Opening address by Pierre Jeanniot, Chairman of the 16th World Air Transport Forum

Flying Green – A Modest Industry Proposal
Opening address by Pierre Jeanniot, Chairman of the 16th World Air Transport Forum
Cannes, 17-19 October 2007  >>


Good afternoon ladies and gentlemen

Je vous souhaite la plus cordiale des bienvenues. A very warm welcome to all of you to the 2007 World Air Transport Forum.

You will no doubt have noticed that we changed the name of this 16th annual industry get-together, but we have not changed the location as we believe it is essential that we continue to hold this historic event in one of the world’s great gastronomical capitals.

This Forum has always attempted to achieve the right balance between the stimulation of the intellect – and the pleasures of the pallet.

With this in mind, we have a great program lined up for you.

We are very impressed, and indeed highly honoured, that our speakers include so many of the leaders of the air transport industry.

Given the theme of the Forum and the potential impact of aviation on global warming, we thought of inviting Al Gore as a key speaker but we found out that one of the “inconvenient truths” about the former US Vice-President is that – even as an environmental advocate – is that he charges $175,000 for a 30-minute address – plus expenses.

In the interests of keeping the attendance fee for this Forum at a reasonable level, we decided to save you the expense.

Perhaps it’s just as well we couldn’t afford Al Gore. He’s not very popular in airline boardrooms these days.

The Emirate Airlines 2006/07 annual report describes An Inconvenient Truth as “regrettably persuasive but fundamentally misleading”.

I’m sure Timothy Clark, the President of Emirates Airline, will have more to say about the “Goring”, if you pardon the expression, of our industry during his presentation on Thursday morning.

Among the many claims made by air transport advocates recently to illustrate the progress made, you will undoubtedly have heard some of the following:

Flying a passenger today over a given distance requires 70% less fuel than it did 40 years ago.

The Stern report says that airlines account for only 1.7% of global greenhouse gas emissions.

No other industry has matched aviation’s achievements, or its investments in quieter and cleaner technology.

While aviation is responsible for less than 2% of greenhouse gas, it contributes 8% to the global GDP.

To rationalize as to why aviation is the undeserved whipping boy of global warming, it has been said that:

Politicians who want to be seen doing something about global warming find that airlines offer a suitable headline-grabbing target.

or

It’s a vendetta – a class war against the middle and upper classes. Those killjoy greens are trying to demonize the air travel and the package-holiday industries.

And then there would be some attempt by the air transport industry to divert attention by pointing a finger at other culprits, for instance by reminding everyone that:

Cows are responsible for 18% of the greenhouse gases that cause global warming, which is more than cars, planes, and all other forms of transport put together.

And computers generate around 2% of CO2 emissions worldwide – about the same as commercial aviation.

Perhaps now Greenpeace, which has criticized “binge travelling”, will go after “binge downloading”, and “binge texting”.

Now, as the debate goes on among the counter-claims made by the lobby groups which are trying to limit air travel, you will likely have heard the following:

The growth rate of air travel will considerably outstrip any improvements the industry could make in fuel efficiency – or traffic management – to bring down emissions.

While no one suggests that other polluters – cars, factories, power plants – are not much more important, aviation is coming under scrutiny because it appears to be growing relatively faster than those other sources.

The impact of air travel on climate change could be even greater than the CO2 figures suggest, because of other emissions such as nitrogen oxides (NOX), soot, and water vapour.

What is reality? What is fiction?

Let me suggest that the answer no longer matters.

For most of us, perception is reality.

Our industry is perceived to be a major polluter – and likely to become an even larger environmental menace in the future.

Whether we’re contributing 2%, 3% or 5% to global warming emissions, our industry is taking a 100% beating for it.

Noise used to be the biggest challenge, especially in communities that developed around airports – perhaps because the land was so affordable.

Technological progress in noise reduction has made it possible to virtually tip-toe a multi-ton aircraft down the runway.

New aircraft are 75% less noisy than the previous generation.

The debate over noise is largely over.

Conversely, the debate over fossil fuel consumption is getting louder all the time.

Unless we deny China and India standards of living approaching ours, forecast rates of fossil fuel consumption will lead to irreversible warming of the earth’s atmosphere – with catastrophic effects on health, food production, desertification, coastal sea levels, etc, etc.

The World Health Organization reports that air pollution deaths now exceed traffic fatalities – by three to one.

One third of the earth’s surface is at risk, as land turns to desert at a rate of about 4,000 square kilometres a year.

The search for non-carbon sources of future energy to replace, or supplement, today’s traditional carbon/based fuels must go on – and it must be accelerated.

I have not seen the film “An Inconvenient Truth”

Nor do I believe it is useful to boast about everything our industry has achieved in the past.

The debate started after most of the progress achieved had already been announced.

The Air Transport Action Group (ATAG) recently created a website aimed at providing responses to environmental criticism against the airline industry.

The website is (quote) “a rebuttal process to respond to every statement made on aviation’s impact on the environment.”

Frankly, I have some doubt that such rebuttal will be very effective.

It may simply be perceived as more industry “green-washing”, so to speak.

It is time to face the fact that we do contribute to global warming, and to demonstrate that we are doing something about it – and that we are actively planning to do more.

The public wants to see action!

In a recent comic strip – I sometimes find the comic strips more informative than the business section – Dogbert “the green consultant” is telling Dilbert to try running his SUV into hybrid cars.

“That should stop them from using fuel altogether”, he says “You can’t save the earth unless you’re willing to make other people sacrifice”.

This Forum is a unique platform for providing all the major players of the air transport industry – airports, air traffic management agencies, airframe and engine manufacturers, distributors and, of course, the airlines – with a collective opportunity to respond to the environmental challenge.

IATA has recently suggested that the industry should have as a target to reach zero emission of greenhouse gasses within the next fifty years.

I am undecided as to whether we should consider this target as very bold – or simply very realistic, since by then we may have run out of fossil fuel anyway.

However, today we still do not have an overall consensus.

Attitudes to the environmental issue among industry executives vary significantly across the globe.

Some recognize it as a critical business issue.

Others dismiss it as irrelevant.

And I would think that credit should go to IATA for pushing climate change to the top of the agenda.

We are honoured to have the Director General of IATA as the first speaker tomorrow, and I am sure he will offer a spirited defence of his aspirational – if not universally inspirational – goal for our industry.

Taxes which disappear into a general fund simply destroy aviation’s economics and social benefits, with no appreciable gain for the environment.

They simply limit the industry’s ability to invest in new technologies.

Very high taxes may somewhat reduce travel demand, but they would also diminish the huge economic benefits that airlines and airports now represent – 8 percent contribution to the global GDP.

More to the point, trying to restrict air travel through taxation just doesn’t work.

Philippe Rochat, President of the Air Transport Action Group (ATAC) will be talking to us about counter-productive eco-taxes on Friday morning.

I am sure we can expect a strong rebuttal.

In free, progressive societies, people cannot be denied the liberty of buying what they want, and of travelling where they wish – whether by car, boar or plane.

If we cannot curb the desire for air travel, can we make it more “environmentally acceptable” – through such palliative measures as emissions trading?

In January, the European Commission (EC) put forth a proposal for emissions trading.

This proposal was, however, rejected by ICAO’s Tri-annual Assembly a few weeks ago.

Undeterred, the E.U. is planning to impose quotas on all flights entering or leaving its airspace from 2012.

U.S. airlines claim that bringing them into such a scheme would violate international law and urge that the industry wait for a global ICAO plan.

Asia-Pacific carriers do not see aircraft emissions as a major issue, and say that the region has many more important challenges.

Some airlines argue that carbon trading, like taxation, is nothing more than a big revenue generator for brokers and governments – with little money left for the environment.

As the Association of European Airlines (AEA) put it (quote) “For us the issue is how green can you be – before turning red?”

Eco-activists perceive trading as some sort of soft option for airlines, perhaps a cunning ruse for avoiding green taxes – and passing the buck to other sectors of the economy.

I believe that emissions trading can make some sense, provided it is open, properly designed, and universally applied.

Carbon trading can only be an interim solution because, eventually, everyone has to reduce carbon emissions.

The right cause is getting rid of CO2.

I will have more to say on that a little later.

I look forward to carbon trading receiving some attention during this Forum.

Much of the discussion will focus on the progress being made – and anticipated to be made – in each sector of the air transport industry in the more foreseeable future.

Everyone is taking the matter seriously.

The A380 and B787 have been said to be more efficient than a hybrid car – but hybrids still emit carbon.

Can these highly significant technological achievements be repeated in the next generation of airframes and power plants?

Not one aerospace manufacturer today would question the relevance of global warming to their long-range technological development, nor would they question the urgency with which the issue needs to be addressed.

Airbus is targeting a 50 percent reduction in CO2 emissions, and a 80% lowering of NOx production for their new aircraft by 2020.

Boeing is working on a “blended wing” concept, which would theoretically offer huge gains in fuel efficiency.

The resulting design for such an airplane would look like a giant stealth fighter.

There are, however, some practical problems with the design.

Passengers would have to sit in long rows of seats – like in a cinema. “And when the aircraft banked to make a turn” writes Air Transport World “people at each end would feel as if they were in a giant roller coaster”.

Last July, Rolls-Royce launched a 95 million pound program to develop (quote) “an Environmentally Friendly Engine”.

The company now claims that even with today’s technology, a 50 percent reduction in fuel burn by 2020 is possible.

Not too long ago, it was targeting only a 10 percent further improvement within the next decade.

Un-ducted fan engines are getting lots of buzz these days as fuel savers – but that is hardly a new breakthrough in technology.

The concept is now again being pursued by GE and Rolls-Royce, but may result in an increase in noise levels which, in turn, may prove to be an unacceptable trade-off.

Many experts believe that there is a point where the benefits of taking incremental steps in fuel efficiency will simply vanish – or result in such unacceptable costs or trade-offs as to make the initial improvement not worthwhile.

How much further can airframe and engine manufacturers go?

Representatives from various airframe and engine manufacturers are here to tell us what they believe is possible.

Biofuels, some believe, may be one of the giant steps the industry needs to take to achieve a significant reduction in CO2 emissions.

Richard Branson is one such believer, and he has said that he intends to build plants to produce an environmentally friendly aviation fuel.

His Virgin Fuels subsidiary has formed a partnership with Boeing, GE Aviation, and Virgin Atlantic.

The partners have plans to carry out a joint biofuel demonstration using a Boeing 747-400 next year.

Biofuel produced from agricultural feedstock that takes CO2 out of the atmosphere is also a likely prospect because its life-cycle CO2 levels are barely half of jet fuel emissions.

It is not quite “carbon neutral” – but half a loaf is better than none.

The main drawback of commercially grown feedstock like soybean, corn, or rapeseed is the very large amount of crop acreage required.

Scientists calculate that it would take 6 million square kilometres – an area the size of Europe – to produce enough biofuel to totally replace jet fuel using soybeans.

Other options include biofuels derived from biomass sources such as sunflowers, saltwater plants, and cow manure.

But the most promising could be algae.

Recent research has shown that algae would do the same job – with only 35,000 square kilometres.

Not only do they absorb great quantities of carbon dioxide during their lifetime, but they are also a source of energy-rich oil that can also be turned into fuel.

Fuels, engines, and aircraft are all critical components of the air transport industry in its drive for sustainable development.

All offer good promises in the long term.

In the short term there are great opportunities for significant reductions in CO2 emissions by streamlining air traffic management.

I couldn’t put it more succinctly than my colleague Giovanni Bisignani who said at the Vancouver IATA meeting (quote) “Cut air traffic inefficiency in half by 2012 and we immediately save 35 million tons of CO2”.

Three fairly well-identified projects could deliver real results: a Single Sky for Europe; an efficiently co-ordinated and integrated air traffic control operation for the Pearl River Delta in China; and the implementation of the next generation air traffic system in the U.S.

The Single European Sky alone could deliver a 12-million ton reduction in CO2.

But governments are dragging their feet.

We have seen a 15-year European circus of talks, talks, and more talks – with no significant results.

A European Single Sky is technically feasible within five years, but would require strong political will and leadership.

European Transport Ministers have now agreed to set up a public-private consortium to fund and carry out research on the project.

The aim is to implement it by 2020.

The Director General of Eurocontrol, Victor Aguado, is one of our speakers and we look to him to shed some light on this complex, most worthwhile and long-awaited project.

I am not going to say very much about the role of airlines and airports in getting our industry to achieve a level of sustainable development.

Although they are the most visible targets, airlines and airports have a lot less control over aviation’s contribution to global warming than they are given credit for!

Acquiring new, fuel-efficient airplanes, and planning routes which provide weather-friendly flight paths and minimize fuel consumption are major areas where airlines have leverage in reducing greenhouse emissions.

Last year, the airlines – working with the various air traffic management authorities – were able to optimise 350 routes, resulting in 6 million tonnes of carbon dioxide savings.

Beyond that, the airlines have been busy implementing a number of incremental saving measures such as starting engines only once clearance is given, reducing weight by using lighter catering equipment, carrying blankets only on long-haul flights and even switching from paper to electronic magazines.

While the proportion of industry emissions over which airports have direct control is very small, many have come up with innovative projects to reduce their carbon footprint.

Dallas-Fort Worth, for example, has captured and treated 5 million pounds of spent aircraft de-icing fuel, and converted all of its bus and shuttle fleet to alternative fuels over the past five years – thus reducing its emissions by some 95 percent.

There is an impressive participation at this Forum of airline CEOs, Director Generals of Airline Associations and of Airport Associations, as well as senior executives of airports. I am sure these distinguished personalities will have much more to say on the subject.

Until some new form of CO2 emission-free propulsion becomes available, we must look for additional ways of stabilizing – if not beginning to reduce – our CO2 footprint, despite having to meet the continued growth in travel demand.

Our ability to reduce CO2 emission by improvements in air traffic control is not negligible – but it is finite.

Renewing our fleets with the latest fuel-efficient aircraft and engines is significant but will only take us so far; and the switch to less damaging biofuel will only produce incremental improvements.

Carbon trading, far from being universally accepted, is at best a short-term expediency – it is certainly not a longer term solution.

The airlines know they need to do more, and several have announced programs to allow passengers to offset emissions by investing in renewable energy.

British Airways, SAS, Lufthansa, KLM, Delta and Air Canada have all joined the contest to determine who has the best eco-credentials, and thus deserving of the title “airline eminence green”

Passenger response so far to carbon offsetting has been rather modest.

Surveys show that travellers seem willing to pay extra for green holidays, at least at first.

But while such programs generated favourable initial interest from passengers, their popularity generally fades for a number of reasons:

Individual companies’ schemes are perceived as being much too small to make a difference, lack credibility, or finance projects of dubious benefit.

One critic has compared these proposals to the medieval practice of the selling of indulgences by the Roman Catholic Church to pardon sinners.

Given this situation, what alternatives do we really have?

I have a modest proposal to help airlines and the flying public to substantially contribute towards offsetting their carbon footprint.

I believe that there is an urgent need for a massive effort to de-carbonize our planet’s atmosphere by storing and/or destroying CO2.

And that the air transport world should exert leadership in bringing about major improvement programs.

Almost all climate experts believe that only large reforestation projects could offer an appreciable reduction in greenhouse gasses.

Let me suggest a major reforestation project which could capture the imagination of our industry and rally the support – and the enthusiasm – of the flying public.

Such a project would need to be large enough for our industry as a whole to make a significant reduction in its carbon footprint. It could become the industry’s main environmental contribution.

The Sahel is the boundary zone in Africa between the Sahara to the north and a more fertile region to the south.

It runs some 5000 kilometres, from the Atlantic Ocean to the Horn of Africa.

It is primarily a region of semi-arid grasslands and thorn savannah.

Major droughts in 1914 and 1968 through 1974 caused large-scale famines when the grazing became unsustainable.

Few regions of the world are more in need – and deserving – of a world-wide project that would be of specific benefit to some of the most disadvantaged countries in the world – Mauritania, Mali, Niger, Chad, and Sudan – among others.

Improving the life of those populations would be of universal benefit to all mankind.

The barren landscape of the Sahel is not much different from the situation faced by the settlers who transformed an area of Israel into a lush and fertile micro-climate.

It is most impressive to see how a forest which they planted a few decades ago – in a previously totally barren land – has indeed transformed the region.

If we were to set ourselves the objective of creating a forest – some 10 kilometres wide, the length of the Sahel – we would, in time, have created a forest of 50,000 square kilometres, or 5 million hectares.

Forests are the world’s largest carbon sink – huge breathing lungs that take in carbon dioxide and replace it with oxygen.

They are the very life of our planet.

Given that one hectare of mature forest removes approximately 400 tons of CO2 per year, our forest could absorb some 2.0 billion tons of CO2 a year.

But even if we were to achieve only 50% of that level of carbon absorption, it would still be a rather impressive contribution!

The greening of the Sahel may seem to you like an overly ambitious project for our industry to undertake.

Some might call it “Eco-excessive”

How feasible is such a project – and what would it cost?

A feasibility study would need to be carried out to determine whether there is enough ground water deep down in the Sahel region which could be pumped up to irrigate the forest

Or whether one would need to contemplate huge desalination plants on the Atlantic Coast and the Red Sea to feed equally huge pipelines across the land.

I would not venture an estimate of what such a project would cost, but instead it would be easier to estimate how much money could be made available.

Let me assume that it was agreed that every air passenger was willing to make an Eco-contribution of 2.0 euros per domestic flight or 8.0 euros per international flight.

With the volume of yearly passenger traffic approaching 1.5 billion, of which the international portion represents approximately one-third, the amount generated annually would be

(2.0)(1.0 billion) + (8.0)(0.5B) = 6 billion euros

And that is without counting in any contribution from corporate and private aircraft, which surely should also be made to contribute.

An agreement would have to be reached with each Sahel country to allow a strip of land 10 kilometres wide to be set aside on their northern border for forest planting.

The sovereignty of those countries over that land would naturally remain strictly unaltered, but each would agree to treat that area as a protected region – like a national park.

What body should be asked – or created – to administer such a project?

The U.N. is too bureaucratic and politicised to be an efficient instrument to manage these types of projects.

But perhaps a U.N. Agency, or an affiliate such as ICAO, could assist in setting up the kind of international agreement which should exist with each country of the Sahel.

Should the air transport industry wish to move ahead on this or any other global environmental project, it would be my recommendation that a new, not-for-profit, non-governmental organisation be set up to administer it.

This new NGO would be guided by Board of Directors representing all the key stakeholders of our industry, which would ensure full accountability and transparency.

And this Forum could be an appropriate occasion for the new NGO to report annually its progress and plans.

While this is not the time to expand further on this proposal, I simply wanted to illustrate that – working together – this industry and its travelling public, through quite modest contributions, could make available vast sums of money to finance global environmental projects.

Ladies and gentlemen, whether or not we are close to achieving a global consensus on the amount and impact of CO2 on global warming, the concerns over the environment have most certainly been accelerating.

Projects to harness and develop less polluting sources of energy have been multiplying everywhere.

This proposal for a huge, aviation-financed forest is based on the belief that the best way to offset carbon emission is to use nature itself.

Re-planting a forest could be done anywhere in the world – anywhere where an opportunity would make sense and climatic benefits could be gained.

My suggestion of the Sahel would have the obvious, additional impact of providing substantial benefits to the local population.

The central fact about global climate change is that every individual on Earth is in some way part of the problem.

The corollary is that everyone on Earth has to be, in some way, part of the solution.

Ladies and gentlemen, our industry is being accused of not doing its fair share in addressing the foremost challenge of the 21st century.

I look forward to this Forum to demonstrate that our industry has a deep concern for the environment, and that it is indeed actively engaged in doing more than its fair share.

The history of this industry has shown that it has met very successfully the many challenges it had to face in the past.

I expect our response to this environmental challenge to be no less successful.

Using nature as an ally to absorb CO2 in sufficient quantities such that we would totally offset our future emission seems to me, at least, a great deal more feasible – and more manageable- than deciding to send a man to the moon before we even knew if it was technically feasible.

So, why not re-forest the Sahel?

Thank you!

Keynote address by Pierre Jeanniot to the World Airline Entertainment Association 28th Annual Conference

Coffee, Tea or IFE – In-flight Service in the New Age
Keynote address by Pierre Jeanniot to the World Airline Entertainment Association 28th Annual Conference
Toronto, 17 September 2007  >>


Ladies and gentlemen,

Last night’s reception was – if indeed you enjoyed it as much as I did – a good illustration of what your Association stands for, “great entertainment”!

I’m going this morning to address the subject of in-flight entertainment from the perspective of an airline CEO.

It’s a role that I played for close to seven years, which is not a bad record compared to the revolving door game that has prevailed for airline CEOs in the past decade or more.

In my more recent past role as Director General of IATA, I had a Board which consisted of some thirty airline CEOs – and given the turmoil that was on-going in our industry I often found myself acting in the role of “father confessor” to my colleagues.

I can say one thing with some certainty. In-flight entertainment was not the most important thing on their mind.

In recent years, CEOs have been far too busy trying to ensure the very survival of their airlines to worry about what’s playing back in the cabin.

They’ve been focused on cost reduction, on safety and security, on simplified passenger handling, on fleet renewal, airport and airways congestion, and on a subject of critical importance in this new century – the question of air transport’s impact on the environment.

By and large, their efforts have paid off.

Globally the international airline community almost broke even last year, and is expected to make a combined net profit of about $5 billion this year.

But before we start to “pop the champagne”… we should remember that this is only a net margin of just 1% – still far below its cost of capital of 7% to 8%.

Although airline survivability has much improved, all those cost reduction and productivity improvement measures have taken their toll on the customer.

One should guard against becoming a “cost reduction fundamentalist”.

The National Post reported last December that, after calculating that it took a litre of fuel to flush the toilet at 30,000 feet, one of the Chinese airlines urged its passengers to go to the bathroom before boarding.

Advances in baggage tagging angered one lady who was travelling to Fresno, California, and noticed the word FAT – the code for Fresno Air Terminal – had been printed on her luggage claim ticket.

As she was a bit overweight, she took it personally and thought it was quite insensitive of the airline to point it out on her baggage tag!

Funny stories aside, despite the financial recovery, many carriers are still delivering less than acceptable customer service – ranging from more late departures, minimalist cabin comfort, to too many misplaced bags.

One of the causes, of course, is the continued downward pressure on yields.

To get close to break-even, load factors reached a record 76% for the totality of the world’s airlines last year.

In North America it crept above 80%.


The air transport cycle may be in high gear once again, but the strength of this industry is certainly not reflected equally in all regions.

Passenger demand is strong, but cargo remains sluggish.

The Asia Pacific sector generally is booming.

Europe is doing relatively well, and the U.S. industry is finally recovering – but thorny problems remain to be solved in Africa and other areas of the world.

Incidentally, it was reassuring to read in the April issue of Fortune magazine that its listing of Fortune 500 companies still included seven U.S. airlines.

Despite its many challenges, the airline world remains surprisingly vibrant, and substantial progress has been made in many areas.

Carriers have reinvented themselves to survive. But the evolution of this industry into a hardier species is far from complete.

