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June 6, 2023June 6, 2023

IATA Urges States to Provide Timely, Thorough and Public Accident Reports

Istanbul – The International Air Transport Association (IATA) called on governments to live up to longstanding international treaty obligations to publish timely and thorough aviation accident reports. Safety is aviation’s highest priority. Failure to publish prompt and complete accident investigation reports deprives operators, equipment manufacturers, regulators, infrastructure providers and other concerned stakeholders of critical information that could make flying even safer.

“The accident investigation process is one of our most important learning tools when building global safety standards. But to learn from an accident, we need reports that are complete, accessible and timely,” said Willie Walsh, IATA’s Director General.

The requirements of the Convention of International Civil Aviation (Chicago Convention) Annex 13 are clear. States in charge of an accident investigation must:

• Submit a preliminary report to the International Civil Aviation Organization (ICAO) within 30 days of the accident.

• Publish the final report, that is publicly available, as soon as possible and within 12 months of the accident.

• Publish interim statements annually should a final report not be possible within 12 months.

Only 96 of the 214 accident investigations during the period 2018-2022 conform with the requirements of the Chicago Convention. Just 31 reports were published in less than one year of the accident with the majority (58) taking between 1–3 years. In addition to the fact that final reports regularly take more than a year, interim statements often provide little more than what was presented in the preliminary report.

“Over the past five years, fewer than half of the required accident reports meet the standards for thoroughness and timeliness. This is an inexcusable violation of requirements stated clearly in the Chicago Convention. As an industry we must raise our voice to governments in defense of the accident investigation process enshrined in Annex 13. And we count on ICAO to remind states that the publication of a complete accident report is not optional, it is an obligation under Annex 13 of the Chicago Convention,” said Walsh.

June 6, 2023June 6, 2023

Emirates to Host 80th IATA AGM in Dubai

Istanbul – The International Air Transport Association (IATA) announced that Emirates will host the 80th IATA Annual General Meeting (AGM) and World Air Transport Summit in Dubai, United Arab Emirates, on 2-4 June 2024.

“We look forward to gathering the aviation industry in Dubai for the 80th IATA AGM in 2024. Dubai is a dynamic city and a major aviation hub connecting the world. The UAE’s positive approach to aviation has built a strong airline with a strong hub airport. Together, these make an enormously powerful and positive contribution to the society and economy of the UAE. Holding the AGM in Dubai will be a showcase of what can be achieved by aviation with supportive government policies and decisions,” said Willie Walsh, IATA’s Director General.

“Emirates is delighted to host the 80th IATA AGM and World Air Transport Summit. We look forward to welcoming all our aviation industry colleagues to Dubai in 2024,” said Sir Tim Clark, President Emirates Airline.

The decision to host the 80th IATA AGM was made by the 79th AGM in Istanbul.

This will be the first time the UAE and Dubai will host the global gathering of aviation’s top leaders.

June 6, 2023June 6, 2023

Aviation Consumer Protection Regulation Should Address Shared Responsibilities

Istanbul – The International Air Transport Association (IATA) called for consumer protection regulation to address the responsibility shared by all stakeholders when passengers experience disruptions and released survey data showing most passengers trust airlines to treat them fairly in cases of delays and cancellations.

Whenever there is a delay or a cancellation, where specific passenger rights regulations exist, the burden of care and compensation falls on the airline, regardless of which part of the aviation chain is at fault. IATA therefore urged governments to ensure that responsibility for flight issues is shared more equitably across the air transport system.

“The aim of any passenger rights regulation surely should be to drive better service. So it makes little sense that airlines are singled out to pay compensation for delays and cancellations that have a broad range of root causes, including air traffic control failures, strikes by non-airline workers, and inefficient infrastructure. With more governments introducing or strengthening passenger rights regulations, the situation is no longer sustainable for airlines. And it has little benefit for passengers because it does not encourage all parts of the aviation system to maximize customer service. On top of this, as costs need to be recouped from passengers, they end up funding this system. We urgently need to move to a model of ‘shared accountability’ where all actors in the value chain face the same incentives to drive on-time performance,” said Willie Walsh, IATA’s Director General.

