Sharon PinkertonSenior Vice President, Legislative and Regulatory PolicyJune 28, 2012Advisory Committee for Aviation ConsumerProtectionU.S. Department of Transportation (DOT) StatutoryMission Explicitly RecognizesImportance of (and Role in) Industry Viability andCompetitiveness, Which isCompatible with Consumer Protectionairlines.org2(6) placing maximum reliance on competitive marketforces and on actual and potential competition —(A) to provide the needed air transportation system; and (B)to encourage efficient and wellmanaged air carriers to earn adequate profits and attract capital, considering any materialdifferences between interstate air transportation and foreign air transportation.(14)promoting,encouraging, and developing civil aeronautics and aviable, privately-owned UnitedStates air transport industry.(15)strengthening the competitive positionof air carriers to at least ensureequality with foreignair carriers, including the attainment of the opportunity for air carriers to maintain andincrease theirprofitabilityin foreign air transportation.(16) ensuring that consumers in all regions of theUnited States, including those insmall communitiesand rural and remote areas, haveaccessto affordable, regularly scheduled air service.Source: U.S. Code, Title 49, Sec. 40101. Policy, Subsection A: “Economic Regulation”A Vibrant U.S. Airline Industry Will Enable Good Customer ServiceA National Airline Policy is Needed»The ability of the U.S. airline industry to investin their workforce, training, service to smallcommunities and newer, more efficient planes is contingent on a policy environment whichrecognizes that the a strong, competitive US airline industry is needed to accomplish shared goals ofgrowth, service to small communities and other consumer benefits.»The elements of a National Airline Policy will ultimately benefit consumers:»a rational tax and regulatory burden,»a modernized air traffic control system»reasonable jet fuel costs and»increased global competitiveness.1Value Proposition for Air Travelers Rising SteadilyIt’s Safer, It’s Cheaper, It’s Greener and It’s Still ~80 Percent On-Timeairlines.org4020406080100120140160180 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020Index (1990 = 100)* 5-year-moving-average fatal accident rate for U.S. air carriers operating under 14 CFR 121 scheduledservice (http://www3.ntsb.gov/aviation/Table6.htm)On-TimeFares ($2011)Fatal Accidents*Noise ExposureFuel EfficiencyProduct (Unit)2000 2011 Change (%)College Tuition: Public (Year) $3,508 $8,244 135.0Gasoline (Gallon, Unleaded) $1.51 $3.53 133.8Eggs (Dozen, Grade A, Large) $0.91 $1.77 94.5College Tuition: Private (Year) $16,072 $28,500 77.3Baseball Game (Nonpremium MLB Ticket) $16.22 $26.91 65.9Prescription Drugs (Index) 285.4 425.0 48.9Movie Ticket$5.39 $7.89* 46.4Single-Family Home (New) $169,000 $227,200 34.4U.S. CPI (All Urban Consumers)1172.2 224.9 30.6Vehicle (New)$24,923 $30,659 23.0Air Travel (Round-Trip Domestic Fare + Ancillary)2$316.95 $365.23 15.2Air Travel (Round-Trip Domestic Fare Only)2$314.46 $343.46 9.2Apparel: Clothing/Footwear/Jewelry (Index) 129.6 122.1(5.8)Television (Index)49.9 6.6(86.8)Unlike Many Goods/Services, Price of Air Travel HasNot Kept Pace with U.S. InflationAdjusted for Inflation, Domestic Fares Have Fallen 16.4%(11.8% incl. Ancillary) Since 20001. Bureau of Labor Statistics “measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.”2. A4A analysis of data collected by the Bureau ofTransportation Statistics – excludes taxes; “ancillary” includes revenue from reservation changes and baggageairlines.org5* 2010 value, pending availability of 2011 data2011 Passenger-Airline Earnings Reduced to Razor-Thin Margin of 0.4 PercentCumulative 2001-2011 Net Loss for U.S. Passenger Airlines = $62.3 Billion (-4.7% Margin)$2.2B$0.6B1.6 %0.4%(30)(20)(10)01020($30)($20)($10)$0$10$202001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Source: A4A analysis of DOT Form 41 data reported by U.S. airlines for which passenger revenue constitutes at least 25 percent of total operating revenuesairlines.org6Profit (Billions)Margin (%)»Reduced earnings translate to a lower Return on Invested Capital (ROIC)»Lower ROIC compels management to pursue means of improving ROIC»Reduced investment in the business has manifested in the form of less air service, fewer jobs,delayed fleet renewal, reduced in-flight service options and, for some airlines, bankruptcies»In the case of U.S. passenger airlines, employees were reduced by 160,200 from pre-9/11 levels tothe post-recession trough that occurred in Spring 2010; departures remain sharply curtailed536.4376.2August 2001 April 2010Scheduled Daily Domestic Flights (000)Down21.5 Percent from 2001 to 2012Full-Time Equivalent Employees (000)Down160K from pre-9/11 to post-recession troughWhy Is a Comprehensive Airline Policy in the National Interest?U.S. Airline Industry Financial Woes Lead to Cuts in U.S. Employment and Air Service830.123.6March 2001 March 2012U.S. Airline Industry Continues to Post ~80 PercentOn-Time Arrival Performance2011 Best Year Ever Recorded for Accommodated Boardings and Baggage Handling2007 2008 2009 2010 2011 1Q12On-Time Arrival Rate(% of domestic flights within 00:15)73.4 76.0 79.5 79.8 79.6 84.0Involuntary Denied Boardings(per 10,000 passengers)1.12 1.11 1.19 1.09 0.81 0.91Mishandled Bags(per 1,000 domestic passengers)7.05 5.26 3.91 3.57 3.39 3.01Flight Cancellations(as % of sched. domestic departures)2.16 1.96 1.39 1.76 1.91 1.17Sources: Bureau of Transportation Statistics and DOTAir Travel Consumer Report (http://airconsumer.dot.gov/reports/index.htm)airlines.org8U.S. Airline Industry Continues to Post ~80 PercentOn-Time Arrival Performance2011 Best Year Ever Recorded for Accommodated Boardings and Baggage HandlingSuccess Rates (Percent) 2007 2008 2009 2010 2011 1Q12On-Time Arrivals73.42 76.04 79.49 79.79 79.62 84.54*Accommodated Boardings99.989 99.989 99.988 99.989 99.992 99.905Properly Handled Bags99.297 99.474 99.609 99.642 99.661 99.699Completed Flights97.845 98.039 98.614 98.244 98.094 98.834Sources: Bureau of Transportation Statistics and DOTAir Travel Consumer Report (http://airconsumer.dot.gov/reports/index.htm)airlines.org9* YTD Aprilwww.airlines.org