver effective regulation of monopolies. That means delivering results on cost-efficiency and
good service,” Bisignani said.
Environment: “The current fuel crisis must be a catalyst for governments to deliver results on environment that reduce fuel burn. Our vision
for carbon neutral growth leading to a carbon-free future sets the benchmark. And we are driving progress with our four pillar strategy. In
2007, IATA Green Teams delivered 10.5 million tonnes of CO2 savings along with shortening 395 routes. But governments remain fixated on
punitive economic measures such as the EU Emissions Trading Scheme. These are reckless decisions when the oil price could re-shape
the industry. Governments must drive progress by taking politics out of air traffic management, acting
globally on emissions trading and supporting positive economic measures to drive innovation,’’ said
Bisignani.
Bisignani
also reported on two areas of solid progress:
Safety: “In 2007, 2.3 billion people and 44 million tonnes of cargo flew safely. But the accident rate took a step backwards from 0.65 hull
losses per million flights in 2006 to 0.75 in 2007. We must work harder to make a safe industry even safer,” said Bisignani. He announced
that all IATA members have completed the IATA Operational Safety Audit (IOSA). A total of 149 IATA member airlines are on the registry
which now includes 206 airlines. “IATA is a quality association and IOSA is a condition of IATA membership. By the end of 2008, carriers
must close all audit findings and be listed on the public registry to retain
membership,” said Bisignani. Twelve airlines have been terminated for not meeting the deadlines. “Our goal is to raise the bar on safety, not reduce our membership. IATA is
investing US$8.2 million in Partnership for Safety programmes and flight data analysis to help members achieve the IOSA standards.”
Simplifying the
Business:
The industry achieved 100% e-ticketing on 1 June 2008. “Four years ago we had a vision
to modernise our business with technology, improve convenience and save US$6.5 billion. Today that vision is a reality. E-freight operates
at six locations, three more are about to start and we expect 14 by the end of the year. Bar coded boarding passes are being used by 135
airlines. And millions of passengers enjoy the convenience of Common Use Self Service check-in at 94 airports. But the star of the show is
e-ticketing. Today we celebrate a great achievement. The paper ticket is history. Everyone can enjoy
the convenience of e-ticketing everywhere. And we are saving US$3 billion annually,” said
Bisignani.
“Airlines transport 2.3 billion passengers safely and efficiently. Over US$3.5 trillion of business and 32 million jobs depend on our success.
We are in a crisis of enormous dimension. Change is the only way to survive this perfect storm, return to profitability and build a sustainable
future,” concluded Bisignani.
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