Weaknesses remain: pricey oil threatens, and cost cutting will continue.

Heavy investments are still required in North America, particularly where fleets are only beginning their renewal.

Market forces are hampered by liberalization moving too slowly.

Regulation remains excessive in some areas – and insufficient in others.

In various parts of the world, congested terminals and airways are choking growth.

Safety and security are still issues.

And concerns for the environment are once again threatening to outpace our ability to deal with its contingencies.

Nevertheless, after many years of virtually stagnant cabin innovation, carriers have more recently begun to pour millions of dollars into improving their cabin product and, in the process, to elevate first and business class to new heights – while reducing the back end of the airplane to a flying merchandise mart.

It’s a calculated risk. IFE alone has become the most expensive item on an aircraft, just after the engines.

Part of the calculation focuses on how much an average business-class customer is worth to the carrier, and whether he or she would stay loyal if the product remained the same while the competitor’s product changed.

One airline marketing guru was heard saying “My experience has been that by the time we had done the surveys and figured this out, the customer was gone and it was too late”.

I understand that this marketing guru is now looking for a new job.

Although it may be hard to pin down an exact ROI (return on investment), investing in a premium service is simply mandatory for any carriers committed to remain a credible player in that market segment.

British Airways’ CEO Willie Walsh, for instance, makes no secret that “our premium product is the most profitable part of BA’s business today.”

First and business class now represent 20% of the airline’s capacity – and it is growing.

Indeed, I would add it is the only sector of the business where legacy carriers like B.A. can be truly competitive.

When I started at Air Canada, in-flight entertainment was a selection of dog-eared magazines of the kind commonly found in a dentist’s waiting room.

In the seventies, movies were shown by means of a reel-to-reel projector set up at the back of the cabin.

By the time I became CEO in the early 80’s, technological advances had brought the video cassette player, but passengers were still forced to stretch their necks to view a shared screen.

Now Air Canada is billing itself as the first airline in the world to adopt a
digital personal entertainment system throughout its entire fleet, including its regional jets – an industry first!

They are planning to offer on-demand movies, television, music, and interactive games to all classes of passengers.

I’m not sure Air Canada has jumped the queue here, since everyone else seems to be making announcements about their latest investments in IFE.

In very short order IFE has become a 2 billion dollar business.

This Conference which brings together an estimated 1,100 members of your Association, representing some 100 airlines as well as 260 suppliers and related companies, is a measure of the increasing importance of this vital aspect of our industry.

In the interests of full disclosure, I must confess that this is one of the reasons I was very pleased to accept this speaking engagement.

The other reason, of course, is that one of my part-time occupations is that of Chairman of the Board of THALES Canada.

And as you know, THALES – our parent company – is one of the two major suppliers of IFE systems, each with a large share of the market.

That’s the end of my commercial!


In the bad old days of highly regulated air transport, when IATA conferences decided how many cashews a carrier could offer its first class passengers, and seat pitch had to conform to a universal standard, product differentiation as such did not exist.

Today IFE and the whole cabin environment have become a driving forces of airline business success.

The cabin environment offers the most significant opportunity for any airline to be different, and in the front of the bus price is no longer the only consideration.

In the last few years, many airlines have made huge investments of effort and money to differentiate their in-flight product.

For first-class passengers, Gulf Air offers “Sky Chefs” on all its A330 and A340 flights.

There Chefs, trained at top hotels, meet privately with each passenger to discuss the menu and service options, and then personally prepare and serve the meals.

British Airways overcomes cabin limitations altogether by serving gourmet meals to their first-class customers in high quality airport restaurants before some evening flights.

Aboard, private flat beds are nearly two metres long, and upon arrival the lounge has showers and massage facilities.

Qatar Airways has a first-class lounge with a stand-up bar and leather sofas on its new A340-600s.

Lufthansa pampers first-class passengers with their own terminal at Frankfurt airport, with connecting private jet service to airports in Europe, Israel, and Russia.

Virgin Atlantic’s “Upper Class”, sold at business class prices, includes limo transfers, in-flight massages, and flat beds.

Those of you familiar with the earlier days of aviation will be reminded that flat beds in airplanes are nothing new.

American Airlines had flat-bed sleepers on its New York to Los Angeles service in 1935.

So did the giant flying boats, as they flew just a few hundred feet above the stormy sea. I really wonder if anyone got any sleep.

Many carriers have opted for a business class product that offers slightly shorter flat beds than in first class. They are reluctant to go flat out in business class because they would lose a row of seats. Also, this keeps an important element of product differentiation between Business and First.

They compensate with electronic controls, and instead of live in-flight massages, cushions that can be inflated and deflated to suit body shape or to rhythmically exert pressure on the head, neck, and body.

Virgin Atlantic compensates for the extra weight caused by beds, stand-up bars, bulky furniture, TVs, and stereos fitted out in premium cabins by chosing to reduce its cargo capacity.

Virgin boss Sir Richard Branson is unwilling to cut out any luxury item for fear of making the option less attractive, and putting off high-paying passengers.

SIA is confident that its “truly flat bed”, all the seats facing forward, and direct access to the aisle, as well as its 30-inch wide business class seat – thus far unmatched in the industry – will command a substantial 15-20% fare increase.

Air France as well, so I understand, will be seeking an extra premium for its high-end products.

You may be interested to know that Air Canada originated business class service across the Atlantic in 1983.

Called “Connaisseur” service it was my pet project – which unfortunately turned into a bit of a dog in its first year.

The cabin crew could not cope with a three-level service, and it became known as “Dinosaur” service among some passengers.

But we remained undeterred, learned a lot, and re-launched it a year later as “Executive Class” with its proper cabin and dedicated flight attendants, and it quickly gained market share on the U.K. and France.

It later won Air Canada the Air Transport World award for the best customer service on the North Atlantic in 1985.

Another innovation I personally championed was the introduction of non-smoking flights – a product differentiation much opposed by my marketing people. Not surprisingly, most of them smoked! We began with alternate flights on the Montréal-Toronto Rapidair service thus offering about 14 non-smoking flights per day each way.

My marketing group finally saw the light when Air Canada gained a 5% market share on Montréal-Toronto against Canadian Pacific who, in contrast, had refused to go non-smoking.

Looking to gain from the positive public reaction to our results, the government then mandated non-smoking on all domestic flights under 90 minutes. Later, the ban was progressively expanded to cover all flights including, eventually, the international sector.

Today, ironically enough, this particular product differentiation has gone the other way.

A German entrepreneur has leased three Boeing 747s that will offer 138 business class passengers a nicotine-friendly, all-smoking service – with free Cuban cigars – on flights between his hometown of Düsseldorf and Tokyo.

He calls the airline Smintair, or Smoker’s International Airways.

A journalist called it “Air Ashtray”.

The ultimate business-class product differentiation is the all-business-class flight, such as offered for several years now by PrivatAir-Lufthansa between Düsseldorf and Newark.

Two years ago, a new, so-called “boutique” carrier, Eos, began offering all-business class, “super-luxury” flights between Stanstead and JFK on Boeing 757-200s.

The aircraft, which could seat as many as 220 passengers, are outfitted with only 48 “pod suites” that allow each passenger 21 square feet of real estate and leather seats that unfold to six-feet, six-inch flat beds.

Amenities include cashmere blankets.

With the growth in demand, the service is now twice daily.

Another all-business boutique carrier to surface recently is MAXjet Airways which flies 767-200 ERs almost daily between Stanstead, New York and Washington, and twice a week to Las Vegas.

Prompted by EOS, MAXjet and recent new entry Silverjet, British Airways is considering all-business-class flights on routes between the U.S. and continental Europe, probably using 757s and 767s it already owns.

What all this seems to indicate is that there’s a sizeable market out there of airline customers who want more comfort and quality, and who are willing to pay for it.

They’re the same people who pay 40 to 70 thousand dollars for a quality car.

At the other end of the market spectrum, low-cost carriers are opting for ever more Spartan cabin interiors in their search for new ways to cut costs and keep fares low.

Ryanair, for example, chooses seats and carpets for their quick-cleaning capabilities.

So much so, in fact, that the carrier now stores passenger lifejackets in the overhead bins to make it easier to clean under the seats, and has also dispensed with seat-back pockets.

Besides an austere cost structure that makes Southwest look extravagant, Ryanair also puts a price on virtually everything – amenities and essentials alike – from peanuts and beverages, to baggage check-in and, eventually, cell-phone use.

The airline has entered into partnership with an online gaming company to enable passengers to play bingo and “instant-win” games on their mobile phones, taking a cut off each wager.

They’ll probably install slot machines in the back of their pocket-less seats!

Revenues from the sale of in-flight services are rising so rapidly that Ryanair promises that by the end of the decade, “more than half its passengers will fly free.”

I call this low-end strategy “the Las Vegas model”: Fly free, get free accommodation – just bring lots of money for gambling.

One cannot help wondering if lower fares are not somewhat of an illusion when you have to pay extra for meals, blankets and pillows, headphones, roomier aisle and exit row seats, reservations made by phone, and so on.

For $5 per round trip Air Troduction, launched last year, will allow you to upgrade your seatmate.

It works like this: You buy your ticket, then go to Air Troduction, log in and create a profile. You can post a photo just as you would on a computer dating service. Then you’re asked to describe the kind of person you would like to sit next to.

If two people on the same flight like each other, they can meet at the airport and book seats next to each other.

To differentiate themselves from those “pay-for-everything” low cost carriers, some airlines have decided to re-introduce a few modest amenities in economy, as well by creating a premium economy class.

The new class offers wider seats, extra leg room, improved meals and beverage service, personal entertainment, computer outlets, separate washrooms, and even a separate cabin, for a price about 25% more than economy.

Other carriers, both traditional and low-cost, have added value to their economy product by retaining amenities or introducing new ones without extra charge.

Economy passengers on Cathay Pacific, named best airline of 2006 by Air Transport World magazine, get a hot meal and beverage service even on one-hour flights.

Gulf Air has trained nannies to look after children in economy class on long-haul flights – at no extra charge to passengers seated nearby!

Jet Blue and WestJet now have live satellite TV sets in the back of every seat.

Qantas Airways offers personal, on-demand video screens in all classes. And last year at this Conference, you may recall that Qantas and Jet Airways, the largest Indian private airline, won the Annual Aviation Award for Best Overall IFE.

Jet Airways has no intention of resting on its laurels, and with the objective of capturing a commanding share of the Indian international traffic, Jet Airways is now introducing on all its wide-body fleet a new cabin environment which will be hard to match and unlikely to be surpassed in all three classes.


The aircraft manufacturers have not been insensitive to travellers’ expectations of increased quality.

The Boeing 787 Dreamliner with its larger windows, roomier storage bins, and better in-flight air quality, will offer passengers significant improvements in airplane comfort, according to the manufacturer.

Not to be left behind, Airbus totally revamped its A350 strategy by opting for a completely new $10 billion design, with a wider fuselage and improved cabin comfort.

New seats, more amenities, improved meals, and bigger bins are not the only way to product differentiation.

Any truly customer-oriented airline would recognize the fact that for air travel in the digital age, the cabin is the only place left where the airline has a truly human face – where customers can actually “interact” with live human beings.

Before they became “flight attendants”, stewardesses were chosen for – among other criteria – their beauty, charm, and helpfulness.

They actually helped stow your carry-on bag, fetched a magazine, and tucked a blanket around you before reciting that famous in-flight mantra “Chicken or fish? Chicken or fish?”

In my years with the airline, I had to deal with a persistent rumour that Air Canada actually owned a chicken farm!

In-flight entertainment in those days was live, rather than virtual.

A steward on Air Canada’s first class service to Los Angeles liked to amuse his passengers by flambéing the baked Alaska – until someone pointed out the fire hazard.

The airline’s first 747s had an upper deck lounge with a dance floor and flight attendant hostesses in long skirts.

It didn’t last long: wives started to complain that this was one amenity too many.

Air Jamaica, on whose board I served for a while, went one better – with in-flight fashion shows.

At some point during the flight, their stunning stewardesses would disappear into the washrooms and emerge wearing beachwear in which they paraded up and down the aisle, and then offered for sale through the in-flight boutique.

Today, WestJet produces a book of jokes for the flight attendants to use over the intercom titled Just Plane Fun. Oh well, to each his own!

There’s a new form of live entertainment coming which I do hope will not be part of IFE in the future – listening to your seatmate’s cell phone conversation.

Europe has been leading the charge on the use of airborne cell phones, and last June Airbus won approval from European regulatory agencies for its on-board system.

Air France will be the first carrier to introduce the service on its Airbus A318s.

According to a recent survey, many carriers plan to offer mobile phone “connectivity” on a gradual, regional basis within three years.

For instance Ryanair, Emirates, and others are going for fleet-wide installation as quickly as possible.

The AirCell system being developed in the U.S. will offer voice calls only in its second stage.

Initially the service will include a WiFi hot spot, allowing passengers to surf the Internet and use e-mail via their own laptops and personal digital assistants.

British Airways believes a texting service is likely to be the way forward, even though the eleven carriers offering “Connexion” Internet access a system similar to Air Cell had to write off a considerable investment when Boeing (CBB) withdrew the service for lack of demand in August 2006.

Texting rather than voice calls also gets around the annoyance factor, although airlines believe phone use etiquette will be of a higher standard than is common in restaurants supermarkets and other public places.

That won’t be very hard.

Efforts are continuing to reduce ambient noise in the cabin. For instance, I understand that Lufthansa Technik is looking at submarine stealth technology to slash cabin noise in future commercial aircraft.

At any rate, passengers wearing headsets will probably be engrossed in watching an on-demand unedited version of movies like Oceans 13 – a somewhat riskier offering than the family-friendly flicks which were a must for the large screens of the past.

Or they could be brushing up on their Mandarin with some interactive language lessons, checking destination information, or just watching live TV for regional news and current events.

Once available only on a few North American low-costs, live television has started to extend its reach around the globe.

Qatar Airways, India’s Kingfisher Airline, and Australia’s Virgin Blue are three carriers phasing it in this year.

While many airlines now offer seat-back, on-demand, digital entertainment systems, some are working with passengers’ private hardware to offer individualized information and entertainment.

In fact, this combination of personal electronic devices like PDAs laptops and iPods, working in concert with an airline-provided broadband delivery system, is a likely model of IFE in the future.

Discussions have been held on the possibility of licensing content for use on the airlines’ own systems, and allowing passengers to purchase and download it on their personal electronic devices in-flight.

Nobody is exactly sure what the longer term effect will be of passengers bringing iPods and portable DVDs aboard.

But it is highly unlikely that any recently-installed, sophisticated airline entertainment systems would be made redundant anytime soon.

The demographics of today’s passengers are against it.

However the holy grail of every passenger carrying his or her own device for in-flight entertainment is on the horizon.

Technology is certainly becoming available to meet whatever passengers and airlines expect from their IFE systems today and in the near future.

For instance, the Thales Top Series entertainment system selected so far by Air France, Malaysian Airlines, Etihad Airways, and 35 others will allow passengers not only to select what content they want when they want it. It will also allow them to send and receive short messages (SMS) and e-mail browse the Internet, access corporate intranets, play games, and shop on-line – all from their seat-back units.

Sorry, this sounds like I sneaked in another commercial!

Should passengers wish to use their own laptops or other personal electronic devices, in-seat power and connectivity will enable them to do so.

Live television, mobile phones, and other off-aircraft communications will be progressively available through high-bandwidth territorial and satellite communication systems.

Airlines can choose from a range of user interfaces including touch screens, built-in handsets, portable handsets connected via a USB port and, in due course, a laser-projected keyboard.

The possibility of going wireless when required to reduce weight complexity and maintenance has also been tested and considered feasible.

Some new systems are being engineered with an eye to the future.

Modular architecture allows new technologies and equipment to be introduced on a plug-and-play basis, while processing power and data storage capacity can be upgraded as evolving technology permits.

One of the features proposed, for instance, allows passengers to some extent to tailor their programming to their personal preferences at the beginning of a flight.

This opens the door to a whole new world of in-flight merchandising and revenue-earning possibilities.

But airlines so far have not earned significant direct revenue from in-flight entertainment.

And legacy airlines have invested in it mostly for competitive advantage, particularly on long flights.

Typical of those is Virgin Atlantic, who believes that “It is the mindset of passengers not to pay for audio/video on a long-haul flight. IFE is regarded as a necessity.”

Its low cost cousin, however, has a different approach. Virgin Blue charges from $5 to $9 for viewing live television gate-to-gate, depending on the length of the flight.

I guess it’s a question of “horses for courses”.

Some investment is recouped from advertising but, there again, this has not traditionally been seen as a big revenue generator by the airlines.

Most advertising revenue still comes from in-flight magazines.

However, the more sophisticated interactive IFE systems will allow for whole new forms of service and advertising.

Passengers on board can for example view a car rental site and fill out their requirements and credit card information which is sent via satellite to the car rental company, so that a vehicle is waiting for them when they land.

No doubt more efforts will be made to personalize the offer on the basis that airline passengers are more likely to respond to sales pitches that are relevant to them personally.

Certainly “monetizing the cabin” through IFE, to mention one of the increasingly used expressions, has become a hot topic.

When IFE systems begin to represent such a significant percentage of an airplane’s cost, they’d better do a helluva job of differentiating the high-end product – and on generating revenues in the low end.

Many legacy carriers are staking their future on the premium market.

IFE will be very much part of the harmonious integration of product elements – cabin design, comfort, meals, amenities and personal contact – that make the difference at the high end.

Passengers at the low end have come to accept that to benefit from very low fares, they are having to pay for what we used to consider as basic amenities like comfortable seats, some food and drink, and perhaps – on long flights -blankets and pillows.

Now they will also have the opportunity to pay for a whole new range of comforting electronic pastimes and shopping opportunities they can no longer leave home without.

In this new electronic age ladies and gentlemen, when air travel has become a paperless and largely peopleless experience, practically the only place left where an airline can distinguish itself from its competitors is in-flight.

The range of cabin products offered has never been wider, from super first class and business-only flights to, at the low end, pay-for-everything except the flight.

Such product differentiation needs offer IFE suppliers an equally wide array of opportunities to work with airlines in designing the unique product each carrier wants to be known for.

Not only is it feasible to adapt the technology to meet the needs and expectations of their customers today but also, as other marketers have always done, in developing new applications that airline customers never knew they needed.

My friend Bob Crandall, long-serving former CEO of American Airlines, once said that cutting the grass at the airport was more profitable than the airline business.

Perhaps Ryanair, with its dream of total “monitization of the cabin”, has found the ultimate solution to airline economics.

As a fifty-year veteran of this business, it would sadden me just a little – given the historical importance of air transportation to the economic and social development of the community of nations – to think that one day the ancillary products of air travel would become more valuable than the journey itself.

Ladies and gentlemen, IFE has come a long way from the days of dog-eared magazines and hard-to-see movie screens, thanks to the talent and vision of people like you.

There are great opportunities ahead – opportunities for you to devise new ways of meeting the evolving needs of the flying public – and new opportunities to contribute to the bottom line of the airlines and, in the process, to the bottom line of your own companies.

Thank you.

Address to the Royal Aeronautical Society

Straighten Up and Fly Right: Life in the Corporate Cockpit
Address to the Royal Aeronautical Society
Montreal, November 28, 2006  >>


Ladies and gentlemen:

It’s a great honour to have been invited by the Royal Aeronautical Society to deliver the third annual Assad Kotaite Lecture.

Yours is the only organization in the world that is totally multi-disciplinary, and attempts to represent the entire aerospace community and the countless daring and determined men and women who, over the last century, have allowed us to leap the boundaries of time and distance.

The British have always been at the forefront of civil aviation. Think of the sturdy Viscount, the pioneering Comet, and the magnificent Concorde.

One has to be impressed that the Royal Aeronautical Society was founded in 1866 – some fifty years before the airplane was even invented. That’s what I call foresight!


Impressive speakers have preceded me at this podium.

Last year’s lecturer, Jeffrey Shane, the US Undersecretary of Transportation, is regarded as the “father of open skies”, a champion of air transportation liberalization, and a man I much admire.

I much admire, as well, the man who given his name to this lecture, Dr. Assad Kotaite, for so many years President of the Council of the International Civil Aviation Organization.

Dr. Kotaite’s career in air transportation even predates the first jet airliner flight. Over the past 50 years he has witnessed, and often played a role, in the major developments of our industry.

From the emerging of economy class, the development of tourist fares, and the growing importance of intercontinental services in the ’50s and ’60s;

To the ’70s, which saw the introduction of high-capacity, wide-body aircraft, the widespread use of computerized reservation systems, and US domestic deregulation;

And then the beginning of European liberalization in the ’80s, with the first “liberal” bilateral between the Netherlands and the UK;

And in the ’90s, the first US “open skies” bilateral, the European Community liberalization process, and airline use of E-commerce technology from 1995 onwards;

And finally to the new millennium, with its economic crises, new terrorist threats, and escalating concerns about the environment.


I am fond of saying that two major events happened in Montreal in 1976. Both have had a lasting impact.

One was Dr. Kotaite’s election to the presidency of ICAO, to which his many contributions deserve a gold medal.

The other event of lasting impact was the opening of the Olympic Stadium, whose construction cost Montreal taxpayers have been paying for last 30 years.


One of my ambitious – not always achieved, unfortunately – is to finish speaking before you finish listening!

So let me give it a try!


About a month ago, I was on the French Riviera to address the 15th Cannes Airlines Forum.

This is an annual gathering of air transport executives from around the world, who come to listen to people like me for something to do between great meals.

I concluded my remarks by expressing the hope that the airline industry would continue to make progress towards becoming a truly global industry, unfettered by unnecessary protection and regulation, appropriately rewarding its employees, and annually distributing profits to shareholders. An industry like any other.

Although I believe this is essentially the right objective, I do wonder whether this industry will ever be fully, and totally, like any other – or whether this is even desirable.

Air transport provides vital economic benefits.

It’s the only worldwide transportation network – which makes it rather essential for global business and tourism.

Some 40 percent, by value, of interregional exports travel by air – as well as more than two billion passengers annually.

Some 25 percent of all companies’ sales are dependent on air transport.

Air transport’s global economic impact – direct, indirect, induced, and catalytic – is estimated at almost 3,000 billion dollars (US), equivalent to eight percent of the world Gross Domestic Product.

Air transport provides significant social benefits. It improves quality of life by broadening people’s leisure and cultural experiences, and by providing an affordable means to visit distant friends and relatives.

It facilitates the delivery of emergency and humanitarian relief anywhere on earth.

And it does all of this as a highly efficient user of resources and infrastructure.

At 78 passenger-miles per gallon (US), aircraft like the new A380 and B787 exceed the fuel efficiency of any modern compact car on the market.

Even in the country of my friend Jeffrey Shane – good republican and free-enterpriser – the concept of a strategic industry implies government oversight, and occasional intervention to prevent foreign participation.

Perhaps the right, or best policy, is a pragmatic approach.

Our late and dear Prime Minister, the Right Honourable Pierre Elliott Trudeau, was fond of saying that he didn’t believe in “isms” – only in what worked. However, he didn’t always govern by that belief.

