IATA External Cost Campaign Jeff Poole Director, Airport & ATC Charges, Fuel and Taxation To represent, lead and serve the airline industry 1
The four deadly sins. Airport charges ATC charges Fuel fees and taxes Aviation taxes Here are the four categories of cost that are covered by our External Cost Campaign The first two airport and ATC charges amount to around $54.2 billion a year, 11% of airline revenues 2
Key 2009 messages to providers No increases: reduce or freeze charges Cut costs Increase efficiency To governments: lighten cost burdens on providers These are the messages that we have been giving to providers, governments and regulators in the context of the severe economic crisis: No increases in 2009: offer reductions or freezes Greater effort on cost reduction and improved cost-efficiency; focus on savings in the shortterm Delay non-essential investments and costs Governments also need to play a part by reducing their own cost burdens on providers 3
Economic crisis actions yielding results Over US$3.5 billion in savings $1.26 billion from airports $1.79 billion from taxes Many providers avoiding major changes, with airports being most responsive 65% of savings (excl. Dutch APD) are airport More partnership oriented approach from many providers we re in this together As of November, our External Cost Campaign has achieved over $3.5 billion savings, of which $1.26 billion from airports and $1.79 billion from taxes And with the highest ever proportion of real cost reductions 86% ($3.02 billion) The majority of our cost impacts this year has come from the airport category The harsh economic reality of the crisis, and in particular the double-digit reductions in traffic, has forced providers to recognize that raising charges would be self-defeating So there are many examples of voluntary freezing of charges Other than a handful of airport bad guys most providers have engaged in dialogue with us There has been little movement in ANSP, fuel and tax (except the removal of the Dutch Passenger Duty) 4
Major savings in 2009 Netherlands: cancellation of Air Passenger Tax, $1.6 billion Peru: reduction in proposed increase for 5 years, $123 million Exemption of jet fuel from ISC tax, $108 million Denmark: charges freeze until April 2011, mitigated increase for 5 years. 25% reduction of landing charges. Total $167 million Singapore: 25% reduction on landing fees, $87 million Canada: Toronto Pearson airport 10% discount on landing / terminal fees, $50 million Mauritius: eliminated tax on int l. fuel, $10 million The economic crisis has driven some major savings initiatives in most regions, including North and South America, Europe, Africa and Asia The savings in Mauritius are relatively small, but important in the national context These savings are also a good example of excellent cooperation between IATA and the national carrier to successfully change government policy We would like to keep the momentum of this better partnership attitude in 2010 5
Major increases in 2009 India: new airport development fee and increased airport charges, $587 million Eurocontrol States: various increases in 2010 unit rates up to 32%, $360 million Dubai: passenger fee increase, $227 million Heathrow: increase in overall charges, $161 million Costa Rica: new tourism tax, $122 million South Africa: proposing 133% increase for 2010-11 Unfortunately, the list of unhelpful infrastructure providers is also geographically diverse Each of those listed here is driving cost increases of over $100 million or double-digit increases in unit rates 19 Of the Eurocontrol states are increasing 2010 rates, Armenia is the worst at 32% The increases of the 19 states wipe out the good work of the other 15 Eurocontrol states that are either reducing or freezing their unit rates in 2010 The net impact is an increase of 2.7% (= $360 million) in the average unit rate across the Eurocontrol states Similarly, huge increases from a handful of major airports wipe out the gains or freezes at many airports 6
Industry initiatives worldwide Asia Pacific Developing ATC best practices commercial model jointly with Airways NZ Americas Sharing best practices on charges consultation process/transparency, cost efficiencies and performance, jointly with ACI-North America We are working at an industry-wide level with various partners to address the current charges situation Asia Pacific Air traffic control commercial model: IATA is participating with airlines and other industry representatives, particularly Airways New Zealand, on the development of a best practice commercial model that addresses the issue of increased unit costs in a traffic downturn. The model could be presented by IATA/CANSO at ATC Global 2010 Americas Consultation best practices: IATA is working with ACI-North America on a document that would provide the basis for consultation / transparency best practices for US airports. Also sharing best practices on airports, cost efficiency and performance 7
European initiatives EC Airport Charges Directive EC Directive on Aviation Security Charges in EU Single European Sky Performance Framework In Europe we are working on three major industry initiatives: 1. EC Airport Charges Directive The European Commission s Directive on Airport Charges was adopted in March of this year. Member States now have until March 2011 to transpose the Directive into their national law. 2. EC Aviation Security Directive The European Commission in May adopted a proposal for a Directive to regulate aviation security charges at all European airports. It establishes an obligation to consult airlines before any decision is taken. 3. Single European Sky Performance Framework There is a limit to how much cost efficiency we can achieve in Europe by dealing with the individual Air Navigation Service Providers, hence our strong support for the proposals of the European Commission for a Single European Sky Package II. More details of these three initiatives can be found in the supplement slides at the back of the presentation. 8
