3 Biggest Challenges Facing the Global Aviation Industry

Aviation is helping fuel the growth of the global economy and nowhere more so than in Asia where many residents are traveling abroad for the first time.

IATA director general and CEO Tony Tyler spoke about this, the role that aviation plays in the global economy this morning at The World Knowledge Forum in Seoul.

In addition to noting the more than 58 million jobs and $2.4 trillion annual economic activity that the industry supports, Tyler spoke about the personal benefits of aviation.

“It brings people together — families, friends and business colleagues. It helps minds to meet and exchange ideas in forums like this. It gives people the freedom to be almost anywhere in just 24 hours. And it has turned our wonderfully big planet into a wonderfully small world of enormous and wonderful opportunities,” Tyler says.

He then delved into three major challenges — safety, convenience, and environmental and financial sustainability — that concern the industry as it heads into the future. We’ve pulled Tyler’s remarks on these three topics from the IATA website in full below:

Safety

Flying today is extremely safe. It wasn’t always that way. In the early days it was a risky business. But right from the beginning there was an understanding among governments and industry that safety was not a competitive issue. And there has always been great cooperation among all the industry’s stakeholders in efforts to make flying ever safer.

In 2013 there were some 36.4 million flights and 16 fatal accidents. If you were flying on a jet aircraft, your chances of being involved in a major accident were one in 2.4 million. And among the three billion passengers that flew (the equivalent of about 40% of the world’s population) there were 210 fatalities. There is no safer way to get from A to B than by plane.

But accidents do happen. And this year we had some sad reminders of that reality. The two tragedies involving Malaysia Airlines are still fresh in all of our minds. And our hearts go out to the victims and their families. Every day some 100,000 flights take-off and arrive safely at their intended destination. What happened with MH 370 and then MH 17 is absolutely unprecedented in aviation history. And we will honor the memories of those involved by re-doubling our efforts on safety.

IATA is working with our partners towards some recommendations on how to track aircraft better. There is some promising technology that will become available in the near future. And we are also looking at some interim actions which will be considered by our Board of Governors in December.

MH 17 brought to light the need for better information for operations over conflict zones. Everyone in the world was angered that a civilian aircraft—an instrument of peace—could be shot down in airspace that was declared safe. The responsibility for improving the information needed to avoid a repeat of this tragedy rests firmly with governments. In fact, through the International Civil Aviation Organization (ICAO–IATA’s United Nation’s counterpart) governments are working on ways to fill the gap in an otherwise robust system.

In parallel, we are calling on governments to look even more broadly and develop an international protocol to manage the design, manufacture and deployment of weapons with anti-aircraft capability. We have it for other categories of weapons—chemical weapons, land mines, nuclear warheads etc. Anti-aircraft weapons should be no different.

These efforts are important. But I should emphasize that they are in response to very rare and I hope never-to-be-repeated events. But every day the industry is working to improve safety. For example, each of IATA’s 240 members is required to pass and maintain the 900+ crucial standards of the IATA Operational Safety Audit (IOSA). They are seen to be so important that even airlines that are not members of IATA are also on the IOSA registry which includes over 400 airlines.

As we look to the future, auditing will continue to be an important safety tool. But the real advancements in safety will be driven by data. An enormous amount of data is generated by every flight. Governments, airports and air navigation service providers also have data. IATA has data from our safety audits and reporting programs. Engine and airframe manufacturers have important safety data. There is probably no other industry on the planet that generates so much data.

IATA has invested to build the world’s largest database of safety information. We call it GADM for Global Aviation Data Management. As we (and others) develop the analytical capability to perform deep queries of the data we are coming up with the insights that will lead the next generation of safety improvements.

Passenger Experience

I hope that I have conveyed to you the deep sense of responsibility and commitment that the aviation industry has towards safety. For passengers, safety is something that you can take for granted. And that is the way that it should be.

You should also take a hassle-free and convenient experience for granted. I travel a lot, as I am sure many of you do. The experience of travel has improved tremendously over the years. The quality of airline products provides a huge range of choice from absolute luxury to a very basic seat. But I have certainly experienced moments of frustration with the processes that have been put in place around the actual flying experience.