Economic deregulation of the airline industry has brought huge benefits over decades, increasing consumer choice, reducing fares, expanding route networks and encouraging new entrants. Unfortunately, a trend of re-regulation threatens to undo some of these advances. In the area of consumer protection, more than a hundred jurisdictions have developed unique consumer regulations, with at least a dozen more governments looking to join the group or toughen what they already have.

EU 261 needs to be reviewed

The Commission’s own data show that delays have increased since the existing EU 261 Regulation was introduced, even as the cost to airlines—and ultimately passengers—continues to balloon. It has become subject to more than 70 interpretations by the European Court of Justice, each of which serves to take the regulation further than originally envisaged by the authorities. The European Commission, along with the Council and Parliament, needs to revive the Revision of EU261 that was on the table before it was blocked by Member States. Any future discussions should address the proportionality of compensation and the lack of specific responsibilities for key stakeholders, such as airports or air navigation service providers.

Such a review is even more necessary when the EU Regulation is in danger of becoming a global template, with other countries, including Canada, the United States, and Australia, as well as some in Latin America and the Middle East, seeming to consider it a model, without recognizing that EU261 was never intended to address operational disruption and therefore does not apply equally to all actors in the aviation chain.

“In refusing to address the issue of distributing accountability more evenly across the system, EU261 has entrenched the service failings of some actors who have no inducement to improve. A classic example is the more than 20-year lack of progress toward the Single European Sky, which would significantly reduce delays and airspace inefficiency across Europe,” said Walsh.

An opportunity for the United Kingdom

With sensible reform of EU 261 stalled, the United Kingdom has an opportunity to incorporate some of the proposed revisions into the country’s post-Brexit model for passenger rights. Proper reform of ‘UK 261’ provides a gilt-edged opportunity for a genuine ‘Brexit dividend’ which the present pro-Brexit government should not ignore.

Canada is losing its reputation for good regulation

The situation in Canada is particularly disappointing because it has benefitted from a well-balanced regulatory regime up to now. An example is the explicit recognition of the primacy of safety, meaning that safety-related problems are not subject to compensation. Unfortunately, Canadian policymakers seem inclined to remove this important exception. Canada has also announced a “guilty until proven innocent” approach to airlines when there are delays or cancellations. These moves appear to be driven by internal Canadian party politics. Moreover, the government’s regulatory zeal appears to evaporate when it comes to holding government-run entities such as Border Services (CBSA) or Transport Security (CATSA) accountable for their performance.

One potential bright spot is that the National Airlines Council of Canada has put forward a model for shared accountabilities across the aviation value chain, including increased transparency, data reporting and service quality standards, an approach that could well have merit beyond Canada.

The United States—a solution in search of a problem

The US Department of Transportation is proposing to mandate compensation for delayed or cancelled flights when their own Cancellation and Delay Scoreboard shows that the 10 largest US carriers already offer meals or cash vouchers to customers during extended delays, and nine also offer complimentary hotel accommodation for passengers affected by an overnight cancellation. Effectively, the market is already delivering, while at the same time allowing airlines the freedom to compete, innovate and differentiate themselves in terms of their service offerings.

“It’s easy for a politician to regulate a new passenger rights law, it makes them look like they’ve achieved something. But every new unnecessary regulation is an anchor on the cost-efficiency and competitiveness of air transport. It takes a brave regulator to look at the situation and recognize when ‘less is more’. The history of this industry proves that less economic regulation unlocks greater choice and benefits for passengers,” said Walsh.