Whatever one’s views, aviation leaves no one indifferent.

There’s something magical about flying about defying the laws of gravity. It still fascinates most of us.

The caped and flying heroes of our youth still sell in comic books for kids, and in movies for adults. There is another Superman sequel coming out soon.

But perhaps driven by romanticism, it is rather obvious that not too much serious thought has been given by the founders of some of the new start-up airlines, given how few survived.

I wonder if the founder of Kiwi Airlines deliberately named their airline after a bird that can’t fly. That airline didn’t last very long!


Wanting to be an industry like any other, but in some ways – and sometimes for good reason – being unable to be so, is one of the many paradoxes and ambiguities of airline management.

Many of the world’s airlines have been privatized and are now largely driven by market demand.

Railroads, with which airlines compete, have their infrastructures, tracks and stations heavily subsidized by government, whereas the airlines fully fund – and in some cases. over-fund – their infrastructures.

I was the first to be critical, some ten years ago, of the excessive and costly investments being made by one airport in Toronto – the one named after a Canadian Prime Minister.

Aircraft manufacturers, subsidized by government loans and guaranties, charge anywhere from 50 million to 300 million dollars (US) for today’s new aircraft.

Fuel has gone from 12 dollars a barrel in the mid-1970s to 60 dollars a barrel today.

Yet airfares have gone down by 40 percent in real, inflation-adjusted terms since the mid-’70s.

You can still fly to Europe for 600 dollars. Yet consumers expect cheaper and cheaper fares.

The answer, of course, is that airlines have countered higher aircraft, fuel and other operating costs with improved efficiency through lower distribution costs, higher break-even load factors, greater aircraft utilization, outsourcing and extensive network restructuring including alliances.


Air transportation is not a luxury, any more than a television or a telephone would be. It is a vital part of our economy and social structure.

Yet it continues to be taxed and penalized by government as if it were a luxury, or a “sin” like alcohol and tobacco.

Some governments want to use extra fees paid by departing air travellers to provide extra aid to developing countries. Very commendable – but why single out air transportation?

Ronald Regan once described the motto of the transportation regulators to be “If it moves, tax it; if it moves fast, regulate it; if it stops, subsidize it.”

Such paradoxes and ambiguities add considerably to the complexities of airline management.

The list of challenges is virtually endless.

Besides its sensitivity to fuel prices, the cost of new equipment makes it highly capital intensive, with long commitment lead times.

The airline business is highly, and almost instantly sensitive, as well, to economic cycles – and to drops in discretionary income.

Airlines are highly affected by political instability, civil unrest, wars, epidemics, earthquakes and tsunamis – all of which occur with regular unpredictability!


There are some early signs of a slight industry slowdown, at least in the U.S. market, and it seems that the latest cycle of boom and bust may have come full circle.

Regardless – and although it is hazardous to make any prediction, particularly where the future is concerned – I believe the airline industry as a whole is moving towards a new equilibrium.

In most regions of the globe, the industry is shaking itself out into a more diversified and more stable model.

Traditional airlines, trimmed into profitability, are still very much alive – whether in India, in the Middle East, in Europe, in Latin America and even in Canada.

The jury is still out in the United States.

Low-costs are occupying a lot of space, but they aren’t taking over the whole industry.

Full-fare full-service is back in vogue, and the customer once again is king.

Last year’s loss, at 3.2 billion dollars, was somewhat less than expected, and according to IATA the industry is now targeted to lose only 1.7 billion dollars this year.

The industry could even make as much as 1.9 billion dollars in 2007 – an amount that would imply a return on capital of less than one percent, which is far below the eight to ten percent necessary to reward investors.

Much will depend, of course, on what impact the continuing conflict in the Middle East – and the manipulation of some disenchanted Muslim youths by terrorist leaders – will have on the price of oil, and on renewed market demand for air travel.

Although improving in total, the financial health of the industry still differs substantially by region and by type of airline.

The Asia/Pacific numbers are staggering.

Over the last five years, China’s airlines flew record numbers of passengers and cargo, and earned over a billion dollars.

The country’s booming aviation sector is expected to see air traffic double in the next five years.

India’s liberalized air transport market is now, with that of China, the brightest prospect in the global aviation arena.

Its domestic market is expected to grow as much as 25 percent annually over the next five years.

Full-service airlines such as Jet Airways, and now Kingfisher, are raising the bar on quality.

Low-costs like Air Sahara, Air Deccan, Spice Jet and IndiGo are major contributors to the sector’s explosive growth and prosperity.

Even traditional Air India and Indian Airlines are transforming themselves into potential money-makers.

A new star in the skies of Asia is Indonesia, which has become the region’s most dynamic domestic market.

Traffic growth has been spectacular, from six million domestic passengers in 1998 to an expected thirty million this year.

This giant nation of islands is custom-designed for air travel.

The picture we see emerging in the Middle East is one of three full-service, extra-long-haul carriers – Emirates, Etihad and Qatar Airways – offering access to a wide array of destinations worldwide from their competing hubs of Dubai, Abu Dhabi and Doha.

Airlines such as Royal Jordanian, Middle East and Gulf Air will occupy a second tier of restructured, partially privatized and increasingly profitable legacy carriers.

A third group will be the Middle East low-costs, offering discounted, point-to-point services within the region.

In many ways, the Middle East picture contains many elements of the evolving aviation landscape worldwide.

The European experience is proving that restructuring, consolidation and alliances can produce positive results.

The Air France-KLM Group posted an annual net profit of more than one billion dollars for 2005-2006.

Lufthansa is back in the black.

British Airways announced huge pre-tax profits for the year ending March 2006, and again in its next first quarter.

Second-tier carrier Aer Lingus has reinvented itself into a profitable airline, and SAS earned money in the second quarter.

But others like Alitalia and Olympic remain basket cases.

Ryanair, Europe’s largest budget carrier, and EasyJet the second largest, are reporting strong traffic growth.

Consolidation had made Air Berlin the third largest low-fare airline.

Eastern European low-costs are still proliferating, however, and we can expect further consolidation.

Elsewhere, on the American continent a number of Latin American airlines have become successful money-makers.

Lan-Chile and TACA are good examples.

Brazil’s more recent low cost, GOL, is enjoying spectacular and profitable growth.

Unfortunately, Varig, once a great airline, has continued to disintegrate.

The Canadian industry has regained the stability it once enjoyed before deregulation, through government policy as well as subsequently, when the two main opponents at the time – Air Canada and Canadian – had achieved a balanced market share.

Despite the recent prolonged period of great instability, Air Canada has managed to retain its role as the national carrier, serving all major international destinations and with a strong presence across North America.

The airline has reported strong net income in every quarter since its restructuring. ACE has recently floated the airline.

WestJet also posted strong profits both last year and in the first quarter. Now the main domestic competitor, it enjoys some 30 percent of the lucrative Canadian transcontinental market and sees niche opportunities for itself on the trans-border North American market.

Air Transat in now well entrenched as Canada’s premier integrated leisure airline and tour package operator. It also realized strong profits last year and in the first quarter.

Canadian carriers have seemingly decided to avoid disastrous price wars and are a great deal more focused now on achieving a good bottom line.

After losing more than 38 billion dollars since 2000, eight of the 10 largest US carriers reported a combined net income of 1.2 billion dollars for the second quarter, the first quarterly profit since 2000.

Profits of such measly dimension could easily disappear if the economy dips, or more terrorist threats of the Heathrow kind materialize.

The other two major US carriers, Northwest and Delta, are still facing a litany of difficulties. Northwest’s bankruptcy reorganization added a billion dollars to its first quarter loss, and its second quarter loss totalled 285 million dollars. Delta is still struggling to emerge from bankruptcy protection.

What was wrong – and may still be wrong – with the U.S. industry?

Why are its legacy carriers seemingly unable to restructure successfully and achieve the kind of positive developments occurring in Europe and elsewhere?

Part of the answer lies in the very important difference between legacy carriers in the US and those in Europe and elsewhere.

As much as 70 to 75 percent of the traffic carried by the major US airlines is domestic; only 25 to 30 percent is international.

The reverse is true for European carriers.

As US low-cost carriers concentrated almost exclusively on the huge domestic markets, the legacy airlines were that much more vulnerable than their European counterparts.

Their attempt to achieve parity with the low-costs required far more extensive restructuring. There were just too much overhead and fixed costs to reduce.

Legacy carriers also carry a huge pension fund problem with an unmanageable unfunded gap, as well as other burdens that come with being around for a long time.

In short, the US legacy carriers faced a much more difficult task!


On what I think is good news!

The industry is returning to the basic notion that competing on product value is a better way to profitability than competing on price alone for market share. Of course, not all carriers buy into this basic strategy.

Ryanair promises that by the end of the decade “more than half of its passengers will fly free”.

Ryanair’s secret? Besides an austere cost structure that makes Southwest look profligate, Europe’s most profitable airline puts a price on virtually everything – from peanuts and beverages to cell-phone use and baggage check-in.

By the way – have you ever wondered where unclaimed, undelivered airline baggage ends up? I understand that US carriers sell it to an outlet in Alabama. The outlet gets about one million visitors a year for merchandise that includes everything from emerald rings worth 100,000 dollars, to wedding gowns – hopefully lost after the wedding.

One cannot help wondering if lower fares are not somewhat of an illusion, when you have to pay extra for meals, blankets and pillows, headphones, roomier aisle and exit row seats, reservations made by phone and so on.

But, it will be argued, the passenger has total choice.

To differentiate themselves from those “pay-for-everything” low-cost carriers, several airlines have decided to reintroduce a number of amenities in economy. The new premium economy class offers wider seats extra legroom, improved meal and beverage service, personal entertainment, computer outlets, separate washrooms, and even a separate cabin – for a price about 25 percent more than regular economy.

Other carriers, both traditional and even some of the low-costs, have added value to their economy product by retaining amenities or introducing new ones without extra charge.

Economy passengers on Cathay Pacific – named best airline of 2006 by Air Transport World magazine – get a hot meal and beverage service, even on one-hour flights.

Gulf Air has trained nannies to look after children, even in economy class on long-haul flights.

For high-living, first-class passengers, Gulf Air offers “Sky Chefs” on all Airbus A330 and A340 flights. The Chefs, trained at top hotels, meet privately with each passenger to discuss the menu offerings and service options, and then personally prepare and serve the meals.

British Airways offers gourmet meals to their first-class customers in high-end airport restaurants before some overnight flights.

Qantas Airways has a first-class lounge with a stand-up bar and leather sofas on its new A340-600s.

I remember that when Air Canada introduced its first 747s, the airline decided to have an upper-deck lounge with a dance floor and flight attendant hostesses in long skirts. It didn’t last long; wives started to complain that this was one amenity too many!

The ultimate business-class product differentiation is the all-business-class flight, such as offered for several years now by Privat Air-Lufthansa between Dusseldorf and Newark.

And last October, a new so-called “boutique” carrier, Eos – which incidentally is named after the Goddess of Dawn in Greek mythology – began offering all-business class “super-luxury” flights between Stanstead and JFK on Boeing 757-200s.

The aircraft, originally designed to seat 220, are outfitted with only 48 “pod suites” that allow each passenger much real estate.

Another all-business boutique carrier to surface recently is MAXjet Airways, which flies 767-200 ERs almost dailybetween Stanstead and New York and Washington.

Will these new business-class-only airlines survive?

It is too early to answer definitively. But I think that it’s abundantly clear that there is a sizeable market out there of airline customers who want more comfort – and quality – and who are willing to pay for it. They’re the same people who are willing to pay 40 to 70 thousand dollars for a quality car.

I can be more definitive about one business-class-only airline that shouldn’t survive.

A German entrepreneur has leased three Boeing 747s that will offer 138 business class passengers a nicotine-friendly, all-smoking service (with free Cuban cigars) on flights between his hometown of Düsseldorf and Tokyo.

He calls the airline Smintair, or Smoker’s International Airways. A journalist called it “Air Ashtray”.

The aircraft manufacturers have not been insensitive to travellers’ expectations of increased quality.

The 787 Dreamliner, with its larger windows, roomier storage bins and better in-flight air quality will offer passengers significant improvements in airplane comfort, according to Boeing.

Not to be left behind, Airbus last summer basically junked its previous derivative strategy by opting for a completely new, 10 billion dollar design.

Called the A350Xtra Wide Body (XWB), the new airplane will incorporate – and more than match – the advanced features claimed by its competitors.

All that new in-flight comfort will make little difference to passengers, however, if they are grinding their teeth in frustration by the time they get on board.


Larger overhead bins are hardly a benefit if the only thing you’re allowed to place in them is a clear plastic bag containing a passport, keys and baby formula!

It is one of the paradoxes – and challenges – of airline management, that the safest form of transportation generates the greatest passenger anxiety.

Driving is vastly more dangerous than flying, even factoring in the risk of terrorism.

After 9/11, fear of terrorism led to a sharp drop in air travel in the United States – and an equally sharp rise in car trips.

This increase in car trips was estimated to cost the lives, over one year, of more than 1,500 people –six times more than were aboard the planes hijacked on September 11 (not counting the terrorists, there were 246 passengers on the four airplanes.).

Since 9/11, no one has died as a result of a security breach on an aircraft.

We have a zero tolerance mentality about security – but what about safety?

If our objective is to reduce all fatalities associated with air travel – do we have the best allocation of our resources between these two important aspects?

Some of the security measures are so incongruous that they would be almost laughable – if they weren’t addressing such a deadly serious matter.

Josh Freed joked in his Gazette column at the time about a security guard asking a passenger to swallow some of his Viagra medication before boarding, to ensure it was a genuine prescription drug.

It’s evident, however, that we are still taking far too long to do an effective and hassle-free job of screening passengers and their luggage.

European researchers have thus far spent 46 million dollars on a project called “SAFEE” to create a non-hijackable plane.

The concept calls for the airplane to be equipped with a computer system to spot suspicious passenger behaviour, a collision avoidance system that will prevent the airplane from being steered into buildings, an autopilot that will guide it automatically to the nearest airport in the event of a hijack, and sensors that will minutely observe passengers throughout the flight.

In any case, how useful are these technological advances if we – governments and industry – still cannot reach a universal consensus on the harmonized use of biometrics, shared data bases, and other measures that are available now to enhance security and reduce considerably the hassle of travelling by air?

Technology is the answer – but not always.

When NASA first started sending up astronauts, they quickly discovered that an ordinary ballpoint pen would not work in zero gravity. To combat the problem, NASA scientists spent a decade – and hundreds of millions of dollars – to develop a pen that writes in zero gravity, upside down, underwater, on almost any surface including glass, and at temperatures ranging from below freezing to 300 degrees Celsius.

The Russians used a pencil!

Perhaps we should borrow techniques from El Al and Israeli airports, and have screeners look more at people – and less at things like cans of shaving cream.

Videos of the 9/11 terrorists, and interviews with people who talked to them, reveal that they all exhibited symptoms of stress that would have been identified by screeners trained to do this – like sweating, failure to make eye contact, rigid posture, clenched fists, and failure to answer questions directly.

The ultimate layer of protection is in preventing terrorists from ever reaching the airport in the first place.

Only governments can counteract terrorism – through efficient intelligence gathering and sharing, diplomacy, economic sanctions, covert action, and strict law enforcement.

Experience has not shown military action to be very effective!

If moderate religious leaders cannot make themselves heard, governments must be more vigilant in neutralizing religious terrorists.

Violence has no place in civilized societies.

Reasonable accommodation of religious beliefs does not extend to undermining the basic values such as freedom of speech, and expression, as well as gender and racial equality – shared by all Canadians.

The cost of additional security measures to the industry, and thus to the flying public, has now reached over five billion dollars a year.

How much more security do we need? How much more must we pay for?

It’s an anomaly that only airlines and their passengers should have to pay for the protection of their civil liberties.


Security is hardly the only source of passenger anxiety and management stress.

The endless quest for increased safety is the number one challenge of airline management.

Safety is the area where a zero defect mentality really belongs.

The year 2004 was the safest year ever for air transport – but last year’s eight crashes doubled the number of accidents with passenger fatalities.

The European Union suggests that airlines with unsatisfactory safety records should be blacklisted on the Internet. Interestingly enough, none of the airlines involved in accidents last year had been blacklisted.

But I believe that a more fruitful measure would be much tougher and more frequent independent safety audits conducted by ICAO or IATA.

For instance insisting that airlines submit to an Operational Safety Audit Program (IOSA), a program I launched when I was head of IATA. This year I believe more than 100 airlines will be audited under the program.

Sound management practice calls for outside financial auditors to review a company’s books at least annually. Surely safety is as important a subject for audit as an airline’s financial accounts.


The manufacturers are doing their part by developing better instruments and systems to make the skies safer.

One example is the avionics developed by Thales for the A380 flight deck.

An integrated surveillance package includes new digital radar that makes it easier to avoid thunderstorms. The next upgrade will be a “synthetic vision display” that will finally deliver what Charles Lindbergh always wanted: “A pair of spectacles to see through the fog”.


Other developments aimed at reducing airways congestion will also have a salubrious effect on safety.

The “Single European Sky” (SES) concept has been accepted in principle, and streamlined air traffic control rules are being pushed through.

Unfortunately, the European Continent’s 34 separate air navigation agencies won’t disappear anytime soon.

Abolishing borders in the sky is a political minefield. In an attitude that goes back to World War II, many in the EU are still uneasy about allowing “foreigners” to regulate and oversee their airspace.

Galileo, the proposed European SatNav system, should be operational by 2008 now that the sharing of remaining development costs has been decided. Thales is part of the development consortium.

I believe these new instruments and systems will help, and I applaud ICAO’s recent initiative in seeking consensus on a global strategy for aviation safety.


But ultimately, the buck for safety stops at the desk of the airline’s chief executive officer.

Airlines are the most visible manifestation of air safety, and must accept that reality – even though much also depends on governments, manufacturers, etc.

Airlines have to be upfront, leading the change for improved safety.

How? By their CEOs showing evidence of real, and continuous, concern for safety.

Safety has to be an essential part of an airline’s culture – and the CEO incarnates that culture.

The CEO must be the “Chief Safety Officer”, responsible for safety throughout the organization, ensuring the right checks and balances exist, getting reassurances of the right competency levels.

The CEO must be the airline’s guarantor of safety.

Liberalization of the industry can never imply a liberalization of standards where maintenance procedures, flight crew professionalism and all other aspects of safety are concerned.

As the industry deregulates and expands, government agencies must be increasingly vigilant in ensuring that all carriers and other aviation stakeholders follow the highest possible standards.


Whereas regulation may still be insufficient in areas like safety, it remains excessive where markets are concerned.

Market liberalization is progressing – but still too slowly.

I was pleased to see the Canadian Government “Blue Sky” initiative announced yesterday, and I would urge their prompt action.

It’s disappointing to hear some industry leaders continue to urge extreme caution on liberalization.

But the notion of government protecting its flag carrier still persists.

Current US liberalization policy is also disappointing. I remember when the United States championed deregulation, the rest of the industry had to be dragged kicking and screaming into a new world of unfettered market expansion.

It’s somewhat ironic that after successfully negotiation 70 open skies agreements with every nation it could bring to the table, our neighbours are now reluctant to proceed with an open skies agreement with the European Union.

Apart from concerns about security, foreign ownership and cabotage, the United States might be less reluctant to take this next step if its legacy carriers were stronger.

Downsizing and consolidation into three or four lean and mean competitors would make a big difference at the negotiating table.

Unfortunately, in my view, Chapter 11 had prevented the required consolidation of legacy carriers.

When Pan Am and Eastern were allowed to disintegrate, other airlines picked up the pieces worth saving – such as part of their fleets, gates at congested airports and a number of international route rights.

The United States is a huge mature air market. It should let the industry shake itself out.

As a significant stepping stone to a fully integrated common air market over the Atlantic between Europe and North America, the European Union might be interested in a discussion with Canada along the lines of its proposal to the Americans.

Canada has stated on several occasions that on a reciprocal basis, foreign ownership of Canadian carriers could readily be increased to 49 percent.

The advantages to Canada are obvious. Our airlines would have open skies access to a market of some 450 million people – some fifteen times our population.

Like-minded countries in other regions of the world are opening and integrating their market in this fashion.

For example, Russia and China appear interested in an open-skies style agreement with the European Union.

So are countries bordering the Mediterranean.

And a recent accord between four members of the China-Pacific Economic Cooperation (APEC) may well serve as a blueprint for other regions to establish similar open-skies frameworks along regional lines.

India has been making significant moves towards complete market freedom, and intends to pursue liberal agreements with all its neighbouring countries.

I am pleased to say that I had the privilege to have been consulted – and to make a small contribution – to India’s new liberalized aviation policy.

I know – and most airline managers now agree – that a “big bang” solution to worldwide liberalization is most unlikely.

But we must continue to make progress in a three-fold approach:

Continued expansion of bilateral “open skies” agreements by all like-minded nations;
Continued expansion of regional common air markets, such as achieved by the European Community; and
Pursuit of bilateral agreements between regional common air market areas and other regional areas – or by “block-lateralism” to use an expression I coined some time ago.

It’s a curious paradox that the globalization of industry, trade and commerce has been largely driven by airlines – but they remain still very regulated themselves.

Why is it that in the automotive industry, the pharmaceutical industry, chemical industry or the petroleum industry, anybody can do anything on a worldwide basis – but airlines still cannot?

Bismark said that “the strongest nations are always in favour of free trade.”


And if a nation’s trade is threatened, it can always legislate its way out of any multi-lateral agreement, as the current Canadian government wants to do with respect to the Kyoto accord.

Bismark also said that “the most useful thing about a principle, is that it can always be sacrificed to expediency.”

Aviation contributes only about 3% of the world annual addition to greenhouse gases.

Nevertheless, the air transport industry is blamed by environmentalists for a far greater portion of the damage caused by air pollution.

But insisting that we are an insignificant part of the problem is not a solution for airline management. If nothing else, the high profile of our industry demands that airline management be actively involved in the challenge of protecting the natural environment.

Noise used to be the biggest challenge, especially in communities that sprung up around airports because the land was cheap.

New aircraft are 75% less noisy than the previous generation, and exceed the latest ICAO standards.

Although the debate over noise has grown much quieter, the debate over fossil fuel consumption has been getting louder all the time.

The search for non-carbon sources of future energy to replace, supplement and complement today’s traditional carbon-based fuels must go on – and with vengeance.

The airline industry likes to argue that it cannot do much more than constantly improve engine technology and operating procedures – that there is no economical and safe alternative to jet fuel.

Richard Branson of Virgin Airways begs to differ. He announced recently that he intends to build plants to produce an environmentally-friendly aviation fuel – from cellulosic ethanol.

Whether or not Sir Richard’s good intention proves viable, I believe that developing bio-fuels for aviation, as we have started to do for automobiles, is well worth exploring.

It is very unlikely that our industry will be able to reduce the emissions rate from conventional fuels as fast as the growth in air travel.

New generation airplanes – the B787, A350 and A380 – with their 20 percent improvement in fuel consumption and corresponding reduction in emissions, represent a monumental achievement likely to be difficult to repeat in the next generation of airframes and power plants.

