CHAPTER NINE

Vision 2050

A look at Vision 2050, liberalization
and thoughts on the future

The need for change

My biggest problem throughout my decade at IATA was that the industry desperately needed a new set of rules. We were being run by the same system that was in place when the DC-3 was flying.

The 1944 Chicago Convention put safety at the top of the agenda and we owe a lot to the visionary 52 states that first signed the Convention. It put civil aviation back on track after the tragedy of the Second World War. But Article 6 of the Convention stated that no scheduled international air service may be operated over or into the territory of a contracting country, except with the special permission or other authorization of that country. Prior to that, airlines didn’t need an act of Parliament to open a route. And foreign ownership was not unusual. SCADTA, for example, which would ultimately become Avianca, was owned by Germans.

The Chicago Convention was followed by the Bermuda Agreement in 1946 in which the United Kingdom and the United States agreed to a bilateral deal. There used to be regular 32-hour trips across the Atlantic with the famous Boeing 314 flying boats, but the United Kingdom—conscious that the United States was a growing power— pushed to regulate traffic. So the bilateral system was born and the concepts of government-regulated capacity and of national ownership became the norm. The problem is these rules are still largely in place even though the world has changed so much. Airline hands are tied. All they can do is adapt as much as possible within the framework set by governments.

The Latin American model

The best examples of how airlines have adapted come from Latin America. Look at the Chilean carrier, LAN. Like a few other carriers, its leadership has had the courage and vision to push governments to accept “clone” airlines. This strategy gave us the likes of LAN Argentina, which began business in 2005, as well as LAN Ecuador and LAN Peru. These are subsidiaries of LAN but work around foreign ownership rules.

Apart from great leadership, part of the reason this business model has been accepted is that many Latin American governments understand the impact of the failure of a national carrier. There have been some painful lessons in the Latin American region that must not be forgotten by the industry.

In 2001, Aerolíneas Argentinas was suspended from IATA’s financial systems because of the airline’s many problems. The government knew the news was coming and held a cabinet meeting to re-nationalize the airline immediately. I travelled to Buenos Aires a number of times to assist its President, Mariano Recalde, in restructuring the airline. At the end of this process, I also often met with President Cristina Fernández, who had assumed office after the presidential period of her husband, Nestor Kirchner. Unfortunately, he died just two years later. Her Presidential residence at Olivos was an amazing villa about 30 minutes outside of Buenos Aires. It had wonderful gardens, impeccably manicured and home to an incredible variety of brightly-coloured plants. We had a meeting there in 2010 to celebrate the fact that the airline was once again a full member of IATA’s financial systems and we chatted about the challenges ahead for the industry. Although she was charming, I could see she was distracted. She said she was due to give a big speech later that day to present officially her candidacy for the next elections. The opposition had been gaining according to the polls and she had to make an impression with her speech or she might be in trouble. I escorted her to her helicopter that was taking her to the soccer stadium where the rally for her political party was being held. I went back to my favourite hotel, the Alvear Palace, and with Patricio Sepulveda, IATA’s Regional Vice President for Latin America, followed every word of her speech, delivered to some 60,000 people, on TV. Wearing as always an immaculate black dress, she spoke for over an hour without once appearing to refer to her notes. I told Patricio that she had done superbly and had the charisma of Eva Peron. She became the first woman ever to be re-elected in South America.

In Brazil, Varig hasn’t been so lucky. It was founded in 1927 and although well-respected was basically hostage to its major shareholder, the Ruben Berta Foundation, which in turn was controlled by employee unions. These couldn’t generate capital and wouldn’t accept outside capital.

In the mid-1990s, Fernando Pinto—who moved on to become CEO of TAP Portugal in 2000—managed to reduce Varig’s debt from $2 billion to $900 million. His leadership enabled him to reorganize the company enough to gain Star Alliance membership in 1997, but Varig was still ruled by committee with trade union employees in the driving seat. That’s a challenge that even the most visionary and persuasive leader would struggle to overcome.

Pinto was followed by Ozires Silva, a former President of Embraer and Petrobas, and a Minister for Infrastructure. After him came Omar Carneiro Da Cunha, former CEO of Shell Brazil. Omar came to see me in Geneva to talk about the work he was planning to do in the airline. We had a constructive meeting and discussed the way forward for Varig, including all the restructuring problems caused by the Ruben Berta Foundation. We ended the day with a pleasant dinner where he realized that he had forgotten his mobile phone. I offered to get him another phone but he said as he was flying back the next day it wouldn’t be necessary. I did, however, manage to persuade him to let my driver, Enzo—IATA’s oldest and most loyal employee—give him a tour of Lake Geneva in the morning before he flew back.

We said our goodbyes after dinner. But then, during the night, the IATA Brazil office called. They asked me to contact Omar urgently. I explained that it would be difficult as he didn’t have a phone. I asked what the message was and received a very short reply: he had been fired. I could have got the message to him in the morning but when I called Enzo he said Omar was having a great time and really enjoying the natural splendour around the Lake. I decided against speaking with Omar as I wanted him to enjoy his day, free from the pressures of work for a while. I believe he got the news that he was out of a job when he arrived back, which is not the best way of saying “Welcome home”.

A few years later, the situation at Varig had become so bad that I had to suspend it from IATA’s Clearing House. It was during the 2006 World Cup in Germany. My decision was bound to cause some operational problems for the airline and in turn that would doubtless affect the many thousands of Brazilians who were in Germany supporting their team. Star Alliance partners made sure everybody got home but the writing was on the wall for Varig. The courts eventually split the airline into “new Varig” and “old Varig”. The latter has disappeared while the former was purchased by Gol, a new breed of Brazilian airline that is serving this growing and enormously important market.

These are two examples of poorly managed airlines struggling to survive. But the turnaround in the region has been astonishing and it is not fully appreciated outside the industry.

Step by step, governments are beginning to realize the benefits of the “clone” airline approach. There is also a unique set-up in much of Latin America that is certainly helping governments to understand air transport. The CEOs of the successful airlines—such as LAN, TAM, COPA and Avianca—are major shareholders in their company and so take a medium to long-term view of the market. They don’t get caught up in quick fixes that inevitably lead to escalating problems further down the line. Often, there is a family tie there that goes back 60 or 70 years. The Kriete family has a share in TACA, for example; there is the Mota family behind COPA and the De Oliveira’s of GOL. Avianca has benefited from the leadership of Germán Efromovich. LAN was relaunched by Juan Cueto and his sons, Enrique and Ignacio, and they have built it up into a major success story, while TAM was the brainchild of the flamboyant Comandante Rolim Amaro. He was always surrounded by beautiful uniformed women but took a personal interest in everything, greeting passengers and establishing a department called “Talk to the President”. Maurico and Maria Claudia Amaro, together with Enrique and Ignacio Cueto, were the architects of the merger between LAN and TAM. The LATAM Airlines Group, as the merger is known, is either the biggest or second biggest airline in the world by market value. Depending on how you measure these things, Air China may just about pip them to the post. LAN and TAM have been doing business for many years and the relationship has culminated in an airline that is a global powerhouse. Consolidation has worked wonders in Latin America and it would be successful elsewhere, too, if only governments would give airlines the chance.

