iata annual report 2009

8/6/2019 IATA Annual Report 2009

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Giovanni BisignaniDirector General & CEO

International Air Transport AssociationAnnual Report 200965th Annual General MeetingKuala Lumpur, June 2009

Promoting sustainable forest management.This paper is certified by the ForestStewardship Council (FSC) and iscellulose based and recyclable.


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Note: Unlessspecifiedotherwise,alldollar($)figuresinthisannualreportrefertoUSdollars(US$).


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IATA Board of Governors

Director Generals Message

The State of the Industry

Simplifying the Business

Safety

Security and Facilitation

Regulatory and Public Policy

Environment

Cost Efficiency

Industry and Financial Services

Aviation Solutions

IATA Membership

IATA Offices

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We are a resilient industry.

We will survive the crisisone way or another.But we must ask some

serious questions.In what shape will theindustry emerge?

Will the shakeout beorderly?And the most importantquestion of all:What can we do to makethe industry healthierand stronger?

Giovanni Bisignani


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IATA Board of Governorsas of 1 May 2009

Khalid Abdullah AlmolhemSAUDI ARABIAN AIRLINES

Gerard ArpeyAMERICAN AIRLINES

Tawfik AssyEGYPTAIR

David BronczekFEDEX EXPRESS

Chew Choon SengSINGAPORE AIRLINES

Yang Ho ChoKOREAN AIR

Andrs ConesaAEROMEXICO

Fernando ConteIBERIA

Enrique CuetoLAN AIRLINES

Christoph FranzSWISS

Naresh GoyalJET AIRWAYS (INDIA)

Peter HartmanKLM

Pedro HeilbronCOPA AIRLINES

Idris JalaMALAYSIA AIRLINES

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Samer A. MajaliChairmanIATA Board of Governors


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Temel KotilTURKISH AIRLINES

Liu ShaoyongCHINA EASTERN AIRLINES

Samer A. MajaliROYAL JORDANIAN

Wolfgang MayrhuberLUFTHANSA

Titus NaikuniKENYA AIRWAYS

Haruka NishimatsuJAPAN AIRLINES

Fernando PintoTAP PORTUGAL

Jean-Cyril SpinettaAIR FRANCE

Glenn F. TiltonUNITED AIRLINES

Tony TylerCATHAY PACIFIC

Willie WalshBRITISH AIRWAYS

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Director Generals Message

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Some of the most dramatic swings in our industryshistory were witnessed in 2008.

Oil started the year at $97 and ended atabout $40 per barrel (Brent). But it hit$147 per barrel in July, threatening toadd over $100 billion to the industry fuelbill. In the end, oil averaged at $99 perbarrel, which brought our total fuel bill toUS$168 billion.

By the fourth quarter, the industry storywas focused on the intensification ofthe global recession and the resultingcollapse in demand. The year ended with

large fourth quarter losses that put theindustry at least $10 billion in the red.

Airlines face a tough 2009.

There is some relief on the fuel bill. Butthe good news stops there. Demandis disappearing and revenues areplummeting. The Influenza A(H1N1)scare is a reminder that, even in a crisis,this industry remains vulnerable toshocks beyond its control.

First quarter passenger traffic was down9.1%, with premium passenger numbersfalling away at almost double that rate.And cargo was down 22.8%. Manyairlines, particularly in the US, respondedwith aggressive capacity adjustments,but most were not able to keep pacewith the precipitous fall in demand.Others were caught with fuel hedgeshigher than spot prices.

We may have seen the worst of therecession, signaled by stabilization infreight volumes at exceptionally lowlevels. But it is unclear how long the

industry will bounce along the bottombefore a significant recovery.

Air transport will be a smaller industry forat least the next few years. The challengeis to reshape and resize for profitability.

To start, airlines will need to carefullymatch capacity with demand. Thetask will be made more difficult by theplanned delivery over the next three

travel agents and banks failed, IATA didnot miss one payment or one penny.As challenges mount with the currentrecession, we will continue to be vigilantin ensuring that airlines cash flow isnever compromised.

IATA is helping airlines to reduce costs.Last year we achieved savings of $3.5billion in fuel fees, taxation, and airportand air navigation charges. Our fuelcampaign helped our members reduce

fuel consumption costs by $5 billion.

With 100% e-ticketing in June 2008, wealso realized $3 billion in cost savings.An additional $1 billion was savedwith the deployment of Common UseSelf-Service (CUSS) kiosks reaching135 airports. IATA is targeting a further$10 billion in savings with bar codedboarding passes (BCBP), Fast Travel,the Baggage management ImprovementProgram (BIP) and IATA e-freight.

Even in these turbulent times, we must

look ahead. Two important issues areessential to our long-term industryagenda: environment and liberalization.

IATAs four-pillar strategy to addressclimate change with technology, effectiveoperations, efficient infrastructure, andpositive economic measures is delivering

years of 4,000 aircraft ordered in moreoptimistic times. The results of the lastmonths show that airlines that acted fastand most aggressively are reaping thebenefits.

IATA is working hand-in-hand with itsmembers to help airlines with at leastthree top priorities in surviving a crisis:improving safety, conserving cash andcutting costs.

On 1 April 2009 we achieved animportant milestone. In line with targetsagreed at our 2006 AGM, all 224 IATAairlines were listed on the IOSA Registry.We are a quality association deliveringimpressive results on safety. In 2008,IATA members had one accident forevery 1.9 million flights. This performancewas even better than the industrys oneaccident for every 1.2 million flights. Airis the safest form of travel. In line with thesuccess of IOSA, the IATA Safety Auditfor Ground Operations (ISAGO) is nowwell established as the global standardfor this area of operations.

IATA is keeping the industrys cashsafe. Our financial systems processeda record $350 billion during 2008equivalent to two-thirds of totalindustry revenues. Even as airlines,


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results. This year we expect an 8% dropin aviations emissions. Of that, 6% isfrom reduced capacity and 2% is adirect result of the strategy. Our visionto achieve carbon-neutral growth on theway to carbon-free technology with a50-year time horizon sets us ahead ofany other industry.

The challenge for this year is to achievean agreement on economic measures.IATA continues to work with the

International Civil Aviation Organization(ICAO). Our goal is to facilitate a globalsolution for the aviation sector at theUnited Nations Framework Conventionon Climate Change (UNFCCC) meetingin Copenhagen in December.

We also need governments to move fromthinking about liberalization to action.The economic crisis is making accessto global capital more important than

ever. IATAs Agenda for Freedom Summitwill convene again in the last half of theyear. Our aim is to formalize progresswith this group of 15 of the mostliberal government players in aviationby developing policy tools to move theprocess forward.

Airlines are catalysts of economic activity.With the freedom to do business like anyother industry, aviation can play a vitalrole in helping governments stimulate the

global economy.

Securing our future in these difficulteconomic times will be hard work. But

we are a resilient industry, capable ofgreat change. Airlines will rise again tothe many challenges that this industryfaces. And we will emerge from this crisissafer, greener and profitable.

Giovanni BisignaniDirector General & CEO


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The State of the Industry

Jet fuel and crude oil price

Two thousand eight was an exceptionallychallenging year. Airlines were hit first byan unprecedented spike in oil prices andthen by a precipitous drop in revenuescaused by a collapse in world trade andthe start of what is looking to be thedeepest recession since the 1930s.

Airlines have reacted with unusual speedto resize capacity in the face of slumpingdemand. This and the subsequent fallin oil prices back to 20045 levels

may prevent what is expected to be thelargest-ever decline in airline revenues, in2008, from leading to a similarly record-breaking net loss in 2009. Nonetheless,2009 will be as, or more, challengingthan 2008, with a number of threatson the horizon and the ability of theindustry to resize and reshape itselfconstrained by restrictive regulationspreventing cross-border mergers andconsolidations.

Oil price bubble leads

to crippling rise in costsCrude oil prices started 2008 at ahistoric high of $97 a barrel (Brent), theresult in part of rising exploration andextraction costs. The real damage toairlines expenses, however, was doneby the speculation in oil that emerged inFebruary. That activity drove up oil pricesa further 50%, to $147 a barrel, by earlyJuly, and some analysts at GoldmanSachs and elsewhere were predictingadditional increases, to above $200 a

barrel. The hike in oil prices naturallycaused jet fuel prices to rise, almost60%, from $114 a barrel at the start ofthe year to a peak of more than $180 abarrel.

Fuel costs soared from an average of28% of airlines operating costs in 2007to well over 40% by mid-2008, and to inexcess of 50% for some airlines. The limitat which this unprecedented surge incosts could be passed on to passengersand shippers was soon reached. That,and because profit margins in 2007 had

only reached 3.9%, caused the industryto sustain a substantial net loss in 2008.

The oil bubble burst in late July2008 along with speculation in othercommodities. By the end of the year,oil had fallen to $40 a barrel, less thanhalf its price at the start of the year andover 70% below its July peak. Notably,though, this was still double the average19902002 price level of $20 a barrel.

Also notable was that jet fuel prices didnot fall as far. This limited the relief forairlines and their passengers as refineriestook the opportunity to boost theirmargins. By year-end, however, jet fuelprices had fallen back to $60 a barrel,but the refinery margin or crack spreadof 50% over crude oil prices was muchhigher than the normal 25%.

