How will the challenges to air transport industry affect it over the coming decades and where do the opportunities to survive exist? Amirah Ibrahim attended the Global Media Summit in Geneva where experts emphasised that 2011 would be more challenging
About 120 journalists and media personnel from across the globe gathered in Geneva last week at the Global Media Summit organised by the International Air Transport Association (IATA). A number of brainstorming sessions were organised for the media to hear perspectives from nine panelists including IATA Director-General and CEO Giovanni Bisignani over various elements in the industry including outlook, security, environment as well as safety.
"Global profitability will fall from $15 billion back to $9 billion in 2011," stated Bisignani. "There are three factors driving the deterioration of profitability. First, the price of oil -- estimated by $84 per barrel for next year vs $79 in 2010, adding $17 billion to costs. Then there is GDP which is globally predicted to fall 2.6 per cent with the resultant over- capacity, the other two factors."
Against 2011 forecasts, IATA revised upwards its industry outlook for this year to a net profit of $15.1 billion from $8.9 billion forecast in September, bolstered by strong data in the third quarter including passenger and revenue growths, reflecting signs of recovery in the global economy.
"Passenger traffic growth is expected to rise 8.9 per cent from the previous estimate of 7.7 per cent while revenue rose to $565 billion, an improvement of $5 billion from the previous forecast," said Bisignani.
Bisignani said more than half the profit this year --$7.7 billion -- would come from Asia-Pacific carriers, the most profitable region of the world for airlines, with China leading the growth.
"Rapidly developing markets are shifting the industry's centre of gravity to the East. In 2009, 655 million people travelled within North America and 662 million within Asia. By 2014, we expect to see 3.2 billion people travelling -- an increase of 800 million. Out of that 800 million, 360 million will travel within the Asia-Pacific region."
However, the airlines from this region are expected to post lower profits of $4.6 billion next year following moderate growth and risky external factors globally, said Bisignani. "Our margins are still pathetic. Industry revenues will be $565 billion. Our
$15.1 billion profit is a 2.7 per cent margin. If airlines were charity
organisations, this would be a great result."
According to IATA Chief Economist Brian Pearce, the Asian region would continue to become a source of growth for the industry with the further expansion of the middle class, which would be the key to air travel growth. "Over the next five years, a majority of passengers (and freight) growth is forecast to be in the Asia-Pacific region," he said.
During the summit, IATA announced a historic milestone in passenger travel with the 100 per cent worldwide implementation of 2D bar coded boarding passes (BCBP). BCBP replaces the previous generation of more expensive and less efficient magnetic stripe boarding passes.
"The magnetic stripe boarding passes are on their way to a history museum next to the paper ticket. Airlines issue over 2 billion boarding passes every year. The conversion to printed 2D BCBP has been a five-year project and will save the industry up to $1.5 billion every year. With more and more airlines offering the possibility to receive the bar code via a mobile device, we are well on the way to truly paperless travel," said Bisignani.
BCBP gives passengers greater choice in checking-in at home, at a kiosk, on a mobile device or at an airport check-in counter. It also allows airlines to issue a single, printed boarding pass for multiple flights, simplifying the journey for passengers with flight connections or those traveling on different airlines.
Addressing security as a top priority for air transport, IATA introduced a new vision that calls for pre-screening passengers prior to issuing a boarding pass to divide them into three levels of risk classification, and aims to enable passengers to eventually "walk uninterrupted" through an airport.
"We need to be able to find bad people not just bad objects. We can do that by combining technology with intelligence. This allows us to assess passengers for risk with appropriate security checks to follow," explained Kenneth Dunlop, IATA director of security and travel facilities.
"The problem is seen as follows: we will have 2.5 billion passengers by 2011, expected to increase to 16 billion by 2050. On the other hand, security lane processing rates are going down. Thus aviation security needs to maintain and build the confidence of a sophisticated travelling public to remain effective," Dunlop said.
Another challenge to the industry is safety, with 17 western built hull losses in 2010 which gives an accident rate of 0.66 per million flights. "Of these, four were with IATA carriers. This puts the accident rate for our members at 0.28, which is better by 58 per cent than the global average," explained IATA Vice-President, Safety, Operations and Infrastructure Guenther Matschnigg.
"All IATA member airlines have implemented the IATA six-point safety programme, focussing on infrastructure safety, operational and maintenance areas, safety data management, safety management system and auditing through IOSA and ISAGO," said Matschnigg.
Once more, Africa's safety record remains the worst according to IATA figures. "Africa had the same number of accidents as Latin America, five accidents. Yet, there are almost four times fewer flights in Africa," stated Matschnigg.
IATA's Bisignani made it clear that even after all the restructuring and re-engineering of the last decade, sustainable profitability had not been achieved.
"We needed changes that could deliver immediate results, that is why I announced Vision 2050," indicated Bisignani. He added that the IATA was assembling a group of strategic thinkers who would meet in Singapore in February 2011 to produce an industry paper that captures the group's thoughts on sustainable profitability. The group will include CEOs, industry wise men, politicians, inventors, technology experts and economists.