This way of working isn’t the only recipe for success by any means, but when used properly, this sort of network can be very powerful. The airlines compete fiercely but the CEOs are extremely competent and they all trust each other to be completely professional. I am biased when it comes to Latin America because I have great fondness for the region and I have very friendly relations with all of the CEOs. But I must say that some of the most enjoyable dinners have taken place in the region because of this special atmosphere, all wrapped up in a Latino flavour.

A leadership dilemma: colour and rules

Like the Latin American CEOs, I was also thinking of how to work around the constraints imposed by governments. I knew the industry could not be considered a normal business. Our profit margins make us look like a charity. And yet aviation is arguably one of the most important industries in the world, driving the global economy, connecting families and making the global village a reality. Normal businesses get to make and sell their product wherever it makes sense to do so. The components of a computer are manufactured in many different locations around the world and they are sold on a global basis. Governments have nothing to do. Airlines do not have this freedom. Governments limit market access and they constrain ownership. So I was constantly thinking about what IATA could do to update the colour of the balance sheet and the 60-year-old rules.

It was actually a controversial idea. Although it may seem that every airline would agree, in fact many relied on their governments for support. The government was their main or only shareholder and the rules it had put in place were keeping the airline alive. Many airlines were scared of transparency and a level playing field. I was convinced this couldn’t continue. I wanted to put another “bomb in the church”.

But it was difficult to find the right moment and the right way to address this critical issue. I knew from experience that you often only have one shot at a major issue and if you rush it you could lose everything and never get to present the idea again.

I decided the time was right at the Istanbul AGM in 2008. We had made a $5.6-billion profit in 2007, our first black number since 2000. Delivering a 1.1% margin while oil prices averaged $73/barrel was an amazing achievement. We had also secured a 10% reduction in charges at Seoul Incheon and got industry support for our Four Pillar environmental strategy. The star of the show, however, was e-ticketing. We celebrated with a big applause and with confetti made from the last paper tickets floating down from the ceiling. We were the first industry in the world to go paperless, saving airlines $3 billion in the process.

But to get approval for my controversial idea, I needed to make the celebration short-lived.

The agenda for freedom

In my speech, after all these great results, I brought the AGM back to reality. I pointed out that 24 airlines had gone bust in the last six months because of the high price of oil and economic uncertainty. And it was possible that oil would continue to rise and average $135/barrel. That would put $99 billion on the industry fuel bill compared with 2007. I continued scaring the audience with numbers. Airlines had made $11 trillion in revenues over the last 60 years but had a profit of only $32 million. That’s just a 0.3% profit margin. Airlines are near $200 billion in debt. I described aviation as being like Sisyphus—forever condemned to push a heavy weight uphill.

From a celebration the AGM atmosphere had become tense and worried. This complete switch in emotion gave me the opportunity I needed. I said it was time for the industry to be courageous and insist on change to the regulatory framework. I told the 1,000 participants that an Agenda for Freedom Summit that would focus on liberalizing the industry would take place in October 2008 in Istanbul. Leading countries, including the United States, Singapore and the United Arab Emirates, had already agreed to take part.

I had worked very hard to secure representation from these countries, using my personal relationships with Ministers of Transport and ICAO leaders. The Turkish Minister, Binali Yildirim, was a big help. He had opened our AGM in Istanbul and was very supportive of the industry. He also had a great story to tell about how positive government policy could help turn around an airline’s fortune. When I was CEO of Alitalia, Cem Kozlu was CEO of Turkish Airlines and he put in place the strategy that allowed the airline to flourish. Now under the leadership of Temel Kotil, the airline is one of the fastest growing in Europe.

Although we had a date and a venue for the Agenda for Freedom—to be exact it was the Ciragan Palace Hotel on the European shore of the Bosphorus—we had yet to decide on a Chairman. As is usual for these events, it had to be a respected global leader in his field. Fortunately, the choice was quite easy. Jeff Shane had worked for many years in the US Government as an Under-Secretary for Policy and was a respected Professor at Georgetown University. He had represented the United States at bilateral negotiations and chaired the 2007 ICAO Assembly. He has now joined IATA as its General Counsel.

At that first meeting in Istanbul I explained the situation and said we needed to equip airlines with the right tools to face crises in the future. I explained that my ten years at IATA had been dominated by colour and rules. The colour was red and the figures on the industry balance sheet always seemed to be in this colour. And the rules were 60 years old and needed to be retired.

There were ten countries in attendance and most of the representatives knew each other, so there was good chemistry from the start. Jeff was able to summarize and then settle the main points expertly. In the end, it was agreed that IATA would draft a statement outlining why governments should interpret bilateral agreements more liberally and that this statement would be endorsed by all the countries taking part.

Back in Geneva, Tom Windmuller and Carlos Grau Tanner, the IATA Director for Government Relations, began to work on a draft statement with Jeff Shane. They kept the ten countries updated and made sure nobody was left behind. I was busy trying to decide what my follow-up should be. Getting the European Commission on board seemed essential. I appreciated that it had a more difficult role because it had to represent all of its member states and there was still a divide between Northern and Southern carriers. My good relationship with EC Vice President Antonio Tajani was of great assistance. He was a clever and insightful business journalist in Italy before moving into politics, and in the end, I was able to get his full support. We all had to be very patient. I lost count of the number of drafts the Statement of Principles went through but every step was a step closer.

I was in constant touch with Roberto Kobeh at ICAO and also sought the wise advice of the former ICAO President, Dr Assad Kotaite. I also kept hammering home the message to governments that aviation is a vital part of the world economy and should be allowed normal commercial freedoms. I told them that liberalizing only 320 bilateral agreements would create 24.1 million jobs and add $490 billion to the global GDP.

A year after the first Summit there was a second meeting at Montebello in Canada, about 70 miles out from Montreal. Margaret Thatcher and Ronald Regan had once met here for a G7 Summit. Following two days of discussion we were able to agree and sign the statement. Chile, Malaysia, Panama, Switzerland, Singapore, United States of America, the United Arab Emirates all signed. The European Commission endorsed the statement and in the end we had some 60% of global aviation represented. Since then, the Statement of Principles has been endorsed by Bahrain, Kuwait, Lebanon and Qatar.

There are four main components of the Statement of Principles:

• Freedom to access capital markets: states agreed not to exercise bilateral rights to block international services from airlines with non-national ownership structures.

