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Wed 22 Oct 2008 04:00 AM

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Closing the gap

Giovanni Bisignani, director general and CEO of IATA explains his views on the aviation sector.

Giovanni Bisignani, director general and CEO of the International Air Transport Association explains his views on the aviation sector.

What is the global impact of the high oil price?

This is the first time we have had a crisis in revenues and costs. We were using the forecast that is provided by the so-called consensus, a group of experts that try to identify the price of fuel. At the time we saw a consensus price of US$107 a barrel we were losing $2.3 billion.

The Middle East has a big [technological] advantage. It also has a modern, effective fleet and new airport structure.

We had a reality check and thought what is the price of the future, so if you had to hedge what is the price of oil and it was $135, this means our total losses will be $6.1 billion. If this situation remains it will add to our total bill $99 billion.

That's why this is the perfect storm. In September 11 we had a financial situation of the airlines that wasn't so bad. But after the incident we had to experience many years of losses ($42 billion), with last year the first to make a small profit ($5.6 billion).

But $5.6 billion is a 1% margin, which is not a very healthy situation. If you add it now we also have $190 billion debts, so we are in a weak financial situation.

On top of this we see the traffic is slowing down practically all over and there is a problem of over capacity. The airlines are handling this because as you will have read in the papers, the major US airlines have cut capacity by 10-13%.

This will help because if you have more capacity you can raise better fares to compensate the gap in the oil. But we are in a weak situation that will be emphasised after the summer because all the current traffic is trips that were booked three to four months ago.

In the summer there will be no cancellations but after September we will see a big drop in revenues and that will increase the imbalanced situation we have between costs and revenues.

How will the rising oil price affect cash rich, state-owned Mid-East carriers?

This is a situation that has been negated several times with different associations. We are looking for an industry that is run in a consistent and harmonised way. We are against state subsidies.

Europe made a good decision many years ago that no subsidies would be allowed. The result is we have a European system that was profitable last year, although Alitalia is an exception. This message that state-owned isn't allowed has been good for the industry. In other cases, we still have these situations but we are against it.We hope that the rising oil price will not induce governments to support the airlines because of the crisis. We call for government to support certain areas. We paid $30 billion in security since 9/11.

We are convinced as governments take care of people when they get on trains or go to a soccer stadium, they have to look after passengers that board a plane. We do not think this situation is acceptable in terms of security.

When I say state aid, I mean funding airlines to cover gaps in the budget. You can run an airline that is owned by government if it is handled like a commercial entity.

On environment we have a clear strategy, 135 routes opened last year with 10.2 million tonnes CO2 savings.

Are governments paying for airlines' security measures?

In the case of the airports we had to convince the EU that it wasn't up to the passengers to pay for. The government didn't accept it but this creates an unfair relationship between the passengers that board trains or planes.

Some 24 carriers went bust in the last six months, so how many will fold in the next six?

It's always unpleasant to make forecasts on members disappearing. But I mentioned at the AGM in Istanbul a few weeks ago that if the situation continues we will have many empty seats at the next AGM in Kuala Lumpur. The emergency situation has created termination of airlines in different parts of the world.

How advanced is airline and airport technology in the Mid-East?

The Middle East has a big advantage. It also has a modern, effective fleet and new airport structure. There are no problems in e-ticketing for that region.

There was only one issue last May with the CIS because in order to go to electronic ticketing we had to change legislation as it wasn't legal. We had to change many legislations around the world for security or visa.

Russia was the last country to approve the legislation letting passengers board without paper. That is the reason, despite the efforts by our airlines in the last eight months, they were able to recover this gap and ended up at 70% in May.

How will technology for cutting waiting times develop?

It's related to many factors. Firstly, air traffic control (ATC) plays an important part and that's the reason why we are implementing a strategy in the States where there is a big problem to move to a new generation of ATC systems. The US has an obsolete system. They started a few years ago building a strategy to present next generation technology.The problems with their budget made this impossible and the authorisation committee didn't approve this, so there are problems with delays at airports. We have figures but they depend on what area you're looking at. In Europe, the level of delays has improved enormously and it's not a major problem. There could be some improvements but it's not as bad as the States.

In the US, it's a congestion problem due to lack of equipment. An area we could improve in Europe is a Single European Sky. It's an easy tool because you don't need new technology; it comes down to the vision and leadership of governments.

In Europe, we have 26 air navigation providers. The continent is small and divided into little pieces with every country having responsibility for a certain piece. We have got rid of the currency allowing travel without passports so we need to do the same in the air.

What are your thoughts on passenger waiting times in the air?

In many cases, the delivery in the Middle East is quite effective. Where we see a big problem is where you see increased traffic in India. In China there has been double digit growth but the airport has been growing quite fast, with technology updated and ATC improving.

But where we have not seen the same approach in India is that low-cost new passengers have increased. But at the same time the airports are still a problem. There are massive disruptions.

Can aligning the aims between IATA and the government prove difficult?

It depends on the areas. For example, our number one priority is safety and the results between IATA, manufacturers and governments have been impressive. In other areas we are not so happy, such as security.

It's an uncoordinated mess because everyone wants to put in their own standards. On environment, we have a clear strategy that was approved by the International Civil Aviation Organisation (ICAO). 135 routes opened last year with 10.2 million tonnes of CO2 savings and $2.1 billion.

The only area we do not have an agreement is in Europe on the mission trading scheme. We have a four pillar strategy on technology, new planes and new operations. Economic measures are another one, so we have tax relief if you buy a newer plane because it's more much more fuel efficient.

But instead of using those positive measures some governments like European ones are looking at punitive ones such as emission trading schemes. This is not an industry with a power generation station that you put in a specific area.

This is a different business because we fly Dubai to London. The CO2 output is not just a European issue, we need a global scheme which has to be run by the international organisation of United Nations specialised in this, such as ICAO.

Europe hasn't understood this is the only way forward and are opposing this, while Mid-East carriers are more receptive in supporting this approach.

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