The other factor that limited the benefitsfrom lower crude oil prices in 2008 was

the impact of fuel hedging contractstaken out earlier in the year, when thefear had been of even higher oil pricesthan at the July peak. These contractsmeant many airlines paid much higherprices for their fuel than spot pricesduring the 2008 fourth quarter.

The application of newly adoptedaccounting rules led subsequently toreports of large, noncash losses asunrealized fuel hedges were marked tomarket. In fact, $5 billion of mark-to-market fuel hedge losses were reportedby Asian airlines alone in the fourthquarter of 2008.

Such heavy noncash losses exaggeratedthe effect on cash flow of fuel hedginglosses. Nevertheless, the impact on cashwas significant enough to render airlinesfinancial performances in 2008 muchworse than expected.

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Source: Platts, RBS


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International revenue passenger andfreight tonnes - kilometers

Manufacturing outputindices

Passenger traffic growthby ticket type

Recession causes collapse

of key aviation marketsThe other factor that led to larger thanexpected losses at the end of 2008was the precipitous fall in traffic in keyaviation markets. This resulted in asignificant decline in revenues.

Airfreight volumes, which are always atimely indicator of international tradeand economic activity, started to declineduring the second quarter of 2008.Measured in freight tonne kilometers(FTKs), airfreight began the year at a

fairly robust pace, growing around 5% inthe first quarter. By December, however,airfreight volumes had collapsed morethan 22% below the level a year earlier.

The scale of this decline is unlikeanything experienced before by theindustry and reflects the unprecedentedglobal drop-off in manufacturingproduction and goods trading at theend of 2008. The 15%30% declinesin economic activity in major economiesworldwide dwarf those of all recessionsin the past 40 years and make this likelythe worst downturn since the 1930s.

As with airfreight, passenger markets,too, began the year growing at arobust rate amid still solid economic

growth worldwide. Revenue passengerkilometers (RPKs) in international marketsflown by IATA member airlines rosemore than 5% on average during thefirst half of 2008, not far below the 6%growth trend of the previous decade.In September, though, passenger travelturned negative. And by December,international RPKs were down 4.6% froma year earlier.

Business travel is highly sensitive

to problems in the economy and fellfast. Ticket numbers for businessand other premium travel had alreadyturned negative by the middle of 2008.The wider impact of the Septemberbankruptcy of New Yorkbased financialhouse Lehman Brothers in particulartriggered a sharp fall in air travel bythe financial sector and especially inthe number of passengers traveling onpremium tickets. By December, premiumtravel was down more than 13% froma year earlier. The crisis accounting for

weakness in financial-sector travel hadspread to the manufacturing sector andparticularly its export industries, which

supply many business travelers. In early2009, the rate of decline in premiumtraffic exceeded 20%.

Evidence indicates that many businesstravelers shifted to the back of theaircraft if they didnt cut travel altogether.The growth rate for the number ofpassengers on economy tickets slowedmore significantly from that for premiumtravel after September. Heading intoDecember, economy travel had fallen

more than 5% from year-earlier levels,compared with the over 13% forpremium travel.

Travel on economy tickets will have beensupported to a moderate extent by cutsin fares and fuel surcharges at the endof 2008 and by the shift of businesstravelers to the back of the aircraft.Overall, however, passenger travel isdominated by the impact of the recessionon incomes and confidence. Loweringthe cost of travel will not be sufficient tooffset the effect on travel numbers of therecession.

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Source: IATASource: Haver Analytics Source: IATA


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Scheduled data for growth in ASKsby major route area

Passenger growth and new aircraftdeliveries

Load factors ininternational markets

Airlines cut capacity

at varying ratesThe surge in fuel prices in the first half of2008 meant fuel represented more than50% of many airlines operating costs.In the United States, many airlines hadalready fully depreciated their older fleetsrelative to the fleets of airlines in otherregions. US airlines, therefore, were ableto cut capacity more quickly than airlineselsewhere, particularly in their domesticmarket where reductions were in excessof 10%.

Airlines in other regions could notreact as quickly because their aircraftstill carried high fixed capital costsand because of restrictions due toslot regulations. As a result, capacityreductions were mixed across marketsduring the latter part of 2008.

The three-largest long-haul internationalmarketsacross the Atlantic, thePacific, and Europe to Asiasawsignificant capacity reductions, thoughnot as extensive as within the US. Some

markets, though, continued to expand.This was especially so within Asia andthe Middle East, where the largestnumber of new aircraft were delivered.Consequently, the industry saw the fallin travel demand exceed its reductions incapacity at the end of 2008.

Deliveries to airlines of jets andturboprops rose to a record peak of1,177 new aircraft in 2008. This wasdespite the strike at Boeing that reduced

deliveries from that maker. Unfortunately,the delivery cycle was out of line with thecycle in travel demand. Peak deliveriesoccurred when demand was declining.

Load factors fall

in most marketsThe lag between capacity cuts andslumping demand reduced load factors.Load factors at the beginning of 2008were high and matched those for theprevious two years. Those levels weresustained until midyear, when theproportion of seats filled started falling.By December, average load factors forinternational markets had fallen to 73.8%,from 76% the previous year. In the earlymonths of 2009, load factors fell even

more steeply.Airlines faced emptier aircraft as a resultof the recession. A surge in the numberof older aircraft taken out of serviceduring September to November 2008was exceeded at the end of the year bythe number of new aircraft delivered. Sofleets were expanding, forcing airlinesto reduce capacity by cutting flightfrequencies and some uneconomicroutes.

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Sources: Ascend, ICAO, IATASource: SRS Analyser Source: IATA


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International fare growthby ticket type

Yields come under increasing

downward pressureFuel hedging contracts kept airlinecosts high during the fourth quarter of2008. But the fall in spot oil prices willsignificantly reduce costs during 2009.This should allow a reduction in the costof travel and air cargo. Airfares, however,had already begun to decline by October2008 amid slumping demand, loadfactors, and aircraft utilization.

The first half of 2008 was characterizedby double-digit increases in premium

fares as airlines sought to recover part ofthe surge in fuel costs from this marketsegment, which is less price sensitivethan other fare segments. There werealso increases in economy fares, but atabout half the rate for premium fares.Fuel surcharges are not included in thesefare increases.

The year-end deepening of the recessionand slump in business travel had anenormous effect on fares as 2008 drewto a close. The largest fare declinesoccurred with premium tickets, whichwere down 8% from a year earlier byDecember 2008. Economy fares oninternational markets were down bysubstantially less, at around 3%.

The larger fall in fares for seats at thefront of aircraft is a sign of how intensethe competition in fares has becomeamid the economic crisis.

Airline yields, though, fell even furtherthan fares during the latter part of 2008.Higher-yielding premium passengernumbers, for example, dropped at morethan twice the rate of the number ofpassengers on economy tickets.

Airlines in most regions see

profits deteriorateIn hindsight, 2007 appears to have beena respite during the period of continueddownward pressure on profitabilityexperienced by the industry since 2001.In 2007, the over $5 billion in net profitsfor the airline industry in North Americaand Europe promised a durable recovery.The industrys worldwide operatingmargin, however, was just 3.9%, and thiswas the peak of the cycle. What is more,this was below the 5.6% peak in the

1990s profit cycle and lasted only oneto two years compared with five years ofmore than 4% profitability in the 1990s.

Much of the loss suffered by the industryduring the first half of 2008 was due tosubstantial losses by North Americanairlines. Airlines in that region were lessprotected from surging fuel prices thanairlines in other regions. Around halfof the industrys 2008 losses overalloccurred in the fourth quarter and weremore evenly spread across regionstheresult of fuel hedging losses and the

suddenly more-widespread recession.We estimate that the commercial airlineindustry went from a net profit of $12.9billion in 2007 to a net loss of $10.4billion in 2008, excluding noncash itemsrelated to restructuring and mark-to-market fuel hedging losses.

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Net post-tax profitsSource: IATA Sources: ICAO, IATA


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GDP growth US household debtto disposable income

Manufacturers inventoryto sales for airfreight

Cash balances, fortunately, arereasonably high at many airlines, and thisoffers some protection against difficultiesahead. But for the most part balancesheets are weaker in this recession thanin 2000, ahead of the 2001 downturn.And the damaged banking systemand financial markets mean that it isextremely difficult to raise or to pay thecost for new finance. The US centralbank is lending money at an interest rate

approaching zero, but even the strongestUS airlines paid more than 10% to raisecapital in 2008. The industry overall is ina fragile financial position.

Severe headwinds persistfrom the global recession

in the year aheadRecession, protectionist threats,restructuring restrictions, newgovernment taxes, and risinginfrastructure charges persist and leavethe airline industry vulnerable in 2009.

Worldwide economic activity in 2009is forecast to fall 2% or more, and theOrganization for Economic Cooperationand Development (OECD) expects tosee world trade contract 13%. Somesigns suggest that the worst for world

trade is over. But much of the privatesector continues to reduce the debtincurred during the bubble years forcredit, and that will only take incomesaway from spending and travel. Thisimplies any recovery in 2010 will beweak, with most analysts forecasting nosignificant economic recovery until 2011.