• Freedom to do business: states agreed to focus on reducing restrictions on market access and to expedite further reopening of markets in future bilateral agreements.

• Freedom to price services: states agreed to focus on allowing greater freedom to price airline services in line with market realities.

• The need for a level playing field: states agreed that parties cannot be expected to implement these principles with governments that pursue policies designed to secure an uneven playing field for their national carriers, whether through restrictive practices, direct or indirect subsidies or other means.

The US representatives, John Byerly and Paul Gretch, were instrumental in getting the project to a conclusion. I was also impressed with Aysha Al Hamili, a brilliant young pilot who represented the United Arab Emirates and later became one of the few women who have been on the ICAO Council.

It was an historic moment for the industry and an historic moment for IATA. Never before had a trade association been the driving force behind such an initiative. IATA had managed to get governments to agree. I worried at the beginning that they would think IATA was arrogant. But I was wrong and instead IATA came to be seen as a very positive voice for the industry.

A dramatic difference

The Latin America story and the Montebello initiative are two examples of airlines and IATA starting to think outside of the box. But far greater change is still needed if aviation is to have a sustainable future.

On the face of it, despite all the improvements that have been made, aviation’s financial results are awful. During my ten years at IATA, airlines generated about $5.5 trillion in revenues. They ended up $20 billion down.

But there is a different story to tell. So much has been done that airlines can now break even with fuel at $110 a barrel. In 2002, when I started at IATA, the break-even figure was around $20. It is a dramatic difference built on greatly improved business processes and sophisticated technology. IATA certainly contributed to this success.

Another way of looking at this is how the various crises have affected the airlines. 9/11 cost airlines $21 billion and it took four years for them to recover the lost ground. The 2008 economic crisis cost airlines $94 billion and yet it took only a year to re-establish revenue levels. In 2010, the industry made a profit of $15.8 billion, a 2.9% margin, even as the global recession continued. This was so unexpected that some of my colleagues called for a celebration. I had many doubts about the message we would present though. Was a 2.9% profit margin really a cause for celebration?

I discussed the idea internally. We knew we would have a great location at the Berlin AGM in June 2010 in which to stage a celebration. The Gala dinner was due to take place at Templehof Airport, which had recently been decommissioned. It was built in 1927 and was once one of the largest buildings in the world. It’s an impressive venue and would have been symbolic in the sense that aviation had outgrown it. But while it was tempting to at least acknowledge that the industry was moving in the right direction, the reality is that a single digit profit margin would get company CEOs in most other industries the sack. I couldn’t bring myself to sanction anything that hinted of a slap on the back, a “Well done to us”.

I began thinking that perhaps the best way forward was to look at how airlines could carry on making money into the future. Perhaps we could even identify how to improve the profit margin and make the industry truly sustainable? To do this, we would have to look back at what had gone wrong before and ahead to what we would do better in the future. The Vision 2050 project, as it became known, was born.

The think tank and the venue

We had a project but as yet no thoughts about who should be involved or the form it would take. To give weight to the enterprise, we needed to include respected airline CEOs as well as non-airline personnel. Manufacturers, airports, suppliers and even governments had to be included. I wanted a broad base of experience and skills as well as individuals with a global reputation. I was very happy that the likes of Ron Noble, Secretary General of INTERPOL, Nader Dahabi, former Prime Minister of Jordan and Anthony Albanese, Australian Minister for Infrastructure and Transport, agreed to take part.

We also needed everybody to meet, which meant we needed a venue. It had to be a country that had a government that supported aviation. That narrowed down the field quite considerably! The United States and Europe were definitely out. I briefly considered the three biggest emerging markets— India, China and Brazil. India was growing quickly but it was the size of the market that was impressive and not government policies. Although it had done well to open its skies, aviation in the country is still over-taxed. China is another market of huge potential but airlines there are still linked to the state, which wouldn’t be appropriate for our Vision 2050. And Brazil was still struggling to get its infrastructure up to scratch even though it’s got the World Cup and the Olympics coming up.

Chile was an interesting alternative. The merger of LAN and TAM, owned by the Cueto and Amaro families respectively, had created the second largest airline group by market value and the Chilean government is very supportive of aviation.

In the end, there was really only one option. Singapore is built on the efforts of its airline and airport. Aviation has been essential to the country’s emergence since independence and under the guidance of Lee Kuan Yew aviation became a strong and competitive industry. In my speeches, I had often used Singapore as an example for other governments to follow. Other governments had rarely had the courage to do so, of course, but that just made the promotion of Singapore all the more important.

Minister Mentor Lee closed the Vision 2050 conference with some fascinating insights into aviation and the role it had played as a pillar of the new Singapore state. Everybody present agreed afterwards: if only we had two or three more leaders with his vision and passion then our jobs in aviation would be made a lot easier.

With venue decided, the next step was to find someone to drive the meeting and subsequent report. It needed to be someone outside the industry. I didn’t want Vision 2050 to be just another IATA document. The first ideas centred on the former political leaders, Bill Clinton and Tony Blair. A more academic study seemed appropriate, however. The industry needed to be analyzed and a clear path to profitability recommended. Airlines wanted to know how to make money.

It was Brian Pearce, the IATA Chief Economist, who came up with the idea of Michael Porter, a professor at the Harvard Business School and a world-respected expert on competitiveness. His book, Competitive Strategy, really changed the ways companies and governments viewed competition. So, Brian’s suggestion made perfect sense to me and, as I was a member of the 1970 class at Harvard Business School, I was very pleased to welcome a colleague such as Michael to the project. I couldn’t recall Michael though. I remembered many other professors—Hunt in Finance, Dearden in Accounting, Hesket in Marketing and Roland Christensen in Strategy—but I just couldn’t place Michael.

Anyway, I asked Tom Windmuller, IATA ’s Corporate Secretary, to discuss our proposal with Michael Porter’s team and keep me posted. It wasn’t an easy arrangement because of the busy schedule of Professor Porter and because the study had to be ready well in advance of the Singapore meeting, which was scheduled for February 2011. Eventually, though, we managed to agree on the details of our cooperation and during one of my regular Montreal trips, I stopped in Boston to meet Professor Porter and explain the importance of Vision 2050 as well as express my appreciation for having him on board for this challenging project.

I’ve been back to Cambridge several times since I left Harvard. And every trip brings back memories of working in my small room at Cotting House, desperately studying for the next class. We used to debate solutions to particular business problems. Once in a while we got it right. But the best classes were the ones attended by a CEO who would follow our debate and then, at the end of the class, explain to us why our solution would never work in real life. You learn most from your mistakes. Certainly, my time at Harvard Business School has proved a real asset in my professional life.

