IATA’s Bisignani makes final liberalisation push

Airlines

1st Oct 2010


In some organisations, the very suggestion of the boss leaving is enough to send shockwaves reverberating around the markets.
Steve Jobs, the revered leader of Apple is a well-known example. Jack Welch, who helmed General Electric for 20 years, was another. And so is Giovanni Bisignani.


In his eight years as director general (the grand title he dislikes) and chief executive (the one he prefers) of the International Air Transport Association (IATA), Bisignani has made the once-exclusive club of mainly former national flag carriers an innovative force in the aviation world. He bangs heads together to reach speedy consensus, rather than leaving decision-making to committees. Furthermore, he has no qualms about courting controversy when necessary to further the association’s cause.


In short, Bisignani has made IATA relevant again. Thus, when he announced in June that he will step down at the organisation's next annual general meeting in Cairo in June next year, there was a some trepidation among the 230 member airlines.


Bisignani is using the remaining ten months of his rein to hammer home some key policy issues he feels remain unresolved.


In an address to the Australian National Aviation Press Club in September, he began his farewell tour of the world with a customary ticking off of his host country. The target this time was the lack of progress on a badly-needed second airport for Sydney.


Since 2000, Sydney airport went from being the 34th most costly airport in the world to the ninth in 2009, he said. That same year, the airport reported a profit margin of 82 percent, even as the world’s airlines lost US$10 billion.


“We need profitable airport partners. However, they must be effectively regulated so that they do not abuse their monopolistic position,” Bisignani said.


The famous doomsayer then launched into a negative reading of the latest passenger and freight traffic figures, which showed a more modest recovery in July than they had done in June – a classic Bisignani tactic to underpin his calls for industry reform.


Top of the IATA chief’s priority list for some time has been further liberalisation. This time flattering his audience, he said that while Australia and New Zealand had been pioneers in aviation liberalisation, going further even than the European Union, they should now use this moral high ground to encourage others in the Asia-Pacific region to remove ownership restrictions.


“Historically, airlines have profit margins of less than 1 percent. That is not sustainable. To fix this, we need to run this business like a normal business,” he said. “The removal of ownership restrictions for domestic Australian operations benefited consumers with greater choice and lower prices.”


But Australia still retains a 49 percent foreign ownership cap for international operators, which Bisignani said is “very difficult to understand”.
Much of the problem stems from adherence to the original Convention on International Civil Aviation, the Chicago Convention, which placed sovereignty over air travel in the hands of governments. Bilateral air services agreements were framed in the context of the Second World War, and so governments were understandably risk-averse and keen to protect their fledgling national carriers.


“The rules of post-war Europe and America are no longer relevant,” Bisignani said. “Let’s take a risk: let’s forget the Chicago Convention and instead draw up a new set of rules.”


A good place to start would be among IATA’s members, which together account for 93 percent of scheduled international air traffic. Many, especially those enjoying protection of one form or another from their governments, are reluctant to reduce the artificial barriers afforded them by restrictive air services agreements, he ventured. This has to change and airlines themselves, especially in Asia, need to push for the potential of open skies if governments are to listen and strike deals on a regional or even global basis, Bisignani said.


Recovery is coming, with IATA forecasting a global profit of US$2.5 billion this year, much of which will originate in Asia, where growth is strongest, he said. But recovery would be much steeper if the industry were restructured, and airlines could be enjoying profit margins of 10 percent.


This view is central to Bisignani’s blueprint for the aviation industry in 40 years time, ‘Vision 2050’. He foresees a reversal of the current situation with airport landing fees, with terminal operators instead competing to attract carriers with cash incentives.


The scrapping of ownership restrictions will allow true global players to emerge through consolidation and fatter profit margins will make air travel less prone to cyclical demand. “It’s a future where aviation is buffered against other shocks,” he said.


Vision 2050 follows on from another Bisignani initiative: to proactively chase an aggressive target of halving aircraft emissions by the same date. “Aviation can be proud of its efforts in this area. We started a bit late but once we started we can be proud of the numbers we’ve achieved,” he said.


Today, aircraft manufacturers, airlines and engine makers are all working together to improve fuel efficiency by an average of 1.5 percent per year to 2020, he said. IATA’s goals go beyond that: to stabilise carbon emissions from 2020 with carbon-neutral growth and then halve emissions from 2005 levels by 2050.


Bisignani delivered the airline industry’s pledge at the United Nations Framework Convention on Climate Change in Copenhagen last December, much to the astonishment of his largely anti-aviation audience. “These goals clearly show that the aviation industry is even ahead of its regulators in its approach to climate change,” Bisignani said at the time.


Whether such a bold step will be achievable without the forceful personality of the former Alitalia boss at IATA’s helm remains to be seen.
 

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