At the end of 2017, IATA Director General, Alexandre de Juniac, provided a useful overview of the past year and what to expect in 2018 to airline media. Guy Leitch reports from Geneva with this excerpt from de Juniac’s presentation.
This year airlines will safely fly four billion people and 60 million tonnes of cargo over some 20,000 city pairs. This is a critical activity for the global economy. About a third of the value of goods traded internationally are shipped by air, and international air travellers spend about US$750 billion annually. By bringing together people of different backgrounds and cultures to do business, to learn from one another and to solve problems, aviation provides immense value beyond what can be quantitively calculated. That’s why de Juniac calls it the business of freedom.
De Juniac says that as IATA Director General he spends a huge amount of time speaking with governments about regulation. There are a few global standards that IATA would like to see incorporated into regulations globally.
To date 130 governments have adopted the Montreal Convention 1999 (MC99). In 2017, Indonesia, Russia, Uganda and Thailand also signed on. MC99 sets standardised liability limits to ensure fair compensation in the case of accidents and incidents. It is also a critical enabler of modernisation in the cargo industry, because it facilitates electronic air waybills, the cargo equivalent of e-tickets. So, it’s key to IATA’s e-cargo initiatives and the success of the Word Trade Organization’s (WTO) Trade Facilitation Agreement.
IATA is also asking governments to adopt the Montreal Protocol 2014 (MP14), which gives states the legal jurisdiction they need to deal with unruly passengers. Portugal and Uganda are the latest to ratify this important treaty that IATA believes will help deter disruptive behaviour. “Global standards such as these are at the heart of our Smarter Regulation initiative,” says de Juniac.
IATA is asking governments to:
Focus regulations on solving real problems
Make decisions based on rigorous cost benefit analysis
Align actions proportionally
Keep the burden of compliance to a minimum, and
Meaningfully consult the industry.
The importance of these principles is illustrated in the evolution of passenger rights regulations. In 2015, ICAO adopted core principles on passenger rights, which are broadly aligned with a framework produced by IATA. Fundamentally, IATA believes that passenger rights are one area where market forces are more effective than regulation. However, if governments insist on regulation, these principles should be the starting point, according to de Juniac.
IATA is concerned about developments in Canada, Mexico, Philippines, and South Korea which are planning, or have recently implemented, passenger rights regulations.
“A recent trip to Africa reminded me of another element of regulation on which IATA are intensifying their work – the freedom for airlines to do business. Regulations should enable airlines to provide connectivity. To do that IATA needs borders that are open to people and trade. Remember, airlines are in the business of freedom.”
In Africa, IATA needs governments to pursue policies that free-up the industry and unblock intra-Africa connectivity. Between the UK and Europe, urgent action is needed to negotiate the provision of connectivity post-Brexit. And, as a general rule, the business of freedom is at its best when creating value for the world in a liberalised framework. That’s a message that de Juniac says he intends to push quite strongly in the year ahead.
Aviation makes the extraordinary normal. Safely crossing continents and oceans in a matter of hours are amazing technical accomplishments that were unthinkable less than a century ago. And they happen reliably many thousands of times a day.
In the past few years, airlines have dramatically improved profitability. Airlines, collectively, have been in the black since 2010. And in the past three years, airlines have made an aggregate industry profit in excess of its cost of capital – something that has never happened before. For any other business, that’s normal. For the airline industry, it’s an extraordinary achievement!
De Juniac emphasises that the forecast record profit of US$38.4 billion for 2018 is for an entire industry, yet it is still US$10 billion shy of the profit that Apple – a single company – announced for 2016. Per passenger, airlines on average will make less than US$9.00. And the net margin of 4.7% is hard won.
Global standards are at the core of the industry’s strong safety performance. Aviation is the safest way to travel long distances. Each day more than 100,000 flights operate safely. In the first half of 2017 there were a total of three fatal accidents, yet that is three too many.
IATA’s financial systems supporting the worldwide distribution of airline products is another example of global standards at work. Last year, IATA’s systems handled US$245 billion in transactions between airlines, travel agents and freight forwarders. IATA systems make it possible to buy an airline ticket from any IATA accredited travel agent, pay in one currency, travel on multiple airlines and be assured that your ticket is recognized at the airport.
However, the system dates from the 1970s. While IATA has made changes, it has now announced a major innovation – the NewGen ISS. Complementing this are NDC and ONE Order – innovations that will modernise the customer experience and airlines’ back office processes. Already 44 airlines are using the NDC standard to sell tickets.
