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Wings Club Speech - Speech by Thomas J. Donohue

Tuesday, April 26, 2005 - 8:00pm

Wing's Club
Remarks by Thomas J. Donohue
President and CEO, U.S. Chamber of Commerce

New York, New York
April 27, 2005

Thank you very much, Allan.

It's great to be back in New York. The Chamber does a few events and has lots of members here, and of course, New York is a global business center.

That's why the Chamber recently opened a New York office, adding to our presence in several of the world's most important commercial and policy centers, including Brussels, Berlin, and China.

You might be wondering why I am here. That's a good question, and I have a good answer.

I am here because the Chamber's fundamental mission is to promote the competitiveness and success of American businesses.

That's why legal reform has been at the top of our agenda … that is why we are standing up to the SEC and other overreaching state and federal entities that are burdening our capital markets and making it harder for honest businesses to compete in the world economy … it's why we're committing resources to stem the flood of counterfeit goods and to protect intellectual property … that's why we lobby so aggressively for a more sane tax code and regulatory system.

It also explains why we have made the success of the commercial aviation industry a priority.

Few industries so greatly contribute to America's global competitiveness, economic vitality, and standard of living. We recognize that at the Chamber.

And, quite frankly, I am here today because when it comes to commercial aviation, the hour is growing late, and we must act soon … or suffer devastating consequences.

Imagine it's the year 2010, and imagine what a typical week in your industry could be like …

On Monday, it's reported that two jets bound for LAX had to be diverted to Las Vegas because of overcrowding in Los Angeles. On that same day, travelers on a plane at LaGuardia are incensed over having to sit three hours on the tarmac for a gate to open up.

On Tuesday, the FAA announces restrictions on the number of flights at the Miami, Atlanta, and San Francisco airports, which come on top of restrictions already in place at O'Hare and La Guardia.

On Wednesday, the Senate Commerce, Science, and Transportation Committee begins hearings on re-regulating the airline business.

On Thursday, in an effort to alleviate massive congestion, one airline implements a new peak-time pricing strategy, with others almost guaranteed to follow, with no one really knowing what the consequences will be for volume and profitability.

On Friday, Wall Street reacts to the week's events, sending airline stocks plummeting – shareholders are up in arms.

Now, this might be a bit of an exaggeration – or maybe too close to today's reality for your comfort! – but it's the kind of future we will face if we do not rally behind a common agenda to set commercial aviation on the right course.

Our businesses, our economy, our global competitiveness, and our way of life cannot tolerate an outdated, underfunded, and overburdened aviation system.

We cannot allow the continued demise of an industry that accounts for $900 billion in U.S. economic activity, 10 million American jobs, and 9% of our gross domestic product.

From the time the Wright brothers lifted off the beach in Kitty Hawk, North Carolina—to last month, when an American guided the first solo, nonstop flight around the world without refueling—the United States has been a proud global leader in aviation.

Innovations such as overnight and same day delivery, affordable passenger air travel, satellite navigation systems and other technological advances were pioneered or advanced in the United States.
Millions of business transactions are made possible every day because of passenger carrier flights, air shipments, or general aviation.

E-commerce, the explosion in global trade, and fast-cycle logistics would not exist without a smooth functioning aviation system.

But after years of being on autopilot, our aviation system has reached a breaking point, and only a top-to-bottom transformation of the industry will set it right.

There are many tough questions to answer, decisions to make, and politics to wade through. If transforming aviation was as simple as passing a single piece of legislation, it would have already been done.

Our challenge is twofold: We must fix our aviation system—namely, an infrastructure that is outdated and at risk of falling apart—and we must fix the airline business, which is collapsing under the weight of excessive taxes and fees, inflexible labor costs, and excess capacity.

Let me start with our infrastructure needs. We must design an airport and air traffic management system with the capacity to safely and efficiently handle much greater volumes of traffic and cargo—now and in the future.

688 million passengers boarded planes in the United States last year, and we will reach 1 billion passengers before 2015. More than a dozen U.S. airports have already exceeded pre-9/11 traffic volumes.

In addition, the industry's move to smaller, regional jets is putting more strain on the system by requiring additional planes to move the same number of passengers.

Lack of ATC [air traffic control] capacity is not just a passenger airline issue. FedEx now flies as much during the day as it does at night, so express mail delivery is also affected by a decaying ATC infrastructure.

And let's not forget that our infrastructure needs include the people who operate the equipment and maintain the facilities. Some 11,000 air traffic controllers are going to retire over the next 10 years. We need to recruit, train, and bring onboard their replacements, or else it won't matter how good our equipment and facilities are.

An infrastructure designed for the future—instead of the one we have now—will improve productivity, make our aviation system safer, improve national security, and provide substantial environmental benefits.

Where the United States was once the world leader in ATC infrastructure, Europe, India, and China are now making tremendous advances and threatening our global leadership in this area. We have got to move forward more aggressively.

