***Airline Tradeoff Disad***

Negative

1NC Shell
Oil prices are droppingairlines now have a slightly higher margin for profitability orbes! "#" [June 6 2012,
http://www.forbes.com/sites/afontevecchia/2012/06/06/airline-stocks-fl in!-hi!h-afterbi!-correction-in-oil-prices/ "#irline $tocks %l in! &i!h #fter 'i! (orrection )n *il +rices,,- .J Oil prices have s$ffered a s$bstantial correction over the last co$ple of months, with /$ benchmark 0.) even fallin! more than 201 in 2a . 0ith cru3e tra3in! in the mi3-ei!hties, fallin! prices shoul3 brin! some relief to consumers, particularl at the pump, but the also provi3e an investin! opportunit : airlines, which last ear consume3 461 of their revenues in 5et fuel. )t6s been a wil3 ri3e for cru3e tra3ers in 2011, with benchmark 0.) oil futures toppin! 7110 per barrel in %ebruar , an3 now tumblin! all the wa to 789.:4, as of 0e3nes3a 6s close. 0hile prices remain relativel hi!h, in part 3ue to un3erl in! !eopolitical concerns accor3in! to *+;(, the s$bstantial drop sho$ld prove b$llish for the economy and certain stoc%s& 'n partic$lar! airline stoc%s& A report b $<+ (apital )= release3 on 0e3nes3a su!!ests shares in airlines will contin$e to benefit as f$el prices retreat& )n 2011, the /.$. airline in3ustr consume3 16.: billion !allons of (et f$el, costin! them appro>imatel 7:? billion. )n3ee3, this is )"* of the ind$stry+s ,-11 reven$es! .leaving little room for profitability,, $<+6s Jim (orri3ore ar!ue3. /$t! as the tide has t$rned! so has the o$tloo% for airlines& Oil prices co$ld fall even f$rther, as ) e>plaine3 in a piece on the cru3e oil market, with 0.) possibl hittin! 7?9 b the en3 of the month. .he sustaine3 3ecline woul3 be !oo3 for the in3ustr "so lon! as the 3rop is not 3ue to such a severe economic 3ownturn that passen!ers stop fl in!.,

0igh Speed 1ail wo$ld trade off with the Airline 'nd$stry 2T1C -3+ @Joint .ransport Aesearch (enter, *ctober 2n3 an3 4r3 2008,
http://www.internationaltransportforum.or!/5trc/3iscussionpapers/B+200C0?.p3fD 2.$ Some policy4ma%ers in the 5S and especially in the 65 are concerned abo$t the s$stainability of prevailing inter$rban and interregional transport patterns& Aoa3 an3 air transport are perceive3 to !enerate e>cessive emissions of conventional pollutants an3 !reenhouse !ases, an3 the networks are e>cessivel con!este3 at some times an3 places. 7iven imperfections in road and air pricing to handle e8ternal costs! the provision of rail services is seen as a secon3Ebest polic to increase the net benefits from inter$rban and interregional transport& %or passen!er transport, high4speed rail is seen as s$fficiently attractive to change the modal split in these mar%ets& Be Aus @2008D Fuestions the !eneral social 3esirabilit of hi!hEspee3 rail, pointin! out that for a !eneric hi!hEspee3 rail connection the benefits are well below the costs, unless20 $ummar < (onclusions G Biscussion +aper 200C-? G H *;(B/).%, 200C rather favourable assumptions are ma3e on 3eman3 an3 costs. .he construction of new lines reFuires a hi!h volume of 3eman3, with enou!h economic value to compensate the hi!h cost involve3 in provi3in! capacit . )t is not onl that the number of passen!ers must be lar!e, but a hi!h willin!nessEtoEpa for the new facilit is reFuire3 as

well, i.e. one nee3s man users who obtain hi!h benefits when switchin! mo3e or travellin! more. .his su!!ests that careful evaluations of pro5ects are reFuire3 on a caseEb Ecase basis& The benefits from high4speed rail mainly ta%e the form of time savings compared to other modes! and possibly of congestion n relief in competing modes& ;nvironmental benefits are minor 2? . )n fact, the benefits are outwei!he3 b the costs @in particular the hi!h fi>e3 costsD, e>cept in cases where there is a hi!h 3ensit of 3eman3 an3 there are pressin! capacit problems in air an3 roa3 alternatives 28 .

Airlines provide the %ey internal lin% to the economy Tam et al& -,+ @A an .am an3 John &ansman, )2+#(. *% #)A .A#I$+*A.#.)*I
*I A;J)*I#K ;(*I*2)( #IB $*()#K (*II;(.)L).M )I .&; /I).;B $.#.;$, 2assachusetts )nstitute of .echnolo! D2.$ 2ost anal ses on the economic impact of air transportation t picall onl a33ress the 3irect financial effects from aviation emplo ment an3 spen3in!. .he %## has estimate3 that the 5S aviation ind$stry acco$nts for some 11&" million direct! indirect! and ind$ced (obs and over 9)1" billion dollars in earnings& 1,2 .hese metho3s, however, ma un3erestimate the true impact of air transportation b failin! to take into account the ;nablin! ;ffects of air transportation an3 how hi!h Fualit air connectivit affects access to markets, capital, i3eas, an3 people& To e8amine the relationship between the economy and the air transportation system! a review of economic and social trends in the 5S since dereg$lation was cond$cted& )ncreases in air travel, JB+ !rowth, population !eo!raph , an3 travel behavior were anal Ne3. 7rowth in air travel 'n order to f$lly doc$ment the changes in the s$pply of air transportation! the growth in passenger traffic data! airline capacity and airline fleets were analy:ed& .he !rowth in 3omestic capacit was measure3 in terms of #vailable $eat 2iles @#$2sD, while Aevenue +assen!er 2iles @A+2sD were use3 to measure traffic. 4 %i!ure 2 shows that A+2s !rew consi3erabl faster after 3ere!ulation than in the perio3 between 1C9: an3 1C?8. 'etween 1C9: an3 1C?8 /$ 3omestic A+2s !rew at an avera!e rate of ?90 million A+2s per ear. 'etween 1C?8 an3 2000, A+2s !rew at avera!e rate of 1.8 billion A+2s per ear. Aeflectin! this increase in 3eman3, %i!ure 4 shows that the domestic sched$led AS;s increased from )-- billion in 1<=3 to over =-- billion by ,---& %i!ure : shows that the !rowth in capacit an3 traffic was achieve3 b a ma5or increase in the siNe of airline fleets& .he number of aircraft use3 in commercial airline service increase3 from 2,000 aircraft to over ?,000 aircraft between 1C?8 an3 1CC9.