Rolls-Royce’s planning for future engines, their “Vision 10” research program which covers technologies likely to become available within the next decade, targets about a 10 percent further improvement in specific fuel consumption.

Punitive taxes on air travel are not the answer.

Taxes aimed at reducing demand, and at pricing people out of air travel, and which disappear into a general fund, simply destroy aviation’s economics and its associated social benefits – with no appreciable gain for the environment.

In fact, they limit the industry’s ability to invest in new technologies that could further reduce its impact on the environment.

A better short-term incentive is emissions trading. Allowing airlines to buy and sell the right to emit CO2 would be a more efficient way to tackle climate change.

It is a pity that the current Federal Government’s position on Kyoto has seriously limited Canadian firms from participating in a new and important business sector.

The longer term proper solution is to get rid of CO2.

If our ability to further improve engine efficiency, to switch to less damaging fuels, to become “carbon neutral” is limited, then we must be part of the overall solution by pushing for a massive effort to decarbonise the world by storing – or destroying – CO2.

Pollutants come from many sources, but the bulk of them – some seven billion tons of carbon a year – come from smokestack industries.

Much of the technology to build plants without smokestacks, to capture, store or destroy CO2 rather than vent it into the atmosphere, already exists.

It can be done – if the political will is there to do it. It’s very much a manageable problem.

We decided to send a man to the moon before we even knew it was technologically possible.

Dare I suggest that we use “eco taxes” on fossil fuels to return carbon to the ground, and by planting trees and reclaiming deserts?
And if a nation’s trade is threatened, it can always legislate its way out of any multi-lateral agreement, as the current Canadian government wants to do with respect to the Kyoto accord.

Bismark also said that “the most useful thing about a principle, is that it can always be sacrificed to expediency.”

Aviation contributes only about 3% of the world annual addition to greenhouse gases.

Nevertheless, the air transport industry is blamed by environmentalists for a far greater portion of the damage caused by air pollution.

But insisting that we are an insignificant part of the problem is not a solution for airline management. If nothing else, the high profile of our industry demands that airline management be actively involved in the challenge of protecting the natural environment.

Noise used to be the biggest challenge, especially in communities that sprung up around airports because the land was cheap.

New aircraft are 75% less noisy than the previous generation, and exceed the latest ICAO standards.

Although the debate over noise has grown much quieter, the debate over fossil fuel consumption has been getting louder all the time.

The search for non-carbon sources of future energy to replace, supplement and complement today’s traditional carbon-based fuels must go on – and with vengeance.

The airline industry likes to argue that it cannot do much more than constantly improve engine technology and operating procedures – that there is no economical and safe alternative to jet fuel.

Richard Branson of Virgin Airways begs to differ. He announced recently that he intends to build plants to produce an environmentally-friendly aviation fuel – from cellulosic ethanol.

Whether or not Sir Richard’s good intention proves viable, I believe that developing bio-fuels for aviation, as we have started to do for automobiles, is well worth exploring.

It is very unlikely that our industry will be able to reduce the emissions rate from conventional fuels as fast as the growth in air travel.

New generation airplanes – the B787, A350 and A380 – with their 20 percent improvement in fuel consumption and corresponding reduction in emissions, represent a monumental achievement likely to be difficult to repeat in the next generation of airframes and power plants.

Rolls-Royce’s planning for future engines, their “Vision 10” research program which covers technologies likely to become available within the next decade, targets about a 10 percent further improvement in specific fuel consumption.

Punitive taxes on air travel are not the answer.

Taxes aimed at reducing demand, and at pricing people out of air travel, and which disappear into a general fund, simply destroy aviation’s economics and its associated social benefits – with no appreciable gain for the environment.

In fact, they limit the industry’s ability to invest in new technologies that could further reduce its impact on the environment.

A better short-term incentive is emissions trading. Allowing airlines to buy and sell the right to emit CO2 would be a more efficient way to tackle climate change.

It is a pity that the current Federal Government’s position on Kyoto has seriously limited Canadian firms from participating in a new and important business sector.

The longer term proper solution is to get rid of CO2.

If our ability to further improve engine efficiency, to switch to less damaging fuels, to become “carbon neutral” is limited, then we must be part of the overall solution by pushing for a massive effort to decarbonise the world by storing – or destroying – CO2.

Pollutants come from many sources, but the bulk of them – some seven billion tons of carbon a year – come from smokestack industries.

Much of the technology to build plants without smokestacks, to capture, store or destroy CO2 rather than vent it into the atmosphere, already exists.

It can be done – if the political will is there to do it. It’s very much a manageable problem.

We decided to send a man to the moon before we even knew it was technologically possible.

Dare I suggest that we use “eco taxes” on fossil fuels to return carbon to the ground, and by planting trees and reclaiming deserts?


The airline business has changed considerably over the last fifty years.

Protecting the natural environment as a management responsibility didn’t exist in the days of those daring young men in their flying machines.

The Rickenbackers, McGregors and McConachies of the next generation were busy creating an industry.

And when that industry began to take shape, the generation of professional managers that followed knew that if the industry were to flourish, they had to be in it for the long term.

In the last decade, however, airline management has become contaminated by the same “quick buck” syndrome affecting corporate life today.

At its worst, short-term greed can lead to the managerial misconduct and cover-ups that brought down the top management of Enron, Vivendi, Hewlett-Packard and Hollinger.

Unfortunately, Chapter 11 bankruptcies encourage quick results – to the potential detriment of the longer term.

Refinancing attracts investors who are looking for quick rewards within two to three years, and who are likely to offer management huge incentives towards that end alone by way of share options maturing in the short term.

Airlines are a long-term business.

The investment cycle is 25 years. Airline managers must be offered incentives and rewards that are somewhat more related to the life cycle of the assets they’re being asked to manage.

If airline managers are not there for the long term and leave after a quick-buck turnaround, the danger is that the airline may be left in a worse financial and, God forbid, operating condition than it was previously.

There’s too much at stake in an airline to allow this to happen – the safety and security of its passengers, the well-being of the community it serves, and the financial security of its employees and shareholders.

Have airline managers taken appropriate steps to prevent reaching the Chapter 11 bankruptcy stage from happening in the first place?

Were the CEOs and CFOs developing the strategies required to maximize their airlines’ survival under various downturn scenarios?

Were they looking at ways of strengthening and expanding credit lines? At options to improve liquidity with, for instance, sale and lease back of assets?

Was the CEO exerting sufficient restraining influence on managers responsible for market expansion plans – and all-too-often chaotic pricing policies?

Was the CEO managing with due respect to the bottom line – and I mean the long-term bottom line – not chasing growth and overnight profit?

Most of the U.S. legacy carriers never had a plan extending beyond twelve months!

Was the CEO effective in communicating the seriousness of the situation?

“Being a president”, Bill Clinton once said “is like running a cemetery. You’ve got a lot of people under you, and nobody’s listening .”

Life in the corporate cockpit is not comfortable at the best of times.

But as President Harry Truman used to say “If you can’t stand the heat, you should get out of the kitchen.”

Managers in our industry make critical decisions.

One operating oversight can lead to tragedy. One unsound financial decision can lead to billion-dollar losses.

The personal stakes are high. You may have noted that they have installed a revolving door in the CEO’s office at Airbus.


Ladies and gentlemen, if I speak any longer the Royal Aeronautical Society will have to rename this event the “Annual Fidel Castro Lecture”.

In summation, I’d like to leave you with what I call the seven pillars of responsible airline management:

  • Safety – with passion and at any cost;
  • Security – in a cost effective and customer friendly way;
  • Profitability – sufficient to satisfy investors in the long term and to ensure
  • Perenniality – of the company – not necessarily its CEO – particularly in the absence of
  • Rectitude – of its CEO, its CFO and all other key officers whose moral authority is as essential to the company as their management authority;
  • Liberalization – of markets, not executive behaviour; and
  • Concern – for customers, for employees, for the environment, and for the community at large.

Ladies and Gentlemen, we may not have exhausted the subject but I do not wish to abuse of your patience. You have been a most kind, and wonderful audience.

Thank you very much!

Address by Pierre J. Jeanniot to the Cannes Airline Forum

The Air Transport Industry Today – Is the Customer King Again?
Address to the 15th Cannes Airline Forum
Cannes, October 18, 2006  >>


Ladies and gentlemen,

It is a great pleasure to join Jean-Louis in welcoming you to this fifteenth Cannes Airlines Forum.

Increasingly over the years, this Forum has become the place to discuss the forces of change affecting our industry to conduct business behind the scenes, to forge new friendships, and to enjoy its very convivial atmosphere.

I have no intention of spoiling Jean-Louis Baroux’s fun by revealing the gastronomical delights we all know he has planned for us once again.

But I must admit that I can’t help wondering if people don’t come to our discussions for much the same reason that tourists visit the great sites of France, which has been described to me as “something to do between great meals”!

The theme this year is centered around air transport and its clients: Do we need to be restoring customer trust and confidence in our industry? And are we doing that?

It’s not the first time we’ve addressed this theme. At the seventh Cannes Airlines Forum in 1998, we talked about the then “new” relationships between passengers and airline companies.

The question we asked at the time was whether the passengers were justified in being unhappy.

Eight years have passed, and for almost a decade the industry has been intensely focused on cutting costs, often resulting in reduced service, higher load factors, airport congestion etc., compounded by the frustration and stress resulting from a succession of new security measures.

I don’t recall what we answered in 1998 but I suspect that we were falling somewhat short of meeting our customers’ expectations.

At any rate, the series of economic crises that were soon to follow forced the industry to take drastic measures to ensure its survival.

With the rapidly increasing popularity of the so-called low cost carriers, many traditional airlines were forced to shrink dramatically.

And quality began to sink to the lowest common denominator.

So where are we today?

Do we know what needs to be done to reassure our customers that this industry is fully trust-worthy and dedicated to providing value-for-money services that are safe, on-time and customer-friendly?

That is what we are here to find out.

But first, has this industry sufficiently recovered to be considered today beyond the survival mode? Let’s take a few moments for a brief overview.


Although it is hazardous to make any predictions – and particularly so when it concerns the future – I believe that 2006 will turn out to be the transition year towards “a more stable, if not truly profitable, aviation industry”.

There is a mood of optimism about our industry that has been absent since 9/11 and its aftermath, and I believe that this optimism has not really been dampened by the events of this past summer.

Well, the industry is indeed growing, and because it is growing – and in some areas very rapidly – it will attract more investment.

But investors should choose carefully. As the old joke goes, “there are three ways to lose a lot of money: betting on slow horses; dating fast women; and investing in a poorly managed airline”.

Last year’s loss, at 3.2 billion dollars, was somewhat less than expected, and according to IATA the industry is now expected to lose only 1.7 billion dollars this year.

It could even make as much as 1.9 billion dollars in 2007, an amount that would imply a return on capital of less than 1 percent – which is far below the 8-10 percent necessary to adequately reward investors.

Much will depend, of course, on what impact the continuing conflict in the Middle East -and the manipulation of some disenchanted Muslim youths by terrorist leaders – will have on the price of oil, and on renewed market demand for air travel.

I am reminded that the father of the Wright Brothers, who was a Protestant Minister, had tried very hard – invoking religious reasons – to discourage his sons from attempting to fly, stating that

“If God had wanted men to fly, he would have given them wings.”

Beyond the obvious sensational impact of using aircraft as weapons of mass-destruction, do Muslim extremists believe that we are contravening some Divine order?

Whatever the reason, we are unfortunately likely to continue to be a popular target.

But whatever the latest threat, the industry, and I mean all participants – governments, airlines, airports – will be judged by how quickly it can adjust security measures to reassure customers, reduce the hassle of traveling by air, including airport congestion, and thus minimize uncertainty for airline passengers and also for investors.


Last year, the world’s airlines ordered more than 2,000 aircraft in total from Boeing and Airbus.

Aggregate sales for the two companies should fall to less than half of that in 2006, but that would still represent a lot of increased capacity.

The order backlog today represents 19 percent of the existing fleet.

New, more efficient aircraft may well tempt airlines into offering lower fares, chasing after market share. This is not the way to long-term profitability.

But clearly, part of that new technological efficiency has to translate into profit, and returned to investors.

Although improving in total, the financial health of the industry still differs substantially by region, and by type of airline.

And among the mediocre and failures there are some spectacular successes.


The Asia/Pacific numbers are staggering.

Over the last five years, China’s airlines flew record numbers of passengers and cargo, and earned over a billion dollars.

The country’s booming aviation sector is expected to see air traffic increase at more than 10 percent per year over the next five years. And although China’s airlines lost about 3.0 billion yuan in the first half of 2006, carrying close to 75 million passengers, its airports made 1.5 billion yuan.

It seems Western airports aren’t the only ones to do better than their airlines.

Slide 13 India
India’s liberalized air transport market is now, with that of China, the brightest prospect in the global aviation arena.

It’s domestic market is expected to grow as much as 25 percent annually over the next five years.

Full-service airlines such as Jet Airways, and now Kingfisher, are raising the bar on quality.

Low-costs like Air Sahara, Air Deccan, Spice Jet, and IndiGo are major contributors to the sector’s explosive growth and prosperity.

Even traditional Air India and Indian Airlines are transforming themselves into potential money-makers.

Malaysia, along with India, has become fertile ground for discount airlines.

Air Asia has just ordered forty more A320s. But a shakeout is looming, and the industry’s overall prospects have been somewhat dampened by the continuing losses of the national carrier, Malaysian Airlines.

A new star in the skies of Asia is Indonesia, which has become the region’s most dynamic domestic market.

Traffic growth has been spectacular, from six million domestic passengers in 1998 to an expected thirty million this year.

With large cities separated by distance and water, Indonesia is custom-designed for air travel.

JAL seems to be a fading star in the Asia-Pacific region.

After losing 32 billion yen in the same period last year, it reported a quarterly loss almost as big this year (26.7 billion yen), and is facing mounting challenges after a series of safety mishaps and management in-fighting.

Singapore is losing ground to Dubai as an aviation hub.

Dubai’s passenger volume has already reached 76 percent of the Changi hub.

The good news is that the Singapore government is seeking to further liberalize air services with its neighbors including Malaysia, China, and India to defend the hub status of Changi.


The picture we see emerging in the Middle East is one of three full service, long-haul carriers – Emirates, Etihad, and Qatar Airways.

Their competing hubs of Dubai, Abu Dhabi, and Doha will enable those carriers to offer access to a wide array of destinations worldwide with a fleet of extra-long-haul aircraft now coming on the market.

Airlines such as Royal Jordanian, Middle East, and Gulf Air will occupy a second tier of restructured, partially privatized and increasingly profitable legacy carriers, regionally focussed but linked into the global alliance networks.

A third group will be the Middle East low-costs offering discounted point-to-point services within the region.

In many ways, the Middle East picture contains many elements of the evolving aviation landscape worldwide.


The European experience is proving that reinvention, restructuring, consolidation, and alliances can produce positive results.

The Air France-KLM Group posted an annual net profit of 1.17 billion dollars for 2005-2006.

The Group is reporting strong traffic growth so far this year and announced a net profit of 224 million Euros for the three months ending in June.

Lufthansa is back in the black, with a net income of 183 million euros on 5.2 billion euros in revenues in 2006, and expects a positive contribution from the integration of Swiss International by next year.

Swiss actually made money in the second quarter.

British Airways announced a soaring pre-tax profit of 620 million pounds for the year ending March 31, 2006, and reported a 154 million pound net profit for the first quarter ending June 30th.

The British have yet to buy into the European consolidated model.

Second-tier carrier Aer Lingus has reinvented itself into a profitable airline, and SAS earned 60.2 million euros in the 2nd quarter.

But others, like Alitalia and Olympic, remain basket cases.

Ryanair, Europe’s largest budget carrier, and EasyJet, the second largest, are reporting strong traffic growth.

Air Berlin has become the third largest low-fare airline with the acquisition of DBA, formerly Deutsche B.A., and made a net profit of 30.1 million euros during the 2nd Quarter ending June 30.

Eastern European low-costs are still proliferating, however, and we can expect further consolidations.

So despite some rough air ahead, the European sector can expect to enjoy an improved level of stability in the years ahead.


Elsewhere on the American continent, a number of Latin American airlines have become successful money-makers.

Lan-Chile and TACA are good examples.

Brazil’s more recent low cost, GOL, is enjoying spectacular and profitable growth.

Unfortunately Varig, once a great airline, has continued to disintegrate.

Volvo do Brasil has now acquired the 79-year-old airline for 24 million dollars, plus a pledge to invest 485 million dollars in the bankrupt carrier.

In August, Varig was flying only ten planes out of a former fleet of 65 jets.

Mexicana is taking aggressive measures to cut its annual costs by 20 percent, and grow its network, to take on the new budget carriers recently launched in its backyard which have captured 12 percent of the Mexican market in the first quarter of 2006.


In Canada, a new industry equilibrium appears to be in the making.

Air Canada reported a net income of 258 million dollars for 2005 just a year after the airline’s restructuring, and achieved a net income of 118 million dollars in the seasonally slow first quarter of 2006.

WestJet also posted strong profits both last year and in the first quarter, as did Air Transat in its recent second quarter.

WestJet now enjoys some 30 percent of the lucrative Canadian transcontinental market, and sees niche opportunities for itself on the trans-border.

Of course, few U.S. carriers are doing as well as Southwest. Its second quarter earnings were 333 million dollars, compared to 144 million a year earlier.

Nevertheless, the U.S. industry’s litany of difficulties seems to be finally abating.

American Airlines reported net income of 291 million dollars in the second quarter, the highest quarterly profit in six years.

Continental reported a 198 million dollars second quarter profit, nearly double last year’s, and the highest quarterly profit since 2001.

United emerged from three years of bankruptcy protection in February and had its first profitable quarter since 2000, an estimated 119 million dollars on 5.1 billion dollars in revenues.

Alaska Airlines earned 71 million dollars on 710 million dollars in revenues in the second quarter.

Of the major U.S. carriers, only Northwest and Delta are still lagging behind.

Northwest’s bankruptcy reorganization added a billion dollars to its first quarter loss, and its second quarter loss totalled 285 million dollars.

Operating expenses fell 12 percent, and recent union agreements to cut labour and pension costs seem promising.

Delta is still struggling to emerge from bankruptcy protection.

It had to silence its Song low-cost subsidiary in May, and lost 2.2 billion dollars in the second quarter.

But excluding huge reorganization items, the airline achieved its first adjusted profit in six years.

U.S. Airways posted a record $305 million second quarter profit, second only to Southwest, and expects to post profits for the remainder of the year.

“The primary driver of this turnaround”, said CEO Douglas Parker, “was the merger” with America West completed a year ago in September.

Parker says that Northwest and Delta are prime candidates for mergers – and I agree.

After losing more than 38 billion dollars since 2000, eight of the ten largest U.S. carriers reported a combined net income of 1.2 billion dollars for the second quarter – the first quarterly profit since 2000.

Can we believe that we are witnessing here a true recovery?

There are still fundamental problems with the U.S. industry, and I believe that there is still a need to downsize and consolidate.

Unfortunately, in my view, Chapter 11 has been preventing the required consolidation of the legacy carriers.

When Pan Am and Eastern were allowed to disintegrate, other airlines picked up the pieces worth saving – such as part of their fleets, gates at congested airports, and a number of international route rights.

Low-costs now represent 42 percent of the U.S. domestic market, and their share will probably level off at 50 percent.

Now, eight legacy carriers competing for the remaining 50 percent are far too many to ensure a stable, profitable industry.

One way or another, consolidation has to take place.

There are bound to be more mergers and consolidations, domestically and internationally.

I don’t wish to discourage membership in the various airline associations, but the world doesn’t need 280 marginal carriers.

With the proliferation of new carriers, inspiration ran wild in chosing the names of some of the new airlines, and I think that the results do not always inspire confidence.

Didn’t New Zealanders worry that Kiwi Airlines was named after a bird that can’t fly? The airline did not last very long for that matter.

Is Aspiring Air, another New Zealand carrier, truly an airline? Or hoping to become one?

Is the Chinese airline Lucky Air, with a fleet of only one aircraft, somewhat not begging the question?

Is Shangri-La Air in Kathmandu as mythical as its name?

Would you want to be the next customer on Japan’s Air Next?

This is not projecting a very serious image!


To return to our brief overview

All in all, in most regions of the globethe airline industry is shaking itself out into a more diversified model, and is showing signs of heading towards more stability.

Traditional airlines trimmed into profitability are still very much alive almost everywhere. But the jury is still out in the U.S.A.

Low-costs are occupying a lot of space but they aren’t taking over the whole industry.

Full-fare, full-service is back in vogue – and the customer, once again, is king.

The industry is returning to the basic notion that competing on product value is a better way to profitability that competing on price alone for market share.

Of course, not all carriers are returning to this basic strategy.

Ryanair begs to differ, in fact promises that by the end of the decade “more than half if (its) passengers will fly free”.

Ryanair’s secret? Besides an austere cost structure that makes Southwest look profligate, Europe’s most profitable airline puts a price on virtually everything – from peanuts and beverages to baggage check-in, and now, cell-phone use.

Ryanair intends to offer in-flight gambling next year and take a cut off each wager.


The latest security measures, which drastically reduced on-board cabin baggage, may well increase the number of lost bags.

By the way, have you ever wondered where unclaimed, undelivered airline baggage ends up? The U.S. carriers sell those to an outlet in Alabama.

This outlet gets about one million visitors a year for merchandise that includes everything from emerald rings worth $100,000 to wedding gowns – hopefully lost after the wedding.

I am told that this is the State of Alabama’s largest tourist attraction!

One cannot help but wonder if lower fares are not somewhat of an illusion, when you have to pay extra for meals, blankets and pillows, headphones, roomier aisle and exit row seats, reservations made by phone and so on.

To differentiate themselves from those “pay-for-everything” low cost carriers, several airlines have decided to re-introduce a number of amenities in economy by creating a Premium Economy Class.

The new class offers wider seats, extra legroom, improved meal and beverage service, personal entertainment, computer outlets, separate washrooms, and even a separate cabin, for a price about 25 percent more than economy.

Air Canada, Air New Zealand, British Airways, Thai, and United all offer this type of product differentiation in one form or another.

Economy passengers on Cathay Pacific get a hot meal and beverage service, even on one-hour flights.

Qantas Airways and Virgin Atlantic offer personal, on-demand video screens in all classes.

Even low costs such as Jet Blue and WestJet now have live satellite TV sets in the back of every seat.

Gulf Air has trained nannies to look after children even in Economy Class on long-haul flights, and at no extra charge.

For high-living, First Class passengers, Gulf Air offers “Sky Chefs” on all A330 and A340 flights.

The Chefs, trained at top hotels, meet privately with each passenger to discuss the menu offerings and service options, and then personally prepare and serve the meals.

British Airways offers gourmet meals to their First Class customers in high-end airport restaurants before some overnight flights.

Qantas Airways has a First Class lounge with a stand-up bar and leather sofas on its new A340-600s.

I remember when Air Canada introduced its first 747s, the airline decided to have an upper deck lounge with a dance floor, and flight attendant hostesses in long skirts.

