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.


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.


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.


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.


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.


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.