1. The Case for a U.S. National Airline Policy
February 22, 2013

2. Executive Summary
A Vibrant U.S. Airline Industry Is Critical to U.S. Economic Growth and Global Competitiveness
» Due to its geography and widespread established population centers, the U.S. economy depends
on air transportation more than many other national economies
» The U.S. airline industry is the physical Internet of the U.S. economy – connecting domestic
markets of all sizes and regions with each other and with rapidly growing global markets
» The ability of the U.S. airline industry to drive U.S. economic growth, employment and exports, and
to preserve and grow air service in non-hub communities, has been undermined by an
uncoordinated patchwork of counterproductive public policies, or lack thereof
» In contrast to the United States, many other countries have recognized and embraced their airline
industries as strategic assets that enable domestic and international economic expansion
» Foreign airlines are growing at a significant rate, reinvesting earnings in their product and
expanding their global presence to the detriment of U.S. airlines, with troubling implications for the
entire U.S. economy
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3. Executive Summary
A Strong National Airline Policy Will Drive U.S. Economic Growth and Create More High-Paying Jobs
» Without a cohesive policy supporting the integral role of the U.S. airline industry in our economy, U.S.
global economic leadership and competitive advantage will suffer
» Similarly, domestic air-service levels will suffer, since it is the U.S. airlines, not foreign carriers, that
serve U.S. markets, connecting smaller cities and rural communities with our international gateways
» U.S. policymakers could leverage the recommendations of multiple federal commissions, including
those of the Future of Aviation Advisory Committee (FAAC), regarding global competitiveness,
taxation/regulation, infrastructure and energy
» There is clear precedent for federal policy action - in the 1970s, U.S. policymakers helped revitalize
our freight rail industry, which is now the envy of the world
» There also is precedent for inaction, as seen in the demise of the U.S. maritime industry
» A strong national airline policy would restore and enhance U.S. airline industry viability and enable it
to increase air service across the nation, boost economic growth, expand exports and create more
high-paying U.S. jobs
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4. Why Is a Comprehensive Airline Policy in the National Interest?
The U.S. Airline Industry Is a Critical Enabler of Commerce
1990 2000 2011
Moves People
465.6M 666.1M 730.8M
Passengers Enplaned
Exports Air-Travel Services $15.3B $20.2B $36.7B
Moves Goods
16.4B 30.9B 37.0B
Cargo Revenue Ton Miles
$110.5B $284.4B $423.6B
Exports High-Value Merchandise
@ $72 per kg @ $101 per kg @ $117 per kg
Sources: Bureau of Transportation Statistics T1, Bureau of Economic Analysis, Census Bureau
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5. Why Is a Comprehensive Airline Policy in the National Interest?
Commercial Aviation Is a Key Direct Contributor to the U.S. Economy
Direct U.S. GDP contribution of example, selected industries (2009) GDP contribution ($B)
Oil and gas extraction $142
Farms $104
Commercial Aviation $87
Motor vehicles manufacturing $78
Motion picture and sound recording $60
Plastics and rubber products $57
Aircraft and engine manufacturers $37
Spectator sports $33
Gambling $33
Rail transportation $31
Furniture $24
Note: Not intended to be a comprehensive ranking, example industries only to give a point of comparison; aviation-related data extrapolated from FAA economic impact report; aircraft and
engine manufacturers include Boeing, GE, Pratt, Honeywell, Collins, etc.
Sources: BEA industry accounts; gambling and spectator sports from BEA Travel & Tourism satellite account data; FAA Air Traffic Organization, ―The Economic Impact of Civil Aviation on
the U.S. Economy‖ (Dec. 2009); BCG analysis
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6. Why Is a Comprehensive Airline Policy in the National Interest?
The U.S. Airline Industry Is a Major Source of High-Quality, Middle-Class American Jobs
Average wages, 2011: employees of U.S. scheduled
passenger airlines vs. private industry, all occupations
Employees of U.S.
