The biggest aviation threat

The price of oil is changing everything, for airlines and for their passengers. In 2002, a barrel of oil was US$25. And the total industry fuel bill was US$40bn.

In that same year, the world's airlines lost US$11.3bn. To recover, enormous changes followed. Fuel efficiency improved 19%. Sales and marketing unit costs plunged 25%. Non-fuel unit costs dropped 18%. And airlines rolled out e-ticketing to every corner of the planet.

Airlines returned to the black in 2007 with a profit of US$5.6bn. Yet every dollar increase in the price of a barrel of oil pushes industry costs up by US$1.6bn.

Oil is now in the US$135 range. If this price holds for the next 12 months - as the futures markets tell us - the added burden will be a staggering US$99bn. Losses in 2008 could reach US$6.1bn.

The situation is desperate and potentially more destructive for the industry than our recent crises - SARS, terrorism and war - combined. In the last six months 24 airlines went bust.

Today passengers are suffering from a maze of duplication, bureaucracy and hassle. Governments must focus on risk management, harmonise global standards, use technology and intelligence effectively and take responsibility for the bill.

We also have an unregulated mess with monopoly suppliers such as airports. Airport charges increased US$1.5bn in 2007. Too many airports are isolated from commercial discipline. Look at the UK Civil Aviation Authority's treatment of Heathrow.

Service levels are a national embarrassment but still the CAA increased charges by 50% over the last five years, and plan 86% increases for the next five. It's time for governments to get serious about regulating monopolies that abuse their position.

With oil at US$135 per barrel airlines have the biggest incentive of any industry to improve environmental performance. Optimising routes and sharing best practices alone saved over 10.5 million tonnes of CO₂ last year.

And the investments we are making in new aircraft and innovations like biofuels that do not compete with food crops will drive even more progress. Yet governments remain fixated on punitive economic measures.

Travellers in Europe will have to absorb the US$9.91bn cost of including aviation in Europe's emissions trading scheme. But politicians are failing to take the measures that will actually reduce CO₂.

The oil crisis is also highlighting a desperate need to modernise the 60 year-old bilateral rules governing the industry. Re-regulation or re-nationalisation is not the right answer. Airlines fight crisis after crisis with their hands tied because national flags, not brands, define our business.

Airlines cannot serve passengers in new markets without an international agreement. And we cannot look beyond national borders to try new ideas, grow our business, access global capital, or merge and consolidate. It's time to change.

Let's rip up the 3500 bilateral agreements and replace them with a clean sheet without any reference to commercial regulation. Airlines would be free to innovate, free to compete, free to grow, free to disappear, and free to become financially healthy.

Governments must stop crazy taxation, regulate monopolies effectively, ensure that the cost of energy reflects its true value, fix the infrastructure and change the rules of the game.

Other parts of the industry must also change. Labour must understand that jobs disappear if costs don't come down. And our partners across the industry value chain must recognise that this is an industry crisis - and everyone must participate in the solutions.

Our responsibility is to work together to build a sustainable future. 32 million jobs, 2.3 billion travellers and US$3.5 trillion of global business depend on our success.

Giovanni Bisignani is CEO of the International Air Transport Association.

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