Aligning the industry with global standards plays a critical role in managing our carbon footprint and ensuring a sustainable future for flying. IATA’s near-term goal is to cap emissions with carbon-neutral growth from 2020. And by 2050 IATA intends to cut air travel’s carbon footprint to half of 2005 levels.
Ultimately, IATA will do that with a combination of more efficient technology, operations and infrastructure. But IATA also needs access to a global market-based measure to fill the gaps until these solutions mature. That’s why the 2016 agreement by governments through ICAO on the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) was so critically important.
De Juniac emphasises the significance of an industry going to governments and asking to be regulated. Having a global agreement on CORSIA allows airlines to pay for their emissions growth, ensures that they pay fairly, and that they know the money will be used effectively to reduce carbon. It is a licence to grow.
ICAO will formally adopt the technical requirements for CORSIA in the coming months, and IATA is working with its members and the rest of the airline community to ensure that they are ready to start reporting from 2019. And IATA continues to encourage more governments to join CORSIA. Already, with 72 governments on board, over 80% of the 2020-2035 growth will be covered. “We’d like it to be more,” says de Juniac.
CORSIA is just one pillar of IATA’s environmental strategy. There are two other areas in particular where IATA is working with governments. The first is sustainable aviation fuels (SAF). Technically, they work. In November 2017, IATA passed the symbolic threshold of the first 100,000 sustainably-fuelled flights. About 140 flights a day are powered by SAF. This number needs to grow, but the cost of SAF is still too high – and the supply is too small.
It is a chicken-and-egg scenario because higher volumes and lower prices usually go in tandem. That is why IATA is asking governments to provide similar support for sustainable fuels in air travel as they have for road transport. The role of government is to incentivise their use by de-risking investment.
The other area that needs urgent attention is a part of the larger global issue on infrastructure. Governments are not meeting their responsibility to provide sufficient infrastructure for the industry to meet demand. And in the case of air traffic management, that also has an environmental cost. Airlines have invested in planes with amazing capabilities, but they are not able to use them fully to maximize efficiency.
In the US, the development of NextGen air traffic management continues to suffer in the budgeting process. IATA supports the corporatisation of US air traffic management. IATA knows there are high hurdles to achieving that in 2018, but intends to continue advocating for it.
In Europe, narrow national interests are blocking the implementation of the Single European Sky. So, IATA is working with governments to develop national airspace plans that could be the building blocks for a single sky – and with some success. In the past few months, IATA has signed agreements with Poland and France to cooperate on developing a national airspace strategy. And IATA is in advanced discussions with Air Navigation Service Providers (ANSPs) in Germany, Italy and Spain.
The infrastructure challenge also includes airports. In principle, IATA’s demands are simple. The airline industry needs capacity to meet demand. Airports must be aligned with user needs for quality and technical specifications. And affordability is key.
Airport infrastructure is not being built fast enough to cope with growth. That’s why airport slots are so important. The scarce supply means that coordination is critical. About two thirds of airports needing slot coordination are in Europe. And there are bottlenecks around the world: Sydney, Bangkok, Manila, Jakarta, Mumbai, Mexico City, New York, Sao Paolo – to name just a few. That demonstrates the size of the infrastructure challenge.
De Juniac’s message to governments is three-fold:
There is no time to lose. Work with the industry to plan and build the infrastructure that will be needed to power your economies.
In the meantime, allocate scarce capacity efficiently, using global standards.
If you are thinking about privatising airports to fund their growth, be cautious. Learn from past mistakes, and, protect this important national asset with ironclad regulation that prioritises the national interest.
Getting these right is difficult to do. To be blunt, IATA has not seen an airport privatisation that has fully lived up to expectations. And IATA’s members are very frustrated. Airport privatisation is an issue that needs careful attention and urgent thinking. It will be a main focus for IATA in the coming years.
One of the biggest news items from 2017 is security. Flying is secure, but keeping it that way is a constantly evolving challenge.
The ban on large portable electronic devices in the cabin is a great illustration of the challenges that IATA airlines face in dealing with governments – who have the prime responsibility for security. The initial actions by the US and the UK were taken unilaterally and caught the industry by surprise. The implementation was painful for all concerned. After dialogue started, however, alternative measures to the ban were found. The key message here is the importance of industry consultation.
IATA had some good news when the ICAO Council approved the Global Aviation Security Plan (GASeP). It is a framework for security focused on:
Improving government-to-government cooperation,
Enabling the universal application of global standards,
Promoting better information sharing among governments and with industry, and
Facilitating the use of technology to address emerging issues in a timely manner.
GASeP will move aviation in the right direction, but implementation is critical. The benefits will come when governments incorporate GASeP into their National Civil Aviation Security Programmes and cooperate through ICAO to make sure that the global system works.