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Transcript: State of the global Aviation Industry presented by IATA CEO Tony Tyler

IATA CEO Tyler at Annual General Meeting: Aviation’s potential has never been more inspiring

Jun 02, 2016

This is a transcript of the speech given today at the ongoing IATA Annual General Meeting in Dublin by IATA CEO and Director Tony Tyler about the state of the Global Air Transport Industry.

“International civil aviation can greatly helto create and preserve friendship and understanding among the nations and peoples of the world.”

So begins the Chicago Convention (1) 1944 which laid the groundwork for modern aviation.
The vision of IATA’s founding airlines was to make that happen—to benefit the peoples of the world with safe, regular and economical air transport.
From the beginning, both governments and industry conceived aviation as a force for good!
This year people will make 3.8 billion journeys by air (2). 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% of goods traded internationally (3)—some 52 million tonnes of cargo that will include life-saving medicines, the perishable bounty of our planet, and high-value goods produced by global supply chains.
Aviation makes our world a better place. In doing so, it supports 63 million jobs and underpins 3.5% of global GDP (4).
Financial Performance
Airlines are engines of prosperity. But they have long struggled to turn a profit and reward investors (5). That is beginning to change.
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.
Profitability is not evenly spread. The passenger business is growing robustly while cargo stagnates. Some regions are doing very well; others are struggling. And individually, some of you are experiencing good times, while others face a world in crisis.
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 (7). 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.
Overall, despite generally adverse economic conditions, it is a good time for the air transport industry.
Consumers are getting great deals and lots of choice (8).
Investors are beginning to see reasonable rewards for the capital they risk.
And airlines are able to make critical investments and shore-up their resilience by paying down debt—although it will take several years of solid profitability to fix most balance sheets properly.
Simply put, we are beginning to be a normal business, as well as a force for good.
Four Foundation Stones
Profitability, however is only one part of the story. We are a diverse industry with many business models. In intensely competitive conditions such differences can lead to trade disputes, notably between some carriers in North America and Europe with their competitors in the Gulf. IATA has no role in such disputes among our members. These are the province of governments.
Our gathering as the global airline family transcends competitive issues among us. Our success as an industry rests on areas where we work together: the foundation stones of: safety, security, global standards and sustainability. Each is strong, but not without challenges.
Our top priority is safety. The EgyptAir tragedy reminds us that safety is a constant challenge. Our thoughts are with the victims, their friends and families; and our colleagues at EgyptAir.
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% improvement on the five-year average (9). The safest way to travel is by air (10). And we are determined to make it even safer.
True to that commitment, the IATA Operational Safety Audit (IOSA)—used by over 400 airlines worldwide—now includes continuous compliance monitoring. And to maintain trust, the quality and integrity of IOSA’s audit standards and processes are constantly reviewed (11).
Finland has become the latest government to incorporate IOSA into its oversight. And IOSA proves that global standards can drive important safety improvements in Africa. The fatal accident rate for sub-Saharan carriers on the IOSA registry now aligns with the global average. The Abuja Declaration (12) aims to achieve world-class safety in Africa. The continent’s governments must keep their commitments to make IOSA mandatory and implement fully ICAO standards and recommended practices (13).
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 (15). This will ensure that people can share important safety information of any kind without fear of reprisal.
Reinforced by our commitment to global standards, the foundation stone of safety is on firm ground.
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 involving Metrojet 9268, Daallo 159, and Brussels Airport. All are grim reminders that terrorists do not care who they victimize in trying to achieve their ends—including innocent travelers.
Terrorist objectives are clearly bigger than aviation. Governments face the formidable challenge of protecting the values of free and open societies from people with an agenda of darkness. In that context governments must keep our passengers and employees secure as part of their responsibility for national security. Of course, airlines share the same objective and are working with governments to achieve it.
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 (16).
The second is Fast Travel—our initiative to speed-up passenger processing with self-service technology (17).
But airport security programs 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 (18). We have worked with ICAO, and other international agencies on global standards for data collection and transmission (19). It is paramount that governments implement these standards consistently—or efforts to neutralize terrorism will be weakened by complexity.
At the same time governments should make full use of the data we give them in known traveler programs.
Knowing in advance who is approaching their borders creates a window for risk assessment. So it is reasonable to expect expedited processing for the vast majority of travelers who pose no risk at all. And we ask that governments work to align global known traveler programs so that passengers can apply once and be accepted by many.
More broadly, we also ask that governments share the intelligence information that they have more effectively.
