IATA: UK policies will destroy proud legacy of British aviation

11th Feb 2011

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LONDON, England – The International Air Transport Association (IATA) called on the British government to improve its global competitiveness in air transport by taking a global approach to aviation and climate change, reducing taxes, changing the economic regulatory structure for airports, and developing a proper strategy to safeguard the economic benefits of aviation.

“The UK has a great tradition of leadership in aviation. But any industry can only take so many knocks before the damage is permanent. I respect the UK for its historic role but to write a successful next chapter, we must say ’basta.’ The government’s policy pillars of excessive taxes, inefficient airport regulation and limiting growth will destroy the UK’s proud aviation legacy,” said Giovanni Bisignani, IATA’s Director General and CEO in a speech to the Aviation Club in London.

Bisignani noted that aviation supports about 1.5 million UK jobs along with $76 billion in economic activity. “Aviation provides critical global connectivity to this island nation. It is a great mystery to me why the government seems so intent on destroying its competitiveness with a policy agenda stuck in the past,” said Bisignani. To support aviation’s economic benefits, he called for urgent policy action in the following areas:

Cost: The World Economic Forum’s Travel and Tourism Competitiveness report ranks the UK last out of 133 countries for cost competitiveness, 129th on fuel prices, and 121st on ticket taxes and airport charges. Bisignani took aim at the UK’s “phantom regulator” as one of the causes of weak cost competitiveness. “Recent decisions have got it all wrong. While the global airline industry was cutting costs and improving efficiencies to survive, the regulator allowed BAA a 50% increase for Heathrow charges. He was even more generous for 2008-2013, with an 86% increase. The economic regulatory model for airports is broken and must be urgently fixed,” said Bisignani. 

Capacity: “With the decision to abandon plans for a third runway, London Heathrow is becoming a secondary hub,” said Bisignani. Heathrow has two runways limiting its growth compared to other major European hubs with greater runway capacity—Amsterdam has five runways while Paris, Madrid and soon Frankfurt will have four. Commenting on the ability of high-speed rail to take up the slack, Bisignani said, “If building 2,000 meters of runway takes decades, building or upgrading 650 km of rail will take several lifetimes. And it will probably take more money than the Chancellor of the Exchequer could write a check for.” Noting that the government came to power with many policy decisions in hand, he hoped that “with experience, the policies would become more realistic.”

Selling the government’s share in UK NATS: Bisignani, who sits on the Board of UK NATS, urged the government to consider carefully the sale of its shares in UK NATS. “The corporatized NATS, with industry and government working together as shareholders, has delivered many benefits. It is more efficient, and more focused on its customers, than when it was a government-run monopoly. Efficient air traffic management contributes to the success of business connectivity. Any change to the structure of NATS must be carefully considered. A golden share or keeping some of the shares for the government is an option, and any change must include an effective regulatory structure that drives further efficiencies,” said Bisignani.

Winter weather: Bisignani called for better preparedness for severe weather in the wake of major airport shutdowns in December. “The inconvenience to passengers and the paralysis of the UK economy for many days is unacceptable from any perspective. Shoveling snow is not the airline’s responsibility. The financial losses they suffered must be compensated, and we must approach next winter with a better plan,” said Bisignani.

Climate change: Bisignani criticized the UK government for taking an isolated and punitive policy approach to managing aviation’s emissions, particularly with the Air Passenger Duty now standing as a GBP2.7 billion burden on the industry. “That is enough to offset all of UK emissions—not once, but four times. To borrow a UK phrase ‘this is potty’. Environment policy should not be designed around paying the bills for the government’s failure to effectively regulate the financial sector,” said Bisignani. He called for an immediate end to the unjustified burden of Air Passenger Duty and for the UK and Europe to cooperate on a global framework for economic measures coordinated through ICAO. Bisignani also called on the government to support the commercialization of biofuels, with the potential to reduce aviation’s carbon footprint by up to 80% and to stimulate the economy at the same time. “Aviation is united and committed to improving fuel efficiency by 1.5% per year to 2020, capping net emissions from 2020 through carbon-neutral growth, and cutting net emissions in half by 2050, compared to 2005 levels,” said Bisignani.

Bisignani’s calls for renewed competitiveness came as the air transport industry starts what is expected to be a second consecutive year of profitability, albeit weak, following major losses over the last decade. Following a $15.1 billion profit in 2010, IATA is predicting that global profits will shrink to $9.1 billion in 2011. “For an industry that generates nearly $600 billion in revenues the margins are pathetic. The 2.7% margin that airlines earned last year does not even cover the cost of capital which is around 7-8%. And the margin will shrink to 1.5% this year,” said Bisignani.