Good morning, it is a pleasure to be here in Moscow and to be among such distinguished guests. My particular thanks go to Vitaly Saveliev of Aeroflot for their generous sponsorship, to our colleagues and partners at Volga-Dnepr Airlines, Airbus and SITA, and to all other good friends who made this first ever Aviation Day in Russia possible.
It is great to see such a good participation in today’s event. Aviation is critically important for Russia. It is one of the largest countries in the world by land mass. Russia ranks among the world’s top trading nations. And Russia’s rich culture is alive in communities and concert halls the world over. No matter how you look at it, the domestic and international links that aviation makes possible are integral to Russia’s success.
Aviation is a unique industry. It is a force for good. Within 24 hours, aviation makes it possible to be almost anywhere on our planet. And by conquering the greatest of distances with speed not otherwise possible it drives social and economic growth. This year some 3.8 billion travelers will take advantage of aviation’s unique connectivity. Their safe and efficient travels are due to the global standards that are the foundation of this industry.
As we gather here today, IATA is proud to be celebrating two decades of direct support to Russian aviation. Aeroflot became our first Russian member airline in October 1989. And IATA’s first presence was established in Russia in 1996. In 2015 Ural Airlines and Oren Air joined the IATA fold, bringing total IATA membership in Russia to 11 airlines among our 260 members. Next to China, Russia has the largest concentration of IATA member airlines.
In 2009 we signed a Memorandum of Understanding with the Russian Ministry of Transport that created a true partnership between IATA and Russia in the development of Russian aviation. And we will mark our 20th anniversary here by signing an agreement with the Russian Association of Air Transport Operators later today.
IATA leads, represents and serves the airline industry with a focus on global standards. Our vision is to be the force for value creation and innovation driving a safe, secure and profitable air transport industry that sustainably connects and enriches our world.
What does that mean for Russia?
Safety
Our top priority is safety. And all 11 of our Russian member airlines have completed the IATA Operational Safety Audit—a benchmark for safety that is recognized globally. In 2014 Russian operators were not involved in a single major accident. We took a step back in 2015. Although not classified as an accident, the Metrojet 9268 tragedy was a grim reminder that safe and secure operations are earned every day. Indeed, safety is earned with every flight.
Yet, we can be re-assured by the dedication of governments and airlines to improve safety, which has resulted in a significant decline in the five-year jet accident rate. These efforts are visible in the safety performance of Russia and the CIS. In 2010 there was one major jet accident for every 200,000 flights in this region. In 2015 that reduced to one in every 530,000 flights. There is still a significant gap to cover to reach the global average of one major accident for every 3.1 million flights. While we keep regional safety statistics, best practice in aviation safety has no borders. IATA is fully committed to working with the Russian government and the airlines here to achieve world class safety performance.
A good example of what can be achieved by working together was the introduction of Reduced Vertical Separation Minima (RVSM) in 2011. It was a major achievement, improving efficiency and safety by aligning operations in Russia with global standards. That achievement gives us great confidence in the work being undertaken to strengthen oversight and safely regulation.
Commercial Efficiency
IATA’s global standards also support the commercial efficiency of the global air transport system. The IATA interline and Billing and Settlement Plan (BSP) systems enable travelers to purchase a ticket in a single currency, for travel across multiple airlines with amazing certainty. The Russian BSP opened for business in 2006 and last year processed some 11 million tickets with a total value of RUB 181 billion.
In 2007 working closely with the Russian Ministry of Transport we made Electronic Tickets legitimate travel documents in Russia, another good example of how by simply changing a regulation you can take a great step forward.
This year we will expand this convenience to the world of air cargo with the opening of the IATA Cargo Account Settlement System (CASS). Our aim is to have the first air waybill issued by CASS Russia on 1 September. It is our hope that this first air waybill will be electronic. For this, Russia needs to take another great step by adopting the Montreal Convention of 1999 to which I will refer later on.
Profitability
IATA also has a global view on how the industry is doing. Globally, the news is good. Airlines are expected to make a $36 billion profit this year. On aggregate, we will finally be able to reward our investors with returns that exceed the cost of capital that they have risked in funding the business. For any other business, that would be normal. But it is no secret that profitability has always been big challenge for airlines.
Despite the good news on profitability globally, the distribution of profitability is far from even. The lion’s share—some $19.2 billion—of the industry’s profits are being generated in North America. That is the result of a very specific set of circumstances—a better industry structure, lower oil prices and a strong US dollar. Many other parts of the world are still struggling. The recent collapse of Transaero reminds us of just how difficult it can be for airlines to keep revenues ahead of costs.
