IATA’s 80th AGM

IATA’s 80th AGM

Willie Walsh’s Report on the Air Transport Industry at the 80th IATA AGM

Your excellencies, distinguished guests, colleagues and friends,

This year…

Airlines will connect nearly five billion people over 22,000 routes on 39 million flights.

And we’ll deliver 62 million tonnes of cargo—making possible $8.3 trillion in trade.

Airlines create enormous value by doing all this fast, safely and affordably. The hard work of everyone in this room is helping to:

• Drive economies with tourism, e-commerce, trade and investment,
• Link businesses to global opportunities,
• Support the UN Sustainable Development Goals, and
• Empower people with the freedom of mobility.

Aviation has recovered from the pandemic and is growing profitably to meet the needs of people to fly and to move goods.

Financial Performance

For 2024 we expect record revenues of almost $1 trillion. However, expenses will also be at a record high of $936 billion. Net profit will be $30.5 billion. That’s not a record, unfortunately, and represents a net margin of just over 3%. But considering where we were just a few years ago, it is a major achievement.

Importantly, flying remains good value for money. 77% of the 6,500 travelers we recently polled in 15 markets said as much. That’s not surprising considering that the real cost of air travel has fallen 34% over the last decade.

For all the value airlines create, how much profit do they retain per passenger?  $6.14.

To translate into the coffee benchmark that has become an AGM tradition, that buys one single espresso in this hotel’s coffee shop

Now, I don’t begrudge their profits. But Governments who love to look to our industry for new tax revenues need to understand that our margins are wafer thin and we rarely earn our cost of capital. This year, airlines in aggregate will earn a 5.7% return on invested capital, and that is well below the average 9% cost of capital.

Nevertheless, we deserve to celebrate the hard work that has brought our industry back from the brink, while acknowledging that we remain squeezed between a fiercely competitive environment downstream and the oligopolistic upstream supply chain’s lack of competition. Moreover, the best thing that I can say about the supply chain exasperations of the last years is that they appear to have not gotten worse.

On top of that sits onerous regulation. So, there is still plenty standing in the way of sustainable industry-level profits. But we can do it.

In fact, overcoming these issues to achieve sustainable profitability is critical. That will enable airlines to invest fully in the products our customers want and the tools to get us to net zero carbon emissions by 2050. It will also enable us to expand connectivity—and its economic and social benefits—to waiting people and economies.

Safety

Safety has been and always will be our number one priority and we work hard to continuously improve our safety performance. We never stand still.

That helped make 2023 our safest year by many parameters. There were no fatal accidents among our 336 members or the 433 IOSA registered carriers. Globally, there was one fatal accident claiming 72 lives—a tragic reminder that safety must be earned with each and every flight. And recent severe turbulence incidents have brought that reminder into sharp focus once again.

Our strong safety record and the actions we take to make it even stronger, are built on global standards. 2023 marked 20 years of the IATA Operational Safety Audit (IOSA). It’s become a cornerstone of global safety standards. And historically airlines on the IOSA registry have outperformed airlines not on the registry by a factor of nearly three.

IOSA makes a difference. And we are making it stronger. This year we will conduct 100 IOSA audits with a new risk-based model. Doing this adds an extra focus on pertinent safety risks unique to each audited operator.

Additionally, the IATA Global Aviation Data Management program now captures data from 150,000 flights weekly. Applying developing AI capabilities to this data will give us even more powerful insights on safety.

And lastly, we continue to call on safety authorities to publish accident reports in compliance with Annex 13 of the Chicago Convention.  It is a dereliction of duty that only 121 reports have been published for the 226 accidents investigated over the last six years. Improving safety needs all three of our top tools: audits, data, and accident reports.

Safety Culture is the glue that brings these tools together and it needs strong leadership. Recognizing the important role that CEOs play in driving safety across their entire organizations, more than 70 have signed on to the IATA Safety Leadership Charter. It’s a commitment to eight critical principles for continuously improving safety.

If you have yet to sign or need more information, my team is waiting for you at the IATA booth.

Going Forward

In the meantime, I am proud to report on another positive performance measure. Our latest traveler poll shows 97% satisfaction for recent trips.

With good results on customer satisfaction, profits, and safety, the state of our industry is strong. And we can make it even stronger by

• Promoting global standards
• Modernizing business practices, and
• Building a more sustainable industry

Promoting Global Standards

Let’s start with global standards—a natural progression from safety.

There is a major afront to global standards in the Netherlands. The government wanted to permanently cut Schiphol’s capacity by at least 40,000 flights annually, ostensibly to address noise concerns. That’s a bad choice for a trading nation whose prosperity is linked to connectivity, particularly when there is a global standard to address noise.

ICAO Balanced Approach to Noise

ICAO’s Balanced Approach was agreed in 2001. It’s enshrined in the Chicago Convention and carries the weight of law in the EU and elsewhere.

The Dutch paid no heed to it in their politically motivated effort to cut Schiphol’s slots, without consultation. And they had no concern for the Worldwide Airport Slot Guidelines—a global standard that was never intended to accommodate such a retrograde and illegal action.

