***Airline Tradeoff Disad***

Negative

1NC Shell

Oil prices are dropping—airlines now have a slightly higher margin for profitabilityForbes, 6/6 [June 6 2012, http://www.forbes.com/sites/afontevecchia/2012/06/06/airline-stocks-flying-high-after-big-correction-in-oil-prices/ “Airline Stocks Flying High After Big Correction In Oil Prices,”] TJ

Oil prices have suffered a substantial correction over the last couple of months, with US benchmark WTI even falling more than 20% in May. With crude trading in the mid-eighties, falling prices should bring some relief to consumers, particularly at the pump, but they also provide an investing opportunity: airlines, which last year consumed 36% of their revenues in jet fuel. It’s been a wild ride for crude traders in 2011, with benchmark WTI oil futures topping $110 per barrel in February, and now tumbling all the way to $85.43, as of Wednesday’s close. While prices remain relatively high, in part due to underlying geopolitical concerns according to OPEC, the substantial drop should prove bullish for the economy and certain stocks. In particular, airline stocks. A report by S&P Capital IQ released on Wednesday suggests shares in airlines will continue to benefit as fuel prices retreat. In 2011, the U.S. airline industry consumed 16.4 billion gallons of jet fuel, costing them approximately $47 billion. Indeed, this is 36% of the industry’s 2011 revenues, “leaving little room for profitability,” S&P’s Jim Corridore argued. But, as the tide has turned, so has the outlook for airlines. Oil prices could fall even further, as I explained in a piece on the crude oil market, with WTI possibly hitting $75 by the end of the month. The sustained decline would be good for the industry “so long as the drop is not due to such a severe economic downturn that passengers stop flying.”

High Speed Rail would trade off with the Airline Industry JTRC 08’ (Joint Transport Research Center, October 2nd and 3rd 2008, http://www.internationaltransportforum.org/jtrc/discussionpapers/DP200907.pdf) M.SSome policy makers in the US and especially in the EU are concerned about the sustainability ‐of prevailing interurban and interregional transport patterns. Road and air transport are perceived to generate excessive emissions of conventional pollutants and greenhouse gases, and the networks are excessively congested at some times and places. Given imperfections in road and air pricing to handle external costs, the provision of rail services is seen as a second‐best policy to increase the net benefits from interurban and interregional transport. For passenger transport, high speed rail is seen as sufficiently attractive to change the modal split ‐in these markets. De Rus (2008) questions the general social desirability of high speed rail, ‐pointing out that for a generic high speed rail connection the benefits are well below the costs, ‐unless20 Summary & Conclusions — Discussion Paper 2009-7 — © OECD/ITF, 2009 rather favourable assumptions are made on demand and costs. The construction of new lines requires a high volume of demand, with enough economic value to compensate the high cost involved in providing capacity. It is not only that the number of passengers must be large, but a high willingness to pay for the new facility is required as well, i.e. one needs many users who obtain ‐ ‐high benefits when switching mode or travelling more. This suggests that careful evaluations of

projects are required on a case by case basis‐ ‐ . The benefits from high speed rail mainly take ‐the form of time savings compared to other modes, and possibly of congestion n relief in competing modes. Environmental benefits are minor 27 . In fact, the benefits are outweighed by the costs (in particular the high fixed costs), except in cases where there is a high density of demand and there are pressing capacity problems in air and road alternatives 28 .

Airlines provide the key internal link to the economyTam et al. 02’ (Ryan Tam and John Hansman, IMPACT OF AIR TRANSPORTATION ON REGIONAL ECONOMIC AND SOCIAL CONNECTIVITY IN THE UNITED STATES, Massachusetts Institute of Technology)M.SMost analyses on the economic impact of air transportation typically only address the direct financial effects from aviation employment and spending. The FAA has estimated that the US aviation industry accounts for some 11.6 million direct, indirect, and induced jobs and over $316 billion dollars in earnings. 1,2 These methods, however, may underestimate the true impact of air transportation by failing to take into account the Enabling Effects of air transportation and how high quality air connectivity affects access to markets, capital, ideas, and people. To examine the relationship between the economy and the air transportation system, a review of economic and social trends in the US since deregulation was conducted. Increases in air travel, GDP growth, population geography, and travel behavior were analyzed. Growth in air travel In order to fully document the changes in the supply of air transportation, the growth in passenger traffic data, airline capacity and airline fleets were analyzed. The growth in domestic capacity was measured in terms of Available Seat Miles (ASMs), while Revenue Passenger Miles (RPMs) were used to measure traffic. 3 Figure 2 shows that RPMs grew considerably faster after deregulation than in the period between 1954 and 1978. Between 1954 and 1978 US domestic RPMs grew at an average rate of 750 million RPMs per year. Between 1978 and 2000, RPMs grew at average rate of 1.8 billion RPMs per year. Reflecting this increase in demand, Figure 3 shows that the domestic scheduled ASMs increased from 300 billion in 1978 to over 700 billion by 2000. Figure 4 shows that the growth in capacity and traffic was achieved by a major increase in the size of airline fleets. The number of aircraft used in commercial airline service increased from 2,000 aircraft to over 7,000 aircraft between 1978 and 1995.

Economic decline increases the risk of war—strong statistical support. Royal 10 — Jedidiah Royal, Director of Cooperative Threat Reduction at the U.S. Department of Defense, M.Phil. Candidate at the University of New South Wales, 2010 (“Economic Integration, Economic Signalling and the Problem of Economic Crises,” Economics of War and Peace: Economic, Legal and Political Perspectives, Edited by Ben Goldsmith and Jurgen Brauer, Published by Emerald Group Publishing, ISBN 0857240048, p. 213-215)Less intuitive is how periods of economic decline may increase the likelihood of external conflict .

Political science literature has contributed a moderate degree of attention to the impact of economic decline and the security and defence behaviour of interdependent states. Research in this vein has been considered at systemic, dyadic and national levels. Several notable contributions follow. First, on the systemic level, Pollins (2008) advances Modelski and Thompson's (1996) work on leadership cycle theory, finding that rhythms in the global economy are associated with the rise and fall of a pre-eminent power and the often bloody transition from one pre-eminent leader to the next. As such, exogenous shocks such as

economic crises could usher in a redistribution of relative power (see also Gilpin. 1981) that leads to

uncertainty about power balances, increasing the risk of miscalculation (Feaver, 1995). Alternatively, even a relatively certain redistribution of power could lead to a permissive environment for conflict as a rising power may seek to challenge a declining power (Werner. 1999). Separately, Pollins (1996) also shows that global economic cycles combined with parallel leadership cycles impact the likelihood of conflict among major, medium and small powers, although he suggests that the causes and connections between global economic conditions and security conditions remain unknown. Second, on a dyadic level, Copeland's (1996, 2000) theory of trade expectations suggests that 'future expectation of trade' is a significant variable in understanding economic conditions and security behaviour of states. He argues that interdependent states are likely to gain pacific benefits from trade so long as they have an optimistic view of future trade relations. However, if the

expectations of future trade decline, particularly for difficult [end page 213] to replace items such as energy

resources, the likelihood for conflict increases , as states will be inclined to use force to gain access to those resources. Crises could potentially be the trigger for decreased trade expectations either on its own or because it triggers protectionist moves by interdependent states.4 Third, others have considered the link between economic decline and external armed conflict at a national level. Blomberg and Hess (2002) find a strong correlation between internal conflict and external conflict, particularly during periods of economic downturn. They write,

The linkages between internal and external conflict and prosperity are strong and mutually

reinforcing . Economic conflict tends to spawn internal conflict, which in turn returns the

favour . Moreover, the presence of a recession tends to amplify the extent to which

international and external conflicts self-reinforce each other . (Blomberg & Hess, 2002. p. 89)

Economic decline has also been linked with an increase in the likelihood of terrorism (Blomberg, Hess, &

Weerapana, 2004), which has the capacity to spill across borders and lead to external tensions .

Furthermore, crises generally reduce the popularity of a sitting government. “Diversionary theory" suggests that,

when facing unpopularity arising from economic decline, sitting governments have increased

incentives to fabricate external military conflicts to create a 'rally around the flag' effect . Wang (1996), DeRouen (1995). and Blomberg, Hess, and Thacker (2006) find supporting evidence showing that economic decline and use of force are at least indirectly correlated. Gelpi (1997), Miller (1999), and Kisangani and Pickering (2009) suggest that the tendency towards diversionary tactics are greater for democratic states than autocratic states, due to the fact that democratic leaders are generally more susceptible to being removed from office due to lack of domestic support. DeRouen (2000) has provided evidence showing that periods of weak economic performance in the United States, and thus weak Presidential

popularity, are statistically linked to an increase in the use of force . In summary, recent economic scholarship positively correlates economic integration with an increase in the frequency of economic crises, whereas political science scholarship links economic decline with external conflict at systemic, dyadic and national levels .5 This implied connection between integration, crises and armed conflict has not

featured prominently in the economic-security debate and deserves more attention.

This observation is not contradictory to other perspectives that link economic interdependence with a decrease in the likelihood of external conflict, such as those mentioned in the first paragraph of this chapter. [end

page 214] Those studies tend to focus on dyadic interdependence instead of global interdependence and do not

specifically consider the occurrence of and conditions created by economic crises. As such, the view presented here

should be considered ancillary to those views.