We have a vision for the future flying which we are building today. Some elements already exist. In 2008 we made e-tickets the global standard. Just over six years later it is already difficult to remember the days when you had to worry about taking your ticket with you to travel. That was an important element in realizing our future vision. And I would like to share that with you in a short video about a business trip to India that illustrates what flying could be.

Wouldn’t it be great if every trip could be hassle free? As you can see, we are very optimistic about mobile technology helping us to meet the passenger expectation to be constantly connected, well informed and in control of their journey. Some of what you saw is already in use. Other elements will take longer. Some of the challenges that we still face are:

• Finding a framework on which to share the crucial data among all those involved in the passenger’s travel.
• A smarter approach to security that is informed by what we know about the traveler.

The good news is that the future of travel is full of innovation.

Sustainability

Of course there can be nothing guaranteed about the future of aviation if the industry is not sustainable. And I would briefly like to touch on two dimensions of sustainability before I close—environmental and financial.

Environment

Any business is expected to be sustainable. But it is particularly challenging for airlines that burn fuel to propel their aircraft. Nonetheless, the industry (not just airlines but the whole value chain) has committed to some very ambitious goals. From 2020 we will cap our emissions and our growth will be carbon-neutral. And by 2050 the aspiration is to cut our net emissions back to half the levels that we emitted in 2005.

We also have a plan.

A key driver will be technology. Modern aircraft entering into airline fleets today bring with them fuel efficiency gains of 20-30% over their predecessors. Billions of dollars are being spent on this each year.

Another example of the role of technology is the development of sustainable biofuels. Over 1,500 commercial flights have been fueled by sustainable biofuels. The challenge is that biofuels are in short supply and expensive. It’s a chicken-and-egg situation. The high cost is being driven by the small quantities being demanded. And demand is low because of the high cost. We are calling on governments to incentivize the use of sustainable biofuels as they have done for other alternative power supplies such as solar. The good news is that distribution will be relatively easy. If we can get biofuels to just 190 airports, we will cover about 80% of potential demand.

The second pillar of our strategy is infrastructure. We’ve all probably been on a flight that has to circle an airport before it is cleared to land or has to reduce speed before entering a busy air corridor. In both cases, the aircraft is burning more fuel than it should have to because the infrastructure cannot handle the demand. Estimates are that there is about 12% efficiency that could be gained if air traffic control systems worked at their optimum level. And every minute that is saved, reduces fuel burn and emissions.

The third pillar is more efficient operations. A very simple example of this is a program that we are working on worldwide so that airlines can land in a continuous descent. Traditionally, aircraft have been guided to land in a series of descending steps. There is nothing wrong with the procedure, but it burns more fuel than the alternative.

And lastly, we are asking governments for a global mandatory carbon offset scheme. Airlines recognize that we will have to pay for at least some of our emissions until the other pillars of our strategy fully mature. This important work is being done through ICAO. We hope to have the framework agreed in 2016 and to be able to implement from 2020—just in time for our carbon neutral growth commitment.

Profitability

The other vector of sustainability is profitability. Over the last century airlines have just broken even. Despite all of the value that they bring to the world—as we have discussed—they have basically destroyed a vast amount of capital. It is a very competitive and very tough business.

That is not to say that people have not made money on airlines. Stocks are volatile—just look at what is happening now with the threat of Ebola. And some people make money on that. There are also some solid performers operating in aviation-friendly environments that generate significant profits year on year. There is a great turn-around story in the US where the industry is now leading the world in profits after a very difficult decade that began with the 9.11 tragedy.

But, on average, airlines make less than $6 per passenger. On about $750 billion in revenue, we expect a net profit of just $18 billion. For those of you who are good at arithmetic, you will have calculated that it is just a 2.4% profit margin.

The good news is that this is an improvement on the recent past. And continuing strong demand for passenger travel—despite economic uncertainties—shows that the world’s thirst for connectivity that only aviation can provide is still growing. I am an optimist about the future and I hope that you are too.