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John P. Heimlich, VP and Chief Economist
Biofuels for Aviation Summit
September 1, 2009
Air transport has become an essential economic and social conduit throughout the
world. Beyond the benefits of fast and inexpensive transcontinental travel, air
transport also has become a vital form of shipping for high-valued items that need to
come to market quickly, such as agricultural products subject to spoilage.
— World Bank Web site
Creating a New Jet Fuel Dynamic
The ATA Energy Council: Composition and Leadership
ABX Air
Air Canada
Air Jamaica
AirTran Airways
Alaska Airlines
American Airlines
ASTAR Air Cargo
Atlas Air
Continental Airlines
Delta Air Lines
2 www.airlines.org
Evergreen Int’l
FedEx Express
Hawaiian Airlines
JetBlue Airways
Mexicana
Midwest Airlines
Southwest Airlines
United Airlines
UPS Airlines
US Airways
Alternative Fuels Liaisons
DL – Bruno Miller
FX – Joel Murdock
US –Michael Baer
Chair: John Rau (AA)
Vice-Chair: Rick Pressly (CO)
Secretary: John Heimlich (ATA)
Develops and coordinates policy and industry actions regarding the
economics and implementation of fuel purchasing, management and
operations; recommends actions affecting fuel consortia and other
relevant locations worldwide.
$16.8$15.0
$12.8$15.5
$22.7
$33.2
$38.8
$41.9
$57.8
0
10
20
30
40
50
60
2000 ($0.82)
2001 ($0.78)
2002 ($0.72)
2003 ($0.85)
2004 ($1.16)
2005 ($1.66)
2006 ($1.97)
2007 ($2.11)
2008 ($3.07)
In 2008, U.S. Airlines Spent $16B More on Fuel
Despite Consuming > 5% Fewer Gallons
Sources: ATA, Energy Information Administration, Department of Transportation
Note: Value in parentheses below year is average price paid per gallon excluding taxes, into-plane fees, pipeline tariffs and hedging costs
3 www.airlines.org
Billio
ns
Gallons Consumed
“The U.S. airlines…have a relatively low proportion of their 2008 fuel needs
hedged, because hedging high and volatile fuel prices is expensive and
may require posting cash collateral.”
“High Fuel Prices Prompt Review of U.S. Airline Rating Outlooks,” Standard & Poor’s (March 11, 2008)
$45
$65
$85
$105
$125
$145
$165 J
an
-05
Ap
r
Ju
l
Oct
Ja
n-0
6
Ap
r
Ju
l
Oct
Ja
n-0
7
Ap
r
Ju
l
Oct
Ja
n-0
8
Ap
r
Ju
l
Oct
Ja
n-0
9
Ap
r
Ju
l
Price Stability MattersVolatility of Jet Fuel Prices Wreaks Havoc on Business Planning
Source: Energy Information Administration
Avera
ge P
rice p
er
Barr
el
4 www.airlines.org
110
120
130
140
150
160
170
180
190
200
2102-J
an
-09
16
-Jan
-09
2-F
eb
-09
17-F
eb
-09
3-M
ar-
09
17-M
ar-
09
31-M
ar-
09
15-A
pr-
09
29-A
pr-
09
13-M
ay-0
9
28-M
ay-0
9
11-J
un
-09
25-J
un
-09
10-J
ul-
09
24-J
ul-
09
7-A
ug
-09
21-A
ug
-09
4-S
ep
-09
21-S
ep
-09
NY Harbor
Gulf Coast
Los Angeles
Sources: Energy Information Administration and ATA
Cen
ts p
er
Gallo
nJet Fuel Price Pushing $2.00, Volatility Persisting in 2009
Volatile Nature of Industry’s Largest Cost Wreaks Havoc on Business Planning
www.airlines.org5
Jet Fuel Prices in 2009 Exceeding 2001-2008 AverageStaffing, Scheduling, Aircraft Purchasing Decision Made in Broader Cycles
Average* Jet Fuel Price per Gallon
Source: U.S. Energy Information Administration
$0.59
$1.53 $1.56
1991-2000 2001-2008 YTD 2009**
6
* Simple average of spot prices in New York Harbor, U.S. Gulf Coast and Los Angeles
** Through August 25
www.airlines.org
Jet Fuel Is a Drop in the Bucket, Subject to the Refinery
Economics for All Petroleum Segments (incl. Gasoline)
Sources: Energy Information Administration and American Petroleum Institute
18.6
LPGs (Propane/Butane/Propylene/Butylene)
Kerosene and Kerosene-Type Jet Fuel
Heating Oil and Diesel Fuel
Naphtha*
Finished Motor Gasoline
* Feedstock for high-octane gasoline, petrochemicals and solvents
Lubricants, Waxes, Asphalt, Tar & Fuel Oils
Petroleum Coke
Light Distillates (49.4%)
Middle Distillates (35.3%)
Heavy Distillates
& Residuum** (15.3%)
1.1
11.7
4.1
2.2
3.3
3.5G
all
on
s t
ota
l 4
4.7
du
e t
o “
pro
ce
ss
ing
gain
”
** Includes heavy oils used in industry, marine
transportation and electric-power generation
Average U.S. Yield
From Barrel of
Crude Oil in 2008
www.airlines.org7
($10)
$0
$10
$20
$30
$40 2
-Ja
n-0
8
31
-Ja
n-0
8
29-F
eb
-08
31
-Mar-
08
28
-Ap
r-0
8
27-M
ay-0
8
24
-Ju
n-0
8
23
-Ju
l-0
8
20
-Au
g-0
8
18
-Se
p-0
8
16
-Oct-
08
13
-No
v-0
8
12
-Dec
-08
13
-Ja
n-0
9
11
-Feb
-09
12
-Mar-
09
9-A
pr-
09
8-M
ay-0
9
8-J
un
-09
7-J
ul-
09
4-A
ug
-09
1-S
ep
-09
30
-Se
p-0
9
Jet
Diesel
Gas
Source: Energy Information Administration Weekly Petroleum Status Report
Cra
