Tony Tyler: Improving the Competitiveness of Canadian Aviation

Remarks of Tony Tyler at the Montreal Council on Foreign Relations, Monday 6th March 2012

Good afternoon and thank you for the opportunity to address the Montreal Council on Foreign Relations.

As you might be able to tell from my accent, I am a Brit. And I have spent most of my life in Hong Kong at Cathay Pacific. But it may surprise you to know that the opportunity to work in Canada as IATA’s Director General and CEO constitutes a bit of a homecoming for me. In 1983 I had the pleasure of living in Vancouver with a mission to help start Cathay Pacific’s first services to that city. During that time, I came to value and appreciate the enormous warmth, friendliness and good humor for which Canadians are known. And I even ended up with a young Canadian in the family!

Of course, my mission at IATA is very different from starting up operations. Montreal has been IATA’s headquarters and home since it came into existence by a special act of the Canadian Parliament in 1945. Having just extended our lease at Tour de la Bourse next door until 2030, we remain a committed employer in the Montreal community.

It makes good sense for IATA to be in Montreal -a city which plays an important global role in aviation. IATA’s mission is to represent, lead and serve our 240 member airlines that comprise 84% of global traffic. But aviation is a team effort. Its success depends on strong partnerships between partners in the value chain and of course governments. So our relations with the International Civil Aviation Organization (ICAO) are critical. Being neighbors with ICAO allows for intense collaboration on pressing global issues such as safety, security, operations and environmental sustainability. And I am honored that both Roberto Kobeh-Gonzales, President of the ICAO Council and Secretary-General Raymond Benjamin are here today. Congratulations to Raymond for his recent re-election.
 
Last year we were joined by the Airports Council International, the voice of the world’s airports, headed by Angela Gittens. And the scope of aviation in Montreal also includes many famous companies. Of course there are two important IATA members based here -Air Canada and Air Transat. And Air Canada President and CEO Calin Rovinescu has a seat on our board. Montreal is also home to Bombardier, Pratt and Whitney Canada, CAE and others- many of whom are represented here in this room.  And the city is well-served by Aéroports de Montréal, under the leadership of James Cherry, who plays a key role in ACI and with whom IATA has a strong relationship.

The nexus of aviation that has been created in Montreal plays an enormous role in the local economy. And that is paralleled by the critical role that Montreal plays in global aviation.

Safety
There is no better example of the impact of the global aviation work done in Montreal than safety. Aviation safety is built on global standards. And these standards are built here.

Today we announced our analysis of the industry’s 2011 safety performance. It was a stellar year for safety. Last year 2.8 billion people flew safely on 38 million flights.

It is worth spending some time to narrow in on the performance of western-built jet aircraft -which is seen as a key indicator of performance. For these aircraft, there were only 11 accidents where the aircraft cannot be repaired, or hull losses. If we put that into perspective, we had one hull loss for every 2.7 million flights. With those odds, if you flew every day, you could expect one major accident every 7,000 years. North American airlines, by the way, had a rate that was more than three times better than the world average. I guess that means that in Canada, you could fly every day for 21,000 years on a jet aircraft without a major accident!

This amazing performance is a testament to the strength and commitment to aviation safety by the stakeholder community through global standards. Together, airlines, manufacturers, regulators, airports and air navigation service providers (ANSPs) have achieved a 61% improvement in the hull loss rate for Western-built jets and a 74% improvement in the fatality rate over the past decade.

Of course, the industry must not and does not rest on its laurels. Every accident is one too many. And every fatality is a human tragedy that re-commits the entire industry to further improvements.

IATA membership comes with a mark of quality -the IATA Operational Safety Audit (IOSA). Each of our members must meet its 976 standards. It is a comprehensive audit program that has become the industry benchmark. Today there are 369 airlines on the IOSA registry which is managed from here in Montreal. And the continued cooperation of industry and government in the Montreal aviation nexus continues to drive improvements. Three key recent examples include:

• Fuel contamination;
• Volcanic Ash; and
• Pilot fatigue

Fuel contamination, although rare, is a serious issue. I know this from firsthand experience at Cathay Pacific when a passenger-laden Airbus A330 experienced the loss of control of both engines in flight owing to contaminated fuel. Only superb airmanship avoided a tragedy. That near-disaster greatly accelerated industry progress toward addressing the issue at the worldwide level. The result is that this month will see the publication of an ICAO document that establishes a global fuel supply standard covering aviation fuel quality control, operations and training across the entire supply and distribution system, from refinery to aircraft. IATA and our members worked closely with ICAO on this important standard.

The closure of European airspace due to volcanic ash in 2010 demonstrated the need for a better understanding among regulators and industry of how to manage such situations. ICAO was the forum in which guidance was developed that should avoid any future over-reaction by regulators.