2NC Uniqueness

Oil prices are dropping—airlines now have a slightly higher margin for profitabilityForbes, 6/6 [June 6 2012, http://www.forbes.com/sites/afontevecchia/2012/06/06/airline-stocks-flying-high-after-big-correction-in-oil-prices/ “Airline Stocks Flying High After Big Correction In Oil Prices,”] TJ

Oil prices have suffered a substantial correction over the last couple of months, with US benchmark WTI even falling more than 20% in May. With crude trading in the mid-eighties, falling prices should bring some relief to consumers, particularly at the pump, but they also provide an investing opportunity: airlines, which last year consumed 36% of their revenues in jet fuel. It’s been a wild ride for crude traders in 2011, with benchmark WTI oil futures topping $110 per barrel in February, and now tumbling all the way to $85.43, as of Wednesday’s close. While prices remain relatively high, in part due to underlying geopolitical concerns according to OPEC, the substantial drop should prove bullish for the economy and certain stocks. In particular, airline stocks. A report by S&P Capital IQ released on Wednesday suggests shares in airlines will continue to benefit as fuel prices retreat. In 2011, the U.S. airline industry consumed 16.4 billion gallons of jet fuel, costing them approximately $47 billion. Indeed, this is 36% of the industry’s 2011 revenues, “leaving little room for profitability,” S&P’s Jim Corridore argued. But, as the tide has turned, so has the outlook for airlines. Oil prices could fall even further, as I explained in a piece on the crude oil market, with WTI possibly hitting $75 by the end of the month. The sustained decline would be good for the industry “so long as the drop is not due to such a severe economic downturn that passengers stop flying.”

2NC Links

Generic Links

HSR directly trades off and competes with airlines

Bardsley, Foreign Correspondent for The National, 2010 [Daniel, March 20 2010, March 20th http://www.thenational.ae/business/full-throttle-on-high-speed-rail, “Full Throttle on High Speed Rail”] TJ

While high-speed trains may be popular with passengers, they can cause turbulence to the airline industry. The rolling stock may not be as fast as an aircraft, but as the trains run directly into city centres they can be more attractive than flying, even for business travellers. No wonder then that airlines have cut prices to stay competitive. China Southern Airlines used to charge a reported 700 yuan to fly between Guangzhou and Changsha, which lies on the line to Wuhan. This month, passengers could buy tickets online from the carrier for as little as 170 yuan. In Europe, airlines have dropped some routes between major cities altogether as a result of competition from high-speed railways. Mr Sangiambut believes China's airlines will be put further on the back foot by new train routes. Flights of less than two hours, he says, would be "very much impacted" if high-speed trains start operating the same route. "They will come under pressure when these high-speed networks become more fully operational," he says. "I don't think they will be closed entirely, but frequency could be reduced." The price of a Beijing-Shanghai high-speed train ticket has not been announced yet, but Mr Sangiambut says the ministry of railways will ensure it is "rather competitive" with flying. As a result, he thinks the Beijing-to-Shanghai air route will suffer when the high-speed rail line opens and cuts the rail trip from 10 hours to four hours. "There will be some impact for sure," he says.

Trains trade off – Chinese airline industry provesAviation Daily 11’ (Bradley Perrett, April 1st, 2011’ Fast Trains Drive Chinese Airlines Off Another Route, http://www.lexisnexis.com/hottopics/lnacademic/) M.SFast trains have claimed another aviation victim in China, with China Southern and Henan Airlines giving up the Wuhan-Nanjing route. Ominously for aviation, the carriers decided they were unable to compete over that stage length against trains that by Chinese standards are only moderately fast, with maximum speeds of 250 kph (160 mph). The two cities are 450 km (280 mi.) apart, and the trains take three hours for the trip. More decisive than their speed probably was their fares—just 180 yuan ($27) each way. The two airlines had been struggling to survive against the introductory fast rail service of three trains a day that began in 2009. The prospect of increased frequencies in the third quarter makes the route untenable, and it is better to give up immediately, the carriers tell Chinese media. As the railways ministry commissions the world’s largest high-speed rail system, the airline industry is watching for signs from early routes of how severe the damage will be. A year ago, China Southern was driven off the 440 km route between Zhengzhou and Xi’an by 350 kph trains. The experience with the 250 kph trains between Wuhan and Nanjing suggests that the fastest rail services can eliminate all airline competition on a Chinese route of more than 450 km. China Southern lost half of its business on the 840 km route between Wuhan and Guangzhou last year, when 350 kph trains began running between the two cities. Thousands of kilometers of new lines will be opened this year. Yet the Civil Aviation Administration of China is predicting 13% annual traffic

growth for the airlines in the coming five years, barely less than the rates of about 15% usually seen last decade. Henan Airlines is an Embraer 190 operator affiliated with Air China. Rapidly developing Wuhan, with a population of 10 million, including surrounding districts, is a hub of the fast-rail system. Nanjing, with more than 6 million people, is another hub, in the developed eastern region of China.

Rail out competes—fuel prices, travel times, and realiability.Jorritsma, writer for Aerlines, 9[Peter, http://www.aerlines.nl/issue_43/43_Jorritsma_AiRail_Substitution.pdf, issue 43, “Substitution Opportunities of High Speed Train for Air Transport”] TJ

Introduction Competition between high-speed trains (HST) and airplanes is becoming a hot issue again nowadays. High fuel prices and the introduction of a so-called ecological surcharge in the Netherlands on airplane tickets have put pressure on airline companies, and have created new opportunities for high-speed rail transport. Eurostar recently announced it experienced a 20 per cent growth in passengers over the last six months, compared to the same period in 2007. This has been due to improved travel times between Brussels and London and between Paris and London. Eurostar did not mention whether passengers substituted from the airplane or car, nor is it clear if the growth can be attributed to a generation effect (i.e. new journeys). Airline companies have also taken a slice of the pie of high speed transport. KLM /Air France participate together with Dutch Railways in the High Speed Alliance (HSA) which operates the Thalys trains on the Amsterdam-Paris route. Passengers will be transferred from the airplane to the trains at the airline hub with their ticket booked by the airline company. Factors Influencing Substitution Many factors influence the market shares between the airplane and high-speed trains. According to the literature, travel time is the most important one. Barron (2007) reports market shares ranging from 10 percent to 97 percent for HST compared to the airplane. The HST has a clear advantage over the airplane on city pairs with travel times between two and three hours. The train can achieve market shares of between 50 and 90 percent. Good examples are city pairs such as Paris-Lyon, Madrid-Seville and Rome-Bologna. The Thalys high-speed train on the Amsterdam-Paris (4 hours) route, which is not yet in full operation, already has a market share of approximately 45 percent compared to the airplane. Other factors that contribute to the relative position of rail to air are ticket prices, frequency of the service, the integration of networks, airline alliances, accessibility of railway stations and airport terminals, reliability and punctuality of the services and government policy. In general, the ticket price for high-speed rail travel is lower than for air travel, and this difference is reflected in the market share, which is in favor of the HST. However, the rise of low cost air carriers has put pressure on overall ticket prices in the air market. On certain city pairs (i.e. LondonEdinburgh), low-cost carriers even offer tickets below the price of a train ticket. Unfortunately, hardly any research is available about the impact of low-cost carriers on the substitution rate. Eisenkopf (2006) estimates a substitution rate from rail to air ranging from 5 per cent (Cologne- Hamburg) to 13 per cent (Cologne-Munich). Travel time and travel costs to and from the airport terminal to the city center or downtown area determine the accessibility of the airport. On the route Madrid-Barcelona, the average travel time and travel costs from the city to the airport are relatively low. That is one of the reasons for the high market share of the airplane on that route. On the other hand, the highspeed train has a significant market share on the Paris-London route, despite its high ticket price. Poor accessibility of both airports by train

and road is probably a factor that has a certain influence (Steer Davies Gleave, 2006). The operators of high-speed rail services find reliability and punctuality important factors that contribute to higher market shares. For example, the punctuality of the Eurostar (the share of trains with, at the most, a 15 minutes deviation from the timetable) has increased from 79 per cent since it started operations to 89 per cent today. Eurostar claims that punctuality is as important as improving travel time. Improved punctuality makes it also attractive for business travelers to plan their return journey over longer distances on the same day.

China Proves Links

China proves—airlines cannot compete with HSR

Fu, Faculty of Business at Hong Kong Polytechnic University, Zhang, from the Sauder School of Business at the University of British Columbia and Lei, from the Department of Air Transport at Cranfield University, 11 [Xiaowen Fu, Anming Zhang, Zheng Lei, December 16 2011, http://www.sciencedirect.com/science/article/pii/S073988591100062X “Will China’s airline industry survive the entry of high-speed rail?”,], TJ

In summary, Chinese airlines have been unable to compete with CRH on the short-/medium-haul routes even with cost-based pricing. This poses a serious challenge to Chinese airlines as their costs have been increasing. During 2005e2010 Chinese RMB appreciated by more than 20% against the US dollar, which significantly reduced Chinese carriers’ cost leadership in the international market as evidenced in Table 4. Such a currency appreciation has been a blessing overall, since Chinese airlines derive most of their revenue from domestic markets while finance majority of their fleets purchase with debt in US dollars. Goldman Sachs (2010a) estimated that for the “big three” carriers, namely Air China, China Eastern and China Southern, their RMB based sales account for 70e80% of their revenues, while non-RMB based debt account for 70e87% of their total debts. However, if Chinese airlines have to rely more on international business due to increased competition in domestic market, appreciation of RMB will work against them.

Once HSR has been invested in, airlines won’t be able to compete

Fu, Faculty of Business at Hong Kong Polytechnic University, Zhang, from the Sauder School of Business at the University of British Columbia and Lei, from the Department of Air Transport at Cranfield University, 11 [Xiaowen Fu, Anming Zhang, Zheng Lei, December 16 2011, http://www.sciencedirect.com/science/article/pii/S073988591100062X “Will China’s airline industry survive the entry of high-speed rail?”,], TJ

It should be noted that there is little room for airlines to lower prices further, as current fares are already close to cost. The Cost per Available Seat Kilometer (CASK) of China Southern in the first half of 2010 is about 0.48 RMB, whereas the flight operation cost excluding depreciation, maintenance, airport and ATC costs per CASK is 0.26 RMB. Even with a load factor of 85%, for service over a distance of 1000 km this translates to a total cost of 565 RMB or marginal/operational cost of 306 RMB.15 However the HSR is barely a winner. Based on the estimation in the previous section, the operational cost, interests cost and depreciation per seat amounted to 200 RMB, 260 RMB and 300 RMB respectively. The current fare of 490 RMB only covers variable costs and a proportion of fixed costs. However, once the HSR infrastructure has

already been invested, market outcome will be determined largely by marginal costs. Besides, while it is relatively easy for airlines to re-deploy their fleets, rail operator faces great exit barrier and thus would continue to compete aggressively so long as price is larger than marginal cost. With current cost structure, airlines can barely compete on this route for point-to-point travelers.

