In Singapore in June, International Air Transport Association director-general Giovanni Bisignani will stand down at the airline lobby group's annual meeting. Before doing so, he paid a final visit to the Asia-Pacific region, during which he challenged governments and regulators to prepare for rapid growth. Ian Goold reports.
1st Apr 2011
The meeting is expected to attract about 800 delegates, including up to 200 chief executives from airlines, airports, manufacturers, and other industry partners.
IATA Director General and Chief Executive Officer Giovanni Bisignani announced the relocation after a valedictory visit to the Asia-Pacific region ahead of his forthcoming retirement.
"Singapore is a great aviation city, having built its success on global connectivity. The government has always facilitated a healthy aviation sector – one that can drive the greatest economic benefits for the national economy,” he said. “Today, Singapore is home to one of the world’s top airlines and one of its best airports. It will be a great host for the AGM.”
The island nation, which last hosted the IATA AGM seven years ago, also is home to the lobby group's Asia-Pacific regional office. The meeting will take place as carriers continue to recover from the worldwide economic crisis, with airlines scheduled to discuss efforts to improve environmental performance, the implications of rising fuel prices on weak profitability, and potential technological gains in efficiency. Operators also will hear the results of IATA’s ‘Vision 2050’ initiative.
Earlier this year, IATA announced a memorandum of understanding (MoU) with the government of Singapore "to facilitate further growth and development" of its office, where 80 staff are employed. The office supports covers the region from Pakistan in the west, to Japan in the east, South Korea in the north, and New Zealand in the south. The Singapore government’s support will enhance the country’s role as a regional aviation hub, said Bisignani.
The office’s responsibilities include communications, industry advocacy and technical issues, and it is the centre for US$45 billion worth of IATA members' bank settlements annually.
Singapore “is an inspirational location between India and China, two of our industry’s largest markets,” Bisignani said.
The IATA chief met in Singapore with 35 "strategic thinkers" – including the country’s Minister Mentor Lee Kuan Yew, Harvard University professor Michael Porter, and airline and airport chief executives – to consider the future of aviation up to 2050. The results of the seminar, dubbed Vision 2050, will be presented to IATA members at June's AGM.
"Despite [Singapore's] positive story, the global situation is very challenging," Bisignani said. "Aviation is a very special industry: almost US$600 billion in revenues and US$205 billion in debt, 32 million jobs and US$3,500 billion in economic activity. But margins are pathetic.”
Over the last 40 years, the industry’s profit margins have averaged just 0.1 percent – appropriate for “a charity, not a business,” Bisignani said. "We would need 7-8 percent just [for] the cost of capital."
The Vision 2050 group discussed how to improve financial and environmental performance, meet customer needs and develop more-efficient infrastructure and aircraft. Considerations included "finding ways for airlines to become normal businesses and support among governments for the industry’s sustainability so that we can 'grow' the jobs and economic activity that aviation supports worldwide", the IATA chief said.
A major feature of discussions was the importance of Asia to the future of commercial aviation.
This year IATA expects the global airline industry to make a profit of US$9.1 billion, of which US$4.6 billion will come from the region, said Bisignani. "North American carriers will make US$3.2 billion, Latin American US$700 million, Middle Eastern US$400 million, and European US$100 million. If you look at market capitalisation, you will also see a shift eastward,” he said.
According to Bisignani, four out of the five largest airlines by that measure are based in Asia: Air China at a market capitalisation of US$20 billion, Singapore Airlines (SIA) at US$14 billion, Cathay Pacific with US$12 billion and China Southern Airlines with US$11 billion. "So the profits and the money are in this region," he said.
While in Singapore, Bisignani announced IATA's 2010-14 forecast, based on a survey of member airlines, which together suggest that some 3.3 billion people will fly in 2014. "That is 800 million more than in 2009.”
Of that additional number, 360 million, or 45 percent, will fly within the Asia-Pacific region. China will be at the centre of growth, with 181 million additional domestic travellers and 31 million new international passengers.