At my meeting with Professor Porter I explained that we would need something available for the 2011 IATA AGM, which was also being held in Singapore. For his part, he was excited by the prospect of studying aviation, a sector he hadn’t really touched on before. Having concluded our business, I asked what Professor Christensen was doing and Michael informed me that, sadly, he had passed away the year before. But when I mentioned Christensen he suddenly recalled bumping into me in the Professor’s office all those years ago. Michael had been preparing his PhD while I was working on a book on my future employer, the Italian giant IRI. Memories came flooding back and we had a great conversation recalling our times as students together.

We didn’t forget the work we had to do and at our meeting we agreed on monthly conference calls to discuss the latest updates on the project. It was on the second of these calls that Michael sighed deeply into the telephone. “Giovanni, I have never come across such a mess as aviation,” he said. In a way, they were words of praise for airline CEOs. Michael meant that it was the industry structure that was wrong—all the uncoordinated, outdated regulations, the monopoly suppliers, the inability of airlines to act like a normal business. Airlines are in effect in a boxing match with one hand tied behind their back. They can never win.

Five Forces

The draft Vision 2050 document was sent to a 35-strong team we had assembled for the project in January 2011, a month before our scheduled Vision 2050 meeting. We needed to establish a roadmap for the industry, one they could use to guide them to a safe, green and profitable future.

The meeting was a great success and a very enjoyable experience. I think everybody learned something and that’s the most you can hope for from a meeting of this nature. Michael Porter used his expertise and trademark “Five Forces” concept to explain the problem. Airlines have a perishable product with high fixed costs and any number of rivals. Customers and suppliers have all the power.

Michael’s Five Forces framework starts with the Intensity of Rivalry. Needless to say, this is quite high in the airline sector. Several factors are behind this fierce competition. The product (the seat on an aircraft) is perishable and disappears whether it is used or not. Added to this, the product is very similar. Safety standards and aircraft design mean that differentiation is hard. Any innovation, such as a flat bed, is quickly copied. Price becomes the defining factor and so it gets ever lower. At the same time, fixed costs are high and getting higher. It is incredible to think that in 1945 it took the average Australian wage earner 130 weeks to pay for the lowest Sydney to London return fare. Now, they can do it in less than two weeks.

The second force is the Threat of New Entrants. This doesn’t just mean new airlines but more usually existing airlines entering new markets. It should be seen in conjunction with the fact that there are high exit barriers in the industry. Normal returns in a sector rely on unsuccessful companies exiting the market, but in an average year, less than 1% of airlines disappear. Rules that limit foreign ownership and mergers are part of the problem. Alliances also play a part and can help partners through a lean period. And even if an airline disappears, its aircraft rarely do. Capacity stays in the market.

Michael then goes on to talk about the Bargaining Power of Customers. This is high and rising. Aggregator websites are concentrating this power for the individual while travel agents are responding to a more price-sensitive corporate market. Loyalty to specific airlines is low although there is some evidence that frequent-flyer programs are working.

Then there is the Bargaining Power of Suppliers. If we look at some key sectors in turn we can see the massive challenge faced by the airlines. Simply, there are not many airframe and engine manufacturers and so each has a strong market position. It’s also worth noting that the defence sector is a big spender for these manufacturers, which further limits the power of commercial aviation. As for labour, I won’t need to remind people who have been stranded on a bank holiday in Europe because of a French air traffic-controllers strike how powerful unions can be. Pilot unions across the world have often held an airline to ransom and cabin crew can also cause problems too, as British Airways and Finnair know only too well. I’ve spoken at length about airports in an earlier chapter, so I will just repeat that most are monopolies and their decisions about whether to expand or not are critical to airline success. It is also worth including sources of finance under this category. They are becoming rarer and those that still exist can push for far more attractive conditions than was previously the case.

The fifth and final force is the Threat of Substitutes. In Europe especially, high-speed rail is a serious competitor. It has taken a good share of the market on the heavy Madrid−Barcelona and Rome−Milan routes, for example. And we should also mention new communication technologies such as video conferencing, as these too have the power to dampen demand for air travel. But rather than other modes of transport and new technologies, the biggest substitute is the decision not to travel. It may be the cost, the hassle of security or the simple fact that the journey isn’t essential.

Governments must listen

We realized early on that there was no silver bullet, no quick fix. But one thing is for certain. Governments must change. This isn’t the same world as it was when the DC-3 was flying.

Much of this book has been critical of governments’ aviation policies— with good reason. It is poor decision-making at the state level that has dogged this industry from the outset. If governments don’t change their perception of aviation, the industry will continue to be held back. And when you think of the economic, social and cultural problems that will ensue, it seems clear to me that politicians must find some backbone.

First, they must agree to build new runways. Unless we get more runways, the system simply won’t cope with the increase in traffic. What that means is that your young son or daughter won’t be able to take the same flights or enjoy the same holidays and cultural exchanges that you do. It might mean they never get to see their grandparents or cousins who live in other countries.

Second, governments need to coordinate their security thinking into the Checkpoint of the Future concept. Nobody wants a repeat of 9/11 and nobody wants to wait more than 30 minutes in a queue and then have to undress and unpack.

Third, they must support biofuels. It is a young industry with huge amounts of promise. But it needs a kickstart—some supportive regulation that gives it a chance to establish itself. At the moment, there is no incentive for the big oil companies to change their ways and the cost of fuel is putting airlines under tremendous pressure. So governments must provide the carrot in some form of financial incentive to enter the industry and must then apply the stick with some hard targets and penalties for failure to comply. Biofuels will be a cornerstone of a sustainable aviation industry. I’ve mentioned how airlines can now break even at $110 a barrel. I wouldn’t have thought that was possible so I may be wrong in suggesting that $150 a barrel is about the limit. We’ll get to that price in the next few years. We’ve already seen peaks very close to that figure, so it’s only a matter of time before we average it over a year.

Finally, governments must relax the rules to allow cross-border mergers. Airlines must have global access to financial markets. It will benefit the customer and the industry. Airlines are trying to serve modern markets with antiquated rules. It won’t work. Financiers steer clear of aviation because of this. They know the industry is $200 billion in debt and has its hands tied. Airlines are not a good bet for investors.

Knowing what governments should do and actually getting them to do it are two very different things of course. But we cannot go on with regulation heaped upon regulation, tax heaped upon tax—it has to stop. Micromanagement of the industry just prevents normal commercial freedoms and distorts the market.

I believe governments are coming round to the industry point of view. I think the penny dropped when the volcanic eruption in Iceland stopped air travel in most of Europe. It cost the world GDP $5 billion, infuriated millions of passengers across the globe and stopped perishable goods getting to market. Farmers in Africa, from Kenya to Ghana to Zambia, suffered because of the eruption in Iceland. The World Bank put the losses for African countries at around $65 million.