ck S
pre
ad
(10-D
ay M
ovin
g A
vera
ge
)Product Margins Matter
www.airlines.org8
82
84
86
88
90
92
94
96
95 96 97 98 99 00 01 02 03 04 05 06 07 08 YTD 09
Avera
ge R
efi
nery
Uti
lizati
on
Rate
(%
)Refinery Utilization Matters
U.S. Refineries Responding to Weak Gasoline Margins, Meaning Less Jet Output
Source: Energy Information Administration
www.airlines.org9
2.7
3.0
3.8
4.9
5.8
6.0
1977 1980 1990 2000 2005 2008
Reven
ue T
on
Miles (
RT
Ms)
per
Gallo
nFuel Efficiency MattersBut Efficiency Alone Won’t Suffice
Source: ATA analysis of DOT Form 41 traffic data (T2-Z240) and gallons (T2-Z921)
* U.S. passenger and cargo airlines operating worldwide – passenger and cargo revenue ton miles (RTMs) in all services
www.airlines.org10
The ATA Alternative Fuels Commitment is Predicated on
Performance; We Are Feedstock-Neutral
Fuel Quality
Environmental Benefit
Supply Reliability
Economic Feasibility
The members of the Air Transport Association of America (ATA) are dedicated to the development and
deployment of safe, environmentally friendly, reliable and economically feasible alternatives to conventional
petroleum-based jet fuel. We recognize that this effort presents significant technical and financing
challenges. Further, we believe that we must proactively evaluate the commercial challenges associated
with developing promising technologies that can meet our needs. We commit to work with future suppliers
who potentially can integrate alternative fuels into our operations that are consistent with the principles on
which we elaborate below. To foster the development and deployment of alternative jet fuels that meet our
objectives, ATA is a founding and principal member of the Commercial Aviation Alternative Fuels
Initiative (CAAFI), a consortium of government agencies, airlines, manufacturers, airports and current and
prospective fuel suppliers that are coordinating work on the research and development of alternative jet
fuels, including technical specifications, environmental aspects, production and distribution.
Source: http://www.airlines.org/economics/energy/altfuelsprinciples.htm (April 22, 2008)
www.airlines.org11
QA
NTA
S
So
uth
we
st
Lu
fth
an
sa
All
Nip
po
n
Bri
tis
h A
ir
TA
M
JA
L
Ala
ska
Co
nti
ne
nta
l
Delt
a
SA
S
Air
Jam
aic
a
Am
eri
can
JetB
lue
Un
ited
US
Air
wa
ys
Air
Can
ad
a
Air
Tra
n
Creditworthiness MattersNo Passenger Airline in the World Enjoys an A-Minus or Better Rating
BBB- (lowest investment-grade rating)
12 www.airlines.orgSources: Standard and Poor’s as of June 3, 2009 and http://online.wsj.com/article/BT-CO-20090420-711716.html
S&P Corporate Credit Ratings U.S. airline
Non-U.S. airline
“Amid a financing crisis for the global airline industry, U.S. carriers have fewer options…to
help them buy new aircraft. „I‟ve been through four airline industry downturns. This one is
different, because airlines are coping with falling passenger traffic, and a lack of available
credit,‟ not only to buy aircraft but [also] to refinance debt.‟”
Thomas Hollahan (Citi), in “US Airlines Hardest Hit In Global Financing Crunch,” Ann Keeton, DJ Newswires (April 20, 2009)
Logistics Matter
Some sizable airports face shortages and/or logistics constraints that drive up
local prices – as much as 10-to-30 cents per gallon > U.S. Gulf Coast
– Boise / Salt Lake City / Denver / Albuquerque
– Buffalo / Rochester / Toronto
– Edmonton / Calgary
– Coastal Southeast: Jacksonville to Wilmington
Producers should consider more than feedstock costs when deciding
where to locate new facilities
13 www.airlines.org
14 www.airlines.org
Distribution MattersCan You Get the Fuel to the Airport?
Buckeye
Colonial
Plantation
Explorer
Magellan
TEPPCO
Olympic
KM
North
KM
West
KM
CALNEV
KM
East
15 www.airlines.org
Distribution MattersIs Your Facility in Harm’s Way?
Fuel Farm Visual – Houston Intercontinental (IAH)
16 www.airlines.org
Fuel Farm Visual – Indianapolis (IND)
17 www.airlines.org
Airline Wish List
Safe and certified
Affordable
Secure supply
No adverse operational impact
Environmentally superior
Flexible contracts
No investment (unless return on risk)
Pre-empt adverse regulation
18 www.airlines.org
Why Do Business With Airlines?
With proper pricing incentives, carriers can enter into long-term contracts
Jointly, we can enhance our creditworthiness
Jointly, we can pay premiums for quality with no capital invested to
segregate fuels
Producers will make more money selling jet fuel
We like farmers, universities, and the Air Force
19 www.airlines.org