The MH 17 tragedy brought this to the fore with respect to conflict zones. ICAO established an online portal (20) 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 (21).
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.
Flying is safe and it is secure. But we cannot take that for granted, for even a second.
Global Standards
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 modernize them.
Airlines began this century by working together to create value by Simplifying the Business (22). 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 travelers (23).
Four years ago we launched a program to complement these travel options with a state-of-the-art online marketplace for air travel. New Distribution Capability (NDC) is now a reality (24). Twenty airlines are using NDC schemas to sell tickets (25). We also have launched an NDC certification program (26). 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 modernize 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 (27).
Technology will continue to bring value to the business and efficiency to the customer experience—probably in ways that we have not yet even imagined. Working together is the key ingredient to keeping this foundation stone strong. But it will always be a challenge to keep pace with the technology cycle and to meet the changing expectations of our customers.
The last foundation stone is sustainability—a key expectation of our customers and society at large. 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 (28) we committed:
To improve fuel efficiency by an average of 1.5% 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 (29). The first three pillars focus on improving technology, operations and infrastructure. As a result, emissions are growing more slowly than the kilometers we fly, and we are on track to meet our fuel efficiency target (30).
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 (31) by ICAO this year will ensure continuous improvement in carbon-efficiency for future aircraft generations.
The impact of these efforts could be significantly boosted if governments would create a policy framework to support the commercialization of sustainable alternative fuels (32).
Looking to our 2020 carbon-neutral growth target, it is clear that it cannot be met with improvements in technology, infrastructure and operations alone. So the fourth pillar is the establishment of a global market-based measure. And the opportunity for governments to achieve that is at the 39th ICAO Assembly later this year.
This morning we will consider a resolution (33) to signal once again the industry’s fervent support for a mandatory global carbon offset scheme from 2020. We should not underestimate how difficult it will be to get ICAO’s 191 member states to align and agree.
The proposal on the table at ICAO is called CORSIA—Carbon Offset and Reduction Scheme for International Aviation (34). Developed with input from industry and civil society, it will be the simplest and most cost-effective system to establish and manage offsets linked to real and permanent carbon reductions.
CORSIA is a work in progress. Balancing the interests of all those involved is a Herculean task. I am confident of success. But we must stay united as an industry.
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. That will keep us at the forefront of industries in managing climate change. And that is where we must aim to stay in order to grow as a force for good connecting and enriching our world.
Force for Good
Airlines compete fiercely as individual businesses. At the industry level, airlines cooperate 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 (35).
Our future is well secured by the four foundation stones that I have just discussed. Aviation will be a force for good in our world as far into the future as we can imagine—and probably beyond.
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
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 (36). The number seems to grow with each government budget cycle—with Norway being the latest country to add to the industry’s tax burden (37).
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% 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 (38). PwC estimates that the UK economy would be GBP 18 billion more prosperous if the tax were abolished. One can only wonder why the tax still exists.
Ireland, our host this year, abolished its departure tax in 2014. The industry here is growing so fast that Dublin now needs a new runway to take advantage of the jobs and economic growth that aviation is delivering. That’s the key message. Our arguments for low taxes hinge on a net positive benefit for government finances, national economies and individuals.
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 Eurocontrol expects that 12% of demand in 2035 will go unmet (39).
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 (40).
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.
If we can do all that, we’ll have regulations that create value—for passengers, shippers, airlines, participants in the supply chain and for the overall economy.
Working Together to Create Value
In bringing my remarks to a close, I want to reflect on the power of partnership.
Partnership is essential for the continuous reinforcement of the foundation stones of safety, security, global standards and sustainability.
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 (41) are applied properly.
The framework for our modern industry was built by governments and airlines with a common vision that safe, regular and economical air transport would benefit the peoples of the world by creating and preserving friendships and understanding. With more than 100 years of history behind us we can confidently say that aviation has made the world a better place.
We have done that by unleashing an irreversible and ever-more accessible capability to explore the world in which we live, to improve our lives with unprecedented mobility, and to grow prosperity by doing business globally.
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.

Aviation’s potential has never been more inspiring. We are privileged to lead an industry that is a force for good.

IATA CEO Tyler at Annual General Meeting: Aviation’s potential has never been more inspiring

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