An Agenda for Russia
The Russian government has recognized the difficult situation that its air transport sector faces. The removal of VAT on domestic tickets (already reduced to 10%) could be a very positive example of the government taking concrete action to shore up a vital economic sector. I often lament that it takes a crisis before the damaging impact of taxes is recognized. But let’s hope that it is a lesson that will survive in the long term.
While this has been an effective measure in stimulating the market, there are others—aligned with global standards and best practices—that the government can take to improve the operating environment for airlines or to avoid future damage to it.
Smarter Regulation: A key initiative should focus on Smarter Regulation. Regulation should deliver clearly defined value based on measurable policy objectives with minimal compliance burden. Such regulation is best developed in partnership with the industry. The responsibility for regulation ultimately rests with governments—and we are not suggesting to encroach on that. But by working together we can help build regulation that meets government objectives, avoids unintended consequences and can be implemented efficiently. It is a win-win situation for which we have several examples already in Russia. The fine-tuning of Russia’s API/PNR regulation in line with global standards is one example. More recently, the removal of the barriers to non-refundable fares, in line with a global practice, has given airlines the ability to respond better to customer needs by offering flexible ticket prices.
There are some immediate opportunities for further advances of Smarter Regulation in Russia:
- One is the adoption of the Montreal Convention 1999 (MC99). It is a major cornerstone of international civil aviation supporting better risk coverage for passengers and shippers, and facilitating e-cargo shipments. Ratifying MC99 is so important for the success of Russian aviation that it will be the subject of our first panel today.
- Another important international treaty that we call on the government to ratify is Montreal Protocol 2014. This helps close a gap in international law with respect to the growing problem of disruptive passengers.
- On a much more specific scale, accelerating the adoption of the global standard for special and atmospheric referencing—QNH and WGS 84 for the technocrats amongst us—will deliver the safety and cost benefits of global standardization as Russia modernizes its air traffic management system.
Costs: The government should also rely on global standards to address an issue even more directly related to costs, that of airport charges. These are a significant cost component for airlines and the recent deregulation of Russian airport charges is a major concern for our members.
Global standards agreed through the International Civil Aviation Organization (ICAO) call for consultation, non-discrimination and transparency. Airlines and airports are partners in the business. But airport revenues are airline costs. With the current industry downturn in Russia it is important to avoid the short-sighted temptation for airports to boost revenues by increasing charges. These same principles should also guide the development of infrastructure. The only durable solution is to look for efficiencies.
Efficiency: Efficiency is realized in many different kinds of processes, including that of security. As I mentioned earlier, Metrojet 9268 was a reminder of the challenges that we face in keeping flying secure. Making the best use of our resources plays an important role. And that is one of the goals of our Smart Security initiative with Airports Council International. We would welcome a Russian airport to join the growing number of pilot projects that combine new technology with regulatory best practices to strengthen security and reduce passenger hassle.
Environment: The last issue that I will call on the government to address with a global approach is that of the environment. Later this year the ICAO Assembly has an historic opportunity to achieve a global agreement on a market based measure to help the air transport industry manage its carbon footprint. Our goal is carbon-neutral growth from 2020 and eventually cutting net emissions to half 2005 levels by 2050. To do this, the airline industry is united in calling on governments to implement a mandatory global carbon offset program for aviation from 2020 as a gap-filler to complement ongoing work on technology, operations and infrastructure improvements that will form the main thrust of our global approach to combatting climate change.
The global carbon offset program will enable us to achieve our 2020 goal of carbon-neutral growth in the most cost-effective way for our industry. We know that climate negotiations are extremely complex. Many governments have specific and legitimate issues to be addressed. But the success of the COP21 climate talks in Paris last year showed that where there is a will, there is a way. The discussions in ICAO are difficult but I hope that governments including the Russian Government will keep in mind the ultimate goal – a sustainable aviation industry, able to continue to be a force for good for the many billions of new passengers that want to be able to fly. The alternative is a series of ever-constricting taxes and charges that will damage air transport’s unique ability to drive social and economic growth. I urge the Russian government to align itself with the majority of the international community to support a global carbon offsetting program and bring its considerable positive influence to bear on this issue.
Partnership
Russian aviation is going through challenging times. But there is ample scope for global best practices to improve the prospects of the sector as it delivers vital connectivity to the Russian people and economy. As I said, aviation is a force for good. And we in this room are privileged to be leaders and partners in such an important industry. Together we have achieved a lot. And together I believe that we can achieve much more.
Thank you again for joining us. We will have a formal celebration—Russian style—of IATA’s two decades of contribution to Russian aviation later this afternoon. In the meantime, I am looking forward to a lively day of discussion on the most pressing issues in Russian air transport.
Thank you.
