Industry Anticipates US$5.5 billion Loss

5th Apr 2005

“The high price of fuel is robbing our profitability,” said Giovanni
Bisignani, Director General and CEO of the International Air Transport Association
at the opening of the AirFinance conference in New York. “The fuel bill has risen
from US$44 billion in 2003, US$63 billion last year. If oil averages at US$43 per
barrel (Brent) for 2005, the bill will be US$76 billion. And that would leave us
with an industry loss of US$5.5 billion for 2005 and over US$40 billion for the
period 2001-2005,” said Bisignani.“We have lost our balance as an industry. Change is critical,” said Bisignani.

“We cannot live with the half-measures and contradictions of the past. Governments
intensified airline competition without effective regulation of monopoly suppliers
that account for 10% of operating costs. The cost of labour as a percentage of
operating costs ranges from 18% in Asia to 38% in the US.  And it has been
stubbornly difficult to reduce. So it is result of tremendous hard work at
restructuring and re-engineering their businesses that airlines have reduced
non-fuel unit costs by 2-3% annually,” said Bisignani.

Bisignani outlined a vision for change that involves airlines, governments and the
industry’s monopoly suppliers—airports and air navigation service providers.

“Everybody has a role to play. Airlines must Simplify the Business by eliminating
complex processes that are expensive but add no value to our customer. Industry-wide
e-ticketing alone will save US$3 billion in costs each year. Our monopoly
partners—airports and air navigation service providers—cost us US$40 billion a
year. They must understand the need for gains in cost efficiency and deliver
measurable results,” said Bisignani.

Bisignani singled out governments for adding costs to the industry,


“Deregulation was meant to foster competition and lower the cost of air travel. But
governments continue to milk the industry for taxes and charges that are at the
levels of alcohol and tobacco.  In the US, the average tax charged on a US$200
ticket has increased from 7% in 1972 to 26% in 2004—or US$ 15.8 billion. Moreover,
we cannot accept the US$ 5.6 billion global cost burden for security that
governments are passing annually to the industry. Governments must take
responsibility and pay for national security,” said Bisignani.

Bisignani challenged governments to take a different approach with air transport.

“We have nationalistic rules for businesses that compete globally. And, in place of
a strong vision and leadership for our industry’s future, governments micro-manage
and mis-regulate. In Europe alone, mis-regulation and micro-management cost the
industry EUR 5.9 billion each year. We need modern rules that will allow us the same
freedoms that other global businesses take for granted. Ownership and control rules
that restrict access to global capital are of a different age. We need to run our
businesses like real businesses. Markets and competition must shape the future of
our industry, not the 60 year-old bilateral system,” said Bisignani.

Bisignani drew a comparison between a deregulated telecommunications industry and

“Both of these industries have importance as strategic components of a nation’s
infrastructure. For both, deregulation resulted in declining yields in excess of 30%
between 1991 and 2004. But the playing fields are completely different. The telecom
industry has access to global capital, facilitating cross-border mergers. Customers
are well-served and the companies are financially healthy. Air transport is
fragmented, constrained and, as a result, a financial disaster in many places.
Governments agreed on progressive liberalisation through the International Civil
Aviation Organization (ICAO). It is time for government leadership to implement the
vision,” said Bisignani.

Urgent action is needed.

“The livelihood of 28 million people in aviation and aviation related activities and
US$1.8 trillion of economic activity are at stake. Governments must act quickly in
areas that are their responsibility and then get out of the way. We need to get on
with business,” concluded Bisignani.


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