Remarks to the International Society of Transport Aircraft Trading

Commercial aviation helps drive more than 10M American jobs and 5 cents of every dollar of U.S. GDP
Commercial aviation drives more than $1 trillion per year in economic activity
In 2012, U.S. airlines moved more than 48,000 tons of cargo per day
In 2012, the value of a kilogram of U.S. merchandise exported by air averaged 121 times the value exported by sea
For every 100 airline jobs, some 360 are supported outside of the airline industry
Federal taxes constitute $61 – or 20% – of the price of a typical $300 domestic round-trip ticket
In 2011, U.S. airlines carried 16 percent more passengers and cargo using 10 percent less fuel than in 2000
Domestically, airlines drive 5% of economic activity but account for 2% of man-made GHG emissions
From 2000-2011, airlines reduced GHG emissions by 11% while transporting 16% more passengers and cargo
From 1975-2011, U.S. airlines and their partners reduced significant noise exposure by 99%
Commercial air travel is the safest form of intercity transportation in the United States
In the most recent decade, scheduled air service on U.S. airlines was seven times safer than in the 1970s
From 2000-2012, U.S. airlines improved the on-time arrival rate from 72.6% to 81.9%
From 2000-2012, U.S. airlines reduced the flight cancellation rate sharply from 3.30% to 1.29%
Airfares are a bargain: From 2000-2012, U.S. CPI rose 33% while average domestic fare rose just 14%
Adjusted for inflation, the average round-trip domestic airfare fell 15% from 2000
2007 domestic flight delays cost the United States approximately $31 billion
In 2012, the value of U.S. merchandise exported by air reached an all-time high of $427B
In 2012, U.S. exports of air-travel services reached an all-time high of $39.5B, driving a $5.1B trade surplus
In 2012, U.S. passenger and cargo airlines spent more than $50B on fuel, averaging 36% of operating expenses
In 2012, U.S. airlines posted the lowest annual rate of mishandled baggage ever recorded
FAA projects U.S. air travel demand to top 1 billion passengers in 2027
In 2012, US airlines flew 83.4 million passengers in scheduled international service - a record high
In 2012, the total value of merchandise exported from or imported to the United States by air exceeded $927 billion
In 2012, 7.15 teragrams of merchandise was exported from or imported to the United States by air

	Remarks to the International Society of Transport Aircraft Trading – ISTAT Annual Conference
	PubZone1 Nicholas E. Calio, President and CEO Airlines for America Remarks to the International Society of Transport Aircraft Trading – ISTAT Annual Conference Scottsdale, AZ March 19, 2012 It is a pleasure to be here today with people who play important roles in an industry that has always been a big part of my life – and an even bigger part of my life in the last year. Before joining Airlines for America – we call it A4A – I was a frequent traveler. My work literally depended on my ability to travel safely and quickly across the country or around the globe, often on very short notice. My circumstances were not unique. Every day, the U.S. airline industry safely transports two million passengers and 50,000 tons of cargo in more than 25,000 flights. Our mutual “attachment” to this industry is self-evident – and I don’t have to tell you that this is an industry with challenges. After passenger carriers publicly reported their 2011 financial results, A4A announced that these 12 U.S. airlines collectively earned $239 million for the year. That means we had a margin of 0.2 percent – or less than a quarter of a penny for every $1 of revenue generated. A quarter of a penny – that’s a profit margin you are not likely to be emulating on your side of the business! It’s no wonder that on the day my appointment at A4A was announced, the former Chairman of the Board of Citigroup (my former employer), Sir Win Bischoff, e-mailed me. He said: "Dear Nick: I have always trusted your judgment. I read today that you are leaving the financial services industry for the airline industry… Shrewd move…question mark…question mark…" Had I received that e-mail today, 14 months into the job and knowing what I do now, I would still reply with the same brief but honest answer: Dear Sir Win: Yes. I saw in this role what you all see about this industry: Significant challenges on one hand…but significant opportunities on the other. So, I want to talk about three W’s: Where, What and Why. Where the industry is today; What we need to do going forward to put the U.S. airline industry on a stronger and more sustainable footing for our customers, our employees and our shareholders; and perhaps most importantly: Why that outcome is so important – to the towns and cities across our country and to the passengers and cargo we transport – in terms of our national and global connectivity – and our collective future economic competitiveness and well-being – something that is critical to a country of this geographic size and global importance but, remarkably, seems too often to get lost in the policy discussion. State of the Industry Airline Actions Today, frankly because of some of our own mistakes but also because of extreme circumstances, the industry lost $55 billion and 160,000 jobs in a 10-year period. The industry has worked hard to right itself – in all matters that are within its control. Airlines have made good business decisions and stuck with them. Gone are the days of suicidal pricing wars with fares as low as $9 – fares that gave consumers unrealistic expectations and a false sense of what it costs to fly from one city to another. Gone also are the thousands of extra seats that carriers would flood into any city pair to stave off another competitor’s market-share creep. Common sense – or good business sense – and the economic law of supply and demand are prevailing, particularly as it relates to capacity discipline and pricing your product to actually cover your costs – novel concept. Through wrenching restructurings – both in and out of court – U.S. airlines have revamped their businesses and substantially lowered their controllable costs to among the lowest in the world. Consumers today have many options; customers can choose what they value most in an airline or in the product and service offerings they want, creating consumer-driven revenue opportunities in what is still a starkly competitive industry. In other words, airlines have started to operate like any other