IATA DG's speech on Air Transportation 2018

Date: 4 June 2018

Director General's Report on the Air Transport Industry Dear colleagues, guests, ladies and gentlemen.

Aviation’s future overflows with opportunity. But the direction in which global affairs will evolve has become more difficult to predict.

The positive impact of globalization is undeniable. Since 1990, 1.1 billion people have been lifted from poverty (1). The world is growing richer. And trade, empowered by connectivity, is a leading force in development.

But the forces of protectionism are gathering strength. Sanctions, tariffs, and geopolitical conflicts are the mainstay of daily news. The specter of a trade war looms. Debates on migration and immigration rage. And trust among nations is showing its fragility.

We are at a juncture. Facts show that aviation has created immense value by bringing people, products and business together. And ultimately, I believe that the enormous benefits of globalization will guide us forward.

As I have said many times: Aviation is the business of freedom.

The 4 billion (2) passengers who boarded planes in 2017 demonstrate the human desire to explore, connect, learn and collaborate across great distances. And the over 60 million (3) tonnes of cargo delivered by air accounted for a third of the value of goods traded globally.

Every day, goods, people, investment and ideas are connected by aviation. That directly supports 63 million jobs (4) and improves the quality of life for all.

Aviation—our industry—has a purpose. It spreads prosperity and enriches the human spirit. That truth lays the foundation for a very important message. Everyone is better off when borders are open to people and to trade. And our hard work as an industry has primed aviation to be an even stronger catalyst for an even more inclusive globalization.

Finances Aviation’s financial foundation is stronger than ever. Airlines will make $33.8 billion (5) this year.

Passenger demand is expected to grow 7.0% and cargo by 4% (6). Airlines are creating jobs, payingdown debt and rewarding investors.

Our nine-year run of profitability began in 2010. And return on invested capital will exceed the cost of capital for four years in a row. At long last, normal profits are becoming normal.

This is hard won through major changes—to the industry structure and its operations. But success is not evenly spread. Almost half the industry’s profits are generated in North America, while better financial returns remain elusive for many. The goal is for the entire industry to operate in solid financial health.

It is a challenging industry in which to operate. High taxes, costly and ill-conceived regulation, infrastructure capacity constraints, market shifts, and the demands of labor are the “normal” repertoire. Low-cost long-haul is providing great value to consumers. It is also adding a new dimension to competition. Protectionism could derail successful international joint ventures. And jet fuel costs are expected to be up 25% on 2017.

But, $7.76 (7) is our only buffer against future shocks. That’s the average profit per passenger that airlines will make this year—a thin 4.1% (8) net margin. And rising costs are putting this under pressure. Robust profitability is needed to reward investors, strengthen balance sheets and fund the growth of aviation jobs and its social benefits.

Aviation’s new-found financial health is rewarding consumers. With money to invest in new aircraft, the global network has grown to over 58,000 routes. Airlines have invested to develop options that meet every travel budget, shipping requirement, or business need. And as NDC—New Distribution Capability (9) — modernizes distribution, we can look forward to a future that caters even more closely to customer needs.

Safety We are also making progress on safety. In 2017 for the second time in three years, there were no passenger fatalities in accidents on jet operations—some 34.9 million flights (10).

That’s an amazing result. The recent Cubana crash (11), however, was a human tragedy that sharpens our determination to make our safe industry even safer.

Accident investigation is an important tool in that quest. Fully completed investigations drive safety improvement. We insist on these with governments. But with just 45 accidents of any description last year (12), we must also use other sources to guide us forward.

That’s why our Global Aviation Data Management program—GADM (13)—is so important. The vision is to use data to mitigate risks before they can become accidents. Predictive analysis tools we are developing with the Singapore government (14) will make this possible.

IOSA’s digital transformation will make it an even more important GADM component. That is on top of an impressive 15-year history. In 2017, the safety record of airlines on the IOSA registry was nearly four-times better than that of non-IOSA airlines (15). The European Aviation Safety Agency (EASA) is the latest regulator to recognize IOSA’s value in improving safety. And the Australian Civil Aviation Safety Authority has extended its IOSA use to include domestic as well as international operations.

