IATA: Giovanni Bisignani's State of the Industry Speech

Terrorism, wars and revolutions. Pandemic fears, earthquakes and volcanoes. Failing economies and skyrocketing fuel prices. Over the last decade we have seen everything. Everything, except sustainable profits (1).

2010 was the best year of the decade, with a profit of $18 billion (2), but a pathetic margin of 3.2%. 2011 brought more shocks: from disasters in Japan, to unrest in the Middle East, and oil spiking above $120 (3) per barrel. A decade ago, we needed oil below $25 (4) just to break even. It is a tribute to every airline in this room, that we expect a $4 billion profit (5) at today's oil prices.

A Decade in Review

Airlines spent a decade in survival mode. They transformed themselves by slashing costs 9%, (6)increasing fuel efficiency 24%, and improving labor productivity 67%. (7)

Change was harsh. Hundreds of thousands of jobs disappeared, and we said goodbye to many famous companies - Swissair, Varig, Ansett, Sabena, Mexicana and Aloha.

In the aftermath of 9.11, IATA took on the role of fireman, responding to emergencies. IATA led with speed, passion and commitment.

We started with monopoly suppliers. Living in a different reality, they offset declining demand by increasing prices. Shouting politely, we instilled a new mindset that saved airlines $17 billion (8) in costs for airports, air navigation service providers and fuel suppliers.

IATA's role quickly changed to architect, because the industry needed radical redesign.

Low cost competition focused on what customers valued: they wanted efficiency, not outdated processes. To help you compete, here in Singapore in 2004, IATA started Simplifying the Business. (9) It was a revolution to cut costs and make travel and shipping more convenient.

IATA had to support all its members, not just the club of the powerful. Every airline - big and small - had to share the benefits. To succeed, we set targets. This was unthinkable for an association, but IATA provided support and you delivered.

Forty-eight months later in Istanbul, (10) together we celebrated 100% e-ticketing, and shared the first $3 billion in savings. Simplifying the Business is now saving you $5.5 billion annually.(11) And we are targeting $12.6 billion more (12) in annual savings by expanding the revolution with programs including Fast Travel, e-freight, e-services, and baggage improvement.

We also set targets to improve safety. By 2009 all our members - big and small - were IOSA (13) registered. IOSA has become the global benchmark for safety, with 365 (14) airlines on the IOSA Registry.

The results are impressive. Last year the industry accident rate was the best ever, with 1 accident for every 1.6 million flights. (15) That is a 42 percent improvement since 2000. IATA members outperformed this, with only one accident for every 4 million (16) flights.

Safety is a constant challenge, but we can be proud that, despite the difficult decade, we made flying even safer.

Constant shocks challenged us in new ways. With SARS, global traffic dropped nearly 20%. (17) IATA worked with WHO (18) and ICAO (19) to keep flying safe, even with potential pandemics and radiation. And when a volcano brought the world to a standstill, IATA challenged European governments to provide responsible leadership to keep flying, and flying safely.

Along with shocks we also faced a volatile demon: the price of oil. Surviving with oil over $100 a barrel went from unthinkable to normal. Fuel management evolved into a fine art impacting the bottom line. In a great example of industry cooperation, IATA collected and shared best practices. Our Green Teams were at your side to help implementation, and we brought airports and ANSPs into the effort, optimizing over 2,000 routes. (20) All these efforts saved you $19 billion. (21)

Climate change was a related challenge. The economics of our business have always driven fuel efficiency, which is the key to reducing emissions. But we were defensive, with no consensus or strategy. Once again, IATA had to take the lead. At our 2007 AGM in Vancouver I shocked you with a vision for a carbon-free future. The whole value chain then united and committed to targets, including cutting emissions in half by 2050. (22) And we became a role model for other industries to follow. Already through IATA we saved over 76 million tonnes of CO2. (23)

More importantly we discovered sustainable biofuels, which could reduce our emissions up to 80%. (24)Now we need big oil to scale up. They are green in their advertising but not in their actions. They prefer to pocket $1 trillion (25) in profits than invest in green initiatives. So big oil gets the first big BASTA. They need targets to provide aviation biofuel at competitive prices.

IATA has a responsibility to drive change and support a cost-efficient industry. Simplifying the Business, the external cost campaign, and our efforts on fuel efficiency, saved over $59 billion (26) since 2004.

And we have an even bigger responsibility to keep your money safe. Despite political unrest and natural disasters, and even when banks were failing and global finance was cracking, IATA's financial systems handled over $2.5 trillion of your money since 2002, with 99.999% accuracy. (27)

Unfinished Business

Despite the progress, unfinished business remains.

