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Remarks of Alexandre de Juniac on The Competitiveness of Swedish Aviation

Remarks of Alexandre de Juniac on The Competitiveness of Swedish Aviation

Good morning.

It's an honor to address you here in the Riksdag. Your invitation shows the importance you attach to the role of aviation as a vital catalyst for trade, prosperity and social development in Sweden.

There are two sides to the aviation business. On the one hand, we continue to grow fast. Last month, IATA published our 20-year forecast on passenger trends. We expect to double the approximately four billion passengers that will travel this year, to more than eight billion in 2037. And most of this growth will be in Asia. China will become the number one market around 2024. By the 2030s, the other leading markets will the United States, India, and Indonesia. So the center of gravity of this industry is moving Eastwards.

Europe, too, will see significant growth. In 2037, 1.9 billion passengers will travel to, from and within this continent. That's 50% more than today.

But the other side of this business is that aviation is fragile for the following reasons.

First, our collective profits last year were a record, but the margin was still very thin.

On average, we make less than $8 per passenger. Secondly we are vulnerable to shocks. Whether it is a volcano, an earthquake, a terrorist attack or an air traffic control strike, airlines are often at the mercy of elements they cannot control.

Thirdly, this industry is highly competitive. In real terms, we have cut average fares nearly 60% over the last 20 years. The emergence of low-cost carriers has transformed the prospects of travelers. It is clear that aviation is no longer a mode of transport mainly for the rich. Now, almost anyone in the developed world can travel by air for a reasonable price.

So we are a growing business, but we are fragile. And this is why we ask governments to help the competitiveness of the industry – because if we are too fragile, we cannot spread the freedom and prosperity which air travel has created for so many people. Air connectivity creates jobs and drives the modern economy.

But we recognize that economic growth is not the only concern. And here in Sweden, the environmental expectations are high. Allow me to explain our plan for reducing carbon emissions, which is driven by three factors:

First, it reflects the personal commitment from the leaders of this industry, who believe in the dangers of climate change and the duty we all share to take what actions we can.

Second, we recognize that reducing carbon emissions is our license to grow. The world will not accept businesses that are ignoring their responsibilities on climate change.

Thirdly, reducing fuel burn is also in our financial interest. Fuel comprises 20-30% of an airline's costs.

It was these reasons which motivated the industry, ten years ago, to be the first global business sector to set tough emissions goals. We agreed to reduce emissions per passenger by 1.5% per year to 2020. We have exceeded this goal. We targeted carbon-neutral growth from 2020. And by 2050 we will cut our emissions in half compared to 2005 levels. These are extremely challenging targets when you consider that growth will quadruple over that period. But we are a serious and trustworthy industry. When we make commitments, we deliver them.

We will meet our targets through cleaner aircraft, through more efficient operations, and with better use of infrastructure, particularly air traffic control. Which brings me to the fourth element, which is a global market-based measure, the reason why we are the only global business sector to have asked to be regulated by governments on our carbon emissions. The result of that was a great achievement by the International Civil Aviation Organization (ICAO) – the Carbon Offsetting and Reduction Scheme for International Aviation, or CORSIA.

The global aviation industry can only work as a result of global, homogenous and harmonized standards. And CORSIA has been agreed by 192 states in ICAO because it creates one single standardized measure for mitigating carbon emissions and ensuring carbon-neutral growth. Moreover, revenues from CORSIA flow directly to emissions-reducing initiatives, and it is estimated that it will mitigate five times more CO2 than the EU ETS.

But we must remain united to ensure CORSIA, and the multilateral approach agreed in ICAO, are not undermined. That means all states must fully implement the scheme's international standards, and resist proposals for unilateral national carbon taxes that could weaken the rationale and resolve for an effective global scheme.

This brings me to one of the largest impediments to competitiveness in Sweden: the environmental passenger tax.

The tax burden is a key element of competitiveness. The real value of aviation is not in the taxes it generates for governments. It is in the jobs and economic growth that flying generates. That is a constant message that we have for governments—but it is particularly relevant here in Sweden.

Sweden has recently introduced a new aviation tax, charging between SEK 60–400, with the stated aim of reducing the effect aviation has on climate. But environmental taxes are an ineffective tool to address aviation's environmental impacts. And the increased charge represents additional costs, which makes Sweden more expensive as a destination.

Furthermore, the total level of aircraft and passenger taxes and charges in Sweden is significantly higher than regional peers such as Finland, Norway, Denmark, and the Netherlands. In fact, Sweden is the fourth most expensive country in all of Europe: only the UK, France and Germany are worse.

So the recommendation is clear: Abolish or reduce the Aviation tax, and focus instead on the implementation of CORSIA as a tool to decrease carbon emissions in Sweden.

What could this mean for Sweden? Aviation already supports significant employment and economic activity in Sweden – some 192,000 jobs and $19 billion in GDP to be precise. But our research shows that by abolishing the tax, and with some specific policy actions, aviation's GDP contribution could increase by 37%, and an additional 17,000 jobs could be generated, by 2037.

A second big problem for Sweden's competitiveness is the availability of sufficient, cost-effective infrastructure. At the heart of the problem is that Sweden has failed to align its airport charges process with international best practices.

Swedish airports have applied charges that are discriminatory, and the national regulations on airport charges lack enforcing power. These inefficiencies ultimately burden businesses, creating an uncertain and uncompetitive environment.
 
Therefore, Sweden should focus on adopting best practices for the methodology of calculating airport charges. Similarly, there is significant room for improvement in the efficiency of consultation processes within the industry.

Pan-European Challenges

I'd like to conclude with some comments that apply to the whole of Europe.

Europe, together with the United States, should be the leading aviation region. But today, that is no longer the case. Europe has the most expensive sky in the world. And it is not being run efficiently. The air traffic management delays this year have been appalling.

Passengers deserve better. Airlines are running out of patience waiting for the benefits of the Single European Sky (SES) to materialize. We still believe in this project. However, we also see a compelling need for local planning and action. IATA is asking governments to develop National Airspace Strategies (NAS) aligned with the SES benefits that Europe desperately needs. Last week the first of these, the Airspace Strategy for Poland, was published. And more are in preparation.

We are convinced that this collaboration is essential to build the SES and deliver the ATM performance that European citizens expect.

Airport infrastructure, in terms of capacity and costs, is an enormous concern, and is a major problem for competitiveness. We must plan swiftly for more capacity. And the regulations and consultation process must be robust enough to keep costs under control.   

Conclusion

Sweden has a reputation as a forward-thinking, internationalist country. It has sought to strengthen international institutions and laws, and in turn, the world has embraced many aspects of Swedish culture and business. Aviation is intimately linked with both of these elements. Airlines cannot function in a global system without global standards and best practices, and an international regulatory system that promotes harmonization, and helps connect the world equally and fairly.

And the freedom of the world's citizens to avail themselves of the products, services, ideas and culture from different nations is facilitated and promoted by strong air connectivity. Our global world has benefitted from that business of freedom.

I leave these thoughts with you in the hope that Sweden will play its part, not only in helping the competitiveness of its domestic aviation industry, but in supporting global, harmonized actions, assisting in the development of global air connectivity, for the benefit of us all.

Thank you.   

This press release was sourced from IATA on 21-Nov-2018.