13 JUNE 2011

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Article from BTNews 13 JUNE 2011

ON TOUR: IATA’S AGM at Singapore

It was supposed to be just a normal IATA (International Air Transport Association) conference, if they are ever normal, but the 67th gathering of most of the world’s airlines (some of the larger low fare carriers don’t participate) has proved to be eventful. 

In fact virtually every year something happens to remind the chief executives how running an airline can be a very volatile business.  In 2010 it was the German Government’s imposition of an airport tax, announced in the middle of IATA hosted by Berlin.  This year two major stories emerged – Qatar Airways boss Akbar Al Baker claiming IATA was out of control and EU climate chief Connie Hedegaard talking about the “rights” of her organisation regarding legislation it sought to impose.

Tony Tyler, former Chief Executive of Cathay Pacific, was confirmed to succeed Giovanni Bisignani as IATA’s Director General and CEO.  Tyler’s appointment is effective from 1 July 2011, at which point Bisignani will become Director General Emeritus.  The handover speeches were in perfect harmony.

For 2011 the event was supposed to be in Cairo.  For reasons that are obvious, in March the venue was changed.

Al Baker startled the hall with a blast that really set delegates talking amongst themselves.  The gentlemanly, but sometimes volatile, Mr Al Baker launched a scathing attack over the lack of transparency by IATA and its finances.  Readers will be acutely aware that this outburst comes only weeks after another self-appointed international body has been accused of the same offence, with Qatar the main target.  As one delegate pointed out the country has only an ethnic population of less than half a million (plus one million expats from various countries).  Birmingham (UK) has twice as many locals and in that city most people are allowed to vote. 

In a dramatic session the Qatar Airways boss led a vocal onslaught by a number of international airlines over IATA’s failure to show clear transparency in its processes saying that IATA appeared to be “run for the few, by the few” and lacking full transparency.

He queried the auditing process for IATA’s 2010 financial statement, and later questioned the “surprise” nomination of Etihad Chief Executive Officer James Hogan to fill the extra seat created to broaden the representation of carriers from the Middle East on IATA’s board.  No room for the Qatar Airways CEO.

Al Baker highlighted some of IATA’s expenditure, including US$18m on travel, US$58m on data processing and IT and US$29m on outsourcing and consultancy.  He called on IATA to justify “such large sums spent on travel” and the processes by which consultant and outsourcing contracts were awarded.  Emirates boss Tim Clark seemed to support the Al Baker outburst.

Al Baker supported a motion for IATA to reconsider the appointment of its auditors, having been unconvinced about the industry body’s financial accounts and auditing process.

Regarding the nomination of Hogan, Al Baker told the AGM: “We believe such issues should not be surprises.  Firstly, such decisions should be transparent and secondly, if geographical representation is the basis of the composition of the board, the regional airlines involved should be informed in advance of their regional allotments so that they can co-ordinate who should represent them.”

Emirates called for greater dialogue to ensure IATA was more transparent while International Airlines Group, the holding company of British Airways, sought clarity on the entire voting process of board members.

Speaking to journalists at Singapore, International Airline Group CEO Willie Walsh said that the BA/Iberia company has no plans to acquire additional airlines in the near future.  Commenting on rumours that IAG may invest in Air Berlin, he said: “We are very focused on the synergies [from BA and IB].”  Walsh said he believes that high oil prices will encourage more airlines to consolidate more quickly.  But he cautioned that it may not be the right time to invest in carriers. “I would never be interested in [buying] airlines [that are having difficulty operating] with fuel prices around the US$100 per barrel mark,” he said.

Whilst the internal politics of IATA will not concern the travelling public, the effect of the 2012 European Union (EU) emissions trading scheme will add to the cost of flying.  IATA supports the project but says it is unfair and costly.

From 1 January next year, airlines landing in the EU's 27 member states will have to join the bloc's US$120bn scheme, which obliges carriers to pay for each tonne of carbon dioxide pollution above a fixed cap.

The cost is calculated from the point of departure, meaning long haul carriers will be hit hardest, regardless whether the airline is from an EU country or not.

While the majority of non-EU airlines have complied and said they will join the emissions trading system (ETS), they have done so in protest, with China and US carriers taking the hardest line.

"IATA's position is very clear.  We see emissions trading as a useful tool and we've not backed away from that at all," said Paul Steele, IATA’s Director, Aviation Environment.

