KEY POINTS:
The high price of oil is changing everything for airlines and for their passengers.
In 2002, a barrel of oil was US$25 ($32.83) and the total industry fuel bill was US$40 billion. In that same year, the world's airlines lost US$11.3 billion.
To recover, enormous changes followed. Fuel efficiency improved 19 per cent. Sales and marketing unit costs plunged 25 per cent. Non-fuel unit costs dropped 18 per cent. And airlines rolled out global e-ticketing.
Airlines returned to the black in 2007 with a profit of US$5.6 billion. This was an amazing achievement, given that the industry fuel bill ballooned to US$136 billion based on an average price of oil at US$73 per barrel.
Every dollar increase in the price of a barrel of oil pushes industry costs up by US$1.6 billion. Oil is now in the US$135 range. If this price holds for the next 12 months - as the futures markets tell us - the added burden will be a staggering US$99 billion. Losses in 2008 could reach US$6.1 billion.
This is potentially more destructive for the industry than all our recent crises - SARS (Severe Acute Respiratory Syndrome), terrorism and war - combined.
Large parts of the industry are being re-shaped. In the last six months 24 airlines went bust. To keep this vital part of the global economy functioning, governments, industry business partners and labour all have a critical role to play.
Some issues are quite familiar to travellers. Despite the investment of more than US$30 billion since 2001 to improve security measures, we still have an uncoordinated mess.
Fear drives decisions. The infrastructure cannot cope. Governments are not co-operating and nobody is taking leadership. Passengers are suffering because they face a maze of duplication, bureaucracy and hassle.
Governments must focus on risk management, harmonise global standards, use technology and intelligence effectively and take responsibility for the bill.
We also have an unregulated mess with monopoly suppliers such as airports. Airport charges increased US$1.5 billion in 2007. Governments have failed to regulate airport monopolies. Too many airports are isolated from commercial discipline.
Service levels at Heathrow are a national embarrassment but still the British Civil Aviation Authority increased charges by 50 per cent over the last five years and plan 86 per cent increases for the next five. This only happens in "Monopoly-land". It's time for governments to get serious about regulating monopolies that abuse their position.
The fuel crisis is a catalyst for governments to deliver results on environments that reduce fuel burn. With oil at US$135 per barrel, airlines have the biggest incentive of any industry to improve environmental performance.
Optimising routes and sharing best practices alone saved over 10.5 million tonnes of CO2 last year. And the investments we are making in new aircraft and innovations like biofuels that do not compete with food crops will drive even more progress.
Unfortunately, governments remain fixated on punitive economic measures. Travellers in Europe will have to absorb the ¬64 billion cost of including aviation in Europe's emissions trading scheme.
But politicians are failing to take the measures that will actually save CO2. They have been talking for 19 years about a Single European Sky for air traffic management with no progress. This measure alone would deliver 12 million tonnes of CO2 savings.
Politicians talk green but focus their actions on taking cash. Instead, governments must implement positive economic measures to stimulate innovation from bio-fuels to radical new aircraft designs.
The oil crisis is also highlighting a desperate need to modernise the 60-year-old bilateral rules governing the industry. Re-regulation or re-nationalisation is not the right answer. We must redefine the structure of the industry.
Airlines fight crisis after crisis with their hands tied because national flags, not brands, define our business. Airlines cannot serve passengers in new markets without an international agreement.
We cannot look beyond national borders to try new ideas, grow our business, access global capital, or merge and consolidate.
It's time to change the bilateral system. Let's rip up the 3500 bilateral agreements and replace them with a clean sheet without any reference to commercial regulation. Airlines would be free to innovate, free to compete, free to grow, free to disappear, and free to become financially healthy.
The role of governments should be clearly outlined - ensuring a level playing field, bringing commercial discipline to monopolies and regulating global standards for safety, security and environmental performance. These are basic business freedoms that almost every other industry takes for granted.
The world's airlines sounded the alarm in June with the Istanbul declaration to governments, industry partners and labour. Governments must stop crazy taxation, regulate monopolies effectively, ensure that the cost of energy reflects its true value, fix the infrastructure and change the rules of the game. Other parts of the industry must also change. Labour must understand jobs disappear if costs don't come down. And our industry partners must recognise this is an industry crisis and everyone must participate in the solutions.
* Giovanni Bisignani is director-general and chief executive officer of the International Air Transport Association.