We protested. And when the EU and US joined, the Dutch backed down.

It was clear that allowing the Dutch to go “rogue” on global standards had the potential to create a retaliatory mess. We cannot let governments forget that critical fact.

We must remain vigilant. The Schiphol file is not totally closed. And the Belgians appear to be trying something similar.

Corporate Income Tax

Efforts to change airline corporate tax reporting at the UN Tax Committee and the OECD are further examples of endangering the effectiveness of global standards.

Currently airlines pay corporate income tax at their headquarters location. These proposals would have us file in each and every market where revenue is generated.

The move is provoked by frustration with how shipping, not aviation, uses flags of convenience to find friendly tax regimes. Fine. But that is no reason to change the efficient way aviation pays its corporate taxes—fully in line with ICAO standards.

There is no leakage today and there is nothing to gain from changing the system. For governments it would just mean collecting less from their national airlines; and spending huge effort and money collecting taxes from foreign operators.

Only the battalions of accountants needed to manage the reporting mess will be happy if the change is made. Fortunately, our arguments seem to be gaining resonance.

But vigilance is needed to ensure that governments continue to understand that these value-destroying changes serve no purpose for aviation or for their economies.

Passenger Rights

My last point on global standards is about passenger rights. In August 2023, there was a clear demonstration of a long-held industry position: that EU 261 is not fit for purpose. UK NATS services collapsed, stranding passengers, crew and aircraft.

Surely, regulators would finally see the irony of airlines picking up the tab for care and assistance of passengers (on top of the costs of restarting their operations), when this was unequivocally an ANSP failure.

Wrong. Regulators took no notice. And copycat regulations are cropping up in whack-a-mole fashion in Asia, the Middle East, the U.S. and Canada.

EU 261 is not a global standard. And it should not become one via copy-paste regulatory osmosis. It is the epitome of bad regulation. Over two decades, poor drafting of the regulation has allowed courts around Europe to create a monster that has added billions to the cost of providing travel. But it has had no positive impact on delays or cancellations. EU 261 must be stopped, not propagated!

Modernizing Business Practices

Let’s now turn from regulatory frustrations to modernizing business practices.

You will all be familiar with the benefits of two major IATA transformational initiatives.

• One Record is linking participants in air cargo’s complex value chain to serve customers more efficiently with a common data model and transparent data exchange standards.
• And, Modern Airline Retailing will serve air travelers better, by replacing complex legacy processes of tickets, PNRs, and EMDs with a system of “offers and orders” that will parallel what most other retailers use.

Based on global standards, both initiatives use digitalization, including secure digital IDs, to make customers happier, reduce fraud, cut costs, improve efficiency, and generate revenue.

You may be less familiar with two other modernizations:

• The first concerns aircraft operational data. As operators, airlines must know what data is being generated by the aircraft they fly, have access to it themselves and control who can use it. But that is not the case today. Following years of engagement, we are nearing agreement with some leading OEMs to make respecting these fundamental airline needs a standard business practice.
• The second addresses the impacts of the limited supplier community that airlines have across their business. With your support in a “give-to-get” community approach, some years ago we created a powerful business intelligence tool known as DDS. This brought much-needed competition to the business intelligence market—with it came lower prices and improved offerings.

As your trade association, under your direction, and with your trust earned through transparent governance processes, we aim to be the most authoritative source of industry data across the whole range of crucial aviation topics.

Why?

First, it creates value for the industry by enabling better informed decisions on key topics from safety to decarbonization. And second, it helps to mitigate the risks of limited supplier options.

A manifestation of that objective is the creation of a schedules database to power IATA’s products and services with free access for contributing airlines.

It’s not a commercial offering. But it is a kind of industry insurance. Knowing it’s there will help keep the data market healthy.

A Sustainable Industry

Reliable data is mission critical, particularly as we make big decisions on how to decarbonize.

Achieving net zero carbon emissions by 2050 is existential, not optional. This will impact every organization associated with aviation. As a result, many net zero roadmaps have been produced.

We recently compared 14 roadmaps, including our own, and found fundamental consensus. All seek to reduce energy use, convert to clean energy sources, and capture any residual carbon. To achieve these aims, all agree that:

• Sustainable Aviation Fuel (SAF) is our biggest decarbonization lever to 2050
• SAF alone will not be enough; we need many levers, and
• Most importantly, decarbonization is possible.

Technology, politics, finance, and other forces will ultimately determine how we decarbonize. But predicting how these will interact over the next quarter century offers few certainties, except…

• That convergence will happen as we continuously observe, learn and adjust whatever roadmap we are following, and
• That we must help governments build an effective policy framework.

On this second point, the great sellout on the Single European Sky (SES) shows how political agendas can de-rail progress.

Europe’s ANSPs convinced a deal-obsessed Belgian EU presidency to forego safety, efficiency, cost, and sustainability gains for the sake of a grubby compromise.