Passengers don’t agree there is an issue

There is little evidence passengers, outside of a few rare instances, are clamouring for stronger regulation in this area. An IATA/Motif survey of 4,700 travelers across 11 markets asked passengers how they were treated in the case of delays and cancellations. The survey found:

• 96% of travelers surveyed reported they were ‘very’ or ‘somewhat’ satisfied with their overall flight experience

• 73% were confident they would be treated fairly in the event of operational disruptions

• 72% said that in general airlines do a good job of handling delays and cancellations

• 91% agreed with the statement ‘All parties involved in the delay or cancellation (airlines, airports, air traffic control) should play a role in helping the affected passengers’

“The best guarantor of good customer service is consumer choice and competition. Travelers can and do vote with their feet if an airline—or indeed the entire aviation industry—doesn’t come up to scratch. Politicians should trust the public’s instinct and not regulate away the distinctive business models and choices available to travelers today,” said Walsh.

June 6, 2023June 6, 2023

Airline Profitability Outlook Strengthens

Istanbul – The International Air Transport Association (IATA) announced an expected strengthening of airline industry profitability in an upgrade of its outlook for 2023. Highlights include:

• Airline industry net profits are expected to reach $9.8 billion in 2023 (1.2% net profit margin) which is more than double the previous forecast of $4.7 billion (December 2022).

• Airline industry operating profits are expected to reach $22.4 billion in 2023, much improved over the December forecast of a $3.2 billion operating profit. It is also more than double the $10.1 billion operating profit estimated for 2022.

• Some 4.35 billion people are expected to travel in 2023, which is closing in on the 4.54 billion who flew in 2019.

• Cargo volumes are expected to be 57.8 million tonnes, which has slipped below the 61.5 million tonnes carried in 2019 with a sharp slowing of international trade volumes.

• Total revenues are expected to grow 9.7% year over year to $803 billion. This is the first time that industry revenues will top the $800 billion mark since 2019 ($838 billion). Expense growth is expected to be contained to an 8.1% annual increase.

“Airline financial performance in 2023 is beating expectations. Stronger profitability is supported by several positive developments. China lifted COVID-19 restrictions earlier in the year than anticipated. Cargo revenues remain above pre-pandemic levels even though volumes have not. And, on the cost side, there is some relief. Jet fuel prices, although still high, have moderated over the first half of the year,” said Willie Walsh, IATA’s Director General.

The return to net profitability, even with a 1.2% net profit margin, is a major achievement. First, it was achieved at a time of significant economic uncertainties. And second, it follows the deepest losses in aviation’s history ($183.3 billion of net losses for 2020-2022 (inclusive) for an average net profit margin of -11.3% over that period). It should be noted that the airline industry entered the COVID-19 crisis at the end of a historic profit streak that saw an average net profit margin of 4.2% for the 2015-2019 period.

“Economic uncertainties have not dampened the desire to travel, even as ticket prices absorbed elevated fuel costs. After deep COVID-19 losses, even a net profit margin of 1.2% is something to celebrate! But with airlines just making $2.25 per passenger on average, repairing damaged balance sheets and providing investors with sustainable returns on their capital will continue to be a challenge for many airlines,” said Walsh.

Outlook Drivers

Revenues are rising (9.7%) faster than expenses (8.1%), strengthening profitability.

Revenue: Industry revenues are expected to reach $803 billion in 2023 (+9.7% on 2022 and -4.1% on 2019). An inventory of 34.4 million flights is expected to be available in 2023 (+24.4% on 2022, -11.5% on 2019).

• Passenger revenues are expected to reach $546 billion (+27% on 2022, -10% on 2019). With COVID-19 restrictions now removed in all major markets, the industry is expected to reach 87.8% of 2019 levels of revenue passenger kilometers (RPKs) for the year with strengthening passenger traffic as the year progresses. The high demand for travel in many markets is keeping yields strong with a modest 1.1% decline expected in 2023 compared to 2022 levels (following increases of 9.8% in 2022 and 3.7% in 2021).

Efficiency levels are high with an expected average passenger load factor of 80.9% for 2023. That is very near the 2019 record performance of 82.6%.

