Willie Walsh's Report on the State of the Global Air Transport Industry at the IATA 82nd AGM

Once again, we meet in challenging and unpredictable times.

No sooner did we put COVID behind us than we faced aerospace supply chain failures, war in Ukraine, geopolitical tensions, and tectonic shifts in trade policies.

And, when war broke out in the Middle East in March, oil prices jumped, and jet fuel prices skyrocketed.

As a result, we expect average jet fuel prices to be 70% higher year-on-year. That will add $100 billion to our collective fuel bill this year.

The positive however, is that demand is holding up, even as airlines are raising fares and rates to cope. But growth will inevitably be slower, 2.1% for the passenger business and 0.7% for cargo.

Considering all this we expect profitability to halve from 2025. Net profits will fall from $45 billion to $23 billion in 2026, and net margins from 4.2% to 2.0%.

It's a tough year for all airlines, especially those whose balance sheets had not yet recovered from COVID. And, of course, for those operating in the Gulf.

Our polling suggests that 86% of travelers expect fares to track oil prices. In line with that, 49% expect to spend more on travel this year than last. An additional 43% plan to spend the same.

That bodes well for a strong northern summer peak season. The big unknown is how long travelers and shippers can tolerate the higher costs of connectivity.

Supply Chain

Airlines face higher fuel costs with fleets that are less efficient than planned. Why? Because the aerospace supply chain continues its failure to deliver aircraft and engines as promised.

The aircraft order backlog is over 18,000. And the average fleet age has reached a record 15.2 years. Moreover, being short over 5,000 more fuel efficient replacement aircraft that we had counted on, means missed efficiency gains, not to mention higher lease rates and increased maintenance costs. In total, supply chain failures cost airlines at least $11 billion in 2025. Today's higher fuel prices will only make that worse.

Deeply disappointed customers have not dented manufacturer finances. For example, most engine manufacturer profits were up double digits. I cannot share my reaction to this paradox in polite company, so I leave you to draw your own conclusions. But then again, when have you guys ever been polite? So, let me tell you what I think. My message to the engine OEMs is simple - stop gouging us and get back to making great engines that work and that last. Allowing these failures to extend into the next decade is totally unacceptable to the customers.

While supply chain failures have not materially improved, I will highlight the extension of an agreement with CFM to bring more competition in aftermarket services. It's not a magic remedy or even a new solution. But greater vigilance to its terms could see some improvement in parts availability and maintenance capacity. More so if others follow CFM's example.

Raising our Voice

Supply chain is one of many issues where a strong airline voice is needed.

That's why IATA, at the behest of our Board, is investing significantly to advocate more effectively for your needs. We are strengthening our Brussels office and aligning our global team with this priority.

The aim is to better help our members connect the world more safely, efficiently, and sustainably. Air connectivity underpins growth and prosperity. So, we're presenting a winning proposition for governments.

Allow me to highlight three areas where we need better policy frameworks and more effective government action:

• Regulation aligned with global standards,
• Infrastructure, and
• Decarbonization policy

Global Standards

Efficient global networks cannot function without global standards, so let's start there.

Safety

Our strong safety record proves the importance of global standards. With one accident for every 760,000 flights, flying is the safest way to travel. Nearly 5 billion people travelled safely on 39 million flights last year. There were, however, 51 accidents, 8 of which were fatal. Each was a tragedy.

History shows us the way to make our safe industry even safer: global standards, supported by industry best practice and data insights, reflected in consistent global regulation. Weaknesses occur when global standards are not applied.

With that in mind, I will highlight two areas where global standards are being ignored to the detriment of connectivity-taxation and passenger rights.

Taxation

On taxation, our position is clear. Flying is not a luxury; it's an essential service and an economic catalyst that grows the tax base.

That message got some traction in Sweden where an economy-damaging tax was removed last summer. But it has not taken hold in Brazil where plans are moving forward to apply 26.5% VAT on tickets. That would add $195 to the average international fare of $740. And with such an increase, up to 3.6 million international journeys would vanish. The impact domestically would be many times worse. What the government will gain in revenues will pale in comparison to the economic damage caused.

The global best practice on aviation taxation is ICAO Doc 8632. And too often it is being ignored. That happens with countries as we see in this Brazil example. It also happens within the UN where the principle of residency based corporate tax for airlines is being eroded. We must raise our voice at every opportunity to remind governments of ICAO's authority on taxation and the good sense it brings to connectivity.

Passenger Rights

Similarly, we cannot be silent in the face of passenger rights regulations that defy global standards and ignore the priorities of passengers. EU261 on passenger rights is the poster child of bad regulation.

• Its penalties can far exceed the price of the ticket-completely opposite the proportionality called for in ICAO's core principles for passenger rights, and
• Poor drafting, expansively interpreted the European Court of Justice, punishes airlines for things they do not control. This approach does not solve problems, but it ties up valuable resources in endless litigations. As Brazil is home to 95% of passenger rights litigation worldwide, that's something our hosts here can attest to.

After years of discussion, a sensible European Commission measure to address EU261 deficiencies was hijacked by populist EU Parliament politicking. The proposed deal is so bad that scrapping it and starting over is the better option.