$63k passenger airlines
earn 40% more than
$45k
the average private
industry U.S. worker
age Annual Base Pay,U.S. Avg Annual Base Pay, private industry, all occupations
U.S. Passenger Airlines
*Sources: Bureau of Labor Statistics Occupational earnings tables: United States, December 2009 – January 2011, Table 4; A4A U.S. Passenger Airline Cost Index
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7. Why Is a Comprehensive Airline Policy in the National Interest?
Unlike Foreign Airlines, U.S. Airlines Connect Small- and Medium-sized Communities to the World
» The network of U.S. communities served by U.S. airlines never will be replicated by foreign airlines
» The connectivity between large U.S. cities and the global economy is inextricably linked to the
connectivity between those cities and smaller U.S. communities provided by U.S. airlines
All Scheduled Passenger Air Service International Gateways Only
» Unlike foreign carriers, U.S. airlines serve small, rural and other non-hub cities and communities
throughout the country
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8. Why Is a Comprehensive Airline Policy in the National Interest?
Unlike U.S. Airlines, Foreign Airlines Were Profitable in Most Recent Decade
Aggregate airline industry net income, 2001 to 2010
$18.1 billion
$5.7 billion
($31 million)
($54.4 billion)
USA Europe Asia-Pacific Middle East
Sources: DOT Form 41 for all reporting U.S. passenger and cargo airlines; IATA
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9. Why Is a Comprehensive Airline Policy in the National Interest?
Recent U.S. Passenger Airline Industry Profits Are Less Than $1 Per Passenger
Net Income as % of Revenue Net Income per Enplanement
1.0 $2
0.4 0.2 $0.77 $0.50
0.0 $0
(1.0)
($2)
(2.0)
($4)
(3.0)
($6)
(4.0)
(5.0) ($8)
(6.0) (5.4) ($10) ($9.22)
2001-2010 2011 YTD 3Q12 2001-2010 2011 YTD 3Q12
Sources: For 2001-2011, A4A analysis of DOT Form 41 data reported by U.S. airlines for which passenger revenue constitutes at least 25 percent of operating revenues; for 2012, A4A
analysis of earnings reports of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and US Airways
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10. Why Is a Comprehensive Airline Policy in the National Interest?
When U.S. Passenger Airlines Lose Money, They Have No Choice But To Lower Costs by Reducing Service
or Cutting U.S. Jobs
» Reduced U.S. passenger airline industry earnings results in reduced air service, fewer U.S. jobs, delayed
fleet renewal, reduced in-flight service options, and, for some airlines, bankruptcies
Full-Time Equivalent Employees Scheduled Daily Domestic Flights
Pre-9/11 to post-recession through to present Down Sharply from Jan. 2001 to present
536.4k
29.8k
21.7k
381.6k
376.2k
Aug-2001 Apr-2010 Present 2001 Present
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11. The Five Core Components of a U.S. National Airline Policy
To Enhance the Economic Viability and Global Competitiveness of the U.S. Airline Industry,
Grow Our Economy and Create U.S. Jobs
Rationalize Tax Burden
Rationalize Regulatory Burden
Enhance Global Competitiveness
Modernize and Reform Infrastructure
Mitigate Jet-Fuel Cost and Price Volatility
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12. Rationalize Tax Burden
Airlines and Their Customers Paid Nearly $19 Billion in Federal Taxes and Fees in 2012
FY2012 Collections ($Millions) from Airlines/Customers
$492 $390 $18,847
$2,729
$8,711
DHS = $3.76B
$496
$648 $360
$1,873 $385
$2,777
FAA = $12.32B
* Federally levied/approved commercial aviation taxes/fees only; some taxes/fees shown include collections from non-U.S. carriers
Sources: Department of Homeland Security, FAA, Office of Management Budget, Transportation Security Administration, A4A