6conomic decline increases the ris% of warstrong statistical support& 1oyal 1- G Je3i3iah Ao al, Birector of (ooperative .hreat Ae3uction at the /.$.
Bepartment of Befense, 2.+hil. (an3i3ate at the /niversit of Iew $outh 0ales, 2010 @";conomic )nte!ration, ;conomic $i!nallin! an3 the +roblem of ;conomic (rises,, Economics of War and Peace: Economic, Legal and Political Perspectives, ;3ite3 b 'en Jol3smith an3 Jur!en 'rauer, +ublishe3 b ;meral3 Jroup +ublishin!, )$'I 089?2:00:8, p. 214-219D Kess intuitive is how periods of economic decline ma increase the li%elihood of e8ternal conflict. +olitical science literature has contribute3 a mo3erate 3e!ree of attention to the impact of economic 3ecline
an3 the securit an3 3efence behaviour of inter3epen3ent states. Aesearch in this vein has been consi3ere3 at s stemic, 3 a3ic an3 national levels. $everal notable contributions follow. %irst, on the s stemic level, +ollins @2008D a3vances 2o3elski an3 .hompsonOs @1CC6D work on lea3ership c cle theor ,

fin3in! 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 lea3er to the ne8t. #s such, e>o!enous shocks such as economic crises coul3 $sher in a redistrib$tion of relative power @see also Jilpin. 1C81D that leads to $ncertainty about power balances, increasing the ris% of miscalc$lation @%eaver, 1CC9D. #lternativel , even a relativel certain re3istribution of power coul3 lea3 to a
permissive environment for conflict as a risin! power ma seek to challen!e a 3eclinin! power @0erner. 1CCCD. $eparatel , +ollins @1CC6D also shows that !lobal economic c cles combine3 with parallel lea3ership c cles impact the likelihoo3 of conflict amon! ma5or, me3ium an3 small powers, althou!h he su!!ests that the causes an3 connections between !lobal economic con3itions an3 securit con3itions remain unknown. $econ3, on a 3 a3ic level, (opelan3Os @1CC6, 2000D theor of tra3e e>pectations su!!ests that Ofuture e>pectation of tra3eO is a si!nificant variable in un3erstan3in! economic con3itions an3 securit behaviour of states. &e ar!ues that inter3epen3ent states are likel to !ain pacific benefits from tra3e so lon! as the have an optimistic view of future tra3e relations. &owever, if the e8pectations of f$t$re trade decline, particularl for 3ifficult [en3 pa!e 214- to replace items such as ener! resources, the

li%elihood for conflict increases! as states will be inclined to $se force to gain access to those reso$rces& Crises co$ld potentiall be the trigger for decreased trade e8pectations either on its own or because it tri!!ers protectionist moves b
inter3epen3ent states.: .hir3, others have consi3ere3 the link between economic 3ecline an3 e>ternal arme3 conflict at a national level. 'lomber! an3 &ess @2002D fin3 a stron! correlation between internal conflict an3 e>ternal conflict, particularl 3urin! perio3s of economic 3ownturn. .he write, .he lin%ages between internal and e8ternal conflict and prosperity are strong and

m$t$ally reinforcing& 6conomic conflict tends to spawn internal conflict! which in t$rn ret$rns the favo$r. 2oreover, the presence of a recession tends to amplify the e8tent to which international and e8ternal conflicts self>reinforce each other.
@'lomber! < &ess, 2002. p. 8CD

6conomic decline has also been lin%ed with an increase in the likelihoo3 of terrorism @'lomber!, &ess, < 0eerapana, 200:D, which has the capacity to spill across borders and lead to e8ternal tensions. %urthermore, crises !enerall red$ce the pop$larity of a sittin! government. "Biversionar theor P su!!ests that, when facing $npop$larity arising from economic decline! sittin! governments have increased incentives to fabricate e8ternal military conflicts to create a ?rally aro$nd the flag? effect. 0an! @1CC6D, BeAouen @1CC9D. an3 'lomber!, &ess, an3 .hacker
@2006D fin3 supportin! evi3ence showin! that economic 3ecline an3 use of force are at least in3irectl correlate3. Jelpi @1CC?D, 2iller @1CCCD, an3 Qisan!ani an3 +ickerin! @200CD su!!est that the ten3enc towar3s 3iversionar tactics are !reater for 3emocratic states than autocratic states, 3ue to the fact that 3emocratic lea3ers are !enerall more susceptible to bein! remove3 from office 3ue to lack of 3omestic support. BeAouen @2000D has provi3e3 evi3ence showin! that periods of wea% economic performance in the 5nite3 States, an3 thus weak +resi3ential popularit , are statistically lin%ed to an increase in the $se of force. )n summar , recent economic scholarship positivel correlates economic inte!ration with an increase in the freFuenc of economic crises, whereas political science scholarship lin%s economic decline with

e8ternal conflict at systemic! dyadic and national levels.9 .his implie3 connection between
inte!ration, crises an3 arme3 conflict has not feature3 prominentl in the economic-securit 3ebate an3 3eserves more attention. This observation is not contradictory to other perspectives that lin% economic

interdependence with a decrease in the likelihoo3 of e>ternal conflict, such as those mentione3 in the first para!raph of this chapter. [en3 pa!e 21:- Those st$dies ten3 to focus on 3 a3ic inter3epen3ence instea3 of !lobal inter3epen3ence an3 do not specifically consider the occurrence of an3 con3itions create3 b economic crises. #s such, the view presente3 here shoul3 be consi3ere3 ancillar to those views.

,NC 5ni@$eness
Oil prices are droppingairlines now have a slightly higher margin for profitability orbes! "#" [June 6 2012,
http://www.forbes.com/sites/afontevecchia/2012/06/06/airline-stocks-fl in!-hi!h-afterbi!-correction-in-oil-prices/ "#irline $tocks %l in! &i!h #fter 'i! (orrection )n *il +rices,,- .J Oil prices have s$ffered a s$bstantial correction over the last co$ple of months, with /$ benchmark 0.) even fallin! more than 201 in 2a . 0ith cru3e tra3in! in the mi3-ei!hties, fallin! prices shoul3 brin! some relief to consumers, particularl at the pump, but the also provi3e an investin! opportunit : airlines, which last ear consume3 461 of their revenues in 5et fuel. )t6s been a wil3 ri3e for cru3e tra3ers in 2011, with benchmark 0.) oil futures toppin! 7110 per barrel in %ebruar , an3 now tumblin! all the wa to 789.:4, as of 0e3nes3a 6s close. 0hile prices remain relativel hi!h, in part 3ue to un3erl in! !eopolitical concerns accor3in! to *+;(, the s$bstantial drop sho$ld prove b$llish for the economy and certain stoc%s& 'n partic$lar! airline stoc%s& A report b $<+ (apital )= release3 on 0e3nes3a su!!ests shares in airlines will contin$e to benefit as f$el prices retreat& )n 2011, the /.$. airline in3ustr consume3 16.: billion !allons of (et f$el, costin! them appro>imatel 7:? billion. )n3ee3, this is )"* of the ind$stry+s ,-11 reven$es! .leaving little room for profitability,, $<+6s Jim (orri3ore ar!ue3. /$t! as the tide has t$rned! so has the o$tloo% for airlines& Oil prices co$ld fall even f$rther, as ) e>plaine3 in a piece on the cru3e oil market, with 0.) possibl hittin! 7?9 b the en3 of the month. .he sustaine3 3ecline woul3 be !oo3 for the in3ustr "so lon! as the 3rop is not 3ue to such a severe economic 3ownturn that passen!ers stop fl in!.,