Meanwhile, the emerging threat ofprotectionism, if left unchecked, couldcause an even greater collapse in worldtrade and investment. No markets haveyet been closed, but many bailout andstimulus packages worldwide containmeasures that could exacerbate the

fall in demand for imported goods andthe contraction of global supply chains.Airlines facilitate the international flowof trade, capital, people, and ideas socritical to global economic growth. So,for the vitality of the global economyand of the air transport business, itwill be essential in 2009 to resist anymeasures by governments that involveprotectionism.

Airlines, particularly in the United States,

have reacted speedily to shrink capacityin an attempt to resize the industry in theface of dropping demand. Worldwide,though, the industry remains fragmentedand nationally based, with only a fewexceptions in Latin America and theEuropean Union.

Effective restructuring in otherinternational industries includes cross-border consolidation. Unless, however,there is some easing in restrictiveownership and control regulations,

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Source: HaverSource: EIU Source: Haver, IATA


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Brent oil price

this commercial option will continue tobe unavailable to the airline industry.Alliances are a second-best route togenerating network efficiencies: theygenerate few of the resource savingsof mergers. But now even alliances areimperiled as some regulators threatenthe antitrust immunities essential to theirformation. Altogether, the industrysefforts to reshape and resize areconstrained.

The declines in oil and jet fuel pricesfrom their 2008 peaks are importantfactors preventing losses in excess ofthose in 2001. Rising costs elsewhere,however, constitute a significantthreat. Many infrastructure providers inmonopoly positions are raising chargesin the face of falling passenger numbers

and freight traffic. And the huge budgetdeficits being generated by governmentsas they bail out financial institutions andother industries leave airlines and theirpassengers vulnerable to new taxes oncefiscal restraint returns.

The US airline industry may have resizeditself to break even in 2009, despitethe extent of the recession. Airlineselsewhere, however, have been unableto cut capacity to the same extent.

Lower fuel prices will somewhat offsetthe largest fall in revenues ever for theindustry, but losses are likely to grow in2009 especially for airlines outside theUnited States.

Industry-wide losses for 2009 areexpected to be a little smaller than the$10.4 billion lost in 2008 as a result ofcapacity cuts and the fall in fuel prices.But even in the United States, the risksare legion. The global economy continueson the downside, and the potential forprotectionism and the introduction ofnew taxes could further undermine thefinancial viability of the air transportindustry.

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Source: RBS


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Simplifying the Business

Today, the nature and the severity of thecrisis may have changed, but the value ofdelivering cost savings and conveniencethrough global standards and the betteruse of technology has not.

StB is more relevant than ever. It is aresponse to consumer calls for greaterconvenience and to the industrys needto lower costs. StB can save the industryup to $14 billion annually.

In 2008, a significant portion of thosesavings$3 billionwas realized with100% electronic ticketing (ET), achievedon 1 June after four years of concertedeffort.

Another StB project, Common-UseSelf-Service (CUSS) kiosks for check-in, was also completed during 2008and generated $1 billion in savings. ByDecember 2008, 135 airports around

Global ET penetration

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Simplifying the Business (StB) was launched in 2004 as the industrystruggled to recover from September 11, from war and terrorism,

and from the severe acute respiratory syndrome (SARS) crisis.

Source: IATA

In June 2008 we achieved100% e-ticketing saving$3 billion annually.

There are billions more incost savings still to be achieved.

Giovanni Bisignani


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the world offered CUSS facilities. Kioskcheck-in has a 40% market share in theUnited States and Europe and a 30%share worldwide.

A global network of 4,000 industryprofessionals, including StB championsin airlines and airports, suppliers, industryexperts, and IATA staff, was instrumentalin completing the ET and CUSS projects.

That same network will be key to thesuccess of the next phase of StB.

The StB program has evolved fromindividual technology projects to end-to-end solutions. Four initiatives make upthe program: bar-coded boarding passes(BCBP), the Baggage managementImprovement Program (BIP), Fast Travel,and IATA e-freight.

Would you like airlines to provide

more self-service options?

Simplifying the Business - savings potential

Project

100% ET

CUSS

BCBP

IATA e-freight

Fast Travel

BIP

Target date

Delivered 1 June 2008

Delivered 31 December 2008

Year-end 2010

Year-end 2010

On-going

50% mishandling reduction by 2012

Savings potential

$3 billion

$1 billion

$1.5 billion

$4.9 billion

$1.6 billion

$1.9 billion

Source: IATA

Source: IATA


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Bar-coded boarding passesBar-coded boarding passes (BCBP)eliminate costly magnetic-stripe boardingpasses and offer more choice forpassengers. BCBP can be accessedthrough the Web, a kiosk, a check-indesk, or even a mobile phone and cangenerate up to $1.5 billion in savings.

More than 200 airlines were issuingBCBPs at the end of 2008. By 2010,IATA members will be 100% BCBP, andmagnetic-stripe boarding passes will be

history.

To help airlines achieve BCBPs potentialsavings of $1.5 billion, IATA launchedits BCBP Matchmaker in 2008. Thisdedicated, free-of-charge Web portalallows airlines and airports to plan BCBPimplementation together. Over 200airlines and 400 airports are using thistool.

IATA also published a global standardfor mobile BCBP in 2008. This wasa response to consumer demand and

paves the way to paperless travel.Passengers receive IATA-standard 2-Dbar codes on their mobile phones thatthey can use to drop off their bags, passthrough security, and board their flightswithout printing any paper.

The Joint Passenger ServicesConference (JPSC) amended the globalmobile BCBP standard in October 2008,adding a digital signature to enhancesecurity in response to US TransportSecurity Administration requirements.

As a result, the mobile BCBP standard isincreasingly used in the United States.

Baggage management

Improvement ProgramMishandled baggage costs the industryin excess of $3 billion every year. Arrivingwith baggage is also the second mostimportant factor in having a pleasant tripaccording to passengers polled in IATAs2009CorporateAirTravelSurvey.

Radio frequency identification (RFID)can resolve some 20% of baggagemishandlings, but the Baggagemanagement Improvement Program (BIP)provides a more-comprehensive set of

analytical tools and solutions to addressmishandling. IATAs RFID work is nowpart of the broader BIP.

The BIP solutions toolkit was piloted in2008 at nine airlines and nine airportsof varying size and complexity. It wasfound that BIP solutions identified duringthe trials could address over 90% ofthe mishandlings at each participatingairport. Airlines that implemented BIPsaw immediate results. One carrier cut itsmishandlings in half at its hub airport inless than three months. Another was ableto reduce its mishandlings 30% at a USairport in the same amount of time.

During 2008, the number of mishandledbags fell more than 20% from 42.4million bags in 2007, to 32.8 millionbags. That is a welcome improvement,but the industrys baggage problemspersist. The BIP provides long-termsolutions that can keep the mishandlingrate low even when passenger volumespick up again.

Between 2009 and 2012, the BIP willprovide the industry with solutions thatwill cut mishandlings and their associatedcosts in half. The program will focus onthe 200 airports globally that accountfor 85% of passengers baggagemishandling claims. The top 80 of thoseairports will receive dedicated diagnosticvisits, while the remaining 120 airportswill be part of a self-help programbeginning in 2010.

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IATA e-freightEach international airfreight shipmentcan require more than 30 different paperdocuments, increasing airfreight costsand lengthening transport times. IATAe-freight is an industry-wide initiativeinvolving airlines, freight forwarders,ground handlers, shippers, customsbrokers, and customs authorities.It replaces paper documents withelectronic messages, increases thespeed and the reliability of airfreight, and

offers savings of up to $4.9 billion.IATA e-freight can reduce shipmenttimes by an average of 24 hours.Electronic messaging also ensuresgreater accuracy. Electronic documentsauto population, which allows one-timeelectronic data entry at a point of origin,reduces delays to shipments due toinaccurate or inconsistent data entry.Electronic documents also are less

likely to be misplaced, so shipmentsare not delayed because of missingdocumentation.

In 2008, the number of e-freightlocations tripled from six to 18 and 13documents were replaced with electronicmessaging standards. TheIATAe-freightHandbookwas also published online,offering a comprehensive, step-by-stepguide to implementing e-freight. Updatesto this handbook are planned to give

members of the air cargo supply chainthe guidance they need to take the paperout of air cargo.

By the end of 2009, three moredocuments will have been replacedwith e-messaging standards and fivemore e-freight locations will have beenadded. All 20 documents supported byinternational standards will be replacedwith e-messages by the end of 2010.And locations that account for 81% ofinternational airfreight are expected to bee-freight capable by that same time.

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As we battle this crisis, we mustlook for opportunities that willbuild our future with a moreefficient industry.

What do customers want?A good price and a great product.And in a crisiscustomers willonly get more demanding.

Giovanni Bisignani


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Fast TravelThe Fast Travel Program is a newelement of StB. It gives passengers morecontrol over their journeys by promotingself-service options in four areas: bagsready to go (bag registration), documentscanning, self-boarding, and bagrecovery (lost bag registration).

Annual potential savings are estimated at$1.6 billion.

The program was piloted 18 times in2008 and successfully demonstrated itsadded value to the industry.