Unfortunately, even if governments start making the right decisions straight away, it may already be too late. I suspect quite a few airlines will struggle in the years ahead and many will cease to exist. I support market forces and in a sense, a market correction like this may not be a bad thing. But the airlines will be killed off for the wrong reason. They should leave the market if they are weak or have been mismanaged and not because the governments have used them as a cash cow and milked them dry.

Serving the customer

The Vision 2050 project identified several other recommendations for a sustainable future. Anticipating customer needs is the start of the puzzle. Government knee-jerk reactions and a patchwork of regulations, infrastructure and technologies have left it near-impossible for an airline to provide the customer service they would want to provide. But, to be honest, if airlines had asked the question about customer needs 40 years ago, we may have seen a stronger industry. For years, airlines put unappetizing three-course meals in front of passengers when all they wanted was a cheaper flight.

This is what the low-cost carriers (LCCs) understood and why they have grown to be such a major force in the industry. In Europe, their market share has grown to near 40%. On the whole, LCCs have been a positive force in this industry. But these airlines too are having to adapt their business model for the modern customer and offer more services. AirAsia has shown that long-haul, low-cost travel is a possibility. But implementing AirAsia CEO Tony Fernandes’ vision is not easy especially without a strong airline feeder system.

If we can win over the customer we will gain their support and then governments will have to listen to the industry. But serving the customer better will mean some difficult decisions. The ageing of the world population means many customers will be older. At the same time, there will be huge numbers of younger, technologically-savvy travellers. Flying will be second nature for these customers and they will have some very firm preferences.

For both sets of passengers, safety and security will remain the top priorities. There is every reason to believe that accidents will become increasingly rare, however, meaning that these priorities will not be reinforced too often. So passenger attention will turn to other areas.

Airlines will need to offer a range of products at a range of prices. Business travellers will want both speed and comfort and be prepared to pay for it. Older travellers will want comfort, too, but they’re not in a great hurry and would prefer something a bit cheaper. Processes will have to account for their preferences at check-in and throughout the journey. The young will be very price-sensitive but they will want to be entertained and will expect to remain in constant contact with friends and families. These are generalizations though. Above all, the customer of 2050 will expect a travel experience tailored precisely to individual needs.

We need more runways

Processes have to be put in place that will deliver the desired experience. By 2050, the forecast is for 16 billion passengers a year compared with 2.9 billion today. Cargo will leap from 48 million metric tons to around 400 million metric tons. Although airlines are safer, leaner and greener than they have ever been, catering to those kinds of figures will necessarily involve some drastic changes in the business model and aviation processes.

Clearly, a large part of the problem will be physical. We’ll need to develop airport terminals, increase airspace availability and, most importantly, build a lot more runways. In China, it won’t be a problem. It is reported that there are plans for 56 new airports before the end of 2016. A further 16 airports will be relocated and 91 facilities will be expanded.

China’s efforts are mirrored elsewhere in Asia. New airports there are constant award winners. But in Europe and the United States, infrastructure is a complicated issue to resolve. The “not-in-mybackyard” brigade is making it very difficult to build new runways. We won’t get vertical lift-offs in the timeframe I’m talking about, so we have to find the land and the political will to build three kilometres of runway. It will be very difficult but there is the added benefit of connecting a city to the world rather than just another city. Try doing that with three kilometres of motorway or rail track. Unfortunately, politicians think short term. They want the votes that will win the next election and tend to push the harder decisions into the future. They must find the courage to explain to the younger generation that a sustainable aviation industry will be carbon neutral and is an environmentally-efficient mode of transportation.

The United Kingdom is always the obvious example in this regard. In 1971, the Roskill Commission debated London’s aviation needs and a third runway for Heathrow. Some 40 years later and we’re still talking about it. The number of destinations out of Heathrow has fallen, there are fewer connections to emerging markets like China compared with European rivals, and the airport is operating at over 99% capacity. London Heathrow used to suffer from more delays than the majority of its counterparts and only some good work from the air traffic authority, NATS, has prevented delays from increasing. Aviation in the United Kingdom supports 900,000 jobs and $81 billion in economic activity. The country is a cultural centre and British subjects are connected to work colleagues, families and friends throughout the world. The lack of a coherent aviation policy is astounding.

While the need for more runways won’t change, airport design will be transformed. In my Vision 2050 initiative, experts such as Paul Griffiths, CEO of Dubai Airports, identified some interesting trends. In 2050, much of the administration of travel will take place prior to travel and behind the scenes. As mentioned in the previous chapter, the majority of passengers will simply walk through a security lane without stopping. Travellers will truly be able to relax and enjoy the airport experience. Designs will minimize distances to the aircraft gates and maximize amenity and retail space. People are already printing their own boarding pass and bag tags and this will become commonplace. The Vision 2050 report further suggests that Central Terminal concepts will disappear in favour of distinct concourses linked by train, which in turn connects with a high-speed system to the downtown area. Gate areas will change in conjunction with aircraft design. The main thrust will be to improve turnaround times, so getting passengers on and off the aircraft will be done as quickly as possible.

Once an aircraft gets in the air, it needs to fly in a straight line. The technology to do a green departure, optimize the trajectory and perform a continuous descent approach is available today. Only the political will to change is lacking. Like building runways, losing control of national airspace won’t sit easy with governments, so I suspect that air traffic “management” rather than enablement will be around for some time yet.

Future technology

Fortunately, our technological capabilities are improving on an almost daily basis and that may give the industry some breathing space. Not all the technology necessary to serve the customer in 2050 is available today, but we’re not too far off. Security is a good example. To make the Checkpoint of the Future a reality will take a machine capable of scanning a moving target. The best guess at the moment is that such a machine might be tested some time around 2014.

As for the aircraft themselves, they will be very different in 2050. When Kennedy told NASA to put a man on the moon within ten years, it had no idea about how to do that. And in 2008, when I said aviation had to be carbon-neutral from 2020 and produce just half the emissions in 2050 compared with 2005, I’m sure the aircraft manufacturers had no idea how that would be achieved either. But since then we have had winglets developed that reduce fuel burn a critical few percent. Once we get to blended wing designs, an incredible 32% improvement in fuel burn per seat is on offer according to the experts. There are all sorts of other ideas out there, from morphing wings to integrated engines. Who knows what else the engineers might come up with?

NASA has launched a project looking into advanced aircraft design. The goal is to get them to fly faster, further and carrying heavier payloads while burning a lot less fuel. There will be a lot of dead ends along the way but I’m sure we’ll end up with designs that are a great improvement on the aircraft flying today.

Pretty much everybody that has made a prediction about technology has got it wrong, from the IBM chief who couldn’t imagine why anybody would want a computer in their home to those who said that it was obvious that a heavier-than-air machine wouldn’t fly. So I will not try and predict what technologies will be able to do for the airline industry in the future. But clearly the constant advances will make for a smoother travel experience and a safer travel experience.

