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

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6

Ap

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l

Oct

Ja

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7

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l

Oct

Ja

n-0

8

Ap

r

Ju

l

Oct

Ja

n-0

9

Ap

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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

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09

15-A

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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

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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

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ay-0

9

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un

-09

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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

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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

fuel@airlines.org