HSR will out-compete airlines – China proves. Webb , analyst for the Hong Kong and Shanghai Banking Corporation Limited, and Khetan, associate from Bangalore, 11 (Mark and Rajani, May 11, http://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=nwQKbLbAgP&n=297672.PDF “Chinese Airlines: High Speed Rail Risks Overplayed”,) TJ

Airlines derailed? As China’s high speed rail (HSR) network rolls out, airlines are under pressure to prevent passenger migration. Some HSR routes currently in operation have had airlines abort operations on them, cut capacity, or slash fares. The concerns over the airline industry’s future are intensifying as the Beijing- Shanghai route approaches its inauguration in June this year, followed by another three key routes to be opened in 2012. HSR risks overplayed HSR has cost and time advantages over airlines on short-haul journeys. We argue that journeys under 1000 kilometers will be dominated by HSR because the speed advantage of airlines over these distances disappears as airport access, check-in, check-out and travel time from the airport to city centre are taken into consideration. However, not all the airline routes in this market are at risk as a large portion of such airline routes is in West China – a region with no HSR. Indeed, we estimate that the routes actually at risk in this category formed less than 2% of the total domestic capacity of the three PRC airlines in 2010. Over longer distances, however, we argue that HSR risks will be very limited for two reasons. First, HSR would be time disadvantaged over these distances. Second, the high proportion of business traffic (with low price-time elasticity) on the routes that matter most to airlines (in terms of capacity, revenue and profits) would mean low migration.

HSR will wreck the airline industry

Fu, Faculty of Business at Hong Kong Polytechnic University, Zhang, from the Sauder School of Business at the University of British Columbia and Lei, from the Department of Air Transport at Cranfield University, 11 [Xiaowen Fu, Anming Zhang, Zheng Lei, December 16 2011, http://www.sciencedirect.com/science/article/pii/S073988591100062X “Will China’s airline industry survive the entry of high-speed rail?”,], TJ

3. Competitive effect of HSR on airlines Sharp competition between HSR and airlines has been witnessed in markets around the world, particularly in short to medium routes linking metropolitan cities. HSR was introduced to Spain in 1992 with the opening of the 472 km MadrideSevilla line. The rail share of the whole air þ rail market increased from 21% in 1991 to 82% in 1993. In the LondoneParis route, EuroStar has, since introduced in 1994, captured about

80% of the point-to-point traffic (Steer Davies Gleave, 2006). The Taiwan High Speed Rail (THSR) started operation in January 2007, linking Taipei and Kaohsiung along the west coast with a total distance of 335.5 km. In less than three years, THSR has eliminated intra-Taiwan air travel services. In South Korea, the opening of HSR between Seoul and Busan in 2004 has significantly reduced air traffic between the two cities. The International Transport Forum (2009) reported that domestic air traffic in France declined by 7% between 2000 and 2007, which was mostly attributable to the increased availability of HSR connections.

HSR will price out airlines

Fu, Faculty of Business at Hong Kong Polytechnic University, Zhang, from the Sauder School of Business at the University of British Columbia and Lei, fromthe Department of Air Transport at Cranfield University, 11 [Xiaowen Fu, Anming Zhang, Zheng Lei, December 16 2011, http://www.sciencedirect.com/science/article/pii/S073988591100062X “Will China’s airline industry survive the entry of high-speed rail?”,], TJ

It should be noted that there is little room for airlines to lower prices further, as current fares are already close to cost. The Cost per Available Seat Kilometer (CASK) of China Southern in the first half of 2010 is about 0.48 RMB, whereas the flight operation cost excluding depreciation, maintenance, airport and ATC costs per CASK is 0.26 RMB. Even with a load factor of 85%, for service over a distance of 1000 km this translates to a total cost of 565 RMB or marginal/operational cost of 306 RMB.15 However the HSR is barely a winner. Based on the estimation in the previous section, the operational cost, interests cost and depreciation per seat amounted to 200 RMB, 260 RMB and 300 RMB respectively. The current fare of 490 RMB only covers variable costs and a proportion of fixed costs. However, once the HSR infrastructure has already been invested, market outcome will be determined largely by marginal costs. Besides, while it is relatively easy for airlines to re-deploy their fleets, rail operator faces great exit barrier and thus would continue to compete aggressively so long as price is larger than marginal cost. With current cost structure, airlines can barely compete on this route for point-to-point travelers

Spain Proves Links

HSR would be a disaster for the airlines industry – Spain proves

Webb, aviation reporter, 2009 [Dan, April 21 2009, , http://boardingarea.com/blogs/thingsinthesky/2009/04/21/should-airlines-fear-high-speed-rail/ “Should Airlines Feear High Speed Rail?”,] TJ

I was reading Marshall Jackson’s blog this weekend and noticed he had mentioned that President Obama has revealed his initial plans for high speed rail in this country. I asked myself if an expansion could hurt the airlines. Short answer: absolutely. One notable example is the Madrid – Barcelona route, which has historically been the world’s busiest. In February last year, a high speed rail line was opened between the two cities. While I don’t have the exact decrease in frequencies, take a look at this part in the notes to Iberia’s February traffic results: According to the new Strategic Plan, the company reduced capacity in the domestic sector by 21.6%, leading to a load factor of 68.7%, similar to the level reached in February 2008. Average stage length grew by 6.5% in this sector, due to the higher reduction of capacity in flights between Barcelona – Madrid (this route began to be operated by the high speed train on the 20th of February 2008). Edit: According to this Wall Street Journal article, the high speed trains have ” snatched half the route’s air-passenger traffic.” (Hat tip to my dad for the link.) Some airlines here in the States could definitely be hurt by a high speed rail expansion. Any further improvement in the Northeast Corridor could negatively affect the Delta and US Airways shuttle operations, and I agree with Marshall that Southwest would get hurt (I think the intra-Texas and intra-California routes especially). If this is ends up being an expansion of Amtrak, I’m very worried when it comes to competition with the airline industry. The air carriers are motivated by profits and losses (as they should). If a route isn’t performing well, the airline will adjust accordingly by either eliminating the route or trimming capacity, and the opposite happens on successful routes. Meanwhile, a government-funded train system with guaranteed funding can continue operating despite being unprofitable, making true competition difficult.

High fuel prices and economic trends crushing the airline industry nowWall Street Journal, June 5 [ Global Airlines Fly Into 'Storm' http://online.wsj.com/article/SB10001424052702303918204577448033877417726.html] TJ

Higher fuel costs and a treacherous economic environment are weighing on global airlines, including Qantas and Emirates Airline. Asia's carriers last year earned 47% less in net profit than in 2010, at US$4.8 billion, according to the Association of Asia Pacific Airlines. Last month, Cathay Pacific Airways Ltd. said it was considering whether to accelerate the retirement of aging aircraft after it warned of "disappointing" first-half financial results. Singapore Airlines Ltd. and Korean Airlines recently posted quarterly losses, forcing both to rethink schedules and adjust aircraft deployment to boost profits. Even fast-growing Middle East airlines, once perceived to

be immune from global trends, have started to voice concern about business conditions. "It's a perfect storm of adversity now facing airlines," Tim Clark, president of Dubai-based Emirates Airline, said in an interview. "The euro is going south, the pound is going south, fuel costs are still too high." Amid those challenges, though, Etihad Airways of Abu Dhabi said Tuesday it has bought a nearly 4% stake in Qantas rival Virgin Australia Ltd. VAH.AU 0.00% Shares in Virgin Australia closed at 41 Australian cents (40 U.S. cents) each Monday, leaving the company with a market capitalization of 906.2 million Australian dollars (US$881.5 million). That gives an implied valuation of A$35.9 million on Etihad's 3.96% stake. A spokesman for Etihad said it would like to raise its holding to at least 10%. Etihad operates 24 flights a week between Abu Dhabi in the Persian Gulf and Australia.Mr. Clark of Emirates cautioned that many global carriers could be forced to retrench. Last month, Emirates said its latest fiscal-year net profit fell 72% after the company took a US$1.6 billion hit from high fuel costs. Mr. Clark added Tuesday that the price of Brent crude oil will need to drop to between US$80 and US$90 a barrel, from about US$100, to revive margins.

2NC Internal Links

Strong aerospace key to overall US Hegemony—even a moderate decline in the industry would be disastrousThompson 9 (David, President – American Institute of Aeronautics and Astronautics, “The Aerospace Workforce”, Federal News Service, 12-10, Lexis) TJ

