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New century resolutions

02 July 2013

Speaking at an Auckland Breakfast Briefing hosted by Air New Zealand today, IATA's CEO Tony Tyler notes that the world will be celebrating 100 years of commercial flight on 1 January 2014 - and then considers what must be done to make sure the next century is equally successful.

Tyler began by hammering home just how important a role aviation plays in the world economy.

"Globally, aviation supports some 57 million jobs and $2.2 trillion in economic activity," said the IATA chief  "About $6.4 trillion of goods traded internationally are transported by air. Over half of global tourists arrive by air—closer to 100% for New Zealand. In fact tourists are a major component of the 3 billion passengers that will fly this year."

 And yet, despite these huge numbers, the aviation's profit margins are still worryingly slender.

"In 2012," Tyler told the breakfast club, "airlines made about $2.50 for every passenger carried. That generated a net profit margin of 1.1%--or a $7.6 billion return on $680 billion in revenues."

Tyler said that this was "a pitiful return", but went on to argue that "if you put it in historical context, making any money at all under current conditions—with a weak global economy and high oil prices—is an amazing achievement".

The IATA CEO explained: "In 2006 airlines achieved the same 1.1% net profit margin, but with oil prices that were about half of today’s prices and the global economy growing at 4% - about double what we are experiencing today."

Tyler said that airlines were meeting the challenge by improving their efficiency - with load factors now at a record high of 80% - and by achieving great connectivity through global partnerships.

The report card would know read: 'Making progress, but still much work to be done.'

Tyler told the Auckland audience: "The bottom line is even improving—slightly. In 2012, the $2.50 per passenger that airlines earned was enough to buy a cup of coffee in most places. This year we expect a 1.8% net profit margin. If we are right, the industry will earn on average $4 per passenger. That may be enough for a sandwich—but it is nowhere near the returns that our investors expect.

"To keep up with the growing demand for connectivity, over the next 20 years we will need to attract financing to support aircraft orders in the range of $4-5 trillion."

The IATA chief emphasised that "there is no easy answer to how airlines can achieve sustainable levels of profitability", but went on to argue that there are "three key components to securing aviation's future": a cost-efficient infrastructure; a distribution system that meets customer needs, and a global approach to manage aviation’s environmental impact.

Wrapping up his presentation, Tyler summed up his association hopes to help propel the aviation industry upwards: "IATA’s vision is to be the force for value creation and innovation driving a safe, secure and profitable air transport industry that sustainably connects and enriches our world. That’s a tall order. And success will require the support of strong partnerships—with governments and across the business community.

"The first century of commercial aviation is marked by enormous transformational change in the way that we live and work together as a global community. I hope that you will share and support the optimism for the development of the second hundred years of global connectivity."


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