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HomeColumnsSpeakers' CornerTony Tyler, IATA: IATA sees a profit this year of $500 million in the Middle East region

Tony Tyler, IATA: IATA sees a profit this year of $500 million in the Middle East region

Remarks of Tony Tyler at the Global Aerospace Summit, Abu Dhabi, 16 April 2012

Good morning. It is a pleasure to be attending the Global Aerospace Summit in Abu Dhabi. I would like to take this opportunity to thank His Highness Sheikh Mohammed Bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces of the United Arab Emirates (UAE) for his patronage and support of this important event.

I am also pleased that the International Air Transport Association (IATA) -whose members are the customers of many of the companies represented here today- has been given a prominent role at an aerospace conference. It speaks well of your willingness to listen to what your customers have to say. I hope I will not disappoint you.

Over the past 25 years, the Gulf region has experienced an economic transformation, in which Abu Dhabi has played a leading part. Aviation has been at the center of this evolution, as is reflected not only in the success of the well-known and rising Gulf airlines whose vivid liveries brighten airports in all corners of the globe, but also in the emergence of a dynamic aerospace sector. This is typified by our host Mubadala Aerospace, which in just a few short years has staked its claim to having a major presence in global aviation.

Abu Dhabi thus forms an ideal setting to take a forward look at aviation and the challenges we face in getting to a sustainable future. Let’s begin our discussion by looking at the state of the air transport industry.

State of the Industry
Last month, IATA downgraded its airline profit forecast for 2012 from $3.5 billion to $3.0 billion. We expect to generate revenues of $633 billion this year, and if you do the maths, that means we will achieve a paltry 0.5% profit margin on revenue growth of 5.9% and traffic growth of 3.6%.

The biggest obstacle to a better financial performance is the price of fuel. The consensus forecast sees Brent crude averaging $115 per barrel in 2012, up from $111 last year. That $4 swing will add some $36 billion to our operating costs. And, as we all know, Brent is already trading above $120.

The bottom-line impact of this is being moderated by some positive factors. Europe seems to have averted a financial meltdown, at least for now. Additionally, it appears that freight markets have stabilized, albeit at low levels. And our most recent traffic numbers show that capacity is growing at a slower rate than demand, leading to rising load factors and some yield improvement, although at the risk of discouraging some price-sensitive discretionary traffic.

Turning to the Middle East region, IATA sees a profit this year of $500 million, which is raised from our previous estimate of $300 million. The Middle East is one of just two regions that have seen their outlook boosted since our December forecast and that is certainly a positive development. The region as a whole also appears to be fully recovered from the negative effects on air travel of the 2011 Arab Spring.

But these are not strong results when measured against the size of the region’s aviation sector. And the entire industry remains extremely vulnerable to any new shocks that could push it back into losses. Furthermore, even if the industry achieves our forecast profit of $3.0 billion, it will mean that collectively, airlines have delivered aggregate losses of almost $26 billion on $5.5 trillion in revenues since 2001.

I will step back from this glum report to observe that airlines purchase the products and services offered by many of you in this room. Our ability to continue to do so is highly dependent on our ability to generate a satisfactory return on investment, which in turn, is partly driven by the value that we are able to generate from the products and services we purchase and lease. That is why working together as a team is so important.

Yet, aviation’s contribution to the global economy cannot be measured solely on the profit and loss ledger. In March, the Air Transport Action Group released a study conducted by Oxford Economics showing that aviation supports 56.6 million jobs around the globe, including 8.4 million direct jobs and $2.2 trillion of economic activity, representing 3.5% of global GDP. If aviation were a country, it would rank 19th in terms of GDP.

Aviation’s importance as a catalyst for growth is well-understood in the Middle East and particularly in the Gulf region, where airports rise from the desert ahead of the demand curve, not behind it. Governments work in partnership with industry through forward-looking policies that value aviation as a generator of wealth and jobs, not just as sheep to be sheared by the tax collector, as happens too often in other locales.

