Giovanni Bisignani Director General & CEO International Air Transport Association Annual Report 2009 65th Annual General Meeting Kuala Lumpur, June 2009 Promoting sustainable forest management. This paper is certified by the Forest Stewardship Council (FSC) and is cellulose based and recyclable. Note: Unless specified otherwise, all dollar ($) figures in this annual report refer to US dollars (US$). IATA Board of Governors 06 Environment 32 Director General’s Message 08 Cost Efficiency 38 The State of the Industry 10 Industry and Financial Services 42 Simplifying the Business 16 Aviation Solutions 48 Safety 22 IATA Membership 50 Security and Facilitation 26 IATA Offices 52 Regulatory and Public Policy 30 We are a resilient industry. We will survive the crisis one way or another. But we must ask some serious questions. In what shape will the industry emerge? Will the shakeout be orderly? And the most important question of all: What can we do to make the industry healthier and stronger? Giovanni Bisignani 6 IATA Board of Governors as of 1 May 2009 Khalid Abdullah Almolhem Andrés Conesa Naresh Goyal SAUDI ARABIAN AIRLINES AEROMEXICO JET AIRWAYS (INDIA) Gerard Arpey Fernando Conte Peter Hartman AMERICAN AIRLINES IBERIA KLM Tawfik Assy Enrique Cueto Pedro Heilbron EGYPTAIR LAN AIRLINES COPA AIRLINES David Bronczek Christoph Franz Idris Jala FEDEX EXPRESS SWISS MALAYSIA AIRLINES Chew Choon Seng SINGAPORE AIRLINES Yang Ho Cho KOREAN AIR Samer A. Majali Chairman IATA Board of Governors 7 Temel Kotil Fernando Pinto TURKISH AIRLINES TAP PORTUGAL Liu Shaoyong Jean-Cyril Spinetta CHINA EASTERN AIRLINES AIR FRANCE Samer A. Majali Glenn F. Tilton ROYAL JORDANIAN UNITED AIRLINES Wolfgang Mayrhuber Tony Tyler LUFTHANSA CATHAY PACIFIC Titus Naikuni Willie Walsh KENYA AIRWAYS BRITISH AIRWAYS Haruka Nishimatsu JAPAN AIRLINES 8 Director General’s Message Some of the most dramatic swings in our industry’s history were witnessed in 2008. Oil started the year at $97 and ended at years of 4,000 aircraft ordered in more travel agents and banks failed, IATA did about $40 per barrel (Brent). But it hit optimistic times. The results of the last not miss one payment or one penny. $147 per barrel in July, threatening to months show that airlines that acted fast As challenges mount with the current add over $100 billion to the industry fuel and most aggressively are reaping the recession, we will continue to be vigilant bill. In the end, oil averaged at $99 per benefits. in ensuring that airlines’ cash flow is barrel, which brought our total fuel bill to never compromised. IATA is working hand-in-hand with its US$168 billion. members to help airlines with at least IATA is helping airlines to reduce costs. By the fourth quarter, the industry story three top priorities in surviving a crisis: Last year we achieved savings of $3.5 was focused on the intensification of improving safety, conserving cash and billion in fuel fees, taxation, and airport the global recession and the resulting cutting costs. and air navigation charges. Our fuel collapse in demand. The year ended with campaign helped our members reduce On 1 April 2009 we achieved an large fourth quarter losses that put the fuel consumption costs by $5 billion. important milestone. In line with targets industry at least $10 billion in the red. agreed at our 2006 AGM, all 224 IATA With 100% e-ticketing in June 2008, we Airlines face a tough 2009. airlines were listed on the IOSA Registry. also realized $3 billion in cost savings. We are a quality association delivering An additional $1 billion was saved There is some relief on the fuel bill. But impressive results on safety. In 2008, with the deployment of Common Use the good news stops there. Demand IATA members had one accident for Self-Service (CUSS) kiosks reaching is disappearing and revenues are every 1.9 million flights. This performance 135 airports. IATA is targeting a further plummeting. The Influenza A(H1N1) was even better than the industry’s one $10 billion in savings with bar coded scare is a reminder that, even in a crisis, accident for every 1.2 million flights. Air boarding passes (BCBP), Fast Travel, this industry remains vulnerable to is the safest form of travel. In line with the the Baggage management Improvement shocks beyond its control. success of IOSA, the IATA Safety Audit Program (BIP) and IATA e-freight. First quarter passenger traffic was down for Ground Operations (ISAGO) is now Even in these turbulent times, we must 9.1%, with premium passenger numbers well established as the global standard look ahead. Two important issues are falling away at almost double that rate. for this area of operations. essential to our long-term industry And cargo was down 22.8%. Many IATA is keeping the