,NC Ain%s

7eneric Ain%s
0S1 directly trades off and competes with airlines
/ardsley! oreign Correspondent for The National! ,-1- [Baniel, 2arch 20 2010, 2arch 20th http://www.thenational.ae/business/full-throttle-on-hi!h-spee3-rail, "%ull .hrottle on &i!h $pee3 Aail,- .J Bhile high>speed trains may be pop$lar with passengers, they can ca$se t$rb$lence to the airline ind$stry. .he rollin! stock ma not be as fast as an aircraft, but as the trains r$n directly into city centres they can be more attractive than flying, even for business travellers. No wonder then that airlines have c$t prices to stay competitive. China So$thern #irlines $sed to charge a reporte3 =-- y$an to fl between Juan!Nhou an3 (han!sha, which lies on the line to 0uhan. This month! passengers co$ld b$y tic%ets online from the carrier for as little as 1=- y$an. 'n 6$rope! airlines have dropped some ro$tes between ma(or cities altogether as a res$lt of competition from high>speed railways. 2r $an!iambut believes China?s airlines will be p$t f$rther on the bac% foot by new train ro$tes& lights of less than two ho$rs, he sa s, wo$ld be Cvery m$ch impactedP if hi!h-spee3 trains start operatin! the same route. PThey will come $nder press$re when these hi!h-spee3 networks become more full operational,P he sa s. P) 3onOt think the will be close3 entirel , but freFuenc coul3 be re3uce3.P .he price of a 'ei5in!-$han!hai hi!h-spee3 train ticket has not been announce3 et, but 2r $an!iambut sa s the ministr of railways will ens$re it is Crather competitiveC with flying. #s a result, he thinks the 'ei5in!-to-$han!hai air ro$te will s$ffer when the hi!h-spee3 rail line opens an3 cuts the rail trip from 10 hours to four hours. P.here will be some impact for sure,P he sa s.

Trains trade off D Chinese airline ind$stry proves Aviation Daily 11+ @'ra3le +errett, #pril 1st, 20116 %ast .rains Brive (hinese
#irlines *ff #nother Aoute, http://www.le>isne>is.com/hottopics/lnaca3emic/D 2.$ %ast trains have claime3 another aviation victim in (hina, with (hina $outhern an3 &enan #irlines !ivin! up the 0uhan-Ian5in! route& *minousl for aviation! the carriers decided they were $nable to compete over that stage length against trains that by Chinese standards are only moderately fast! with ma>imum spee3s of 290 kph @160 mphD. .he two cities are :90 km @280 mi.D apart, an3 the trains take three hours for the trip. 2ore 3ecisive than their spee3 probabl was their faresG5ust 180 uan @72?D each wa & The two airlines had been str$ggling to s$rvive against the intro3uctor fast rail service of three trains a 3a that be!an in 200C& .he prospect of increase3 freFuencies in the thir3 Fuarter makes the route untenable, an3 it is better to give $p immediately! the carriers tell (hinese me3ia& As the railwa s ministr commissions the world+s largest high>speed rail system! the airline ind$stry is watching for si!ns from earl routes of how severe the damage will be& # ear a!o, (hina $outhern was 3riven off the ::0 km route between Rhen!Nhou an3 Si6an b 490 kph trains. .he e>perience with the 290 kph trains between 0uhan an3 Ian5in! su!!ests that the fastest rail services can eliminate all airline competition on a (hinese route of more than :90 km. (hina $outhern lost half of its business on the 8:0 km route between 0uhan an3 Juan!Nhou last ear, when 490 kph trains be!an runnin! between the two cities. .housan3s of kilometers of new lines will be opene3 this ear. Met the (ivil

#viation #3ministration of (hina is pre3ictin! 141 annual traffic !rowth for the airlines in the comin! five ears, barel less than the rates of abo$t 1E* $s$ally seen last decade& &enan #irlines is an ;mbraer 1C0 operator affiliate3 with #ir (hina. Aapi3l 3evelopin! 0uhan, with a population of 10 million, inclu3in! surroun3in! 3istricts, is a hub of the fast-rail s stem. Ian5in!, with more than 6 million people, is another hub, in the 3evelope3 eastern re!ion of (hina.

1ail o$t competesf$el prices! travel times! and realiability&

2orritsma! writer for Aerlines! <[+eter, http://www.aerlines.nl/issueT:4/:4TJorritsmaT#iAailT$ubstitution.p3f, issue :4, "$ubstitution *pportunities of &i!h $pee3 .rain for #ir .ransport,- .J )ntro3uction Competition between high>speed trains @&$.D and airplanes is becoming a hot iss$e a!ain nowa3a s. &i!h f$el prices an3 the intro3uction of a socalle3 ecolo!ical surchar!e in the Ietherlan3s on airplane tickets have p$t press$re on airline companies, an3 have create3 new opportunities for hi!h-spee3 rail transport. ;urostar recentl announce3 it e>perience3 a 20 per cent !rowth in passen!ers over the last si> months, compare3 to the same perio3 in 200?. .his has been 3ue to improve3 travel times between 'russels an3 Kon3on an3 between +aris an3 Kon3on. ;urostar 3i3 not mention whether passen!ers substitute3 from the airplane or car, nor is it clear if the !rowth can be attribute3 to a !eneration effect @i.e. new 5ourne sD. #irline companies have also taken a slice of the pie of hi!h spee3 transport. QK2 /#ir %rance participate to!ether with Butch Aailwa s in the &i!h $pee3 #lliance @&$#D which operates the .hal s trains on the #mster3am-+aris route. +assen!ers will be transferre3 from the airplane to the trains at the airline hub with their ticket booke3 b the airline compan . %actors )nfluencin! $ubstitution ;any factors infl$ence the mar%et shares between the airplane and high>speed trains. #ccor3in! to the literature, travel time is the most important one. 'arron @200?D reports market shares ran!in! from 10 percent to C? percent for &$. compare3 to the airplane& The 0ST has a clear advantage over the airplane on city pairs with travel times between two and three ho$rs. The train can achieve mar%et shares of between E- and <- percent. Joo3 e>amples are cit pairs such as +aris-K on, 2a3ri3-$eville an3 Aome-'olo!na. .he .hal s hi!h-spee3 train on the #mster3am-+aris @: hoursD route, which is not et in full operation, alrea3 has a market share of appro>imatel :9 percent compare3 to the airplane. *ther factors that contribute to the relative position of rail to air are ticket prices, freFuenc of the service, the inte!ration of networks, airline alliances, accessibilit of railwa stations an3 airport terminals, reliabilit an3 punctualit of the services an3 !overnment polic . 'n general! the tic%et price for high>speed rail travel is lower than for air travel! and this difference is reflected in the mar%et share, which is in favor of the &$.. &owever, the rise of low cost air carriers has put pressure on overall ticket prices in the air market. *n certain cit pairs @i.e. Kon3on;3inbur!hD, low-cost carriers even offer tickets below the price of a train ticket. /nfortunatel , har3l an research is available about the impact of low-cost carriers on the substitution rate. ;isenkopf @2006D estimates a substitution rate from rail to air ran!in! from 9 per cent @(olo!ne- &ambur!D to 14 per cent @(olo!ne2unichD. .ravel time an3 travel costs to an3 from the airport terminal to the cit center or 3owntown area 3etermine the accessibilit of the airport. *n the route 2a3ri3-'arcelona, the avera!e travel time an3 travel costs from the cit to the airport are relativel low. .hat is one of the reasons for the hi!h market share of the airplane on that route. *n the other han3, the hi!hspee3 train has a si!nificant market share on the +aris-Kon3on