On the fuel side, oil is only going to get more expensive. The need to develop biofuels is paramount and, as I explained in the environment chapter, it is a win−win scenario, able to develop jobs as well as reduce emissions. IATA supports the Solar Impulse project, an attempt to fly an aircraft around the world using only solar energy. The project’s leaders are Bertrand Piccard and André Borschberg, who have often flown me in their hot air balloon high above the Swiss mountains. They deserve praise for their hard work and while we probably won’t see commercial aircraft flying purely on the power of the sun, the invaluable data being gathered by the project will undoubtedly spark innovation among the major manufacturers.

Our greatest sin

It must also be admitted that the airlines themselves have to change. To serve the customer of the future airlines will have to be in business. Given the peanuts they have been earning so far, I’m not sure how many airlines around today will still be around in 2050. Airlines have to be sustainable. That means being green enough to have a license to grow and being profitable enough to give investors a fair return. There is about $650 billion tied up in the airlines, which should generate at least a $50-billion profit every year just to cover the cost of capital. After the $15.8 billion profit in 2010, a high for the 21^st century, profits fell to just $8.4 billion in 2011, a 1.4% margin. Profit for 2013 is estimated at $10.6 billion (0.6%), a 1.6% margin. So even to get the cost of capital remains a dream.

Part of the problem is the value chain. Silos have to be broken down so that risk and reward are shared equally. An ultra-competitive sector such as the airlines cannot be held to ransom by monopolies further down the chain. But it is significant that when airlines cut capacity in the wake of the recent economic downturn the load factor—the average amount of seats sold—was 80.4%, the highest it has ever been. Airlines were helped by production problems at Boeing and Airbus and a rise in world trade, but major airlines had made independent decisions years earlier which resulted in constrained growth and capacity. And that gave the industry the $15.8 billion profit in 2010.

Recent experience of transatlantic markets has shown the importance of sensible capacity management. During the first half of 2012, US airlines faced a 2.5% fall in demand, due to the weakness of European economies and the sluggishness of the US economy. However, they cut capacity 4.9% and saw passenger yields improve 4.6%. US airlines have shown contrasting financial performance to other regions in the past 12 months with an improvement in cash flows and profitability, compared with deterioration for airlines in Europe.

It is a clear indication that capacity is aviation’s “own goal”, its greatest sin and a major key to long-term profitability. Keep the number of available seats down and airlines will make money. Increase capacity too much and the historical trend of a 0.1% profit margin will be as good as it gets. Unfortunately, IATA must remain silent about capacity and airlines must decide on capacity growth independently. What routes to fly and how often is a commercial decision and consequently very sensitive territory legally speaking. The competition authorities would have come down very heavily on IATA if they thought we were working in this area. Thanks to the support of my General Counsels, Bob McGeorge and Gary Doernhoefer—who both did an excellent job protecting IATA’s legal interests—and some excellent training for IATA staff, IATA was never involved in any antitrust case.

But that left airlines to their own devices. For some, because of the flag on their tail, adding capacity is like adding prestige to their country. They start a new route not because they can make money but because it looks good to have a new connection with some distant capital. And they like the fact that their country’s flag is visible at airports across the world. Others go for market share. Never mind the bottom line, just be the top dog in the market. The theory is that profits will flow in the long run, but it rarely works that way. Usually, bankruptcy comes first. Betting an airline’s future on market share is never a good idea. All airline CEOs should abandon it.

What matters most in business is the figure at the bottom of the balance sheet. With airlines, we too often see that figure coloured in red. The problem with adding capacity is that it’s very difficult to take away. What do you do with an aircraft you no longer need? You can’t just put it on eBay. Airlines take a loss if they sell an aircraft in a downturn and getting rid of leasing contracts is equally costly. Keeping capacity avoids this capital loss. Remember too that you can’t cut capacity by seat, you have to do it by aircraft. Changing to smaller aircraft simply increases the cost-per-available-seat kilometre. There are also slot rules at busy airports. If you don’t use it, you lose it, which means airlines are tempted to keep aircraft flying. Finally, a CEO has to consider that cutting one flight might have a knock-on effect on the rest of the network. So, a route may no longer make money in itself but it could supply a number of passengers for a high-yield international service.

In short, it’s much easier to add capacity than it is to reduce it. Even though the world is still in great economic difficulty, some 1,500 new aircraft were delivered in 2012.

Some airlines can hold off bankruptcy longer than others. When I was CEO of Alitalia most airlines were state-owned and there was a level playing field of sorts. But that isn’t the case now. Private airlines have to fight against wealthy government-backed carriers. The Middle East carriers that are becoming so dominant refute that government backing is allowing them to add cheap capacity into markets for long-term gain, for example, but until they are quoted on international markets and publicly announce audit results, many will continue to believe that is exactly what is happening. IATA cannot say anything because it does not have an auditor role.

And while the Middle East may seem unique, every region has it opportunities and challenges.

Europe and the United States

One of the first things to recognize is that aviation’s centre of gravity has shifted eastward. Europe and the United States were once leaders in the field. They were behind the Chicago Convention and its emphasis on safety has served the industry well. But when the Chicago Convention came into force, countries couldn’t agree on the economic equation and so the bilateral system was born. It’s a quid pro quo arrangement— one country’s airlines can fly to destinations in another country so long as the favour is returned. Bilateral agreements worked okay when most airlines were state-owned. Prices were fixed at a small percentage above costs so every airline could make a bit of money and safety was never compromised.

But that was a long time ago now. Unfortunately, neither the United States nor Europe has shown the leadership needed to change the rules. I made a big effort in 2006 to get the ball rolling. The US Transportation Secretary, Mary Peters, and Vice President of the European Commission, Franco Frattini, two good politicians who looked to the future, worked alongside me to update the system. But James Oberstar, the strong Chairman of the House Transportation and Infrastructure Committee, was firmly opposed. Some in Europe were equally skeptical. We did eventually get the US−EU Open Skies Agreement in 2010, but this didn’t go far enough and barriers to the foreign control of airlines still remain. You can get Campbell soups in approximately 120 countries, Google works in around 160 countries and IBM is present in about 170 countries. The airlines that have helped create the global village cannot enjoy this type of opportunity. The greatest reach of any airline has never reached three figures.

Airlines have done everything possible to work around the situation as mergers between Air France and KLM and Iberia and British Airways have shown. But it is still very difficult. In late 2012, Iberia announced plans to reduce its workforce by 4,000 people. Despite the good work done by Xavier de Irala with the support of the Spanish Prime Minister Jose Maria Aznar, the cost of the Spanish system and its ANSPs in particular is still too high. And the Chairman, Antonio Vasquez, has also been very effective. As a renowned tenor he can shout louder than most but the airline’s pleas are still not being heard.

