Speech

Good morning, and thank you for that introduction, Sharon. It’s a pleasure to be here. Right off the bat, I’d like to recognize the blood, sweat, and tears behind this conference. For 25 years, Bob Bowles has been a driver behind our forecasts. He’s going to retire, taking a well-deserved step toward the good life. Bob, thanks and best of luck. You know what they say, “Who knows what tomorrow may bring?” But, Bob, since that’s what you’ve been doing for 30 years, I guess you probably know.

These are some exciting but challenging times for our business. The trick, I think, is not to look only at where we are, but to keep looking at the horizon. You do need to have an accurate picture of where you stand, you just can’t afford to be myopic. Runners who keep their heads down tend to trip over their own feet. And now that I think about it, I can still hear my father saying, “Look down the road or you’re going to over-steer the car.” He was right.

The fact of the matter is that we’re being flooded with new information … new ideas … new ways of taking the Wright idea a little bit higher and a little bit faster. Makes you wonder if signs that say, “Leaving Earth’s atmosphere. Thank you for visiting,” are that far off.

We’ve got micro-jets and UAVs in the offing. You know, there’s a company out West headed by Elon Musk, the man who brought us PayPal. His goal is to make space travel fast, reliable and cheap. That’s a company called SpaceX, and their aim is to launch at “one-tenth the price.”

That’s the type of information that tells us that the FAA must clearly change … evolve ….

So where are we? In total, commercial operations at our major airports are within 2 percent of pre-9/11 levels. In 2004, 17 out of the 35 major airports … the OEP airports … are above pre-9/11 numbers. The demand for seats is back. We predicted it last year, and we were right.

But as I alluded to a moment ago, the scene doesn’t look like it did in the good old days. Low cost carriers are lifting a heavy load. Domestic enplanements for low cost carriers and the regionals are up 40 percent since the turn of the century. These groups have a 43 percent share of the market, which is up from 30 percent five years ago.

As you heard this morning, the legacy carriers are still having a difficult time … but they still provide a service that is unique and, in fact, ubiquitous. While the low cost and regional carriers have carved out a niche for themselves … and a lucrative slice of the pie at that … the legacy carriers still have an overwhelming majority of route offerings that will get you from here to there … and the here and there are just about anywhere around the globe. The market wants a full menu of choices, and that’s what the legacy carriers provide. Legacy carriers still have 57 percent of the market and nearly 100 percent of the international market.

That’s just one of the reasons why we’re confident that we’re on track for one billion passengers by 2015. But the landscape is changing. The lower ticket prices and this shift to smaller jets have been a boon for the flying public. The average one-way domestic fare is down 9 percent since 2000.

Coupled with the increase in regional carriers, this has had a dramatic effect on the FAA as well. Just yesterday, I spoke at the Wings Club in New York about a business challenge that’s facing this agency. In a nutshell, we need to obtain a consistent funding stream that’s tied to our actual workload. Because, I think it’s clear to all of us that as the aviation industry goes … so goes the FAA. And vice versa as well.

First, some context. At its core, the FAA is a lot like most of you and the airlines we regulate and serve. We’re an entity that needs to be a bottom-line business in order to survive. We’re improving our fiscal accountability and operating more like a business. We run the air traffic system – 688 million passengers last year – and the yardstick for safety that’s set very high … which is as it should be. Our system is riding a three-year wave as the safest in aviation history, and we intend to continue to improve that record. You depend on us, and you have a right to. We share something else as well … a revenue system that hinges largely on ticket prices … that drives revenue for both of us.

The ticket taxes go to the Aviation Trust Fund, which was created in 1970 – before deregulation – and was put in place to provide a dedicated source of funding for the aviation system … one that was independent of the general fund. That Trust Fund is now in jeopardy.

Since 9/11, there’s been massive changes in the industry. Low cost carriers, RJs, more demand for aviation.

The numbers for regionals are hot. And by the way, the shorter runways that once catered to turboprops no longer can do the job.