route, 3espite its hi!h ticket price. +oor accessibilit of both airports b train an3 roa3 is probabl a factor that has a certain influence @$teer Bavies Jleave, 2006D. The operators of high>speed rail services find reliability and p$nct$ality important factors that contrib$te to higher mar%et shares. %or e>ample, the punctualit of the ;urostar @the share of trains with, at the most, a 19 minutes 3eviation from the timetableD has increase3 from ?C per cent since it starte3 operations to 8C per cent to3a . ;urostar claims that punctualit is as important as improvin! travel time. 'mproved p$nct$ality ma%es it also attractive for b$siness travelers to plan their ret$rn (o$rney over longer distances on the same day&

China Froves Ain%s

China provesairlines cannot compete with 0S1 $! ac$lty of /$siness at 0ong Gong Folytechnic 5niversity! Hhang! from the Sa$der School of /$siness at the 5niversity of /ritish Col$mbia and Aei! from the Department of Air Transport at Cranfield 5niversity! 11 [Siaowen %u, #nmin! Rhan!, Rhen! Kei, Becember 16 2011,
http://www.science3irect.com/science/article/pii/$0?4C889C1100062S "0ill (hina6s airline in3ustr survive the entr of hi!h-spee3 railU,,-, .J )n summar , Chinese airlines have been $nable to compete with (A& on the short-/me3ium-haul routes even with cost>based pricing. This poses a serio$s challenge to (hinese airlines as their costs have been increasin!. Burin! 2009e2010 (hinese A2' appreciate3 b more than 201 a!ainst the /$ 3ollar, which si!nificantl re3uce3 (hinese carriers6 cost lea3ership in the international market as evi3ence3 in .able :. $uch a currenc appreciation has been a blessin! overall, since (hinese airlines 3erive most of their revenue from 3omestic markets while finance ma5orit of their fleets purchase with 3ebt in /$ 3ollars. Jol3man $achs @2010aD estimate3 that for the "bi! three, carriers, namel #ir (hina, (hina ;astern an3 (hina $outhern, their A2' base3 sales account for ?0e801 of their revenues, while non-A2' base3 3ebt account for ?0e8?1 of their total 3ebts. &owever, if Chinese airlines have to rely more on international b$siness d$e to increased competition in domestic mar%et! appreciation of A2' will wor% against them&

Once 0S1 has been invested in! airlines won+t be able to compete $! ac$lty of /$siness at 0ong Gong Folytechnic 5niversity! Hhang! from the Sa$der School of /$siness at the 5niversity of /ritish Col$mbia and Aei! from the Department of Air Transport at Cranfield 5niversity! 11 [Siaowen %u, #nmin! Rhan!, Rhen! Kei, Becember 16 2011,
http://www.science3irect.com/science/article/pii/$0?4C889C1100062S "0ill (hina6s airline in3ustr survive the entr of hi!h-spee3 railU,,-, .J )t shoul3 be note3 that there is little room for airlines to lower prices f$rther! as c$rrent fares are already close to cost& .he (ost per #vailable $eat Qilometer @(#$QD of (hina $outhern in the first half of 2010 is about 0.:8 A2', whereas the fli!ht operation cost e>clu3in! 3epreciation, maintenance, airport an3 #.( costs per (#$Q is 0.26 A2'. ;ven with a loa3 factor of 891, for service over a 3istance of 1000 km this translates to a total cost of 969 A2' or mar!inal/operational cost of 406 A2'.19 &owever the &$A is barel a winner. 'ase3 on the estimation in the previous section, the operational cost, interests cost an3 3epreciation per seat amounte3 to 200 A2', 260 A2' an3 400 A2' respectivel . .he current fare of :C0 A2' onl covers variable costs an3 a proportion of fi>e3 costs. &owever, once the 0S1 infrastr$ct$re has already been invested! mar%et o$tcome will be determined largely by marginal costs.

'esi3es, while it is relatively easy for airlines to re>deploy their fleets, rail operator faces great e8it barrier and th$s wo$ld contin$e to compete aggressively so long as price is larger than marginal cost. Bith c$rrent cost str$ct$re! airlines can barely compete on this ro$te for point>to>point travelers&

0S1 will o$t>compete airlines D China proves&

Bebb ! analyst for the 0ong Gong and Shanghai /an%ing Corporation Aimited! and Ghetan! associate from /angalore! 11 @2ark an3 Aa5ani, 2a 11, http://www.research.hsbc.com/mi3as/Aes/ABLU pVp3f<ke Vnw=QbKb#!+<nV2C?6?2.+B% "(hinese #irlines: &i!h $pee3 Aail Aisks *verpla e3,,D .J #irlines 3eraile3U As China+s hi!h spee3 rail I0S1J networ% rolls o$t! airlines are $nder press$re to prevent passenger migration& $ome 0S1 ro$tes c$rrently in operation have had airlines abort operations on them! c$t capacity! or slash fares& The concerns over the airline ind$stry+s f$t$re are intensifying as the 'ei5in!$han!hai route approaches its inau!uration in June this ear, followed by another three %ey ro$tes to be opened in ,-1,& 0S1 ris%s overplayed 0S1 has cost and time advantages over airlines on short>ha$l (o$rneys& 0e ar!ue that (o$rneys $nder 1--- %ilometers will be dominated by 0S1 beca$se the speed advantage of airlines over these distances disappears as airport access! chec%>in! chec%>o$t and travel time from the airport to city centre are ta%en into consideration& &owever, not all the airline routes in this market are at risk as a lar!e portion of such airline routes is in 0est (hina W a re!ion with no &$A. )n3ee3, we estimate that the routes actuall at risk in this cate!or forme3 less than 21 of the total 3omestic capacit of the three +A( airlines in 2010. Over longer distances! however, we ar!ue that 0S1 ris%s will be very limited for two reasons& irst! 0S1 wo$ld be time disadvantaged over these distances& Second! the high proportion of b$siness traffic Iwith low price>time elasticityJ on the ro$tes that matter most to airlines Iin terms of capacity! reven$e and profitsJ wo$ld mean low migration&