A good place to re-start would be listening to what travelers want.

IATA polling found that 97% of recent air travelers were satisfied with their last airline experience-56% strongly satisfied. Three quarters have, however, experienced a disruption. And when asked to rank their priorities, they valued alternative routings more than penalties. Importantly, just over 70% felt that they were treated fairly during disruptions.

And as Eurocontrol data shows, EU261 is not fixing delays or cancellations and that's because a large percentage of delays and cancellations can be directly attributed to air traffic management and other infrastructure deficiencies. It's like fining bus drivers to solve roadworks delays.

What's the way forward?

• Firstly, we cannot give up on reforming EU261. It's the right thing to do for passengers and for airlines. Considering its annual cost of EUR 8 billion, fixing it would also boost Europe's competitiveness.
• Second, we must convince governments considering passenger rights regulations that EU261 is not the model. Australia and Dubai saw the light and steered clear of the EU261 path. Others should follow.

Infrastructure

On the other hand, governments should understand that efficient infrastructure can reduce delays.

Nearly 400 airports need slot coordination because there is not enough capacity to meet demand at all hours. And legacy ATM systems struggle to handle volumes efficiently. Delays result, with a burden on productivity and competitiveness. Solving the infrastructure problem is a priority.

Airports

The airport situation is fragmented. Some governments, keen on the benefits of aviation, are building to facilitate growth. A new hub that will open later this year in Ho Chi Minh, Vietnam is a good example, along with a fifth terminal in Singapore being constructed to meet the country's needs decades into the future. We also welcome the opening of Sydney's second airport later this year-after decades of politically motivated turns and twists. We wish it had come earlier but long-term strategic vision grounded in business reality is a rare commodity among political decision-makers.

For example, the Philippine government's exorbitant 82% royalty in Manila is not helping passengers or airports. Lisbon's famously poor concession structure appears to be baked into its new greenfield successor. An ill-conceived transit fee in Lima is undermining hub connectivity. And we'll likely see Mexico City airport struggle to accommodate this year's World Cup with band aid upgrades-a poor replacement for its previously planned hub development.

And now the bit you've all been waiting for, London Heathrow, the gift that keeps on giving. A floundering UK government is desperate for the growth that a third runway will catalyze. But the government's haste is not paying sufficient attention to basic economics. And the only motivator for Heathrow's shareholders and management is its own enrichment. We should be worried.

The most recent interview by the airport's CEO provides all the evidence you need. He clearly states that if actual or real competition is introduced at the airport existing shareholders will refuse to invest. Here's what he had to say to the suggestion that development could be opened to competition from rival investors - "I think breaking up the airport will be a red line". "I wouldn't put my money in it. I don't think our shareholders would either". In other words, theoretical competition through weak economic regulation is great and rewarding, but real competition, that's an outrage.

And in the absence of real competition, effective economic regulation is key. Regulatory models rewarding airports for the amount they spend are too easy to game.

Heathrow's third runway plans align with an important opportunity to break from this perverse model. We are engaging the government to develop a new way of regulating airports that creates value for consumers, economies, airports, and airlines.

Air Traffic Management (ATM)

Getting more value from air traffic management is no less challenging. Europe's fragmented inefficiency continues. Decades of under-investment in the US system have left it best described as nostalgic-certainly not modern. More airspace is becoming entangled in conflicts which we manage safely, but with sub-optimal rigid route systems. And, overall, nationalistic thinking blocks progress on smarter and more flexible solutions.

The high cost of fuel makes these frustrations insufferable. That's before we even consider the hypocrisy of governments talking a good game on sustainability and competitiveness while dragging their feet on meaningful ATM reform. Even a very modest 5% efficiency improvement could save airlines $12.5 billion annually and cut millions of tonnes of carbon. There is no technical constraint on this.

At the risk of over-simplification, half the solution is already in the cockpit with modern avionics. But air traffic management systems cannot take advantage of the precision and flexibility of modern performance.

Rarely have governments followed up on their promises to improve. That is particularly painful when there's a lack of political will to deal with change-resistant controllers. We witnessed that this week in Brussels with controllers, opposed to the introduction of digital towers, shutting down airports.

Muddling through is not an acceptable strategy. Our aircraft are ready for more efficient and less polluting operations. High fuel costs add urgency to the situation. The case for change has never been stronger.

Sustainability

This is a good juncture to turn to sustainability-the third challenge.

Five years ago, airlines committed to net zero carbon emissions by 2050. Under ICAO's leadership governments followed with the Long Term Aspirational Goal or LTAG.

Others joined in-airports, air navigation service providers, and the manufacturers. Even our fuel suppliers. Everybody said they would do their part.

Some oil companies were even more ambitious, committing to net zero by 2050 or sooner. None said "or later". But looking at where we are today, the unspoken later may be the truth that unfolds.

Two fundamental components to our net zero roadmap are under threat. CORSIA is being undermined and SAF production is not growing fast enough.

Let's start with CORSIA.

