The global airline industry is expected to post a profit of $2.5 billion in 2010, according to projections from the International Air Transport Association (IATA). The industry's first profit since 2007 comes after a decade in which airlines have lost a cumulative $47 billion. The time is right, says Giovanni Bisignani, director general and CEO of IATA, to strategically define a sustainable future for the industry.
Speaking at the recent IATA General Meeting and World Air Transport Summit in Berlin, Germany, Bisignani outlined his vision for aviation in 2050. "We will be very near to zero accidents. We will emit half the carbon. We will have eliminated queues with integrated systems ensuring security as we process more passengers. We will operate with almost no delays in globally united skies. We will share costs and profits equitably across the value chain. We will be a consolidated industry of a dozen global brands supported by regional and niche players. And we will deliver value to investors," Bisignani predicts.
"In just over a decade, I can see $100 billion in industry profits on revenues of $1 trillion," he continues. "As we move towards 2050, this 10% margin will become even more robust. This is not just a crazy dream. Before the recession, at least a dozen IATA members already had 10% margins. We must make this a much broader reality. Change in all areas is possible. This vision—including sustainable profitability—can be our future."
Bisignani's vision for 2050 rests on four cornerstones of change:
1. Profitability: "Efficiency gains never make it to the bottom line because airlines are deprived of the commercial freedom to operate their businesses like a normal business. Our poor profitability makes every shock a fight for survival," says Bisignani. He lays the blame on the industry's hyper fragmentation with 1,061 airlines as a result of the bilateral system which regulates the global aviation industry. The restrictions on international capital prevent consolidation across borders. "The restrictions of the bilateral system are a dam that holds us back. It is time for that dam to burst. Governments must act responsibly to ensure safety, security and a level playing field. And airlines need the freedom to build efficiencies across borders, better serve their customers, and achieve sustainable profits to fund growth and innovation," says Bisignani.
2. Infrastructure: "Infrastructure must be reshaped around the needs of airlines—the core of the industry's value chain. Airports should compete for airline business based on efficiency. Commercial revenues will drive their business. I can see airports paying airlines to bring shoppers and airport revenues funding the air traffic management system," says Bisignani.
Air traffic management must also change. "I can see 10 global air navigation service providers (ANSPs) replacing the current 180 at half the cost," predicts Bisignani. The Single European Sky (SES) would be the first of the 10 global ANSPs. "But we need real leadership to replace the uncoordinated bureaucratic mess that Europe is today," he adds, pleading for a date to achieve the $6.5 billion cost savings that the SES promises. "After 20 years of waiting, we are fed up. Heads of governments must set a date and deliver."
3. Powering the Industry: "Today's jet fuel cannot sustain air transport in the long-term. We must find a sustainable alternative and our most promising opportunity is biofuels, which have the potential to reduce our carbon footprint by up to 80%," says Bisignani. After successful testing by airlines, certification is expected within a year. Bisignani urges greater support from governments. "Too often governments are only committed to environment when it means grabbing cash. Governments should be investing in biofuels and green technologies. Local production with jatropha, camelina, algae, or even urban waste will open up economic opportunities in virtually any location. Not only will this secure a future power source for our industry, this will also break the tyranny of oil and drive economic development in all parts of the world. "
4. The Customer: "The customer is at the center of our future vision. By 2050, we will have 16 billion travelers and handle 400 million tons of cargo. In just a couple of decades, we will see the middle class nearly triple from the 1.3 billion today to 3.5 billion people—a quarter of which will be in India and China. Accommodating that growth efficiently will be a challenge for all parts of the value chain—airports, air navigation service providers, manufacturers and governments. The solution must be strategic and aligned," says Bisignani.
Bisignani notes that the air transport industry must engage its 2.4 billion passengers to change government’s "over-regulate and under-appreciate" attitude. "To turn our customers into industry activists, we must improve the value proposition of price, speed, and quality. We have reduced the price of flying by 40% since deregulation. But as we made travel more accessible, speed and quality suffered. The infrastructure has not kept pace, resulting in delays both in the air and on the ground. New security procedures created new hassles. Our challenge is to gain the support of customers in demanding change from the governments."
"The questions about our future are endless. And we will not find the answers in isolation," says Bisignani, in explaining IATA's launch of Vision 2050—Shaping Aviation’s Future. The Vision 2050 initiative will attempt to lay the foundation for a sustainable and profitable industry by looking ahead strategically with a four-decade time frame.
Later this year, Bisignani will call leaders from airlines, industry partners, stakeholders, governments, and customers to meet in Singapore. "Our goal is to build an industry that is even more successful at serving its customers—so successful that our customers will be our biggest advocates," says Bisignani. Vision 2050 will be an open, robust and comprehensive process with results to be reported at the 2011 general meeting.
The launch of Vision 2050 comes in the wake of six days without aviation in large parts of the European continent as a result of the ash plume from an Icelandic volcano. "April gave us a vivid picture of life without aviation. Ten million people were stranded. Hotels and convention centers were empty. Seafood and flowers rotted. And just-in-time production was delayed. The volcano cost the global economy $5 billion—far more than the $1.8 billion of lost airline revenue. The volcano's eruption was a wake-up call. It reminded us that without air connectivity, modern life is not possible," says Bisignani.
"We must seize the moment to bring governments and partners on board in building our future. Together we will build a resilient industry based on our four cornerstones of change. We will protect ourselves from cycles and shock with sustainable profitability. We will exceed our customers' expectations. And we will be an industry that is even safer, greener and more successful," Bisignani predicts.