It didn’t last long; wives started to complain that this was one amenity too many.

Lufthansa pampers First Class passengers with their very own terminal at Frankfurt airport.

Virgin Atlantic’s “Upper Class” includes flat beds, in-flight massages and limo transfers.

Qantas has cocoon-style sleeper seats in Business Class.

British Airways’ “Club World” has slightly shorter flat beds than in First Class.

Most carriers are reluctant to go “flat out” in Business Class, however, because it is still an important differentiation with First Class.

New seats, more amenities, improved meals, and bigger bins are not the only way to a better business product.

Continental had the novel idea to improve their product – by ensuring their employees would all be friendly and knowledgeable!

The ultimate business-class product differentiation is the all-business-class flight, such as offered for several years now by Privat Air-Lufthansa between Dusseldorf and Newark.

Last October, a new so-called “boutique” carrier, Eos, began offering all-Business Class “super-luxury” flights between Stanstead and JFK on Boeing 757-200s.

The aircraft, originally designed to seat as many as 220, are outfitted with only 48 “pod suites” that allow each passenger much real estate.

Amenities include cashmere blankets.

Another all-business, boutique carrier to surface recently is MAXjet Airways, which flies 767-200 ERs almost daily between Stanstead and New York and Washington.

I think that it is abundantly clear that there is a sizeable market out there of airline customers who want more comfort and quality, and who are willing to pay for it.

These may be the same people who pay 40 to 70 thousand dollars for a quality car.

The aircraft manufacturers have not been insensitive to travellers’ expectations of increased quality.

Larger windows, roomier storage bins and better in-flight air quality will offer passengers significant improvements in airplane comfort – at least that is what is claimed by the manufacturer.

The Boeing 787 will have windows 65 percent bigger than today’s standard.

Instead of shades, a film over the windows can be adjusted to block out sunlight during movies while still allowing passengers to look out, much like a limousine.

A fuselage built largely of carbon-fibre composites will allow higher humidity in the cabin and lower pressure, which means travellers will arrive feeling less tired and less dehydrated.

Not to be left behind, Airbus last summer basically junked its previous derivative strategy by opting for a completely new 10 billion dollar design with a wider fuselage, and slightly higher speed.

This new airplane is now called the “A350Xtra Wide Body (XWB)”.

To compete with both the Boeing 787 and the B-777, it will need to more than match the advanced features claimed by its competitors, such as enhanced cabin lighting, wider windows, etc.

In the regional jet arena, Embraer’s new midsize 170 and 190 aircraft offer big-jet comfort and four-across seating.

Somehow Bombardier continues to delay, perhaps indefinitely, its decision to build a new regional jet – to the delight of Embraer which is becoming the new leader in this product niche.

It remains to be seen whether Sukhoi’s entry will become a serious challenger.


All that new in-flight comfort will make little difference to passengers, however, if they are grinding their teeth in frustration by the time they get aboard.

Larger overhead bins are not a benefit if the only thing one will be allowed to place in them is a clear plastic bag containing a passport, keys, and baby formula.

A popular Montreal humorist, Josh Freed, joked in his newspaper column at the time about a security guard asking a passenger to swallow some of his Viagra medication before boarding, to ensure it was a genuine prescription drug.

My friend Jacques Duchesneau, President and CEO of the Canadian Air Transport Security Authority, will have I am sure a good deal more to say about that subject tomorrow.

But it is evident that we are still taking far too long in screening passengers and their luggage.

We’ve known about the threat of chemicals on planes for at least six years.

Some of you may remember Operation Bojinka, when two Kuwaiti terrorists blew up an unsuspecting Japanese businessman in his seat on a Philippines domestic flight, using liquid explosive placed in a contact-lens case.

It was a test for a plan to blow up a large number of aircraft over the Pacific.

European researchers have thus far spent 46 million dollars in a project called “SAFEE” to create a non-hijackable plane.

The concept calls for the airplane to be equipped with a system to spot suspicious passenger behaviour – a collision avoidance system that will prevent the airplane from being steered into buildings, an autopilot that will guide it automatically to the nearest airport in the event of a hijack, and sensors that will minutely observe passengers throughout the flight.

But what use will these technological advances be if we, as governments and industry, still cannot reach consensus on the harmonized use of biometrics, shared data bases, and other measures that are available now to enhance security and reduce the hassle of travelling by air?

Technology isn’t always the answer.

When NASA fist started sending up astronauts, they quickly discovered that an ordinary ballpoint pen would not work in zero gravity.

To combat the problem, NASA scientists spent a decade and hundreds of millions of dollars to develop a pen that writes in zero gravity, upside down, and at temperatures ranging from below freezing.

The Russians used an ordinary lead pencil.


Aircraft movements now total about 70 million annually.

Many Governments around the world are increasingly hard-pressed to finance the billion of dollars needed to relieve airport and airways congestion.

But it is not, in many cases, because of a shortage of funds collected through taxes and fees.

I read recently that less than 5 percent of the “passenger facility charges” collected over the past 15 years at LAX has been spent on improving facilities.

Air traffic delays are another source of air travellers’ frustrations, not to mention the cost of wasted fuel and its impact on the environment.

Here again progress is being made.

The recent reduction of vertical separation minima over Europe, the Atlantic, and North America has doubled airways capacity.

The “Single European Sky” concept had been accepted in principle, although it is still a long way from being implemented.

Galileo should be operational by 2008, and other promising concepts are in development.

And the industry is beginning to seriously examine the possibility of alternative bio fuel.


I would like this Forum to conclude that we continue to make progress towards becoming a truly global industry – appropriately rewarding our employees, caring for our customers, and annually distributing good profits to shareholders.

But above all, I would like to see our customers back on the pedestal, particularly at the airport.

Our customers should have at their disposal, in every class, a full range of quality, value-for-money products to meet their needs, and their pocket books.

Our common objective should be to ensure that our customers do not have any reason to worry about security and safety.

We also should be able to reassure them that our industry speaks the truth, and does the right things.

I will be most happy if airline customers in the years to come can claim, once again, that getting there by air is half the fun!

Thank you.

ICAO/ACI Global Air Transport Outlook Conference – A Canadian Observer’s View of the North American Air Transport Industry

A Canadian Observer’s View of the North American Air Transport Industry
ICAO/ACI Global Air Transport Outlook Conference
Montreal, 29-30 June 2006  >>


Ladies and gentlemen,

In my opening remarks yesterday morning I noted that, in Canada, a new industry equilibrium appears to be in the making.

Air Canada reported net income of $ 258 million for 2005 – just a year after the airline’s restructuring – and net income of $118 million in the seasonally slow first quarter of 2006.

WestJet also posted strong profits both last year and in the first quarter, as did CanJet and Air Transat in its recent second quarter.

I used the word “new” in the sense that the Canadian industry has regained the stability it once enjoyed. First before deregulation, through government policy, but also subsequently when the two main opponents at the time, Air Canada and Canadian, had achieved a mature acceptance that competing on product value to grow the market was a better way to profitability than competing on price alone for market share.

Following the present prolonged period of great instability, Air Canada has managed to retain its role as the national carrier serving all major international destinations, and with a strong presence across North America.

West Jet, the main domestic competitor, enjoys some 30% of the lucrative Canadian transcontinental market and sees niche opportunities for itself on the trans-border. However, its rapid growth has come at the expense of a major increase in long term debt – now totalling some 1.1 billion USD – which is some two and a half times its equity.

With the return on capital having plummeted from as high as 18.4 percent some six years ago to less than four percent for the past two years, West Jet’s expansion is likely to be more moderate from now on.

By way of comparison, Southwest Airline – the role model of all those so-called low cost airlines – has consistently averaged 11 percent year after year.

CanJet seems content with operating short-haul destinations out of its Halifax base, supplemented by “sun” destinations in the winter.

Air Transat is well entrenched as Canada’s premier integrated leisure airline and tour package operator.

All those carriers have seemingly decided to avoid disastrous price wars and are a great deal more focussed on achieving a good bottom line.

I’m sure our American friends would love to hear the U.S. industry is also stabilizing. Unfortunately there the litany of difficulties continues unabated:

Despite heavy traffic and higher fares, American again lost money in the first quarter.

Continental narrowed its loss but the forecast for 2006 is dim.

United emerged from three years of bankruptcy protection in February and lost 306 million USD in the first quarter of this year, which is slightly more than it did in the first quarter of 2005.

Northwest’s bankruptcy reorganization added a billion dollars to its first quarter loss.

Delta is still struggling to emerge from bankruptcy protection, and last month had to silence its Song low-cost subsidiary.

Southwest still made money but had to fight harder to maintain its edge.

What’s wrong with the U.S. industry?

Why are the U.S. legacy carriers seemingly unable to restructure successfully and achieve the kind of positive developments occurring in Europe and elsewhere?

To add – and perhaps reinforce – some of the opinions and views already expressed at this Conference, let me point to a very important difference between legacy carriers in the U.S. and those of Europe and elsewhere.

As much as 70 to 75 percent of the traffic carried by the major U.S. airlines is domestic, and only 25 to 30 percent is international.

The reverse is true for European carriers.

As U.S. low-cost carriers concentrated almost exclusively on domestic markets, the American legacy airlines were that much more vulnerable than their European counterparts.

Their attempt to achieve parity with the low-costs required far more extensive restructuring.

There were just too many overhead and fixed costs to reduce.

Legacy carriers also carry the legacy – of huge pension funds with an unmanageable unfunded gap, as well as other burdens that come with being around for a long time – as some of us grey heads here today know all too well.

The financial difficulties of legacy carriers over an extended period of time have forced them to put fleet renewal on the back burner.

Too large a percentage of their fleet consists of 25 year-old plus aircraft.

Their fuel and maintenance costs are much higher than those of, say Jet Blue, which flies the new, 20% more fuel-efficient Airbus 320s and Embraer 190s.

Jet Blue was a good example of how, generally, the low costs have been able to enter domestic markets and prevail almost overnight because of a new, efficient fleet and low overhead, low-seniority employees, lean headquarters staff in airport hangars, no-frill service, etc.

But when I say that Jet Blue was a good example, it is because Jet Blue has since broken away from the low cost formula by acquiring a second aircraft type and introducing an upgraded hybrid service.

And we all know that a mixed fleet is a “no-no” for any low-cost.

The airline has now posted its second quarterly loss, and it remains to be seen whether this change in strategy will succeed – or may in fact turn out to be a costly mistake.

It will be interesting to watch whether the U.S. Airways-America West merger will truly turn out to be successful.

U.S. Airways earned $65 million in the first quarter, in part because the merger with America West allowed it more leeway to trim less lucrative routes and beef up more profitable pairings.

Despite their good efforts, I don’t think that the legacy carriers are yet off the hook in their need to downsize and consolidate into lean – and mean – competitors.

Unfortunately in my view, Chapter 11 is preventing the required consolidation of the legacy carriers.

When Pan Am and Eastern were allowed to disintegrate other airlines picked up the pieces worth saving, such as part of their fleets, gates at congested airports, and a number of international route rights.

I said yesterday that the European experience is proving that consolidation and mergers can produce positive results.

I believe that U.S. legacy carriers, reborn into three or four strong competitors, would also benefit from cross-border mergers with alliance partners – something which is currently prevented by a U.S. aviation policy that puts very restrictive limits on foreign investments.

The Canadian industry has given signs of being interested in such a development.

As a case in point, Air Canada’s minority investment in Continental some years ago was a precedent that proved profitable for both carriers.

With a population of only 33 million, the conundrum for Canada’s airlines is where to grow.

The skies opened a little wider with the Canada-U.S. agreement signed last November.

The 5th freedom rights negotiated provide an opportunity for Canada to link U.S. and European markets through Canadian points.

The U.K.-Canada bilateral, recently agreed in principle, offers similar opportunities if it can ensure that the 5th freedom ultimately defined would match those in the U.S.-Canada bilateral, and thus permit Canada’s airlines to participate in U.K. to U.S. markets through Canadian hubs.

Given U.S. concerns about security, foreign ownership and cabotage, I don’t think further liberalization of the Canada-U.S. agreement will happen any time soon – just as, for the same reason, the EC-U.S. negotiations are at an impasse.

As a temporary alternative to a fully integrated common air market over the Atlantic between Europe and North America, the European Commission could perhaps be interested in a discussion with Canada along the lines of their proposal to the Americans.

With cabotage no longer of great importance to the E.C. position, other concerns – even security – could be overcome.

Canada has stated on several occasions that on a reciprocal basis, foreign ownership of Canadian carriers could readily be increased to 49%.

The advantages to both Europe and Canada are obvious.

Some 25 bilaterals would be replaced by one agreement covering the whole European Common Market.

Canada’s airlines would have “open skies” access to a market of some 450 million people – some fifteen times its own population.

The European Community would achieve the successful implementation of their common Atlantic air market approach, with a major North American partner.

The experience learned in such an agreement would be useful to all parties in eventually overcoming U.S. reluctance.

A Canada-E.C. agreement would be another step in modernizing the Chicago convention and moving beyond the archaic air bilateral approach which may have served the industry well in the past, but is now of another age.

As Canada and other countries have learned, the market knows better than governments as to who should fly where, how often, and at what price.

Our global village may still be a long way from one common air market, but despite hesitation and reluctance by many – and outright refusal by some – it is moving steadily towards this eventuality.

At stake are continuing world economic growth, satisfying universal consumer demand, and the overwhelming need to rationalize the international air transport industry to achieve, finally, a sound financial basis.

Transportation – perhaps as much as agriculture – was essential to the start of civilization, and has been an integral part of our economic and cultural growth ever since.

Canada knows that well.

More than many other nations, Canada was created and developed with the help of transportation.

The growing importance of international trade to Canada requires the continued support of an enlightened transportation policy.

Canada’s need to remain at the forefront of the liberalization process is not uniquely altruistic, but I believe that increased market access would ultimately benefit everyone.

We all know that a “big bang” solution to worldwide liberalization is most unlikely, and that we are likely to continue in a step-by-step approach.

The way to proceed appears to be, therefore:

Continued expansion of bilateral “open skies” agreements by all like-minded nations;

Continued expansion of regional common air markets such as achieved by the European Community;

Pursuit of bilateral agreements between regional common air market areas and other regional areas – or by “block-lateralism”, to use an expression coined some time ago.

Globalisation of industry, trade and commerce is a process which has been unfolding for many years, and of course the World Trade Organisation (W.T.O.) has been working hard at removing trade barriers on many fronts.

But international aviation, together with the communication networks, should be credited with having largely contributed to the acceleration of globalization we have been witnessing.

Now, it is a rather curious paradox that the airlines themselves would remain unable to become truly global entities themselves.

Why is it that the automotive industry, the pharmaceutical industry, or the petroleum industry – and so many other industries – are given full freedom of action on a worldwide basis but the airlines are not?

The restructuring of the airline industry in North America remains unfinished.

Low costs now represent 42% of the U.S. domestic market and their share will probably level off at 50%.

Now six legacy carriers vying for the remaining 50% may prove to be too many to ensure a stable, profitable industry.

Would it not be desirable to encourage consolidation into three or four major national carriers once again able to hold their own domestically, and internationally?

Some have suggested that Chapter 11 bankruptcy protection should be modified to limit the frequent resuscitation of moribund airlines – which may only serve to prolong the agony.

And we must also encourage more mergers and consolidations internationally. I do not wish to discourage membership in IATA, but wouldn’t the industry and the travelling public be better off if, instead of 250 marginal national carriers, the international airline industry was to consolidate into maybe 30 or 40 strong global competitors?

Should consolidation accelerate internationally, would the U.S.A. be content to watch it from the sidelines and prevent opportunities for its reborn U.S. legacy carriers to merge with international alliance partners – which would require that the U.S. aviation policy become less restrictive about foreign ownership?

Surely questions of security and ownership can be addressed satisfactorily if the will to do so is there.

The process of dismantling the barriers preventing world deregulation of international aviation must be vigorously pursued.

In this quest, it is hard to believe that the U.S.A. would not choose to remain a key driver.

The prize is surely worthwhile. At stake is the emerging of an industry finally allowed to behave like most others – stable and profitable.

Thank you.

ICAO/ACI Global Air Transport Outlook Conference Opening – Global Air Transport Outlook Overview

Global Air Transport Outlook Overview
ICAO/ACI Global Air Transport Outlook Conference
Montreal, 29-30 June 2006  >>


Ladies and gentlemen,

This Conference is about the future. But the future starts today, and it is most useful to remember where we are starting from.

Allow me to take a few minutes for a brief overview of our industry from my perspective.

Although it is hazardous to make any predictions – and particularly so when it concerns the short-term future – I believe that 2006 will turn out to be the transition year towards a more stable, and profitable, aviation industry.

Less than a year ago, at another industry forum, I offered the following summary assessment of the state of our industry:

All components of the air transport industry are adapting to survive, but our evolution into a hardier species is far from complete.

Pricey oil still threatens. The pressure on yields is relentlessly downward

Capacity continues to outpace demand while fleets are in need of renewal.

Market liberalization progresses too slowly. Regulation remains excessive in some areas – and insufficient in others.

Congested terminals and airways are choking growth.

More than a few carriers are in urgent need of consolidation.

Safety is again an issue.

And the airline industry as a whole continues to lose billions of US dollars every year!

What’s changed?

Well, for one thing, there is a mood of optimism about our industry that’s been absent since 9/11 and its aftermath.

Last year’s loss, at $6 billion, was less than expected.

And although oil prices are still impacting the bottom line, the industry could lose as little as $3 billion this year – slightly less than last year – and could make as much as $3 billion in 2007.

Last year, the world’s airlines ordered more than 2,000 aircraft in total from Boeing and Airbus, representing a record increase of 15% in world capacity. Aggregate sales for the two companies should fall to less than half of that in 2006. But that would still represent a lot of increased capacity.

With an order backlog of 4,000 aircraft, equivalent to 19% of the existing fleet, it is time for demand to catch up with capacity.

The more efficient aircraft will tempt airlines into offering lower fares, chasing after market share. This is not the way to long-term profitability.

Part of that new technological efficiency has to translate into profit – and returned to investors.

Warren Buffet once quipped that if a capitalist had been present at Kitty Hawk, he would have done future investors a big favour by shooting down that first flight.

The lower fares offered by airlines today may be somewhat of an illusion – especially when you have to pay extra for meals, blankets and pillows, headphones, baggage exceeding reduced allowances, roomier aisle and exit row seats – and the list goes on.

Although improving in total, the financial health of the industry still differs substantially by region and by type of airline. And among the failures, there are some spectacular successes.

The Asia Pacific numbers are staggering.

Over the last five years, China’s airlines flew record numbers of passengers and cargo, and earned over a billion dollars. The country’s booming aviation sector is expected to see air traffic double in the next five years.

Consolidation is active in China, with Cathay Pacific now acquiring Dragonair. As part of this transaction, Air China and Cathay will each be holding a substantial amount of each other’s shares (approx. 20%).

India’s liberalized air transport market is now – with that of China – the brightest prospect in the global aviation arena.

The centre for Asia-Pacific Aviation has forecast a growth of over 25% per year, and projected 70 million domestic passengers by 2010.

Full-service airlines such as Jet Airways and now Kingfisher are raising the bar on quality.

Low-costs like Air Sahara, Air Deccan, Spice Jet, and IndiGo are major contributors to the sector’s explosive growth and prosperity.

Even traditional Air India and Indian Airlines are transforming themselves into potential money-makers.

Consolidation is also likely to occur in India. We have seen a recent attempt by Jet Airways to acquire Air Sahara.

Malaysia, along with India, has become fertile ground for discount airlines, but a shakeout is looming and the industry’s overall prospects have been somewhat dampened by the continuing losses of the national carrier, Malaysian Airlines.

A new star in the skies of Asia is Indonesia, the region’s now most dynamic domestic aviation market.

Traffic growth has been spectacular – from six million domestic passengers in 1998, to an expected 30 million this year.

With large cities, separated by distance and water, this nation is custom-designed for air travel.

The picture we see emerging in the Middle East is one of three full-service, long-haul carriers – Emirates, Etihad and Qatar Airways.

Their competing hubs of Dubai, Abu Dhabi, and Doha are planning to offer passengers access to a wide array of destinations worldwide,with a fleet of extra-long-haul aircraft now coming on the market.

They are becoming very serious participants in the world market. Dubai’s passenger volume has already reached 76% of Singapore’s Changi hub.

Airlines such as Royal Jordanian, Middle East and Gulf Air will occupy a second tier of restructured, partially privatized and increasingly profitable legacy carriers – regionally focused but linked into the global alliance networks, and offering convenient connections to an array of regional points.

A third group will be the Middle East low-costs, offering discounted, point-to-point services within the region and to destinations on the Indian sub-continent, North Africa and Eastern Europe.

In many ways, the Middle East picture contains many elements of the evolving aviation landscape worldwide.

The European experience is proving that reinvention, restructuring, consolidation and alliances can produce positive results.

The Air France-KLM Group just posted a 2006/06 annual net profit of $1.17 billion.

Lufthansa is back in the black, and expects a positive contribution from the integration of Swiss International by next year.

British Airways has boosted its profits for the first quarter of this year to 168 million… up from 2.0 million last year but has yet to buy into the European consolidated model.

Second-tier carrier Aer Lingus has reinvented itself into a profitable airline. But others like SAS, Alitalia and Olympic remain basket cases.

Ryanair, Europe’s largest budget carrier, still expects profits to grow by 10% this year.

Second-largest Easy Jet anticipates similar profit growth.

Air Berlin, poised last year to become the third largest low-fare airline, is now losing money.

In Eastern Europe, low-costs are still proliferating.

But we can also expect consolidations in the crowded European low-cost market.

Still, despite some rough air ahead, the European sector can expect to enjoy an improved level of stability in the years to come.

I’m sure my American friends would love to hear a similar prediction for the U.S. industry. Unfortunately, there the litany of difficulties continues unabated.

By contrast, in Canada a new equilibrium appears to be in the making.

I’ll have a little more to say on the North American situation in tomorrow’s regional outlook section.

Elsewhere on the American Continent, a number of Latin American airlines are successful money-makers. Lan-Chile and TACA are good examples.

Brazil’s more recent low-cost, GOL, is enjoying spectacular and profitable growth.

Unfortunately Varig, once a great airline, has continued to disintegrate, its restructuring hampered by its ownership situation and the continued involvement of the government.

But all in all, in most regions of the globe the airline industry is shaking itself out into a more diversified model, and is showing signs of heading towards more stability.

Traditional airlines, trimmed into profitability, are still very much alive – whether in India, in the Middle East, in Europe, in Latin America, and even in Canada.

Low-costs are occupying a lot of space, but they aren’t taking over the whole industry.

Many believe that the low-cost model doesn’t work past three hours flying time because of extra costs associated with longer turnaround times, increased need for in-flight services, etc.

Full-fare, full-service is back in vogue. This is certainly so on the longer haul.

A new breed of mega-carriers is emerging to serve integrating international markets.

While some hubs may lose their relative importance, others are becoming the favourites of tomorrow’s travellers.