Aerospace systems are of considerable importance to U.S. national security, economic prosperity, technological vitality, and global leadership. Aeronautical and space systems protect our citizens, armed forces, and allies abroad. They connect the farthest corners of the world with safe and efficient air transportation and satellite communications, and they monitor the Earth, explore the solar system, and study the wider universe. The U.S. aerospace sector also contributes in major ways to America's economic output and high- technology employment. Aerospace research and development and manufacturing companies generated approximately $240 billion in sales in 2008, or nearly 1.75 percent of our country's gross national product. They currently employ about 650,000 people throughout our country. U.S. government agencies and departments engaged in aerospace research and operations add another 125,000 employees to the sector's workforce, bringing the total to over 775,000 people. Included in this number are more than 200,000 engineers and scientists -- one of the largest concentrations of technical brainpower on Earth. However, the U.S. aerospace workforce is now facing the most serious demographic challenge in his 100-year history. Simply put, today, many more older, experienced professionals are retiring from or otherwise leaving our industrial and governmental aerospace workforce than early career professionals are entering it. This imbalance is expected to become even more severe over the next five years as the final members of the Apollo-era generation of engineers and scientists complete 40- or 45-year careers and transition to well-deserved retirements. In fact, around 50 percent of the current aerospace workforce will be eligible for retirement within just the next five years. Meanwhile, the supply of younger aerospace engineers and scientists entering the industry is woefully insufficient to replace the mounting wave of retirements and other departures that we see in the near future. In part, this is the result of broader technical career trends as engineering and science graduates from our country's universities continue a multi-decade decline, even as the demand for their knowledge and skills in aerospace and other industries keeps increasing. Today, only about 15 percent of U.S. students earn their first college degree in engineering or science, well behind the 40 or 50 percent levels seen in many European and Asian countries. Due to the dual-use nature of aerospace technology and the limited supply of visas available to highly-qualified non-U.S. citizens, our industry's ability to hire the best and brightest graduates from overseas is also severely constrained. As a result, unless effective action is taken to reverse current trends, the U.S. aerospace sector is expected to experience a dramatic decrease in its technical workforce over the next decade. Your second question concerns the implications of a cutback in human spaceflight programs. AIAA's view on this is as follows. While U.S. human spaceflight programs directly employ somewhat less than 10 percent of our country's aerospace workers, its influence on attracting and motivating tomorrow's aerospace professionals is much greater than its immediate employment contribution. For nearly 50 years the excitement and challenge of human spaceflight have been tremendously important factors in the decisions of generations of young people to prepare for and to pursue careers in the aerospace sector. This

remains true today, as indicated by hundreds of testimonies AIAA members have recorded over the past two years, a few of which I'll show in brief video interviews at the end of my statement. Further evidence of the catalytic role of human space missions is found in a recent study conducted earlier this year by MIT which found that 40 percent of current aerospace engineering undergraduates cited human space programs as the main reason they chose this field of study. Therefore, I think it can be predicted with high confidence that a major cutback in U.S. human space programs would be substantially detrimental to the future of the aerospace workforce. Such a cutback would put even greater stress on an already weakened strategic sector of our domestic high-technology workforce. Your final question centers on other issues that should be considered as decisions are made on the funding and direction for NASA, particularly in the human spaceflight area. In conclusion, AIAA offers the following suggestions in this regard. Beyond the previously noted critical influence on the future supply of aerospace professionals, administration and congressional leaders should also consider the collateral damage to the space industrial base if human space programs were substantially curtailed. Due to low annual production rates and highly-specialized product requirements, the domestic supply chain for space systems is relatively fragile. Many second- and third-tier suppliers in particular operate at marginal volumes today, so even a small reduction in their business could force some critical suppliers to exit this sector. Human space programs represent around 20 percent of the $47 billion in total U.S. space and missile systems sales from 2008. Accordingly, a major cutback in human space spending could have large and highly adverse ripple effects throughout commercial, defense, and scientific space programs as well, potentially triggering a series of disruptive changes in the common industrial supply base that our entire space sector relies on.

Aerospace key to military dominance and tech developmentErickson, PhD Candidate at Princeton, 4 – (Andrew, February 19-21, 2004, http://www.eastwestcenter.org/fileadmin/stored/pdfs/IGSCwp003.pdf “Seizing the Highest Ground”, East-West Institute,) TJ

Aerospace is 1) critical to military dominance and 2) important to overall technological development. With boundless potential for scientific advance, it promises tremendous military, economic, and political rewards. Aerospace offers established powers unprecedented opportunities to enhance their geopolitical edge. Critical to great power status today, “Space operations and activities utilizing space-based assets have broad implications for national power in peace and war… military operations in space are extensively interrelated with national and political interests, and any action in space, even minor ones, can impact the balance of wealth and power among nations.”24 Growing powers therefore naturally regard aerospace development as critical to achieving great power status, established great powers to maintaining it. Studying a nation’s aerospace development therefore offers key insights into its great power ambitions and its capacity to realize them.

US aerospace industry key to revitalize the economy- creates jobs and fuels tradeTrupo, International Trade Administrator from the Department of Commerce, 11, (Mary Trupo, June 21, 2011, http://trade.gov/press/press-releases/2011/aerospace-industry-critical-

contributor-to-us-economy-062111.asp “Aersopace Industry Critical Contributor to US Economy”) TJ

Francisco Sánchez, Under Secretary of Commerce for International Trade, addressed national and international groups at the 2011 Paris Air Show to reinforce the President’s National Export Initiative (NEI) and support the U.S. aerospace industry. “The U.S. aerospace industry is a strategic contributor to the economy, national security, and technological innovation of the United States,” Sánchez said. “The industry is key to achieving the President’s goals of doubling exports by the end of 2014 and contributed $78 billion in export sales to the U.S. economy in 2010.” During the U.S. Pavilion opening remarks, Sánchez noted that the aerospace sector in the United States supports more jobs through exports than any other industry. Sánchez witnessed a signing ceremony between Boeing and Aeroflot, Russia’s state-owned airline. Aeroflot has ordered eight 777s valued at $2.1 billion, and the sales will support approximately 14,000 jobs. “The 218 American companies represented in the U.S. International Pavilion demonstrate the innovation and hard work that make us leaders in this sector,” said Sánchez. “I am particularly pleased to see the incredible accomplishments of U.S. companies participating in the Alternative Aviation Fuels Showcase, which demonstrates our leadership in this important sector and shows that we are on the right path to achieving the clean energy future envisioned by President Obama.”

Aerospace key to economy - tradeGAO 6 [ September 2006, United States Government Accountability Office; ; http://www.gao.gov/new.items/d06920.pdf “U.S. AEROSPACE INDUSTRY…”] TJ

The impact of the aerospace industry on the U.S. economy is significant, with the industry estimating $170 billion in sales and approximately 625,000 people employed in 2005. 5 The importance of this industry to the U.S. economy will continue to grow in the future. According to FAA, the U.S. commercial aircraft fleet is estimated to grow from 7,836 in 2005 to 10,677 in 2017. Both passenger capacity and cargo operations are expected to continue to grow, with passenger capacity in 2007 increasing by 4.6 percent and then increasing by an average of 4.2 percent per year until 2017. FAA estimates that over 1 billion passengers will use U.S. airports by 2015. Domestic cargo revenue-ton miles are projected to increase at an average annual rate of 3.2 percent until 2017, exceeding 23 billion. Furthermore, the U.S. aerospace industry consistently shows a foreign trade surplus—reaching $31 billion in 2004. Aerospace exports constituted 6.9 percent of the total value of U.S.-exported merchandise in 2004.

Airline Industry is key to jobs in the aerospace industryConway and Pedersen, economists, 6 (Richard S., Douglas H. Pedersen, January 2006, http://afa-wa.com/Aerospace_Industry.pdf “The Washington Aerospace Industry,”,) TJ

Air transportation is a vital function of a modern economy. It entails a variety of activities: aerospace manufacturing, air passenger and freight service, airport operations, air traffic control, air transportation arrangement, and other air support services. Today, including the

suppliers of these activities, air transportation employs more than 100,000 people in Washington. This study focuses on the aerospace industry, which accounts for more than one-half of the employment in air transportation: • The Washington aerospace industry primarily manufactures aircraft and parts. • Led by The Boeing Company, the aerospace industry employed 65,400 people in 2005. • With an average annual wage of $83,370, more than double the average for all industries, the aerospace industry paid $5.4 billion in wages and salaries. • Taking into consideration the direct and indirect impact on the economy, the aerospace industry accounted for an estimated 209,300 jobs or 7.5 percent of total state employment. • More than nine out of every ten aerospace employees worked in King County (38,800) and Snohomish County (23,700) in 2005. • The total impact of the industry amounted to 116,400 jobs or 10.1 percent of total employment in King County and 52,100 jobs or 22.9 percent of total employment in Snohomish County. • The aerospace industry also accounted for 40,800 jobs or 2.9 percent of total employment in the rest of the state. 2. BRIEF HISTORY The history of the aerospace industry in Washington is almost as long as the history of the airplane. In 1916, just thirteen years after the Wright brothers took their first heavier-than-air flight at Kitty Hawk, William Boeing founded the Pacific Aero Products Company and soon renamed it the Boeing Airplane Company. Initially, Pacific Aero Products employed 16 workers earning 14 to 40 cents per hour. Selling bi-planes (Model Cs) to the navy and army during World War I, the Seattle company emerged from the conflict as a major aircraft manufacturer. After the war, Boeing devoted much of its effort to developing aircraft for a promising commercial market. The airline industry began in 1925 when Congress turned over the job of flying mail to private contractors. Boeing formed a subsidiary called Boeing Air Transport, the forerunner to United Airlines, and successfully bid on a federal contract to fly mail between San Francisco and Chicago. In 1927, the 23-hour inaugural flight in a Model 40A carried mail as well as two-paying passengers.

Domestic airline industry strength is key to the aerospace industryConway 6 (Richard S., Douglas H. Pedersen, “The Washington Aerospace Industry,” January 2006, http://afa-wa.com/Aerospace_Industry.pdf) TJ

Volatile demand. The demand for aircraft, whether stemming from the military or the world airline industry, is highly volatile. Given that Boeing is a major employer, the fluctuations in aircraft demand have often sent ripples throughout the state economy. The ramp-up in Boeing production during World War II, which led to 40,000 new jobs, helped pull the Seattle area out of the Great Depression. The subsequent lay-offs at the conclusion of the war precipitated a recession. Despite a declining employment share, the aerospace industry can still impart significant fluctuations to the Washington economy (Figure 4). Surging aerospace employment coupled with a strong national economy triggered state economic booms in the late 1970s, 1980s, and 1990s. Spurred by 48,000 new hires in the aerospace industry, the 1983-90 expansion created fully one-fifth of the jobs in the state economy today. Back-to-back aerospace slumps contributed substantially to the last recession.

