REMARKS FOR
THE HONORABLE NORMAN Y. MINETA
SECRETARY OF TRANSPORTATION

FAA FORECAST CONFERENCE
WASHINGTON, D.C.

MARCH 17, 2005
11:15 AM

Thank you, Marion, for that kind introduction. And, more importantly, thank you for the outstanding job that you do to keep America first in flight.

First, let me congratulate Bob Bowles for his close to thirty years of great service at FAA, and for being the father of the forecast conference.

And I appreciate that very, very warm welcome. Today, of course, is St. Patrick’s Day. And it is encouraging that so many of you have chosen to be at this forecast conference, knowing that we are in competition with Irish stew and green beer.

Competition – and how it is reshaping the airline industry – and could be called the theme of the day.

At last year’s forecast conference, I spoke about an approaching paradigm shift. The data told us that the combination of shifting demand for air travel, and the emergence of more low-fare and regional airlines, had set the stage for fundamental changes in the airline industry.

The past 12 months have confirmed those trends.

Demand continues to grow. We are forecasting that more passengers will fly this year than did in the previous peak year of 2000. And we are looking ahead to more than one billion passengers by 2015.

But the domestic business travelers who would pay any price for a ticket – formerly the bread and butter for the major network carriers – have not returned, and probably never will.

Some have migrated to General Aviation, where fractional ownership and microjets are beginning to take off. Many others have joined the growing ranks of cost-conscious and sophisticated travelers taking advantage of the price transparency provided by the Internet.

As a result, the low-cost carriers have performed very well. Even with today’s high oil prices, some are earning profits. And they are expanding into cities that had long been the solid preserve of the legacy carriers. We anticipate continued strong growth among these low-cost carriers. We see them adding seventy-five airplanes a year – the equivalent of a new Air Tran or a Jet Blue.

Even more significant is the growth occurring among regional and commuter carriers, which have added one thousand jets since 2000. And we are projecting that they will add another 621 jets over the next three years.

For their part, the legacy carriers have made heroic efforts to get their costs down to levels where they can be profitable in this new revenue environment.

Some look at what is happening in the industry and sound the trumpet for re-regulation. That would, in my opinion, be a serious mistake, and not something that President Bush is going to consider.

Deregulation has delivered a dynamic industry, where consumers are driving change. Airline customers have more options, at lower fares, based on more timely information, than ever before – and our economy is better off as a result.

That is one reason why we are working so aggressively to eliminate unnecessary barriers to competition in international markets.

Next month, I will be going to India to sign a new Open Skies Agreement. This follows on the heels of the landmark aviation agreement that I signed with China last year, which will provide a five-fold increase in service over a six-year period.

In fact, in the last year alone, the Bush Administration has concluded new, liberalized bilateral aviation agreements that connect more than 46 percent of the world’s population.

Opening international markets translates into expanded opportunities for our network carriers, which continue to operate profitably on overseas routes.

This is an adjustment period for our airlines, and I am encouraged by the manner, in the overwhelming majority of situations, management and employees are working together to adapt to the change in paradigm.

This process is not over. But just when it seemed that it might be safe to turn off those “Fasten Seat Belt” signs, the airline industry hit a new pocket of turbulence.

Sustained high oil prices – a factor that we did not foresee last year – have pressured the bottom line across the industry.

Record jet fuel costs increased the airlines’ operating costs by $3.4 billion in 2004. Now, to appreciate the significance, consider that this one factor alone accounts for almost 75 percent of the red ink on the carriers’ balance sheets in 2004.

Unfortunately, my Secretary of Transportation “tool kit” does not include a magic wand that I can wave to bring the price of oil back down below 40 or even 50 dollars a barrel.

But we can, and we are, doing things at the Federal Aviation Administration that will help airlines weather the storm.

Our investments in technology and infrastructure allow air traffic controllers to get airplanes in and out of airports more efficiently. Less time spent circling the airport or waiting on the ground for clearance to take off all adds up to less wasted fuel.

Earlier this year, we announced a reduction in the vertical separation distance required between aircraft. One result will be more fuel-efficient routes that will save the airlines billions over the next decade.

And this week, the FAA published a final rule which will make it quicker and easier for airports to fund critical infrastructure projects by streamlining passenger facility charge (PFC) application procedures. As part of the rule, we are initiating a pilot program for non-hub airports that significantly cuts back both the paperwork and processing time, saving millions of dollars and helping airports get improvements in place faster.

We are working hard to tame the regulatory burden that affects the airlines’ bottom line. President Bush has made reducing unnecessary costs associated with federal regulations a priority. In keeping with the President’s goal, I have directed our General Counsel, Jeff Rosen, to conduct a far-reaching review of the Department’s regulations.

This could mean simplifying regulations – or even eliminating those that are no longer necessary – to come up with the least costly, most effective way of carrying out our responsibilities.

There’s a pretty good example out there of how a new regulatory approach helped achieve positive results, and that is aviation safety.

Many of you will recall the work of the National Civil Aviation Review Commission (NCARC), which I had the privilege of chairing.

The commission called for a move away from the traditional regulatory relationship between government and industry and its emphasis on simple enforcement. By working together to put these recommendations into practice, we have added new risk management tools and succeeded in driving down an accident rate that had been stubbornly stable for 25 years.

Today, the commercial accident rate in the United States is less than one for every 6.7 million departures – the lowest that it has ever been.

And thanks to Marion, COO Russ Chew, CFO Ramesh Punwani, and the new Management Advisory Council (MAC), we have come a long way toward the NCARC goal of transforming the FAA into a performance-based organization.

Where we have not made much progress, frankly, is in the NCARC recommendations on financing.

Back in 1997, we concluded that the FAA needed a funding stream that is more sustainable and more predictable, and suggested separating it from the appropriations process.

Today, I believe more than ever that the time has come to take those recommendations off the table and get to work on them.

Why now?

First, another FAA authorization is looking us in the face. It may seem like only yesterday that the President put his signature on Vision 100--Century of Aviation Reauthorization Act. But that act expires at the end of fiscal year 2007 – little more than two years away.

If that seems like a long time, let me put it in perspective. Almost 22 months have passed since we sent the Administration’s SAFETEA legislation to the Hill and we still do not have a long-term surface reauthorization.

So it is none too early to start thinking about the big issues that we are going to need to tackle. And one of those is the Aviation Trust Fund.

In part, it goes back to the paradigm shift in the industry. One effect of competition, price transparency, and the advent of low-cost carriers is that passengers are paying less for tickets.

And while that is good for consumers, it has an adverse impact on revenues going into the Aviation Trust Fund.

Another major consideration is the nature of the investments that we need to make in the years ahead.

We already have a process underway, through the Joint Planning and Development Office, to envision what the Next Generation Air Transportation System will look like.

As we move toward a more technology-driven aviation system, we are going to require sustained, multi-year investments to finance those parts that are the government’s responsibility.

So we need to start thinking creatively about long-term options for financing infrastructure and other capital improvements.

There are a variety of ideas out there – good ideas – and I am issuing a call to open the dialogue today on the financing of the aviation system of tomorrow.

This is the time to begin to identify funding issues and to develop options for when we begin drafting legislation.

Let me just conclude by thanking you all in advance for being part of this effort. Travel safely. May God bless you, and may God continue to bless the United States of America.

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