business. And, despite deep cost cutting, airlines continue to make improvements in running their operations. For example, U.S. airlines reported the best performance ever in 2011 for key customer-service metrics: o the best on-time arrival rate for any fourth quarter in history and o the lowest ever recorded rates in mishandled baggage and in bumped passengers. That means that 99.7 percent of all passengers arrived with their bags and less than one out of every 12,000 passengers was bumped. And that best-ever trend continued into January on numbers reported last Thursday. Given the level of complexity and uncontrollable variables inherent in airline operations, these levels of safety and customer service are matched by no other industry we can think of. Although – no other industry is expected to track and report the myriad metrics airlines do. And neither are other industries subjected to the level of excessive government regulation with commercial aviation now the most highly regulated, supposedly deregulated, industry in America. Government Action and Impact It is interesting that at the same time as excessive regulation that negatively impacts business and job creation is being called into question in Washington, airlines continue to be subjected to additional regulation supposedly for the benefit of consumers – that in fact is not beneficial to our customers. Meanwhile, little is being said about airlines and our passengers continuing to pay an exorbitant and unfair amount in taxes and fees. Let’s take a look at specific examples. In January, the Department of Transportation implemented a full-fare price advertising rule. On its face, it sounds reasonable. Customers should know what they are paying for. If you are not familiar with this rule, airlines are being required to display in any advertised price, the base fare… plus the taxes – combined as the price of the ticket. In no other industry is the consumer price advertised or reported that way. o Not if you buy a car, a house or if you book a hotel room o Not if you buy a loaf of bread, not if you buy a pair of shoes We support transparency. Airlines always have. Before you clicked to purchase, your price was always spelled out for you. It is disingenuous at best, that this new rule – touted as favoring the customer – is, in reality, a rule that favors the federal government. Now, the government can hide its exorbitant tax burden in the fare. We oppose this governmental game of “hide the ball” – where you see the full price, but have to read the small print to know that 20 percent of your ticket price is going to Washington – that is $61 on a typical $300 ticket – not to the airlines to cover your fare. These regulations actually require you have to put that information in small print so that those in Washington can hide the ball and not be held responsible for the taxes they impose. What about the Tarmac Delay Rule? This rule also sounds great on its face; no one should be stuck in an aircraft on the tarmac for extensive periods of time. The fact is, not many people experienced such lengthy delays prior to the rule. And now we have a sledge-hammer approach of a rule that even the government, through a Government Accountability Office study, acknowledges is having unintended consequences of more cancellations. More flights are being canceled due to anticipated delays caused by weather, since airlines opt for cancellation rather than risk a flight sitting on the tarmac beyond the three-hour time limit, after which the airlines are fined $27,500 per passenger – more than $4 million for an average Boeing 737. The domino effect of more cancellations is significant for the system overall. I have seen it firsthand. Flights are being canceled, and passengers are finding out their rebooked flight out isn’t hours or even a day away – but days away. We now have looming a third “consumer protection” rule and a separate rulemaking that would require airlines to report revenue information related to 19 separate items, including how much they collect for meals, drinks and upgrades. The third “consumer protection” rule would require airlines to make all of their products available through global distribution systems. In no other industry is this required. Does Amtrak have to report to the government how much it made on selling Cokes, and how much revenue from tickets? Does the cable industry have to report how much it made selling HBO versus ESPN? Are either of these industries required to turn over all of their products and services to a third party duopoly that can then mark up the products for their own financial gain? This is totally ludicrous. I’m not saying that the administration, regulators and Congress are intentionally out to ruin the U.S. airline industry. We successfully partner on many issues. However, whether through neglect, lack of coordination, lack of vision or sometimes pure wrong headedness, they sometimes seem to be. Aside from our regulatory challenges, we face a uniquely bad tax environment. Airlines and our passengers currently pay 17 separate federal taxes and fees – a hodge-podge thrown together and added to over the years without any guiding rationale or consideration for their overall impact on demand or affordability. Most recently, there have been attempts to have airlines and our customers pick up the tab to reduce the federal budget deficit or to cover the cost for a payroll tax-cut extension. Last year and earlier this year, on multiple occasions, the Obama administration offered a proposal that would triple the security tax that you and I pay on each flight, as well as impose on airlines a $100 tax on every plane departure. In the end, the proposals were rejected but they are back. The White House budget proposal for Fiscal Year 2013 again proposes to triple the security tax and add a $100 departure tax. These new taxes alone would cost the airline industry $36 billion over the next 10 years. Now would be a good time to remind ourselves that in 2011 we made on average 0.2 percent profit margin. 