November 21, 2007
The Honorable Condoleezza Rice
Secretary
U.S. Department of State
2201 C Street, NW
Washington, DC 20520
The Honorable Samuel W. Bodman
Secretary
U.S. Department of Energy
1000 Independence Ave., SW
Washington, DC 20585
Dear Secretary Rice and Secretary Bodman:
I am writing on behalf of the Air Transport Association of America (ATA) and its member airlines to support the Administration’s continuing efforts to enhance our nation’s energy security. We hope that such efforts will include rationalizing our supplies of crude oil and petroleum products, in part to bring prices more in line with market fundamentals.
Currently, WTI benchmark crude oil is trading at $99.28 per barrel, just shy of the $100 milestone that many reluctantly predicted and all dreaded. Indications are that world oil consumption will continue to rise despite higher oil prices, exceeding 87 million barrels per day in 2008. Unfortunately, rising global consumption and only a moderate increase in domestic production and refining will translate to unprecedented energy prices for American businesses and consumers for the foreseeable future.
Focused and, in large part, successful cost-control efforts by U.S. passenger and cargo airlines will soon be overwhelmed by the dramatic run-up in jet-fuel prices. Due to the soaring cost of crude oil and a range of issues affecting refining capacity, product distribution and market speculation, recent jet fuel prices have easily surpassed the record levels reached in the aftermath of Hurricanes Katrina and Rita. Last week, prices on the West Coast exceeded $2.80 per gallon.
At our current rate of consumption – impressively down from 2006 – every additional penny paid for a gallon of jet fuel costs the U.S. airline industry $195 million annually.
With fuel expenses averaging 25 percent of airline operating costs (and as high as 40 percent for some), today’s increases threaten to jeopardize the industry’s fragile recovery. The issue is also one that challenges U.S. competitiveness, because non-U.S. airlines are enjoying favorable exchange rates when purchasing dollar-denominated fuel.
In view of these concerns, we fully support the Administration’s efforts to implement measures to enhance our nation’s energy security and offer these recommendations:
- Strongly urge OPEC to announce meaningful production increases at its December 5, 2007 policy meeting in Abu Dhabi.
- Cease filling the Strategic Petroleum Reserve (SPR) until the market returns to a more predictable, rational pricing structure. In today’s tight market where current-month prices exceed future prices (partly due to growing market uncertainty), each barrel (especially the light, sweet barrels) taken out of commercial stocks has a disproportionate upward impact on the price of all barrels of light, sweet crude sold in the marketplace. Exacerbating the high-price situation could actually undermine our collective goal of enhancing U.S. energy security.
- Accelerate research and development of alternative fuels by providing additional capital incentives and funding for viable, environmentally sound fuel alternatives. What taxpayers spend to support ethanol research and production pales in comparison to other non-petroleum sources of energy. For years, ATA and its members have supported efforts by NASA, the Federal Aviation Administration and the Department of Defense to bring synthetic fuels to the aviation market. We urge you and Congress to provide sufficient financial incentives to turn these encouraging efforts into reality.
We appreciate your consideration of these measures and again wish to express our support for your efforts to enhance U.S. energy security.
Sincerely,