Are you prepared for the future?

In absolute terms, last year looked like a good year. The
industry returned its largest ever profit – $15.1 billion. But for a $565
billion industry, that’s just a 2.7% margin. It’s a pathetic return that does
not even cover the 7-8% cost of capital. And we expect 2011 to be more
challenging. Profits will drop to $9.1 billion, which means a 1.5% margin.

So how do we give this strange but wonderful industry a
sustainable future? Following the launch of IATA’s Vision 2050, I will be
joined by 30 strategic thinkers in Singapore this month to look ahead
four decades. We want to lay the foundation for the industry to meet the needs
of 16 billion passengers sustainably and profitably. A cornerstone for this
2050 vision is finding a new power source to replace today’s jet fuel. No
industry has a future unless it is environmentally sustainable. This was clear
to me when I shocked the industry at our 2007 annual general meeting in Vancouver by presenting a
vision for aviation to achieve carbon-neutral growth on the way to a
carbon-free future. Airlines, airports, air navigation service providers and
manufacturers came together to agree on a strategy that will improve fuel
efficiency by 1.5% annually to 2020, cap emissions from 2020 with
carbon-neutral growth and cut net emissions in half by 2050 compared to 2005.
And it is not just words. Since 2004, IATA led efforts that saved over 75
million tonnes of carbon emissions.

Governments are also coming on board, although the challenge
is keeping them focused on effective measures to reduce emissions. For Europe’s cash-strapped governments, environment is an
excuse to raise taxes. Last year, the UK
raised its air passenger duty, and Germany
and Austria
announced new taxes. These three taxes alone are a $5.9 billion burden to the
industry. On top of that, Europe still plans
to bring international aviation into its emissions trading scheme from 2012.
Positive economic measures are part of our climate change strategy, but this
illegal, unilateral and extra-territorial action is a step in the wrong
direction.

Governments must also take a global approach to security.
Aviation is much more secure today than in 2001, but at a great cost and with
unacceptable inefficiency. In response to threats, governments built aviation
security measure by measure. They have not coordinated with industry for
efficient implementation and they have not coordinated with each other to
harmonise globally. At the top of our agenda today is building a Checkpoint of
the Future. Today’s checkpoints were developed 40 years ago to keep weapons off
aircraft. With current terror threats, we need to find bad people. Shampoo
bottles, belt buckles and shoes are not the problem. The first principle of the
Checkpoint of the Future is to move beyond one-size fits all screening. We must
use the intelligence from government and airline sources to match checks with
the passenger’s risk level.

Of course if we are sustainable and secure but not profitable,
the industry still has a problem. Competitiveness is the key to profitability.
Airlines cannot compete like normal businesses because governments are far too
involved in the industry. The result? Sixty-five years of destroying capital
with margins of less than 1%. Governments must ensure a level playing field and
regulate safety and security. After that, airlines need the same commercial
freedoms that other business takes for granted.

Look at how fragmented the industry is – 230 IATA members
and at least one thousand players in total. Compare that to pharmaceuticals or
auto manufacturing, which are structured around a dozen or so global brands.
This is starting to change, but the recent wave of consolidation – such as
British Airways and Iberia,
or United and Continental – were within political borders. Politics should not
define business. Airlines need the freedom to consolidate wherever it makes
sense. There are encouraging signs. The LAN-TAM merger announced last autumn is
starting to break the mould. We also see this in Asia,
where Air Asia and Jetstar are developing as a regional brand of linked
companies from different companies. These innovations show leadership for an
industry trying to rebalance itself.

Governments are often trying to live off past glory by
protecting the status quo and avoiding change. But our global challenge is to
improve competitiveness on a level playing field with airlines competing
profitably like any other business.

Giovanni Bisignani, is the director general of the International
Air Transport Association (IATA).