problem you have, and everyone else has, is that we haven't taken the access that was available to us; that we delayed too long. I know from my own experience that price mechanism will make a tremendous difference. I was in the heating and fuel business and know that when the price of propane gas started advancing people stopped heating their swimming pools and other services. I just am doubtful that we can utilize any other way as advantageously as we can the price mechanism. I know it's going to work a hardship on some and I know we must realize that we're going to have to pay a higher price for energy, but I hope we can make adjustments that are necessary to serve the public properly. If we get away from price mechanism to bring on a greater supply of fuel, I think we're in real deep trouble. Thank you very much. Senator JOHNSTON. Thank you very much. The CHAIRMAN. I want to express my appreciation for what I think was an excellent and professional presentation. I think that the figures, the analysis, were absolutely first rate. It's that kind of testimony that I think makes for a tremendous record and your responses to questions are likewise helpful. Mr. IGNATIUS. I'll pass that on to my staff. Thank you. The CHAIRMAN. I hope your affiliates will also read it. It's first class. [The prepared statement and subsequent material supplied by Mr. Ignatius follows:] STATEMENT OF PAUL R. IGNATIUS, PRESIDENT, AIR TRANSPORT ASSOCIATION Mr. Chairman and members of the committee: My name is Paul R. Ignatius. I am President of the Air Transport Association which represents virtually all of the scheduled airlines of the United States. The airlines now account for more than 75% of all the intercity passenger miles provided by public transportation in this country, carry most of the first-class mail and thousands of tons of freight. To accomplish this, they use only about 4% of the petroleum consumed nationally. I appreciate this opportunity to appear before the Senate Interior and Insular Affairs Committee to discuss the Administration's energy proposals, with particular emphasis on their impact on the airlines. The concern this Committee has shown for energy matters over an extended period of time and its continuing effort to insure that complex questions are resolved in a manner broadly serving the national interest are commendable. Also commendable, I believe, are many features of the Administration's program. The airlines strongly endorse the following elements of the Administration's program: Increased public education on energy conservation; Activation and development of naval petroleum reserves; Development of a strategic petroleum storage system; Establishment of thermal efficiency standards for new buildings; Tax credits for home insulation; Expanded research and development of alternative energy sources; and Continued petroleum product price controls, including incentives to allocate a greater share of costs to gasoline as a conservation measure. We disagree, however, with the Administration's plan to impose new taxes on crude oil and to decontrol domestic oil prices. Our objection arises from the adverse impact these proposals would have on the airlines and other common carriers and because we believe they would add to the twin problems of inflation and recession that affect the U.S. economy. On December 9, 1974, at a hearing before a panel of Cabinet officers chaired by Secretary of Commerce Dent, I made the following comments on behalf of the airlines: 48-736-75- 10 As noted in the "project Independence" Report, near-term achievement of our energy goals can be attained only on the demand side of the energy equationconservation, and in the transportation sector, any appreciable savings are likely to come only from improved auto efficiency and shifts from the private auto to public transportation. Public transport modes, including the airlines, must be assured adequate supplies of fuel at reasonable prices. In this connection, we believe that for the present at least, existing price controls on domestic crude oil should be retained and that consideration be given to their extension to areas of domestic crude production not now under price control. If the government believes that economic methods, such as taxes, are needed to trigger a shift from private to public transportation, it is important that the methods be in consonance with the objective. Thus, a tax on fuel used in public transportation would be inconsistent with the objective, and in addition force inflationary price increases on users of public transportation. A month later, on January 9, 1975, at a press conference in Washington, I responded to a question on crude oil taxes that the press thought likely to be included in the Administration's program. I stated: The principal purpose presumably is to reduce consumption of petroleum. I don't think anybody whether he is an individual or a representative of a company or industry can do anything other than support efforts to reduce consumption. We clearly have to do it, and I think everyone who has studied the situation has concluded that. At the same time I am hopeful that whatever programs are proposed and adopted designed