Fuel crisis a catalyst for change

The International Air Transport Association (IATA) called upon governments, industry partners and labour to address the fuel crisis that is pushing airlines into the red.

IATA forecasts a loss of US$ 2.3 billion for 2008 based on an average oil price of US$ 106.5 per barrel Brent crude. The Association sounded a warning that this year's loss could be even higher-potentially US$ 6.1 billion with an oil price at US$ 135 per barrel for rest of the year.

In the State of the Industry address at IATA's 64th Annual General Meeting and World Air Transport Summit in Istanbul, Turkey, the association's Director General and CEO, Giovanni Bisignani compared the airline industry to Sisyphus - a mythical character whose fate was to constantly carry heavy loads uphill.

"Over the last 60 years the industry made US$ 11.5 trillion in revenue, but only US$ 32 billion in profits.

Average margin for the entire industry has been just 0.3%. The industry is US$ 190 billion in debt. Since 2001, airlines achieved massive change.

Fuel efficiency improved 19% and non-fuel unit costs dropped 18%. The skyrocketing price of oil has eaten these gains and left the industry in the red again. Oil prices at US$ 130 a barrel are changing the game for everyone. The situation is grim," said Bisignani.

Bisignani sounded the alarm in a stark declaration to governments, industry partners and labour. "Airlines are struggling for survival and massive changes are needed. Governments must stop crazy taxation, change the rules of the game and fix the infrastructure. Labour must understand that jobs disappear if costs don't come down. To our partners, the message is simple. We are in this together. Don't bite the hand that feeds you," said Bisignani.

The greatest call for change was with governments. "Re-regulation or re-nationalisation is not the right answer. But it may be the only one unless we change the rules of the game. The Chicago Convention is not the problem. It's the bilateral system that was designed for another age.

The Freedoms of the Air are only restrictions on our business. Airlines cannot look beyond national borders to manage risk, access global capital or consolidate. To fight crises effectively, brands not flags must define our business," said Bisignani.

"We must communicate clearly to governments the dimension of the oil crisis, the potential impact on the global economy if the air transport industry fails, the measures that airlines are taking to survive and the action we need from them.

To achieve this, IATA is organising an Agenda for Freedom Summit in Istanbul in the fourth quarter of this year. The invitation is open to any country with the courage to change. Already 12 countries have agreed to participate," said Bisignani.

"The Agenda for Freedom Summit will build on the pockets of progress on liberalisation that we see around the world and drive even bigger change to overcome the limits of the bilateral system, free airlines from national flags, secure financial stability and create global opportunities.

It's time to tear-up the 3,500 bilateral agreements and replace them with a clean sheet of paper without any reference to commercial regulation.

Airlines would be free to innovate, compete, grow, become financially healthy or even disappear. Governments also have an important role: to ensure a level playing field and regulate safety, security and environmental performance," said Bisignani.

"Airlines transport 2.3 billion passengers safely and efficiently. Over US$3.5 trillion of business and 32 million jobs depend on our success.