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13. Rationalize Tax Burden
Federal Taxes on a $300 One-Stop Domestic Round Trip* Ticket Now Exceed $60
1972 Taxes 1992 Taxes 2013 Taxes
7% ($22)* 13% ($38)* 20% ($61)*
* Sample itinerary assumes one-stop domestic round trip with maximum passenger facility charge (PFC) per airport; total ticket price includes taxes
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14. Rationalize Tax Burden
Air Travel is Taxed Higher Than Other Transportation Sectors and “Sin” Products
Air travel is taxed higher than other transportation sectors... …and higher than many so-called "sin" products that are
taxed to discourage use
Federal tax rate (%) 25
Federal tax rate (%)
25
20%
20
20%
20
15
15
10
11%
6% 10%
10
5
5%
5
-50 <1%
Airline Gasoline Cruise -50% 0
ticket1 tax2 tax Amtrak Airline Distilled Firearms Beer5
travel3 ticket1 spirits4
1. Sample itinerary assumes one-stop domestic round trip with maximum passenger facility charge (PFC) per airport; total ticket price includes taxes
2. Federal tax percentage (18.4 cents per gallon gasoline, 24.4 cents per gallon diesel) based on June 27, 2012 prices (including state and federal taxes of $3.69/gallon diesel
3. US government has suggested investments in high speed rail infrastructure while increasing airfare taxation (PFC and security fees); consists of 2011 net loss margin which is funded by federal government; 15% excise
tax pre-1962
4. Based on $20 sale price per 750ML bottle
5. Based on an average price of $1.00 per can
Sources: MIT Ticket Tax; US Department of Treasury; TTB.gov; Gaspricewatch.com; US Energy Information Administration; IMF; BCG analysis
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15. Rationalize Tax Burden
Airlines and Passengers Are Not Receiving Value for Their Federal Tax Dollar,
Agency Inefficiencies on the Rise
Federal Aviation Transportation Security
Customs and Border Protection
Administration Administration
Air traffic control (ATC) problems were the CBP staffing levels at major Since 2005, Congress has increased
primary cause of late arrivals in 2011 commercial airports are TSA’s budget by 26%, yet passenger
inadequate, especially during peak traffic has decreased by 1.3%
 Despite billions of dollars invested in arrival times
new technology and procedures, airline Notwithstanding negative passenger
flight times between many major U.S.  During peak arrival times, passenger traffic growth, TSA’s screener workforce
cities have actually increased since the wait times can exceed well over one has increased by nearly 300%, from
mid-1990s hour, deterring international travel to 16,500 in 2004 to 45,000 today
the U.S., thereby costing the economy
 According to the FAA, delays and billions of dollars annually According to government audits, TSA
cancellations cost the U.S. economy over wastes hundreds of millions of taxpayer
$30 billion annually
dollars annually by inefficiently deploying
screening technology to commercial
According to recent government audits, cost
airports. Examples include:
overruns in long-term, core NextGen
programs will delay more near-term, cost-
 $184m worth of equipment kept in storage
beneficial projects, including deployment of
 $30m spent on ineffective ―puffer‖ portals
performance-based navigation (PBN)
 $50m-$100m in procurement
procedures
inefficiencies annually
 Removal of 173 ―backscatter‖
 FAA’s process for developing PBN and
body scanners
other new NextGen procedures is time-
consuming and fragmented
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16. Rationalize Regulatory Burden
Across the Globe, U.S. Airlines Face a Litany of Imposed or Pending Regulations
that Do Not Enhance Safety or the Passenger Experience
Environmental Rules Security Rules
California green chemistry/consumer product rule Secure Flight development and watch list vetting