0S1 will wrec% the airline ind$stry $! ac$lty of /$siness at 0ong Gong Folytechnic 5niversity! Hhang! from the Sa$der School of /$siness at the 5niversity of /ritish Col$mbia and Aei! from the Department of Air Transport at Cranfield 5niversity! 11 [Siaowen %u, #nmin! Rhan!, Rhen! Kei, Becember 16 2011,
http://www.science3irect.com/science/article/pii/$0?4C889C1100062S "0ill (hina6s airline in3ustr survive the entr of hi!h-spee3 railU,,-, .J 4. (ompetitive effect of &$A on airlines Sharp competition between 0S1 and airlines has been witnessed in mar%ets aro$nd the world! partic$larly in short to medi$m ro$tes linkin! metropolitan cities. &$A was intro3uce3 to $pain in 1CC2 with the openin! of the :?2 km ;adride$evilla line. The rail share of the whole air X rail market increased from ,11 in 1CC1 to 3,* in 1CC4& )n the AondoneFaris ro$te, ;uro$tar has, since intro3uce3 in 1CC:, capt$red abo$t 3-* of the point>to>point

traffic @$teer Bavies Jleave, 2006J& The Taiwan 0igh Speed 1ail @.&$AD started operation in 2an$ary ,--=, linkin! .aipei an3 Qaohsiun! alon! the west coast with a total 3istance of 449.9 km. 'n less than three years! T0S1 has eliminated intra> Taiwan air travel services. )n $outh Qorea, the openin! of 0S1 between Seo$l and /$san in ,--K has significantly red$ced air traffic between the two cities. .he )nternational .ransport %orum @200CD reporte3 that domestic air traffic in rance declined by =* between ,--- and ,--=, which was mostly attrib$table to the increased availability of 0S1 connections.

0S1 will price o$t airlines $! ac$lty of /$siness at 0ong Gong Folytechnic 5niversity! Hhang! from the Sa$der School of /$siness at the 5niversity of /ritish Col$mbia and Aei! fromthe Department of Air Transport at Cranfield 5niversity! 11 [Siaowen %u, #nmin! Rhan!, Rhen! Kei, Becember 16 2011,
http://www.science3irect.com/science/article/pii/$0?4C889C1100062S "0ill (hina6s airline in3ustr survive the entr of hi!h-spee3 railU,,-, .J )t shoul3 be note3 that there is little room for airlines to lower prices further, as current fares are alrea3 close to cost. .he (ost per #vailable $eat Qilometer @(#$QD of (hina $outhern in the first half of 2010 is about 0.:8 A2', whereas the fli!ht operation cost e>clu3in! 3epreciation, maintenance, airport an3 #.( costs per (#$Q is 0.26 A2'. ;ven with a loa3 factor of 891, for service over a 3istance of 1000 km this translates to a total cost of 969 A2' or mar!inal/operational cost of 406 A2'.19 &owever the &$A is barel a winner. 'ase3 on the estimation in the previous section, the operational cost, interests cost an3 3epreciation per seat amounte3 to 200 A2', 260 A2' an3 400 A2' respectivel . .he current fare of :C0 A2' onl covers variable costs an3 a proportion of fi>e3 costs. &owever, once the 0S1 infrastr$ct$re has already been invested! mar%et o$tcome will be determined largely by marginal costs& 'esi3es, while it is relatively easy for airlines to re>deploy their fleets! rail operator faces great e8it barrier and th$s wo$ld contin$e to compete aggressively so long as price is larger than marginal cost& Bith c$rrent cost str$ct$re! airlines can barely compete on this route for point-to-point travelers

Spain Froves Ain%s

0S1 wo$ld be a disaster for the airlines ind$stry D Spain proves Bebb! aviation reporter! ,--< [Ban, #pril 21 200C, ,
http://boar3in!area.com/blo!s/thin!sinthesk /200C/0:/21/shoul3-airlines-fear-hi!hspee3-rail/ "$houl3 #irlines %eear &i!h $pee3 AailU,,- .J ) was rea3in! 2arshall Jackson6s blo! this weeken3 an3 notice3 he ha3 mentione3 that +resi3ent Obama has revealed his initial plans for high speed rail in this co$ntry& ' as%ed myself if an e8pansion co$ld h$rt the airlines& Short answerL absol$tely& One notable e8ample is the ;adrid D /arcelona ro$te, which has historicall been the worl36s busiest. 'n ebr$ary last ear! a high speed rail line was opened between the two cities. 0hile ) 3on6t have the e>act 3ecrease in freFuencies, take a look at this part in the notes to )beria6s %ebruar traffic results: #ccor3in! to the new $trate!ic +lan, the compan re3uce3 capacit in the 3omestic sector b 21.61, lea3in! to a loa3 factor of 68.?1, similar to the level reache3 in %ebruar 2008. #vera!e sta!e len!th !rew b 6.91 in this sector, 3ue to the hi!her re3uction of capacit in fli!hts between 'arcelona W 2a3ri3 @this route be!an to be operate3 b the hi!h spee3 train on the 20th of %ebruar 2008D. ;3it: #ccor3in! to this 0all $treet Journal article, the high speed trains have M snatched half the ro$te+s air>passenger traffic&, @&at tip to m 3a3 for the link.D $ome airlines here in the States co$ld definitely be h$rt by a high speed rail e8pansion. Any f$rther improvement in the Northeast Corridor co$ld negatively affect the Delta and 5S Airways sh$ttle operations! an3 ) a!ree with 2arshall that So$thwest wo$ld get h$rt @) think the intra-.e>as an3 intra-(alifornia routes especiall D. 'f this is ends $p being an e8pansion of Amtra%! '+m very worried when it comes to competition with the airline ind$stry. .he air carriers are motivated by profits and losses @as the shoul3D. )f a route isn6t performin! well, the airline will a35ust accor3in!l b either eliminatin! the route or trimmin! capacit , an3 the opposite happens on successful routes. ;eanwhile! a government>f$nded train system with g$aranteed f$nding can contin$e operating despite being $nprofitable! ma%ing tr$e competition diffic$lt&

0igh f$el prices and economic trends cr$shing the airline ind$stry now Ball Street 2o$rnal! 2$ne E [ Jlobal #irlines %l )nto O$tormO
http://online.ws5.com/article/$'10001:2:092?02404C1820:9??::80448??:1??26.html.J 0igher f$el costs and a treachero$s economic environment are weighing on global airlines! inclu3in! =antas an3 ;mirates #irline. #siaOs carriers last ear earne3 :?1 less in net profit than in 2010, at /$7:.8 billion, accor3in! to the #ssociation of #sia +acific #irlines. Kast month, (atha +acific #irwa s Kt3. sai3 it was consi3erin! whether to accelerate the retirement of a!in! aircraft after it warne3 of P3isappointin!P

first-half financial results. $in!apore #irlines Kt3. an3 Qorean #irlines recentl poste3 Fuarterl losses, forcin! both to rethink sche3ules an3 a35ust aircraft 3eplo ment to boost profits. 6ven fast>growing ;iddle 6ast airlines! once perceived to be imm$ne from global trends! have started to voice concern abo$t b$siness conditions& P't?s a perfect storm of adversity now facing airlines!C .im (lark, presi3ent of Bubaibase3 ;mirates #irline, sai3 in an interview. P.he euro is !oin! south, the poun3 is !oin! south, fuel costs are still too hi!h.P #mi3 those challen!es, thou!h, ;tiha3 #irwa s of #bu Bhabi sai3 .ues3a it has bou!ht a nearl :1 stake in =antas rival Lir!in #ustralia Kt3. L#&.#/ 0.001 $hares in Lir!in #ustralia close3 at :1 #ustralian cents @:0 /.$. centsD each 2on3a , leavin! the compan with a market capitaliNation of C06.2 million #ustralian 3ollars @/$7881.9 millionD. .hat !ives an implie3 valuation of #749.C million on ;tiha3Os 4.C61 stake. # spokesman for ;tiha3 sai3 it woul3 like to raise its hol3in! to at least 101. ;tiha3 operates 2: fli!hts a week between #bu Bhabi in the +ersian Julf an3 #ustralia. 2r. (lark of ;mirates cautione3 that many global carriers co$ld be forced to retrench. Kast month, ;mirates sai3 its latest fiscal- ear net profit fell ?21 after the compan took a /$71.6 billion hit from hi!h fuel costs. 2r. (lark a33e3 .ues3a that the price of /rent cr$de oil will need to drop to between 5S93- and 5S9<- a barrel! from abo$t 5S91--! to revive margins&

