Good morning. I appreciate the opportunity to address the issue of jet fuel supply and its impact oncommercial aviation. ATA’s members have a vested interest in ensuring access to an affordable, reliable supply of jet fuel. Today I will describe the effect of rising jet fuel prices, provide examples of unprecedented measures U.S. airlines have taken to reduce fuel costs, and explain how modernization of our nation’s air traffic control system can help all system users minimize fuel consumption.
From 1991 through 1999, jet fuel prices averaged 56 cents per gallon, and never exceeded 65 cents. The significance is not only the reasonable average price, but also its stability. It is against that backdrop that operational decisions and investments were made. Airline financial planners did anticipate higher fuel prices, but not to the extent and duration they have witnessed over the last few years. For most carriers fuel has now tied, or overtaken, labor as their largest expense.
Between 2003 and 2005, the average market price of jet fuel soared from $0.88 to $1.72 per gallon. In the period during and after Hurricanes Katrina and Rita, prices in the Gulf Coast spiked to $3.13. The outlook for 2006 is no better, with experts projecting an average in excess of $1.80. This forecast is especially critical at this time because airlines are increasingly exposed to fluctuating market prices as their fuel hedge positions deteriorate. This includes leading low-cost carriers, all of whom likely would have lost money in 2004 and 2005 had it not been for their hedges. On the other hand, at 2003 fuel prices, nearly every U.S. carrier would have recorded meaningful profits.
At today’s consumption rate, every penny increase in the price of a gallon of jet fuel drives an additional $195 million in annual industry operating expenses. In fact, from 2000 to 2005, the industry’s fuel tab doubled, from $16.4 billion to an estimated $33 billion, even though it consumed less thanks to increased fuel efficiency. That’s just staggering, and like any other tax, fee or cost increase, is virtually impossible to pass through to the consumer in this environment of limited pricing power.
Airlines have an enormous built-in financial incentive to reduce consumption. Indeed, the industry’s track record shows just that. Fuel efficiency has risen an impressive 18 percent since 2000, and tripled since 1971. Airlines have left no stone unturned in identifying ways to conserve fuel through improved aerodynamics, weight reduction and operational procedures. The use of winglets, which cut fuel consumption three-to-five percent, the removal of ovens or entire galleys to reduce aircraft weight, and procedures like Continuous Descent Approaches are just a few examples.
Jet fuel is similar in composition to diesel fuel and home heating oil, and consumers of those other products compete with airlines and other jet fuel users for that portion of refinery output. Also, because the price of jet fuel is principally determined by the underlying price of crude oil, any efforts to conserve energy across the broader economy ultimately provide some relief to the aviation community. We strongly encourage other industries to take similar actions.
In short, airlines have not been able to cut costs or raise fares fast enough to keep up with skyrocketing fuel costs. While we recognize that the U.S. government can do relatively little in the short term to reduce jet fuel prices, it should first do no harm. I refer you to recent fuel tax changes, and a pipeline rate case before the Federal Energy Regulatory Commission, detailed in my written comments.
Finally, I want to end by emphasizing how ATC modernization could mitigate fuel expenses. The existing ATC system has generally served our nation well. However, it was not designed with fuel conservation in mind, nor was it built to accommodate the anticipated growth in volume and complexity. A modernized system utilizing available technologies and recently developed procedures could save hundreds of millions of gallons per year. In addition to reducing costs to operators, fuel savings achieved through ATC improvements produce significant environmental benefits. For every gallon of fuel not burned, related emissions are not released into the atmosphere.
In conclusion, no other industry is more conscious of energy consumption than the airlines. In the best of times conservation and efficiency are a way of life. In the worst of times they are a matter of survival. We are proud of our fuel efficiency gains over the past 30 years and we intend to continue. With the pending aviation reauthorizations, Congress has an opportunity, and an obligation, to leverage advancements in technology and bring about long-needed changes in our national airspace system. This must be a cooperative effort among all participants in our nation’s aviation system, and we look forward to working together to save fuel, save time and save jobs.
Thank you.
(Oral Statement)
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