All four of its project areas, therefore, arebeing implemented, bringing the future oftravel to passengers today:

Bags-ready-to-go enables passengers>to deliver their tagged bags to abaggage acceptance point, or bagdrop, speeding up the check-in

process for passengers traveling withbaggage. Target for 2009: 10 airlines

Document scanning allows passengers>to scan their travel documents atkiosks for transmission to governmentagencies, avoiding the need tocomplete the required ID checks ata check-in desk. Target for 2009: 75airports

Self-boarding provides automated>boarding gates for passengers,such as in a train or subway station,reducing boarding times. Target for

2009: 10 airlines

Bag recovery allows passengers to>report a missing bag at a kiosk insteadof waiting in line at a baggage servicecounter. Target for 2009: 10 airlines

IATA also will monitor two additionalareas in 2009: check-in and flightrebooking.

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Safety

of a broad range of safety programs.

The IATA Six-Point Safety Programreflects the strategic direction beingtaken to ensure the continuousimprovement of the industrys safetyrecord.

Established in close cooperation withmember airlines, the program focuses onauditing, safety data management andanalysis, safety management systems,

operations, infrastructure safety, andmaintenance.

Air continues to be the safest way totravel. The fatality rate for air travel in

2008 was at its lowest level since 2004,at 0.13 per million passengers. This wasdown significantly from the 0.23 fatalitiesper million passengers recorded in 2007.

The 2008 global accident ratemeasured in hull losses per million flightsof Western-built jet aircraftwas 0.81.This is one accident for every 1.2 millionflights, up slightly from the 2007 accidentrate of 0.75, or one accident for every1.3 million flights.

Three issues emerged during 2008.

Runway excursions accounted for25% of all accidents, ground damageaccounted for 17%, and deficient safetymanagement at the airline level wasnoted as a contributing factor in 30%.

Regional accident rates varieddramatically. Accident ratesrose compared with 2007 in theCommonwealth of IndependentStates (CIS), in Latin America and theCaribbean, in the Middle East and NorthAfrica, in North America, and in Europe.In Africa, Asia-Pacific, and North Asia,year-on-year accident rates decreased.

IATA member airlines significantlyoutperformed the industry in safety. Theaccident rate for IATA members declinedfrom 0.68 in 2007 to 0.52 in 2008.That is one accident for every 1.9 millionflights.

Despite these results, safety is aconstant challenge. The 502 fatalities in2008down from 692 in 2007remindus of the need for constant vigilance.Our target is zero accidents and zero

fatalities. In pursuit of that goal, IATAcontinues to press for the implementation

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Safety is the industrys number one priority. Success in safety is driven byglobal standards, a coordinated approach, industry-wide programs, and

firm targets. Preeminent among our safety targets is the achievement ofthe IATA Operational Safety Audit (IOSA) for all IATA member airlines.

2008 regional safety rates(Western-built jet hull losses/million sectors)

Source: IATA


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IATA Operational Safety Audit

IATA reached a landmark on 1 April 2009when all 224 IATA members had joinedthe IOSA registry. As a result, IATAmembership is synonymous with bestpractice in airline safety.

This provides an important mark ofquality for all IATA airlines and reassures

travelers everywhere of aviationscommitment to safety.

Introduced in 2003, IOSA is the firstglobal industry standard for airlineoperational safety auditing. It assessesairline operational management andcontrol systems. It improves safetyand reduces the number of auditsperformed. And it is ISO 9001:2000

registered. Since its launch and up untilthe end of April 2009, 718 audits havebeen completed by eight independentaudit organizations accredited by IATAand 1,212 audits have been avoided,

generating industry savings of $72.7million.

At the 2006 IATA Annual GeneralMeeting (AGM), IOSA was made acondition of IATA membership, with threemilestones needed for completion. By 31December 2006, member airlines hadto complete contractual arrangementsfor an IOSA audit. By 31 December2007, all audits needed to be completed.

And by 31 December 2008, all auditfindings had to be closed and the carrier

noted on the IOSA registry. Failure tomeet any of the deadlines resulted intermination of IATA membership, witheffect 90 days after the milestone wasto have been reached.

To support the transition to IOSA, in2005 IATA invested $3 million in itsPartnership for Safety Program (PfS).From 2005 to 2007, 180 airlines

participated in PfS awareness seminars,including 100 IATA members, and73 airlines underwent gap analyses,

including 59 IATA members. Fully 25member airlines in Africa participated inpost-gap analysis PfS training with theassistance of the International AirlineTraining Fund.

In addition to making IOSA amembership condition, IATA promotesthe use of IOSA in national safetyoversight programs. By the end ofMarch 2009, Brazil, Chile, Costa Rica,

Egypt, Madagascar, Mexico, Panama,Turkey, and Syria had mandated IOSA.

23

IOSA statusas of 30 April 2009

Source: IATA


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IATA Safety Audit

for Ground OperationsFollowing on the success of IOSA,IATA has applied the same approach toground handling safety. Ground damagewas the second most predominant typeof accident in 2008, accounting for 17%of the years accidents. Half of theseinvolved IATA member airlines.

Each year, ground damage costs theindustry nearly $4 billion.

The IATA Safety Audit for Ground

Operations (ISAGO) is the industrys firstglobal standard for the auditing of groundhandling companies. ISAGO is intendedto bring the same improvement in safetyand efficiency for ground handlers asIOSA aims to achieve for airlines.

The primary aim of the program is todrastically reduce aircraft damage andpersonal injuries.

Also important is that ISAGO shoulddrive down the number of redundantaudits.

ISAGO was launched in February 2008to audit ground service providers (GSPs)under a common and harmonized setof international standards. It has sincegained the support of civil aviationauthorities in the United Kingdom,France, the Netherlands, Australia,Jordan, Switzerland, and the UnitedStates and at airports in Amsterdam, SanSalvador, Calgary, Seattle, Guayaquil,and Lima.

The first ISAGO audits were conductedin May 2008. Audits are performedevery two years. Headquarter auditsare conducted by independent auditorganizations accredited by IATA, andstation audits are conducted by qualifiedauditors from member airlines that workin a pool managed by IATA.

In 2008, ISAGOs audit pool comprised24 member airlines and 107 auditors. Itconducted nine free information seminarsin all regions of the world; trained 200auditors from 60 different airlines; andperformed 42 audits, including 18

headquarters audits and 24 stationaudits. IATA will conduct 80 ISAGOaudits in 2009.

Safety Management SystemA safety management system (SMS)is a systematic approach to managingsafety. It includes organizationalstructures, accountabilities, policies, andprocedures. An SMS is a requirementof IOSA. In almost a third (30%) ofaccidents in 2008, deficient safetymanagement on the part of an airlinewas noted as a contributing factor. Thisincludes deficiencies in the airlinessafety policies and objectives, risk

management, safety assurance, andsafety promotion.

Working with the International CivilAviation Organization (ICAO), IATA hasbeen assisting airlines and other serviceprovidersincluding air navigationservice providers (ANSPs), civil aviationauthorities (CAAs), maintenanceorganizations, and aerodromeoperatorsto prepare for SMS andICAO requirements, which came intoeffect on 1 January 2009. During 2008,IATA held 10 SMS workshops around the

globe. They were attended by 18 airlinesand by CAAs, aerodrome operators,ANSPs, and maintenance organizations.In 2009, IATA will deliver new guidancematerial on the SMS and will continue toassist airlines with SMS implementationon individual and regional bases.

Infrastructure safety

In 2008, 23% of all accidents wereinfrastructure related. The majority wererunway excursions. Although a limitednumber of runway incursions were alsoreported.

In response, IATA is developing TheRunwayExcursionRiskReductionToolkit in collaboration with the FlightSafety Foundation. The toolkit containsdetailed analysis, training material, bestpractices, and other useful information toenable airlines and ANSPs to reduce therisks associated with runway incursionsand excursions. It provides a detailed

assessment of risks during take-offs andlandings plus procedures, policies, andrecommendations for airline operators,

airports, and air traffic managementproviders. The toolkit will be available inthe third quarter of 2009.

Safety data management andanalysis

Safety data helps the industry betterunderstand safety issues and trends.

And that ultimately assists the industryin preventing accidents. IATAs datasources include information from audits,accidents, incidents, and flight dataanalysis (FDA).

IATA produces its SafetyReportbasedon data collected at the beginningof each year. The report presents adetailed summary of statistics, trends,and contributing factors involved in theprevious years accidents. Based onthese findings, prevention strategies aredeveloped to enhance operational safety.

IATAs Safety Trend Evaluation,Analysis, and Data Exchange System(STEADES) is built on a databaseof incident reports from participatingairlines. In 2008, STEADES doubledits membership. Over 80 airlines nowbenchmark their operations against theSTEADES database. This helps themdetermine how effectively they aremanaging operational risks by comparingthemselves with other, similar operations.In 2008, STEADES produced informationregarding call sign confusion, on boardmedical events, long and off-centerlinelandings, dangerous goods, and birdstrikes.

In 2009, IATA will launch the GlobalSafety Information Center (GSIC). TheGSIC will provide airlines with accessto industry benchmarks based on all ofIATAs safety information sources froma single Web page. These informationsources include the Safety Report,STEADES, IOSA, ISAGO, and the FDA.Initially, the GSIC will be limited to IATA-

managed data sources. Future versions,however, will integrate information fromindustry-wide safety programs.