Security Working effectively with regulators is more demanding when the subject is security. After some challenges over the last year our partnership with governments on security has deepened. That was vital. It helped the US Transportation Security Administration to replace its PED ban with alternative measures that have improved security globally.

Airlines shouldered the lion’s share of the implementation work for these measures against a very tight timeline. And we continue to fill some gaps in inter-governmental-coordination. For example, airlines are still conducting passenger security interviews (16) in place of governments. And they may also have to fill a gap to meet US TSA requirements on emerging chemical, biological and radiological threats (17). This is not sustainable in the long-term.

Governments must play their role. And in more than just security interviews and screening. The ideal is outlined in the Global Aviation Security Plan—GASeP (18) —which has taken shape under the leadership of ICAO, and with the support of industry and the UN Security Council (19).

Now, we need tangible implementation steps by governments bolstered by stronger trust among national security regimes.

One-stop security (20) is a good example of the progress we are aiming for. Travelers from the US, Canada, Australia, Singapore and Europe are already experiencing the benefits of risk-based security checks at transfer points. With redundant checks being progressively removed, many travelers among these geographies enjoy secure and hassle-free transfers. The advancement in

decentralized digital identity platforms via biometrics and block-chain technologies, will make the case for one-stop security even more compelling.

Our future vision is to keep aviation secure with even more effective, efficient and convenient processes.

Environment Sustainability is also central to our future. From 1 January 2019—less than seven months from now—all airlines must report fuel consumption in preparation for the Carbon Offsetting and Reduction Scheme for International Aviation or CORSIA (21). This scheme will keep our promise to cap net emissions, achieving carbon neutral growth from 2020 (22).

But the commitment to sustainability must be shared by governments. The 73 governments already signed on to CORSIA cover 88% of aviation (23). We want more to join—ideally 100% coverage. It’s not just about signing-up. Under the leadership of ICAO, governments agreed to CORSIA as a universal measure to address aviation’s carbon footprint. They must put all their efforts into honoring that commitment with a successful implementation.

We also want governments to step up on sustainable aviation fuel (SAF) (24). SAFs have a critical role in our aim to cut emissions to half of 2005 levels by 2050. But we need more governments to join the US and Europe in establishing policy frameworks to reduce cost and incentivize production.

Challenges On aviation’s core mission to deliver safe, secure, accessible and sustainable connectivity, the state of our industry is strong and getting stronger. And with “normal” levels of profitability we are spreading aviation’s benefits more widely.

Looking to the future, I will highlight three key challenges: ▪ ▪ ▪

Avoiding creeping re-regulation Maintaining the integrity of global standards, and Finding sufficient capacity to affordably accommodate growth

Re-Regulation Let’s start with regulation. We are working in partnership with governments to ensure that “smarter regulation” principles are at the core of regulations. This common-sense approach asks governments to align with global standards, take into account industry input and analyze the costs of regulation against the benefits.

Smilar thinking guided the visionary deregulation of the US air transport industry. And that changed the face of our industry for the better.

Flying is more accessible. In 1978, when deregulation began, the average person flew once every 6.6 years. Now the average is more frequent than once every two years.

But a worrying counterpoint of creeping re-regulation cannot be ignored. Addressing regulatory overreach has become a major focus: ▪ ▪

▪

▪

In Brazil, we are working to protect consumers’ ability to buy tickets without prescribed baggage allowances.

In Italy, the Philippines and Latin America, we are working to protect the ability to choose between different ticket types, against various regulatory proposals that would constrain this at great cost to competition.

In the US, we are fighting a Senate proposal to regulate what airlines can charge for things such as re-booking, cancellation, checked baggage, and seat selection—a stunning reversal of US deregulation.

And in the UK we are working with the CAA to avoid the government getting involved in allocating seats.

Regulations must add value. In assessing that, regulators must recognize the power of competition and social media to safeguard consumer interests. Governments should not distort market effectiveness with regulations that second-guess what consumers really want.