Another stakeholder safety accomplishment was the publication last year of the Fatigue Risk Management Systems Implementation Guide for Operators. This document is the first ever guidance material for operators for implementing a Fatigue Risk Management System program. Significantly, it was jointly produced by IATA, ICAO and the International Federation of Airline Pilots’ Associations, bringing together airlines, national regulators and pilot unions.

The global exchange of information is uniquely institutionalized among governments and with the industry. In late 2010, IATA, ICAO, the US Department of Transportation and the European Commission agreed to develop a Global Safety Information Exchange. Among the very important developments is the creation of a harmonized global accident rate between IATA and ICAO, so that we will be working from the same data set when it comes to identifying what our safety priorities should be.

Security
The tradition of global cooperation on security is less well developed. But here again the Montreal nexus is playing an important role. A Declaration on Aviation Security was unanimously agreed upon at the last ICAO Assembly in 2010. Building on that commitment to cooperate to improve global security, IATA has been working closely with ICAO, Interpol and states to improve the airport checkpoint.

A decade after the tragic events of 9.11, we are much more secure but perhaps not equally wiser in the way that we accomplish passenger security. Does the security experience of long queues, unpacking, disrobing and often intrusive checks need to be that way? During my time at IATA one of my priorities is to evolve this with a Checkpoint of the Future, which 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 or unpacking.

We already have support from major players 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. Canada is not yet one of the 16 signatories; however, it has supported the principles of risk-based screening. Of course, moving a global system along will take some time. But I am convinced that we are off to a running start to improving both the experience and effectiveness of airport security.

Environment
The Montreal aviation nexus is also playing a major role in aviation’s response to managing its environmental impact. Through ICAO, it was the center for a global “balanced approach” to airport noise a decade ago. Today the issue is finding a global approach to managing aviation’s 2% share of global manmade carbon emissions.

To address this challenge, 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

The aviation industry has also agreed to a four pillar strategy that incorporates investment in new technology including sustainable biofuels; savings from operational improvements, and more efficient airport and air traffic management infrastructure.

The strategy is more than just words. A few years ago aviation had no alternative to traditional jet fuel. Today the outlook is changing more rapidly than was once thought possible. Sustainable biofuels have the potential to cut aviation’s carbon footprint by up to 80%. They don’t compete with food crops for land or water. And some airlines are using them today on commercial flights. To achieve widespread use of biofuels, however, we need the price to drop and the supply to increase. The successful commercialization of biofuels now requires government policy initiatives that will attract investment and de-risk the scaling-up of production. And certainly, for a country the size of Canada, there is tremendous potential to help the aviation industry secure its license to grow with the significant contribution that biofuels could make to our environmental performance.

The fourth pillar of the industry’s agreed emissions strategy 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 ICAO.

Unfortunately, today we are seeing the discord that can result from unilateral action. From January this year, the European Union has included aviation in its emissions trading scheme. For airlines this regional approach distorts markets. The implications for states are even more serious. Non-European states see it as an attack on their sovereignty. That is easy enough to understand when European states essentially would be pocketing taxes for emissions by non-European carriers over the sovereign territory of non-European states.

The ICAO Council has adopted a resolution urging Europe to change course. In parallel, states are taking action. Twenty-four states met in Moscow two weeks ago to agree to a list of potential measures to counter Europe’s plan, including retaliatory measures. China is forbidding its carriers from participating in the ETS. The US is progressing legislation that would have a similar effect. And last week we saw India send a signal of the kind of action that it could take.

No one wants a trade war. States are clearly preparing for the possibility…but it is not inevitable.

The EU deserves credit for bringing the emissions issue to the top of the global aviation agenda. Now it must recognize that the global approach that is needed to successfully manage aviation’s international emissions cannot be achieved in Brussels. The solution lies in Montreal…more specifically within the institution of ICAO.

Through the leadership of ICAO, a set of principles for market based measures is already agreed. And there is a commitment to deliver proposals for a global scheme by the next ICAO Assembly, which is only a year-and-a-half away. I believe that Europe is coming to the understanding that a global solution is what is needed. Indeed, ICAO has featured prominently in their most recent discussions of the topic.

To move the process forward I repeat my call for Europe to be a sincere participant in making the ICAO process successful. I chose these words very carefully because, if I understand the international mood correctly, non-European states will be 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.

Improving Canadian aviation competitiveness
Montreal’s -and by extension Canada’s- importance to global aviation is well-established. But in the second part of my remarks today I would like to ask the question: is Canada taking full advantage of its unique position?

