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Rebalancing the Air Transport Industry

IATA: US$5.5 billion industry loss expected for 2005

The high price of fuel is robbing our profitability, said Giovanni Bisignani

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 suppliersairports 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 partnersairports and air navigation service providerscost 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$200 ticket has increased from 7% in 1972 to 26% in 2004or US$ 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 aviation. 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.

Theodore Koumelis
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Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.