Whether the rate of growth of this more stable, and kinder, airline world is sustainable will depend, however, on how well the infrastructure can accommodate an airline industry driven by profit – as well as demand.

For several regions, the traffic growth prospects are indeed exciting!

However, India’s bright air transport future could be severely limited by inadequate and sub-standard airports.

Not enough Chinese airports are available for civil aviation, although we know that China plans to open 48 new airports over the next five years.

Governments around the world are increasingly hard-pressed to finance the billion of dollars needed to relieve airport and airways congestion, particularly when taxes and fees – earmarked for infrastructure improvement – end up serving other public needs, deserving as they may be.

Airport privatization is therefore a welcome trend. But given their quasi-monopoly status, airports must exercise strict control on their costs and avoid passing cost increases directly to the airlines – and the travellers.

We all know who the worst offenders are, and that includes one airport named after a Canadian Prime Minister.

A proper balance needs to exist, and while it is essential that profits are adequate for cost-effective and timely infrastructure development, controls should exist to ensure that return is commensurate with the risk – and not excessive.

Relieving congestion in the air is an equally pressing concern for the future.

There again, progress is being made.

The recent reduction of vertical separation minimums over Europe, the Atlantic and North America has doubled airways capacity and will save billions in operating costs over the next decade.

The “Single European Sky” concept has been accepted in principle, although still a long way from being implemented.

Galileo should be operational by 2008 and other promising concepts are in development.

But we need to get them off the drawing table – and into the air!

Making airways more efficient saves fuel and that’s good for the environment, as well as for airline balance sheets.

We all like to think that by keeping the emission rate under 3% we’ve done our part as good corporate citizens. But is that enough?

More initiatives are required.

Virgin’s Richard Branson’s announcement of his intention to build plants to produce an environmentally-friendly aviation fuel from cellulosic ethanol is interesting.

Whether or not Sir Richard’s particular good intentions prove viable, I believe that developing bio-fuels for aviation – as we have started to do for automobiles – is worth exploring.

And we must certainly carry on the good fight to safeguard and improve airline safety.

Accidents with passenger fatalities doubled in 2005 after two of the safest years since the creation of ICAO in 1944.

I applaud ICAO’s recent initiative in seeking consensus on a global strategy for aviation safety.

This industry must always keep safety the number one priority… front and centre.

As well, we need to reach consensus on the harmonized use of biometrics, shared data bases, and other measures to enhance security and reduce the hassle of travelling by air.

Technology is providing us with more efficient and environmentally friendly airplanes which should enable airlines to significantly reduce their operating costs. The manufacturers will tell us more on that this afternoon.

Together with the current efforts to simplify the business processes, which must also improve convenience for passengers and shippers, this would further contribute to improve airline bottom lines by millions of dollars – and make it all that much easier for our next speakers to find ways of financing the future of our great industry.

Will this produce sufficient profit to be retained by the industry to justify the very large investments required for fleet expansion and renewal, as well as for the infrastructure required to sustain the projected market growth?

This question, ladies and gentlemen, is central to our debate, and I look forward to the valuable contribution of our various speakers today to help us to get closer to an answer.

Thank you.

Address by Pierre J. Jeanniot to McGill University

Address by Pierre J. Jeanniot
McGill University, 29 May 2006  >>


Chancellor Mr. Richard Pound
Principle and Vice-Chancellor Professor Heather Munroe-Bloom
Dean of the Faculty of Management Professor Peter Todd
Distinguished members of the Faculty
Distinguished guests and family members
Dear Graduates

To say that I am overwhelmed by this great honor is somewhat of an understatement!

Je dois vous avouer, Madame le Recteur, que votre proposition de me propulser à un tel sommet m’a donné quelque peu le vertige.

But as a man who is afraid of heights I have to remain modest.

Upon being informed of this honor I experienced a rather strange feeling which could best be described as a mixture of humility and of collective gratitude on behalf of the many highly competent collaborators who worked with me over the years and who richly deserve to share in this special moment.

My mind flashed back to the early 1960’s at which time I was attending night courses at this venerable University in the vain hope of obtaining a Masters in Commerce (the MBA did not yet exist at McGill).

I say vain hope because I had just discovered that McGill had a policy of not granting a Masters Degree to any student unless he or she was able to attend the University for at least six months on a full day-time basis.

Needless to say that with three young children and a fledgling career this was for me impossible.

I had developed a friendly relation with a fellow student a man in his mid fifties who was taking the same three courses I had selected that year. On many occasions we would go to a local coffee house following the lecture at around 1015 p.m. to share a grilled cheese and a coffee.

On one of those evenings as I complained bitterly about McGill’s archaic policy I was surprised to hear my companion vigorously defend McGill’s position advancing arguments as to why the policy was appropriate.

“Why would you be defending McGill?” I said somewhat puzzled.

Well he said “I have to after all I am the Dean of the Commerce Faculty!” He then explained that having graduated some 30 years earlier he felt that he needed to refresh his knowledge on the subjects now being taught.

That was Dean Eric Kierans and in spite of his views we did remain friends.

A short while later at the same coffee house I witnessed René Levesque then a member of the Lesage Government and involved in the Québec “Quiet Revolution” convincing Eric Kierans to join the Liberal Government which he did as Minister of Finance.

The unfolding of the “Revolution Tranquille” was an exciting time in this province and at the end of that decade the 60’s I found myself deeply involved in bringing about the network of the “Université du Québec”. A few of us were given nine months to start four campuses and accommodate some 14,000 students.

A lot of water has passed under a great many bridges since those days.


Today I want to extend my warmest congratulations to each of you today’s Graduates for the very significant milestone you are reaching at this time.

This is the crowning achievement of many years of effort and dedication and you can be justifiably proud of your accomplishment.

McGill is a great a world-renowned University and as one of its Graduates each of you now has the demanding responsibility of living up to that great reputation.

You belong to a privileged group by talent of course and by hard work but also privileged to some extent perhaps by geography or by birth or social class and background.

What you have been able to achieve is a product of our democratic environment one that promotes and fosters equality of opportunity for all regardless of origin sex or religion.

an environment which appreciates differences rather than fights to eliminate them

an environment of mutual respect and tolerance where the only thing that must not be tolerated is intolerance itself.

Only a true democratic environment one that values freedom of expression equality of chances protection of human rights can ensure on a worldwide basis the continued progression of the human race

a continued progression in reducing the level of poverty and in steadily raising the standard of living and the quality of life of every human being.


In the context of the evolution of mankind democracy is still a relatively new phenomenon a fragile and still imperfect institution which needs to be nurtured protected and enhanced.

I would suggest that you now share the responsibility of participating in that objective.


You have now acquired a great deal of knowledge which I am sure. you are all anxious to apply in practice.

Yogi Bera was once asked whether in baseball there was much difference between the theory. and the practice.

Having thought for a minute Yogi replied “well in theory there is no difference but in practice there is.”

Le Prince de Talleyrand a French Diplomat who had managed to keep an important role before during and after the French Revolution was fond of saying

“Il y a à mon avis trois sortes de savoir. There are three types of savoir; knowledge, savoir per se, savoir-vivre, et savoir-faire. All three he felt were equally important.”

Sans offense à Talleyrand je me permettrais d’ajouter un quatrième le savoir dire compte tenu de l’importance que l’art de communiquer occupe dans l’exercice de leadership.

Many of you have the potential and no doubt the aspiration to become leaders The current diploma gives you a good start.

But leadership is not something that you can impose on anyone.

Leadership is something that others give you recognize in you It has to be earned.

Leadership requires vision an ability to clearly communicate that vision and to inspire and motivate others to accomplish that vision.

If you communicate well people will listen to you but they will watch you even more closely. “You need to walk the talk” as they say.

Progress can only be accomplished if the status quo is challenged.

One needs to encourage an environment that is open to new ideas Fostering entrepreneurial spirit demands an acceptance of risk and acceptance of its consequences.

This needs courage.

As André Gide a great French writer of the last century once said “One cannot discover new land without consenting to lose sight of the shore for a long time.”


One final observation I would like to share is the need for each of you to find the right balance in the quality of life and the evolution of your role as a useful and contributing member of society.

Each of us has substantially benefited from society in general wherever we have come from.

I would suggest that as opportunities occur we have an obligation to give back to society in money or in kind for the benefit of those that will follow us.

Of course wealth can be re-distributed only if more wealth can be created and in those societies whose misguided policies have succeeded in destroying the incentive to generate personal wealth the result unfortunately has simply lead to a sharing of poverty and to mediocrity.

At the other extreme some people seem to enjoy playing a game called “He who accumulates the most money by the time he dies wins” that is if he does not land up in jail!

Well wealth is indeed a measure of success but wealth is essentially an enabler not an end in itself and fairly meaningless if not directed at increasing the quality of life yours of course since “charité bien ordonné commence par soi-même” but also that of society in general.

Thus since you can’t take it with you should you be fortunate to acquire a fair bit of wealth you might as well plan to make a generous donation to your Alumni Endowment Fund!

That’s my commercial for McGill!


Frankly dear Graduates I envy you.

The current dynamics of our economic environment are very exciting, full of challenges, and full of opportunities The possibilities are virtually unlimited in this rapidly changing world, where transportation and communication networks are truly bringing about the global village..

I am sure you already know that nothing really worthwhile can be achieved without hard work strong desire and a great deal of dedication and a substantial amount of good luck always helps.

But I will let you into a little secret “I found out that the harder I worked, the luckier I got!”.

And you may run into two kinds of people those who work hard and enjoy accomplishing things and those who do not work quite as hard but always try to get the credit for what others are doing.

Join the first group, its less crowded!

I wish each and every one of you,
much success in your respective careers.

De nouveau Monsieur le Chancelier Madame le Recteur je tiens à vous réitérer ainsi qu’à l’Université de McGill toute ma gratitude pour ce témoignage qui m’a profondément touché.

Thank you merci.

Speech at the Club Saint-Denis

Le transport aérien au 21e siècle: une révolution pas très tranquille!
Club Saint-Denis
Montréal, le 8 décembre 2005  >>


Merci, madame/monsieur, pour ces propos élogieux à mon endroit. Je suis honoré d’avoir été invité à être parmi les premiers conférenciers de ce nouveau programme de déjeuners-causeries du Club Saint-Denis.

Notre club fait partie d’une longue tradition qui remonte à l’Ordre du Bon Temps et au Beaver Club original, ce dernier fondé en 1785 par 55 coureurs des bois qui, pour faire partie du club, devaient avoir passé au moins une saison d’hiver entière dans les pays d’en haut. Lors d’un repas typique, nous dit-on, une trentaine de convives ou «voyageurs» avaient englouti 29 bouteilles de madère, 19 de porto, 14 d’hypocras – une boisson populaire à l’époque – 12 bouteilles de bière, sans compter multiple verres de gin, de cognac et de vin, au cours d’un seul repas.

J’espère que votre consommation d’alcool a été plus modérée aujourd’hui sinon je ne me rendrai pas à la troisième diapositive…

L’industrie du transport aérien traverse une période turbulente et continue de faire les manchettes plus souvent qu’à son tour. Ce n’est pas la première fois que cette industrie est en crise. Au début des années 70, l’industrie a traversé sa première crise du pétrole alors que le prix du carburant avait doublé. Dix ans plus tard, une autre crise du pétrole, une quasi-dépression économique et la déréglementation américaine, favorisant l’apparition de plus de 120 nouveaux joueurs, ont créé un profond gouffre financier pour les transporteurs traditionnels aux États-Unis. Au début des années 90, une nouvelle flambée du prix du carburant et un autre cycle financier dévastateur. Braniff, Eastern et Pan Am ont mordu la poussière.

Le nouveau siècle a débuté avec une autre crise: l’effondrement de la bulle technologique, qui a entraîné une autre récession en partie responsable pour le recul des voyages d’affaires et l’effritement de la structure tarifaire de l’industrie. Vinrent ensuite en rafale les événements du 11 septembre, la guerre en Iraq, la crise du SRAS (Syndrome respiratoire aigu sévère) et maintenant, la hausse vertigineuse du prix du pétrole. Il y a quelques semaines, le prix du pétrole a atteint le sommet record de 70 $ le baril.

Aux États-Unis, la situation est tout simplement catastrophique. L’Association des transporteurs aériens américains (ATA) annonçait, il y a quelques semaines, qu’elle s’attendait à ce que ses membres affichent une perte de 9,5 milliards $ US pour cette année.

Pas étonnant que Warren Buffett, le célèbre financier, ait déjà dit que si un capitaliste s’était trouvé à Kitty Hawk, il aurait rendu un fier service aux futurs investisseurs en abattant ce premier vol des frères Wright.

En septembre de cette année, Delta et Northwest se sont placés sous la protection de la loi contre les faillites, ce qui leur procure temporairement un peu d’oxygène. United a obtenu une dixième prolongation dans le cadre de sa restructuration. Les six plus grands transporteurs nord-américains sont en sérieuse difficulté et quatre d’entre eux sont en faillite.

Les gens voyagent plus que jamais, les avions semblent toujours bondés et pourtant, l’industrie est en difficulté. L’industrie est lourdement taxée et se retrouve, une fois de plus, au centre de préoccupations environnementales. Et finalement, au cours des derniers mois, il s’est produit sept accidents d’avion en autant de semaines.

L’industrie aérienne, telle que nous l’avons connue jusqu’à maintenant, peut-elle encore survivre en dépit de toutes ces difficultés? La réponse est un «oui» sans équivoque! L’industrie aérienne est en pleine évolution et s’adapte pour survivre. Elle en sortira transformée profondément.

À ce stade-ci, puisque j’ai répondu à la question, je pourrais peut-être aller m’asseoir. Une allocution gagne toujours à être brève, n’est-ce pas?

Mais comme j’ai promis à Mona Agia une réponse un peu plus étoffée, permettez-moi de poursuivre encore pour quelques instants.

S’adapter pour survivre est un principe que l’industrie aérienne a appris à ses propres dépens depuis toujours et, plus particulièrement, au cours de la dernière décennie. Tous les secteurs de cette industrie sont à réinventer leurs produits réduire leurs coûts et repenser leurs stratégies afin de demeurer compétitifs.

Bien sûr, certaines espèces, incapables de changer, sont en péril. Les transporteurs nationaux et les supersoniques ne sont pas les premiers, ni les derniers de nos drontes. Mais règle générale, tous les joueurs du secteur du transport aérien – constructeurs d’avions, motoristes, agences gouvernementales, gestionnaires d’aéroports et de corridors aériens – sont à s’adapter, plus ou moins rapidement, aux nouvelles réalités.

J’espère que nos amis américans du «Bible Belt» ne m’accuseront pas de privilégier la théorie de Darwin sur l’évolution des espèces à celle de l’«Intelligent Design».

Au chapitre des avions, nous avons de bonnes raisons de nous réjouir.
Des réalisations spectaculaires en design et en ingénierie caractérisent les nouveaux appareils, une révolution technologique en quelque sorte.
Pour ma part, quatre éléments cruciaux font toute la différence entre un dronte en puissance et un avion voué à un avenir des plus prometteurs.

Ces éléments cruciaux sont: l’aérodynamique nettement perfectionnée grâce à de nouvelles ailes et surfaces de contrôle; une électronique de pointe qui permet d’optimiser la performance de vol en tout temps; le poids substantiellement réduit grâce à une grande utilisation de composites; et enfin, une nouvelle génération de moteurs offrant des améliorations significatives en matière de consommation de carburant, de bruit et d’entretien.

La conjugaison de ces facteurs se traduit par une performance hautement améliorée. Le Boeing 787 Dreamliner et l’Airbus A380 en sont de parfaits exemples.

Le 787 utilisera 20% moins de carburant par passager que les avions d’aujourd’hui, comme le B767, par exemple. Le carnet de commandes de Boeing est éloquent: plus de 20 lignes aériennes ont placé des commandes et des options d’achat pour 309 Dreamliners dont 233 fermes. La projection une demande pour 3 500 appareils de cette taille sur les prochains 20 ans.

Cela a sans doute motivé Airbus dont la réponse ne s’est pas fait attendre et l’avionneur européen promet de lancer sur le marché dès 2010 un nouveau modèle, le A350, qui fera sans doute la vie dure au Boeing B787. (à date 155 engagements dont 59 fermes).

L’Airbus 380 a été la grande vedette du Salon Le Bourget cet été. Malgré un retard de six mois pour sa première livraison à Singapore Airlines et quelques autres premiers clients, on s’attend à ce que ce géant du ciel de deux étages livre véritablement la marchandise. À ce jour, 13 lignes aériennes ont placé des commandes fermes pour 159 Airbus A380. Airbus prédit que les coûts d’exploitation du A380 seront de 15% moins élevés que le 747-400.

Les postes de pilotage de ces nouveaux avions sont dotés d’avionique dernier cri et de systèmes de gestion de vol de grande précision et l’avionique, d’une architecture flexible, permettra d’incorporer facilement des développements futurs. Par exemple, «la vision synthétique», ce que Charles Lindbergh rêvait d’avoir, soit des lunettes pour voir à travers le brouillard.

Les prévisions météorologiques ont fait du chemin depuis ce temps-là et à ce sujet, permettez-moi une petite anecdote. À la suite de sérieuses inondations à Jeddah en janvier 1979, un journal local avait publié le bulletin suivant. Pour en conserver toute la saveur, je dois le lire en anglais: «We regret we are unable to give you the weather. We rely on weather reports from the airport, which is closed because of the weather. Whether we are able to give you the weather tomorrow depends on the weather».

Thales, une compagnie que je tiens en affection, a été un chef de file dans le développement de l’avionique du A380. Pour ce merveilleux appareil, Thales a aussi conçu un système de divertissement en vol offrant jusqu’à 1 200 films et 66 canaux, dont le réseau d’une puissance d’un gigaoctet peut donner accès au Web avec clavier et souris à chaque fauteuil. Les mordus pourront continuer à se brancher à 11 kilomètres d’altitude. Si vous me permettez l’expression, en termes de connectivité, «the sky is no longer the limit.»

Le domaine des avions régionaux est aussi en pleine évolution et la lutte sera dure entre Bombardier et Embraer. La décision de ces deux avionneurs de construire des appareils de plus grande capacité risque de les placer en concurrence directe avec Boeing et Airbus. Embraer a pris une longueur d’avance en livrant son premier 190 cette année (approx. 100 sièges). Il se propose de livrer son premier 195 à la mi-2006 (approx. 110 sièges).

Bombardier, une compagnie de chez-nous, est en lice pour construire des appareils de 110 à 130 places. Mais faute de clients et de moteur, son lancement a été reporté à une date indéterminée. Pratt & Whitney (Canada) a bien indiqué son intention de développer un moteur mais la décision finale n’a toujours pas été annoncée. Elle doit sans doute compléter une étude de marché afin d’évaluer les autres applications auxquelles un tel moteur pourrait aussi servir.

La scène se complique avec l’arrivée d’autres participants. Un ours russe est entré dans la course et il faudra aussi le prendre au sérieux. (Premier vol en 2007). Conçu par Sukhoi avec l’aide de Boeing, il sera motorisé par SNECMA. Toute l’avionique proviendra de THALES, avec une importante participation de nos effectifs au Canada.

Enfin, il n’y a pas que les Russes dans la mêlée. Les Chinois ont, eux aussi, décidé de construire un appareil régional. Mais comme un concurrent de THALES leur fournit l’avionique, je n’en ferai certes pas la promotion ici!

Tous ces nouveaux appareils, conçus à la fine pointe de la technologie, rendront les vols plus sécuritaires, plus confortables et plus économiques que jamais. Toutefois, ne trouvez-vous pas que les mesures de sûreté et les tracasseries dans les aéroports nous ont enlevé tout plaisir de voyager?

Je vous propose une vision d’un avenir que j’espère rapproché: Vous arrivez à l’aéroport international Pierre-Elliott-Trudeau de Montréal, (je ne m’aventure pas à abréger le nom de cet aéroport, ce qui serait irrévérencieux). Plutôt que de faire la queue au comptoir d’enregistrement, vous vous dirigez immédiatement vers un kiosque automatisé qui procède à la lecture de votre passeport ou tout autre carte d’identité contenant vos données biométriques. Vous obtenez ainsi les détails de votre réservation et tous les autres renseignements personnels utiles à votre voyage. Une fois votre identité confirmée, vous recevez une carte d’embarquement et des étiquettes à bagages qui émettent un signal radio unique à vos valises, ce qui permet de les localiser en tout temps. Au poste de sécurité et à la barrière, un capteur confirme votre identité biométrique et envoie un signal qui autorise le chargement de vos bagages. Arrivé à destination, vous récupérez vos bagages et présentez votre carte d’identité biométrique pour franchir les douanes et l’immigration en moins d’une minute. Un processus encore aujourd’hui long et fastidieux, impliquant plusieurs points d’interaction, deviendrait ainsi rapide, sans tracas, et surtout, plus sécuritaire.

La concrétisation de tout cela peut sembler éloignée mais détrompez-vous. Les lignes aériennes, les aéroports, les autorités gouvernementales et les fournisseurs de technologie du monde entier sont à tester et à mettre en place des initiatives dans leurs milieux respectifs.

Dans cette optique, les lignes aériennes ont mis de l’avant une série d’initiatives pour réduire les coûts et accroître l’efficacité de divers processus comme la billetterie, l’enregistrement des passagers et la manutention des bagages.

Déjà aujourd’hui, les billets électroniques représentent 40% du volume mondial. Elles se sont fixé l’objectif d’atteindre 100% en 2007.

En éliminant les billets traditionnels, c’est tout le processus d’enregistrement qui est transformé. Les cartes d’embarquement à code barre permettront éventuellement aux voyageurs de les imprimer à domicile.

Entre-temps, vous avez sans doute remarqué que des kiosques libre-service ont surgi dans les aéroports à travers le monde, améliorant le service à la clientèle, tout en sabrant dans les coûts de l’industrie.

Il n’y a pas que les longues files d’attente qui indisposent les passagers. Bien que moins de 1,0% des 1,5 milliard de pièces de bagage transportées annuellement sur des vols commerciaux soient égarées, cela représente tout de même environ 10 millions de pièces de bagage et le même nombre de passagers mécontents. La perte de bagages coûte près de 2 milliards $ à l’industrie et donne lieu à des remarques ironiques, comme celle de Mark Russel, pour qui les anneaux de la planète Saturne sont entièrement composés de bagages perdus. Grâce aux merveilleuses photos de la NASA, nous avons pu réfuter cette allégation!

Les étiquettes d’identification de bagages émettant des fréquences radio (RFID) réduiront substantiellement le nombre de bagages disparus, en retard ou égarés. Les économies en espèces et en frustration des voyageurs seront appréciables.

Toutes ces technologies – billets électroniques, enregistrement en ligne, kiosques libre-service et étiquettes d’identification de bagages par radiofréquence – ont déjà été adoptées, en partie, par des transporteurs aériens et des aéroports avant-gardistes.

Le Canada a fait preuve de leadership en lançant son programme « CANPASS » qui vous permet maintenant de rentrer au pays, aux aéroports principaux, sans avoir à vous présenter à un agent d’immigration et de douane par la simple lecture de votre IRIS. Les États-Unis ont un programme similaire mais ils préfèrent une autre lecture biométrique, en l’occurrence l’empreinte digitale.