2010 was a better year. Collectively, a profit of $2.7 billion – a number still dwarfed by the size of the proposed tax increases. It is not just the administration. Congressman Paul Ryan, the Republican Chairman of the House Budget Committee, appears ready to propose his own increase – a doubling of the security fees for every segment flown, as part of the FY13 House Republican Budget on the theory that they are user fees that simply can be passed through to consumers. Anyway you cut it, any increase for whatever purpose, does not make sense if scrutinized in context. That context has to be the importance of our airlines to the U.S. economy, the state of the industry and how an increase in taxes would affect the industry, its customers and the economy. Airlines Should Be Viewed as a Strategic Asset So, with that summary of where we are today, let’s look at where we need this industry to be, and why it matters to everyone in this room and to America’s future. The world around us is changing dramatically with important growth economies emerging outside of our borders. U.S. airlines provide the infrastructure – the physical Internet if you will – vital to U.S. economic health and development. This industry very effectively connects America – and America to the world. It supports 10 million jobs and over $1 trillion in annual economic activity. That’s more than 5 percent of the GDP. Yet, airlines could do more. Other governments across the world are treating commercial aviation differently – as a strategic industry and as a key enabler of national economic development. They have been decisive about the role of airlines and this has put us at a competitive disadvantage. As you all know well, orders and the market for aircraft have changed dramatically in just the last 10 years. These changes reflect huge investments in the world’s important growth markets and investments in countries that are redefining models of aviation to drive new economic development opportunities. These changes in leadership in commercial aviation are clearly reflected in the statistics on new aircraft on order and in the fleets operating today. You know the numbers. And although – with the services many of you provide – aircraft financing and transactions are not dependent on the most robust balance sheets – a sustainably profitable industry will certainly be reflected in increased orders. The international carriers who are buying the majority of planes today are providing the connectivity their governments envisioned – and driving economic growth in the process. This includes flying to the United States in increasing numbers – to our major cities – which has caused U.S. carriers to pull down capacity in some international markets, which is the most profitable part of the business and a part of the business that subsidizes – to a great degree – our domestic routes. Today, Emirates operates to Houston, Dallas, Los Angeles, San Francisco, New York JFK and Seattle, and just announced plans to launch service to Washington, D.C. in September. Etihad operates to New York JFK and Chicago. And they start service to Dulles in 2013. They are not alone. Dozens of foreign-flag carriers serve the United States today and more are looking to add service, including Brazil’s Gol, which announced plans for service to Miami. This is the free market at work and may be advantageous if you happen to live in the cities chosen by international carriers. But let’s talk about what’s at stake. These same foreign carriers will not directly serve our smaller markets. They will cherry pick profitable cities and rely on others to provide connectivity, at whatever cost, across the rest of the country. It’s hardly their problem. The U.S. network carriers have a vested interest. Their business model accommodates connecting every part of the country with the revenues from the more profitable segments subsidizing the much less profitable, smaller communities. We are not asking for any kind of special deal. To continue to provide such service, U.S. carriers need a more rational, normalized business environment, with less government interference, and with a fair tax and fee structure. Our airlines want to compete head to head with their international competitors but we’d like to do so on a more level playing field. Our government can ignore the future ramifications of an uncompetitive U.S. airline industry to our medium and small communities – who only have American carriers to connect them to the national and global economy. Our government can ignore the benefits of the industry to our own economy at the same time it talks about the need to create jobs and double exports. Or, we can work together in creating a business environment that will allow for future growth and global competitiveness. The Need for a National Airline Policy For all of these reasons, A4A decided that our overarching strategy must be to pursue enactment of a National Airline Policy – a comprehensive approach to putting the U.S. airline industry in a position to first survive and second, to thrive in keeping with the fundamental role it plays in the U.S. economy. These are the five core components that together form the basis of an effective National Airline Policy: 1. Reform our tax structure: Reduce taxes on this industry and our already overburdened customers. 2. Reform our regulatory environment: Ensure rules are based on sound science and cost analysis and eliminate rules that drive excessive costs or inefficiencies while doing nothing for safety or consumer benefit. 3. Fix the infrastructure – NextGen: Accelerate the deployment of the most cost-beneficial elements of NextGen by implementing policies and procedures to use the equipment we have in place today. 4. Enable global competitiveness: This industry needs to compete on a level playing field with global competitors. Endorse global strategies to address issues that affect us all, like the EU-ETS plan, and put in place the policies, resources and structure to promote business and leisure travel and tourism in the United States; and 5. Mitigate fuel costs and volatility: We need the CFTC to follow its mandate and curb excessive speculation in the oil futures market and, at the same time, we need to bolster domestic fuels production and alternate fuels development in an environmentally sound manner. This is a significant list with a great deal of work required on each part – and it will take time and unified engagement with Congress and the administration to get it done. A4A is doing just that. In conclusion, there is much to do but there can be no question that we need a holistic approach that addresses the fundamental tax, regulatory and infrastructure challenges that prevent this industry from being sustainably profitable – and globally competitive. PubZone2	A4A is a leading source for key aviation information.

Remarks to the International Society of Transport Aircraft Trading – ISTAT Annual Conference