CORSIA was ground-breaking-the first global sectoral agreement to manage carbon emissions. Governments created it and the industry supported wholeheartedly.

But the parts of government responsible for aviation and CORSIA were not in sync with those responsible for the Paris Agreement. The offset credits for CORSIA-Eligible Emissions Units or EEUs- need to be formally allocated from what a country has achieved for its Paris Agreement commitments. And that's not happening.

Airlines will need between 170 and 236 million EEUs for the first phase of CORSIA. To date only 10 countries have made EEUs available. Notably, Guyana was the pioneer from this region and there is a concentration of six countries in Africa along with Laos, Cambodia, and Uzbekistan. Together they have made available a total of 38 million EEUs. That's far from what's needed. But there is potential for much more. The $4-5 billion in climate finance at stake is a great incentive. And the solution is simply aligning internal government processes.

What's harder to remedy are the pot shots that the EU keeps taking at CORSIA, presumably to favor its EU ETS. There is nothing to be gained by the EU repeating an embarrassing failure that we all remember. The EU was instrumental in CORSIA. Its current efforts to undermine CORSIA must be called out for what they are-disingenuous and unacceptable.

Indeed, many of you have questioned our continuing support for an expensive system that will likely fail because of the action and inaction of the governments who designed it. I will leave that question for my successor but will not be surprised if we see a change in direction.

SAF is also under pressure.

Airlines have sent unambiguous demand signals for SAF, with over 180 purchase agreements signed since 2021. A SAF registry, matchmaker, and accounting principles are in place to support the development of a global SAF market.

But where's the actual SAF? This year's production will reach 2.4 million tonnes. That will only cover 0.8% of airline fuel needs. The goal is 65% or 500 million tonnes by 2050. The gap is wide and not closing fast enough.

It's not surprising considering cancelled or downsized SAF projects in Sweden, the Netherlands, Germany, Spain, Denmark, the UK, and Singapore-all since the fuel sector joined the net zero commitment. Subsidies to extract fossil fuel are just too appealing as are the returns.

The consequences on climate change and energy security are obvious and demand we do better. Promoting SAF in support of sustainability, jobs, and energy security should a "no brainer" for governments.

There are two basic policy tools at their disposal-mandates or incentives, and the sequencing is important.

Where incentives have been used first, production successfully increased. That's been demonstrated by US tax credits for production. Brazil has huge SAF potential and appears to be moving in the right direction, but it needs to align its policies for success.

Sadly, most governments put the horse before the cart with mandates. These pushed prices up but did not create supply.

In the case of the EU and the UK, the situation is absurd. Airlines are paying billions in "compliance add-ons" associated with fuel supplier mandates. This compensates fuel suppliers for the full penalties they-the fuel suppliers-would pay for not making sufficient SAF. That's irrespective of whether they supplied SAF or not. And that's despite airlines wanting to buy more SAF than is being made. You could not make this stuff up!

Instead of learning from this spectacular failure of SAF mandates, a similar approach for eSAF is under consideration, but with even bigger penalties. I will leave you to imagine who will get the bill for them.

Seemingly oblivious to these developments, governments, through ICAO, set a 5% emission reduction target through SAF by 2030. To be blunt, there is no path to meet that outcome.

There is still hope for 2050-but that's fading fast.

We need an urgent dialogue to determine a realistic timeline given the current state of affairs. That dialogue must be action oriented-to agree who can and will do what, and by when.

Maybe the conclusion will be that 2050 is still possible. The more likely outcome, however, is a new timeline that hits a sweet spot-realistic within the broader context of the global energy transition and sufficiently near-term to meet the urgencies of climate change and energy security.

Whatever the conclusion, the technical, energy, policy and infrastructure solutions needed to decarbonize are in the hands of the aviation value chain and governments. Airlines will do their part as operators, but success will be a team effort and we're no longer in the dressing room but on the pitch. It's time for everyone to play their part and take collective responsibility to enable future generations to sustainably enjoy an even more connected world.

Passing the Baton

I have on many occasions stated that I have great confidence in the future of our industry and that the next five to ten years could be some of the most exciting times for airlines. The advent of AI and the opportunities that come with it should give us confidence that new options to increase efficiency, reduce costs and help improve customer service are in front of us. And I'm excited that I've been given the opportunity to participate in this promising future with you.

In a few weeks I will leave IATA and become the CEO of one of its members-IndiGo Airlines. In the meantime, the board is finding someone to build an even better IATA and make our association stronger. That leaves me to thank all who supported my tenure-particularly you, our members, the Board, the Board Chairs with whom I have worked closely, and especially the passionate friends and colleagues that make up the IATA team.

Aviation changes the lives of over 5 billion travelers annually by taking them where they need to be or by bringing them home. We make $4.1 trillion of trade possible in a market that would not be global without us. The opportunities this creates include employment for 86.5 million women and men around the world.

While the forces of conflict and division seem to make our world more dangerous day by day, aviation makes the world a better place by bringing people together. We offer hope and enable freedom. That's what motivates our collective efforts to make flying ever safer, more efficient, and sustainable.

Like you, I feel privileged to be part of an amazing industry.