The first is security. Aviation is much more secure today than in 2001. It costs $7.4 billion annually. (28) But our passengers only see hassle, because governments are not working together, or with industry. The US continues to drive the global agenda. But with the leadership of Secretary Napolitano, we are finally making progress. (29) She understands that aviation security is a global system

IATA agreed a common agenda with DHS and ICAO. (30) And we are working together to implement it. At the top of the agenda is IATA's "Checkpoint of the Future". (31) We must replace a 40 year-old concept with a risk-based approach, powered by intelligence and technology. Our passengers should be able to get from curb to gate with dignity, without stopping, without stripping, without unpacking and certainly without groping.

The unfinished business is to make coordinated investments for civilized flying.

We also have some unfinished business on the IATA Wall of Shame.

On the wall we still have happy monopolies: Airports and ANSPs that did not embrace change. We gave the UK regulator our award for being the worst. (32) And last year we had the Western GDSs, which I called leeches. (33) Now the US Department of Justice is investigating them for anti-competitive behavior. It could be an important step towards a more competitive market.

This year we have a special place of dishonor on the IATA Wall of Shame for the European Union and its parliament. They are ignoring international law with plans to include international aviation in Europe's emissions trading scheme. (34) Globally coordinated economic measures through ICAO (35) are a key part of our climate change strategy, but uncoordinated punitive measures undermine global efforts, and distort markets. It is a $1.5 billion (36) cash grab that would do nothing to reduce emissions.

The success of our global approach to climate change needs all airlines, individually and with their governments, to join me in saying BASTA to Europe.

Be serious about climate change, and be honest in developing global solutions

Also on the Wall is the hit parade of government tax bandits:

* The UK for its $4.5 billion (37) Air Passenger Duty, the largest aviation tax in the world.

* Germany for its $1.3 billion (38) departure tax, an unwanted gift from Chancellor Merkel at our last AGM.

* Austria for copying Germany with a $119 million (39) tax.

* And India for its $450 million (40) Service Tax, in complete contravention of ICAO rules.

Taxing aviation does not pay. The Dutch repealed a $412 million (41) departure tax because it cost the economy $1.6 billion.(42) And the Irish plan to cancel their $165 million (43) Travel Tax because it cost $594 million (44) and 3,000 jobs. The lesson for governments is simple: don't kill the goose that lays golden eggs.

Aviation fuels global trade that is stimulating economies and restoring government budgets. Tax the bankers. They created the mess. (45) Their billions in bonuses should help to clean it up.

The UK, Germany, Austria and India need a textbook on aviation's economic role. And the first chapter is BASTA to more taxation.

Today's Reality

What is the result of this decade of change? We learned that cheap oil is history, we must be ready for constant shocks, that aviation's centre of gravity is shifting eastward.

We were left with inefficiency in the supply chain, limited commercial freedoms, and unrewarded shareholders.

But today airlines are safer, stronger, leaner and greener, because we found the courage to change.

The Future: Vision 2050

Now we must prepare for a world of 16 billion passengers and 400 million tonnes of cargo. (46) To meet this challenge I launched Vision 2050, based on four cornerstones:

* Sustainable profits

* Efficient infrastructure

* Effective technology

* And supportive customers

In February I invited 35 strategic thinkers (47) to develop the vision.

We agreed that many things must change to better serve our customers and build a stronger industry.

We need efficient processes to cope with the volumes, and evolving customer needs. We need technology solutions for environment and security challenges, and for air traffic management that goes beyond national borders. We need airport development that is smarter in meeting future demands. And we need sustainable profitability to support innovation and reward shareholders.

Make no mistake: sustainable profitability will be the biggest challenge.

We know what doesn't work. Cost cutting alone does not increase long-term profits, unbundling erodes the value of the base product, and re-regulation will kill efficiency and innovation.

So what will work?

First, we must destroy silos in the value chain. We must work in partnership to rebalance financial reward with risk (48), and by creating new value, so price is not the only factor driving competition.

Second, governments must also change their approach. We need policy decisions that replace intervention with commercial freedom, (49) reduce barriers to exit and allow airlines to restructure like normal businesses.

These are big changes. But I have big hopes because many pieces of the vision already exist. These are like tiles for a mosaic that will illustrate our future in four decades. We must select the best to create the image for our success.

Asia has policies to promote and support growth. Already it is 40% of the global cargo industry. The region will produce 360 million more travelers by 2014, 210 million from China alone. (50) China is hungry for aviation to drive prosperity. They built 45 new airports in the last 5 years, and are planning another 52 by 2020.(51) India is developing Delhi as a regional hub. ASEAN is targeting a single aviation market by 2015.(52) Investors are betting on this future: three of the five largest airlines by market value (53) are from the region.