California ground service equipment emissions standards Federal Air Marshal seating
Air cabin environment bleed air assessment Explosive Trace Detection outside USA
Noise restrictions (e.g., LAX) Gate screening in foreign countries
EPA airport hydrants rule Security tamper-evident bags per ICAO
Stormwater permitting Liquids, aerosols, and gels per ICAO
Petitions for a U.S.-specific CO2 standard for aircraft Cargo screening (e.g., U.S., UK, India)
Proposal to extend OSHA regulations into aircraft cabins Foreign baggage arrival rescreening
TSA Pre-Check (CAPPS, boarding pass)
Advance Cargo Information requirements*
Economic/Consumer Rules Environmental Rules standard for aircraft
International a CO2 certification
ICAO development of
Rules
Full-fare advertising ICAO development of a new particulate matter certification standard for aircraft
Denied boarding compensation changes ICAO adoption of a new noise certification standard for aircraft
24-hour ticket hold and refund Limited airport access (e.g., China/Japan)
Prohibition on ancillary fee changes post-purchase Discriminatory landing fees (e.g., Italy)
Discriminatory taxes (e.g., Philippines)
Baggage information on web, ticket
EU Emissions Trading Scheme
30-minute status notification
UK Air Passenger Duty
Detailed ancillary revenue reporting
EU Regulation 261: Passenger Rights
Display of products in Global Distribution Systems Proliferation of EU Noise Regulations
3-hour tarmac delay rule Proposed Noise Fees (e.g. YUL)
Slot and/or perimeter restrictions (e.g., DCA, NYC) German Departure Tax
Foreign ownership restrictions Climate financing through UNFCCC
*2010: Honduras/Mexico/Netherlands/Nigeria
2011: China/Ethiopia/EU/Philippines,
® 2012: Korea/Liberia/Panama/South Africa/Sudan/UAE, 15
2013: Ghana/Israel/New Zealand/Turkey

17. Rationalize Regulatory Burden
Airline Customer Service Subject to a Greater Degree of Government Reporting Requirements
than Other Key Service Industries
Rental Cars
Telecom
Cruises
Airlines
Amtrak
Hotels
Buses
Cable
Service Delivery Reporting  No No No No No No No
Full-Fare Advertising (incl. taxes)  No No No No No No No
Ancillary Revenue Reporting  No No No No No No No
24-Hour Purchase Refundability  No No No No No No No
Detailed Reporting of Demand  No No  No No No No
Detailed Reporting of Costs  No No No No   
Reporting of Avg. Prices Paid  No No No No No  
Operational Contingency Plans   No     
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18. Modernize and Reform Infrastructure
NextGen has the Potential to Reduce Flight Delays and Cancellations, which Cost the U.S. Economy Over $31
Billion Annually
Annual Impact (in $B) of Flight Delays and Cancellations
$4.0 $31.2
$2.2
$9.4
$7.3
$3.7
$4.6
Sched. Delay Sched. Buffer Longer Flights Irregular Ops Lost Demand Reduced GDP TOTAL
Sources: ―Total Delay Impact Study: A Comprehensive Assessment of the Costs and Impacts of Flight Delay in the United States,‖ FAA and NEXTOR
(as revised and republished on Dec. 16, 2010)
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19. Modernize and Reform Infrastructure
Expedite Implementation of NextGen Procedures that Leverage Existing Airline Investments
» Existing NextGen technologies and aircraft equipage, including performance-based
procedures, can deliver immediate benefits for airlines, passengers and the environment, at a
fraction of the cost of longer-term NextGen programs like ADS-B In and Data Communications
» To justify further U.S. airline investments in NextGen aircraft equipment – especially given
over $50 billion in losses since 2001 – the FAA must make the business case for longer-term
NextGen programs by:
» Establishing technical and operational specifications and standards that enable airlines to leverage
NextGen investments already made
» Certifying NextGen equipage