to reduce consumption of fuel at the same time don't add to the inflationary pressures that are already present, or worsen the economic situation that is already present. And in that regard, I would be concerned if public transportation found it necessary to pass through in the form of substantially higher fares the amount of a new tax on petroleum. My reason is not difficult to explain. If the trucks and the trains and the busses and the airlines have to pass through this tax to the users of transportation, then the cost of everything will go up whether it is a loaf of bread or a pair of shoes or whatever. When the President announced his energy proposals in his State of the Union message on January 15, 1975, they contained the tariff and tax on imported and domestic crude oil, and the intention to decontrol the price of “old” oil on April 1, 1975. Knowing of the concern expressed by the airlines about these proposals, FEA Administrator Frank Zarb invited me to meet with him on January 18th. Mr. Zarb told me that he and other members of the Administration understood that the energy proposals might have a severe impact on the airlines, and that the Administration's plan to lessen the impact of higher fuel prices through a reduction in the corporate income tax rate from 48% to 42% would be of only limited value to the airlines. Without in any way suggesting at that time that the Administration was prepared to make any adjustment to lessen the program's impact on the airlines, Mr. Zarb nevertheless said he was anxious to obtain additional factual information in order to have a better understanding of the extent of the problem. We have had subsequent discussions with Mr. Zarb and his staff and other Administration representatives, and I wish to commend them for the interest they have shown. IMPACT ON THE AIRLINES Let me now review briefly the impact on the airlines of the Administration's energy proposals. We believe that the proposals could increase our annual fuel costs by about $1 billion, as follows: The $2/bbl. excise tax on domestic and imported crude would cost the carriers in their domestic operations about $400 million annually. Decontrol of the price of domestic crude would cost the carriers in domestic operations about $500 million annually. In addition to these costs, totaling some $900 million, there would be added costs of about $100 million due to the use of domestic fuel in international operations of U.S. carriers. It is important to note that increases of this magnitude-and the amount will vary from about $1 billion to about $900 million depending upon estimates of projected fuel consumption-would be on top of the overwhelming price increases for jet fuel already sustained by the airlines. During 1974 the price of jet fuel doubled for domestic airlines and tripled for U.S. international carriers, adding approximately $1 billion to airline costs. Sizable fare increases were requested and approached but the additional costs have still not been fully recovered. With air travel markets in a weakened condition as a result of the general economic downturn, the airlines understandably are reluctant to raise fares again in order to recover additional fuel costs. At the request of Administrator Zarb, the Air Transport Association's staff prepared estimates of the impact of the Adminstration's energy proposals under several different fare and capacity assumptions. These preliminary estimates are being reviewed by Administration officials. While the estimates are tentative in nature and do not necessarily represent what the aggregate of individual carrier decisions might actually be in dealing with the proposed fuel cost increases, they nevertheless reveal the general extent of the problem. The principal points emerging from the tentative analysis are these: The airlines face a difficult year in 1975 quite apart from the problem of the proposed fuel cost increase. The added costs of the Administration's energy proposals, amounting to approximately triple the total airline industry profits for 1974, could result in double-digit domestic fare increases as well as fewer flights, employee lay-offs, and forced grounding of valuable airline equipment—all in the face of a troubled national economy. If the domestic trunk airlines attempted to absorb these added costs without a fare increase at a load factor of 65% (as some Administration analysts have suggested), it is estimated that capacity would have to be reduced by 25%, thereby denying air transportation to a large number of communities and individuals requiring it. In addition, between 450 and 500 aircraft would have to be grounded and between 45,000 and 50,000 airline employees would have to be furloughed. The impact of these increased costs on the operations of local service, all-cargo, and U.S. international airlines would be similar and would significantly increase the adverse effect on the nation's air transportation system. If, on the other hand, the trunk lines attempted to deal with the problem by raising fares, the amount of the needed increase would depend upon the reduction in capacity that was tolerable from a public service standpoint. At a 15% fare increase, capacity