The Hindu Business Line : Can Asia lead the aviation industry?

We have not harmonised security measures across borders. Shoes on or off? Laptop in or out? The answers are different at every airport. What message does that
send to passengers?

Giovanni Bisignani

Change is the only constant in aviation these days. Just as the industry posted its first profit since 2000 — $5.6 billion last year — oil prices rose to historic levels, and a potential economic downturn threatens revenues.

At one point, Asia seemed immune to many of the woes of the industry. Aviation supports 10.5 million jobs across Asia Pacific. And that, in turn, supports $807 billion in business. Traffic in the region is still growing at breakneck speed. By 2010, Asia will be the largest single market for aviation.

Growth brings challenges and responsibilities. The first challenge is a healthy one — competition. Everyone wants a piece of the pie. Look at the Middle-East, which is positioning itself as a global air hub. Already, Dubai handles nearly as much traffic as Changi. And with 159 destinations, it is connected to 37 per cent more destinations. Its proposed super airport at Jebel Ali will be the world’s biggest, handling up to 140 million passengers a year.

The second challenge is the supply of skilled personnel. To operate the 16,000 new aircraft that will be required to meet demand in 2020, 17,000 new pilots must be trained each year. That is 40,000 more than current training capacity.

And the third challenge is declining profitability. Capacity expansion of nearly 40 per cent in the region saw absolute profitability go from $1.7 billion in 2002 to an estimated $900 million last year. Margins fell from 4 per cent to less than 1 per cent over the same period.

Innovation and change

Challenges are opportunities for innovation and change. I see the biggest opportunities in the areas of liberalisation, security and environment.

The Asean decision to liberalise traffic between capital cities in 2008 moves airlines towards the same commercial freedoms that other businesses take for granted. The archaic bilateral system requires government to negotiate international markets and keeps the industry fragmented. The largest airline represents only 5 per cent of total traffic. And in Asia 13 airlines compete to provide just 50 per cent of the market.

Europe has proved that cross-border consolidation is politically acceptable. And the bottomline numbers of Lufthansa, Swiss and Air France-KLM show that it can be profitable too.

If Asia acts as a region, it can balance the traditional leadership of the US and Europe. The failure of last year’s US-EU open skies agreement to address ownership put the baton of industry leadership up for grabs. It is time for Asia to be bolder and explore new ways of doing business.

It could develop a new model for the relationship between industry and government that allows the air transport industry to deliver even greater economic benefits. Perhaps it could even develop an institution for regional co-ordination of air policy issues, so that Asia is as strong in building the future of our industry as it is in building great airlines and airports.

Security is a ready-made project for regional coordination. Six years after 9/11, the industry is more secure. But the system remains an unco-ordinated mess. We have not harmonised measures across borders. Shoes on or off? Laptop in or out? Belt and coat on or off? The answers are different at every airport. What message does that send to passengers?

Singapore signed an agreement with the EU to harmonise the security of duty-free items. Good job. Now we need to find a leadership method to turn this into a regional solution that is a building block for global harmonisation.

Environment

Environment is another global issue in need of a global solution. Aviation is 2 per cent of global carbon emissions. By 2020 our target is to improve global fuel efficiency by 25 per cent to limit our impact on climate change. We have a four pillar strategy to achieve it: investment in technology, efficient operations and effective infrastructure with positive economic incentives to achieve these.

Beyond that, our vision is for carbon neutral growth, leading to a carbon-free future. There is no ready-made roadmap to achieve this. But I am confident. An industry that went from the Wright Brothers to the jet age in 50 years will be able to achieve great things.

Governments must be on board with the vision. And there is plenty that can be done in Asia, from greater harmonisation of air traffic management, to setting benchmarks for air traffic efficiency and financial support for research into alternative fuels and radical aircraft design.

I have proof that great ideas can change an industry quickly. By May 31, 2008, we will complete the conversion of the world to electronic ticketing. The project began in Singapore and will take exactly four years, measured with goals and targets.

Asia is our industry’s present and its future. Running an airline is a tough business, and Asia has done well. Now we are at a turning point. Even as China and India continue to be markets of enormous potential, in only a few years this region will already be our industry’s largest single market.

The race for market share and growth has been won. Now we need a unique race for leadership that involves key players from fast developing China and India, to more traditional players like Japan, Singapore, or Australia and everyone in-between.

Nobody holds a patent on innovation. What is needed is the leadership vision to turn innovation into results: building an industry that is even safer and more secure; delivering an industry that is financially sound and efficient by rethinking our outdated regulatory framework; and acting locally to ensure that aviation is a global benchmark for environmental responsibility.

(The author is Director-General and CEO, International Air Transport Association.)