With that in mind, one of the most exciting regulatory developments of the year is a sweeping review of US commercial regulations. The aim is to keep only those where the benefits outweigh the costs to travelers and the industry.

Global Standards As part of promoting smarter regulation, we must vigilantly defend global standards.

The Chicago Convention (25) set global operating standards that have fostered aviation’s amazing success story. We could not safely operate on the scale of today if each country made up its own rules.

Global commercial standards—many created through our association—also play a critical role. For example, they are the backbone of a distribution network enabling passengers to buy a ticket at any IATA accredited agent, pay in a single currency, and travel the world with confidence.

A decade ago, we took a giant step with 100% implementation of global standards for e-ticketing (26).

Combined with standards for bar-coded boarding passes, kiosks, and web-enabled applications, the travel experience has fundamentally changed for the better. Further improvements are being powered by the deployment of NDC. Looking a little further into the future, yesterday our board mandated IATA to move ahead quickly to meet consumer expectations for real time baggage tracking (26b). We’ve got one year to develop a global deployment plan that will see IATA standard RFID inlays in all baggage tags. During that time we will align our partners in the value chain—especially airports—so that we can achieve our industry’s vision to begin rolling this out from 2020.

In parallel, we are looking to global standards to help passengers navigate the airport without having to prove their identity over and over. IATA's One iD project proposes face, iris or fingerprint recognition to seamlessly move passengers from curb to gate. The technology exists today. And we will be urging governments—vital partners to make One iD work—to move quickly.

Business imperatives—meeting the needs of our customers—drive the fast adoption of IATA’s commercial global standards. But, there is no similar motivation for governments. Too often, governments agree global standards and fail to implement them. Here are some examples: ▪ ▪ ▪ ▪

▪

▪

India helped develop ICAO resolutions prohibiting tax (27) on international tickets. Yet it persists in taxing international travel.

CORSIA is the global scheme to manage emissions, yet Sweden (28), the Netherlands (29) and others are inventing new environment taxes and charges.

Annex 17 (30) of the Chicago Convention sets baseline security requirements. Yet, according to ICAO, 28% of countries fail to meet them. And 37% fail on resolution of security concerns (31).

The Montreal Convention1999 (MC99) (32) was agreed nearly two decades ago to modernize liability limits. MC99 also enables the digitizing of customs formalities critical to the WTO’s Trade Facilitation Agreement and our e-cargo initiative (33). With so much at stake, why have only 130 states ratified it?

Chicago Convention Annex 13 (34) requires states to complete accident investigations. But, of the 1,000 accidents reported in the last decade, only about 300 (35) investigations have been concluded with published reports, And, although there are agreed global standards for operating procedures, states implement special requirements or Ops Specs—so many that it is sometimes difficult to know what is the standard and what is the exception.

These are not the only examples. We must take governments to task. It is unacceptable that global standards are being ignored by the very governments that created them.

We must also be vigilant with our industry partners. The Worldwide Slot Guidelines (WSG) (36), for example, are under threat.

For over four decades the WSG have been continuously updated. The goal is to consistently, fairly and transparently allocate scarce capacity at airports.

The benefits are clear.

▪

1.5 billion consumers fly annually from 195 slot-coordinated airports. They rely on scheduling stability.

▪ New entrants, particularly LCCs, have used the WSG to establish themselves even in slotconstrained airports (37).

▪ And every traveler benefits from aircraft investments made using WSG predictability.

Airports want slot auctions as a means of “reform”. We see them as a step in the wrong direction (38).

Auctions benefit airlines with the deepest pockets. Auctioning would end a fair and neutral system— one that meets customer demand by accommodating a mix of carriers, routes and price points to create connectivity. Auctions won’t create more capacity and surely won’t lead to lower consumer costs.

In other words, slot auctions would be a mess. And we oppose them vigorously.

The current system, however, is not perfect. There are areas that need reviewing, clarification and reinforcing. This includes finding a more effective means for airports to declare available capacity.

That’s why we are engaged in a strategic review of the WSG with the airport and slot coordinator communities (39). Progress will be reported to the ICAO Assembly in 2019.

