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IATA 67th Annual General Meeting, Singapore

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IATA 67th Annual General Meeting, Singapore
From the 5th to 7th of June 2011 IATA held its 67th annual general meeting in Singapore. Senior executives and decision makers from the air transport industry where gathered in order to share their views on key issues that the air transport industry is facing and the way to move forward by being profitable while operating in a dangerous aviation world. 

This AGM was marked by the new leadership changes. Peter Hartman, President and CEO of KLM Royal Dutch Airlines, was appointed Chairman of the IATA Board of Governors, succeeding David Bronczek, CEO of FedEx Express. Tony Tyler, former Chief Executive of Cathay Pacific, was appointed DG & CEO of IATA, succeeding Giovanni Bisignani who will become Director General Emeritus.

Bisignani called on the industry to build a platform for a sustainable future based on renewed leadership and continuous innovation and to create a united stand in addressing challenges and finding solutions. He stated that airlines are expected to make just $4 billion profits this year on revenues of $598 billion (less than 1% profitability). On the fuel prices he commented that jet fuel is selling for $130/barrel, up 51.5% from a year ago, and for each dollar increase in the average annual oil price, airlines face an additional $1.6 billion in costs.
He mentioned that sustainable profitability remains elusive while cost cutting methods alone do not increase long-term profits. He pointed out that re-regulation would kill efficiency and innovation and that there is a need for stronger partnerships across the value chain – breaking down silos in the value chain to rebalance financial reward with risks.

Bisignani also reported on the results of Vision 2050, an IATA initiative to determine a long term vision for the air transport industry and highlighted the industry’s achievements and unfinished business for the past decade.
He stated: We need efficient processes to cope with the volumes and evolving customer demand. We need technology-based solutions for the environment and security challenges, and we need 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”.

The CEO forum focused on discussing four main topics: the ETS, Middle East and Asia growth and liberalisation. Panelists were Anthony Albanese, Leader of the House, Minister for Infrastructure & Transport, Australia, Tim Clark, President of Emirates, Andrés Conesa, CEO of Aeromexico, Robert A. Milton, Chairman & CEO of ACE Aviation, Emirsyah Satar, President & CEO, Garuda Indonesia, Douglas M. Steenland, former President & CEO, Northwest Airlines, Antonio Vázquez, Chairman, IAG & Chairman, Iberia. The panel was moderated by Nik Gowing, Presenter, BBC World News.

The panel and the industry as a whole is against the EC initiative to include aviation industry in the ETS from 2012 as this will impose a heavy burden on the airlines’ cost base. Mr. Steenland stated that IATA and the airline industry responded well to the issue and strongly supported the industry. He pointed out that this issue should be confronted holistically and not through territorial initiatives and the regulatory body able to do that is ICAO. Mr. Clark presented the current state of the issue. He clearly stated that the airline group is not able to state that such a measure is illegal when the EC has imposed a law approved by the Member States. He stated that Emirates paid $250.000 in order to make itself compliant with the EC rules and be able to measure its emissions. He pointed out that EC has imposed timelines and targets that the industry will need to comply in 6 months time. ‘To get to carbon neutral growth by 2050, while aviation will be growing year by year, it will be an incredibly difficult task. Even if we adjust to a new fleet, it will be very difficult to comply with the EC goals”, he said. Mr. Conesa, stated that it is less likely that revenues associated with this will go back to the industry. Mr. Gowing commented that EU legislation clearly envisages that if another country imposes similar measures then all flights from this country will be exempted from the ETS scheme. Mr. Albanese stated that ETS creates market distortion and this measure will not help. In terms of costs, Mr. Albanese stated that airlines will be forced not to pass the cost to the passenger in order to maintain their competitiveness. Mr. Clark stated that in the next 6 months there is going to be hectic political activity. ‘ETS introduces high level of complexity and we will spend most of our time trying to deal with this complexity’. Mr. Vasquez indicated that in the first years airlines will try to avoid going through Europe in order to avoid taxes. Mr. Gowing commented on the negative response to ETS and explicit threat by Asia. Mr. Clark stated that EC is trying to encourage other states to take action and measures in order to mitigate the effect of ETS.

On the issue of Middle East growth, Mr. Milton stated that there is no level playing field. Mr. Albanese stated that Australia is in favour of liberalisation. He stated that Emirates represents 7% and Etihad 2% of the traffic growth in Australia. Mr. Milton argued that there is a difference between a government owned operation and a private one.
Middle East carriers welcome other carriers to create subsidiaries in Dubai or Doha provided that similar opportunities will be given to the Middle East carriers in Europe. Emirates and Qatar explicitly stated that they are not receiving any government subsidies and they oppose on the accuse that there is not a level playing field maintained due to the way Middle East carriers are operating. Mr. Conesa stated that the model is sustainable in Latin America and that it does not generate the tensions that are created in other parts of the world. CEO of Qatar stated that the governments are shareholders in the company and that they are a public-private partnership and pointed out the need of liberalisation and reciprocity. CEO of Air Canada pointed out that there will not be a level playing field if there is not a clear picture of ownership in Middle East , that means pure public ownership.

In terms of the Asian growth, it was stated that there is room for growth for both domestic and international carriers. Asia is a huge market and there is potential for everyone to grow and serve the markets. Mr. Conesa stated that there could be room of collaboration in the form of bilaterals, code sharing, agreements to complement traffic. Mr. Satar indicated that there is not easy to grow and the biggest problem is that the slots that are given to carriers that are not from China are not ideal.
He mentioned that the free trade area of Asia enables further growth in aviation. Mr. Milton stated that Asia will be providing great opportunities for growth and revenues in the present and in the future.

Mr. Steenland pointed out that the industry is very fragile and is greatly affected by geopolitical changes and he indicated that consolidation is important in order to face these challenges.

In conclusion Mr. Bisignani urged the industry to become more united and find reasonable and fair ways to move forward without the help form the governments. Regarding the Asia-Pacific region, he stated that by 2014 it will be 30% of the air transport business and will keep on growing and pointed out that China and India will become the driving force of aviation in the century. Finally, he indicated that innovation and openness to change will determine the future of air transport.

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