Appendix II-Additional Material Submitted for the Record Statement of Air Transport Association of America Before the Senate Committee on Energy and Natural Resources Mr. Chairman, the Air Transport Association of America welcomes the opportunity to submit this statement in conjunction with your hearings concerning establishment of a National Energy Policy. ATA member airlines collectively account for approximately 97 percent of the revenue passenger miles flown in the United States and about the same percentage of the freight ton miles. The airlines, having learned from the energy crises of 1973-1974 and 1979-1980, would like to offer some comments on our experience, our response to those crises, and the adverse consequences we feel yet today. Since the last oil crisis and especially since airline deregulation, carriers have introduced a number of fuel saving steps. Overall, we estimate that the industry has improved fuel efficiency by 47 since 1974. Had we not implemented these fuel saving measures, the United States would need to produce or import more than 1,000,000 additional barrels per day of jet fuel, a quantity not currently available on the world market. Some of the things airlines have done include the following: • Cruise speed has been reduced. The reduction of a jet's speed from 520 to 500 miles-per hour results in a 78 fuel saving on a 500 mile flight. • Flight simulators have been used far more extensively in pilot training to eliminate fuel consuming training flights. Thousands of extra flights annually have been eliminated saving millions of gallons of fuel and yet still providing the level of training needed to carry the public safely. • Computerized flight planning has resulted in the selection of altitudes that yield the minimum consumption of fuel. • Fuel conservation measures are also employed today before an airplane takes off and after an airplane lands. Aircraft are being held at departure gates, with engines shut down, when there is likely to be a delay on takeoff. often one or more engines is shut down as the aircraft taxis to the arrival gate upon landing, further improving fuel efficiency. • Airlines have invested substantial suns, in the tens of billions of dollars, to purchase newer fuel efficient airplanes. • Airlines have also significantly increased equipment utilization, conserving millions of gallons of fuel by taking advantage of new, more efficient jets to carry more people per aircraft. Because the industry has worked so diligently on improving efficiency there is virtually no more room for fuel efficiency improvements in the current crisis. We continue to preach the gospel of fuel conservation both here and abroad. The U.S. carriers have launched another major push to change the international jet fuel standard from Jet A-1, to Jet A, the fuel we use in the United States. Jet A-1 has a lower freezing point and must be used on some routes, but those routes are the exception, not the rule. Refiners have indicated that at least a 5 increase in jet fuel availability would be forthcoming were the international standard changed to match the practices of the U.S. carriers. And if the laws of supply and demand are valid, there should be a reduction in fuel costs commensurate with the increase in supply. Additional fuel conservation measures can be implemented, but these issues require government action. Immediately after the Iraq invasion of Kuwait, the Secretary of Transportation established an Aviation Industry Energy Conservation Task Force to review aircraft operations, airport practices, and air traffic control procedures which could be taken to reduce consumption. The airlines and airports reviewed and implemented several initiatives and are taking additional measures which were not adopted as common industry practices after the 1973 shortages. There are some operations areas being pursued which will also require assistance from FAA in the form of regulatory accommodation in areas such as dispatch and fuel reserve requirements and acceptance of high gross landing weights. Air traffic control is another matter. The air traffic controller work force has been extremely cooperative with pilots in efforts to reduce fuel consumption, and the government has begun to adopt policy changes to put into effect air traffic control fuel efficiency measures. Those are steps that can and should be taken under any circumstances irrespective of the outbreak of hostilities. The current economic environment in which the airlines operate is extremely hostile. Even with all of the fuel efficiency measures we have adopted, we are hemorrhaging due to the combined impact of a recession, drastically increased fuel costs, and fears of terrorism brought on by the war in the Middle East. Fuel represents our second largest item of expense amounting on average to about 18 % of total operating costs. Some carriers have instituted fare increases in an attempt to cover the soaring fuel cost. But the economy is so weak they have had to offer a number of discounts in order to stimulate demand for air transportation, seriously undermining the effectiveness of these fare based efforts to recover the fuel cost increase. 