,NC 'nternal Ain%s

Strong aerospace %ey to overall 5S 0egemonyeven a moderate decline in the ind$stry wo$ld be disastro$s
Thompson < @Bavi3, +resi3ent W #merican )nstitute of #eronautics an3 #stronautics, ".he #erospace 0orkforce,, %e3eral Iews $ervice, 12-10, Ke>isD .J Aerospace systems are of considerable importance to 5&S& national sec$rity! economic prosperity! technological vitality! and global leadership& Aerona$tical and space systems protect o$r citi:ens! armed forces! and allies abroad& They connect the farthest corners of the world with safe and efficient air transportation and satellite comm$nications, an3 the monitor the ;arth, e>plore the solar s stem, an3 stu3 the wi3er universe. .he /.$. aerospace sector also contributes in ma5or wa s to #mericaOs economic output an3 hi!h- technolo! emplo ment. #erospace research an3 3evelopment an3 manufacturin! companies !enerate3 appro>imatel 72:0 billion in sales in 2008, or nearl 1.?9 percent of our countr Os !ross national pro3uct. .he currentl emplo about 690,000 people throu!hout our countr . /.$. !overnment a!encies an3 3epartments en!a!e3 in aerospace research an3 operations a33 another 129,000 emplo ees to the sectorOs workforce, brin!in! the total to over ??9,000 people. )nclu3e3 in this number are more than 200,000 en!ineers an3 scientists -- one of the lar!est concentrations of technical brainpower on ;arth. &owever, the /.$. aerospace workforce is now facin! the most serious 3emo!raphic challen!e in his 100- ear histor . $impl put, to3a , man more ol3er, e>perience3 professionals are retirin! from or otherwise leavin! our in3ustrial an3 !overnmental aerospace workforce than earl career professionals are enterin! it. .his imbalance is e>pecte3 to become even more severe over the ne>t five ears as the final members of the #pollo-era !eneration of en!ineers an3 scientists complete :0- or :9- ear careers an3 transition to well-3eserve3 retirements. )n fact, aroun3 90 percent of the current aerospace workforce will be eli!ible for retirement within 5ust the ne>t five ears. 2eanwhile, the suppl of oun!er aerospace en!ineers an3 scientists enterin! the in3ustr is woefull insufficient to replace the mountin! wave of retirements an3 other 3epartures that we see in the near future. )n part, this is the result of broa3er technical career tren3s as en!ineerin! an3 science !ra3uates from our countr Os universities continue a multi-3eca3e 3ecline, even as the 3eman3 for their knowle3!e an3 skills in aerospace an3 other in3ustries keeps increasin!. .o3a , onl about 19 percent of /.$. stu3ents earn their first colle!e 3e!ree in en!ineerin! or science, well behin3 the :0 or 90 percent levels seen in man ;uropean an3 #sian countries. Bue to the 3ual-use nature of aerospace technolo! an3 the limite3 suppl of visas available to hi!hl -Fualifie3 non-/.$. citiNens, our in3ustr Os abilit to hire the best an3 bri!htest !ra3uates from overseas is also severel constraine3. #s a result, unless effective action is taken to reverse current tren3s, the /.$. aerospace sector is e>pecte3 to e>perience a 3ramatic 3ecrease in its technical workforce over the ne>t 3eca3e. Mour secon3 Fuestion concerns the implications of a cutback in human spacefli!ht pro!rams. #)##Os view on this is as follows. 0hile /.$. human spacefli!ht pro!rams 3irectl emplo somewhat less than 10 percent of our countr Os aerospace workers, its influence on attractin! an3 motivatin! tomorrowOs aerospace professionals is much !reater than its imme3iate emplo ment contribution. %or nearl 90 ears the e>citement an3 challen!e of human spacefli!ht have been tremen3ousl important factors in the 3ecisions of !enerations of oun! people to

prepare for an3 to pursue careers in the aerospace sector. .his remains true to3a , as in3icate3 b hun3re3s of testimonies #)## members have recor3e3 over the past two ears, a few of which )Oll show in brief vi3eo interviews at the en3 of m statement. %urther evi3ence of the catal tic role of human space missions is foun3 in a recent stu3 con3ucte3 earlier this ear b 2). which foun3 that :0 percent of current aerospace en!ineerin! un3er!ra3uates cite3 human space pro!rams as the main reason the chose this fiel3 of stu3 . .herefore, ) think it can be pre3icte3 with hi!h confi3ence that a ma5or cutback in /.$. human space pro!rams woul3 be substantiall 3etrimental to the future of the aerospace workforce. $uch a cutback woul3 put even !reater stress on an alrea3 weakene3 strate!ic sector of our 3omestic hi!h-technolo! workforce. Mour final Fuestion centers on other issues that shoul3 be consi3ere3 as 3ecisions are ma3e on the fun3in! an3 3irection for I#$#, particularl in the human spacefli!ht area. )n conclusion, #)## offers the followin! su!!estions in this re!ar3. 'e on3 the previousl note3 critical influence on the future suppl of aerospace professionals, a3ministration an3 con!ressional lea3ers shoul3 also consi3er the collateral 3ama!e to the space in3ustrial base if human space pro!rams were substantiall curtaile3. Bue to low annual pro3uction rates an3 hi!hl -specialiNe3 pro3uct reFuirements, the domestic s$pply chain for space systems is relatively fragile& ;any secon3- an3 thir3-tier s$ppliers in particular operate at marginal vol$mes today! so even a small red$ction in their b$siness co$ld force some critical s$ppliers to e8it this sector. &uman space pro!rams represent aroun3 20 percent of the 7:? billion in total /.$. space an3 missile s stems sales from 2008. #ccor3in!l , a ma(or c$tbac% in human space spen3in! co$ld have large and highly adverse ripple effects thro$gho$t commercial! defense, an3 scientific space programs as well, potentiall triggering a series of disr$ptive changes in the common ind$strial s$pply base that o$r entire space sector relies on&

Aerospace %ey to military dominance and tech development

6ric%son! FhD Candidate at Frinceton! K W @#n3rew, %ebruar 1C-21, 200:, http://www.eastwestcenter.or!/filea3min/store3/p3fs/)J$(wp004.p3f "$eiNin! the &i!hest Jroun3,, ;ast-0est )nstitute,D .J Aerospace is 1D critical to military dominance and 2D important to overall technological development& Bith bo$ndless potential for scientific advance! it promises tremendo$s military! economic! and political rewards& #erospace offers establishe3 powers unprece3ente3 opportunities to enhance their !eopolitical e3!e. Critical to great power stat$s today! .Space operations and activities $tili:ing space>based assets have broad implications for national power in peace and warN military operations in space are e8tensively interrelated with national and political interests! and any action in space! even minor ones! can impact the balance of wealth and power among nations&M2: Growing powers therefore naturall regard aerospace development as critical to achieving great power stat$s, establishe3 !reat powers to maintainin! it. $tu3 in! a nation6s aerospace 3evelopment therefore offers ke insi!hts into its !reat power ambitions an3 its capacit to realiNe them.