24


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OperationsOperations cover all areas affectingsafety, including flight, cabin, ground, anddispatch. In 2008, 31% of the accidentson passenger aircraft involved anevacuation. In 86% of these evacuations,all passengers and crew survived theaccident.

Successful evacuations were often linkedto proper handling of the situation bythe cabin crew and to effective trainingand procedures by the airlines. In 2008,

IATA worked closely with airlines and

governments to enhance cabinsafety. Collaboration with the CivilAviation Authority of China (CAAC)and with the Civil Aviation Universityof China, for example, resulted intwo successful seminars in thatnation. They enabled Chinese carriersto improve their cabin operationsprocedures and cabin crew trainingand to prepare for the 2008 OlympicGames in Beijing.

25

MaintenanceMaintenance events, such as errorsby maintenance crews, played acontributing role in approximately 15%of the accidents that occurred in 2008.In over half (57%) of these accidents,deficiencies in the airlines maintenanceoperations were cited as a contributingfactor. These include deficiencies intechnical documentation, unrecordedmaintenance, the use of bogus parts,unapproved modifications, and the

poor training of maintenance personnel.To address such deficiencies, IATAadded a new segment to its Six-PointSafety Program: safety management inmaintenance operations.

All IATA airlines are now on theIOSA registry.

This is a great achievement, areassurance to our passengers,and an important mark of qualityfor our association.

Giovanni Bisignani


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Security and Facilitation

US Visit Exit

During 2008, the US Department ofHomeland Security proposed under theUS Visit Exit program that airlines collectbiometric data from travelers departingthe United States for border controlpurposes. After an intense, IATA-ledlobbying effort involving 21 airline, airport,and travel industry associations, theUS Congress passed a law prohibiting

further development of the exit programuntil additional testing was completed in2009.

This avoided more than $12 billion inequipment, systems development, and

staff training that would have beenrequired had the program goneforward. And it prevented lengtheningairport counter queues when self-service tools are shortening queuesand processing times and improvingthe passenger experience.

26

The industry is secure. But eight yearsafter the events of September 11, thelack of harmonization and the ineffectiveand inconsistent use of technologycontinue to contribute to a securityregime that frustrates and confusespassengers and costs airlines $5.9 billionannually.

Airlines and their passengers needsmarter, more-efficient security. In2008, IATA collaborated with regulators,airlines, manufacturers, and systemssuppliers to drive much-needed change,yielding cost savings and cost avoidancefor the industry exceeding $13 billion.That included working to eliminateonerous and ill-conceived passengerfingerprinting requirements in theUnited States; setting new standardsfor airline passenger data collectionand transmission; inspecting airports toassess security; and introducing SecureFreight, IATAs global cargo supply chainsecurity program.

Security, alongside safety and environmental responsibility, is a core promise ofthe aviation industry. Too often, however, authorities regulate based on fear rather

than risk and squander scarce security resources on improbable threats.


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27

We have become much moresecure.

And we are spending much more- $5.9 billion a year.

But I am not convinced that weare much wiser or any moreefficient with many of our securityprocesses.

Giovanni Bisignani


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Advance Passenger

InformationThe collection of Advance PassengerInformation (API) about who is travelingon an aircraft has the potential toincrease security and facilitate theflow of low-risk passengers. A lackof harmonization between countriesrequirements, though, has burdened theindustry with unacceptable costs.

During 2008, IATAs work with thegovernments of Brazil, Indonesia, Peru,El Salvador, and the Dominican Republic

laid the foundation for API programsaligned with international standards.Another major win was the successfullobbying of the UK government toprovide a systems solution for carriersthat uses the same format in place forUS passenger data. This will enable morethan 30 airlines to comply with the UKsrequirements for its e-borders programin 2009 without having to change theirsystems.

IATA achieved total annual savings for theindustry of up to $50 million.

Passenger Name RecordGovernments continue to press theindustry for greater access to airlinePassenger Name Record (PNR) data.The lack of internationally recognizedstandards on PNR exchanges is leadingto a costly set of differing requirements.In 2008, IATA gathered its industrypartners, airlines, and regulators tocommence work on the development ofa single, common standard for PNR dataexchange.

IATA also successfully advisedCuban authorities on the benefitsand limitations of PNR data to ensurethat an unachievable program wasnot implemented in that country. Anonstandard program would have costairlines servicing Cuba about $100,000each.

Security Management Systems

IATAs Security Management Systems(SeMS) provide airlines with a risk-based framework for security in linewith an airlines safety culture. All IOSA-registered airlines have implemented coreSeMS elements within their corporatestructures, effectively making SeMS acondition of IATA membership.

With support and cooperation fromthe governments of Canada andNew Zealand, IATA obtained a formalendorsement for SeMS by ICAOsAviation Security Panel in 2008. It isanticipated that SeMS is on track tobecome part of ICAO Annex 17, SecurityStandards and Recommendations,driving its global adoption even by statesand airlines outside the IOSA program.

One-stop security

Over 325 million passengers a yearboard connecting flights in Asia,Europe, and the United States. Theoverwhelming majority must go throughsecurity screening multiple times alongtheir routes, adding time, cost, andinconvenience. IATA is pressing for one-stop security where transfer passengersare not rescreened if they have beenadequately screened at their airport of

departure.In 2008, IATA worked with regulatorsin Europe, Asia, and North Americaand at ICAO to investigate where theconcept of one-stop security could beimplemented. A number of regions wereidentified, including the EU-US market,where urgent action is needed. Puttingone-stop security in place for passengersarriving in the European Union from theUnited States is a chief project for 2009.

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Security does not take aback seat in a crisis.

Giovanni Bisignani


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29

Cargo security for

secure freightCargo security likewise is among the topIATA priorities. IATA remains concernedby proposals from governments toattempt to mandate the 100% screeningof cargo. This would slow shipment timesand add unnecessary costs to globaltrade while doing nothing to enhancesecurity.

In 2008, IATA developed a strategy forcargo security. That strategy includes thereview and development of the SeMS

Cargo Addendum, of content for IATAsSecurityManual, and of the SecureFreight system.

Secure Freight was introduced in 2008.The vision is for an air cargo industryof certified secure operators in securesupply chains operating to internationalcargo security standards recognizedby relevant national authorities. SecureFreight features a process for auditingand certifying operators. Under it, IATAwill develop international air cargosecurity standards for the industrythat are recognized by governmentsworldwide. As well, IATA will definemodel security program templates.

Secure Freight is a long-term initiativethat may take five years to fully developand longer to mature. It can, however,lower airline cargo security costs up to10% when adopted in its entirety.

Simplifying Passenger

TravelThe IATA-led Simplifying PassengerTravel (SPT) interest group bringstogether more than 65 airports, airlines,regulators, and systems supplierswith the aim of improving all aspectsof the passenger journey. The SPTgroup continues to push for globallyinteroperable technologies and mutualrecognition by governments. It worksin cooperation with IATAs Fast TravelProgram to put a new recommended

practice in place for the passengerjourney.

In 2008, the SPT interest groupencouraged such regional bodies asthe European Commission (EC) JointResearch Centre, the Asia-PacificEconomic Cooperation Conference(APEC), and the Caribbean Community(CARICOM) to spread the vision ofthe ideal process flow and harmonizeair travel measures. The EC and APECprojects are in the exploratory phase.CARICOM is conducting trials on

biometric border gates.

New security strategyMuch progress has been madeon security since 2001. Some keyobjectives, though, remain to beachieved. In late 2008, IATA gathered 15top aviation security experts to redrawglobal security and facilitation priorities.The result is a multiyear security andfacilitation strategy for the most pressingsecurity needs.

The strategy emphasizes work in fiveareas:

bringing airlines a threat-based, risk->managed framework for securitydecision making

creating global and regional advocacy>plans to shape the regulatoryframework

coordinating relationships with key>decision makers and forming newindustry coalitions to tackle industryissues

moving technology from laboratories to>

airports fasterpreventing costly nonstandard data>requirements from being implemented,especially for passenger data

The strategy will be fully implemented in2009.


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IATAs vision is for an industry that is safe, financially sustainable, competitive but fair, andrespected for its dynamic contribution to continued economic and social development.

That vision can only be achieved if airlines are allowed to enjoy the same commercialfreedoms that other global businesses take for granted.

Regulatory and Public Policy

30

Agenda for Freedom

In June 2008, IATAs 64th AGM adoptedthe Istanbul Declaration. The declaration

called on governments to remove thearchaic rules that restrict airlines fromrestructuring across borders. IATAsDirector General invited progressivegovernments to meet to discuss how tomove forward on liberalization.

Fourteen governments and the EuropeanCommission heeded that call andattended IATAs Agenda for Freedomsummit in October 2008. IATA proposedthat many of the restrictions in thenumerous bilateral treaties that had

arisen from the Chicago Conventionof 1944 and that could not, obviously,be altered overnight simply be waived.IATA emphasized nullifying the treatiesso-called ownership and controlrestrictions.