In Latin America a handful of carriers developed supra-national brands, and will deliver 3 consecutively profitable years. Governments separated the airline business from politics. Today the continent is globally connected, not by national flags, but by brands like LAN, Avianca and COPA. And the merger of LAN and TAM will create a global player.

The Middle East shows the value of visionary thinking and coordinated planning by industry and government. Over the decade the region's market share grew from 4% to 11%(54). Low taxes, cost efficiency, and impressive infrastructure developments are at the core of their success.

Africa reminds us that air traffic can be managed internationally. ASECNA alone manages airspace that is one-and-a-half times the size of Europe covering 17 countries.(55) Europe has achieved political union but manages its skies like medieval fortresses.

North America has been the source of great ideas including deregulation and open skies. Its carriers successfully managed the 2008 oil spike with prudent capacity decisions and efficient consolidation. (56) Instead of market-share driven strategies, the result was profit.

In 1992 Europe introduced the concept of a single market implemented in stages. The Air France-KLM consolidation gave us a new model (57) that buried nationalist concerns, and laid the foundation for others to follow.(58)

Despite the good picture that is emerging, some tiles could still spoil the mosaic.

Governments that have lost the edge to lead cannot move the industry forward. Too many still cling to outdated ownership rules from the bilateral system. Meanwhile Europe has replaced leadership with micro-management.

Tiles not clearly focused on safety also have no place in the future. Africa's hull loss rate is 12 times the global average.(59) But world-class safety is achievable. Twenty-three sub-Saharan African carriers are on the IOSA registry. Nigeria was a major problem but it is now four year's accident-free.(60) However the Democratic Republic of Congo, with the worst accident rate in the world, is holding the continent's reputation hostage, while ignoring help that is available.

Moving Forward

Through Vision 2050 we identified the need to change, the drivers for change, and the roadblocks. Aviation will certainly grow to support far more than today's 32 million jobs and $3.5 trillion in economic activity. The question is how to assemble the pieces of the mosaic to grow successfully.

On this I would like to share three personal conclusions.

First, despite our many great achievements, we are not as united as we need to be. Increasing tensions around the rapid growth of the Gulf carriers must be resolved. The solution to call in governments as advocates, or as referees, has not worked. And it won't. As responsible leaders of this global industry, we must find a fair and reasonable way forward ourselves.

Second, is the role of Asia-Pacific. The region is our future, but it is also our today. Already it is the largest single market in the world. By 2014 it will be 30% of our business (61) and still growing fast. With size comes responsibility. In place of our traditional leaders, I am convinced that China and India will soon become the driving force of aviation in this century. They will grow aviation stronger through change, replacing artificial barriers with commercial opportunities.

Third, innovation and openness to change will determine our future. The changes of the last decade prove that we are capable. Airlines, governments and even your association will be challenged to adapt to new business and demographic realities. We need to keep this momentum, to drive change everywhere, not as a response to crisis, but as a way of doing daily business.

Instead of a conclusion, Vision 2050 is a challenge. All of us, industry and governments, partners and stakeholders, leaders present and leaders future, must be prepared for even more change. We must all unite under a common vision to better serve our customers, to connect the world, and to take responsibility to build a truly successful global industry.

Succession

In a few weeks I will hand over the leadership of IATA to my successor. It has been a privilege and an honor to have led your association through this difficult decade.

Working together we achieved great things. IATA became relevant, providing leadership and driving change.

The challenge for my successor has three dimensions. The first is to increase relevance by driving even more change. The second is to keep the industry united, bridging differences, and building on our many great successes. And the third is to keep IATA focused, not as a club, but as the global association that represents, leads and serves all its members equally.

My confidence in the future reflects the great people who manage and lead our industry. It would be impossible to recognize all the individual contributions, but let me start with the most important person for me: Elena, my wife, for her patience and support.

Let me also thank,

* The ICAO leadership for being solid partners

* My four predecessors who built IATA's foundations

* My great IATA team who joined and supported me on a wonderful and challenging journey.

* The Board, all our member airlines, and those partners and governments who embraced change. Thank you for trusting my leadership, and supporting my many crazy ideas.

And two special thanks:

* To Leo Mullin (62) for betting on my Italian passion to lead a revolution.

* And to all who served as Chairmen of the Board of Governors, and especially David Bronczek, (63) for friendship and great support.

And finally thanks for the trust and confidence that you will give to my successor, my good friend, Tony Tyler.

I have been proud to work in this industry for over 20 years. We are the most amazing industry on the planet with the greatest people. We have survived a decade of crisis and shocks growing stronger, fitter and ready for even more change.

The future is truly ours to build.