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Tuesday, 12 June 2012

IATA’s CEO Tony Tyler urges governments to cooperate with the aviation industry, boasting on its economic importance. This plea should cover up the structural weakness and unwillingness to change of the industry.

The International Air Transport Association (IATA) is having their “Annual General Meeting & World Air Transport Summit” in the Chinese capital Beijing. As could be expected in these trying times, the tendency of this summit is to underline the paramount importance of the Aviation Industry for the world economy.

Also it must emphasize that the industry is going through a rough time currently, due to the economic crisis, the cumulated losses from a number of natural disasters and last, but not least, the European Emissions Trading Scheme for CO2 rights. The latter will undoubtedly have a negative impact on the (limited) profitability of the aviation companies that fly at and from Europe.

The message that will be sent to the government leaders over and over again at this summit is: “Help us, we are special. It is totally justified that we don’t pay taxes on fuel or anything else, as you need us to save the world economy. Letting us pay for the European ETS is a grave mistake. Letting us pay deerly for delays excess of three hours is another serious mistake. If you don’t abolish these measures, you are to blame for the mounting losses in the aviation industry. We are not, as we do everything right!”

The following snips are from an official summary of the keynote speech by Tony Tyler, CEO of IATA:

The International Air Transport Association (IATA) called on governments to be stronger partners in maximizing aviation’s economic and social benefits.

“Our industry’s license to grow is earned through working with governments to constantly make flying even safer, more secure, and more sustainable. Now we need an agenda to achieve tax regimes that do not kill growth, regulation that facilitates growth, and infrastructure that can efficiently accommodate growth. Doing so will enable the substantial economic benefits—jobs and growth—that global connectivity provides,” said Tony Tyler, IATA’s Director General and CEO.

Aviation is a key driver of economic growth, jobs, and prosperity:

In 2011, aviation safely transported some 2.8 billion passengers and 48 million tons of cargo. The value of goods transported by air is estimated at $5.3 trillion, which equals to 35% of the value of all goods traded internationally. A recent study by Oxford Economics confirmed that aviation’s contribution to the global economy supports 57 million jobs and some $2.2 trillion in economic activity.

Oxford Economics projected that aviation will grow about 5% annually to 2030. That would see passenger numbers rise to 5.9 billion and cargo shipments could triple to nearly 150 million tonnes. This connectivity would support 82 million jobs and $6.9 trillion of global GDP
“Aviation’s benefits are not guaranteed. Aviation is expected to grow about 5% annually to 2030. If that growth is held back by even one percentage point, the global economy will forfeit over a trillion dollars and 14 million jobs. Modern economies cannot prosper and create jobs if they are not connected to global opportunities through aviation. Governments need to unleash the power of aviation to drive jobs and growth. And airlines need to be successful businesses—keeping revenues ahead of costs and generating returns for their shareholders—to deliver economic benefits,” said Tyler.

Tyler elaborated the agenda for profitable growth with respect to taxes, regulation, and infrastructure as follows:

Taxes: “Excessively taxing aviation makes no sense. Taxes dampen growth—with a knock-on effect on jobs and the broader economy. Bluntly put, making connectivity more expensive destroys jobs and slows economic growth.”

Regulation: “Sensible regulation that increases safety or enhances competitiveness is good. But too often even the best-intended new regulation can have unintended and damaging consequences,” said Tyler. He noted punitive passenger rights legislation in the United States and Europe as examples of misguided regulation:

 “Making airlines pay for the mistakes of governments or incentivizing airlines to cancel flights are the unintended consequences of poorly thought-out punitive passenger rights legislation on both sides of the Atlantic. Airlines don’t want delays. And fines don’t address their root causes. The market forces of choice and competition empower passengers and are the best way to drive up service levels so long as governments also do their part,” said Tyler.

Tyler also highlighted the need for governments to meet demands for connectivity with airport capacity. “A few kilometers of runway and an efficient terminal infrastructure can put global markets at the doorstep of every local economy. Some governments understand this and are realizing the benefits of prioritizing airport investments. But there is also a long list of countries that are not taking full advantage of aviation’s economic potential”.

This is exactly the kind of speech that you could expect from the CEO of the IATA:
  • There is not a single word on the extremely limited profitability of the worlds leading aviation companies; a profitabilty that is spurred by the extreme competition for the lowest ticket prices and the lowest price per metric ton of freight;
  • There is not a single word on the substantial number of tax breaks that the industry already enjoys, compared to all other forms of transport and the awkward fact that the aviation companies still not manage to earn a decent profit and, as a matter of fact, never did in the past century;
  • There is no word on the very negative side-effects of the ever increasing number of flight movements for the environment, the general safety and the health of people and animals that live at near distance of an airport;
I will absolutely not deny the importance of aviation: there is no other way to get people,  fragile products and agricultural produce fresh and in good shape at the other end of the world within 20 hours.

And aviation helped indeed to give isolated economies a gateway to the world and it made the world a smaller place, which led to better understanding of people all over the world.

However, you can put some question marks at some of the ‘achievements of aviation’:
  • Is it really necessary to fly people to destinations all over the world at near or even below cost-price, because the competion does the same, thus making a decent profit for aviaton companies a mirage?
  • Is it really necessary that airports are 24/7 industries that cause a continuous stream of air and noise pollution, negatively influencing the health and well-being of people living in a 20 mile radius from airports
  • Is it really necessary that Europeans eat French beans from Kenia, green asparagus from Chile and garlic from China throughout the year, while looking at Kenian roses that are produced cheaper in Africa than in The Netherlands, in spite of the costs for air transport?
My readers won’t be surprised that my answer to all of the above questions is a firm ‘no’. In my opinion the aviation industry should think of a business model that is sustainable in every sense of the word:
  • The profits of aviation companies should be sustainable, while paying taxes and excise duties, just like other forms of transport;
  • The aviation industry should also really think much harder than today about diminishing the environmental side-effects of flying:
    • the build-up of greenhouse gasses in the atmosphere;
    • the total dependency of the aviation industry on fossile fuels and the excess consumption of these fuels, compared to all other kinds of transport;
    • the noise pollution caused by the jet engines, mounted in especially the older planes of less financially strong and modern aviation companies;
  • The transported passenger number and number of freight flights should in my opinion rather stabilize or diminish than grow in the coming twenty years;
  • There should (again in my opinion) be a reduction in flights that travel food around the globe, instead of distributing it to the (semi-)local markets, as this is extremely inefficient and often bad for the local population of countries. 
If the aviation industry would think about be first two bullets and even about the last ones, there could (after a large shakeout) emerge an industry that is both sustainable and profitable.

Unfortunately, the speech of Tom Tyler showed that the IATA is firmly assuming the ostrich position, blaming everybody and everything for the poor position of the aviation industry, except for the aviation industry itself. Positive change will not occur during his stint as CEO of the IATA.

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