Reshaping to Build a Stronger Industry

The International Air Transport Association (IATA) called for a major resizing and reshaping of the entire air transport value chain as airlines battle the ongoing global economic crisis. Airlines are expected to post losses of US$9 billion this year with an unprecedented 15% revenue drop that will see industry revenues shrink by US$80 billion to US$448 billion.
I am a realist and I dont see facts to support optimism. The industry is in survival mode. Whether this crisis is long or short, the world is changing. Travel budgets have been slashed and consumers will need to reduce their debt. It will not be business as usual in the post-crisis world. Governments, partners and airlines must use this crisis as an opportunity to build a stronger industry. That means resizing and reshaping, said Giovanni Bisignani, IATAs Director General and CEO in his State of the Industry address to 500 of the industrys top leaders gathered in Kuala Lumpur for the 65th IATA Annual General Meeting and World Air Transport Summit. IATAs Simplifying the Business program has given the industry a head start on cost cutting. In 2008, US$4 billion in cost savings were achieved with 100% e-ticketing and the deployment of Common Use Self-Service (CUSS) kiosks. This was only the beginning. We have our eyes set on another US$10 billion in savings by improving baggage management, travel processes and with e-freight, said Bisignani. Bisignani noted that the burden of change not keeping pace with the industrys need for improved efficiency: BAA and the UK Civil Aviation Authority for agreeing an 86% increase in London Heathrow charges for 2008-2013; Airports of Delhi and Mumbai for their 207% increase in charges; Quiport in Ecuador for increasing charges by 79% since 2005 to pre-finanmust be shared across the industry value chain. Resizing and reshaping is not just a problem for airlines. Everyone in the value chain lives off our revenues. All must contribute to industry change, said Bisignani. Labor: We cannot reshape without flexibility. This is not the time for salary increases. To protect jobs, we must modernize work practices and we must all do more with less, said Bisignani. Travel Agents: The clock cannot be turned back. To survive in the global online market, travel agents need to reshape services and business models to provide greater value that travelers are willing to pay for, said Bisignani. Monopoly Suppliers: Every suppliermonopolies includedmust reshape products and services to reduce their costs and ours. When demand drops, they cannot simply divide the same costs among fewer customers, said Bisignani. An IATA Wall of Shame gave special mention to the most serious cases of infrastructure providersce a new airport that may never be built; Air Traffic and Navigation Services (ATNS) South Africa for proposing a 44% increase in charges in 2010/2011 and the EUROCONTROL States of Denmark, the Netherlands and Poland for proposing charges increases between 27% and 32%. GDSs: We cannot accept that Western GDSs charge around US$4 per transaction when China TravelSky does the same job for US$0.50. This must change, said Bisignani. Bisignani also urged a resizing and reshaping of the relationship between airlines and governments. Our relationship with governments must move from punitive micro-regulation to joint problem solving, said Bisignani who cited four areas for enhanced cooperation. Making Aviation Greener: Aviations emissions will fall by 7% in 20095% from the fall in demand and 2% as a direct result of the industrys united four-pillar strategy to address climate change. Airlines have taken a monumental decision. Today we have committed to achieving carbon-neutral growth by 2020, said Bisignani. Airlines have set three important sequential goals: (1) 1.5% annual improvement in fuel efficiency until 2020; (2) carbon-neutral growth in 2020 and (3) a 50% reduction in emissions by 2050. We cannot achieve these ambitious targets alone. Governments must move from punitive taxation to actions that support reductions in CO2. That means establishing a global sectoral approach for aviation emissions under Kyoto 2 and supporting improvements in technology, operations and infrastructure, particularly the development of aviation biofuels and the implementation of important infrastructure projects such as a Single European Sky and NextGen in the US, said Bisignani. Protecting citizens with better security: We must spend the US$5.9 billion that airlines and their passengers pay for security more wisely by focusing on the threats, rather than the 99.9% of travelers who are not a risk, said Bisignani. He challenged governments to coordinate security measures and standards across borders to avoid the double checking of the nearly one million passengers a day who make connections. Europe is progressively doing this with One-Stop Security. Its time to push this much further, said Bisignani. Improving efficiency by reducing delays: Airlines are investing billions in new avionics to fly more efficiently, reduce delays and improve environmental performance. Bisignani noted significant progress on a Single European Sky and urged President Obama to make NextGen a reality in the United States. The trillions of dollars being spent in stimulus programs are a great opportunity to improve infrastructure. The combined benefits of NextGen and a Single European Sky in 2030 would be 41 million tonnes of CO2 reduction and US$21 billion in fuel savings. To achieve these, we need the investments now, said Bisignani. Saving jobs and stimulating the economy: We dont want bailouts. All that we ask for is access to global capital. If we cannot pay the bills, saving the flag on the tail will not save jobs, said Bisignani in asking governments to progressively liberalize access to markets and capital. This would be a cheap stimulus. Liberalizing key routes would create US$490 billion in economic activity and 24 million jobs. The next logical step would be for the US and Europe to expand Open Skies to Open Aviation, said Bisignani. IATA continues to push for similar progress globally with its Agenda for Freedoma group of 15 key government players in aviation policy. Later this year, IATAs Agenda for Freedom will deliver an important policy tool with governments signing a Multilateral Statement of Policy Principles, said Bisignani. Air transport is a responsible industryin good times and in crisis. Todays situation is unprecedentedthe most difficult ever. Governments and partners must understand that we are struggling to survive in a new and harsh reality. We are, however, resilient and capable of great change. Together we must turn challenges into opportunities to be safer, greener and profitable, said Bisignani.


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