On Monday, the EU climate chief Connie Hedegaard said that the bloc had the right to impose legislation to cut emissions from aviation and showing weakness would encourage further challenges to EU policies.

In a letter to Airbus and European airlines, she also gave a subtle reminder that the EU only chose to include aviation in its carbon-trading scheme after IATA had given its support to carbon markets as the best tool for the job.

She noted that in a 2004 submission to the United Nations, IATA had argued for the principle of emissions trading.

Steele said IATA's position was unchanged and that a global trading solution was preferred.

"The issue about the EU ETS is not about the ETS as a mechanism, it's about the fact that the EU has probably over extended itself in the way it's trying to impose it," he told reporters.

Analysts say airlines' entry into the scheme could cost them €1bn

China Air Transport Association (CATA) says the scheme will cost Chinese airlines CNY800m (US$123m) in the first year and more than triple that by 2020.

The European Commission, which administers the ETS, says governments can apply for an exemption if they take what are called equivalent measures to curb aviation emissions but hasn't spelled out what measures would be acceptable.

"Our concern from an industry point of view is there doesn't seem to be any accountability mechanism to sign off on what an equivalent measure is, apart from what the Commission decides it is," Steele said.

Nor was there clarity on how to verify and monitor such steps by a third country, he said.

"It's one of the biggest concerns we have right now, that we'll end up with an even greater patch-work of measures."

On the Tuesday of the gathering an optimistic note was sounded by Brian Pearce IATA’s Chief Economist.  He said that business travel demand is holding up better than price-sensitive leisure travel in a sign of business confidence and a recovery in world trade.  Airlines also expect renewed growth in air cargo demand in the second half of this year as movements of capital goods and high-value components pick up.

Pearce noted Chinese domestic traffic, which is often regarded as a barometer of the domestic stimulus in the world's second-largest economy, had dipped temporarily as authorities moved to head off inflation but should return to a path of structural growth.  He warned that record deliveries of around 1,300 to 1,400 jet and turboprop aircraft in 2011 created a "clear risk of overcapacity" in some markets, but noted that the aviation industry outlook in Asia, excluding Japan, remained positive.

For many people the most interesting stand in the accompanying small exhibition was IATA’s Checkpoint of the Future.

“We spend US$7.4bn a year to keep aviation secure.  But our passengers only see hassle.  Passengers should be able to get from curb to boarding gate with dignity.  That means without stopping, stripping or unpacking, and certainly not groping.  That is the mission for the Checkpoint of the Future.  We must make co-ordinated investments for civilized flying,” said Giovanni Bisignani introducing the project.

“Today’s checkpoint was designed four decades ago to stop hijackers carrying metal weapons.  Since then, we have grafted on more complex procedures to meet emerging threats.  We are more secure, but it is time to rethink everything.  We need a process that responds to today’s threat.  It must amalgamate intelligence based on passenger information and new technology.  That means moving from a system that looks for bad objects, to one that can find bad people,” said Bisignani.

How does it work?

The Checkpoint of the Future ends the one-size-fits-all concept for security.  Passengers approaching the checkpoint will be directed to one of three lanes: ‘known traveller’, ‘normal’, and ‘enhanced security’.  The determination will be based on a biometric identifier in the passport or other travel document that triggers the results of a risk assessment conducted by government before the passenger arrives at the airport.

The three security lanes will have technology to check passengers according to risk. “Known travellers” who have registered and completed background checks with government authorities will have expedited access.  “Normal screening” would be for the majority of travellers.  And those passengers for whom less information is available, who are randomly selected or who are deemed to be an “Elevated risk” would have an additional level of screening.

Screening technology is being developed that will allow passengers to walk through the checkpoint without having to remove clothes, take off their shoes or unpack their belongings.  Moreover, it is envisioned that the security process could be combined with outbound customs and immigration procedures, further streamlining the passenger experience.

Through the UN’s International Civil Aviation Organization (ICAO), 19 governments, including the United States, are working to define standards for a Checkpoint of the Future.  IATA is also co-ordinating closely with the US Department of Homeland Security’s Checkpoint of Tomorrow programme which has similar goals.

“We have the ability to move to the biometric scanning and three-lane concept right now.  And while some of the technology still needs to be developed, even by just re-purposing what we have today, we could see major changes in two or three years time,” said Bisignani.

The next requirement will be for larger security areas.  Airport design is always on the move.  www.iata.org

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