Airlines in the United States have also caught on to the potential of the merger. The United and Continental deal looks like being successful as it provides a strong domestic and international presence. The real surprise though was the US Airways and American Airlines $11-billion tie-up, announced in February 2013. Under the leadership of Bob Crandall, American had become an icon of the aviation community, but the company had been unable to re-engineer itself for the modern market. Doug Parker, the CEO of US Airways, will take charge of the new, merged airline and he will have to be fast in increasing market share in Asia, which is experiencing such a positive growth trend. It is worth mentioning that despite the consolidation taking place in the United States, fare increases have been limited to just 2% over the past decade. So consumers are still getting a great deal.

There are other bright spots in Europe and the United States. JetBlue, for example, is doing extremely well under the leadership of Dave Barger, who was able to solve the initial operational problems and create a very robust business model. Southwest, which has such a strong platform to build on thanks to the vision of Herb Kelleher, remains the biggest success story though.

But overall, Europe and the United States have become lost in the woods. The markets have matured and they are already being surpassed by other regions in terms of numbers and leadership. The Single European Sky and NextGen, for example, would bring so much in terms of the environment and efficiency, but they are just a 20-year-old dream. The politicians that led the way after the Second World War are gone and those in charge today haven’t grasped that a modern industry cannot be held hostage to 60-year-old rules.

Asia-Pacific

Asia-Pacific is already the biggest aviation market in the world. And it’s only going to get bigger. China is the standout country in this regard. I would have mentioned India, too, but it has been slipping recently as the government continues to heap taxes and enormous airport fees on airlines. The Air India−Indian Airlines merger has been very unsuccessful. I had supported Minister Patel opening up Indian skies and said that the best way to take advantage of all the new bilateral agreements was to have a strong Indian airline. But I warned him that any merger would need the full support of the government because it was liable to get very rough. Unfortunately, that has proved to be the case.

China has managed to maintain the momentum, however. It is not just about airline growth but also infrastructure growth. This has kept pace and created a virtuous circle, allowing airlines to grow. Even the consolidation of Chinese carriers happened within a couple of years when in the Western world it might have taken decades. The CEO of China Eastern, Liu Shaoyong, is an active member of the IATA Board and always made other members jealous when relating the speed of Chinese Government decisions and infrastructure implementation. China is also helped by the low cost of labour, of course, but it is the speed of decision-making that is the real advantage.

China has doubled its aircraft fleet in the past decade and it now has more international seats (1.4 million) per week than Japan. That would have been unthinkable ten years ago. In 2000, Japan had 480 aircraft and 1.2 million international seats every week. Twice that number was available on the domestic market. But Japan has stagnated and its experience shows that the region still needs to be monitored. To be fair, All Nippon Airways has always been at the frontline of efficiency as its decision to take the Boeing 787 shows. Under the leadership of Yoji Ohashi and then Shinichiro Ito, ANA took some important strides forward.

It should also be noted that Asia-Pacific isn’t all about China. There are plenty of very interesting developments throughout the region. The turnaround of Garuda shows the work that has been done. Emir Satar, the CEO, was able to make a great turnaround in a short period starting from 2005. The airline has been profitable since 2007 and in 2011 issued an IPO.

Airlines’ prospects could be helped by a new framework. ASEAN countries have agreed on a liberalization schedule and by 2015 it will be an open market. There is talk now of a Seamless Asian Sky and what’s the betting that it will be in place before a Single European Sky? This kind of political will has been lacking in most other parts of the world. Combine it with the sheer numbers involved and Asia-Pacific has every reason to be cheerful about the future.

Achieving all that it has and with a strong future ahead, the region must accept some responsibility on behalf of the industry. It must be a leader in setting an agenda for the industry, helping to establish a framework that will facilitate a sustainable future. I feel sure that China will step up. We have already seen the major role it has played in underpinning the financial markets and it will do something similar in aviation, working carefully behind the scenes to make sure that this vital industry continues to bring benefits to the global village.

The Middle East

The region’s overall market share has grown from 4% to 11% in the past ten years. Government and industry work well together. Taxes are low, the infrastructure is impressive and open skies agreements are always welcome.

But government and industry cooperation is also the problem. As noted above, the success of the Gulf carriers is treated with deep suspicion in the industry. Many believe it is government backing that is enabling the success of the airlines. This is very different from merely supporting the industry. Ensuring a level playing field won’t be easy though. While it’s true that airlines can fly into the likes of Dubai or Doha in return for Emirates or Qatar Airways getting access to their home markets, many do not consider this a fair deal.

The clearest example of this argument is the Air Canada−Emirates case. Air Canada successfully lobbied its government to stop Emirates increasing its flights to the country. Emirates say this is just denying Canadian citizens a great deal because they offer a superior product at a cheaper price. Air Canada, on the other hand, points to the implications for local jobs and the fact that getting access to Dubai is not the same as getting access to Canada. Apart from the size of the markets, Emiratis are far more likely to travel on their home airline than Canadians who are used to choice and have a cosmopolitan attitude to which airline they fly on.

The situation hasn’t been helped by the global economic downturn, which is more deeply felt in the United States and Europe than it is in the Middle East.

So is there a solution? I’m not sure there’s one that would be acceptable to all parties. One possible way forward could be to have airline balance sheets formally audited by respected international firms before traffic rights are granted. That would clear up some of the confusion and reveal if adding capacity to a market is justified or not. Whatever happens must be a business solution. It shouldn’t be up to governments to sort this mess out. And airlines must resist the temptation to call on their governments as advocates or supporters.

The Etihad model of strategic codesharing partnerships and minority equity investments led by James Hogan also shows promise. Etihad has a very broad strategy and has shares in several other airlines, including airberlin, Virgin Australia and Air Seychelles. This may well be the best way forward for Gulf carriers and could start a consolidation process centred on the Gulf. Emirates, which came to prominence under the expert guidance of Maurice Flanagan, has always refused to enter an alliance and is usually quite reserved in these matters. But even Emirates has now signed a deal with Qantas to develop the so-called Kangaroo routes between Australasia and Europe. We may well see more of these deals in the future as it works well for all partners.

Africa

Africa remains a special case. Most of the airlines are struggling to survive, infrastructure is poor and safety is still an issue. There are exceptions but the continent as a whole continues to be a concern. Some countries are all but lawless and the authorities issue licenses to carriers without due regard for safety and it brings the entire region down.

The continent is divided by safety performance. Accidents for Westernbuilt jets increased in 2012 to 3.71 (from 3.27 per million flights) and yet carriers on the IOSA registry are performing at or above average industry rates.