Summit participants agreed thatthe industry and governments hada legitimate interest in pushing formore liberalization. They asked IATAto facilitate a multilateral statement ofpolicy principles to express their commonthinking and approach. This would be

a nonbinding statement describinghow countries could take a liberalizedapproach to the practical applicationof a transport policy. Discussions areunder way on an advanced draft, andit is expected that a critical mass ofparticipants will be ready to commit tosigning the draft by the end of 2009.

Summit participants also agreed to makeavailable to all countries the most liberalagreements. They asked IATA to convenea second meeting in 2009 focused onturning talk into action.

Passenger taxation

Governments continue to levy a cripplingarray of counterproductive taxes on

an industry that remains one of thechief drivers of economic growth anddevelopment worldwide. In 2008, theindustry saw $6.9 billion in new taxes.Many were disguised as environmenttaxes whose proceeds were redirectedinto general government coffers.

In July 2008, the Dutch governmentintroduced a new air passenger taxtargeting the collection of $418 million.A subsequent Dutch study calculatedthat the tax cost airlines $1.2 billion,

Dutch airports $121 million, and theDutch economy $1.6 billion. The Dutchgovernment abolished the tax effectiveJuly 2009.

The UK government also announcedsignificant increases to its Air PassengerDuty (APD) in 2008. New APD bandsthat come into force in November 2009will see a ticket tax ranging from $16 to$162 depending on the distance andclass traveled from London. A secondincrease is already set for November2010, bringing the duty to between $18

and $251. The increased passenger taxwill cost $4.1 billion annually.

Liberalization

International air transport is governedby a web of over 3,500 government-

to-government bilateral air servicesagreements, each containing clausesthat place significant restrictions on theability of airlines to access markets andforeign capital. The result is a fragmentedindustry whose airlines are preventedfrom merging or consolidating andfrom accessing capital regardless ofnationality or location.

Airlines urgently need access to thesame tools as other global enterprises ifthey are to navigate through this crisis.

The benefits of a liberalized airlineindustry reach far beyond the industry.The establishment, for example, of asingle European aviation market in 1993created 1.4 million jobs. It is estimatedthat liberalizing key routes globallywould result in 24.1 million new jobsand generate $490 billion in economicactivity.


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IATA lobbying did, however, helpeliminate the proposed replacement of

the per passenger duty by a per aircraftduty, which saved the industry $511million.

In October 2008, Belgium and Irelandannounced plans to levy departure taxeson airline passengers. IATAs lobbyingresulted in the Belgian governmentabandoning its plans, saving the industry$782 million. IATA continues to pressthe Irish government to do the same.

IATA secured tax savings for the industryof $1.4 billion, in 2008.

Health and pandemicpreparedness

IATA routinely works with governmentson numerous passenger and crew

health issues in coordination with theWorld Health Organization (WHO)and ICAO. Efforts include developingcomprehensive guidelines that enhancethe readiness of industry and publichealth officials to deal with a globalpandemic. IATA has, for example,contributed to ICAOs CooperativeAgreement to Prevent the Spreadingof Communicable Disease throughAir Travel. In addition, IATA promotesproactive guidelines for airlines regardingsuspected communicable diseases. It

also maintains an emergency responseplan that it effectively activated amid theInfluenza A(H1N1) event.

During 2008, IATA also developed atraining program for WHO personnel onthe transport of infectious substances.This will help facilitate the safe movementof biological specimens internationally.

The future of aviation

There appears to be growing governmentinterest in the future of aviation. The UK

and Australian governments, for instance,each launched stakeholder consultationson how to strategically shape the sectorover the coming decades.

IATA sent formal submissions to theconsultations in both nations thatreiterated the industrys positions on awide range of issues, from economicregulation to mitigating aviationsenvironmental impact to the need forsignificant infrastructure improvements.

More recently, the European Commission

(EC) launched an initiative to define avision for the future of transport andmobility within the European Union.Throughout 2009, IATA will maintain itsdialogue with the EC and keep a closewatch on similar initiatives around theworld.

31

Todays crisis highlights the need for change.

But the need for change is much broader thanthis crisis. If airlines are not being battered bycrises, they are being challenged by the businesscycle.

To manage, airlines need the same commercialtools that other industries take for granted.

Giovanni Bisignani


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Environment

in September 2007. It is being usedby the ICAO Group on InternationalAviation and Climate Change to structureits work. In April 2008, the four-pillarstrategy was adopted by the entireindustry, at the Aviation and EnvironmentSummit.

IATA focuses much of its environmentalwork on reducing emissions. Loweringfuel burn is a major component of thateffort. Our target is to achieve at least

a 25% improvement in fuel efficiency

This is being implemented throughIATAs four-pillar strategy: investing intechnology, flying planes effectively,building efficient infrastructure, and usingpositive economic measures.

The IATA four-pillar strategy becamethe reference framework for the industrywhen the 179 governments at ICAOs36th Assembly adopted it unanimously

by 2020 compared with 2005. In2008, IATAs fuel programs saved 14.8million tonnes of carbon dioxide (CO2)emissionsequivalent to $5 billion in fuelcost savings.

A major challenge for the industry in itswork to reduce emissions is dealing withthe often punitive economic measuresgovernments levy on airlines. Introducedas environmental measures, mostsuch initiatives help the environment

minimally at best. IATA argues for positiveeconomic measures, firm governmentaction on improving infrastructure, and aglobal, sectoral approach to emissionsreduction.

Environmental responsibility, alongside safety and security, remains a corepromise for the aviation industry, even in the face of the economic downturn.

IATAs vision is for carbon-neutral growth on the way to a zero-emissions future.

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Four-pillar strategy

1. TechnologyTechnology is the key to achievingIATAs long-term vision of zero carbonemissions and will account for at least75% of efficiency improvements. IATAworked with research institutions andwith aircraft, engine, and systemsmanufacturers to produce its TechnologyRoad Map and a database of aircraftupgrades and fleet renewals to supportits technological goals. The road mapidentifies technologies that would

enable new aircraft to achieve between20% and 35% potential emissionreductions by 2020 compared with theirpredecessors. Such technologies includenew-generation engine architectures anddrag-reducing laminar flow technologies.

The updated 2009IATATechnologyRoadmap will include a detailedassessment of such technologies. Basedon the current industry situation, itsfocus has shifted to identifying short-term technologies available for existingaircraft. These include aerodynamic

improvements, weight reductions,and engine upgrades resulting in fuelefficiency improvements of 5% to 10%.

IATA set a target in 2007 for 10%airline alternative fuel use by 2017. TheIATA2008ReportonAlternativeFuelsincludes an overview of the specification,certification, global productionpossibilities, and potential for differentfeedstocks and highlights second- andthird-generation biofuels. A number ofairlines and manufacturers are carryingout innovative evaluation programs and

flight tests (see table) of such fuels. IATAsupports initiatives that offer a net benefitin reducing CO2 over the aircraft lifecycleand that do not compete for land orwater with the food chain.

The potential benefits of biofuelsare enormous - an 80% reduction inemissions over the fuels life-cycle andincreased energy security beyond oilsupplies. And a biofuel industry couldbe a big generator of employment and

wealth for the developing world.

Using biofuels, however, calls for a newfuel specification defining fuel propertiesfor safe use. IATA is helping to leadthe development of that specification.Certification of an appropriate biofuel by2010 or 2011 is a real possibility.

The commercial production of that biofuelshould be a priority for governmentsalongside research investment. IATAis urging governments to provideeffective incentives for the research and

development and production of biofuelsin their tax and regulatory frameworks.

33

Our commitment to environmentalresponsibility is firm and strong.

No other industry is as united,responsible or ambitious.

Giovanni Bisignani

Carrier

Virgin Atlantic

Air New Zealand

ContinentalAirlines

JAL

Partners

Boeing,GE Aviation

Boeing,Rolls-Royce

Boeing,GE Aviation,CFM,HoneywellUOP

Boeing, Pratt& Whitney,HoneywellUOP

Biofuel

coconut &babassu

jatropha

algae withjatropha

camelina,jatropha &algae blend

Aircraft

B747-400

B747-400

B737-800

B747-300

Date

23.2.08

30.12.08

7.1.09

30.1.09

Blend

20% one engine

50% one engine

50% one engine

50% one engine

Biofuel testing Source: IATA


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2. OperationsIATAs Green Teams help airlines reducefuel burn and emissions. Since 2005,Green Teams have conducted 93fuel-efficiency gap analyses (FEGA)for savings of between 2% to 15% ofan airlines yearly fuel budget. In 2008,those teams worked with over 70 airlines,implementing IATA best practices,distributing guidance material, andconducting FEGA on site assessments.They also ran training programs in flight

operations, flight dispatch, engineering,and maintenance and ground operationsto improve fuel conservation measures.

As a result, 59 airlines reported CO2savings of 7.4 million tonnes for2008. And the 22 FEGA assessmentsconducted during the year identifiedfurther savings of 3.5 million tonnes ofCO2. Given 2008s exceptionally highfuel prices, these savings cumulativelyrepresented the equivalent of more than$3.7 billion.

In 2009, IATA will publish the fourthedition of TheIATAFuelBook, whichprovides recommendations for fuel-efficiency improvements. They willalso publish the new GreenTeamBenchmarkReport, which providesde-identified information from GreenTeam assessments that allows airlines tocompare their performance and efficiencyprograms. In addition, the Green Teamswill expand their scope, integratingremote support tools, organizing regionalfuel-efficiency workshops, and providingenhanced implementation and trainingsupport for airlines.