En 2004, plus de 1,8 milliard de passagers ont voyagé par avion et on n’a rapporté aucune perte de vie reliée à la sûreté. On a renforcé et verrouillé les portes des cabines de pilotage, on examine les passagers de la tête aux pieds, la technologie biométrique a fait son apparition dans certains aéroports. Au cours des cinq prochaines années, des passeports pouvant être lus automatiquement par machine et leur version avec données biométriques (ou e-passeports) deviendront la norme pour un grand nombre de pays. On s’est entendu, ou presque, sur la transmission des données personnelles concernant les passagers. On a déployé des systèmes de détection d’explosifs. Des milliers d’agents de sécurité sont à bord des vols considérés plus à risques. Enfin, des avions de combat sont prêts à intercepter des appareils suspects. Avons-nous besoin davantage de sûreté? Et les passagers doivent-ils en assumer le prix?

Les coûts des mesures de sûreté additionnelles, prises en charge par l’industrie et le public voyageur, ont maintenant atteint 5 milliards $ par année. Jusqu’à tout récemment, notre pays se classait au premier rang au monde en ce qui a trait à la surcharge pour frais de sûreté imposés sur les billets d’avion.

L’Union européenne favorise le transfert de ces coûts astronomiques aux gouvernements nationaux. Par contre, les États-Unis préconisent doubler la taxe sur la sûreté, qui est présentement assumée par les passagers. On est loin d’avoir un consensus sur ce sujet. À mon avis, il ne revient pas aux passagers de payer pour la sûreté. C’est anormal. Ne revient-il pas à l’État de protéger ses citoyens contre la menace de terrorisme international?

Malheureusement, les gouvernements semblent avoir la mauvaise habitude de taxer le transport aérien au même titre que d’autres fléaux, comme l’alcool et le tabac.

L’évolution de politiques gouvernementales pourrait aussi avoir des effets bénéfiques sur l’aviation commerciale. La libéralisation des marchés en est un exemple.

Les États-Unis avaient entamé, l’an dernier, des discussions avec la Communauté européenne sur la pertinence d’établir un marché commun transatlantique dans le domaine de l’aviation. L’entente avait finalement été «tablettée» en raison des élections présidentielles. Depuis, les négociateurs ont accepté de reprendre les pourparlers. Deux sessions de négociations ont eu lieu qui devraient déboucher sur un accord préliminaire au début de l’an prochain.

Pour ma part, je souhaite que le Canada puisse ouvrir davantage le marché international du transport aérien au Canada afin de poursuivre le processus de libéralisation, entrepris au début des années 80.

Le Canada a conclu, il y a quelques semaines, un accord de type « ciel ouvert » avec les États-Unis. C’est un pas important dans la bonne direction qui devrait viser ultimement l’intégration totale des marchés aériens en Amérique du Nord dans le cadre de l’Accord du libre-échange nord-américain (ALÉNA). Je préconise également le développement d’une entente « ciel ouvert » avec l’Union européenne pour éviter de nous trouver désavantagés par l’entente conclue par les États-Unis et la Communauté européenne.

Entre-temps, ailleurs dans le monde, des pays qui sont sur la même longueur d’ondes ouvrent plus largement leurs marchés. La Russie et la Chine semblent intéressées à une entente de type « ciel ouvert » avec la Communauté européenne, de même que certains pays du bassin méditerranéen. Et les choses bougent également en Asie.

Si la déréglementation des marchés aériens procède trop lentement au goût des consommateurs, le transfert de la gestion des aéroports à des autorités locales, parfois privées, n’a pas toujours été à l’avantage des passagers et des lignes aériennes.

Au Canada, les frais des aéroports sont maintenant parmi les plus élevés au monde et les coûts de location exorbitants imposés par le gouvernement fédéral aux aéroports en sont partiellement responsables. Les coûts de location à Pearson sont d’environ 150 millions $ par année. La représentation énergique du Ministre des Transports auprès de son homologue des Finances a récemment permis une réduction importante.

À l’aéroport Trudeau, on prévoit maintenant une moyenne de 25 à 30 millions $ par année pour la période 2005-2010, ce qui me semble encore trop élevé, compte tenu des montants investis par le gouvernement à l’origine.

Parce que les aéroports sont essentiellement des monopoles dans leurs villes ou régions respectives, leur prise en charge par le secteur privé rend, plus nécessaire que jamais, une bonne gouvernance pour s’assurer que les nouvelles infrastructures requises soient adéquates et fonctionnelles sans pour autant que les coûts et les profits ne soient excessifs.

Les aéroports britanniques qui sont privés et très rentables atteignent leur RSI (retour sur investissement) par le biais des concessions commerciales plutôt que sur le dos des passagers. Stanstead, qui fait les deux tiers de la taille de Pearson, touche environ 140 millions $ en revenus de location de restaurants, de bars, de kiosques à journaux et autres, comparativement à 108 millions $ à Pearson.

La congestion dans les aéroports nuit à la croissance, autant que les coûts excessifs. Construire ou prolonger une piste d’atterrissage est non seulement très onéreux mais aussi politiquement difficile. Les communautés avoisinantes font valoir l’augmentation du bruit et d’émissions pour s’y opposer, et ce, en dépit des réductions colossales en bruit et émissions réalisées par l’industrie au cours des dernières décennies. Des études ont démontré que les avantages compensent largement pour les inconvénients et ce, dans une proportion de 5 à 1. Souvent, il suffit d’une meilleure communication avec la communauté et les groupes de pression pour obtenir leur appui au développement et à l’expansion des aéroports.

Je suis certain qu’il a fallu dialoguer beaucoup avec les leaders de la communauté de Chicago pour les persuader d’accepter le projet d’expansion de l’aéroport O’Hare (15 milliards $ US) qui entraînera la démolition de centaines de maison, 200 commerces et même un déménagement de cimetière.

Les fournisseurs de services de navigation aérienne se doivent aussi d’offrir des gains d’efficacité afin d’améliorer la capacité des corridors aériens et diminuer la congestion. Les bénéfices d’une meilleure gestion du ciel sont potentiellement considérables.

Mondialement, la réduction d’une minute de consommation de carburant par vol se traduirait en 3,6 milliards $ d’économie, essentiellement en frais d’exploitation, ainsi qu’en 4,2 millions de tonnes de CO2. La récente réduction de séparation verticale minimum au-dessus de l’Europe, de l’Atlantique, du Canada et des États-Unis a été réalisée sans problème et en toute sécurité. L’espace des corridors aériens a presque doublé.

Parmi les autres développements prometteurs: La navigation par satellite GPS (Galileo, le système européen, sera opérationnel en 2008); Le concept d’opération «free-flight» en vertu duquel les pilotes choisiraient leur propre plan de vol; Le système de vision synthétique (ESVS);
Une meilleure prévision des conditions de météo et des zones de turbulence; Et finalement, certaines autorités aéroportuaires préconisent une troisième piste d’atterrissage entre deux pistes parallèles existantes.

Toutes ces initiatives sont en développement mais prises dans leur ensemble, elles tripleraient l’espace aérien actuel. C’est une amélioration considérable en efficacité des corridors aériens.

Alors que tous les joueurs s’efforcent à s’adapter pour survivre à cette dernière crise, le profil de l’ensemble des lignes aériennes est en voie de changer considérablement. Les transporteurs traditionnels ne survivront probablement pas et tous les transporteurs nationaux, qui ont longtemps été la fierté de leur pays, sont une espèce en voie de disparition.

La présence des transporteurs à bas prix est bien établie en Europe et en Amérique du Nord où ils contrôleront bientôt jusqu’à 50% des marchés domestiques et régionaux. On compte maintenant plus de 60 transporteurs à bas prix en Europe où certains nouveaux arrivants connaissent une progression fulgurante.

Air Berlin, par exemple, est en voie de devenir le troisième plus important transporteur à bas prix d’Europe, juste derrière Ryanair et Easy-Jet. Air Berlin a commandé 110 Airbus 320 l’an dernier, la commande la plus importante de toutes les lignes aériennes.

Il est évident que la pénétration des marchés par les transporteurs à bas prix plafonnera à un certain moment et que leur consolidation en une poignée d’entités rentables semble inévitable.

De nombreux transporteurs à bas prix ont été lancés en Asie, principalement à Singapour, en Thaïlande, en Malaisie, en Indonésie et sur le continent indien. Et l’Asie connaîtra sûrement aussi une consolidation parmi ses trop nombreuses compagnies à bas prix.

Juste un mot sur la sécurité.

L’année 2004 a sans doute été l’année la plus sécuritaire pour le transport aérien. Toutefois, les sept écrasements en autant de semaines cette année, qui impliquaient, à une exception près, de petites lignes aériennes dont la fiche de sécurité était plutôt médiocre, nous rappellent que les bas prix ne doivent jamais se traduire par une pauvre compétence au chapitre des procédures d’entretien, du professionnalisme des équipages, et de tout autre aspect de sécurité.

L’ouverture des marchés et la déréglementation commerciale permettent à de nouveaux transporteurs d’émerger et c’est une bonne chose mais il faut redoubler de vigilance sur le plan technique pour s’assurer que tous les transporteurs respectent scrupuleusement les plus hautes normes de sécurité.

L’Union européenne a décidé que les lignes aériennes dont la performance en matière de sécurité laisse à désirer feront l’objet d’une liste noire sur Internet. Cette idée a peut-être du mérite mais je crois qu’il serait plus efficace de mandater l’OACI pour faire des contrôles indépendants, plus sévères et plus fréquents, des pays délinquants au niveau de sécurité et d’encourager les programmes d’audit volontaire de contrôle de sécurité opérationnelle des lignes aériennes.

La croissance des transporteurs à bas prix a considérablement réduit la marge de manœuvre des transporteurs traditionnels qui n’ont d’autre choix pour survivre que la consolidation et la concentration sur les liaisons long-courrier et les marchés internationaux.

En Europe, la consolidation a déjà commencé avec la fusion réussie d’Air France et de KLM qui ensemble ont créé la plus importante ligne aérienne européenne. Lufthansa a fait l’acquisition de Swiss International. SN Brussels Airline, née des cendres de Sabena vient d’acquérir Virgin Express. Après une cure d’amaigrissement d’un milliard de livres sterling, British Airways met le cap sur les fusions et les acquisitions. Le scénario le plus probable en Europe suggère trois grands transporteurs internationaux, les autres, s’ils survivent, optant pour une vocation régionale ou un créneau particulier.

Quant à l’Amérique du Nord, on assistera probablement à une consolidation en trois ou quatre gros transporteurs américains, et deux ou trois transporteurs à bas prix rentables, ainsi que quelques petits transporteurs spécialisés. La fusion U.S. Airways-America West a été approuvée, ce qui indique clairement que la fusion entre les transporteurs à bas prix est déjà amorcée. Chez nous, Air Canada a émergé de sa protection de la loi sur les faillites. Ses coûts sont considérablement réduits, ses coefficients de remplissage plus élevés que jamais, et ses profits en hausse. WestJet et CanJet ont également affiché des profits et semblent aussi bien se porter.

Puisque la notion de transporteur national est en voie de devenir obsolète, il n’est pas absolument nécessaire d’avoir un transporteur national au Canada. Toutefois, il est primordial que les Canadiens aient accès à un service aérien de qualité, à prix abordable et adapté à leurs goûts, offert par un transporteur de classe internationale, jouissant d’une excellence technologique et d’une fiabilité à toute épreuve. Et j’espère que les transporteurs canadiens pourront continuer à remplir ces conditions!

Le monde de l’aviation civile a connu une progression fulgurante depuis la première exposition internationale de 1909 qui avait déjà bien compris l’importance commerciale de cette nouvelle industrie. Nos deux paliers de gouvernement l’ont aussi bien compris en favorisant ici le développement d’une « masse critique » de compagnies et d’organisations aérospatiales qui ont fait de notre métropole un centre d’aviation international unique.

Mais cette situation est fragile et il est important de s’assurer que toutes ces sociétés, Air Canada, Pratt & Whittney, Canadian Aviation Electronics (CAE), l’OACI, IATA, Bombardier, le troisième fabricant d’avions au monde, et plus récemment, THALES, jouissent de conditions qui leur permettent de prospérer. Peut-on imaginer l’impact pour l’économie montréalaise si ces entreprises étaient appelées à disparaître? La plupart de leurs produits et services sont destinés à l’exportation, tout comme le siège d’une ligne aérienne canadienne sur une liaison internationale d’ailleurs, et les exportations sont vitales pour le Canada.

L’industrie du transport aérien vit, sans aucun doute, une période intense de turbulence et de restructuration, une révolution qui dérange beaucoup mais, chose certaine, cette industrie n’est pas prête à disparaître. Il est essentiel pour nous, Montréalais, de continuer d’y occuper une place de premier choix.

Aujourd’hui, dans les aéroports, les tours de contrôle, les bases d’entretien, les usines de fabrication, les sièges sociaux des transporteurs et les agences de voyage à travers le monde, une centaine de millions d’hommes et de femmes compétents et professionnels font fonctionner une industrie formidable, qui permet à chacun d’entre nous, en toute sécurité, de continuer à franchir les frontières du temps et de l’espace.

Merci.

Speech at the 14th Cannes Airline Forum

Adapting to Survive: An Industry Overview
Keynote address to the 14th Cannes Airline Forum
Cannes, October 26, 2005  >>


Thank you, Mr. Chairman , for those kind words of introduction, and for the pleasure of being part of this 14th Airline Forum the annual event which gives us all the opportunity to take stock of what is happening to our great aviation industry.
However, ladies and gentlemen, there are many new developments and the time available at the start of this Forum will permit only a broad overview.


About 150 years ago, Herbert Spencer quoting Charles Darwin spoke of the need for species to adapt to survive in the struggle for life.

Adapting to survive is a principle that the aviation industry has come to accept all too painfully particularly in the last decade.

All sectors have been forced to re-tool their products, their costs and their strategies to stay in business.

Unable to change, some species perished. Flag carriers and SSTs are not the first, nor will they be the last of our dodo birds .

In 1957, failing to understand that people increasingly wanted economy cars, Ford produced the Edsel.

As Time magazine wrote, “It was a classic case of the wrong car for the wrong market at the wrong time.”. Later on another business writer added that, as far as he knew, no Edsel had ever been stolen.


In previous presentations to this Forum, I’ve explored in some depth how airlines are or are not adapting to the forces of change.

This afternoon, I’d like to focus more on other sectors of our industry.

Footnote: All data used in the development of this speech come from publicly available sources. The opinions expressed here are uniquely those of the author.

Airlines after all don’t exist in a vacuum. Aircraft, government policy, airports, airways – all the players in the air transport world must adapt as well.

Aircraft

On the equipment side, we have good reason to be upbeat about our industry.

A watershed year some observers would say, but before we flip over in-flight showers. Internet access and mood lighting, let’s all remember that four critical factors make the difference between a potential dodo bird and an aircraft with legs, or shouldn’t I say, wings for the future.

These four factors are: improved aerodynamics, through brand new wings and control surfaces; the electronics to go with them, and which together continuously optimise flight performance; next, substantially reduced weight, through an unprecedented use of composites; and, finally, a new generation of engines that offer significant improvements in fuel consumption and reduced maintenance.

These factors add up to a hell of an improvement in performance, and the Boeing 787 Dreamliner and the Airbus A380 embody them all.

The Boeing 787 will use 20% less fuel on a per-passenger basis than today’s airplanes of the same passenger capacity.

Subtle aerodynamic changes to the curvature of the wing and the shape of certain fairings will contribute 3% of the fuel saving.

Innovations in avionics and electronic systems will contribute another 3%.

The extensive use of advanced composites reduces the B787’s weight by 10,000 pounds, the equivalent of 53 passengers, and contributes another 3% in fuel savings.

Another advantage of composites besides weight reduction is that they don’t corrode, and are incredibly durable. Boeing says that adds up to a 32% savings in maintenance costs by aircraft maturity.

The durability and maintenance advantages of composites also extend to the GEnx engine, one of the 787’s two possible power-plants, which, Boeing says, will contribute 8% of the 20% improvement.

Carbon fibre and epoxy resin composites, will reduce each engine weight by 350 pounds, while substantially boosting durability and extending maintenance intervals.

Rolls-Royce’s Trent 1000, the other power-plant, will deliver similar fuel consumption improvements and is designed to achieve 99.95% dispatch reliability.

Called an “intelligent engine”, it has its own health-monitoring capabilities and will be able to download key operating data to the ground.

Now those of you not asleep will realize that those savings add up to only 17%. But Boeing claims that the other 3% comes from optimising every other aspect of the aircraft from scratch.

Boeing claims to already have orders and commitments for 266 Dreamliners from 20 airlines and predicts sales of as many as 3,500 aircraft over the next 20 years.

Airbus disputes this number, just as Boeing believes Airbus’ forecast for A380 orders will not survive the reality of the marketplace.

And we know both manufacturers have countless studies to back up their numbers.

So far, 13 airlines have placed firm orders for 159 Airbus A380s. The break-even point is said to be 250 units.

The A380 was the hit of Le Bourget this summer and despite a six-month delay in its first deliveries to Singapore Airlines and to a few other first customers, this twin-decked behemoth, a giant of the skies is coming in close to its promised objectives.

Tweaks, rather than design changes, lie ahead.

You’ll notice I didn’t use the word “mammoth”, a species that did not adapt – and did not survive.

The A380 is quite the contrary.

Like the Boeing 787, it represents a milestone in aviation history, as significant a development as the 747 when it first appeared some 30 years ago.

Operating costs of the A380 are projected to be 15% below the 747-400.

The aircraft has about a 20% composite content because Airbus did not feel comfortable at the time to go beyond that.

Airbus is also investigating wings and winglets that deform structurally for improved aerodynamics performance at different speeds. They’re called aerolastically tailored wings.

Rolls-Royce Trent 900 engines power the A380 and like the Trent 1000s, they promise lower fuel consumption, less noise and fewer emissions simpler maintenance and reduce costs.

The A380 flight deck features information age avionics and flight management systems that deliver enhanced capability now while making it easier to incorporate future developments.

For example, a new digital radar that makes it easier to avoid thunderstorms.

The next upgrade may very well be a “synthetic vision display” that would finally deliver what Charles Lindbergh always wanted: “A pair of spectacles to see through the fog”.


Thales has led the A380’s avionics development program. It includes an in-flight entertainment system (IFE) that can hold up to 1,200 movies and 66 channels, as well as support a one-gigabyte network that puts a Web-accessing keyboard and mouse at each passenger seat.

The sky’s no longer the limit to customer demand for connectivity.


The Airbus A350, once dismissed as an A330 derivative, has now become a direct rival to the Boeing 787 Dreamliner.

With a new wing design, greater-than-initially-planned use of composites, new-technology engines, this latest version is eight metric tons lighter than the A330.

Potential buyers are becoming convinced that the A350 will deliver a productivity improvement of the same magnitude as the 787.

Airbus is targeting for 200 orders for the A350 by year-end. First delivery would start by 2010.


Doubt about productivity improvement still exists for the Boeing 747 Advanced, a stretched version of the B747-400 aimed at airlines requiring a smaller alternative, about 150 seats less, to the A380.

A GEnx engine variant will cut fuel consumption but this may not be sufficient for cost-justified replacement these days.

A go-no-go decision is expected any time (or has now been taken).

New technologies developed for larger aircraft will also benefit the smaller categories.

The next generation of A320 and 737 replacements will likely emerge early in the next decade.

It will be powered by engines that are quieter and more fuel-efficient, less polluting, and considerably lighter.


Struggling to survive in a smaller but just as vicious arena are regional plane makers Bombardier and Embraer.

Their decision to enter the larger-size regional aircraft market has also exposed them to greater competition from the two very large players, Boeing and Airbus.

Embraer was first off the mark and is delivering its first 190’s this year and is expected to deliver its 195s in mid-2006.

Bombardier, however, still needs an engine for its C Series. Pratt & Whitney (Canada) is interested but may need help from other engine part makers as well as a better understanding of the whole market to justify the $1 billion (U.S.) development cost.

To survive in this new market, Bombardier must deliver operating costs that are 20% better than any aircraft it would hope to replace, such as DC-9s, MD-80s and early Boeing 737s.

Bombardier is doing a lot better these days.

However, just as Bombardier was reaffirming its leadership of the world business jet market, a new competitor has emerged.

This new player, better known for its cars, motorcycles and personal watercraft, has rolled out a new entrant that is smaller, lighter and cheaper than conventional business jets.

The Honda jet boasts an all-composite fuselage, and nose and wings designed for less drag.

A Russian bear has also entered the regional arena.

Funding is in place and metal has been cut for the Sukoi-led Russian Regional Jet (RRJ).

Siberian Airlines has ordered 60 of the 95-seat RRJs, which is expected to make its maiden flight next year.

Snecma is supplying the engines and Boeing is helping on the fuselage design.

Sales prospects go as high as 700 aircraft, which I sincerely hope come true, since the cockpit display, communications, navigation and surveillance systems will be supplied by Thales (Canada).

With the Russians in the fight, the Chinese can’t be far behind in developing their own regional aircraft.

Their APJ 21 project was launched last year with full government and industry backing.

The regional arena may be rough but the potential rewards are great.

Boeing predicts that of the roughly 26,000 new commercial airplanes needed to meet demand over the next 20 years, more than 80% will be in the single-aisle and mid-size twin-aisle categories.

A word about supersonic business jets.

Although the Japanese and French are studying the feasibility of developing a technically and economically viable second-generation SSBJ that could carry 300 passengers at Mach 2, there isn’t much enthusiasm yet for such a species in an aviation environment that must place a premium on operating efficiency, low noise and minimum emissions.

There’s probably more enthusiasm for commercial flight to outer space, where there’s no one to complain about noise and emissions. Over 40,000 people have put their names down for Virgin Galactic’s sub-orbital flights planned for 2008.

The first hundred asked to do so didn’t hesitate to pay a $200,000 deposit up front.

Space Adventures, the company that organizes tourism flights to the International Space Station, plans to offer trips for two around the moon and back in Soyuz capsules at $100 million U.S. per passenger, dehydrated meals included.

Branson and company may be barnstorming their way into a whole new world of airline travel.

Air Policy

In the meantime, back on earth, low noise, minimum emissions and other environmental concerns are receiving ever-increasing attention by government regulators, as are safety and security, and numerous other aspects of our industry.

Sound government policy, sensitive and adaptive to aviation’s rapidly changing circumstances is also essential to our survival.

Governments today sometimes appear supremely indifferent to the difficulties faced by our industry.

Heavy-handed solutions are imposed where a little intelligent intervention would suffice.

Recently, my successor at IATA, Giovanni Bisignani, charged that the European Union (EU) was inflicting an annual cost burden of almost six billion euros on the airline industry.

New regulations on compensation for denied boarding, cancellations and delays accounted for 600 million euros.

Failure to take responsibility for security represented almost two billion of the burden.

The remaining 3.4 billion euros went for inefficient regulation and infrastructure.