The deal protects ANSPs from their customers’ needs. In doing so, it burdens travelers with inefficiencies, and kills a potential 10% emissions reduction for European operations. Hopefully the limited communication around this deal indicates self-awareness in Brussels that this is a shameful result.

With all that is at stake, we cannot let this be the end of the SES story. We will keep pushing.

And we will keep pushing on SAF. Considering that SAF production will equal slightly more than 0.5% of our fuel needs this year, achieving a 5% emissions reduction through SAF by 2030, a target agreed by ICAO, is very ambitious.

Having agreed that target—and please it is important to remember that it is a governments target, not ours—we therefore expect governments to help make it possible. To be blunt, governments must deliver concrete measures to facilitate the exponential ramp-up of SAF they are calling for—while not forgetting all the other decarbonization measures that are needed.

We have consistently held that aviation is a global industry that needs global solutions to the global problem of climate change. I emphasize the plural on solutions.  Variety is key. Everybody does not need to use the same solution. But we do need a set of solutions that are globally recognized and accepted to take on the journey to net zero carbon emissions.

What are the characteristics of such solutions?

• First, measures must be science-based. Policies cannot be based on assumptions that might be right. They could just as easily be wrong. That’s why Europe’s intention to force airlines to report their non-CO2 impacts is putting the cart before the horse. There is scientific consensus that we need more humidity data to quantify the impact of contrails. Getting that actual data must be the priority.
• Second, more taxes are not the solution. Governments spent years agreeing every aspect of CORSIA. It was to be the market-based measure to address international aviation’s climate change impact. The ICAO resolution says three times that CORSIA must stand in avoidance of a patchwork of measures. And yet there is no end to the parade of fragmented green tax proposals. Most recently, Denmark brought in a new green tax and Germany increased its travel tax. We need policies that enable people to fly sustainably, not ground all but the rich with taxes—taxes that will have no positive environmental benefit.
• Third, unilateral measures must not be extra-territorial. We lost years in policy paralysis when Europe tried to impose its emissions trading system globally. It’s a mistake that is not worth repeating.
• Fourth, measures should anticipate what is needed to achieve them. That’s not happened with CORSIA. Airlines must soon account for their CORSIA credits. Guyana is the only seller, with 4.64 million eligible units available. That’s a very small fraction of the 65-162 million credits needed. Where are all the other governments that agreed to CORSIA?

SAF mandates face a similar issue. Some governments have mandated airlines to purchase SAF in amounts that do not exist. And where they have mandated SAF production, there are no mechanisms to protect airlines from bearing the costs of supplier penalties for shortfalls. We witnessed this in France where fuel suppliers are happy to accept penalties for their failure to supply the SAF mandate.  They simply exercise their monopoly power and pass those costs on airlines. This must be stopped

• Fifth, measures must have provisions for review and abandonment if they are not producing the intended results. Some good ideas will certainly translate into good policies. And many may not. When a policy has clearly failed—especially when costs outweigh benefits—regulators must have the courage to stop, and change tack fast.
• Sixth, there are no copyrights on successful measures. When a measure produces the right outcome, others should copy it. We’d like, for example, more countries to replicate the incentive mechanisms for SAF in the US—tax cuts and grants. Since 2021, US SAF consumption increased fivefold and there’s been a steady stream of investments to boost domestic production—results worth replicating.
• Seventh, measures should direct capital towards solutions like SAF. The IEA estimates a $400 billion annual over-investment in fossil fuels. At that pace, in 2050 we’ll have double the oil and gas needed for the net zero world that all industries are aiming for. Policies redirecting some of this overspend to SAF would find a waiting and profitable market.
• And finally, measures should envision a sunset. The aim is to set in motion functioning markets for decarbonization solutions. Once that is achieved, they must survive as normal businesses.

This is a long list of parameters, but it will prove its worth if it helps governments filter more quickly to a robust set of decarbonization policy measures. We’ll need all the good ideas, measures, policies, and initiatives that can be mustered.

And if this all seems daunting, consider the progress already made….

• We have CORSIA, the only global market-based measure to address climate change. The challenge is to make it work.
• We have SAF, a proven clean alternative to jet fuel. The challenge is to ramp up efficiently with diverse feedstocks and production methods.
• We have a common commitment with governments to decarbonize by 2050. The challenge is for governments to deliver enabling policies.
• And lastly, we have many possible pathways to net zero. The challenge is to promote them all and move forward.

We know that decarbonizing aviation faces many challenges. We also know that decarbonizing aviation is our license to do business. And, most importantly, we know that decarbonizing aviation is absolutely possible.

Conclusion

That’s important because aviation has enormous relevance.

• Businesspeople count on us to support supply chains and connections to customers.
• Shoppers count on us to deliver their favorite
• Explorers count on us for accessibility to the wonders of the world
• Vacationers count on us for family reunions and secluded respite
• Those who have not flown, thirst to see the world from a different perspective
• And fliers everywhere count on us for the freedom of safe, efficient, and affordable global mobility.

When we asked if travelers hoped for future generations to be able to experience even more of the world by air, 93% said yes.

To turn that hope into reality is our ultimate inspiration. Thank you.