Tackle downturn by increasing efficiency

What a difference a year makes. In January 2008, airlines were celebrating the end of our first profitable year since 2000. The impact of the credit crunch was limited to the US and related markets. And the industry was gearing up to make profits even with oil in the $100 range.

Last year was a roller coaster. Oil peaked at $147 in July, destroying the industry's profitability. By year-end, oil was near $40 per barrel and the spectre of recession was the new threat to profitability. Airlines ended the year with losses of $5 billion (Dh18.36bn), $100 million of that by airlines in this region.

What does 2009 have in store for the air transport industry? Tough times. We expect further losses of $2.5bn. Unhedged against fuel, and having reduced capacity early on, the US industry is feeling the immediate relief of lower oil prices and may deliver a small profit this year.

Airlines in the Middle East will see losses of $200m as combined passenger and cargo traffic growth slows to just 1.2 per cent. With capacity set to expand by 4.9 per cent, finding profitable growth opportunities will be a big challenge. For the rest of the world, it is a much bleaker picture of mounting losses and disappearing traffic.

The dimensions of this crisis are still unfolding for the global economy and for airlines. While the path forward is not yet clear, there are some certainties.

Efficiency has never been more important. Since 2001, non-fuel unit costs are down 13 per cent. They must fall further and faster. That is why we are continuing to invest in our "simplifying the business" programme with challenging targets in 2009. As part of that programme last year we delivered e-ticketing to every corner of the planet – making travel more convenient and saving $3bn in cost.

On the passenger side, we are expanding self-service options to baggage tagging and tracing and boarding as well as expanding the functionality of common-use self-service check-in with document scanning. We will bring solutions to baggage management at 20 of the worst-performing airports in the world. In the Middle East, it will be important to build these efficiencies in to the aggressive airport expansion projects planned and under way.

Airlines are also building efficiencies with consolidation. Major mergers in the US and Europe are delivering relevant results. In a crisis, business-as-usual is not an option. Neither is government as usual. It is time for governments to rethink antiquated ownership and control rules that limit consolidation within "national" boundaries. The freedom for airlines to develop into global businesses with global efficiencies is critical. The UAE economy has demonstrated to the world the economic benefits of open market access policies. As a participant in Iata's Agenda for Freedom initiative, I look forward to continued leadership in the area of ownership.

At the same time, aviation is fighting a new plague. The industry tax burden increased by a shocking $6.9bn during 2008 – much of which was painted green with the environment brand. Middle Eastern governments must avoid the counter-productive precedents being set in Europe. Addressing climate change is a top priority. But draconian taxation is not the way forward. It only robs airlines of the ability to invest in newer, cleaner technology. As aviation drives towards its goal of carbon-neutral growth on the way to a carbon-free future, a global deal through the UN's International Civil Aviation Organisation on positive economic measures is needed. If not, airlines and travellers face an unsustainable future of double and triple taxation.

These are but a few of the challenges on the airline industry's crisis agenda. As the recession deepens, we must shout politely – not for handouts, but for change. Air transport is a resilient industry supporting $3.5trn in global business and the livelihoods of 32 million people. That includes 460,000 jobs and $17.5bn of economic activity in the Middle East. This industry can drive economies and spread prosperity. But if airlines are squeezed with wanton taxation and constrained by archaic rules we cannot play this role. Governments must understand this.


The author is the Director-General and CEO of International Air Transport Association