3. InfrastructureIATA continues to focus on short-terminfrastructure savings that can beachieved using current technologies. Atthe same time, it pursues such longer-term objectives as the Single EuropeanSky (SES) and next-generation air trafficmanagement systems, including theSingle European Sky ATM Research(SESAR) Program in Europe and theNext Generation Air Traffic Management(NextGen) System in the United

States. But these can only be achievedwith common vision and governmentcooperation.

According to the European Commission,implementing the SES will save 16million tonnes of CO2 each year. So IATAcontinues to push hard for the speedyimplementation of this initiative.

IATA welcomed the establishment ofnine functional airspace blocks in Europeduring 2008 as an important steptoward implementing the SES. Each willincrease airspace capacity 50% and willshorten every flight 17.5 kilometers onaverage, saving 72 kilograms of fuel and226 kilograms of CO2. IATA is arguingstrongly for an effective Europeannetwork manager to run the new blocks.

In the United States, similarly, NextGenwill save 16 million tonnes of CO2 whenimplemented. IATA thus continues to

press decision makers and the new USadministration for rapid implementation.

For short-term savings, IATAs efforts areon optimizing routes and heighteningefficiencies in airport arrivals anddepartures. In 2008, IATA worked withindustry partners in optimizing 214 airroutes and 103 terminal managementareas for an annual saving of 3.9 milliontonnes of CO2.

The design of terminal procedureswith tighter navigation performancefor arrivals and departures usingPerformance-Based Navigation (PBN)is a specific focus. PBN is alreadydelivering significant savings. Qantasand AirServices Australia had PBNprocedures implemented at Brisbane.And Qantass Boeing 737s aloneaccomplished remarkable results fromtheir first 1,612 approaches: 17,300 lesstrack miles flown and 650 tonnes of CO2saved.

In August 2008, IATA, EUROCONTROL,and the Civil Air Navigation ServicesOrganization (CANSO) signed a fuel-efficiency plan (FEP). The FEP targetsenhancing European en route airspace

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design, route network availability, arrivaland departure routes, airport operations,and performance monitoring. Accordingto EUROCONTROL, the FEP will garnerannual savings of 470,000 tonnes offuel, 1.5 million tonnes of CO2, and $531million.

A month later, in September 2008,Africa finished implementing ReducedVertical Separation Minima (RVSM). TheRVSM will save approximately 236,000

tonnes of CO2 from African continentalairspace. Only a few areas of the worldnow lack the RVSM. North Korea plansto implement the RVSM in 2009, Iraqin 2010, Russia tentatively in 2011 fordomestic flights, and Afghanistan in2012. The remaining countries of CentralAsia will most likely implement the RVSMin conjunction with Russia.

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4. Economic instrumentsThere has been much debate onpolicy options to reduce emissionsfrom aviation. IATA believes in a global,sectoral approach for the industry.It continues to press governmentsfor positive economic incentives tosupport and accelerate research anddevelopment and the deployment ofnew technologies. Negative measures,such as taxes and charges designed tosuppress demand, do nothing to improve

environmental performance and rob theindustry of scarce resources neededto invest in fleet renewal and newtechnologies.

European Emissions TradingScheme

The European Union agreed to includeaviation in the European EmissionsTrading Scheme (ETS) in July 2008.From 2012, every aircraft operatorflying into, out of, or within the EU will

be required to pay for some of its CO2emissions.

Operators will be given a cap onemissions based on average annualemissions from 2004 to 2006. In 2012,the cap will be 97% of this baselineamount and will be lowered to 95%in 2013. Airlines will need carbonallowances to cover their emissions.About 85% of allowances will be free,but airlines will have to buy a further15% at auction. They also will haveto purchase more allowances if theiremissions exceed the cap. In addition,the European ETS requires that airlinesproduce monitoring plans in 2009 andstart monitoring tonne kilometer andemissions data from 1 January 2010.

While IATA continues to press for aglobal solution, airlines need to preparefor monitoring, reporting and verificationrequirements. IATA has comprehensive

information on its Web site (www.iata.org/mrv). IATA also held an industryworkshop aimed at formulating a list ofindustry best practices for meeting thenew emissions reporting requirements atminimum extra cost.

IATA joined other airline associations insuccessfully fighting some of the more-stringent proposals from the EuropeanParliament regarding the ETS. IATA alsoprevented a backdoor revision of the

ETSs parameters through a so-calledgeneral review in 2013. The review willnow take place in 2015.

Carbon offsets

Around 30 international airlines offervoluntary carbon offset programs.These programs allow passengers tocompensate for their proportion of theirflights CO2 emissions with investmentsin emission-reduction projects. Thereare, however, concerns for the scopeand quality of these projects. Mostpassengers are confused, skeptical, andunwilling to get involved.

In response, IATA in 2008 established anindustry-wide offset program. It employsstandard methodologies, involves asingle customer transaction, and invests

in credible emission-reduction projects.IATAs target is to pilot the program with14 airlines by the end of 2009. IATAhas also published a CarbonOffsetGuidelines brochure that sets outstandards, metrics, and best practices forIATA members wishing to introduce theirown offset program.

Group on International Aviationand Climate Change

The 1997 Kyoto Protocol gaveICAO responsibility for dealing withinternational aviation emissions. InDecember 2009, the successorto Kyoto will be decided at the UNFramework Convention on ClimateChange (UNFCCC) meeting slatedfor Copenhagen. ICAO will presentproposals at that event regarding aviationemission reductions.

IATA believes that ICAO and theUNFCCC must tackle three challenges.The first is to marry the unified approachof the Chicago Convention, that guidesICAO, with the principle of Common butDifferentiated Responsibility, that is acornerstone of the UNFCCC process.The second challenge is to preserve

36

Fuel efficiencyimprovement

goals (%)

CO2 savingspotential(Mt/yr)

Trafficgrowth

(RTK %)

CO2 intensityreductiongoals (%)

2012

2020

2050

15

29

50

200

573

3,926

40

130

750

15

32

n/a

Summary of industry goals relative to 2005 Source: IATA


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the sectoral approach for internationalaviation that was established by Kyoto.The third is to develop economicmeasures that are effective in reducingaviations emissions.

Meeting these challenges meansreplacing the growing patchwork ofnational green taxes, charges, andemissions trading proposals with a globalsystem. It means allocating the collectedfunds to environmental projects. And it

means treating aviation fairly in proportionto its 2% contribution to global man-made CO2 emissions.

IATA is working with other industryorganizations to assist ICAOs 15-nationGroup on International Aviation andClimate Change (GIACC) produce aglobal proposal for aviation emissionreductions. Under the umbrella of the AirTransport Action Group (ATAG), IATAand its allies have developed industry-wide environmental goals for input toGIACC.

Air cargo and the environment

During 2008, IATA led a project thatmeasured the carbon footprint for themovement of freight through the aircargo supply chain. Specifically, theproject followed pineapples transportedfrom Ghana to the United Kingdomand flowers transported from Ecuadorto either the United Kingdom or the

Netherlands.

Measurements were taken of the carbonfootprint at each movement of freightalong the supply chain. Also measuredwas the efficiency of the supply chain inminimizing waste and how the carbonfootprint varies with passenger aircraft,pure cargo aircraft, and oceangoingshipping. Findings demonstrate theefficiency of the supply chain for theair transport of cut pineapples. The cutflowers air cargo supply chain, though,

faces a potential competitive threat fromsea shipping.

IATAs next step in this regard will beto provide input to ICAOs work ondeveloping a standard carbon footprintcalculator for the air cargo supply chain.

Communicating aviationand environment

Aviation remains under close scrutinyby the media. Effective communicationretains a strategic role in ensuringthat the perceptions of the industrysenvironmental efforts match the realityof its good track record, significantimprovements and ambitious goals.

IATA followed its campaign ofenvironment advertisements in airlinemagazines by installing environmentstands at major airports in Europein 2008. The interactive standsdemonstrate the industrys work insuch areas as shortening routes andemploying new technologies andbiofuels.

IATA also continues to play a majorrole in the cross-industry enviro.aero

communications campaign. Activities in2008 included updating and improvingthe www.enviro.aero Web site and asustained media blitz whose focus wason rebutting inaccurate or misleadingcomments in the media. The campaignis garnering positive results. We areseeing more accurate and balancedreporting in the media of aviationscontribution to climate change andsteps toward reducing emissions.

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Governments around the worldmust agree a global solution toreduce aviation emissions.

We need governments to comeon board with alternative fuels,better air navigation and a globalapproach to positive economicmeasures.

Giovanni Bisignani


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Cost Efficiency

Whereas several infrastructure providers,such as the Civil Aviation Authority ofSingapore, Malaysia Airports HoldingsBhd, and Swedish Airports, have mademuch progress in matching airlineefficiency efforts, many others have not.

In 2008, IATAs work with majorairports, ANSPs, fuel suppliers, andgovernments delivered better service andsecured $3.5 billion in savings throughcommunication, direct consultation,

and negotiation. Of that amount, $1.6billion was in real cost reductions and$1.9 billion represented potential costincreases that were avoided.

