IATA boss urges industry to help in recovery

The global insurance and reinsurance industry has been told it has to work with the global aviation sector as it recovers from what International Air Transport Association (IATA) director general Willie Walsh told Emerging Risks was the “worst crisis in history”.

As the insurance sector braced for the impact of the COVID pandemic and the war in Ukraine which has hit the specialty market, including aviation hard kin am exclusive interview Walsh said resilience was key if the aviation sector was to not only recover but become ready to meet future shocks.

The IATA 2022 World Financial Symposium (WFS), which opens next week, will focus on resilience and the importance of the issue is not lost on Walsh.

“COVID-19, and the government response–was catastrophic for airlines, for global connectivity, for jobs and world trade, and for people’s lives,” he said. “But the industry survived, defying predictions of mass bankruptcies and failures. Government support, where it was offered, played a role in avoiding the worst outcomes.

“Cargo was also a lifeline for many airlines. And airlines took prudent but difficult decisions to stay afloat as revenue evaporated. Unfortunately, these measures often included furloughs and layoffs. The bigger picture, however, is that more jobs were saved than were lost – and airlines are rapidly rebuilding their workforces.”

He added: “The industry has emerged from the crisis leaner, tougher and nimbler. Industry losses are expected to reduce to $9.7 billion this year from nearly $180 billion in red ink in 2020-21. As travel barriers fall in most regions, very strong demand is supporting expectations for a recovery to pre-COVID-19 traffic levels by 2024, with profitability a possibility in 2023.”

Walsh said there were lesson to be learned but that governments had to play their part.

“The primary lessons need to be learned by governments,” he explained. “COVID-19 was not the first and it will not be the last global pandemic. It is vital that we learn from the mistakes made in how aviation was shut down and how it was reopened.

“When COVID-19 hit, governments closed borders and stopped people from flying. They did not consult with the industry. They did not follow the advice of WHO that borders should remain open. They maintained test and trace requirements for arriving travellers long after those practices had been shown to be utterly ineffective in slowing the spread of the disease, as IATA and others pointed out.”

“Compounding their mismanagement was the fact that there was no coordination among governments on travel measures,” he explained. “At the peak of the crisis, our Timatic system was registering hundreds of changes daily to entry restrictions. Passengers had no confidence that they could travel. In numerous cases rules changed while travellers were in the air.

“The stop-start nature of the reopening also made it impossible for airlines to staff up to be ready for a surge in travellers that would come once they were confident that they would not end up in quarantine.

“If I think about lessons for industry, the primary one is that we need to be far more forceful in advocating and possibly even litigating against governments’ knee jerk responses that are based more on politics than any meaningful appreciation of the actual health risks.”

When asked what regulators and the (re)insurance industry could do to support the aviation sector Walsh was emphatic.

“National regulators can help the industry recover by allowing the market to perform as intended without market distortions introduced by poorly thought out regulation,” he explained. “In particular, regulation around slots, accessibility and consumer rights, need to take into account the actual workings of the market.

“On slots we continue to require flexibility to adjust schedules because the world is still far from normal. On consumer regulation, at least 30 countries are looking at implementing new rules, largely in response to the extraordinary circumstances created when governments unilaterally shut down connectivity and forced the cancellation of millions of flights. In other words, they want to regulate the industry for the chaos they created.

“On accessibility, we need countries to align on requirements based on the Convention on the Rights of Persons with Disabilities so that we do not face a situation where each country has its own set of rules.

“Finally, we need regulators to take a firm hand to ensure that our infrastructure partners, particularly airports, do not attempt to repay themselves for the losses we all suffered, by raising charges. Out of the top 100 busiest airports, more than half announced increases for 2022 and 2023—expecting their customers to make up for revenues they did not get during the pandemic.

“Turning to our other business partners, and that would include insurers, the main message is to recognise that we have been through the worst crisis in history and to work with industry as we climb back into financial health.”

On IATA’s net zero targets Walsh described the challenge as “enormous”

“But it is one to which we have committed to align the industry with the Paris Agreement. The biggest contribution will come from Sustainable Aviation Fuels.

“Today we expect it will make up around 65% of the solution. The industry is committed to SAF. We know it works as a drop-in replacement. And airlines purchased every drop of SAF that was available last year and will continue to do so. But we can’t get to game-changing volumes without governments’ incentivizing SAF production through programs such as the SAF blenders’ tax credit and user tax credits that were recently including in the US Inflation Reduction Act.

“We also need governments to align behind our net zero carbon target at the upcoming International Civil Aviation Assembly by committing to a Long Term Aspirational Goal of similar ambition to the industry.

“Offsetting will play an important but diminishing role as we get close to 2050. The immediate use of offsets is with CORSIA—the landmark international agreement reached through ICAO to stabilise aviation’s international emissions from 2020. Unfortunately, CORSIA is in danger of breaking down because governments are split on the baseline. We need a solution that will be fair and takes into account the fact that airlines were basically prevented from operating in 2020. Therefore, our view is that the baseline should be 2019 only, and we are asking ICAO to agree.

“On top of this, not all governments respect CORSIA as the single economic measure for international aviation that it was meant to be. The most worrying is the EU. Its parliament voted to apply its ETS on top of CORSIA, forgetting that the world unanimously rejected this extra-territorial ambition in 2012.

“We also need our aviation value chain partners to do their part. We need radical aircraft and engine designs from the OEMs. Our air navigation service providers need to become more efficient. We need the Single European Sky to finally be implemented.”

“Cargo was also a lifeline for many airlines. And airlines took prudent but difficult decisions to stay afloat as revenue evaporated. Unfortunately, these measures often included furloughs and layoffs. The bigger picture, however, is that more jobs were saved than were lost – and airlines are rapidly rebuilding their workforces.”