The International Air Transport Association has announced a US$5 billion projected profitability for airlines in 2007 at their Annual General Meeting in Vancouver.In his keynote State of the Industry address, Giovanni Bisignani, IATA Director General and CEO said, “We expect airlines to make US$5 billion this year. The industry has changed tremendously in five years. Labour productivity is up 56%. Distribution costs are down 13%. Non-fuel unit costs dropped 15% and load factors are at record highs—76% in 2006. Airlines needed an oil price of less than US$20 per barrel in 2002 to break even. Today we are profitable at nearly US$70 per barrel.”
While the results are encouraging, Bisignani also gave an important reality check, “Airlines are a US$470 billion industry. A profit of US$5 billion is peanuts. We need US$40 billion just to cover the cost of capital. The industry is moving in the right direction, but with US$200 billion of debt, the financial hole is deep. The challenge for is to turn peanuts into sustainable profits.”
IATA outlined six priorities for the industry:
Safety: “In a decade we cut the accident rate in half. 2006 was our safest year ever, with 1 accident for every 1.5 million flights. And IATA member airlines did considerably better at 1 accident for every 2 million flights. The IATA Operational Safety Audit—a condition of IATA membership—is crucial to our efforts to make air travel even safer. Already 153 airlines are on the Registry and the industry is on target to improve safety a further 25% by the end of 2008.” Not all regions are performing at the same level. “While we are raising the bar on safety, IATA is working with its members to deliver results. IATA’s Partnership for Safety has helped 89 airlines across Russia, Africa, the Middle East and Latin America.”
Security: “Nearly six years after the tragic events of 2001, we are much more secure, but the system is a US$5.6 billion uncoordinated mess. Progress has been made on liquids and gels, but with more checked baggage, infrastructure issues must catch up. And governments have forgotten that our success on safety is based on global standards and cooperation. We need to take the same approach with security. It is a government responsibility to provide effective security that is also convenient. Our passengers have been hassled for six years. That’s far too much,” said Bisignani.
Simplifying the Business: “Simplifying the Business is a winner. In three short years, ET penetration jumped to 80%. E-freight will be a reality in five locations by the end of this year. RFID will be part of a new approach to baggage handling. Forty-eight airlines are using bar coded boarding passes and CUSS is used in 59 airports around the world today. A US$6.5 billion revolution is taking shape and now we are looking over the horizon to stage two—a strategy for self-service that will define a new age for efficient travel,” said Bisignani.
Infrastructure Costs: “Infrastructure providers must also share airlines’ obsession with efficiency. While IATA achieved US$1.9 billion in cost savings from infrastructure partners in 2006, cost increases totalling US$2.6 billion wiped out the gains. While we are moving in the right direction with air navigation service providers, too many airports still operate as happy monopolies. Three airports—Bangkok, London and Paris—alone were responsible for US$1.4 billion of the US$2 billion of airport cost increases in 2006. Airlines live in a competitive world where commercial discipline is the regulator. Airport regulators are phantoms. Their financial results—with EBITs over 40%—prove that it’s a dream world for airports and a nightmare for airlines that pay the bill. The target for 2007 is to give the draft European Directive on airport charges some teeth by incorporating cost efficiency targets for the national regulators that it requires,” said Bisignani.
Liberalisation: “This is the Everest challenge for the industry. Airlines compete in a modern world, but live in a time capsule with 60-year-old rules. It’s like trying to climb Everest with equipment from 1944. The US-EU agreement is an important step in the right direction, opening up many new opportunities, but we lost a great chance for fundamental change. Governments must understand that we have modern businesses to run. Airlines need the freedom to sell their products where markets exist and to merge or consolidate where it makes business sense. Progressive liberalisation is the only way forward. The bilateral system belongs in a museum, in a display case next to the paper ticket,” said Bisignani.
Environment: “The industry’s toughest challenge is the environment. Our track record has limited airlines’ carbon footprint to 2% of the global total. By 2050 the UN estimates it will grow to 3%. In today’s political reality that is not acceptable—for any industry. We must aim high. Air transport must become an industry that does not pollute—zero emissions. We will not achieve this overnight, but potential building blocks for a carbon-free future are here. Turning this vision into reality will require leadership from governments, a global direction from the International Civil Aviation Organization (ICAO) and a technology leap from manufacturers and fuel suppliers. At the same time, IATA will work with airlines to implement best practice Environment Management Systems that place environmental responsibility alongside safety and security as a core promise to our 2 billion passengers a year.
“Industry leadership is critical. IATA has to set tough targets to meet the tough reality of business. But our biggest challenge is to have all of our members on board. So IATA has an important role in building the industry’s leadership so that even small carriers can deliver great results,” said Bisignani. IATA is strengthening the International Airline Training Fund (IATF) to help its member airlines on the industry’s most critical issues: environment, safety and Simplifying the Business.
“Industry and government leaders must share a common view, addressing climate change with global solutions, tearing down the outdated bilateral system, ensuring cost efficient infrastructure, harmonising security and making travel convenient again. We are a great industry capable of innovation and change. So I am confident in our future: safe, secure, efficient and environmentally responsible,” said Bisignani.