5S aerospace ind$stry %ey to revitali:e the economy> creates (obs and f$els trade
Tr$po! 'nternational Trade Administrator from the Department of Commerce! 11!

@2ar .rupo, June 21, 2011, http://tra3e.!ov/press/press-releases/2011/aerospacein3ustr -critical-contributor-to-us-econom -062111.asp "#ersopace )n3ustr (ritical (ontributor to /$ ;conom ,D .J %rancisco SOnche:! 5nder Secretary of Commerce for 'nternational Trade! addressed national and international gro$ps at the 2011 +aris #ir $how to reinforce the +resi3ent6s Iational ;>port )nitiative @I;)D an3 s$pport the 5&S& aerospace ind$stry. ".he 5&S& aerospace ind$stry is a strategic contrib$tor to the economy! national sec$rity! and technological innovation of the 5nited States!M $YncheN sai3. .The ind$stry is %ey to achieving the Fresident+s goals of do$bling e8ports by the end of ,-1K and contrib$ted 9=3 billion in e8port sales to the 5&S& economy in ,-1-&M Burin! the /.$. +avilion openin! remarks, $YncheN note3 that the aerospace sector in the 5nited States s$pports more (obs thro$gh e8ports than any other ind$stry& $YncheN witnesse3 a si!nin! ceremon between 'oein! an3 #eroflot, Aussia6s state-owne3 airline. #eroflot has or3ere3 ei!ht ???s value3 at 72.1 billion, an3 the sales will support appro>imatel 1:,000 5obs. .The ,13 American companies represented in the 5&S& 'nternational Favilion demonstrate the innovation and hard wor% that ma%e $s leaders in this sector!M sai3 $YncheN. ") am particularl please3 to see the incre3ible accomplishments of /.$. companies participatin! in the #lternative #viation %uels $howcase, which 3emonstrates our lea3ership in this important sector an3 shows that we are on the ri!ht path to achievin! the clean ener! future envisione3 b +resi3ent *bama.,

Aerospace %ey to economy > trade

7AO " [ $eptember 2006, /nite3 $tates Jovernment #ccountabilit *fficeZ Z http://www.!ao.!ov/new.items/306C20.p3f "/.$. #;A*$+#(; )IB/$.AM[,- .J .he impact of the aerospace in3ustr on the /.$. econom is si!nificant, with the in3ustr estimatin! 71?0 billion in sales an3 appro>imatel 629,000 people emplo e3 in 2009. 9 .he importance of this in3ustr to the /.$. econom will continue to !row in the future. #ccor3in! to %##, the /.$. commercial aircraft fleet is estimate3 to !row from ?,846 in 2009 to 10,6?? in 201?. 'oth passen!er capacit an3 car!o operations are e>pecte3 to continue to !row, with passen!er capacit in 200? increasin! b :.6 percent an3 then increasin! b an avera!e of :.2 percent per ear until 201?. %## estimates that over 1 billion passen!ers will use /.$. airports b 2019. Bomestic car!o revenueton miles are pro5ecte3 to increase at an avera!e annual rate of 4.2 percent until 201?, e>cee3in! 24 billion. %urthermore, the /.$. aerospace in3ustr consistentl shows a forei!n tra3e surplusGreachin! 741 billion in 200:. #erospace e>ports constitute3 6.C percent of the total value of /.$.-e>porte3 merchan3ise in 200:.

Airline 'nd$stry is %ey to (obs in the aerospace ind$stry

Conway and Federsen! economists! " @Aichar3 $., Bou!las &. +e3ersen, Januar 2006, http://afa-wa.com/#erospaceT)n3ustr .p3f ".he 0ashin!ton #erospace )n3ustr ,,,D .J Air transportation is a vital f$nction of a modern economy& 't entails a variety of

activitiesL aerospace man$fact$ring! air passenger and freight service! airport operations! air traffic control! air transportation arrangement! and other air s$pport services& .o3a , inclu3in! the suppliers of these activities, air transportation emplo s more than 100,000 people in 0ashin!ton& This st$dy foc$ses on the aerospace ind$stry! which acco$nts for more than one>half of the employment in air transportation: \ The Bashington aerospace ind$stry primarily man$fact$res aircraft and parts. \ Ke3 b .he 'oein! (ompan , the aerospace in3ustr emplo e3 69,:00 people in 2009. \ Bith an average ann$al wage of 93)!)=-! more than do$ble the average for all ind$stries! the aerospace ind$stry paid 9E&K billion in wages and salaries. \ .akin! into consi3eration the 3irect an3 in3irect impact on the econom , the aerospace in3ustr accounte3 for an estimate3 20C,400 5obs or ?.9 percent of total state emplo ment. \ 2ore than nine out of ever ten aerospace emplo ees worke3 in Qin! (ount @48,800D an3 $nohomish (ount @24,?00D in 2009. \ .he total impact of the in3ustr amounte3 to 116,:00 5obs or 10.1 percent of total emplo ment in Qin! (ount an3 92,100 5obs or 22.C percent of total emplo ment in $nohomish (ount . \ The aerospace ind$stry also acco$nted for K-!3-- (obs or ,&< percent of total employment in the rest of the state. 2. 'A);% &)$.*AM The history of the aerospace ind$stry in Bashington is almost as long as the history of the airplane& )n 1C16, 5ust thirteen ears after the 0ri!ht brothers took their first heavier-than-air fli!ht at Qitt &awk, 0illiam 'oein! foun3e3 the +acific #ero +ro3ucts (ompan an3 soon rename3 it the 'oein! #irplane (ompan . )nitiall , +acific #ero +ro3ucts emplo e3 16 workers earnin! 1: to :0 cents per hour. $ellin! bi-planes @2o3el (sD to the nav an3 arm 3urin! 0orl3 0ar ), the $eattle compan emer!e3 from the conflict as a ma5or aircraft manufacturer& After the war! /oeing devoted m$ch of its effort to developing aircraft for a promising commercial mar%et& .he airline in3ustr be!an in 1C29 when (on!ress turne3 over the 5ob of fl in! mail to private contractors. 'oein! forme3 a subsi3iar calle3 'oein! #ir .ransport, the forerunner to /nite3 #irlines, an3 successfull bi3 on a fe3eral contract to fl mail between $an %rancisco an3 (hica!o. )n 1C2?, the 24-hour inau!ural fli!ht in a 2o3el :0# carrie3 mail as well as two-pa in! passen!ers.