"In 2009, Asia-Pacific overtook North America as the largest market by a few million. Both accounted for about 26 percent of global traffic. By 2014, North America will fall to 23 percent and Asia-Pacific will rise to 30 percent," according to the forecast.
"The consensus is for 5.9 percent average annual growth, [which] means 313 million more international travellers over the forecast period,” the forecast predicted. Four of the five fastest-growing international markets are in Asia: China (growing at 10.8 percent), the United Arab Emirates and Vietnam (both at 10.2 percent), Malaysia (10.1 percent), and Sri Lanka (9.5 percent).
IATA sees a similar pattern in domestic markets, which will generate 488 million new passengers by 2014. Again, China will lead with 13.9 percent growth, followed by Vietnam (10.9 percent), South Africa (10.6 percent), India (10.5 percent) and the Philippines (10.2 percent).
Predicted international cargo growth is also dominated by Asia, with Hong Kong growing at 12.3 percent, China at 11.7 percent, Vietnam 11.4 percent, Taiwan 11.3 percent and the Russian Federation at 11 percent.
Bisignani draws two conclusions from the growth outlook: "The first is that Asia-Pacific will become increasingly important.”
With size, however, comes influence and responsibility, and Bisignani expressed the hope that Asia will help change the rules of the existing bilateral air-services agreement game, “which were invented 65 years ago and primarily with the leadership of the USA and Europe”.
"ASEAN is taking regional leadership in [removing] barriers to market access, aiming for a Single Aviation Market by 2015,” he said. “And even with the political barriers that exist, the region has found 'solutions' to allow multinational brands like Jetstar or Air Asia to grow."
Accordingly, the IATA chief said he hopes the Asia-Pacific region will gradually take a more vocal, proactive and positive role in changing the status quo.
Secondly, Bisignani concludes that airlines' environmental commitments are becoming ever more important.
"Aviation is responsible for 2 percent of global man-made carbon emissions and is united in commitments to improve fuel efficiency by 1.5 percent per year to 2020, cap emissions with carbon-neutral growth from 2020, and cut  emissions in half by 2050. We are committed to these targets even while accommodating the tremendous growth we forecast,” he said.
Speaking earlier in Ho Chi Minh City, Bisignani identified three focal points for Vietnamese aviation: world-standard technology for air-traffic management (ATM), more cost-efficient airports and air-navigation services (ANSs), and increased efficiency.
“By 2014, Vietnam is projected to be the third-fastest growing market for international passengers and freight, and second-fastest for domestic [travellers]," the IATA chief said.
Bisignani added that he hopes Vietnam's air traffic management (ATM) authorities will implement satellite based ADS-B navigation systems and on-board performance-based navigation equipment as a priority. On airport fees, he said that a three-year discount scheme implemented in April 2010 at major Vietnamese airports is "a clear signal that the government … will support growth [through] cost-efficient infrastructure, consultation with users, transparency, cost recovery, and non discrimination."
He also called on the government to ratify the 1999 Montreal Convention, so that electronic freight (e-freight) procedures sought by Vietnam Airlines and freight forwarders could become a reality to improve efficiency.
“Airlines operating at Hanoi Noi Bai airport are still unable to benefit from the bar-coded boarding pass (BCBP) as the [related] technology will only be available in the first half of this year", when the rest of the world is "over 99 percent BCBP-capable", he said.
Following the Singapore meeting, Bisignani continued his Asia-Pacific tour in Hong Kong, where he emphasised the continuing movement of "aviation’s centre of gravity" eastward, pointing out that the region's carriers are "the most profitable", with US$7.7 billion earned in 2010.
"[Hong Kong's] rapid growth has been impressive. The airport has been supporting that growth, helping airlines with a 10 percent discount at the height of the financial crisis, supporting climate-change commitments with a programme to reduce [airport] carbon intensity 25 percent by 2015, and seeking a more robust and frequent consultation process," he said.
