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Speech – "Commercial Aviation Forecast Conference, 'The Unexpected'"

"Commercial Aviation Forecast Conference, 'The Unexpected'"
Marion C. Blakey, Washington, D.C.
February 28, 2006

Good morning, and thank you, Sharon.

I have to start with an observation about some breaking news. You know, with an industry that’s changing right before our eyes, we’re facing new and different challenges every day. Just yesterday, we got some news that was unfortunate. As some of you know by now, the bid for Bill Voss to become Secretary General of ICAO missed by the narrowest of margins. It was hard fought on our front. But you know that comes with the territory. Nevertheless, our pursuit of the advancement of aviation safety remains firm and our support of ICAO is unwavering. And let there be no doubt that other challenges – the ones we know about and the others we don’t – are just around the corner. Either way we’ll be ready.

For those of you who’ve come into D.C. just to attend this conference, let me extend a special welcome. Those of us who are here year round know that this winter weather season hasn’t been quite what we expected. As I said a moment ago, you’ll be hearing quite a bit about the unexpected throughout this conference.

You know, just about a month ago, we had unseasonably warm temperatures. High 60s, low 70s in January. Being from Alabama, I can tell you that’s my kind of winter. But just a few days later, boom, 14 inches of snow. If you remember, New York got 23. We went from shirtsleeves to snow shovels in about 72 hours. Even the Farmer’s Almanac was surprised.

With that as a backdrop, I heard a story that gave me a chuckle. When the snow was at its heaviest, one of the locals from this area was headed to Morgantown. He stopped at a shopping mall around here to pick up a package. Now it’s dark, but he’s ready to go. The snow’s coming down pretty hard; visibility is just about zero. Lucky for this guy, he sees a snowplow and he does what most of us, I guess, would do. He falls in line right behind it. Why fight the snow when a machine can do it for you?

So he follows the snowplow for about 45 minutes through each and every turn. He just follows the red tail lights right in front of him. It’s a tough ride, but at least he has a clear path to follow. Then the snowplow stops, and the driver gets out. The snowplow driver walks back to the guy and says, “Where are you going? You’ve been following me for almost an hour.” The local says, “Morgantown.” The snowplow driver says, “Well, you’ll never get there following me. I’m plowing out this parking lot.”

I think that’s where we are with aviation. For years, many folks have told us to follow along the obvious path that was already there. Just do what you’ve always done. Well, along comes 9/11, Internet pricing, SARS, the jump in the price of oil and all of the sudden “follow the leader” doesn’t work any more.

Even with all that and the price of oil at the top of the list aviation is in a period of robust growth with a temporary pause here in 2006. The growth is different than what we would have predicted five years ago, but the growth is there.

The fact is our industry has changed. Our industry continues to change. Low-cost carriers and regional carriers (the smaller jets) are continuing to redefine the market. We expect that passenger totals will continue to grow at more than 3 percent per year with international growing another 2 percent beyond that. We’re still on track for one billion passengers by 2015. Revenue passenger miles for the regionals are up almost 7 percent. For the low cost carriers, it’s almost 8.

Cargo is experiencing solid growth. Domestically, it’s up 3.2 percent. Internationally it’s almost double at 6.3 percent. I think it’s fair to say that with fuel prices so high, the domestic cargo industry is seeing a shift to trucking for shorter hauls.

It’s a certainty that our workload continues to grow. En route traffic is up 3 percent, and we expect it to stay that way. Over the next few years, we expect general aviation to make another jump because of the very light jets that are in the offing.

The regionals are continuing to expand their share of the domestic market, from 22 percent last year to 22.5 percent next year to more than 25 percent by 2017. You know, RJs create the same workload in the system but they bring in less revenue per operation for the FAA. In fact, one of the most dramatic changes in this year’s forecast is the decline of seats on domestic aircraft. Over the next five years, we see it continuing to decline by an average of 2.3 percent per plane across the entire fleet. In 1999, the number of seats per plane averaged 130. We see it shrinking to 117.7 by 2011.

