New Year’s Address 2006 of the BARIN Chairman, mr. Coen Waasdorp, at the BARIN New Year’s Informal Gathering on 27 January 2006, at the Schiphol Hilton Hotel
( MoT stands for Ministry of Transport Ministerie van Verkeer & Waterstaat)
( An full size artifical cow was placed next to the speaker’s chair on the podium)
Ladies and Gentlemen,
It is a great pleasure to see that so many of you are joining us again at our New Years Gathering, which traditionally is the “hekkensluiter” of the many New Year receptions taking place in this first month of the year.
We thank Schiphol Hilton for their kind gesture to host us once again in their renowned way.
Now and than I will be using some Dutch expressions in my speech, which somehow relate to my companion standing next to me (Annie -The Cow). Gradually it will become clear why she is among our guests today.
At the end of my last year’s address I invited the President of the Schiphol Group and the Director General of the MoT to ring the bell with us for “Nieuwe ronde nieuwe kansen”, in other words for a new round with new chances and opportunities to create a win-win situation for The Dutch Economy, Schiphol Airport and us, the Airline industry active in this country.
I do not want “Oude Koeien uit de sloot halen” however please allow me to go through some of those chances and opportunities for which we did ring the bell for last year.
A year ago they were very relevant and let us see where we are now, one year later!
GENERAL
First a quick general overview:
Turning growth into profitability has never been more critical in our industry. IATA tabulated that airlines will end 2005 with a US$6 billion loss—on top of US$36 billion in losses accumulated between 2001 and 2004. As we battle the high price of fuel, cost efficiency will continue to be a top priority—not only for airlines but for every partner in the value chain from producer to consumer, including airports and air navigation service providers, handling agents and the distribution channels.
Airlines have stringently reduced non-fuel unit costs continuously since 2001.
The price of oil has risen from an average of US$22 per barrel in 2003 to US$54,5 per barrel Brent in 2005.
Not withstanding continuous and successful cost reductions airlines are expected to return a loss of US$4.3 billion in 2006. The outlook for 2007 is somewhat brighter when a positive return of US$6.2 billion seems feasible. This is a net profit margin of 1.5%, not even enough to cover the cost of capital and nowhere near recovering the billions lost since 2001. Also much less than the 4.1% profit which Schiphol Airports makes on security, not quite in line with the ICAO recommendations, who do not allow profit making on security charges!
Needless to say that The Drive for Change still proves to be a long and difficult road ahead of us and involves all our Industry Partners.
Government & Security:
I remember saying last year that the Dutch government, again and again stressed that Schiphol Airport is of great importance due to its main port function and a driver of the Dutch economy.
TODAY (28 January 2005), I said, is the moment for the government to show its commitment to Schiphol Airport and to take on its account the geo-political related security costs of the airport, similar to actions taken by other countries and ensuring a level playing field among airlines in the world.
The very high profits continuously generated by Schiphol Airport, and the increasing dividend paid out to the major share holder – the government – could be a source of funding.
One might say, abusing my companion here, Annie The Cash-Cow.
Unfortunately the government has still not been receptive to our joint pleas, Schiphol and BARIN have put forward, other than that they are studying our proposal to make Schiphol “Schengen exempt”. As from 9/11 stringent checks and control meganisms are unfortunately needed, which requires every passenger to prove his identity at many checkpoints. This exemption measure alone, according to Schiphol, would create a cost saving of more than Euro 40 million.
It would enable Schiphol to maintain its favorable international position to stay in the top 4 of the European Airports and not loose this position to another European airport, such as the runner up Madrid.
Instead of doing all what is possible to contain the costs of security for the industry: The government approved an additional security charge increase in Nov. 2005. A close to 40 % increase on security charges IN ONE YEAR!
It does not stop there as further airport charge increase per April 2006, has in the meantime also been approved.