Following up on the Istanbul Declarationand in response to the high price of fuel,IATA launched its Cost Crisis Campaignin June 2008. The campaign targetedindustry stakeholders seeking concreteproposals for greater productivity andefficiency. It resulted in 13 airports and15 ANSPs freezing or reducing theircharges. Unfortunately, the savingswere overwhelmed by $8.5 billion ingovernment tax increases and airport andair navigation price hikes globally.

The global economic recession isresulting in significant double-digitreductions in traffic for most airports andANSPs around the world. This is puttingintense pressure on unit rates andcharges, particularly for those providerswith full cost recovery mechanisms.

IATA is pressing all major airports andANSPs to:

avoid any increases in unit rates and>charges in 2009

apply even greater effort in reducing>costs and improving cost efficiency togenerate airline savings

ensure that the inevitable under->recoveries that occur in 2009 areaddressed in 2010-2011 either bysimple removal through write-offsor government intervention or byspreading them over five years so that

there are no increases in rates andcharges in 2010-2011

IATA is also pressing governments whereappropriate to take measures to relieveairports and ANSPs of cost burdens that

are within the remit of the government.This includes waiving the need for fullcost recovery, removing or reducing thecost of capital requirements, a fairerallocation of meteorological costs, andso on.

IATA collaborates with organizationssuch as CANSO and ICAO to achieveacceptable pricing levels for aviationinfrastructure while maintaining andimproving standards of service and

performance. Notably in 2008 CANSOissued the Madeira Statement at itsAGM confirming the commitment ofANSPs to short-term savings measuresand establishing a CANSO CrisisAction Team. More-robust regulation ofmonopoly providers, however, is clearlystill needed to improve cost efficiency.

Airports

Savings in airport charges of $487million during 2008 were more thanoffset by increases of $831 million.Major contributors to the increaseswere the BAA airports Heathrow ($298million) and Gatwick ($76 million), wherecharges were raised to the maximumallowed yield per passenger.

The industry outcry over BAAs 86%increase in charges for 200813 ledto an independent review by the UKCompetition Commission. On 19 March2009, that entity endorsed IATAs call

for breaking up BAA by requiring thesale of Gatwick and Stansted airportsand of either Edinburgh or Glasgowairports in Scotland. BAA was expectingfinal binding offers for Gatwick by theend of April 2009 and has expresseda willingness to sell Stansted given aflexible timeline. IATA looks forward to theexpeditious settling of the two sales andto the renewal of healthy competition inthe British airport system.

In October 2008, the industry welcomedlegislation in India for setting up that

countrys Airport Economic RegulatoryAuthority. However, in a surprise moveand without consulting with airlines,Indias Ministry of Civil Aviation approveda 10% increase in airport charges at

Mumbai and New Delhi airports effectiveearly in 2009. This was followed by theapproval of an airport development feeat New Delhi airport beginning 1 March2009. These unjustified rate increasesare sure to exacerbate Indias growingeconomic crisis, which yielded $1.5billion in airline losses in 2008.

In Europe, the industry was hit with a$111 million increase in charges atSchiphol airport in Amsterdam in 2008.

Other providers took a more-productiveapproach, particularly airports in Asia.The Air Hub Development Fund discountpackage at Singapores Changi airportwas extended a year to the end of 2009.What is more, the landing fee discountwas increased from 15% to 25%, whileother discounts and incentive schemesremain unchanged. The total discountpackage is estimated at $87 million.

In Malaysia, the government announcedon 10 March 2009 a two-year 50%

rebate for landing charges effective1 April. This initiative is expected to savethe industry about $53 million.

At Hong Kong International Airport, arelief package of HK$450 million ($58million) was introduced, comprisingHK$200 million for a 10% reductionin landing and parking charges andHK$250 million for interest-free deferredpayments, starting in April 2009. InThailand, Airports of Thailand reducedlanding charges and parking fees 20%,saving airlines around $12 million.

Also during 2008, the industry won twomajor congestion pricing battles, in NewYork and So Paulo. The US FederalAviation Administrations plans to auctionoff 10% of the takeoff and landingslots at the La Guardia, Kennedy, andNewark airports to the highest bidderto combat congestion were thwarted bythe US Court of Appeals. In December2008, the court ruled that the auctionswould drive up ticket prices for airlinepassengers.

In Argentina, meanwhile, a lengthycontract revision process was at lastconcluded. The 2007 agreementbetween IATA and Argentinas regulatorybody ORSNA and airport concessionaire

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Cost efficiency is especially vital in times of crisis. Worldwide, airlines and theirpassengers pay at least $48.8 billion a year to airports and Air Navigation

Service Providers (ANSPs), about 10% of airline revenues.


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The failure to implement aSingle European Sky is a costlyenvironmental embarrassmentthat undermines the credibility ofEuropes environmental efforts.

Giovanni Bisignani


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AA2000 for a 30% discount on landingand parking charges went into effect on1 March 2009.

In 2009, IATA will continue its ongoingcampaigns with major providers inEurope and the Americas. It also willengage aviation authorities and providersin the Middle East and elsewhere toensure better compliance with ICAOpolicies that call for charges that aretransparent, nondiscriminatory, and

based on a cost-recovery model.

In Asia-Pacific, IATA continues to seekreductions in charges at airports inJapan, which are the highest in theregion. IATA also will work with Chineseauthorities to restructure that nationsairport charges and looks forward to thelaunching of Airport Economic RegulatoryAuthority in India.

Air Navigation Service ProvidersIATA made progress in 2008 in realANSP reductions of $94 million. Thosegains, though, were outweighed by costincreases of $715 million.

In Europe, our efforts throughEUROCONTROL and its membercountries saved the industry $168 millionfrom 13 nations. But those savings wereoffset by cost increases from 20 othercountries totaling $411 million.

ATSA Bulgaria set a positive example

in 2009 by signing an agreement withIATA that commits to a 16% reductionin charges over a five-year period. IATAwill continue to support similar long-term commitments with other Europeanproviders as a positive contributiontoward the Single European Sky (SES)initiative.

Lengthy discussion among IATA andother industry bodies at last in 2008produced a revised governance structurefor EUROCONTROL that took effect1 January 2009. The new structure willstrengthen the engagement of all industrystakeholders in air traffic managementdecisions. It will also support the networkmanagement functions that underpin theSES Package II legislative proposals to

improve the performance of EuropesATM system.

The SES vision of unifying thefragmented European airspace is ofparamount importance to the future ofair traffic management. SES Package IIemphasizes binding national performancetargets, functional airspace blocks,harmonized safety oversight by theEuropean Aviation Safety Agency andthe Single European Sky ATM Research

(SESAR) Program. The package wasformally approved by the EuropeanParliament on 25 March 2009 and willenter into force in summer 2009.

SESAR will help reduce the $6.8billion in annual costs resulting fromEU ATM inefficiencies that cause,among other problems, flight delays.To support SESAR, all stakeholdersneed to equitably fund the necessary$39.4 billion investment. A fair fundingmodel requires a sound businesscase and assurance that long-awaitedimprovements in performance will bedelivered.

At the same time, SESARs counterpartin the United States, NextGen, intendsto bring the latest technologicaladvancements to that countrys ATMsby 2025. To realize maximum costefficiencies, Europe and the US will needto coordinate and harmonize their ATMsystems.

Fuel

In 2008, the industry was exceptionallysuccessful in saving on fuel fees andtaxesto the tune of $1.3 billion.That total includes savings secured inBrazil, where the industry convincedthe government to eliminate the PIS/COFINS social contribution for $411million in reductions over a five-yearperiod. In Colombia, the Value Added Taxexemption for international flights led to$213 million in savings, while in India the

abolishment of the customs duty resultedin savings of $276 million.

IATAs efforts during the year under-pinned these savings. We worked onimproving fuel-supply reliability, published

recommendations to assess cost-efficientfuel storage at airports, and providedindustry input to the discussions onchanges to the emergency fuel stockregime in Europe.

Working together

IATA also successfully worked with

partner organizations in 2008 to providea stronger framework for compliancewith and the regulation of infrastructurecharges. Significantly, on 19 February2009 the European CommissionsAirport Charges Directive was issued.

The Directive establishes airport pricinglaws for the 27 EU countries and callsfor adherence to ICAO principles.However, much remains to be done withsupervisory activities at the membercountry level. IATA will be pressing fora proactive approach and monitoring

developments carefully to ensure theearliest-possible implementation of thedirective by each EU nation.

Another positive result of IATAscollaborative efforts in 2008 was theapproval of recommendations by theICAO Conference on the Economicsof Airports and Air Navigation Services.Those recommendations are designed toenhance cooperation between regulators,providers, and users and to raise theefficiency and the cost-effectiveness of

airport operations and the provision of airnavigation services.

The recommendations also call forcontracting countries to enshrine themain principles of ICAOs Policies onCharges for Airports and Air NavigationServices (Doc 9082) in nationallegislation, regulations, or policies andin all air services agreements betweencountries.

Given the urgency of the financial andeconomic crisis, IATA is fighting harderthan ever for effective and cost-efficientinfrastructure. It invites its airport andANSP partners, governments, andinternational organizations to continueworking with it toward a streamlined

iata annual report 2009

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