» Conducting more simulations, demonstrations, trials and flight evaluations with U.S. airlines
» Postponing any NextGen equipage mandates until such business case has been made
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20. Enhance Global Competitiveness
International Market Growth is Critical to Long-term U.S. Airline Industry Economic Viability, Constitutes
Increasing Share of Total Seating and Cargo Capacity
International Share of Seating and Cargo Capacity
Network 2000 2013 Change Network 2000 2013 Change
Alaska 11.0 7.3 (3.3) Atlas 63.1 81.9 18.8
American 34.1 42.3 8.2 FedEx 41.0 47.4 6.4
Delta 24.3 41.4 17.1 UPS 34.1 52.2 18.1
Frontier — 11.2 11.2
Hawaiian 2.7 35.8 33.1
JetBlue — 17.5 17.5
Southwest — 2.0 2.0
Spirit — 14.2 14.2
United 36.4 46.2 9.8
US Airways 13.8 27.1 13.3
Virgin America n/a 2.7 n/a
* Non-domestic ASMs as a share (%) of systemwide ASMs, including regional affiliates; for cargo carriers, RTMs are used instead of ASMs
Sources: A4A analysis of Innovata (via Diio Mi) sample-week operations for the month of July; for cargo carriers, the analysis is based on CY2000 and YTD Oct. 2012
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21. Enhance Global Competitiveness
Yet the Top-Performing* Airlines in the World are Primarily Foreign Airlines
Rank Airline Score (1-99) Rank Airline Score (1-99) Rank Airline Score (1-99)
1 AirAsia 80.9 21 Air Transat 59.4 41 Air France-KLM 48.4
2 Air Arabia 78.3 22 Southwest 59.4 42 Royal Jordanian 48.2
3 Ryanair 78.2 23 IAG (BA-Iberia) 57.6 43 US Airways 48.1
4 Hainan 76.7 24 Air New Zealand 57.6 44 Turk Hava Yollari 48.0
5 Allegiant 76.5 25 Aeroflot 55.7 45 Air Mauritius 48.0
6 Transasia 72.2 26 Virgin Australia 55.4 46 China Southern 47.4
7 Vueling 71.9 27 Icelandair 55.2 47 TAM 47.4
8 Copa 70.6 28 Cathay Pacific 54.6 48 Air Canada 47.3
9 Singapore 70.0 29 Kenya 53.8 49 Air China 46.7
10 WestJet 68.9 30 JetBlue 53.7 50 Republic 46.7
11 All Nippon 67.5 31 Hawaiian 53.4 51 EVA 46.6
12 Regional Express 67.5 32 United 53.3 52 Shandong 45.2
13 Aer Lingus 67.4 33 SkyWest 53.3 53 China 45.1
14 Alaska 66.1 34 LAN 51.9 54 Delta 44.9
15 Spirit 65.1 35 AviancaTaca 50.7 55 AMR 44.2
16 Easyjet 65.0 36 Norwegian 50.7 56 SAS 43.4
17 Qantas 63.8 37 Aegean 50.0 57 El Al 42.7
18 Cebu 63.6 38 PAL 49.0 58 Thai 41.8
19 Lufthansa 60.1 39 Chorus-Jazz 48.4 59 Korean 40.2
20 Garuda 59.7 40 Finnair 48.4 60 China Eastern 39.0
*Among publicly-traded airlines. Proprietary scoring methodology is composite of five categories: liquidity, financial health, earnings performance, fuel cost management and asset utilization.
Source: ―Indonesia’s AirAsia Tops Annual Aviation Week Airline Rankings,‖ Aviation Daily (July 2, 2012) and Aviation Week’s Top-Performing Airlines Study
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22. Enhance Global Competitiveness
Without More Proactive Federal Airline Policies, U.S. Airlines Will Continue to Lose Ground to their
Foreign Airline Competitors
“The central government brought up the idea of building a harmonious society that creates a favorable environment
for the development of the civil aviation industry.”
- Mr. Li Jia Xiang, Director, Civil Aviation Administration of China
Level of Proactive Airline Policies*
Low High
United United
States Kingdom Germany France Canada Brazil India Japan Singapore UAE China
*Source: BCG and A4A analysis; types of airline assistance considered includes direct subsidies and tax, regulatory/competition, and infrastructure
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23. Enhance Global Competitiveness
Foreign Airlines are Projected to Order Five Times as Many Widebody Aircraft as
North American Airlines
7,000
6,000 Growth Replacement
5,000 1,940
4,000
3,000
820
4,690
2,000
600
2,410 480
1,000 610
1,090 890 40
710
300
0
Asia/Pacific Europe/C.I.S.