Schiphol Airport has one of the highest, if not the highest security charge of all airports. Food for thought for those who believe in benchmarking! (ANNIE, THANKS AGAIN FOR THE CASH)
One should not forget that Security Measures are not equally implemented on the various modes of transport, creating an unfair competitive environment. Compare a passenger traveling from Schiphol with the high speed train to Paris, no security checks and costs at all, but the one traveling by air is subject to a range of security rules and costs.
Government – Privatization of Schiphol Group
Talking about the intention of the government to privatize the Schiphol Airport Group, we still maintain our position that BARIN has strong reservations:
1. Seen from a European perspective the “marginale toetsing” of the increases of the rates and charges proposed by Schiphol Airport as implemented by the Ministry of Transport in the past, in particular in the light of the monopolistic position of Schiphol Airport, can be challenged for its outcome on on hand. On the other hand it may prove to be a too limited basis from which to build a new economic regulation.
2. Only once a comprehensive set of new economic regulations is in place AND has proved its effectiveness to the satisfaction of all MAJOR STAKE HOLDERS, the privatizationcould than still be considered.
It would probably be wiser to cross the bridge into TERRA INCOGNITA after ALL the STAKE HOLDERS are satisfied with the new set of rules instead of a fast financial gain, the height of which still seems to be quite debatable. (ANNIE, THANKS AGAIN FOR THE CASH)
As we are on the subject of legislation.
As recent last Wednesday the Vice Minister of Transport, mrs. Melanie Schulz van Haegen mentioned in a meeting of parliamentary Permanent Committee of Transport that present Economic Regulation set up, designed by her Ministry, has been fully completed.
We came to know that such an important regulation, classified as a By Law in Dutch Algemene Maatregel van Bestuur (AMvB), and part of the New Aviation Law, does not have to pass parliament. It only takes the Cabinet to decide.
I wonder whether that is the right way to handle such crucial part of this New Law making.
In addition I can tell you that we have signaled that there are still some blanks in this By Law, a By Law which is supposed to protect the users against abuse of economic forces in relation to future charges- and conditions settings. This light handed regulatory framework offers insufficient balance to encourage negotiations between various parties in the marketplace. Efficiency incentives for the airport are not included, and it does not accommodate any stronghold to agree on quality levels.
As I stressed before: a sound proof economic regulation is required to guarantee the airport’s role as a catalyst for the overall economic development. Privatization must benefit the general public, travelers, airlines and shippers, not just the operators of the airport and the government.
“Milking the Cow”
I am sure you heard of that expression and YES you have guessed it. We, the airlines, are often looked at as Annie The Cash Cow, especially by regulatory authorities. I will touch on how wrong that is, a little later.
"There seems to be a TAX epidemic in the air at the moment”!
It is not only airports, the EU Commission is also pretty busy in trying to tap the flow of cash of the airlines , for their own political benefits, or to create extra taxes. Take for example the
Denied Boarding Charge
An EC Regulation on compensation to passengers in the event of denied boarding, long delays and cancellations became law on 17 February 2005.
A final piece of the previous European Commission’s legacy of failure with respect to air transport policy. The current Commission should be approached to seek remedies to the regulation’s many flaws.
· We are not opposing the rules on compensation for denied boarding. However, it is wrong when airlines are made responsible for what is beyond their control.
· The Regulation is complex and unfair. E.g. a High Speed Rail journey from Amsterdam to Paris is not subject to a similar legislation. So different modes of transport, competing for the same traffic, are treated unequally.
· The potential for chaos is enormous as airlines seek to apply the complicated rules at airports in cases of denied boarding, cancellation and delay. The aim must be to provide simplified, efficient and pleasant travel experience but the effect of this Regulation is far from it.
· Just as importantly, the regulation has created a barrier between the airlines and their customers – a barrier largely comprised of false expectations. It has created an impression that every service disruption can result in a financial settlement, regardless of whether the disruption is due to extraordinary circumstances outside the airline’s control.
· “By creating an atmosphere of expectation, clouded by ambiguous rules, the Regulation has given rise to a situation out of which can emerge tension and confrontation. Win-win becomes win-lose”.