The Oxford study shows that the Middle East represents 3% of global passengers, has 5% of the total jobs and 6% of the GDP generated by air transport. In terms of actual numbers, Oxford’s study reveals that within the region, air transport supports 2.7 million jobs, and $129 billion in GDP. Furthermore, aviation’s role in the region is set to grow rapidly over the next two decades as international passenger numbers rise from 77.1 million in 2010 to 220.4 million in 2030.

Few states have a better understanding of the economic vitality that aviation’s connectivity provides than the UAE. One example is the fact that Dubai Airport was the world’s 13th busiest airport by passengers in 2011, with nearly 51 million passengers, although the population of Dubai is just below 2 million.

An indication of the high level of cooperation that exists among participants in the aviation value chain may be found in Abu Dhabi, where Etihad Airways and Abu Dhabi International airport, working together, implemented all six self-service options in IATA’s Fast Travel initiative.

They were among the first six airport-airline pairs to achieve this important milestone for customer service. Another example is Emirates, which tops the charts of airlines implementing e-freight. Nearly 37% of their eligible freight shipments take advantage of the more efficient e-freight process.

So when I am asked what the future of aviation will look like, I am tempted to respond that I hope it bears more than a passing resemblance to what is occurring today in the UAE, as well as in places like China, Singapore and South Korea, where governments are using aviation strategically to spearhead economic development.

This bright future is not guaranteed, however. It depends on having the right conditions in place to support competitive sustainable businesses. Many of these are beyond the direct control of airlines and most require that industry and government work together with a common vision and purpose. Specifically, we need a shared agenda on the issues of:
– Safety
– Security
– Infrastructure and
– Environment

Safety is the number one priority. We must be safe to be sustainable. The good news is that 2011 was the safest in the history of aviation. 2.8 billion people flew safely on 38 million flights. Looking specifically at Western-built jets -the most common measure of safety- we had 11 hull losses. That’s one hull loss for every 2.7 million flights which is a 39% improvement on 2010.

This remarkable achievement is a tribute to the entire stakeholder community -airlines and original equipment manufacturers–who give us such magnificent machines to operate, as well as airports, air navigation service providers (ANSPs) and safety regulators. Each works together every day to make the skies safer. And indeed, our cooperation on safety provides an ideal template for how we should be aligned on the other key issues I identified.

Unfortunately, we did less well in the Middle East and North Africa (MENA) region, where the 2011 rate was 2.02 Western-built jet hull losses per million flights, or around one hull loss for every 500,000 flights, which was 5.5 times the world average. It also represented a sharp deterioration compared to 2010, when the MENA region achieved a rate of 0.72 hull losses per million flights.

If aviation is to continue to deliver on its immense promise, safety must be addressed as a community, working in partnership with governments and based on global standards, such as the IATA Operational Safety Audit (IOSA), which is a requirement for membership in IATA. The global accident rate for non-IOSA carriers is more than twice as high as the IOSA rate. Similarly, the IATA Safety Audit for Ground Operations is improving safety and helping reduce the $4 billion annual cost of ground damage.

Along with global standards, we need data and analysis to identify emerging safety trends and guide what action to take to mitigate risks. Sharing of information is crucial to achieving this. Of course, we rely heavily on our supplier base to monitor aircraft and systems performance and identify any issues potentially affecting reliability and safety. Looking specifically at MENA, I am pleased that a Regional Aviation Safety Group has been established and IATA continues to work with all stakeholders to address this issue.

A bright future for aviation also depends on airport security that is effective, efficient, user-friendly and non-obtrusive. Today we have a security regime that is very effective, but falls well short on the other criteria.  We’ve got long lines, packing and unpacking of carry-ons, removing items of clothing and occasional intrusive searches.  It’s neither efficient nor non-obtrusive and you certainly can’t call it customer friendly.