43-268 91 - 5 Die wet foueness of this situation can be seen from a few De mor air carriers have filed for chapter 11 Telugu farte. Pautruppey Aretation nither the past two months. One major vauti vita six decades of sea to the public is now being W the fx #Thistory, the industry had a ANZAC Net loss of the descere always profitable third Compare # 2 x parter losses represented a A chance of is: compared to 1988 a net PAINT & Marticipate industry net losses In the year 1990. And for the six ་་ The fourth quarter 1990 and first quarter marly $2.5 billion, not taking supply, costs, and revenues which ng of hostilities in January. anding August 3 was over, we were faced xcreases, (we consume almost 10% of the roughput) but also calls to provide se needs. Since that time we have a multi billion dollar increase in es to the activation, for the first time Cil Reserve Air Fleet. (Our members underway reports of traffic dropping from ace that our revenues will suffer even more Se economic downturn. socks pale by comparison to the magnitude and www.crisis. In 1979 jet fuel was 57 cents ook two years to reach over $1.00 per cook two months! In August our fuel was 63 and by the middle of October it was $ 1.39. this run up is in spite of an abundance of latively large inventories of jet fuel. Prices sicketed far in excess of prices for other products and far in excess of what one would the orderly working of a marketplace governed by me we vite a few figures to demonstrate this point. For we have used weekly averages of spot petroleum ased from the Department of Energy. We realize that any individual purchaser of petroleum products may WA Tesult of contractual arrangements, however, this is Java la presented by the Department through the Energy VN MAY LUNA Administration. Attached to my statement is a chart which demonstrates the extremely severe fuel cost run up which has damaged the fragile economics of providing air transportation. The relationship between price increases in crude oil and price increases in refined petroleum products has bee substantially out of kilter. Referring to the chart entitled Weekly Averages of Spot Petroleum Prices, you will see that at the time of the invasion, the spot prices for wholesale gasoline, jet fuel, and No. 2 home heating oil were 71.6, 63.5 and 62.8 cents per gallon, respectively. As of the end of December, the spot prices for gasoline, jet fuel, and No. 2 home heating oil were 68.4, 84.5, and 80.7 cents per gallon, respectively. As of January 31 instead of jet fuel costing 10 cents per gallon less than gasoline as was the case six months ago when Iraq invaded Kuwait, jet fuel cost 7 cents per gallon more than gasoline, a net change of 15 cents per gallon. In October the net change was almost 50 cents per gallon in the relationship between gasoline and jet fuel prices. While we are pleased to see the level of distortion moderate, we continue to be frustrated by the unanswered questions surrounding this turn of events. Airlines can little afford to bear this disproportionate share of the increase in crude oil costs. We consume 16,000,000,000 gallons of jet fuel each year. Consequently an increase of only one cent per gallon results in $ 160 million more in annual fuel costs. This discrepancy between jet fuel and gasoline costs would not be so unreasonable if the supply of jet fuel were down, but such is not the case. Jet fuel inventories have been consistent with prior year inventories, and in recent weeks have exceeded prior year inventories by as much as 24 % on a week to week comparison. There have been published reports that the cost of jet fuel has increased due to several factors which unfortunately our experience and review of the facts indicates are not borne out. The Each of these rationales is based on a supply/demand theory and suggests that in some manner demand has boosted prices. prices for crude and refined products have little relationship to supply/demand theory, which result in our feeling that these rationales are questionable at best. - Theory # 1. Loss of Kuwaiti refineries These refineries are very sophisticated and produced significant quantities of jet fuel. But the output of other refineries has more than made up for the loss of this refinery capacity. Domestically our jet fuel refinery production and inventories since September have regularly exceeded year ago measures. Worldwide inventories of jet fuel are also high. Reduced quality of the crudes -- Crude oil make up for the loss of Kuwaiti crudes is of lower a question whether the cost of refining the lower rosents jet fuel exceeds the costs of refining the email cruces into gasoline and home heating oil by the artins mang charged for jet fuel. For example, during eek ending botober 19 compared to the week ending August 2, i was in 13 cents per gallon, gasoline 25 cents per 32 ann Fuel 61 cents per gallon. Jet fuel demand was not 15. the rventory was up. We have trouble understanding tazionale atach suggests that the marginal cost of refining the ter may crude into jet fuel cost so much more than the a watuling the lower quality crude into gasoline. Elitary operations -- Middle East operations masest demand for jet fuel. But the facts fail to bear murai rationale for price increases. First of all, If Bilitary needs in Saudi Arabia were being refineries and inventories. Furthermore, parations in the United States have virtually nothing inventory. The airline industry uses Jet A, Men Pol akin to home heating oil. The military is for naphtha based JP-4, a jet fuel produced 3. recent portion of the barrel. ve the set fuel price spiral is related to the gasoline price increases and the airlines' aust schedules quickly. Consumers see the price ite foot tall numbers as they drive down the A see the price of jet fuel. Consumers can and buying practices, by car pooling, using hat, forsaking frequent short trips, and buying visine to save money. mption, on the other hand is relatively 25 customers buy 95 of the jet fuel sold in ar to maintain their scheduled 19,000 flights er the National Energy Policy, we think it is cant to establish the steps to be taken should interruption. First there is a need for a Our economic health has already been severely afford to watch our already weakened e deteriorate while the government contemplates w it tow where we will obtain fuel, how much we will and what we will pay for it. We need to Pavely 1.4 million barrels per day of jet fuel from applitare at the rates customarily paid. That means no o allocation plans, and no unwarranted the marketplace at any level of government |