· IATA estimates that the total cost to the industry of this regulation could top US$700million per year.
A strong call for benchmarking of all European regulations against their economic impact should be made.
and than this idea of an EU subsidizing Tax?
Last week Austrian Chancellor Wolfgang Schüssel, currently chairing the European Commission, called for new taxes to fund the European Union, solving European Union budget problems. He is suggesting a levy on short-term financial transactions as well on air travel.
Now we are told that our passengers should be subsidizing those parts of the European economy which absorb the E.U.’s funds, sectors such as agriculture which have nothing to do with aviation, or such as railways, which are our direct competitors."
Airlines are regularly defending themselves against new taxes – and won, such as.
the proposal for a Developing Countries Tax
France and Germany launched the idea of a new air travel tax last year as a way of channelling money to the developing world. Even mr Zalm, our Minister of Finance, liked the idea. But airlines and many E.U. governments opposed the plan and the idea went nowhere.
So we had the prospect of a tax to fund aid to the developing world – a tax which would disproportionately target travel to the very parts of the world which were supposed to benefit from it"
The Commission should take leadership to reform outdated regulations, stop creating unrealistic new taxes with no bearings at all with aviation, implement an effective single sky policy, and regulate monopoly suppliers—airports and air navigation service providers.
Action in these areas will help build a competitive industry and sustain affordable air travel.
Schiphol Airport Charges
Since 1999 the AAS airport charges have been increased with about 40%
Quite in contrast with the average price of an airline ticket of a package holiday.
As you know we are, already for years, pointing at the almost NON existence of a cost consciences and real cost efficiency drive of the Schiphol Management, and for that same reason we have been and continue to counter the continuous excessive airport charges increases at our national airport. E.g. a 16% increase in operational costs, the basis for the 2006 rates and charges, and a much lower increase in number of expected passengers, cannot be accounted for, to our opinion.
It is remarkable that MoT officials very much encourage us to embrace the new Economic Regulation, linked with the Schiphol privatization plans, as a much better way of solidly judging future Schiphol charge increase proposals.
To us this proves once again, that they actually admit that their current “Marginale Toetsing” is, and has been irresponsibly inadequate.
For that very reason we will stay firm, and have once more clearly stated our case in the formal MoT Hearing Committee – last December; a hearing addressing our formal objections filed against the airport charge increases over the last 4 years. The formal process is still on going and, if needed, we will continue to use legal means, with the objective to have the irresponsible light handed “marginale toetsing” revoked.
Consequently BARIN, together with our associated partners IATA- the International Air Transport Association and our operational colleagues of SAOC- Schiphol Airline Operators Committee ,we are forced to start also a formal objection procedure against the approved airport charges increases per April 2006, and have recently filed our objections with the MoT.
Not to labor this point to much, I still like to mention a couple of examples though:
1. Very recently in connection with the “Bouw Fraude” Schiphol has settled their claim of having been paid to much on constructions works, by accepting a lumpsum pay off of Euro 500.000, and donating that to charity. We – users of this airport – have paid for these construction investments. So, we, have paid too much, (ANNIE, THANKS AGAIN FOR THE CASH) .
Schiphol’s CFO – mr.Verboom – continuously counters our objections, by saying that these increase are needed for investments and we (Schiphol) needs to invest! I hear, that present offers for constructions works at Schiphol are in average 30% lower than before! The last 10 years approx 2 billion Euro’s has been invested in aviation related projects, paid by the airlines, so 30% of that amount is a lot of Euros. As we would say in Dutch, the last word has not been spoken about this sore point.
2. There is a dual till system; aviation and non aviation. We are charged for the aviation activities and investments. Schiphol is extensively using the aviation till infrastructure, we as airlines pay for, making large sums of money and profits which go straight in to the non aviation till.
For example Advertising on- and in Airbridges (de slurven), Office rental income for directly related aviation activities. Parking – the same thing – and the parking fees recently increased again – with a hefty10%, if I am not mistaken. I can mention many more examples, but won’t bore you with them.