During my time at IATA one of my priorities is to evolve this with a Checkpoint of the Future. This rests on two pillars. The first is to differentiate screening using passenger information that is already being collected for immigration purposes. Then we combine this with technology that allows passengers to walk through checkpoints without stopping, disrobing or unpacking.

We have support from major stakeholders such as the European Commission, the Chinese Government, the US Department of Homeland Security and Interpol. Moreover 16 countries have endorsed a statement of principles for such a checkpoint. As yet, we have no signatories from the MENA region, but I have hopes this will change.

Moving a global system along will take some time. Governments here and elsewhere must be willing to take these concepts from the drawing board to the airport terminal. But I believe that we are off to a running start to improving both the experience and effectiveness of airport security.

Any forward look at aviation must incorporate a vision of adequate airport and air traffic management infrastructure. Without it, aviation’s contribution as an economic catalyst is compromised. The MENA region has invested more than $100 billion on airport projects, including $6.8 billion in Abu Dhabi, $14 billion on the new Doha International in Qatar and $33 billion on the new Al Maktoum International for Dubai.

Contrast this to the situation in the UK, where the government has rejected a third runway for Heathrow, or in Germany, where a federal court this month blocked night flights into Frankfurt airport, a move that has serious implications for Frankfurt’s role as a cargo hub in future.

By value, 35% of the world’s trade in goods moves by air, although it represents less than 1% by volume. Actions that make it harder for airlines and airports to participate in this trade have an impact far beyond the direct cargo supply chain. They resonate across the economy of the entire country.

A manufacturer eager to invest in a new global logistics center will not look to put it in an environment that makes it difficult to get parts and finished products to customers and markets; it will set up in a jurisdiction that welcomes its business with easy access.

Runways and terminals are of course only half the story. What is also required is efficient air traffic management (ATM) but nowhere is it satisfactory.

With the passage of the US Federal Aviation Administration (FAA) reauthorization legislation this past winter, it appears that the FAA can move forward on its much-needed NextGen air traffic management system, although questions remain about the cost/benefit equation for airlines that must make major investments in new cockpit technology.

In Europe, we are seeing progress towards the Single European Sky (SES), but at a glacial pace that’s out of step with what’s urgently needed from both economic and environmental standpoints. The SES would save 16 million tonnes of CO2 annually. But governments are not investing the political capital to get the job done. Only five of 27 states are on track to meet the un-ambitious goal of reducing average flight delays by 30 seconds by 2014.

In Asia, where political realities make a single Asian sky unrealistic, I am gratified to see progress toward a Seamless Asian Sky, although we are still in the very early stages of this much-needed transformation.

Within the MENA region ATM infrastructure is not harmonized or facilitated to its full extent and routings in some areas are less efficient than they could be. With movements growing 11% annually in the Bahrain, the Emirates and Muscat Flight Information Regions, we could see a doubling of traffic in seven years, creating the potential for aerial bottlenecks. The growth in east west traffic to and from North Africa brings another dimension to the challenge.

Add to this the fact that just around half of the airspace is permanently open to civil aviation with the rest controlled by the military and you have a recipe for future gridlock. On the positive side, the UAE is ahead of many other ANSPs with regard to ATM capabilities and Saudi Arabia, Qatar and Bahrain are in the process of making much needed upgrades to their ATM.

IATA is working closely with governments, ANSPs, the Civil Air Navigation Services Organization (CANSO) to ensure alignment of air navigation and airport investment plans with the needs of the airspace users.

I also see an excellent opportunity for the aerospace community to put its collective muscle behind efforts to modernize airspace technology and procedures in a practical and cost-efficient manner. Technology for technology’s sake and gold-plated solutions will not help us to reduce emissions, save fuel or increase airspace capacity.

A better alternative is to work in close cooperation with airlines to develop operational procedures using existing and deployed technology that offer a sustainable business case for all participants in the value chain.

