IATA's annual general meeting (AGM) in Shanghai led off with some soul-searching about how the industry had once more found itself unprepared for the downturn and how the industry and IATA itself now copes with the aftermath of the 11 September crisis.
IATA confirmed that its members had lost a massive $12 billion last year on their international operations. And although traffic is already recovering, the estimate is for a further loss in the $4-8 billion range again this year.
In his parting address as general director, Pierre Jeanniot warned the AGM that the industry had simply not been ready to deal with the fall in business that followed the attacks. "We simply cannot blame all of our poor results on external factors," he warned. "We were giving clear indications that achieving market growth was more important than sustained profitability."
He added that the warning signs were there even before the terrorist attacks: "In retrospect, and looking at the deteriorating situation even before 11 September, we would be forced to conclude that this industry was ill-prepared to weather successfully even a fairly mild regular economic cycle."
The comments were echoed by American Airlines chief executive Don Carty. "We seem to learn these lessons every cycle and then forget them when the good times roll," he said, adding that the manufacturers and financiers can make growth almost too "easy".
In his last report on the industry before retiring in early June, Jeanniot also said airlines discounted too heavily after September, and it will be hard to re-build yields this year. "Looking at the revenue side, and specifically at some of the pricing actions since 11 September, one truly wonders whether the full depth of the discounting that took place was really required, and whether the degree of resulting market stimulation more than compensated for the amount of actual yield dilution," he added.
Jeanniot said there are signs that the "recession is ending and there will be some growth", although first-quarter financial figures are "not terribly encouraging". He added: "The best we believe can be achieved this year is to cut last year's losses in half." In passenger terms, IATA forecasts international traffic will grow at 0.9% this year following last year's record 2.1% fall. Freight traffic will rise by 2.7%, says IATA, a reasonable turnaround over the 7.7% drop in 2001.
Giovanni Bisignani, who was confirmed as IATA's incoming director general at Shanghai, pledges to continue to speed up the association's response to the growing list of critical issues facing the industry, especially in the wake of 11 September. "We have to react faster because the situation is much more difficult. We have to remember we are a business association, and our associates want speed," Bisignani says. "We have to react at least at the same speed as the airlines," he says, noting how radically the airline world has changed even since his time at Alitalia a decade ago.
The need for a coherent and international response to issues of security and war risk insurance was high on the agenda at Shanghai. Lufthansa chairman Jrgen Weber made an empassioned plea for the industry to tackle the insurance issue with speed, supporting the US and European regional initiatives as a stopgap until an integrated international solution can be agreed. There was also a dark warning from Jonathan Palmer Brown, chairman of the Aon insurance brokerage, that the industry may need to consider self-funding solutions to avoid being gouged by insurers. On current standings, he calculates that the industry could end up collectively paying premiums that are two or three times higher than the actual cost of airline accidents.
Bisignani also pledges to maintain pressure on charging levels of airports and air traffic service providers. "We can no longer have a situation where the airlines are facing crisis and despite this, other areas directly linked without business are increasing their charges," he says, adding that IATA will seek to set down benchmarks against which to measure the performance and charges of such service providers. "We cannot go on being the only part of the game that is not making money,"he adds.
Source: Airline Business