Aerospace dependent on Airline IndustryGomez et al, undergraduate at Harvard pursuing a degree in quantitative finance, 12 [Ben Hur Gomez, John Simon, Alan Ibrahim, http://www.wikinvest.com/stock/Precision_Castparts_(PCP)] “Dependence on key customers”,) TJ

PCP’s commercial sales depend substantially on the production rates of both Boeing Company (BA) and Airbus , which in turn depend upon deliveries of new aircraft. The ultimate drivers of orders and deliveries of aircraft are underlying air travel demand, financial health of airlines, growth prospects for airline capacity, and overall economic growth. The current increase in aerospace demand is dependent on increased spending by foreign carriers and domestic airlines who must upgrade aging fleets. PCP stands to benefit from expected aircraft deliveries by Boeing and Airbus, and from the replacement cycle of aging turbines and aircraft that will be upgraded or overhauled. Any factor that adversely affects the aerospace industry (similar to the tragic events of 9/11 or the SARS travel scare) would likely pressure PCP’s operations and profitability. Bankruptcy of another airline, continued high oil prices, or the possibility of a major terrorist attack threaten to change the course of the recovery in the aerospace cycle and likely impact PCP.

Aerospace key to economyAIAA 09 [August 2009, Aerospace Industries Association of America, “Aerospace and Defense: The Strength to Lift America”, http://www.aia-aerospace.org/assets/wp_strength_aug09.pdf “Aerospace and Defense: The Strength to Lift America”] TJ

As the U.S. economy moves through uncertain times, America’s aerospace industry remains a powerful, reliable engine of employment, innovation, and export income. Aerospace contributed $95.1billion in export sales to America’s economy last year.1 Conservatively, U.S. aerospace sales alone account for 3-5 percent of our country’s gross domestic product, and every aerospace dollar yields an extra $1.50 to $3 in further economic activity.2 Aerospace products and services are pillars of our nation’s security and competitiveness. In these challenging times, the aerospace industry is solidly and reliably contributing strongly to the national economy and the lives of millions of Americans. We strongly believe that keeping this economic workhorse on track is in America’s best interest, To accomplish this, our government must develop policies that strengthen the positions of all workers in all industries, especially economic producers like aerospace and defense. This paper explains what’s at stake, and ways to ensure that a proven economic success continues to endure and thrive.

2NC Impacts

Economic growth is vital to prevent the collapse of U.S. hegemony.Khalilzad 11 — Zalmay Khalilzad, Counselor at the Center for Strategic and International Studies, served as the United States ambassador to Afghanistan, Iraq, and the United Nations during the presidency of George W. Bush, served as the director of policy planning at the Defense Department during the Presidency of George H.W. Bush, holds a Ph.D. from the University of Chicago, 2011 (“The Economy and National Security,” National Review, February 8th, Available Online at http://www.nationalreview.com/articles/print/259024, Accessed 02-08-2011)Today, economic and fiscal trends pose the most severe long-term threat to the U nited States’

position as global leader. While the U nited States suffers from fiscal imbalances and low economic growth, the economies of rival powers are developing rapidly . The continuation of these two trends could lead to a shift from American primacy toward a multi-polar global

system, leading in turn to increased geopolitical rivalry and even war among the great powers .The current recession is the result of a deep financial crisis, not a mere fluctuation in the business cycle. Recovery is likely to be protracted. The crisis was preceded by the buildup over two decades of enormous amounts of debt throughout the U.S. economy — ultimately totaling almost 350 percent of GDP — and the development of credit-fueled asset bubbles, particularly in the housing sector. When the bubbles burst, huge amounts of wealth were destroyed, and unemployment rose to over 10 percent. The decline of tax revenues and massive countercyclical spending put the U.S. government on an unsustainable fiscal path. Publicly held national debt rose from 38 to over 60 percent of GDP in three years.Without faster economic growth and actions to reduce deficits, publicly held national debt is projected to reach dangerous proportions. If interest rates were to rise significantly, annual interest payments — which already are larger than the defense budget — would crowd out other spending or require substantial tax increases that would undercut economic growth. Even worse, if unanticipated events trigger what economists call a “sudden stop” in credit markets for U.S. debt, the United States would be unable to roll over its outstanding obligations, precipitating a sovereign-debt crisis that would almost certainly compel a radical retrenchment of the United

States internationally.

Such scenarios would reshape the international order . It was the economic devastation of Britain and France

during World War II, as well as the rise of other powers, that led both countries to relinquish their empires. In the late 1960s, British leaders concluded that they lacked the economic capacity to maintain a presence “east of Suez.” Soviet economic weakness, which crystallized under Gorbachev, contributed to their decisions to withdraw from Afghanistan, abandon Communist regimes in Eastern Europe, and allow the Soviet Union to fragment. If the U.S. debt problem goes critical, the United States would be compelled to retrench , reducing its military spending and shedding international commitments.

We face this domestic challenge while other major powers are experiencing rapid economic growth. Even

though countries such as China, India, and Brazil have profound political, social, demographic, and economic

problems, their economies are growing faster than ours, and this could alter the global distribution of

power . These trends could in the long term produce a multi-polar world . If U.S.

policymakers fail to act and other powers continue to grow, it is not a question of whether

but when a new international order will emerge . The closing of the gap between the U nited

States and its rivals could intensify geopolitical competition among major powers , increase

incentives for local powers to play major powers against one another, and undercut our will to preclude or respond to international crises because of the higher risk of escalation.

The stakes are high . In modern history, the longest period of peace among the great powers

has been the era of U.S. leadership. By contrast, multi-polar systems have been unstable , with

their competitive dynamics resulting in frequent crises and major wars among the great

powers . Failures of multi-polar international systems produced both world wars .

American retrenchment could have devastating consequences . Without an American security blanket, regional powers could rearm in an attempt to balance against emerging threats. Under this scenario, there would be a heightened possibility of arms races, miscalculation, or

other crises spiraling into all-out conflict . Alternatively, in seeking to accommodate the stronger powers, weaker

powers may shift their geopolitical posture away from the United States. Either way, hostile states would be emboldened to make aggressive moves in their regions.

As rival powers rise, Asia in particular is likely to emerge as a zone of great-power competition. Beijing’s economic rise has enabled a dramatic military buildup focused on acquisitions of naval, cruise, and ballistic missiles, long-range stealth aircraft, and anti-satellite capabilities. China’s strategic modernization is aimed, ultimately, at denying the United States access to the seas around China. Even as cooperative economic ties in the region have grown, China’s expansive territorial claims — and provocative statements and actions following crises in Korea and incidents at sea — have roiled its relations with South Korea, Japan, India, and Southeast Asian states. Still, the United States is the most significant barrier facing Chinese hegemony and aggression.

Given the risks, the U nited States must focus on restoring its economic and fiscal condition while checking and managing the rise of potential adversarial regional powers such as China. While we face significant challenges, the U.S. economy still accounts for over 20 percent of the world’s GDP. American institutions — particularly those providing enforceable rule of law — set it apart from all the rising powers. Social cohesion underwrites political stability. U.S. demographic trends are healthier than those of any other developed country. A culture of innovation, excellent institutions of higher education, and a vital sector of small and medium-sized enterprises propel the U.S. economy in ways difficult to quantify. Historically, Americans have responded pragmatically, and sometimes through trial and error, to work our way through the kind of crisis that we face today.The policy question is how to enhance economic growth and employment while cutting discretionary spending in the near term and curbing the growth of entitlement spending in the out years. Republican members of Congress have outlined a plan. Several think tanks and commissions, including President Obama’s debt commission, have done so as well. Some consensus exists on measures to pare back the recent increases in domestic spending, restrain future growth in defense spending, and reform the tax code (by reducing tax expenditures while lowering individual and corporate rates). These are promising options. The key remaining question is whether the president and leaders of both parties on Capitol Hill have the will to act and the skill to fashion bipartisan solutions. Whether we take the needed actions is a choice, however difficult it might be. It is clearly within our capacity to put our economy on a better trajectory. In garnering political support for cutbacks, the president and members of Congress should point not only to the domestic consequences of inaction — but also to the geopolitical implications.As the United States gets its economic and fiscal house in order, it should take steps to prevent a flare-up in Asia. The United States can do so by signaling that its domestic challenges will not impede its intentions to check Chinese expansionism. This can be done in cost-efficient ways.While China’s economic rise enables its military modernization and international assertiveness, it also frightens rival powers. The Obama administration has wisely moved to strengthen relations with allies and potential partners in the region but more can be done.Some Chinese policies encourage other parties to join with the United States, and the U.S. should not let these opportunities pass. China’s military assertiveness should enable security cooperation with countries on China’s periphery — particularly Japan, India, and Vietnam — in ways that complicate Beijing’s strategic calculus. China’s mercantilist policies and currency manipulation — which harm developing states both in East Asia and elsewhere — should be used to fashion a coalition in favor of a more balanced trade system. Since Beijing’s over-the-top reaction to the awarding of the Nobel Peace Prize to a Chinese democracy activist alienated European leaders, highlighting human-rights questions would not only draw supporters from nearby countries but also embolden reformers within China. Since the end of the Cold War, a stable economic and financial condition at home has enabled America to have an expansive role in the world. Today we can no longer take this for granted. Unless we get our economic house in order, there is a risk that domestic stagnation in combination with the rise of rival powers will undermine our ability to deal with growing

international problems. Regional hegemons in Asia could seize the moment, leading the world toward a new, dangerous era of multi-polarity .

ATs

AT: Hurst Environment

The environmental benefits of trains over planes are small

Transport Research Center 9 [October 2009, OECD Report, http://www.internationaltransportforum.org/jtrc/discussionpapers/DP200907.pdf “Competitive Interaction between Airports, Airlines and High-Speed Rail”] TJ

Given the limited scope for cheap greenhouse gas abatement in aviation, Section 5 asks if it makes sense to increase the availability of high-speed rail alternatives. High-speed rail can substitute for air transport on mid-range distances and produces fewer emissions per trip, especially when electricity is produced in non-carbon-intensive ways. However, life-cycle emissions, relevant in an ex ante analysis, for rail arguably are high, given the high emissions from track infrastructure construction (see, e.g., Chester and Horvath, 2008) and maintenance. However, a broader comparison of costs and benefits shows that (a) high-speed rail links are socially desirable in a certain set of circumstances and should not be viewed as a general alternative to air transport, and (b) environmental benefits play a fairly minor role in the overall evaluation of high-speed rail projects.