Aviation’s license to grow and fulfill the global demand for connectivity is also contingent upon environmental responsibility and sustainability. That means aviation must address its 2% contribution to human-caused global CO2 emissions. Airlines, airports, ANSPs and manufacturers have made three sequential commitments:

  • Improving aircraft fuel efficiency by 1.5% annually to 2020
  • Capping net CO2 emissions from 2020 with carbon-neutral growth
  • Cutting net carbon emissions from air transport in half by 2050 compared to 2005

At the Aviation and Environment Summit last month, the industry collectively re-committed to these aggressive targets in a declaration signed by 16 global aviation companies and organizations. We called upon governments worldwide to do their part to help aviation achieve them.

Our strategy is built on four pillars that include investment in new technology such as biofuels; savings from operational improvements, and more efficient airport and air traffic management infrastructure. We need engine and airframe manufacturers to continue to pursue efficiency improvements and not be lulled into complacency by full backlogs.

Beyond this, sustainable biofuels have the potential to cut aviation’s carbon footprint by up to 80%. Aviation has done the heavy lifting to prove that they work safely and efficiently in commercial aircraft and to certify drop-in biofuels as a replacement to conventional jet fuel. They don’t compete with food crops for land or water. We are seeing important progress around the world, with more than a dozen projects underway involving airlines, aerospace suppliers, fuel companies and other stakeholders.

In this region, Qatar Airways, together with Airbus, Rolls-Royce and others have formed the Qatar Advanced Biofuel Platform consortium to develop what is the first large scale algae bio-jet fuel value chain in the world. But aviation cannot do it alone. A sustainable biofuels industry requires government policy initiatives that will attract investment and de-risk the scaling-up of production.

The fourth pillar is the introduction of market-based measures such as emissions trading. The aviation industry recognizes that such economic measures are a necessary -if temporary- bridge to enable it to meet its environmental targets. But, it is absolutely critical that such measures are agreed upon in a global approach under the leadership of the International Civil Aviation Organization (ICAO).

Unfortunately, Europe has chosen a go-it-alone regional approach with the inclusion of international aviation in the EU Emissions Trading Scheme from this year. This is driving discord at a time when we need harmony. Why? Because non-European states see the intention to tax non-EU airlines for emissions over non-EU territory as an attack on their sovereignty.

Representatives of 24 nations met in Moscow in February to discuss counter-measures. They issued a declaration urging a global solution through ICAO and outlining possible actions if Europe continues on its unilateral and extra-territorial path. Both India and China have already prohibited their carriers from participating in the EU program.

No one wants a trade war. But the prospects are growing more likely. We already are hearing reports of retaliatory measures.

There is a solution. And that is ICAO -where global standards and solutions for air transport are made. The EU deserves full credit for bringing the emissions issue to the front and center of the global aviation agenda. And I believe that recent indications coming from Europe point toward their understanding that a global agreement through ICAO is the way forward. Now it is time for Europe to sincerely take a stake in making the discussions and decisions at ICAO a success.

I chose these words very carefully because, if I understand the international mood correctly, non-European states are looking for some proof of Europe’s sincerity. That will mean doing more than simply reiterating its determination to implement its scheme even as it professes to support a negotiated agreement through the ICAO process.

Aviation will be the primary means of moving people safely over long distances for the foreseeable future. Nothing can change this fact; and in that sense we do not face an existential threat to our business. Yet there are no guarantees that aviation will be able to drive economic growth, to create jobs, to connect the globe in a physical worldwide web into the future. That is highly dependent on many factors beyond its direct control.

To the extent that governments recognize aviation’s true worth as an enabling industry, the world faces a richer and more connected future. To help convey that message, IATA has commissioned studies conducted by Oxford Economics that explain and quantify the benefits of aviation in 58 countries.

I am passionate about aviation. I believe that it is a force for good in the world. It connects people and goods to markets, reunites families and enables journeys of discovery. It is the responsibility of all of aviation’s stakeholders to ensure that message is heard so that the benefits of this wonderful industry may continue to be enjoyed by all.
Thank You.

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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.