Bisignani added that he sees the US$900 million being invested in a new midfield terminal and taxiway project as confirming a desire to keep Hong Kong International Airport (HKIA) as "a competitive driver of a successful economy". IATA and airline operators have looked forward to April’s launch of public consultations on the 2030 airport master plan.
"I want to make a strong plea to build a third runway” at HKIA, Bisgnani said. “In 1992, it was anticipated that the airport would handle 87 million passengers and 9 million tonnes of cargo by 2040, [but] growth has been much faster, with 50.9 million passengers and 4.1 million tonnes of cargo” being handled in 2010.
Hong Kong's Civil Aviation Department has suggested Increasing the current cap of 60 aircraft movements per hour to 68, which Bisignani said might raise passenger numbers above 55 million but will not be a solution.
"Squeezing more numbers with larger aircraft worked for [Hong Kong's previous main airport at] Kai Tak because it was a destination airport. With today’s hub operations, we cannot expect the same," he said.
Preparations should begin now for future capacity increases, the IATA head said. "If a third runway is needed by 2015 or 2020 or some other date, as big and wonderful as [Chek Lap Kok] is, it will eventually be saturated and now is the time to start the [planning] process," he said.
Turning to Hong Kong ATM, Bisignani expressed the belief that "with five airports in a small, very congested area, it should be in everybody’s interest to make the Pearl River Delta the world’s most efficient airspace". He pointed to the average 210km (130 miles) reduction in sector length following the 2009 introduction of new arrival routes for flights from mainland China, Europe and South-East Asia, complemented by ten further "conditional" routes last year, as indications of the progress that can be achieved.
ATM in China faces "huge challenges to deal with the explosive growth", said Bisignani. "Airspace is a finite resource, from which we are working together to squeeze even more efficiency."
Since 2006, the introduction of 21 new routes has shortened flight distances by 2,600 nautical miles and cut carbon dioxide emissions by 400,000 tonnes per year, he said. "We facilitated at least six new entry points for polar and European operations, and the 2007 reduced vertical-separation minima implementation is saving a million tonnes of CO2 a year," he added.
Bisignani completed his Asia-Pacific tour with visits to Beijing and Tokyo, during which he called for greater competition among Chinese operators and increased competitiveness between the two countries.
"By 2014, China is expected to be the fastest growth market for international traffic – at 10.8 percent – and domestic traffic – at 13.9 percent,” he pointed out. The country “will be the second-largest domestic market with 379 million passengers [and] is expected to be the second-fastest growing international freight market, at 11.7 percent, making it the 5th largest freight market globally."
The airline lobby group official wants to see a new agreement – "a Beijing Convention" – to complement the historic Chicago equivalent with "a multilateral commercial framework that introduces a new age of competitiveness". This would provide the commercial freedom for airlines "to fly where markets exist, merge or consolidate when it makes business sense, and access global capital markets without nationalist restrictions,” he said.
Bisignani added that he sees a leadership role for China in environmental matters: "In 2009, China invested more than US$30 billion in clean-energy projects, double [that] invested in the USA. I am excited about Air China’s plans for a trans-Pacific [bio-fuel] test flight later this year, in cooperation with Boeing."
The big question for Japan, and Japanese aviation, according to the IATA director-general, is how to compete against China – its largest trading partner and its largest air-service market with 617 scheduled weekly flights.
"In 2009, with 54 million passengers, it was number seven for international travel, ahead of China at 49 million. By 2014, we expect it to fall to number nine, with 72 million passengers, behind China with 82 million," the IATA leader said.
Bisignani added that he believes a Japanese national aviation policy, focused on competitiveness to recover lost economic ground, would need "a more effective airports policy in Tokyo, a level playing field with more open markets, and an approach to environment including sustainable biofuels".
He claims a politically driven airport-construction plan that "put capacity where demand was limited" remains a problem, but concedes that Tokyo's two main airports are now competing and stimulating new business models and low-cost competition.
"Haneda still needs to work out effective public-transport arrangements to support its international operating hours, but the airports are still about 75 percent more expensive than Seoul Incheon, and more than double Singapore," he said.