would have to be cut by approximately 11%, aircraft grounded would total 250-275, and from 25,000-30,000 employees would have to be furloughed. Again, the effect on local service, all-cargo, and U.S. international airlines would magnify the problem. The analysis leads to an unmistakable conclusion: the effect of the fuel cost increases on the airlines and the public service would be devastating with or without a fare increase. There is no magic solution such as raising the load factor that will make the problem go away. Airline managements more than most people understand the importance of higher lond factors as a means of increasing profitability, but this approach is simply not a feasible way to deal with the problem of fuel cost increases of this magnitude. Accordingly, we have told Administration officials that some way must be found to cushion the impact of these enormous cost increases if we are to have a viable air transportation system. This could be accomplished by exempting the airlines and other common carriers from the proposed increases. Various methods could be employed to accomplish this purpose, such as timely rebates, or exclusion of jet fuel from the pass-through of increased costs stemming from the Administration's program. While adjustments of this type appear to us to be necessary within the framework of the Administration's proposals, the airlines continue to believe that the Administration and the Congress should adopt a different approach to the energy problem, one which, in the words of a New York Times editorial on January 31, 1975, avoids "the socially destructive consequences of dealing with the energy problem through reliance on indiscriminate price increases for essential and non-essential fuels alike." This leads me to the concluding comments of my statement. CONCLUSION The nation's scheduled airlines believe that the time has indeed come for serious action on energy policy and conservation strategy. That action should involve both the Executive and Legislatiive branches of government, as well as significant contributions from the private sector, and should proceed in an expeditious manner. The airlines strongly support conservation efforts which will insure the most productive use of our energy supplies. Airline management and employees have already instituted conservation programs which resulted in savings of about one billion gallons of jet fuel in 1974 while, at the same time, carrying about six million more passengers. Government has a significant role to play in such efforts by providing tax and economic incentives for elimination of wasteful consumption. At the same time, government policy must recognize that a satisfactory level of economic performance requires substantial energy consumption and that an unfocused and abrupt across-the-board slash in energy consumption can cut unnecessarily and severely into our economic muscle. Government policies which would impose substantial additional fuel costs on already hard-pressed industrial users, public utilities, and common carrier transportation would be inflationary and could add to the recession. Moreover, such measures fail to deal with the central problem of limiting consumption of gasoline. The airlines support limitations on the consumption of gasoline and believe that consideration should be given to measures designed to achieve this purpose. For example, in an editorial on February 3, 1975, arguing for a tax on gasoline rather than an all oil products, the New York Times pointed out that while gasoline prices had gone up about 37%, "far higher percentage increases hit other fuel prices: diesel fuel went up 49%, home heating oil 66%, aviation fuel 100%, and residual fuel oil, used in industry and electric utilities, a staggering 143%." The airlines certainly recognize that sound government policy also requires adequate incentives for exploration and development of our domestic energy resources. They know that cheap oil is a relic of the past and that a more reasonable long-term price for petroleum is required by the changing world balance of supply and demand. However, the airlines believe that if the OPEC cartel price is embraced by the United States, it could accelerate inflation, prolong the recession, and unduly injure energy-dependent industries. I appreciate this opportunity to state our views. We are hopeful that Congress and the Administration together will develop a program that will provide the necessary conservation of energy without adding to the nation's severe economic problems. I will be pleased now, Mr. Chairman, to respond to any questions that you and the members of the Committee may wish to raise. AIR TRANSPORT ASSOCIATION OF AMERICA, Hon. HENRY M. JACKSON, FUEL CONSERVATION DURING GROUND OPERATIONS The airlines have long been aware of the high fuel consumption during taxiing and idling and have attempted over a number of years to minimize this inefficient use of fuel. These efforts were intensified late in 1972 when airline management foresaw the coming of a serious energy problem. Now, all airlines have conservation programs which emphasize, among other things, maximum fuel economy in ground operations. These efforts