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Air Transportation in the 21st Century; A Critical Time for Partnership
Thank you, Peter.
I appreciate the opportunity to speak to you today, on behalf of Doug Parker, Dave Barger, Jim May and our fellow directors of the board of the ATA, about the issues and opportunity for our industry.
During his remarks at lunch yesterday, Secretary LaHood said this is an important meeting – Randy had told him this is an important meeting – coming together to talk about the way forward.
In coming together at conferences such as these, as Doug would agree, we also create commerce for Phoenix as business travel and conferences do – stimulating the economy and providing venues for important business discussion and alignment.
At the beginning of March, the CEOs directors of the ATA had just such a meeting in Washington, where we discussed the very issues addressed by the conference and Secretary LaHood yesterday.
Air transportation powers the US economy -- this is an industry that drives economic and social development.
Air transportation is a critical part of our nation’s infrastructure and should play a vital role in our country’s economic recovery… enabling our cities and smaller communities to connect and compete domestically and globally.
Every mayor and every governor knows the economic impact of air transportation to their city or state – the benefit of connectivity through air travel for tourism, employment and for trade.
Ask any leader -- Rich Daley in Chicago; John Hickenlooper in Denver; or Phil Gordon here in Phoenix at lunch yesterday -- air transportation and connectivity are vital in creating jobs… critical to economic development.
It is, therefore, hugely ironic that we enable such economic and business development in the United States -- to the tune of more than $1 trillion a year and contribute some 5% of GDP -- but have historically and systemically been incapable of earning our cost of capital.
That said, this is an industry that has confronted challenges from terrorism to fuel spikes to today’s recession, and despite the most difficult of times, has continued to provide a vital service.
We are seemingly always on the front lines, typically in a very visceral way.
And, in response to these challenges, we take the necessary steps to align our businesses with market realities as they occur – just as we are in this unprecedented financial and economic crisis.
Out of crisis, on occasion, comes opportunity… indeed, this is one such occasion… and, we have a significant opportunity.
As Secretary LaHood said at the end of his remarks “you’re going to have a partner to help find the way forward.” He’s absolutely right. We must align and partner with our government and seize the opportunity to make air transportation infrastructure modernization a priority for our country.
On this issue, my CEO colleagues at the ATA have unity of purpose as to the way forward; and unity as to the importance of meaningful partnerships with government, aerospace manufacturers and energy companies.
The country needs a healthy commercial aviation sector to re-establish and enable a thriving economy. We can and should be a part of the solution… and we, at the ATA, will continue to do our part.
2008 was a tough year – and while we are glad to have it behind us, we have no illusions as to the challenges of 2009.
Although commentators often referred to oil at $147 a barrel last year, for this industry, jet fuel averaged $25 more than crude, and we actually dealt with prices of up to $180 a barrel.
At our company, we responded decisively, deciding to take 100 of our oldest and least fuel efficient aircraft out of our fleet. As we removed these planes, we moved quickly and effectively to get related fixed and variable costs out of the system.
Our colleagues across the industry made similar decisions, and we were fortunately better prepared from a capacity perspective when the financial crisis and the recession hit the economy and travel began to slow later in the year.
At United we cut nearly 30% or 2,500 of our management workforce and more than 6,500 frontline positions. Airline employees suffered job losses ahead of much of the rest of the economy because of the earlier challenges of fuel cost.
In large part, airlines’ survival post-2000 has come through contraction and productivity improvement, with close to a 30% reduction in employment … some 150,000 jobs lost.
All of this is in sharp contrast to the value we provide to the markets we serve.
As I mentioned a moment ago, in 2006 America’s airlines helped drive more than $1 trillion in economic activity in the US, contributed nearly $700 billion or some 5% of our GDP … and directly and indirectly supported more than 10 million jobs.
As an industry and a partner to states and cities, we contribute to the collective bottom line. As we all know, for every $300 ticket, government-imposed taxes average $65. And, that number does not include all taxes, such as those for fuel, payroll or property.
In 2008 we contributed nearly $25 billion to fund FAA taxes, fees, Homeland security and what we pay in airport rates and charges.
That $25 billion dwarfs our industry’s collective market cap, currently $14 billion.We are a very effective cash cow for government.
We bring commerce to communities.
Yet, we are able to do less for our shareholders, our employees, or, in fact, for all our constituents who would benefit from a more stable and sustainable business.
The reality is that all our work has been insufficient to offset the effects of 2008; and the cumulative financial impact of the preceding years.
Further financial burdens on this industry will cause collateral damage to the very cities and communities we serve and connect, just when we need to stimulate our economy and create jobs.