IATA, with ICAO and a host of other organizations, has committed to an Africa Strategic Improvement Action Plan aimed at addressing safety deficiencies and strengthening regulatory oversight in the region by 2015. The Plan was endorsed as part of the Abuja Declaration by the Ministerial meeting on Aviation Safety and Security of the African Union in July 2012.

Africa can get it right. The multi-state Agency for Aerial Navigation Safety in Africa and Madagascar (ASECNA), which was established in 1959 and provides air navigation services across a vast section of the African continent, is a great example of a coordinated approach. ASECNA recently froze charges for the eighth consecutive year.

And there are some great carriers too, worthy members of the world’s major alliances. Kenya Airways’ CEO Titus Naikuni has always been an active IATA Board member and his airline did a lot to help others through the Partnership for Safety. South African Airways gave IATA its first female Board member in Siza Mzimela. Egyptair and Ethiopian Airlines have also performed well under the circumstances. But none of these airlines can drag an entire region into the modern world.

Unfortunately, individual countries still do not understand the benefits that aviation can bring. Senegal has a $68 airport development fee. Several other countries such as Cameroon, Gambia, Mali, Niger and Sierra Leone also have high fees. This is not the way to encourage a sustainable industry in a region that desperately needs aviation for connectivity both internally and with the wider world. African aviation supports 6.7 million high-quality jobs and business activity totalling some $67.8 billion. The industry owes it to the continent to improve on this. With the right support from governments, it could play an even bigger role in facilitating Africa’s growth and development.

Latin America

The traffic numbers aren’t as impressive as Asia-Pacific but the aviation industry structure and the financial return certainly bear comparison. As in Asia, a number of airlines have developed supranational brands, getting round antiquated rules by setting up country-specific versions of the home airline. It’s proved to be a good solution and airlines are posting profits consistently. The region is unique in that it has been profitable for four consecutive years. It’s probably no coincidence that the region is connected to the world by airlines that have hit upon a business model that works around government regulations as I mentioned earlier.

Governments have played their part to a degree. Chile has a progressive aviation policy, for example. When you’re stuck between the Andes in the East and the Pacific Ocean on the West, aviation becomes an important connector. During my last visit to the country as IATA Director General Emeritus in July 2011, I used the opportunity to present my successor, Tony Tyler, to the President, Sebastián Piñera. The President has had an extraordinary life and isn’t a career politician. He graduated from Harvard Business School and as a successful businessman made his many millions through investments in television and airlines.

He has done an extraordinary job, though, rejuvenating the country after a devastating earthquake and managing the rescue of 33 miners, a story that gripped the world in 2010.

Following some impressive welcome protocols at the Palacio de La Moneda, including a formal military salute, we had a good meeting discussing aviation. President Piñera was kind enough to praise IATA for the work it had done in Latin American aviation. For Tony Tyler, it was the first example of the relevance IATA had managed to achieve over the previous decade. At the end of the meeting we were invited to take a walk through the Palacio de La Moneda. Built in 1805, it was originally a colonial mint and had been the centre of many upheavals in Chilean life, such as President Allende’s suicide in 1973 following Pinochet’s coup d’etat. I was reminded during the walk of a meeting Tony and I had in October 2009 at the Sheraton Hotel in Amsterdam when he was serving as IATA Chairman. We had to discuss the agenda for the next Board meeting and the succession process. He asked me about my retirement and I said that I would carry on until the June 2011 AGM, but that would definitely be it. “If I accept a year’s extension the Succession Committee would have to find me a new wife, but I am very happily married,” I joked. As we were talking, it occurred to me to say that Tony would make a really good candidate to be my successor. Two years later the Board agreed and Tony is doing a great job.

Even though Chile, and to a lesser extent the other Latin American governments, have put aviation on the national agenda, the really hard work has been done by the top managers at the airlines, who have shown determination and great vision to build a regional industry that has managed to be profitable for four years in a row. No other region can say that.

Aviation now supports in excess of four million jobs and more than $100 billion in economic activity in Latin America and the Caribbean. Those numbers will rocket. Chileans travel more than any other nationality in the region, but it is still just 0.7 trips per year. Americans, on average, travel 1.8 times a year.

There are still infrastructure and safety issues to address. Latin American airlines’ safety improved in 2012 compared with 2011 (0.42 Western-built jet hull losses per million sectors in 2012 versus 1.28 in 2011), but the accident rate was still higher than the global average (0.20). As mentioned in Chapter 7, the IATA Operational Safety Audit will make the difference. The accident rate for non-IOSA carriers in the region is significantly worse than for those airlines that have met the standards. Chile, Brazil, Costa Rica, Mexico and Panama recognize this and have incorporated IOSA into their safety oversight. Peru is expected to follow in 2014.

Overall, the region has given itself a great platform on which to build.

The benefits of aviation

I’ve explained why airlines need a fair shot at success. They have a social and economic impact that should not be under-estimated. Let me put these arguments into figures. Globally, aviation supports near 57 million jobs and $2.2 trillion in economic activity. By 2030, these numbers will increase to 82 million jobs and $6.9 trillion in economic activity.

Where these increases occur is equally important. I have mentioned the importance of airlines to get African perishable goods to the markets in Europe. Many emerging countries rely heavily on the tourism sector too. Think of a safari holiday or a couple of weeks in a tropical paradise. It isn’t possible to get to these places unless you fly. And unless tourists get to these places, the economies will stagnate because they rely heavily on the money that tourism brings. Think also of the Filipinos who work abroad and send money to their families, a practice that is vital to the Filipino economy and typical of many other countries.

We must not forget the role of aviation in day-to-day business. Air transport carries goods worth about $5.3 trillion every year. Some of these are critical, time-sensitive deliveries that only aviation makes possible, such as getting vaccines to distant markets. All of aviation is involved in humanitarian efforts. After the Haiti earthquake in 2010, British Airways flew two relief flights carrying Oxfam and UNICEF relief aid. Emirates donated several Boeing 747 freighter flights. Etihad, American Airlines and United Airlines also helped. Thai Airways flew 1,000 metric tons of rice donated by the Thai government. The famine declared in East Africa in July 2011 got a similar response. FedEx, UPS, Virgin and Lufthansa Cargo were among the many that rushed to help. It is not just about major disasters either. In October 2012, an Air Canada flight enroute to Sydney from Vancouver successfully located a yacht in distress off the Australian coast. An Air New Zealand flight coming into Sydney from Auckland was able to confirm the location and provide further details, enabling a successful rescue.

Aviation is a positive force in our global village. It makes possible the Olympics, the World Cup and the chance to see the incredible Terracotta Warriors in your home city. During my ten years at IATA we achieved many things, won many battles. But the fight to show that airlines are a force for good in this world goes on. I hope I have laid the groundwork for my colleagues in the industry to have a chance of winning that fight.

Airlines have been pushed around for too long.

Basta!