In the meantime, the challenge for governments and airports is to respect the current WSG. Like all global standards, it delivers greatest value when everybody follows the same rules.

Infrastructure While the WSG are great at managing scarce capacity, they are not an alternative solution for building more airports.

We are in a capacity crisis. And we don’t see the required airport infrastructure investment to solve it. Governments struggle to build quickly. But with cash-strapped finances, many are looking to the private sector for solutions.

Our message: We need more airport capacity. But be cautious. Expecting privatization to be the magic solution is a wrong assumption.

Even airlines had high hopes that private sector investment and business acumen would bring benefits. There were some quick wins. But they were outnumbered by disappointments. As customers of many airports in private hands, airlines have far too many bitter experiences.

Travelers also sense the problem. According to Skytrax (40), five of the top six traveler-preferred airports are public.

Motivated by our members’ frustration, we commissioned performance benchmarking. Privatized airports are definitely more expensive. But there is little difference in efficiency or investment levels compared to airports in public hands.

This runs counter to the results of airline privatization. Intense competition led to lower costs. It’s a third cheaper to travel today than it was in 2000 (41).

So, airlines do not accept that privatizing airports must lead to higher costs. And neither should consumers or voters. How can making the transport infrastructure more expensive—which means less competitive—be a legitimate public policy objective?

What is the answer?

Our research did not reveal a one-size-fits-all solution. But it was clear that variations of corporatization—when the government maintains its skin in the game—generally provide better outcomes for consumers and the wider economy.

We came to three conclusions: ▪ ▪

First, never sell the crown jewels just to raise cash.

Second, airports focus on what is important when performance improvement goals are set in consultation with airlines, and, ▪ Third, airports have strong—monopolistic—market power that can only be curbed with firm regulation We have turned these findings into a resolution that our membership will be asked to endorse in tomorrow’s AGM. It asks governments considering privatization to: ▪

1. Focus on the long-term economic and social benefits of an effective airport as part of the country’s critical infrastructure, ▪ 2. Learn from positive experiences with corporatization, new financing models, and alternative ways of tapping private sector participation ▪ 3. Make informed decisions on ownership and operating models to protect consumer interests, and ▪ 4. Lock-in the benefits of competitive airport infrastructure with firm regulation.

The decisions taken, and those not taken, on the development of infrastructure in the next years will have a profound impact on local and national economies and the experience of our customers. Our united voice on this issue will help governments to make the right choices.

Trafficking Also, at tomorrow’s AGM you will be asked to unite in supporting a resolution denouncing human trafficking. It will commit our industry to assist law enforcement in their efforts to stamp it out.

We are the business of freedom. There should be no tolerance for those who use our networks nefariously. Our decision a few years ago to take a stand on the illicit trafficking of wildlife (42) is bearing fruit. IATA’s Eyes Open (43) campaign is now raising awareness on human trafficking. And the time is right to formalize our activities in a resolution by our membership.

The Business of Freedom As we look to the future we can be confident. There are challenges. We will meet them head-on.

How? By building the partnerships and understanding needed to further the reach and expand the benefits of the amazing industry which we have the privilege to lead.

Each and every day we see the incredible and positive difference that aviation makes in our world.

▪ ▪ ▪ ▪

The looks of anticipation on the faces of travelers in airport departure lounges expresses the tremendous potential created by aviation.

The smiles in arrival lobbies show the good that we do by bringing people together.

The 170,000 tonnes of cargo that will travel by air today demonstrate the energy that we pump into the global economy.

And the 12 million people who will board planes today bear witness to the contributions we make by delivering safe, efficient, sustainable and profitable connectivity.

I will say it proudly again. We are the business of freedom.

Notes 1. The World Bank Taking on Inequality 2016 edition 2. IATA Economic performance of the airline industry, 2018 mid-year report 3. IATA Economic performance of the airline industry, 2018 mid-year report 4. ATAG Aviation Benefits Beyond Borders 2014 www.aviationbenefits.org 5. IATA Economic performance of the airline industry, 2018 mid-year report 6. IATA Economic performance of the airline industry, 2018 mid-year report 7. IATA Economic performance of the airline industry, 2018 mid-year report 8. IATA Economic performance of the airline industry, 2018 mid-year report 9. More information on New Distribution Capability 10. More information on airline safety can be found in the Safety factsheet (pdf) 11. Cubana flight 972 crashed on May 18, 2018. 112 of 113 people on board perished.