IATA’s May 2023 passenger polling data supports the optimistic outlook, with 41% of travelers indicating they expect to travel more in the next 12 months than in the previous year and 49% expect to undertake the same level of travel. Moreover, 77% of respondents indicated that they were already traveling as much or more than they did pre-pandemic.

• Cargo revenues are expected to be $142.3 billion. While that is down sharply from $210 billion in 2021 and $207 billion in 2022, it is well above the $100 billion earned in 2019. Yields will be negatively impacted by two factors: (1) the ramping-up of passenger capacity which automatically increases available belly capacity for cargo and (2) the potential negative effects on international trade of economic cooling measures introduced to fight inflation. Yields are expected to correct with a 28.6% decline this year, but still remain high by all historical comparisons. Note that yield increases of 54.7% were recorded in 2020, 25.9% in 2021 and 7.4% in 2022.

Expenses are expected to grow to $781 billion (+8.1% on 2022 and -1.8% on 2019).

• Jet fuel costs are expected to average $98.5/barrel in 2023 for a total fuel bill of $215 billion. That is cheaper than the $111.9 / barrel previously expected (December 2022) and the average cost of $135.6 experienced in 2022.

High crude oil prices were exaggerated for airlines as the crack spread (premium paid to refine crude oil into jet fuel) averaged more than 34% for 2022—significantly above the long-run average. As a result, fuel was responsible for almost 30% of total expenses. In recent months, the crack spread has narrowed, and the full year average crack spread is expected to fall to around 23%, which is more closely aligned with the historical average rate. Fuel costs will account for 28% of the average cost structure, which is still above the 24% of 2019.

• Non-Fuel expenses have been controlled well by airlines despite inflationary pressures. With fixed costs being distributed over a larger scale of activity, non-fuel unit costs per available tonne kilometre (ATK) are expected to fall to 39 cents per ATK. That is -6.4% compared to 2022 (41.7 cents /ATK) and marks a return to about pre-COVID levels. Total non-fuel costs are expected to reach $565 billion in 2023.

Risks

The economic and geopolitical environment presents several risks to the outlook. With just $22.4 billion of operating profit (2.8%) standing between $803 billion of revenues and $781 billion in expenses, industry profitability is fragile and could be affected (positively or negatively) by a number of factors. In particular, consideration should be given to:

• Inflation fighting measures are maturing at different rates in different markets. Central banks are calibrating the best levels for interest rates to have a maximum cooling effect on inflation while avoiding tipping economies into recession. An early or lower end to rate rises could stimulate markets for a stronger year-end outlook. Equally, the risk of recession remains. Should recession lead to job losses, the industry’s outlook could shift negatively.

• War in Ukraine is not having a major impact on profitability for most airlines. A currently unanticipated peace could carry the potential for cost improvements with lower oil prices and efficiencies from the removal or easing of airspace restrictions. An escalation, however, would likely have negative prospects for global aviation. Already broader geopolitical tensions are weighing upon international trade and any escalation of such tensions represents a downside risk to the industry outlook.

• Supply chain issues continue to impact global trade and business. Supply chains are shifting to fill gaps in resilience caused by current geopolitical tensions and the challenges experienced during COVID-19. Airlines have been directly impacted by aircraft parts supply chain ruptures which aircraft and engine manufacturers have failed to sort out. This is negatively impacting the delivery of new aircraft and the ability of airlines to maintain and deploy existing fleets.

• Regulatory cost burdens are at risk of increase from increasingly interventionist regulators. In particular, the industry could face rising costs of compliance for increasingly punitive passenger rights regimes and regional environment initiatives.

Regional Round Up

While the global airline industry is expected to return to profitability in 2023, financial performance across regions remains diverse. The positive news is that industry financials are improving in all regions from the COVID-related depths of 2020, although not all regions are expected to deliver a profit this year.

North American Carriers

2023 Net Profit (f) 2022 Net Profit (e) 2023 Demand (RPK) Capacity (ASK)