The EU needs to do better on aviation policy.

The year 2004 was the safest year ever for air transport. More than 1.8 billion passengers were carried by all airlines, and not one life was lost due to a security incident.

Cockpit doors have been reinforced and locked, passengers are screened from head to toe, biometric devices are being tested and implemented, machine-readable passports and their biometrically-enabled version or e-passports should be issued or available worldwide within the next five years, passenger data transmission has been agreed upon, at least in part, explosive detection devices have been deployed, thousands of air marshals are in the air, combat aircraft stand ready to intercept rogue aircraft.

How much more security do we need?

How much more must we pay for?

The U.S. is understandably uptight about security.

But many of its new and proposed regulations are unnecessary,very expensive to implement, sometimes redundant and conflicting with national laws.

U.S. policy requires checking of passenger manifests against a 30,000-name “no-fly” list for all foreign flights into and over the U.S. no later than 15 minutes after the plane has departed.

There have been several cases of mistaken identity where flights were unnecessarily forced to turn back, at considerable inconvenience to passengers and cost to the airlines

Another U.S. plan is to fingerprint and photograph international travellers both when they arrive at U.S. airports and when they leave.

Such unreasonable measures are turning passengers off.

Historian Arnold Toynbee once wrote: “America is like a large friendly dog in a small room. Every time it wags its tail, it knocks over a chair.”

Haste makes waste.

According to The New York Times, the U.S. government is now moving to replace or alter much of the $4.5 billion worth of security equipment rushed into service first after 9/11 because it’s fairly ineffective, unreliable or too expensive to operate.

The cost of additional security measures to the industry and flying public is over $5 billion a year.

Passengers should not have to pay for air security. It’s an anomaly; citizens are not charged for other forms of civil security.

Air travel is being taxed like the “sins” of alcohol and tobacco.

In government thinking, another industry “sin” for which air travellers must pay is environmental pollution.

Despite the fact that in the last 40 years our industry has noise at source by 75% and emissions per passenger kilometre by 70%, and that airlines now account for less than 4% of greenhouse gas emissions.

The current EU plan could add as much as $100 (U.S.) to the price of a long-haul ticket from Europe.

New generation airplanes, the B787, A350 and A380, with their 20% improvement in fuel consumption, and corresponding reduction in emissions, represent a major achievement.

Governments should understand that additional taxes limit the funds available to invest in the new technologies and will hinder rather than help the industry’s ability to further reduce its impact on the environment.

Although aviation was excluded from the Kyoto Protocol because of the legal complications of dealing with international flights over oceans and outside any national jurisdiction, IATA and ICAO are trying to get emissions trading for airlines on the agenda for the next annual U.N. Conference on Climate Change.

Emissions trading is a better way to go. Allowing airlines to buy and sell the right to emit CO2 would be a more efficient way to tackle climate change.

The E.C. has now recommended that airlines be included in the scheme.

Almost as good as planting trees in the Sahara, one of my earlier proposals.


I remember when the U.S. championed deregulation .

It’s somewhat ironic that the U.S. rejected the European Commission proposal for a Trans Atlantic Common Aviation Area (TACAA).

The E.U. Transport Ministers were not in agreement either.

The E.C. has since softened its demands.

The 25 E.U. Transport Ministers unanimously approved earlier this month the Commission’s plan to re-open talks with the U.S.

Following a telephone conversation two weeks ago the E.C. Commissioner, Jacques Barrot, and U.S. Secretary for Transportation, Norman Mineta agreed to re-start discussions this year.

In the meantime, like-minded countries in other regions of the world are opening their markets:

Russia and China appear interested in an open-skies style of agreement with the EU;

Countries bordering the Mediterranean are interested in an agreement with the EU; and

A recent accord between four members of the China-Pacific Economic Cooperation (APEC) may well serve as a blueprint for other regions .

India has been making significant moves towards complete market freedom.

Its new, much more open aviation policy has resulted in considerably liberalized agreements with the U.K., the U.S.A. and China.

I have been advising my own government, Canada, about moving faster towards a wider opening of Canada’s air transport market.

I believe the next stage should be to seek total integration of aviation markets in North America as part of the North American Free Trade Agreement (NAFTA) and to develop an open skies agreement with the EU.

Unless air transport is a country’s strategic industry, say in an island nation almost uniquely dependent on tourism, there is little need for a “flag carrier” as such.

Airports

If the deregulation of air travel markets is proceeding too slowly for some, where airports are concerned, it’s proceeding too quickly or at the very least with insufficient safeguards.

This can lead to some abuse. Staying with my country for a moment, fees in Canada are among the highest in the world.

Toronto Airport is without a doubt the most serious offender.

Similar complaints are being heard from other airlines around the world where airports large and small are becoming owned by private investors.

In June, the Hungarian government invited bids for the privatisation of Budapest airport.

Other airport privatizations are under way or being considered in India, Hong Kong and Mexico.

Even Aéroports de Paris, which includes CDG and Orly, is for sale.

The airports are being bought by four or five major, emerging consortiums like BAA of the U.K., Fraport Group, and Macquarie, the Australian fund.

Because airports are essentially monopolies in their respective cities or regions, their control by large private consortiums make it critical that governments take measures to ensure that profits are adequate to finance the high cost of new infrastructure, but not excessive.

But airlines must also concede that airports face a lot of challenges not always understood by operators.

Terminal and runway congestion chokes growth as effectively as excessive fees.

Chicago’s O’Hare and other major airports have had to limit the number of flights, and not just at peak hours.

Poland’s airport development needs to cope with passenger volumes that have increased by over 40% in the last three years.

In India, the government’s new policy of open skies could be undermined by increasing gridlocks and substandard airports.

New terminals and runways will cost more than $20 billion (U.S.) over ten years in India’s case.

U.S. airports will need some $72 billion over the next four years. The FAA has now endorsed the City of Chicago’s 15 billion USD O’Hare Modernisation Plan.

Not only is it very expensive but also it’s not that easy to expand runways.

Neighbouring communities are very vocal about the nuisance factors of noise and emissions.

After years of discussion with local farmers, Japan finally approved an extension of the second runway at Tokyo Narita.

Studies have shown that the benefits outweigh the disadvantages by a ratio of 5 to 1.

More dialogue with the community and special interest groups can persuade them to support rather than block airport development and expansion.

Adapting to the A380 may not be as big a challenge for airports as was first foreseen.

The aircraft was designed to fit in the “80 by 80” box of available apron space and gate separation.

And because of its 20-wheel main landing gear, weight distribution doesn’t exceed that of aircraft already in service.

At this juncture, we anticipate that about 20 major hubs around Europe, North America and the Pacific Rim will be ready to handle the A380 by late next year or early 2007.

And another 40 airports are expected to follow by the end of the decade.

In the beginning, major airports were content to let the low costs operate at under-utilised, less expensive secondary airports, such as London’s Stanstead.

But as the more recent recession reduced the business activity of the major hubs, they decided to go after the low-cost trade by modifying sections of existing terminals for their exclusive use, where costs and fees could be kept down and services tailored to their no-frills strategy.

Such discrimination does not sit well with the full-service airlines, however, and in a decision last year concerning Berlin’s Schoenefeld Airport, the court ruled that all airlines have to be treated equally.

One approach, is to develop low-cost terminals open to all carriers.

Singapore’s non-discriminatory LCT, expected by year-end, is a relatively cheap, $24-million, single-storey building without jet-ways, lounges, escalators, elevators, or seats at gate areas.

Fees will be 20-25% cheaper.

Malaysia, Indonesia, Thailand, and India are considering similar terminals.

At the other end of the adapting-to-survive scale is Lufthansa’s first-class-only terminal in Frankfurt, which offers all the luxurious amenities executives and rock stars feel they richly deserve.

Another is planned for Munich by 2006, to go with its new first-class-only airline serving Munich-New York.

I’m not sure these are breakthroughs. Didn’t British Airways have a separate terminal for the ultra-first-class Concorde? Of course, the Concorde didn’t survive.

Airways

If planning “within the box” is the key to adapting terminals for a new generation of aircraft, it will take some thinking “out of the box” for air navigation service providers to match the 20% efficiency gains being demanded of airframe and engine manufacturers and other sectors of our industry.

IATA thinks that “optimal air traffic control” could reduce the airline global fuel bill by 18%.

The “Single European Sky” (SES) concept has been accepted in principle and streamlined air traffic control rules are being pushed through. But the European continent’s 34 separate ATC centres won’t disappear anytime soon.

Abolishing borders in the sky is a political minefield.

In an attitude that goes back to World War II, many EU countries still enshrine air traffic control as a matter of strategic national importance.

Even the next step, creating “functional airspace blocks” (FABs) has yet to be been given full political clearance.

Continent-wide application of the gate-to-gate concept, i.e. not allowing an aircraft to leave a departure gate until the arrival gate is available, would be a good start.

Saving a minute of fuel burn on every flight would save $3.6 billion in operating costs, as well as 4.2 million tons of CO2 emissions.

Since this computation was based on $40 oil, the potential saving is much greater at today’s prices.

That’s worth a lot of “out-of-the-box” thinking.

The recent reduction of vertical separation minimums over Europe, the Atlantic and North America was accomplished smoothly and safely.

It required all operators to have equipped their aircraft with more precise and costly instrumentation but the benefits are enormous.

Airways capacity has almost doubled.

Over the U.S. alone, airlines are expected to save $400 million in fuel and operating efficiency during the first year, and more than $5 billion over the next decade.

Other promising developments:

GPS satellite navigation, which has helped create new routes over the Pole, will be tested on a small number of transatlantic flights;

Galileo, the proposed European Satnav system, should be operational by 2008.
Testing is underway of a “free-flight” operating concept that will allow pilots with specially equipped aircraft to choose their own flight paths.

Synthetic vision and other new avionic tools will remove the “visibility” factor in terminal operations;

Knowing where wake turbulence is not will reduce final approach spacing by half;

Airport authorities are considering “paving down the middle” to add a third or even a fourth runway between two existing, parallel runways.

All of these developments and more are somewhat down the road but taken together, they would more than triple current ATC capacity.

That’s a considerable improvement in airways productivity.

Air Transport

Cost pressures on the air transport industry as a whole continue unabated.

Recently, oil prices hit a scary, all-time high of $70 a barrel.

At an annual average of $43 a barrel, airline industry losses alone were projected to reach $5.5 billion in 2005.

IATA released a new forecast last month calling for a 7.4 billion USD loss.

Every $1 per barrel increase costs the industry $1 billion and only a fraction of the increase can be passed on to the passenger before the elastic snaps.

Improving productivity will continue to be a primary necessity for all industry players.

IATA is leading a program, called “Simplifying the Business”, that leverages technology to reduce the cost of complex industry processes.

Priority areas being pursued at an industry level include passenger ticketing and cargo invoicing, check-in, and baggage handling.

You will hear a lot about this program and its successes tomorrow morning.

Let me give you a little preview , as a teaser for tomorrow’s session.

Electronic ticketing is now approaching 40% worldwide.

The goal is 100% by 2007, which could save the industry $3 billion a year.

The motivation is strong, as non-compliant airlines will eventually have to issue their own paper at more than 10 times the cost of e-ticketing.

Doing away with paper tickets also means the check-in process can be completely overhauled.

Bar-coded boarding passes will eventually allow travellers to print out their own at home.

Several airlines already allow online check-in over the Web.

The next step is to extend online check-in to mobile phones.

In the meantime, another component of IATA’s plan offers more immediate benefits.

Self-service kiosks, which are already popping up in airports around the world, save the industry as much as $3.50 per check-in while improving customer service.

Switching from airline-specific kiosks to “common-use self-service (CUSS) ones, which can handle passengers from several airlines, will be even more efficient, and will enable even small carriers to offer self-service check-in.

There’ll be more on CUSS(ing) later on the agenda .

Long check-in lines are not the only reason for passenger cussing.

Complementing passenger e-ticketing is a program to eliminate all paper involved in handling cargo by the end of 2010.

Some shipments entail as many as six different forms, each of which costs approximately $6.

Although less than 1% of the 1.5 billion bags carried on commercial flights each year go astray, that still represents about 10 million bags and a corresponding number of angry owners.

Mishandled baggage costs the industry as much as $1.6 billion a year, and gives rise to such unfortunate remarks as Mark Russell’s observation that “the rings of Saturn are composed entirely of lost airline baggage.”

Thanks to those great photos from NASA, we now know better.

Radio-frequency identification (RFID) technology, thanks to the greatly reduced cost of RFID tags, now down to a few cents, will substantially reduce the number of lost, delayed and mishandled bags.

Industry savings will be equally substantial.

All of these technologies – electronic tickets, remote check-in, self-service kiosks and RFID tags – have already been adopted, to varying degrees, by forward-thinking airlines and airports around the world.

The priorities established by IATA are only a few of the areas in which costs can be lowered through technology.

From Web-based wireless FIDS for smaller airports to low-cost simulators for low-cost airlines, the air transport industry is responding as never before to the survival imperative.

Airlines

Another good way of simplifying the business and promoting the survival of the fittest, is to simply let failing airlines fail.

Bankruptcy laws, some industry leaders would argue, are preventing a full restructuring of the industry by providing artificial respiration to failed ventures, allowing them to lower their costs and re-enter the competitive arena at shareholder, employees and investor expense.

Not all business leaders advocate taking sick airlines off life support.

General Electric, the leading aircraft lessor within America, has over half of its 1,350 planes leased to American carriers.

A liquidation or two would release a flock of planes on the market, further depressing second-hand value and leasing rates.

Despite passenger traffic growth forecasts of around 8%, as I said earlier, the world’s airlines will likely suffer another overall loss this year, bringing the total loss for the period 2001-2005 to a whopping $40 billion plus.

No wonder Warren Buffett once quipped that if a capitalist had been present at Kitty Hawk, he would have done future investors a big favour by shooting down that first flight.


Once again, the financial health of the industry differs by region and by type of airline.

And among the failures to adapt, there are some successes.

For U.S. carriers, there is little good news.

United Airlines (UAL Corp.) posted a second quarter loss of $1.43 billion and has been granted a tenth extension to its bankruptcy reorganization.

Northwest lost $225 million in the second quarter and Delta $382 million.

Both carriers have now filed for Chapter 11 protection.

A rare bright spot in a troubled industry is Southwest Airlines, which continues to benefit from a shrewd use of fuel hedging.

Hanging on with a modestly profitable second quarter are American, Continental, and Alaska Air.

The best news for the U.S. industry is growing support for mergers and consolidation.

The U.S. Airways and America West merger has been approved, and there’s an emerging consensus that the U.S. doesn’t need that many low-cost carriers.

An interesting development is Jet Blue breaking the low-cost model by buying up to 100 aircraft from a different manufacturer, all with one third fewer seats than its A320 fleet.

Industry analysts are shaking their heads over this breach of the fleet efficiency mantra.

Elsewhere in the Americas, Air Canada has emerged from bankruptcy protection as a possible poster child for legacy airlines adapting to survive.

Its exit loan has been paid off, fleet renewal is underway, and the airline made $169 million (CAD) in the second quarter.

WestJet also reported a profit but it was 70% less than last year.

The good news in South America is first-half traffic growth of almost 14% by the 22-member carriers of the Latin American Airline Association (AITAL).

A big contributor to this growth are new low-cost carriers like discount leader Gol Linkas Aereas Inteligentes of Brazil.

Founded in 2001 by a 32-year old college dropout, Gol, the Intelligent Airline, is now the second largest carrier in Latin America, with 34 jets serving 40 destinations across Brazil.

Meanwhile VARIG saddled by 3.3 billion USD of debt had to file for protection under Brazil’s new bankruptcy law.

Other contributors to the good news are Brazil’s TAM and restructured airlines like Chile’s LAN, both of which reported record quarterly profits.

I was hoping Mexicana and Aero Mexico could have merged but the holding decided that they should be privatised separately.

Unfortunately, privatisation alone is no panacea for airlines with chronic losses and floundering flag carriers are not easy to unload.

The Hungarian government is struggling with its fourth attempt to sell Malev.

Olympic Airlines is for sale and may even face liquidation after the European Commission ordered the return of the 530 million Euros in aid from the Government.

The Polish government is trying to streamline loser LOT before even attempting privatisation.

Since no one wants Alitalia, the EC has approved a recapitalization plan that splits the airline into two companies, one for airline operations and the other for maintenance and ground services.

Five struggling Russian regionals are forming an alliance, AirUnion, that eventually could become a single airline under a new brand.

The European experience proves that restructuring and consolidation can produce positive results. Among the successes:

The Air France-KLM Group nearly doubled projected pre-tax earnings for the first half of fiscal 2004-05 and traffic is up for both carriers;

Lufthansa is back in the black and the EU has cleared its move to acquire Swiss International;

SN Brussels Airlines, created in 2002 from a recast unit of defunct Sabena, posted a full-year operating profit in 2004 and acquired Virgin Express earlier this year;

Cost-cutting British Airways beat market forecasts in May by announcing a 33% increase in annual operating profits.

British Airways now plans to refocus on fleet renewal, mergers and acquisitions, and service.

Air Berlin, founded in 1978 as a charter airline, is poised to become Europe’s third-largest low-fare airline, along with Ryanair and Easy-Jet, after placing what was last year’s largest civil aircraft order – 110 Airbus A320s;

Ryanair increased pre-tax profits in its first quarter to June by 32%, despite doubling of its fuel costs;

EasyJet also swallowed soaring fuel prices by cutting costs and raised its full-year profit forecast to match last year’s $111 million (UK pounds).

For Asia/Pacific carriers, the challenge is to adapt to internal markets that grew a phenomenal 20% last year, and are projected to continue at a double-digit pace over the foreseeable future.

It’s not surprising that Asia/Pacific airlines achieved a record $3 billion profit in 2004, that Singapore Airlines pulled in unprecedented earnings or that Cathay Pacific had the second best year in its history and will probably do as well in 2005.

What may be surprising, however, is that a billion of that $3 billion came from Chinese airlines.

China is expected to lead the world in air travel growth over the next decade.

To meet the needs of a modernized, rapidly expanding economy, China’s passenger fleet requirement over the next 20 years will expand to as many as 2,600 aircraft according to Boeing’s latest forecast.

By 2010, in just five years, the country will have 200 airports.

In March, Air China and Cathay Pacific were reported to be in “advanced negotiations” on a consolidation that would include Dragonair.

Such a new airline could rival the Air France-KLM merger in size.

In July, Fed Ex announced plans to build the Asia/Pacific’s largest trans-shipment hub at Gangzhou.

Although India remains far behind China in number of passengers and aircraft, a fully liberalized air policy, an equally booming economy, and a rapidly growing middle class, have transformed a stagnant two-carrier government monopoly, notorious for poor service, into a vibrant, highly competitive air industry growing at 20% a year.

Privately-owned Jet Airways and more recently Air Sahara pioneered the transformation with good service and great in-flight amenities.

Now everyone is making money, including, it seems, Air India and Indian Airlines.

Eight new carriers have taken off or are scheduled for takeoff this year alone.

India’s airlines expect to take delivery of as many as 100 aircraft by the end of 2005 and 570 by 2023. The government has earmarked $3.3 billion to upgrade Bombay and New Delhi as well as build new airports at Bangalore and Hyderbad.

The only casualty so far in India’s air travel explosion is the country’s fabled but creaky rail service.

First-class bookings on some inter-city routes are down 30%.

India, along with Malaysia, Singapore, Thailand, and just recently, China, have become fertile ground for discount airlines.

Even recalcitrant Korea is now considering establishing a budget carrier.

Japan has been trying for years but a natural penchant for regulation, as well as congested airports, have chocked the wheels of liberalization.

Since Air Asia of Malaysia started in 2001 with two aircraft – it now has 30 – as many as two dozen low costs have appeared in the region.

However, high-priced fuel, a mishmash of still-regulated landing rights, tougher competition from full-service carriers, a shortage of flight crew and technicians, and the tsunami effect will sink a number of new-starts and others will consolidate.

Until recently, Singapore had three new discount carriers – Valuair, Tiger Airlines and Jet Star; now Jet Star has acquired Valuair.

Qantas is another airline that seems capable of withstanding the fuel price onslaught. Net profit in the year ended June 30 rose by 18%.

Finally, a comment about Middle East carriers that is sure to have airline analysts contradicting themselves all over the place .

Last year at Farnborough, Etihad Airways, founded by the government of Abu Dhabi just a year earlier, announced a $7-billion order of four Airbus A380s, eight A340s, and twelve A330s.

The government also announced plans to spend $6 billion to expand the airport.

Now, Etihad is expected to announce another major aircraft order at the Dubai air show in November.

The year before, Emirates Airline spent $19 billion for 45 Airbus A380s and other aircraft, and wants to expand its fleet to around 120 by 2010.

Dubai International Airport is now undergoing a $4 billion expansion, and a new airport, Jebel Ali, is being built 25 miles away.

Qatar Airways has announced plans to acquire up to 80 aircraft worth $15 billion.

These huge investments will create airlines at least six times as large as their domestic markets would justify.

Emirates’ strategy is to emulate Singapore Airlines and KLM in becoming primarily 5th and 6th freedom carriers.

Etihad makes no bones about its longer-term goal of achieving 40% transfer traffic.

But in a coming era when almost any destination in the world can be reached non-stop is that a viable strategy and sound investment?


Ladies and gentlemen, the subject may not be exhausted but I am. Some studies suggest that the average man speaks 25,000 words a day.

It feels like I just exceeded my quota.

I do want to end on the serious note that this subject deserves, however.

The year 2004 may have been the safest year ever for air transport but this year’s seven crashes, all but one involving small airlines is a strong reminder that safety must never be taken for granted.

As the industry increasingly deregulates commercially, it is essential for governments to be increasingly vigilant in ensuring that all carriers scrupulously adhere to the highest possible safety standards.

The EC suggests that airlines with unsatisfactory safety records should be blacklisted on the Internet. The U.S.A. has been issuing a list now for some years.

This idea may have merit but I believe a less punitive and more fruitful measure would be much tougher and more frequent independent safety audits of countries conducted by ICAO and of airlines by IATA under the its Operational Safety Audit Program (IOSA).

This year, more than 100 airlines will be audited under the program.

Travellers can check the IATA website to see whether the carrier of their choice is participating.


To summarize as we’ve seen this afternoon, all components of the air transport industry are with varying speed adapting to survive.

Substantial progress has been made in many areas. But our evolution into a hardier species is far from complete.

The price of oil still threatens. The pressure on yields is relentlessly downward and cost cutting is not complete.

Fleets are in need of renewal and new airplanes will further lower operating costs.

Market liberalization only lumbers along.

Government regulation remains excessive in some areas and insufficient in others.

Congested terminals and airways are potentially choking growth they need to expand in a more cost effective way.

Costs can be further reduced by simplifying the business.

More than a few carriers are in urgent need of consolidation.

Environmental concerns and safety are again an issue.

And despite the substantial and sustained demand growth the airline industry as a whole continues to lose $5 to $10 billion a year!

I look forward to the day when our airlines will rise from the ashes of the Dodo bird into a Phoenix!
Thank you.