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Rebalancing the Air
Transport Industry US$5.5 billion Industry
Loss Expected for 2005 (New York) "The high price of fuel is robbing
our profitability," said Giovanni Bisignani,
Director General and CEO of the International Air
Transport Association at the opening of the
AirFinance conference in New York. "The fuel bill
has risen from US$44 billion in 2003, US$63 billion
last year. If oil averages at US$43 per barrel
(Brent) for 2005, the bill will be US$76 billion.
And that would leave us with an industry loss of
US$5.5 billion for 2005 and over US$40 billion for
the period 2001-2005," said Bisignani. "We have lost our balance as an industry. Change
is critical," said Bisignani. "We cannot live with
the half-measures and contradictions of the past.
Governments intensified airline competition without
effective regulation of monopoly suppliers that
account for 10% of operating costs. The cost of
labour as a percentage of operating costs ranges
from 18% in Asia to 38% in the US. And it has been
stubbornly difficult to reduce. So it is result of
tremendous hard work at restructuring and
re-engineering their businesses that airlines have
reduced non-fuel unit costs by 2-3% annually," said
Bisignani. Bisignani outlined a vision for change that
involves airlines, governments and the industry's
monopoly suppliers&emdash;airports and air
navigation service providers. "Everybody has a role
to play. Airlines must simplify the business by
eliminating complex processes that are expensive
but add no value to our customers. Industry-wide
e-ticketing alone will save US$3 billion in costs
each year. Our monopoly partners&emdash;airports
and air navigation service providers&emdash;cost us
US$40 billion a year. They must understand the need
for gains in cost efficiency and deliver measurable
results," said Bisignani. Bisignani singled out governments for adding
costs to the industry, "Deregulation was meant to
foster competition and lower the cost of air
travel. But governments continue to milk the
industry for taxes and charges that are at the
levels of alcohol and tobacco. In the U.S., the
average tax charged on a US$200 ticket has
increased from 7% in 1972 to 26% in 2004&emdash;or
US$ 15.8 billion. Moreover, we cannot accept the
US$ 5.6 billion global cost burden for security
that governments are passing annually to the
industry. Governments must take responsibility and
pay for national security," said Bisignani. Bisignani challenged governments to take a
different approach with air transport. "We have
nationalistic rules for businesses that compete
globally. And, in place of a strong vision and
leadership for our industry's future, governments
micro-manage and mis-regulate. In Europe alone,
mis-regulation and micro-management cost the
industry EUR 5.9 billion each year. We need modern
rules that will allow us the same freedoms that
other global businesses take for granted. Ownership
and control rules that restrict access to global
capital are of a different age. We need to run our
businesses like real businesses. Markets and
competition must shape the future of our industry,
not the 60 year-old bilateral system," said
Bisignani. Bisignani drew a comparison between a
deregulated telecommunications industry and
aviation. "Both of these industries have importance
as strategic components of a nation's
infrastructure. For both, deregulation resulted in
declining yields in excess of 30% between 1991 and
2004. But the playing fields are completely
different. The telecom industry has access to
global capital, facilitating cross-border mergers.
Customers are well-served and the companies are
financially healthy. Air transport is fragmented,
constrained and, as a result, a financial disaster
in many places. Governments agreed on progressive
liberalisation through the International Civil
Aviation Organization (ICAO). It is time for
government leadership to implement the vision,"
said Bisignani. Urgent action is needed. "The livelihood of 28
million people in aviation and aviation related
activities and US$1.8 trillion of economic activity
are at stake. Governments must act quickly in areas
that are their responsibility and then get out of
the way. We need to get on with business,"
concluded Bisignani. |
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