From unconfirmed sources we learned that also the EU Commission is looking at the aggressive approach of airports advocating a dual till set up. Within the EU one tends to be more and more in favor of a straight forward single till financial structure, where all revenues and costs are belonging to one till. We will follow that very closely.
3. Last year I also reiterated that Air transport is evolving to an industry whereby low cost is the key issue. This is what consumers demand from ALL the airlines. Airports need to reduce costs for all travelers, shippers and airlines. Building limited use low cost terminals is not the answer. Building low cost airports for ALL airlines should be the objective.
Where low cost facilities are developed, the bottom line is:
– These facilities must be available to all carriers
– Security charges must be equal for all airlines.
What do we have now: a low cost terminal called H-pier, only non Schengen airlines are allowed to use and are offered a 20% discount on the airport charges. It so happens that the strongest low cost airlines at Schiphol are coming from the non Schengen countries, and for example our successful Dutch low cost BARIN member – transavia.com – is not offered this kind of discounted airport service.
Please let me stress once again that ALL CARRIERS have to operate on a low cost basis and not only those carriers with the label "low cost operators" and it is of course unheard of to discriminate carriers coming from schengen or non schengen countries . All users at Schiphol have paid or are paying for the H-Pier investment, and therefore all should benefit from it in one way or another.
When it is Schiphol’s intention to offer differentiated services and charge levels, than let’s talk about, so that we – customer and supplier – can evaluate such an idea and discuss innovating changes in all constructiveness together, with a win-win objective as THE basis.
4. The drive for Cost reductions en cost effective measures does not only applies to Airports but also to other monopoly suppliers of airlines. Take the LVNL – Air Traffic Control Authority. Regularly we have stressed that the increasing costs of the use of the state owned Meteorological Services, KNMI, the Dutch ATC is forced to make use of, has to be cost efficient, or LVNL should be allowed to contract a more competitive Whether Service. The present cost-plus scenario at these organizations show no sign of an efficiency drive, needed in a market environment whereby airlines sell their products in a very competitive, non level playing field, environment.
FUTURE
Last year I invited Schiphol to rise to the challenge to meet the requirements of the travelers, the shippers, the distribution chain and the airlines to lower costs and to lower charges and Barin promised to take its responsibility to go one step further than just a consultation process.
We have to look not only at the present and the next year, but also at the mid and long term.
Schiphol, together with Barin initiated the TFAC, Task Force Airport Charges. The members of this Task Force, BARIN, SAOC and IATA met at various occasions to go through the operating- and investment cost to get a feel of the financial household and to possibly assist Schiphol in finding ways and means to reduce cost and to initiate cost efficiency measures.
Unfortunately till now, the objectives have not been met YET, but Schiphol values continuation of this Task Force input.
We recognize the good work the interim COO, Alain Maca, has done in the short time he was here, until a permanent appointment was made by having Ad Rutten re-boarding the Schiphol Group.
Ad Rutten has shown, with the recent reorganization, that he considers cost- reduction and efficiency as a first priority.
That’s as music in our ears! Integrating the two business units, Air- and Landside, long overdue and now in place, will no doubt enhance efficiency and cost reduction.
We have confidence in Mr. Rutten, an aviation man pur sang, with extensive experience and knowledge of operations and management of the entire airport, and we will give him and his team the support they need.
Ad Rutten, if you allow me to address you personally, you told us that one of your first priorities is to sit together with us – your customers – to define those needs and objectives, on which an industry wide consensus can be reached.
I would therefore kindly invite you, Ad, to step forward.
Let us together to take this “Koe bij de hoorns” (Take this Cow by the horn) as a symbolic sign of new era in the relationship between Schiphol Airport and the customer Airlines.
A new era in which cost reduction and efficiency are the keywords. This will than lead to the fulfillment of the objectives of your customers: higher productivity and lower cost. A win-win !
Please join me in wishing all here a healthy, peaceful and successful 2006 Thank you for your attention!