As the federal, state and local governments look for ways to shore up their budgets, additional taxes on airlines are not the answer, and, in fact, have a negative multiplier effect.
Our simple “ask” of the new Administration and Congress is to work with us. Partner with us… and clearly, do no harm.
Contrary to what we heard in Washington earlier this week, this industry does not “whine” – we confront our challenges and ask that we be allowed to conduct our business within the current reality of this “semi-regulated” industry.
We need to be able to invest in people, planes and product, and we need to find a way to earn our cost of capital… as any publicly traded company should.
To establish a modern air transportation system that will be a step change and enable economic growth and a return to leadership for the United States – will require partnerships.
We are asking that the Administration take the lead, working with Congress, the DOT and the FAA and partner with us to develop what our country truly requires -- a comprehensive plan for the aviation sector that will deliver a long-term step change solution to enable efficient and effective aviation.
Providing the infrastructure and energy policy needed to support 21st century aviation will allow the US to compete in the global market place -- and support our objectives regarding safety, security and reduced emissions.
Fuel is our number one expense and accounts for 98% of our green house gas emissions. It is vital that our country adopt an energy policy that provides for stable supply and prices, independence from foreign oil, and alternative fuels that reduce emissions.
And as Barry Eccleston said during his panel yesterday, we believe new airframe and engine technologies must be researched and developed for the future, so that the fleets operating for the next generation are more energy-efficient than today.
In Congressional hearings in the last two weeks, we and the FAA have made the case for the need to modernize our nation’s air traffic control infrastructure. Jim May and United’s Joe Kolshak have testified before Congressional committees on the need for “Now Gen” rather than Next Gen.
And, we are encouraged by both Senators Rockefeller and Dorgan’s support of the urgency of Now Gen. In fact, Senator Rockefeller was quite direct.
He said, and I quote: “I’m just losing patience. I am sick of it.” He and Senator Dorgan spoke to the need to urgently press ahead… to move the U.S. past Mongolia in ATC systems rankings.
In fact, although it has been planned since the 1970s, today, there is still no agreed program or time frame.
The airlines did move ahead and invested in equipage of aircraft. As United retired aircraft, we had more than twenty million dollars invested in those planes in NextGen technology that could not be utilized, as the infrastructure had yet to be built. This simply makes no sense.
We need a committed partnership that believes in the priority of modernization.
So, it was good to hear that Secretary LaHood said yesterday that modernization is a number one priority, saying it will happen under the watch of this administration and the leadership of the DOT and FAA.
Moving from a ground-based to a satellite-based system will enable more flights to occupy the same airspace, meaning that the on-time performance improvements we are seeing today would still be a reality even with triple the capacity.
Such a system would facilitate the growth and the productivity of travel, tourism, manufacturing and other sectors of our economy.
The Joint Economic Committee estimates that more than $40 billion of cost a year caused, historically, by air travel delays could be saved by businesses, passengers and shippers across the U.S.
Importantly, the system would improve safety as everyone – whether in the air, on the runway or in air traffic control – will share the same precise view of aircraft in their vicinity.
The new system would improve the financial outlook for airlines due to greater scheduling and operating reliability, fewer delays, improved travel times and less fuel consumption.
This would enable us to retain and create jobs, modernize fleets to further reduce emissions and compete more effectively against non-US carriers.
As an industry, our impact on the environment is relatively small. Airlines today account for about 3 percent of the world’s man made greenhouse gas emissions. With improved routing and lower fuel consumption enabled by modernization, emissions could be reduced by up to 12%.
We must have appropriate government policies, leadership and legislation to achieve these objectives, and it is vital to link any and all government aviation climate change policies to them.
This truly can be a virtuous circle, each supporting the other with a multiplier of positive results. Modernization enables us to reduce fuel costs and consumption and has a positive impact on climate change.
So, it was with some enthusiasm that the airline industry commended the new Administration for its focus on improving infrastructure to enable economic recovery. We welcome the Administration’s intent to use federal stimulus investment to reinvent and revitalize.
While it makes sense that projects need to be “shovel ready” to help these efforts in 2009, they must also be “next generation” to sustain future growth in the years ahead.
Everyone in this room has to question why then is rapid rail in the stimulus package for $9 billion and for Next Gen… zero.
It is time for the U.S. to once again take a leading role in aviation. On behalf of my fellow CEOs at the ATA, I can only say that we couldn’t agree more with Senator Rockefeller. We too are losing patience.
It really shouldn’t be this way.
This is an important industry that deserves better.
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