24 Jun, 2002
As Aviation Security Costs Soar, Key Question Is: Who Will Pay?
As the airline industry faces billions of dollars in additional costs to security and insurance concerns, and the major question is: Who is going to pay, and how?
For years, airlines resisted attempts to impose any kind of taxes, surcharges or levies, be it to protect the environment or boost government revenues, but today faces the specter of financing the huge investment in everything from sky marshals to baggage security, cockpit protection, upgraded technology to detect passport forgeries, scanning of palm-prints and even retinas.
As evidenced in the presentations made at the annual conference of the International Air Transport Association in Shanghai earlier this month, the airline industry is struggling to face the inevitability of these costs and balance that against letting the costs get so out of hand that it leads to a commensurate drop in travel itself, or a shift to other, cheaper modes of transport, especially for short-haul travel.
In his last report issued at the IATA AGM in Shanghai earlier this month, former director general Pierre Jeanniot said that the association’s User Charges Panel had appealed to governments not to jack up airport and air-navigation service charges to pay for these security measures.
“Despite this, the USA and Canada announced the creation of new security enforcement agencies to be funded by fees levied on passengers. Several other countries have since followed suit with new or increased security fees,” he said. “The continued growth in ticket taxes and fees adds to airlines’ administrative burdens and increases ticket prices.”
Mr. Jeanniot added, “The interline system, that enable airlines to receive revenue due from tickets sold anywhere in the world has also become a favourite tool of states and airports around the world for collecting their taxes, charges and fees.
“By the end of 2001, the IATA List of Ticket and Airport Taxes and Fees had grown to over 1,050 pages, listing more than 200 countries where one or more taxes and/or charges forms part of an airline ticket cost.”
No matter what happens, the big winners will be the security technology companies, which have spent huge amounts on research, especially in the military field, and are now drooling at the prospects of the new emerging markets.
Airlines are worried the proliferation of security standards will be exploited by these companies to flog obsolete equipment or to make unsubstantiated claims about new gadgetry, such as biometrics-based fingerprint, iris, retinal, face-shape or palm scanning.
“It is now vital that we develop and achieve international consensus for the standards to be used with such devices and to encourage widespread implementation of new processes,” Mr. Jeanniot said.
Says Robert Milton, President & CEO, Air Canada, “That does not mean identical measures, but rather a framework for mutual acceptance which will hopefully put an end to totally inconsistent application of rules which varies not just by country but by airport and, in some cases, even by terminal. Few things are more frustrating for our customers than to be subjected to different and sometimes contradictory processes which are based on individual whim.
Mr Milton added, “(We) have to define our vision for a long-term, viable and effective set of security measures which strikes a sustainable balance. A balance between security and draconian measures. A balance between consumer confidence and excessive passenger inconvenience. And, a balance between effectiveness and cost.”
The price of getting this balance wrong is immense, Mr Milton warned. “We cannot afford to be cavalier about the security of air travel and the concerns of the public. But, neither can we afford to be blind to the issue of economics and accessibility.”
Alfredo Roma, President European Civil Aviation Conference warns that whatever security measures are imposed, “it should not affect the competitive position of the operators.
“Payment for security measures by governments should not result in some airlines or airports being placed at a disadvantage through distortion of competition and we look to the European Union institutions to ensure that this does not become the case,” he said.
One move to help the aviation industry reduce costs came in Montreal last week when the Council of the International Civil Aviation Organization (ICAO) approved in principle the establishment of a global aviation war risk insurance scheme to cover the risks left open by the withdrawal of commercial insurance coverage, in whole or in part, following the events of 9/11.
According to Assad Kotaite, President of the ICAO Council, the objectives of the global scheme are to allow air transport operations to continue under reasonable financial conditions, spread the aviation war risk and related risks amongst all parties, including participating States, and provide adequate insurance coverage in the short- and medium-term while allowing the private insurance markets to come back gradually into the market.
Once implemented, the scheme would provide third-party coverage for airline operators and other parties involved in civil aviation, through a non-profit insurance entity backed by state guarantees. A pool to meet claims would be built up primarily through premiums and investment income earned on premiums. State guarantees would be called upon only as means of last resort.
Under the scheme, coverage would be capped at US$ 1.5 billion per insured and per occurrence, for claims in excess of the US$ 50 million limit currently available from the private insurance market. Should all 187 ICAO Contracting States adopt the scheme, coverage up to an amount of US$ 15 billion would be available.
The scheme will come into effect once a number of ICAO Contracting States representing 51% of annual contribution rates to ICAO have agreed to take part as guarantors of last resort. States must notify ICAO by 19 July of their intent to take part.
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