Africa/Middle East America Non-North North America
Latin Sub-Total: America
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24. Enhance Global Competitiveness
Gulf Airline Widebody Aircraft Orders are Over Three Times as Large as U.S. Airline Orders
Widebody Aircraft On Order Total - 430
Etihad - 76
Qatar - 130
Total - 130
American - 14
Hawaiian - 18 Emirates - 224
Delta - 18
US Airways - 30
United - 50
U.S. Carriers Gulf Carriers
Source: Diio (as of January 14, 2013)
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25. Enhance Global Competitiveness
Inefficient Visa Policies Deter Inbound Travelers, Costing the U.S. Economy Billions of Dollars Annually
Percent of travelers surveyed (from respective countries below) indicating that:
Difficult-to-Impossible to Visa Process Deters USG Security Measures
Travel to USA Travel to USA Deter Travel to USA
94.5
78.3 80.2
52.9
45.1
36.9 37.5
30.3 31.3
China India Brazil China India Brazil China India Brazil
Source: U.S. Travel Association; Mandala Research survey of 500 recent visitors from each of three countries
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26. Enhance Global Competitiveness
Despite Using Less Fuel, Costs are at Record-high Due to Market Volatility
Using Less Fuel But Spending More Money Due to Rising Prices
Million Gallons per Day Billion Dollars per Year Dollars per Gallon (Gulf Coast)
56.2 55.9
$50.4
50.8 $3.06
$33.2
$1.72
$16.8
$0.85
2000 2005 2011 2000 2005 2012 2000 2005 2012
Source: BTS (T2: 921) for U.S. airlines Source: BTS for U.S. airlines Source: Energy Information Administration
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27. The Case for a Comprehensive U.S. National Airline Policy
» The U.S. airline industry is a critical engine of U.S. economic growth and employment
» U.S. airlines are essential to connect nonhub markets to U.S. and global economic networks
» Foreign governments have embraced the role of their airline industries through affirmative policy
support, giving their airlines a competitive advantage over U.S. airlines
» These contrasting approaches harm the global competitiveness of the U.S. airline industry, which
adversely affects the entire U.S. economy
» Three bipartisan, federal airline industry commissions representing all segments of the aviation
industry, including labor, have provided a policy blueprint
» Clear U.S. and foreign precedents exist for comprehensive policy action
» Congress and the Administration should establish and implement an affirmative, cohesive U.S.
National Airline Policy
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28. ‹#›

29. » Repeal the commercial jet-fuel tax
» Prevent any increase to the Passenger Facility Charge (PFC) cap, TSA passenger security fee, and
Rationalize Tax Burden any new taxes or fees
» Alleviate the inequity that currently exists because the level of federal aviation taxes and fees paid by
airlines and their passengers is not commensurate to the level of services received
Rationalize Regulatory » Promote regulatory reform to ensure that rules are solely based on sound science
and cost/benefit analysis
Burden » Eliminate or modify regulations that drive excessive costs and/or inefficiencies
» Accelerate the implementation of the most cost-beneficial elements of NextGen, including
performance-based navigation procedures
» Oppose NextGen equipage mandates until FAA makes business case for investment
Modernize and Reform
» Harmonize NextGen regulations with comparable international regulations
Infrastructure » Reduce passenger security and customs wait times
» Accelerate economically viable public and private efforts to further reduce aviation emissions through
technology, operations and infrastructure
» Foster further consolidation and continued expansion of immunized global alliances
» Seek fair competition in markets where foreign governments distort the marketplace through direct
and indirect subsidies
» Reform U.S. visa policies by reducing processing times and adding processing locations
Enhance Global
» Promote equitable and adequate allocation of CBP resources to ensure that passengers do not
Competitiveness experience excessive wait times when entering the country
» Stop proliferation of environmental taxes and cap and trade schemes such as the European
Union’s Emissions Trading Scheme (ETS) through proactive support of a global sectoral
approach to address worldwide aircraft emissions
» Curb excessive speculation and prevent manipulation in the oil futures market
» Promote R&D and deployment of commercially viable, sustainable alternative fuels and advanced
Mitigate Jet-Fuel Cost and aircraft technologies
Price Volatility » Bolster domestic fuel production in an environmentally sound manner
» Reduce excessive tariffs on jet fuel shipments to airports
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30. ®