12. IATA Safety factsheet (pdf) 13. More information on GADM 14. In February, IATA and Civil Air Authority of Singapore announced the Safety Predictive Analytics Research Center (SPARC) 15. IATA Safety factsheet page 4 16. Airlines Call for Valuable Lessons to be Learnt from PED Ban 17. TSA News release: TSA marks milestone with stronger carry-on screening at all U.S. federal airports Approximately 30-days later, following bilateral engagement with approx. 104 countries, TSA extended these measures to some 270 Last-Point-of-Departure airports.

18. More information from ICAO on GASeP 19. UN Security Council Resolution 2309 calls for closer collaboration to ensure safety of global air services 20. One-Stop Security entails the recognition of security standards applied in one country where those standards are equivalent to standards in a second country. Recognition permits One Stop Security whereby passengers, baggage and/or cargo arriving into an airport in the second country do not need to be subjected again to security controls when transferring to another destination from the airport in the second country.

21. CORSIA is a global market-based measure (GMBM) to enable airlines to offset their growth in emissions. A GMBM is the fourth pillar of IATA’s carbon emissions strategy. The first three pillars are new technology, more efficient operations, and better infrastructure.

22. The three carbon goals, adopted at the 2008 IATA AGM and subsequently by the wider aviation industry at the ATAG Summit in 2009, are: 1. Fuel efficiency improvement of 1.5% per year to 2020 2.

Carbon-neutral growth from 2020 3. Reduction in net emissions of 50% by 2050 (compared to 2005).

23. See ICAO list 24. More information on our work on SAF. See also ATAG, Beginner’s Guide to Sustainable Aviation Fuel (pdf) 25. The Chicago Convention 1944 established ICAO, and set out the rules of airspace, aircraft registration, and safety, and the rights of signatories regarding civil air travel.

26. More about the e-ticketing project 26b. See the RFID and Bag Tag project factsheet (pdf) 27. ICAO positions 28. See for example IATA press release 29. Airlines urge the Dutch gov't to ditch aviation tax proposal 30. Of critical importance to the future of civil aviation and to the international community at large are the measures taken by ICAO to prevent and suppress all acts of unlawful interference against civil aviation throughout the world. SARPs for international aviation security were first adopted by the ICAO Council in March 1974, and designated as Annex 17 to the Chicago Convention.

31. ICAO Universal Audit Programn (USAP) - ICAO AVSEC Panel 2018 32. IATA policy position on MC99 33. IATA e-cargo initiative 34. According to the provisions laid down in ICAO Annex 13 to the International Civil Aviation Convention - Aircraft Accident and Incident Investigation, States shall investigate or delegate the investigation of accidents which have occurred in their territory. Serious incidents should be investigated

by States or by other organizations, such as dedicated accident/incident investigation bodies or aviation

service provider organizations. When an accident happens involving an international civil aviation flight, Annex 13 sets out the rules on the notification, investigation and reporting of the accident. It sets out the rights on who should conduct the investigation, which are the parties who can be involved, what rights does each party have, how should the investigation be conducted, and how the final results should be reported. Annex 13 also states that the sole objective of the investigation of an accident or incident is to prevent accidents and incidents and that the investigation is not to apportion blame or liability.

35. IATA Safety Report, 2016, Chairman’s Foreword, p. 3 36. More information on the WSG 37. Airlines magazine article 2/6/18 38. See Alexandre de Juniac's blog: On the Necessity of Slot Coordination 39. More information in this Strategic Review factsheet 40. Top six airports are 1. Singapore Changi 2.Incheon 3. Tokyo Haneda, 4. Doha Hamad and 6.

Munich World Airport Rewards 41. Report on the air transport industry 42. More information on Wildlife Trafficking 43. More information on Human Trafficking