We also see that in light of the low-cost carriers and regional jets growing the way they are, more and more passengers will bypass the traditional hubs and fly directly to their ultimate destination. And while the legacy carriers aren’t growing as they have in the past and their share has gone from 70 percent in 2000 to 55 percent, they are changing as well. It’s not an uncommon debate: Is this particular airline a legacy carrier or low-cost? The labels aren’t quite as clear as they used to be.

The times, they really are a changing.

But as I said from the outset, following the leader is no longer a safe game to play. For the FAA, as the plane size continues to shrink and overall passenger numbers are on the rise, all of this means more flights, which means more workload.

More planes, smaller planes, cheaper tickets – they point to the increasing need for the FAA to operate more like a business. As you know, we’ve cut layers of management in our air traffic organization. We’ve costed out our activities and we’ve asked stakeholders to help us trim what’s no longer important. Let’s face it, if it’s not important to you, why should we do it?

The A-76 process with our automated flight service stations has been a smooth transition. Better service, better technology, and cheaper on the taxpayer’s checkbook.

Likewise, our efforts at the negotiating table are still a place where we hope to provide a fair wage; a very fair deal for our workers and a fair deal for the taxpayer. The last contract left the taxpayer with the short straw and a hefty tab to pick up. What was to cost $200 million ended up at $1.2 billion. That won’t happen again. We cannot and will not sign a contract that we cannot afford. Salary increases of 75 percent for our controllers are a thing of the past.

We’re tightening our belts because we’ve got to mirror the industry we serve. With the advent of busier skies on the very near horizon, the need to modernize is all the more important. The next generation air transportation system is not a wish list. If we don’t modernize, the system will be a hard drive that’s just too full. It will run slower and slower and then it will stop. We need to modernize. If we don’t nail that, nothing else we do will matter. If we want this forecast to come true, we must have NGATS.

So, how do you pay for all this? That’s where the trust fund comes in. In 2001, the FAA predicted revenue of $14.5 billion in 2005, which would have covered the 2005 FAA budget. In fact, the 2005 revenue was $10.7 billion, a reduction of $3.8 billion, or 25 percent. At the end of 2005, we projected that the Aviation Trust Fund balance will sink to $1.9 billion, a dangerously low level.

But the actual number is deceiving. The formula that gets us there just doesn’t work anymore. The price of the ticket drives the trust fund. The price of a ticket in no way reflects the cost to provide that service. There is no connection between the price of a commercial airline ticket and the FAA’s workload. We may as well be tied to the price of a gallon of milk. While some folks have focused on the fact that revenue is going up this is only because of volume.

That formula worked for years. It doesn’t anymore. A cost-based revenue system would align the revenue structure with FAA costs and protect both the FAA and the customers we serve from scenarios where revenues and costs diverge. A cost-based revenue structure would be more equitable in terms of aligning user taxes and fee payments with the costs they impose on the system.

With all that said we’ve turned to industry, to Wall Street, to financial analysts for a better way to do it and our proposal is at OMB right now. When the taxes that fuel that trust fund expire next year, we’ve got to have the new way already in place. If they expire without a new safety net, it will be too late for all of us.

So this year’s forecast is a momentary bump in the road of what has been real growth. The growth comes in a package that’s new to us, but it’s growth nevertheless. So we’re in a period of bumpy weather but that in and of itself is not a bad thing. We’re showing the rest of the world how to handle turbulence in the economy of this industry.

The snow plow shows us for sure that we’re not going to solve the problems we face today and tomorrow with following the obvious path of yesterday’s solutions. When you follow blindly, you can be on the wrong road and not even know it. Sometimes, you’re stuck in a parking lot and you don’t even know it. We need a fresh approach. And that, I can assure you, is what we intend to take. Thank you.

Now, it’s my pleasure to introduce the Secretary of Transportation. Norman Mineta is an outstanding advocate for aviation, a real driving force. Back in the 1990s, the National Civil Aviation Review Commission was formed to take a look at aviation. Most of us know it now as “The Mineta Commission.” That group came up with a to-do list that we’re still following today. Mr. Mineta brings wisdom and insight to the table and we’re fortunate to have him here with us today. Please welcome the Secretary of Transportation, the Honorable Norman Y. Mineta.


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