Giovanni Wings A Humdinger

     Giovanni Bisignani, Director General and CEO, IATA delivered a speech at The Wings Club in New York yesterday.
    When you meet the DG you notice right away that he is not a particularly big guy.
    Mr. Bisignani is compact with a wiry build and while he speaks he seems to move around a lot.
    He is always thinking as he talks and it is obvious he means what he says.
    No doubt Giovanni Bisignani faces big challenges just as commercial aviation is about to emerge into some kind of profit sunshine in 2007, after one more year of predicted losses in 2006.
    The trick will be for this one-time Alitalia CEO who now heads up the biggest commercial aviation organization in the world to somehow address a myriad of direct problems that confront the 265 worldwide members of IATA.
    Watching Giovanni Bisignani deliver this speech was an education in itself.
    The man is so into what he is saying and so very ebullient about the airline business.
    He brings a sense of future, an appreciation of the past and an edge of excitement to his address.
    Lots of people give speeches, but few make the listener feel like they are hearing the untreated truth in an intimate briefing.
    There is nothing “canned” or “pre-packaged” about Giovanni Bisignani.
Aviation despite all its other problems has caught a break here.
    I looked again and realized that this gentleman was the biggest guy in the room.
    Here are some highlights:
    “I believe that there is a new optimism in the industry.
    IATA just released results from our new CFO Confidence Survey.
    Over half saw an improvement in profitability during the first quarter of 2006 and 70% expect improvements in profitability over the next year.
    Stronger prospects are based on efficiency gains that have averaged 4% per year and market growth which is expected to be in the 6% range.
    IATA’s outlook is more optimistic.
    Our 2007 profit projection increased from US$6 billion to US$7.2 billion.
    Good news—but save the champagne.
    A 3% return on capital for a US$400 billion industry does not even cover the cost of capital, and over-capacity is always a risk following record aircraft orders.
    Fortunately, the fleet replacement rate will peak at 5.7% in the next two years—below the 7% rates of previous peaks.
    Careful matching of capacity to demand will be critical.
    The industry’s fuel bill went from US$44 billion in 2003 to US$92 billion last year.
    High fuel prices are a long-term reality.
    Refinery margins on jet fuel more than doubled—from US$6 to US$16 per barrel—in the last two years.
    This was a US$14 billion gift from the aviation industry
    Instead of investing in new capacity, over the next two years the oil companies will return US$250 billion to their shareholders.
    Governments must encourage investment in refinery capacity and support research into alternative fuel sources
    China and India are rising stars.
    China’s double-digit growth is impressive.
    It is supported by an effective set of government policies that consolidated and strengthened local carriers liberalized to improve service levels with competition and built infrastructure to keep pace with demand.
    The sleeping giant of India is waking-up quickly.
    From 2 state-owned carriers to more than a dozen in less than ten years, today India has over 330 aircraft on order—more than the existing fleet of 210
    Airport infrastructure could be the Achilles heel.
    If we do not upgrade quickly, a great start will end in failure
    The IATA Operational Safety Audit (IOSA)—the first global standard for airline safety management—started in 2003.
    IOSA standards are the industry’s best practices that raise the bar on safety.
    We launched and funded a Partnership for Safety to help our members.
    Our first target is Africa where the accident rate is 12 times the global average
    By 2007, IOSA will be a condition of IATA membership—further transforming IATA into a quality association.
    Our Simplifying the Business project is the cornerstone with five core programs:
100% e-ticketing by the end of 2007; taking the paper out of air freight; and improving passenger processing with bar coded boarding passes; Common use kiosks for check-in and radio frequency identification for baggage management round out that effort.
In total these programs will deliver US$6.5 billion in savings each year.
    Looking ahead efficiency is a matter of survival.
    We have no patience for inefficiency among our monopoly suppliers.

    Aeroports de Paris will increase charges by 5% per year for the next five years—following a 26.5% increase over the last five.
    San Francisco Airport earned an IATA Eagle Award in 2003 for their efficiency improvements
    But others are not matching the efficiency gains of their airport customers.
    The Port Authority of New York and New Jersey is case in point.
    Newark is the most expensive airport in the world and JFK is number five
    Service levels certainly do not justify costs
    And the lack of transparency, political interference and cross-subsidization make benchmarking impossible.
    Deregulation was born in America almost three decades ago and it changed our industry forever.
    Unfortunately—and despite many opportunities—the U.S. (and I would say Europe also) have lost leadership.
    Look at the situation with respect to security
    Four years after September 11 security is still a mess.
    Security levels are higher—no doubt.
    But we still confuse effectiveness with inconvenience and unilateral actions with leadership.
    We need to work on global standards and cooperation including harmonization of U.S. security requirements with privacy laws in Europe and elsewhere,mutual recognition of baggage and cargo screening and standardization of information requirements among U.S. government agencies.

     Politics and fear must not dominate the agenda.
    And security is too important to waste time and resources battling red tape.
    We need faster action.
    Air travel is at risk of collapsing under the weight of massive taxation.
    The U.S. has been helpful in resisting French President Chirac’s misguided idea to tax aviation to help the developing world.
    It is clear that making air travel more expensive will not help developing nations.
    But we have problems in the U.S. too.
    The average tax on a US$200 ticket sold is still 26%
    We are being taxed at the rate of alcohol or tobacco—a US$15.8 billion rip-off
    Governments must understand that we are a mass transit system carrying 2 billion passengers each year.
    We should not be taxed as if we were a luxury of the rich. It is time to bring some common sense to taxation.
    Governments must get out of our business.
    Governments must play an effective role in safety, security and regulation of monopolies.

     Our industry is in an emergency situation and the best thing that governments can do is to let airlines run their businesses like businesses.
    Consolidation is not a dirty word.
    Airlines need the same access to global capital that other industries take for granted.
    Regulators have no problem with an auto industry that is dominated by a handful of global players.
    Why is air transport different?
    The Flags on the tails of our aircraft are sinking the industry.
    The NPRM on increasing foreign ownership opportunities is just a first step in the right direction.
    It may have a substantial role if it helps facilitate the U.S.-EU agreement on open skies with regulatory convergence.
    But it must pave the way to full liberalization of markets and ownership—the final goal.
    Remember there is no alibi for not moving forward.
    The U.S. and Europe are markets of similar size, dimension, level of development, technology etc.
    Combined they represent nearly two thirds of aviation so a change here is a real signal to the world.
    But if the agreement fails, it could be the last opportunity for the U.S. and Europe to regain leadership.
    The populations of China and India combined are 4 times that of the U.S. and Europe.
    Their industries are developing rapidly with modern rules of the game.
    Already China is the fourth largest economy in the world.
    Both China and India have liberalization at the core of their development policies.
    Governments must have the vision to foresee a world where air transport is a business like any other serving markets where they exist.”
(Geoffrey Arend)