Britain's airline regime under attack

Airline industry attacks airport charges and taxes as it forecasts $9bn annual loss
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The Independent Online

BAA and the Civil Aviation Authority were named and shamed by the International Air Transport Association (Iata) for the second year running yesterday at the global airline industry's annual conference in Kuala Lumpur.

Against a backdrop of "economic meltdown" leaving airlines facing $9bn (£5.7bn) losses this year – twice the $4.7bn forecast by Iata as recently as March – the 86 per cent rise in charges for the use of Heathrow gave the UK a place on Iata's "wall of shame", alongside price increases in India, Ecuador and South Africa.

Giovanni Bisignani, the Iata director general, told delegates in the Malaysian capital: "Enough! There is no room for this nonsense in our future. When demand drops, suppliers cannot divide the same costs among fewer customers. The shape of everything must change. This includes the comfortable position of our happy monopoly suppliers."

Although the speed of decline is slowing and the freight market has steadied at about 23 per cent down, Iata sees few positive signs for the sector. Behind the massive losses predicted for 2009 is an estimated 15 per cent revenue drop of $80bn over the course of the year as demand falls – particularly for high-margin first and business-class tickets – and oil prices rise.

There is little optimism for a recovery in passenger numbers. High debt levels and low job security are keeping the brakes on consumer spending and business travel budgets remain slashed. In the first quarter, airlines have so far reported worse than expected losses of more than $3bn. Passenger numbers were down 10 per cent internationally and 8 per cent overall in the quarter, and Iata is anticipating further falls, forecasting an average decline of 8 per cent this year. Carriers are also still struggling to raise finance, despite a 5 per cent improvement industry-wide in the vital cash reserves – now at $70bn compared with total debt of $170bn – needed to cushion against falling revenues. "Optimists see growth by the end of the year but pessimists view this as a mirage and expect an L-shaped recovery," Mr Bisignani said. "I am a realist. I don't see facts to support optimism. Our industry is in survival mode."

Airports and air traffic controllers are not the only target for Iata's criticism. Governments are neither doing enough to support airlines' environmental efforts, nor responding fast enough in terms of regulatory change. Markets need to be liberalised and barriers to consolidation removed to allow the sector to function as a normal commercial industry. Progressive liberalisation would be a cheap and effective economic stimulus, creating 24 million new jobs globally and $490bn in economic activity, according to Iata estimates. "Governments must understand that the survival of the industry is at risk. They must deliver normal commercial freedoms urgently and effectively," Mr Bisignani said.

Next to the dire economic conditions, environmental concerns are top of the agenda. At the weekend, the Iata board passed a resolution for carbon neutral growth for the aviation industry by 2020. Emissions are already set to fall 7 per cent this year, although most of this is due to recessionary contraction. But governments are not providing the right incentives for research into biofuels, and are too fast to apply green taxes, says Iata.

The UK Government was singled out for raising the air passenger duty in April's Budget. "It is unacceptable that money collected from our responsible industry in the name of the environment is being used by an irresponsible government to pay inflated MP expense claims or bail out banks," Mr Bisignani said.

Iata's calls were echoed by member airlines. Christoph Franz, the chief executive of Swiss Air, said: "It is more and more clear that the industry is still deeply ill. The international regulatory framework is changing too slowly. We have asked for years and years to become a normal industry but we are not allowed. So we should not be surprised to see losses."