Aviation Week: How did the world's airlines perform in 2012?

Tyler In September we had anticipated a $4.1 billion profit for the industry in 2012, based on the very weak first quarter, with a slight improvement in the second quarter. Financial performance in the third quarter improved considerably despite some big challenges, including global GDP growth hovering just above 2% and high fuel prices—which have become a fact of life. The rate at which passenger traffic is growing has slowed and cargo has been basically stagnant.

Against that backdrop, airlines have been restructuring and consolidating and this is starting to have a positive impact, which is why this month we modestly upgraded our profit outlook for 2012 to $6.7 billion, rising to about $8.4 billion in 2013. That's good news, but let's keep the figures in perspective. On an expected $637 billion in revenues, a net profit of $6.7 billion is a net margin of 1%. And $8.4 billion on expected revenues of $659 billion will mean a net margin of 1.3%. The industry is keeping its head above water. But only just.

What were the biggest issues they face?

Safety is aviation's top priority. The good news is that through Nov. 30, the industry was on track to achieve a record safety performance for a third consecutive year. So clearly we are moving in the right direction. However, not all regions are performing at the same level. In particular the Middle East/North Africa and Latin America/Caribbean regions face challenges.

IATA and other stakeholders are working to bring these regions up to world-class levels of safety. We are also focused on enhancing aviation security. Security is the responsibility of states, but it cannot be effectively delivered without the cooperation of the whole value chain. We are working with government and industry stakeholders on the Checkpoint of the Future project. The vision is for a hassle-free security experience by 2020.

Taxation and regulation are another big issue. Aviation has a global economic impact of $2.2 trillion and supports 56.6 million jobs worldwide. But it is a very tough business. In our best year this century, the industry's net margin was just 3.5%. That is not sufficient to attract the capital necessary to be sustainable long-term.

Part of the problem is that too many governments, particularly in Europe, view aviation and air travelers as an easy source of tax revenue to fill depleted treasuries, rather than recognizing that aviation is a catalyst for economic growth. Taxes dampen that growth.

What are the biggest challenges of the coming year?

The strength of the global economy is always a major factor. Our members have some expectation the overall economic situation is getting better. But with some big caveats. Europe has got to find a sustainable path out of its sovereign debt crisis. The U.S. needs to move away from the fiscal cliff. We are hopeful that the tensions in the Middle East will not boil over into something much larger. And there is an expectation that the new leadership in China will pump up economic growth to establish their credibility, but there is no announced plan.

What can airlines globally do about operating costs?

Unfortunately, there is not a lot airlines can do in the near term about the price of oil or jet fuel. The focus is on being as efficient as possible, to minimize waste, which has a corresponding benefit for the environment in terms of reduced CO2 emissions.

But we also need our infrastructure partners to move forward on efficiency enhancements such as Single European Sky, FAA's NextGen and the Seamless Asian Sky. Europe's inability to create the SES is particularly frustrating given how many years they have been working on it and what it would represent in terms of efficiency and the environment.

There are huge capacity and efficiency opportunities associated with the introduction of performance-based navigation, but again, we need the cooperation of infrastructure providers to accelerate their introduction. Over the long term, biofuels will provide not just a way to help achieve sustainable growth, but also to create a viable alternative to fossil fuels. But we need governments to step up to create the conditions that will lead to the development of a large-scale sustainable aviation biofuels industry.

Can ICAO reach a global agreement on emissions trading?

The European Commission's pragmatic decision to “stop the clock” on implementation of the EU ETS [Emissions Trading System] recognizes the technical progress on market-based measures being made at ICAO [International Civil Aviation Organization] and creates an opportunity for a global agreement. However, the EU decision also puts pressure on the industry to find a common position on sharing the burden among airlines.

IATA's job—and it will be a challenging one—is to help facilitate the fairest possible compromise.

Tony Tyler is director general and CEO of the International Air Transport Association, which represents some 240 airlines globally at a time when the barely profitable industry is challenged by economic conditions, high fuel prices, rising environmental concerns, and vexing security and taxation issues. Senior Editor Graham Warwick reports.