Affirmative

High fuel prices and less baggage money have put airlines on the brink

Wall Street Journal, 12 [May 12, http://online.wsj.com/article/BT-CO-20120517-710827.html ““BTS: US Airlines 4Q Operating Profit Slumped 30% Despite Higher Revenue”] TJ

The Bureau of Transportation Statistics said U.S. airlines recorded a 30% year-over-year drop in operating profit in the fourth quarter, underscoring the ongoing challenge of high costs to fuel planes. The BTS, a unit of the U.S. Department of Transportation, said the airline industry's operating profit slumped to $1.15 billion in the fourth quarter, down from $1.64 billion a year earlier. Operating revenue, meanwhile, rose 6% to $46.65 billion. Many airlines have reported deteriorating profitability in recent quarters as climbing fuel costs chip into revenue gains. As part of their fourth-quarter revenue, airlines collected $792 million in baggage fees, down from $828.8 million a year earlier. Fees to change flight reservations totaled $567.1 million from October to December 2011, up slightly from $559.5 million in the same period a year earlier.

Airlines doing worse than expectedABC News 09’ (Scott Mayerowitz, July 22nd 2009, http://abcnews.go.com/Business/story?id=8140387&page=1#.T-TNkbVYuPQ) M.S

While some parts of the economy are showing signs of recovery, the airline industry looks like it is headed for a turbulent ride, ending with at least one major carrier possibly going out of business. A deathly combination of business travelers staying home, decreased cargo and more flights than there is demand has led the nation's major airlines to spend more money than they are taking in from ticket sales. Ultimately, consumers will pay the price through higher airfares, more fees and significantly fewer choices. "The industry is doing worse than we had thought," Ray Neidl, an independent airline analyst, said describing the earnings announcements so far. "With the fuel lower than last year and with the capacity cuts, the thinking was the airlines could return to profitability by spring … That didn't turn out to be the case." American Airlines reported last week that it lost $390 million in the second quarter, Continental Airlines Tuesday announced a $213 million loss for the same period and Delta, the world's largest carrier, Wednesday morning said it lost $257 million. Even the good news from the airlines isn't that good. Southwest announced that it had earned $54 million in the April-June period but that was down dramatically from the $321 million earned during the same period last year. United Airlines parent company UAL earned a profit of $28 million but that was thanks to one-time gains. Last year at this time, the company had a giant loss of $2.74 billion. Analysts consider United's financial position to be the most precarious of all the major carriers.

HSR only trades off with inefficient and expensive regional flightsTheExaminer 12’ (Will Reisman, http://www.sfexaminer.com/local/transportation/2012/04/high-speed-rail-could-free-valuable-

space-sfo High-speed rail could free up valuable space at SFO http://www.sfexaminer.com/local/transportation/2012/04/high-speed-rail-could-free-valuable-space-sfo#ixzz1yukoH9Cd)While the state’s high-speed rail project is expected to redefine how people travel on trains, local officials are banking on the plan having an equally important impact in the skies. Small, inefficient flights between The City and the Los Angeles area account for 15 percent of all domestic travel at the San Francisco International Airport. With the option of traveling between the two cities in just two hours and 40 minutes on high-speed rail, travelers may start eschewing the short flights, a development that would open up more gates for lucrative international and trans-continental travel at SFO. “There is no question that international travel brings a much higher economic benefit to the region,” said Charles Shuler, a spokesman for SFO. “And with high-speed rail, we’ll be able to reduce the number of short-haul trips to the Los Angeles Basin and introduce more international flights.” Laurie Anderson, spokeswoman for the tourism group San Francisco Travel, said international travelers stay longer and spend more money than domestic visitors. An increase in such travel could introduce San Francisco to a whole new market of future tourists. “The more visitors we get, the healthier our city is,” said Anderson. Along with reducing air travel to Los Angeles, high-speed rail also could reduce connecting flights to SFO from Central Valley cities such as Fresno and Modesto. “A plane with 30 people from Fresno takes the same slot as a 400-person jumbo jet from Beijing,” said Jim Lazarus, public policy director at the San Francisco Chamber of Commerce. “High-speed rail will eliminate that problem, and allow for a higher frequency of large planes to land at the airport.”

Airline failure inevitable – four warrantsAluise 12’ (Susan J. Aluise is president of National News Syndicate and she has been a journalist for more than thirty years, May 29th 2012, Investorplace.com a qualified source http://www.investorplace.com/2012/05/4-reasons-lower-fuel-prices-wont-lift-airlines/) M.SLower oil prices gave most U.S. airline stocks a bounce last week — not a surprising development since fuel accounts for as much as 40% of an airline’s operating costs. JPMorgan (NYSE:JPM) analyst Jamie Baker last week estimated that the savings from lower fuel would create $5.5 billion in annual “windfall” profits for the airlines. While lower fuel prices are good news, airlines have lots of other problems, so be choosy when playing the sector. Here are four reasons to doubt the sector’s latest attempt to ascend: Fuel Price Volatility It’s not just high jet fuel prices that are eating airlines’ collective lunch — it’s wild swings in fuel prices. Carriers make very precise measures of supply and demand, and determine how to get the most bang for their fuel buck. In the commercial aviation industry, that’s known as capacity planning. When fuel prices are high, airlines are more likely to reduce capacity by filling all the seats in smaller, more fuel-efficient aircraft. When fuel prices are low, they can increase capacity by flying larger aircraft. Although most airlines try to mitigate high fuel prices with tactics like hedging (or in Delta Air Lines’ (NYSE:DAL) case, buying an oil refinery), they can also lose big when fuel prices fall unexpectedly. The Mess in Europe The situation in Greece will keep casting a pall over Europe in the near future — and the continent already had been headed toward recession. That’s bad news for U.S. airlines that fly there, like Delta, United Continental (NYSE:UAL), American Airlines (PINK:AAMRQ) and US Airways (NYSE:LCC). U.S. airlines will need to decrease capacity to Europe as the year wears on. Airlines for America (A4A), the trade group that represents U.S. carriers, says airlines will cut capacity to Europe by nearly 8% in the fourth

quarter of this year. That could be tough on earnings because Europe remains U.S. airlines’ largest international market. Delta already has announced plans to cut its trans-Atlantic capacity by 5% after Labor Day. $ Higher TSA Taxes Airlines aren’t getting a lot of help from Congress. A key Senate committee last week advanced a bill that would double transportation security taxes from the current $2.50 for a one-way flight segment to 5. That affects every airline including Southwest-AirTran (NYSE:LUV), JetBlue (NASDAQ:JBLU), Alaska Airlines (NYSE:ALK), Spirit (NASDAQ:SAVE) and SkyWest (NASDAQ:SKYW). Although carriers will pass the tax hikes on to their passengers, revenue is still likely to take a hit. “It’s a simple equation: When you add taxes, demand for air travel is dampened, resulting in lost jobs and lost air service,” said A4A President and CEO Nicholas E. Calio. “Our customers today pay 20% – $60 on an average $300 domestic roundtrip ticket – of their ticket prices in taxes, on par with taxes for alcohol and tobacco, products taxed to discourage their use.” Merger Hiccups Consolidation has been proven time and again to be a good thing for airlines: It delivers broader reach, economies of scale and financial benefits. But marriage is easy compared to the daily challenges of living together after the honeymoon. Delta’s combination with Northwest in the middle of the Great Recession was acclaimed as a success story, in large part because Richard Anderson, DAL’s chief, had spent more than three years running Northwest in the early 2000s. Even so, the merged carrier still struggled with its labor unions. United Continental is fightng through major computer integration glitches now, and its customer approval has plummeted. Early into the process of integrating operations with AirTran, Southwest has made some progress — notably subleasing AirTran’s Boeing (NYSE:BA) 717s to Delta so that the combined carrier could standardize on the Boeing 737. AirTran, which already flies to Mexico, last week launched new international flights to that country and to Puerto Rico. But Southwest’s flight attendants last week voted down a deal that would have allowed the carrier to fly internationally or over water. Thorny issues like these pose significant challenges for combined carriers it the near term.

Airline industry is not key to the economy- stock marketsKay 05’ (John Kay, September 27th, 2005 http://www.johnkay.com/2005/09/27/airlines-and-the-canine-features-of-unprofitable-industries and John Kay is an British economist)The efficient industry hypothesis suggests that if an industry looks particularly attractive, or unattractive, then companies will enter, or leave, until the attractiveness or unattractiveness disappears. But then there are businesses which governments are keen on. The airline industry is one of them and governments fight to allow their taxpayers to pour ever more money into black holes. Warren Buffett observed that the world airline industry has not made a dime for investors in a century of manned flight. He said this in 1991, acknowledging his mistake in buying stock in US Air (now known as US Airways). Although Mr Buffett engineered a profitable exit from his investment, matters are no better. US Air is under Chapter 11 protection, along with United Airlines and now Delta and Northwest Airlines. The bankruptcy court judge is as essential to your flight as the pilot. The Sage of Omaha argues that industry factors generally dominate profitability: “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.” But what gives an industry a reputation for bad economics? I have always favoured the efficient industry hypothesis, the business analogue of the efficient market hypothesis.

Decline of domestic air travel inevitable - decreased demand

Bloomberg News 6/3/12 [“Why US airlines need to adapt to a slow-growth future” http://www.bloomberg.com/news/2012-06-03/why-u-s-airlines-need-to-adapt-to-a-slow-growth-future.html] TJYet U.S. airlines face a long-term challenge that should concern industry executives as well as investors. That impediment isn’t wages, fuel prices or a stagnant economy. It’s growth in demand for air travel, which has been anemic at best for more than a decade, even when the economy was expanding. Steadily dropping fares are the only reason traffic has grown at all since 2000. And without substantive cost-cutting innovation in the industry, that pace isn’t sustainable. Coca- Cola Co. can’t increase its business through constant price cutting, and neither can airlines. If inflation-adjusted fares hadn’t dropped 17 percent from 2000 to 2010, my research suggests that domestic travel would have declined.