industry’s cash agenda: environment and liberalization. airlines, particularly in the US, responded safe. Our financial systems processed with aggressive capacity adjustments, IATA’s four-pillar strategy to address a record $350 billion during 2008 but most were not able to keep pace climate change with technology, effective —equivalent to two-thirds of total with the precipitous fall in demand. operations, efficient infrastructure, and industry revenues. Even as airlines, Others were caught with fuel hedges positive economic measures is delivering higher than spot prices. We may have seen the worst of the recession, signaled by stabilization in freight volumes at exceptionally low levels. But it is unclear how long the industry will bounce along the bottom before a significant recovery. Air transport will be a smaller industry for at least the next few years. The challenge is to reshape and resize for profitability. To start, airlines will need to carefully match capacity with demand. The task will be made more difficult by the planned delivery over the next three 9 results. This year we expect an 8% drop ever. IATA’s Agenda for Freedom Summit we are a resilient industry, capable of in aviation’s emissions. Of that, 6% is will convene again in the last half of the great change. Airlines will rise again to from reduced capacity and 2% is a year. Our aim is to formalize progress the many challenges that this industry direct result of the strategy. Our vision with this group of 15 of the most faces. And we will emerge from this crisis to achieve carbon-neutral growth on the liberal government players in aviation safer, greener and profitable. way to carbon-free technology with a by developing policy tools to move the 50-year time horizon sets us ahead of process forward. any other industry. Airlines are catalysts of economic activity. The challenge for this year is to achieve With the freedom to do business like any an agreement on economic measures. other industry, aviation can play a vital Giovanni Bisignani IATA continues to work with the role in helping governments stimulate the Director General & CEO International Civil Aviation Organization global economy. (ICAO). Our goal is to facilitate a global Securing our future in these difficult solution for the aviation sector at the economic times will be hard work. But United Nations Framework Convention on Climate Change (UNFCCC) meeting in Copenhagen in December. We also need governments to move from thinking about liberalization to action. The economic crisis is making access to global capital more important than 10 The State of the Industry Oil price bubble leads to crippling rise in costs Two thousand eight was an exceptionally Crude oil prices started 2008 at a Also notable was that jet fuel prices did challenging year. Airlines were hit first by historic high of $97 a barrel (Brent), the not fall as far. This limited the relief for an unprecedented spike in oil prices and result in part of rising exploration and airlines and their passengers as refineries then by a precipitous drop in revenues extraction costs. The real damage to took the opportunity to boost their caused by a collapse in world trade and airlines’ expenses, however, was done margins. By year-end, however, jet fuel the start of what is looking to be the by the speculation in oil that emerged in prices had fallen back to $60 a barrel, deepest recession since the 1930s. February. That activity drove up oil prices but the refinery margin or “crack spread” a further 50%, to $147 a barrel, by early of 50% over crude oil prices was much Airlines have reacted with unusual speed July, and some analysts at Goldman higher than the normal 25%. to resize capacity in the face of slumping Sachs and elsewhere were predicting demand. This and the subsequent fall The other factor that limited the benefits additional increases, to above $200 a in oil prices back to 2004–5 levels from lower crude oil prices in 2008 was barrel. The hike in oil prices naturally may prevent what is expected to be the the impact of fuel hedging contracts caused jet fuel prices to rise, almost largest-ever decline in airline revenues, in taken out earlier in the year, when the 60%, from $114 a barrel at the start of 2008, from leading to a similarly record- fear had been of even higher oil prices the year to a peak of more than $180 a breaking net loss in 2009. Nonetheless, than at the July peak. These contracts barrel. 2009 will be as, or more, challenging meant many airlines paid much higher than 2008, with a number of threats Fuel costs soared from an average of prices for their fuel than spot prices on the horizon and the ability of the 28% of airline’s operating costs in 2007 during the 2008 fourth quarter.