I can't imagine that any of you would disagree with what I just said. Everyone agrees that our infrastructure is in crisis mode and in need of fixing—now, not 10, fifteen, or 20 years from now.

But nobody agrees on how to pay for it—something we face every day in Washington. But I do think we all agree on this much—the current financing mechanisms are insufficient to meet current and future demand.

All the options for creating larger revenue streams must be put on the table. For starters, we have to do a better job of ensuring that the aviation trust fund is used only for its original purpose—to pay for infrastructure improvements and not for operations or other purposes.

If the funds were used for this purpose, there would be more than enough money for modernizing the system.

In addition, we should be thinking about long-term funding mechanisms independent of the annual congressional appropriations process.

Bonding and other financing tools will make long-term investments possible. We won't be able to create the system we need when we need it if we wait for the year-by-year delivery of Congressional funds.

All collected revenues—existing and future—must go where they are needed most. With greater FAA flexibility in determining technology priorities and points of service based on need—and with fewer congressional mandates—we could get far more out of our aviation dollars.

Finally, with regard to revenues, we must reallocate airline taxes, fees, and regulations so they become a responsibility shared among many.

U.S. passenger airlines this year will collect $15 billion—or 20% of total passenger dollars—in taxes.

In 1972, taxes accounted for 7% of the average price of a ticket. This year, the average is 26%. A big chunk of this increase is due to enhanced security post-9/11.

No one is arguing against improved security, and no one is asking to be relieved of paying their fair share of the cost.

But increased airport and airline security is a matter of national security and should be treated as such. The airlines and their passengers should not have to shoulder the entire financial burden of protecting our homeland. That responsibility should be spread out among all taxpayers.

Let me now briefly turn to the business side of the equation. The marketplace needs to look a lot different than it does today if the airline industry is to return to financial health.

Quite simply, the market is overcrowded—in part because natural attrition through competition is not allowed to occur.

As I speak, there are 18 new market entrants awaiting certification—and there are no airlines leaving the market, though as we know, some are in no condition to remain operating by themselves.

The industry needs consolidation. It happens in insurance, computers, manufacturing, and just about every other industry, but it doesn't happen in the airline industry.

It's nearly impossible for an airline to go out of business, and sometimes it can be equally as difficult to get the government to approve a major merger or acquisition.

The airline industry must sort through its own problems, and government must not stand in the way.

To achieve the major objectives I've laid out, two very important things have to happen.

First, we must work to ensure that the public and policymakers understand just how important commercial aviation is to our economy and our way of life and educate them on the tremendous challenges facing this industry. To solve a problem, you have to convince people there is one.

Doug Parker of America West made an interesting point at the Chamber's aviation conference in Washington last week.

He said that a Senate leader told him that Congress is suffering from "airline fatigue." They are tired of the industry telling them about the airline crisis, this senator said. And that conversation took place four years ago!

Congress needs to hear from the broader business community that, yes, the airline industry is in crisis, that yes, the crisis is coming to a head, and that yes, it is having a major impact on our entire economy.

The Chamber is sounding the alarm by holding aviation and travel and tourism summits, generating grassroots activism, educating the media, and lobbying policymakers.

Some 500 local chambers and businesses have joined our grassroots initiative, and we intend to double that figure in the coming months.

Carol Hallet, former head of the Air Transport Association and former president of this fine club, is leading the Chamber's aviation initiative, among other things. We're extremely fortunate to have someone with Carol's experience and knowledge of these issues.

Second, the aviation industry must come together behind a common aviation agenda so that the broader business community can rally behind it and push it through.

Turf battles and industry arguments over cost sharing don't serve our purposes well.

If there's one thing we know to be , it's that Washington policymakers don't take major issues such as aviation transformation seriously when the business community can't even agree on them.

The Chamber, with members from every sector of the aviation industry, is in a spot where it can help facilitate consensus and present to policymakers an agreed upon prescription for change.

Ladies and gentlemen, I began my remarks with a doomsday scenario a few years down the road. I'd like to conclude with an alternate scenario…

Passengers are able to get through airport security lines in a fraction of the time it takes today. The United States is once again a popular international destination because of the ease of traveling here.

Passengers have more choices of flights because improved runways, airports and new superhighways in the sky managed by a state-of-the-art ATC system will be able to accommodate significantly greater traffic than is possible today.

With fewer delays and congestion, our businesses and economy are more efficient and productive. Safety records are even better than today.

And the United States has solidified its status as the world's leader in aviation.

This is the kind of aviation system we need to be working toward—not in 20 years, but now.

We won't get there with incremental change at the fringes or policies that seek to restrict service and control demand.

Nothing less than total transformation of the aviation industry is necessary to keep it vibrant and competitive. I look forward to working with you to meet this challenge.

Thank you very much.