US airlines call for national policy reforms after 2011 profit squeeze

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A US airline lobbying group has unveiled a broad agenda to improve the domestic industry's competitiveness by overhauling the regulations and taxes imposed on the industry from the government.

The Airlines for America (A4A) plan was revealed as the organisation reported that 11 US airlines barely broke even in 2011 even though sales improved by 12.6% compared to the previous year.

The plan echoes a recent presentation by a Delta Air Lines executive. In August, Delta vice president for corporate strategy and real estate Holden Shannon called for a national airline policy, noting the 17% tax on airline tickets exceeds a 10% tax on some handguns and a 5% tax on beer.

But A4A's new call for an aviation policy comes amidst the backdrop of worsening financial performance only one year after US airlines posted a collective profit in 2010 for the first time in several years.

Excluding Republic Airways Holdings, which reports 2011 results on 1 March, the other 11 largest US airlines saw net profit margin shrink by 1.9 percentage points to 0.3%.

In reality, airline financial performance dropped from "highly mediocre to even more mediocre," said John Heimlich, A4A's chief economist.

Unlike market conditions of a decade ago, the industry's financial sluggishness today should not be blamed on poor decisions by airline managers, said Nicholas Calio, president and chief executive of A4A.

Calio acknowledged that airline managers sometimes unwisely chased market share at the expense of financial progress. But he said those days are over, and airline executives have exhibited a new discipline by holding capacity steady in an effort to improve yields. US carriers on average now have the lowest costs in the global industry, Calio said.

Meanwhile, over the last decade airlines have cut labour and capital costs "basically to the bone", Calio said. Still, the industry's financial picture has worsened.

A long-term increase in fuel prices, including a 35.5% jump last year alone, accounts for most of the airlines' declining fortunes, Calio said.

But A4A also thinks US airlines are unfairly constrained by an undisciplined policy approach by the national government that has led to billions of dollars in extra regulatory costs and taxes.

Instead, the A4A has submitted a 59-page plan to the Department of Transportation that provides a framework for a "national airline policy".

On taxes, the A4A wants the Obama Administration and Congress to repeal the 1993 jet fuel tax of 4.4 cents per gallon. The A4A also is lobbying for no new increases in passenger facility charges and the passenger security fee.

US airlines also are asking lawmakers to "rationalise" a patchwork of sometimes conflicting regulations imposed the industry technically deregulated in 1978, Calio said. The A4A cited two recent consumer mandates that the organisation believes will cost the industry $1.8 billion each year. While A4A is not calling for repeals of specific regulations, it wants lawmakers to force "vigorous" cost/benefit analyses before imposing new rules on the industry. The A4A also wants the national airline policy to oppose the European Union's proposed emissions trading scheme.

On the other hand, the policy should reconsider the rule on foreign ownership of US carriers, which today is limited to 25% of any domestic airline.

The policy also should seek to "curb speculation in the oil futures market", A4A said, which it adds could mitigate jet-fuel cost and volatility. This could be done by encouraging the Commodities Futures Trading Commission to enforce standing regulations on such transactions, Heimlich said.