Challenges in 2010 Achievements tougher in 2010 because: Impact of 2009 under-recoveries Perception that charges can rise again with economic recovery Governments taxing aviation under environmental & other pretexts Image: Courtesy SBDC We believe that the positive results achieved thus far will be much tougher to repeat in 2010 As airports and ANSPs continue to suffer from reduced traffic (albeit improving), there will be pressure for them to improve their financial positions for example by increasing charges to reduce the financial under-recoveries And economic recovery, even if slow, may encourage the perception that charges can rise in better times We hope that providers will maintain the better partnership attitudes and not revert to previous behaviours Also, there is a threat of governments seeking to fill their empty coffers by imposing new taxes, both environmental and otherwise 9
Taxation: an ongoing threat Certain tax initiatives cancelled Netherlands Passenger Duty Belgium Ticket Tax US APHIS Agricultural fees But threat from governments remains: Costa Rica Tourism Tax (confirmed) Philippines discriminatory taxes on international airlines (under discussion) UK Air Passenger Duty increases Aviation supports 32 million jobs and $3.5 trillion in economic activity While certain governments have seen the damaging economic effects of taxation on aviation and removed taxes in 2009, all the efforts of the External Cost Campaign can be wiped out by a single mad tax decision e.g. the UK Air Passenger Duty. 10
Key 2010 messages to providers: Same goals, new environment No increases Need to find new solutions for post-crisis situation Need to maintain partnership approach Focus on longer-term view (3-5 years) (Image: Courtesy educatednation.com) Our messages for 2010 remain unchanged, but the solutions will need to be adapted to the new situation as we recover from the crisis No increases Need to find new solutions for post-crisis situation ways to avoid the exploding of the volcano of under-recoveries from 2009 Need to maintain partnership approach do not let the recovery lull us into a sense that the industry has survived so charges can be raised Focus on longer-term agreements, (3-5 years), rather than the 1-year time frames we typically see 11
IATA External Cost Campaign Jeff Poole Director, Airport & ATC Charges, Fuel and Taxation To represent, lead and serve the airline industry 12
E.C. Airport Charges Directive Adopted in March Calls for non-discrimination, transparency, consultation, and independent Supervisory Authority IATA has issued guide to help member States to implement into own national law The European Commission s Directive on Airport Charges was adopted in March of this year Member States now have until March 2011 to transpose the Directive into their national law States will need clear guidance on the implementation of the Directive IATA has thus issued a comprehensive implementation guide with input from airlines The document clarifies airline expectations on airport regulation and best practices, including non discrimination and the need for independence and proper funding of a Supervisory Authority Key messages include the fact that the Directive should be recognised as the minimum requirement, and that implementation should occur at the earliest possible date and in full compliance with EC Treaty and ICAO provisions 13
E.C. Aviation Security Directive In May adopted proposal to regulate European aviation security charges. Main points of proposal: Obligation to consult airlines before any security charges decisions Airlines should not discriminate among airlines or passengers Security money should be used exclusively to finance security costs IATA actively lobbying European Parliament and Transport Council but: only "progress report to Transport Council in December unlikely to see real progress before March 2010 The European Commission in May adopted a proposal for a Directive to regulate aviation security charges at all European airports It establishes an obligation to consult airlines before any decision is taken It also makes it clear that airlines should not discriminate among airlines or passengers, and that the money raised should be used exclusively to finance security costs IATA is actively lobbying the European Parliament and Transport Council BUT next step is probably only a "progress report"to the Transport Council in December unlikely to see real progress before March 2010 14
SES Package II: performance-driven IATA focusing on binding performance targets Develop measures for safety, capacity, environment, cost effectiveness EC to present initial recommendations to Single Sky Committee in mid-december Other major initiatives 9 Functional Airspace Blocks by 2012 Network Manager function SESAR Reform of EUROCONTROL There is a limit to how much cost efficiency we can achieve in Europe by dealing with the individual ANSPs, hence our strong support for the proposals of the European Commission for a Single European Sky Package II We have been instrumental in calling for a new Performance Driven approach through the three key elements shown on this slide + the two facilitating elements of the SESAR project and reform of Eurocontrol 15