have received added emphasis because of environmental considerations. Needless to say, excessive taxiing and idling operations occur where there are high density operations or air traffic control delays. Generally these are concentrated at O'Hare, Atlanta, LaGuardia, Los Angeles, Miami, San Francisco, Denver and Washington, D.C. Assuming no delay, and depending on the relative locations of the gates and runways in use, the taxi time at these airports varies roughly from four to eight minutes. However, in the course of an average day airliners spend considerably more time than this moving between gates and runways. We therefore assume that if we can minimize taxiing and idling at these airports, we will be eliminating a major portion of the problem. Working jointly with FAA, we have made good progress toward this objective. Procedures have been established in which aircraft are held at the gate with engines stopped whenever it has been determined that departure delays exceed, or are anticipated to exceed, five minutes. Gate hold procedures are in effect for all of the above airports except O'Hare and LaGuardia where these procedures are not feasible because of incoming traffic needing the gates. At these airports holding areas away from the gates have been established. In addition, gate hold procedures have been disseminated by the FAA to all airports and are available for use whenever FAA or the airlines consider that they should be applied. Finally, it is customary for three and four engine aircraft to taxi in (after landing) on two engines. Based on actual tests we have found that directional control problems make it inadvisable to attempt engine-out taxiing with the smaller aircraft. With these efforts we have been successful in eliminating a very considerable part of the unnecessary burning of fuel during ground operations. It is our estimate that of the more than 1 billion gallons of jet fuel conserved during the past year, about 53 million gallons were saved because of the measures I have described above. While we are pleased with these results, we recognize that much remains to be done. Frequently ground delays result unexpectedly from airborne ATC problems, labor problems, airport construction, or sudden changes in wind or weather. We are working closely with FAA in an effort to solve these problems. FUEL EXPENDED PER PASSENGER MILE I was also asked about fuel expended per passenger mile. The Civil Aeronautics Board maintains data of this type and I am attaching a table developed from the most recent available report (first three quarters, Calendar Year 1974). I am also attaching a table setting out fuel consumption in gallons per airplane mile in selected stage lengths. TECHNOLOGY ADVANCES As for the possibility of fuel saving advances in engine technology, we have been in close touch with both NASA and the engine manufacturers. From these contacts we conclude that any significant improvement must await a new generation of powerplants which is a good ten years away. DISCRIMINATION IN FOREIGN FUEL PURCHASES This question is difficult to answer because many discriminatory practices in foreign countries are hard to track down. It is reported, however, that one country, for example, offers a 10¢/gallon discount to its national carriers and that this situation is generally well known throughout the industry. The State Department is aware of it, and has been working on it for most of 1974 without success. A slightly different situation exists in another country. There it is not a problem of price discrimination, but supply discrimination. The particular country is short of jet fuel, resists importing, and chooses to supply only its national carriers if there is not enough for everyone. For the information of the Committee I am enclosing a portion of the latest report of the Civil Aeronautics Board on fuel prices. The higher prices paid by the international carriers reflect the higher prices which prevail outside the United States. ENCOURAGEMENT OF DOMESTIC PRODUCTION AND DEVELOPMENT OF ALTERNATE ENERGY SOURCES The question of the levels of petroleum prices necessary to encourage domestic production and development of alternate energy sources is necessarily complex and involves many interdependent variables. With respect to "new" oil, there is, of course, no price control. This was done for the purpose of stimulating new production. An added incentive is that for each barrel of "new" oil produced, a barrel of "old" oil is released from prices control. Accordingly, there is a double incentive to increase the production of "new" oil. Some economists have pointed out that a deterrent to domestic crude oil production may arise from the belief that the price for domestic crude oil may rise to even higher levels in the future. To the extent that this view may be held by domestic oil producers, it may tend to inhibit increased production. Another factor that may affect the present ratio between domestic and foreign crude oil may be the desire on the part of major integrated oil companies to utilize their ever-diminishing supplies of so-called "equity" crude, especially in the current market which is characterized by weakened demand. |