High fuel prices and economic trends crushing the airline industry nowWall Street Journal, June 5 [ Global Airlines Fly Into 'Storm' http://online.wsj.com/article/SB10001424052702303918204577448033877417726.html] TJ

Higher fuel costs and a treacherous economic environment are weighing on global airlines, including Qantas and Emirates Airline. Asia's carriers last year earned 47% less in net profit than in 2010, at US$4.8 billion, according to the Association of Asia Pacific Airlines. Last month, Cathay Pacific Airways Ltd. said it was considering whether to accelerate the retirement of aging aircraft after it warned of "disappointing" first-half financial results. Singapore Airlines Ltd. and Korean Airlines recently posted quarterly losses, forcing both to rethink schedules and adjust aircraft deployment to boost profits. Even fast-growing Middle East airlines, once perceived to be immune from global trends, have started to voice concern about business conditions. "It's a perfect storm of adversity now facing airlines," Tim Clark, president of Dubai-based Emirates Airline, said in an interview. "The euro is going south, the pound is going south, fuel costs are still too high." Amid those challenges, though, Etihad Airways of Abu Dhabi said Tuesday it has bought a nearly 4% stake in Qantas rival Virgin Australia Ltd. VAH.AU 0.00% Shares in Virgin Australia closed at 41 Australian cents (40 U.S. cents) each Monday, leaving the company with a market capitalization of 906.2 million Australian dollars (US$881.5 million). That gives an implied valuation of A$35.9 million on Etihad's 3.96% stake. A spokesman for Etihad said it would like to raise its holding to at least 10%. Etihad operates 24 flights a week between Abu Dhabi in the Persian Gulf and Australia.Mr. Clark of Emirates cautioned that many global carriers could be forced to retrench. Last month, Emirates said its latest fiscal-year net profit fell 72% after the company took a US$1.6 billion hit from high fuel costs. Mr. Clark added Tuesday that the price of Brent crude oil will need to drop to between US$80 and US$90 a barrel, from about US$100, to revive margins.

Public funded rail is both environmentally and economically better than air networks

Transport Research Center 9 [October 2009, OECD Report, http://www.internationaltransportforum.org/jtrc/discussionpapers/DP200907.pdf “Competitive Interaction between Airports, Airlines and High-Speed Rail”] TJ

De Rus’ (2008) analysis considers high-speed rail projects at the level of individual links. In contrast, Adler et al. (2008) analyse a European network of high-speed rail connections (a 300km/h TEN network and a 160km/h conventional network), where the shape of the network is determined within the analysis. They find that the TEN network produces net benefits (and higher benefits than an all-air network), at least when access charges are based on short-run marginal costs (and the train operator maximises profits in a deregulated environment). If rail is required to break even, the network is not worthwhile. Instead, if deficits resulting from short-run marginal cost pricing are financed from costly public funds, the network passes the cost-benefit test. The difference between the outcomes of both studies is attributable to network effects and to assumptions on pricing rules and budgetary constraints, and not so much to different assumptions on costs, demand and discounting.

Airlines loosing federal funding nowWashington Post 11’ (November 15th, 2011, http://www.lexisnexis.com/hottopics/lnacademic/)Prospects that Congress will resolve a bitter deadlock over long-term federal funding for aviation this year are slim, Senate Commerce Committee Chairman John D. Rockefeller IV warned Monday. "We cannot continue on this disastrous path, but we do stand on the precipice of losing another FAA reauthorization bill this year," Rockefeller (D-W.Va.) said in addressing the Aero Club of Washington, an aviation industry group. "We're willing to do what we have to do, but on the other side of the building there's no movement and no give. Once again we are stalled." The congressional stalemate, which led to a shutdown of the Federal Aviation Administration this summer, comes at a critical hour. Airlines are reluctant to begin investing up to $10 billion in a revolutionary air traffic system without confidence that the FAA has long-term funding to develop the plan. The issues that have stalled a compromise on bills earlier this year in the Senate and House affect a relative handful of the millions of Americans who will fly this year, and the primary hang-up is of interest to hardly any of them. It is a dispute over a labor ruling that would make it easier for employees of Delta Air Lines to unionize. House Republicans are dead set on undoing a ruling by the National Mediation Board, which said that airline unionization efforts should be decided by a majority of those who vote. The ruling negated a long-standing rule that said eligible voters who opted not to vote would be counted as voting against unionization. The NMB ruling is expected to have its most immediate impact on Delta, which has so far staved off union organizers. "I am angry at the situation," Rockefeller said. "I do not understand how this fixation with one airline can be seen as paramount [such] that the House would shut down the FAA to get its way, which they did." House Transportation Committee Chairman John L. Mica (R-Fla.) has said that Republicans would be willing to compromise if the Senate would agree to allow union decertification by a simple majority vote. Rockefeller said he would take part in a bipartisan meeting Tuesday morning with three of his counterparts in the House and Senate. "We will have almost nothing to say to each other," he said. The other issues holding up the bill have been the number of slots that should be allocated to airlines using Reagan National Airport, governing where those planes should be authorized to fly, and federal subsidies to provide regular airline service to rural airports. "None of these issues is more important than the development of the next-generation traffic control

system, not even close," Rockefeller said. "Nevertheless, the small issues that divide us may ultimately dictate the outcome." Congress has approved 22 short-term funding extensions since the last funding bill expired in 2007. With budget cuts looming, Rockefeller said failure to pass a long-term FAA bill this year could prove catastrophic. "If the FAA reauthorization does not pass soon, I believe it will be a long time before an FAA reauthorization will pass any Congress," he said. "Congress may abandon regular FAA authorization bills altogether in favor of more discrete aviation legislation or just plain cuts. A lot of people are very much in favor of that."

***Essential Air Service Disad***

Negative

1NC Shell1. Essential Air Service subsidies now

FoxNews.com 6/19 (Associated Press, June 19, 2012, House panel boosts rural air service subsidies, http://www.foxnews.com/us/2012/06/19/house-panel-boosts-rural-air-service-subsidies/)M.SWASHINGTON – Tea party lawmakers from rural areas were among those fighting the hardest to preserve taxpayer subsidies for airline flights into and out of small towns last year after senior Republicans tried to eliminate the oft-criticized program. Now, the House Appropriations Committee is awarding the program an 11 percent budget hike. Next year, the subsidies would reach a record $214 million under a bill the GOP-run committee approved Tuesday. The subsidies can reach hundreds of dollars per ticket — and can exceed $1,000 in a few routes. A recent change to the program will soon take care of such $1,000-plus cases, but critics of the program say more needs to be done to shelter taxpayers from runaway costs. Last year, the House voted to eliminate the program in the lower 48 states by 2013. But rural tea party lawmakers like Reps. Rick Berg, R-N.D., and Kristi Noem, R-S.D., were among those who fought to save it. Instead of killing the air subsidies, Congress in February approved a watered-down set of changes when passing a measure renewing federal aviation programs. The subsidies increase approved Tuesday came as the panel also moved to cut food aid to poor nations overseas and funding for implementing new Wall Street regulations. The Essential Air Service program is a product of deregulating the airlines during Jimmy Carter's presidency. It was established to guarantee that small communities would continue to get commercial air services even though the routes were no longer profitable after deregulation. The program awards contracts, usually worth between $1 million and $2 million a year, to subsidize airlines that serve airports such as Escanaba, Mich., Pueblo, Colo., and Scottsbluff, Neb. Such subsidies work out to as little as $6 per passenger for airports like Cody, Wyo., and Sault Ste. Marie, Mich. But subsidies can often reach hundreds of dollars each way on a round trip flight to and from isolated places like Kalaupapa on the island of Molokai in Hawaii or Great Bend, Kan., whose three or so passengers a day benefited from a subsidy exceeding $600 in 2010, the most recent year for which data is available. The program's budget has quadrupled since the 2001 budget year, when it was just $50 million. After the Sept. 11, 2001, terrorist attacks, however, airlines pulled out of smaller unsubsidized markets, leading more cities to require taxpayer subsidies to keep their flights. In 2009, the subsidies cost $136 million but jumped to $175 million in 2010 and to $193 million for the ongoing budget year. That kind of spiral has earned the program many detractors among government watchdog groups and anti-waste conservatives. So when House Republicans last year took up legislation renewing federal aviation programs it contained a provision to eliminate the program by 2013. That got the attention of newly-elected tea party freshmen, many of whom reclaimed for the GOP districts occupied by rural, "Blue Dog" Democrats. Just as they support much-maligned farm subsidies, rural conservatives like Berg dropped the anti-government rhetoric when a program is popular back home. "Rural regions rely on (the Essential Air Service subsidies) for vital air transportation," Berg said on the House floor in February. "In North Dakota, airports like Jamestown and Devil's Lake would not be able to provide critical air service without this support." Berg, Noem and others won public assurances that the program would not be killed in the end.

2. High Speed Rail trades off the Essential Air ProgramMaurina 11’ (Darrell Todd Maurina, http://www.pulaskicountydaily.com/news.php?viewStory=2671, Polaski County Daily)M.S

Waynesville-St. Robert Joint Airport Board member Kevin Hillman took aim at President Barack Obama’s plans for high-speed rail service during the airport board’s Thursday evening meeting. “Maybe we need to be focusing on the movement device of the 21st century versus the movement device of the 19th century,” Hillman said. Obama has pushed for large amounts of money to help states build high-speed rail links, but the “essential air service” funding which subsidizes small airports such as those at Fort Leonard Wood which have less than 10,000 annual passengers has come under scrutiny. Under the federal program, private carriers receive contracts with local airports to provide passenger air service which they otherwise might not be financially able to justify. In the case of the joint municipal airport at Fort Leonard Wood’s Forney Field, Cape Air, a Massachusetts-based carrier, received the contract and is offering multiple flights per day to St. Louis for $59 per trip. Waynesville City Administrator Bruce Harrill told airport board members that he, St. Robert City Administrator Alan Clark, outgoing board chairman Mike France, and Airport Manager Chris Schrantz will be attending a conference on the essential air service program next week in Washington, D.C. “I originally asked the mayors if they wanted to attend and then Alan Clark and I kind of got delegated and Mike France and Chris are going to go,” Harrill said. “We think it’s an important service to our community and we are going to tell our congressional leadership of the importance of that service.” Funds for the trip come from the airport’s marketing grant, Harrill said, and it’s similar to a trip made several years ago. Hillman, who previously served as the St. Robert City Attorney and now is the elected Pulaski County Prosecutor, urged airport board members attending the conference to emphasize the benefits of air service over rail lines to Pulaski County. “It seems to me that the current administration’s focus is on rail, which doesn’t come within a hundred miles of us,” Hillman said. “The only public transportation we have linking us to the rest of the world is air.” Even the highest speed trains don’t go as fast as a 400 mph aircraft, Hillman said. “Basically they already said the high speed rail would go along 39 mph,” said France.