On the back of an envelope, it’s easy to see that the larger number of the regional jets means less revenue for the trust fund from each flight … it also means a greater workload for the FAA. This is further compounded by the expansion of low-cost carriers and decreasing ticket prices.

Traffic has come back since 9/11 … but in a way that’s quite different than before. We have explosive growth at some of the major markets – like Midway and Vegas. But consider Salt Lake – 42 percent growth – and Fort Lauderdale – 40 percent. Florida is a case all its own. We’re seeing more low cost carrier flights, competition from large carriers, and an increase in air taxis and biz jets. From a national picture, the en route workload already has increased beyond historical levels. Busy corridors lead to bottlenecks … which spawn delays.

Then there’s new entrant carriers to consider. They’re certainly great for competition and keep ticket prices extremely low, but there’s a cost to the agency for processing each one. Right now, there are 18 applications in the queue awaiting certification … and each of these new operators will bring additional pilots and crew into the system.

Our workload goes up … our revenue goes down. And the Trust Fund continues to spend down. The Trust Fund cannot sustain this trend for much longer. And when you couple the declining average ticket price, it intensifies the situation. As I’ve said, the Trust Fund pays the way for most of the operation of the system.

So the problem that presents itself to us is that ticket prices are not related to any real measure of productivity for the FAA. Regardless of how many operations we run through the national airspace system … or how quickly we can certify new products and technologies … or how we continue to drive down the already low accident rate … the lion’s share of trust fund receipts is linked to the price of a ticket.

And just like you, the FAA’s been forced to become more productive … and we’re doing so all across the board. As many of you know, Congress granted us the ability to negotiate pay and benefits in 1996. Negotiations with our major unions are upcoming. Our new contracts must enable us to meet aviation’s needs, be fair to employees, and provide the flexibility that we need to operate the system. But allow me to underscore what I’ve said before: we won’t sign a contract we can’t afford. It’s that simple.

Labor’s not the only place we’re trying to become more productive. We’re implementing a cost accounting structure that’s telling us exactly what it costs to perform and accomplish X, Y and Z. It’s hard to believe, but for far too long, the government has operated with the idea that public service doesn’t have a bottom line. With tight budgets now, we simply have got to know our costs. We can’t put a priority on something when we don’t know if we can afford it … and we can’t know the answer to that until we know what it costs.

You know, it’s clear that we can’t do business as usual. We need to make some fundamental changes. We need a revenue stream based both on our costs and on our actual units of production. And we need the right incentives in place to remain efficient. Most other countries operate their systems this way, but it’s easier for me to give you this list: Bahamas, Barbados, Brunei, Guinea-Bissau, Kiribati, Kuwait, Namibia, Samoa, Sao Tome & Principe, Swaziland, Togo, Tonga, Tuvalu … and the United States. That list represents the only countries that do not charge for the actual cost of ATC services.

I need to be clear here. I’m not at this point advocating user fees. I’m not endorsing excise taxes … or a greater slice of the general fund. I’m not pushing … or even pulling. I’m simply saying that we need a revenue stream based both on our costs and on our actual units of production.

To be sure, there are some tough decisions. There’s a list of unattractive alternatives too… which we may not be able to avoid if things continue. Cutting service is one. That list would include the inspection, the certification and the air traffic control services. We also might end up keeping old equipment and/or limiting modernization. The fact of the matter is that next year, only 13 percent of our budget will be available for new capabilities. That’s 5 percent less than this year, and more than 10 percent lower than the turn of the century. In the past, we’ve developed programs that we aimed at meeting demand. This is where the hard choices come. We can’t do it all … and we certainly can’t pay for it all, either.

With that said, I’m confident that we’ll see this through. If there’s one thing this business is known for, it’s resiliency … the very resiliency that’s brought us from the Wright Brothers to the SpaceShipOne in less than a century. Today’s forecast anticipates a bright future … and the FAA remains committed to safe, efficient service to the flying public. We’re also committed to being an investment that the taxpayer can count on. Thank you.