Aviation is a major contributor to the country’s economy. A study by Oxford Economics that IATA commissioned shows that aviation generates $33.3 billion of Canada’s GDP and supports 401,000 Canadian jobs. That’s impressive, but aviation could contribute much more if the government took a more strategic approach.

My many years spent in Asia gave me a first-hand look at how governments can harness the power of aviation as a catalyst for economic growth and development. Hong Kong, a city with which I am very familiar, has a thriving aviation sector. With a population of just seven million Hong Kong supports 250,000 aviation related jobs. That’s more than half those in Canada, although Canada’s population is five times as large as Hong Kong’s.

I can assure you from personal experience that aviation’s importance to Hong Kong’s economy is not the result of any special treatment on the part of the government—and the airline would have been quickly shown the door if it had asked for it! But the government recognized that there were important areas where interests aligned and in these areas cooperation was not only possible, but the best outcome for all.

Hong Kong is not an exception. Let’s look at Australia, a country that more closely resembles Canada in terms of geography, demographics, resources and other vital statistics. Aviation directly contributes 2.2% of GDP for Canada, and 2.6% for Australia. If we include catalytic benefits through tourism, GDP contribution rises to 2.8% for Canada—but to 6.1% for Australia.

Furthermore, although Canada has a population that is approximately 50% larger than Australia and a landmass that is 20% greater, Australia has more air travel: 78 million passengers travel to, from and within Australia, compared to 71 million for Canada. Australia’s airlines carried 58 million passengers, compared to 52 million for airlines based in Canada.

There is one statistic, however, where Canada wins hands down over Australia: aviation’s contribution to taxes. It is about 19% higher in Canada, excluding the impact of domestic taxes on fuel. Were we to include fuel, the discrepancy would be even greater, since Canadian fuel taxes are about double the amount for Australia.

This tax burden, I would argue, is a major reason why Australia’s aviation sector is doing more for the local economy. The Crown rent charged for Canada’s airport infrastructure is a CAD 250 million competitive disadvantage. The pain is not only felt by the Canadian air transport sector which suffers from passengers opting to start their journeys from US airports. All those extra cars on the roads can’t be very good for the environment either! And every business that relies on connectivity shares the burden.

Crown rents are not the only disadvantage with which Canada has saddled itself. Federal and provincial taxes are high. Airports pay hundreds of millions for Property in Lieu of Taxes—a concept that I am more familiar with as municipal taxes. For an airport like Toronto, that is CAD 25 million a year. Canada also has some of the highest security fees in the world, roughly three to ten times the fees charged passengers in the US depending on the destination.

The irony is that Canada is well positioned to use aviation as a catalyst for growth. According to a report from the World Economic Forum, Canada is ranked first in the world for the quality of its air transport infrastructure. The country’s air navigation service provider, NAV CANADA, is recognized as one of the leading ANSPs in the world in terms of technology and efficiency, and is a three-time winner of IATA’s Eagle Award for delivering top-class performance in customer satisfaction. The Greater Toronto Airports Authority and Vancouver International Airports are both Eagle Award recipients. And of course Montreal is benefitting from a cost-efficient and well-managed airport that is expanding to meet local needs.

These advantages, however, cannot compensate for government policies that treat aviation like a cash cow, instead of a powerful draught horse.

Despite these facts, I am optimistic about the future, because we are seeing signs that policy makers may be reassessing aviation’s role. The announcement by the government of British Columbia that it is proposing to do away with the provincial tax on international jet fuel from next month is excellent news. Furthermore, the Tourism Ministry has adopted a Federal Tourism Strategy aimed at restoring the nation’s tourism sector. It was drafted with Industry Canada and other stakeholders and provides a coherent blueprint for easing access and increasing tourism competitiveness.

Now is the time for Transport Canada to undertake a similar review of aviation taxation and access issues. This should be a natural extension of the very positive stakeholder consultation on key policies affecting the competitiveness of Canada’s aviation industry that has been initiated under the leadership of Transport Minister Denis Lebel. IATA is participating in this consultation and it is our hope that it will prompt a fresh look at aviation, culminating in the development of a national aviation policy that recognizes a role for aviation commensurate with its value as catalyst for economic growth and development.

Conclusion
If I sound passionate about aviation…in Canada and globally, it is for a good reason. IATA has made its home as part of the Montreal aviation nexus for nearly seven decades. During that time IATA has interacted with ICAO and many other organizations to make global aviation safe, secure and sustainable. On that foundation, aviation turned our planet into a global community.

Aviation is a force for good in the world -one that generates wealth both material and of the human spirit. Every airplane that takes off carries with it virtually unlimited possibilities, reuniting friends and families; connecting people to business and products to markets. With global leadership and robust national aviation policies supporting aviation’s success, even the sky has no limit on this amazing industry.

Thank you