3. Essential Air Service is key to economies of small population centersSchumer 11’ (Chuck Schumer, US senator; M.S http://www.facebook.com/note.php?note_id=10150400122015576&id=15771239406)Today, U.S. Senator Charles E. Schumer announced his opposition to a proposed amendment to cut the Essential Air Services (EAS) program during the Federal Aviation Administration (FAA) reauthorization this week. The FAA reauthorization bill calls for an additional $73 million for the EAS program that Schumer supports, but Senator John McCain has offered an amendment to repeal the entire program. Six rural airports in New York, as well as more than 100 others across the country, benefit from the federal Essential Air Service program, and would be at serious risk without this funding. Not only does the EAS program provide[s] air services to underserved rural

communities, but it is an economic engine in those regions, contributing to the success of local businesses and promoting job creation and growth. "There is no question about it - access to air travel is good for businesses, good for jobs, and good for the financial health of the community," Schumer said. "This amendment not only cuts off entire communities from air service, but irresponsibly endangers their economies as a whole. Without reliable airports in these rural communities, businesses and jobs will suffer. I will fight this tooth and nail to make sure that Upstate New Yorkers have access to reliable, affordable air travel.” Essential Air Services funding provides critical subsidies to support commercial air service to underserved rural communities across the country. In New York, there are six rural airports dependent on the EAS program for their survival: Jamestown receives $1,350,803, Watertown receives $1,228,334, Massena receives $1,297,613, Ogdensburg receives $1,353,916, Plattsburgh receives $1,379,257, and Saranac Lake and Lake Placid receive $ 1,366,538. This week the Senate is debating the Federal Aviation Administration (FAA) Reauthorization Bill which sets air travel policy for the entire country. Yesterday, Senator McCain proposed an amendment to the FAA reauthorization eliminating EAS funding which if passed would strike a critical blow to Upstate New York’s airports and irreparably harm the economy in those regions. The Essential Air Service program was developed after the airline industry was deregulated in 1978. Deregulation gave airlines the freedom to decide which markets to serve and how much to charge for that service. This led to a scarcity of air service in many rural communities across the country where operating costs were higher and populations were smaller and less dense. The EAS program was put in to place to guarantee air service to these underserved communities. EAS provides subsidies to commuter airlines across the country to serve approximately 140 rural communities, including seven communities in Upstate New York. Without EAS, there would likely be no scheduled air service to Jamestown, Watertown, Massena, Ogdensburg, Plattsburgh, Saranac Lake and Lake Placid. Senator McCain’s proposal would force New Yorkers in those regions to travel long distances to access air service, but would also eliminate hundreds of jobs and harm local businesses that rely on air service for their success.

4. Small economies provide the key internal link into the economyBajracharya 95’ (Bhishna Nanda Bajracharya, is a Post-doctoral Fellow with the Division of Demography and Sociology, Research School of Social Sciences, Australian National University, would like to acknowledge with gratitude the comments and support of Gavin Jones, Mike Douglass and Brian Murton. Field work for the study was conducted with financial assistance from the East-West Center Population Program, Hawaii, and the International Center for Integrated Mountain Promoting Small Towns for Rural Development: A View from Nepal Development (ICIMOD). http://www.un.org/Depts/escap/pop/journal/v10n2a3.htm)M.SThe proponents of small town development see an important role for small towns in improving the conditions of the rural poor in developing countries. Firstly, an argument for promoting small towns is that they provide markets for urban consumer goods from higher-level towns and act as trading centres for agricultural goods from

rural areas (Rondinelli, 1984; Gaile, 1992). It is believed that urban population growth and agglomeration in small towns creates increased demand for agricultural products from nearby rural areas. Secondly, small towns are seen as possible locations for providing non-farm employment for the growing rural populace in hinterland villages (Gaile, 1992; Leinbach, 1992). With expansion of employment in small towns, they can act as alternate destinations for potential migrants to large cities (Mathur, 1982). The rapid growth of large cities often results in greater regional inequalities, problems of governance and environmental sustainability, all of which call for greater attention to smaller towns from equity considerations as well (ESCAP, 1991; Jones, 1991). Thirdly, proponents of small towns consider them appropriate locations for concentrating public services, such as agricultural development services, health services and educational facilities, for reaching a larger rural populace (Taylor, 1981). It is assumed that the provision of agricultural credit and inputs at the small town level can introduce farming innovations at the lowest level, rather than allowing them to filter inefficiently down the hierarchy of urban centres and transportation routes causing time- and distance-delay effects.

5. (Insert econ impact here)

AffirmativeThe Essential Air Service is not key to the economy and it is wasteful spending – Semmens 81’ (John Semmens and October 1981 http://www.thefreemanonline.org/columns/essential-air-service-subsidies-just-plane-foolish/)One of the arguments that is always offered in opposition to deregulation of transportation is that some remote, sparsely populated regions will be denied essential services. In order to neutralize this argument and get airline deregulation passed in 1978, Congress provided for subsidies to support “essential air service.” Little thought was given to just exactly what constitutes “essential air service.” Consequently, the “essential air service” subsidy program is one of the most wasteful perpetrated by the federal government. The major accomplishment of this subsidy program is to finance under-utilized scheduled commercial air service. The ordinary person quite naturally imagines that “essential” must mean necessary or indispensable. What is “necessary” or “indispensable” about flying largely empty aircraft around various parts of the country? The official definition of what is “essential air service” is determined in a completely arbitrary and silly fashion. If a point on the map had scheduled air service at some time during the 1968-78 base period, it is entitled to a subsidy for the provision of scheduled air service until 1988. Since most of these points receiving scheduled service between 1968 and 1978 were also receiving subsidies for this service, the decisive criterion for future subsidy is a historical demonstration of previously unviable or inefficient air service operations. In other words, past waste serves as the justification for future waste. There should be no misunderstanding of what is being subsidized, though defenders of the program do their best to disseminate misleading interpretations of the meaning of “essential air service.” What is being subsidized is business and tourist travel. This program is not giving aid to the destitute. It is not feeding starving children. It is simply utilizing taxpayers’ money to allow businessmen and tourists to pay less than the full cost of their transportation. The subsidy can be substantial. On one series of routes in New England it amounts to about $40 per passenger. In Montana, it amounts to $90 per passenger, in Arizona to $200, and in one section of Nebraska over $600 per passenger. This is unconscionable waste. What justification can there be for requiring that taxpayers finance some Arizonan’s vacation to the tune of $200 or some Nebraskan’s business trip to the tune of $600? There is no justification. There is no reason why the users of air service should not pay the full cost of that service. Advocates of the subsidy point out, quite correctly, that requiring riders to pay the full cost will reduce the number of trips made. So what? There is nothing inherently beneficial about air travel. Trips should only be made if the benefits outweigh the costs. This weighing process is distorted when part of the cost is covered through an involuntary payment by a third party—namely the taxpayer. More trips than would be justified by the benefits are taken because the user is not paying the full cost. This wastes scarce resources and reduces the general welfare of the society. Aware of the pitiful current operating results under the “essential air service” program, some of its proponents have sufficient gall to claim that the real problem is undersubsidization. The CAB, they assert, is too niggardly in its subsidy awards. If the CAB would only authorize sufficient funds for larger aircraft and more frequent service, we could really develop the scheduled air service system. The subsidy, these people assure us, is an “investment” that will pay off in the long run. These claims are unfounded and the reasoning is

fallacious. By way of illustration, let’s examine an example from Arizona. Recent subsidized service to Prescott has been performed with an eight-passenger Cessna 402 at a load factor of about 20%. That is, less than two passengers per flight are enplaned or deplaned at Prescott. Advocates of a larger subsidy argue that the small plane discourages many would-be passengers. To buttress their case they point out that enplanements at Prescott in 1968 were ten times greater than the most recent year (6000 vs. 600). In 1968, a larger aircraft and more frequent arrivals and departures produced more passenger trips. Undisclosed in this simplistic comparison is the fact that in 1968 the load factor was only 8%. This is the equivalent of three passengers boarding the 40-seat aircraft employed. Thus, in 1968 three of 40 seats were filled vs. two of eight in 1979. This example would appear a rather convincing demonstration of the inelasticity of demand for air service. No sane person could seriously propose to add 30 seats in order to fill one, and claim that this is a wise “investment.” Investments that will pay off in the long run will be undertaken by private capital. There is no need for subsidy. Private firms are adequately familiar with start-up costs for new products and services. Firms have been known to sustain several years of losses in order to build a market. In fact, the lack of willingness of a private business firm to engage in providing a service unless subsidized is a convincing expression of the firm’s belief that there will not be a long-run payoff on their investment. In the past year, the federal government has spent nearly $90 million in subsidies for scheduled air service. This expenditure has involved a coercive expropriation of funds from the general public in order to finance inefficient and wasteful air service. The nation is ill-served by this policy. The market place is well-suited to the task of selecting and funding investments that will increase consumer choice and welfare. The “essential air service” subsidy can only interfere with the market’s ability to ascertain and meet society’s genuine needs. There is no reason for the retention, and ample justification for the elimination, of this subsidy program. Congress would do well to dispense with the “essential air service” program.