Domestic airline ind$stry strength is %ey to the aerospace ind$stry

Conway " @Aichar3 $., Bou!las &. +e3ersen, ".he 0ashin!ton #erospace )n3ustr ,, Januar 2006, http://afa-wa.com/#erospaceT)n3ustr .p3fD .J Polatile demand& The demand for aircraft! whether stemming from the military or the world airline ind$stry! is highly volatile& 7iven that /oeing is a ma(or employer! the fl$ct$ations in aircraft demand have often sent ripples thro$gho$t the state economy& The ramp>$p in /oeing prod$ction d$ring Borld Bar ''! which led to K-!--- new (obs! helped p$ll the Seattle area o$t of the 7reat Depression& The s$bse@$ent lay>offs at the concl$sion of the war precipitated a recession. Bespite a 3eclinin! emplo ment share, the aerospace in3ustr can still impart si!nificant fluctuations to the 0ashin!ton econom @%i!ure :D. S$rging aerospace employment co$pled with a strong national economy triggered state economic booms in the late 1<=-s! 1<3-s! and 1<<-s. $purre3 b :8,000 new hires in the aerospace in3ustr , the 1C84-C0 e>pansion create3 full one-fifth of the 5obs in the state econom to3a . /ac%>to>bac% aerospace sl$mps contrib$ted s$bstantially to the last recession&

Aerospace dependent on Airline 'nd$stry

7ome: et al! $ndergrad$ate at 0arvard p$rs$ing a degree in @$antitative finance! 1, ['en &ur JomeN, John $imon, #lan )brahim, http://www.wikinvest.com/stock/+recisionT(astpartsT@+(+D- "Bepen3ence on ke customers,,D .J +(+6s commercial sales depend s$bstantially on the prod$ction rates of both /oeing Company I/AJ and Airb$s ! which in t$rn depend $pon deliveries of new aircraft& The $ltimate drivers of orders and deliveries of aircraft are $nderlying air travel demand! financial health of airlines! growth prospects for airline capacity! and overall economic growth& The c$rrent increase in aerospace demand is dependent on increased spending by foreign carriers and domestic airlines who m$st $pgrade aging fleets& +(+ stan3s to benefit from e>pecte3 aircraft 3eliveries b 'oein! an3 #irbus, an3 from the replacement c cle of a!in! turbines an3 aircraft that will be up!ra3e3 or overhaule3. #n factor that a3versel affects the aerospace in3ustr @similar to the tra!ic events of C/11 or the $#A$ travel scareD woul3 likel pressure +(+6s operations an3 profitabilit . /an%r$ptcy of another airline, continue3 hi!h oil prices, or the possibilit of a ma5or terrorist attack threaten to change the co$rse of the recovery in the aerospace cycle and li%ely impact FCF&

Aerospace %ey to economy

A'AA -< [#u!ust 200C, #erospace )n3ustries #ssociation of #merica, "#erospace an3 Befense: .he $tren!th to Kift #merica,, http://www.aiaaerospace.or!/assets/wpTstren!thTau!0C.p3f "#erospace an3 Befense: .he $tren!th to Kift #merica,- .J #s the /.$. econom moves throu!h uncertain times, #merica6s aerospace in3ustr remains a powerful, reliable en!ine of emplo ment, innovation, an3 e>port income. #erospace contribute3 7C9.1billion in e>port sales to #merica6s econom last ear.1 (onservativel , /.$. aerospace sales alone account for 4-9 percent of our countr 6s !ross 3omestic pro3uct, an3 ever aerospace 3ollar iel3s an e>tra 71.90 to 74 in further economic activit .2 #erospace pro3ucts an3 services are pillars of our nation6s securit an3 competitiveness. )n these challen!in! times, the aerospace in3ustr is soli3l an3 reliabl contributin! stron!l to the national econom an3 the lives of millions of #mericans. 0e stron!l believe that keepin! this economic workhorse on track is in #merica6s best interest, .o accomplish this, our !overnment must 3evelop policies that stren!then the positions of all workers in all in3ustries, especiall economic pro3ucers like aerospace an3 3efense. .his paper e>plains what6s at stake, an3 wa s to ensure that a proven economic success continues to en3ure an3 thrive.

,NC 'mpacts
6conomic growth is vital to prevent the collapse of 5&S& hegemony& Ghalil:ad 11 G Ralma QhalilNa3, (ounselor at the (enter for $trate!ic an3
)nternational $tu3ies, serve3 as the /nite3 $tates ambassa3or to #f!hanistan, )raF, an3 the /nite3 Iations 3urin! the presi3enc of Jeor!e 0. 'ush, serve3 as the 3irector of polic plannin! at the Befense Bepartment 3urin! the +resi3enc of Jeor!e &.0. 'ush, hol3s a +h.B. from the /niversit of (hica!o, 2011 @".he ;conom an3 Iational $ecurit ,, National Review, %ebruar 8th, #vailable *nline at http://www.nationalreview.com/articles/print/29C02:, #ccesse3 02-08-2011D .o3a , economic and fiscal trends pose the most severe long>term threat to the 5nite3 States6 position as global leader& Bhile the 5nite3 States s$ffers from fiscal imbalances and low economic growth! the economies of rival powers are developing rapidly& The contin$ation of these two trends co$ld lead to a shift from American primacy toward a m$lti>polar global system! leading in turn to increased geopolitical rivalry and even war among the great powers.
.he current recession is the result of a 3eep financial crisis, not a mere fluctuation in the business c cle. Aecover is likel to be protracte3. .he crisis was prece3e3 b the buil3up over two 3eca3es of enormous amounts of 3ebt throu!hout the /.$. econom G ultimatel totalin! almost 490 percent of JB+ G an3 the 3evelopment of cre3it-fuele3 asset bubbles, particularl in the housin! sector. 0hen the bubbles burst, hu!e amounts of wealth were 3estro e3, an3 unemplo ment rose to over 10 percent. .he 3ecline of ta> revenues an3 massive counterc clical spen3in! put the /.$. !overnment on an unsustainable fiscal path. +ublicl hel3 national 3ebt rose from 48 to over 60 percent of JB+ in three ears.

Bitho$t faster economic growth and actions to red$ce deficits! p$blicly held national debt is pro(ected to reach dangero$s proportions& 'f interest rates were to rise significantly! ann$al interest payments G which alrea3 are lar!er than the 3efense bu3!et G wo$ld crowd o$t other spending or re@$ire s$bstantial ta8 increases that wo$ld $nderc$t economic growth. ;ven worse, if $nanticipated events trigger what economists call a .s$dden stopM in credit mar%ets for 5&S& debt! the 5nite3 States wo$ld be $nable to roll over its o$tstanding obligations! precipitating a sovereign>debt crisis that wo$ld almost certainly compel a radical retrenchment of the /nite3 $tates internationally. S$ch scenarios wo$ld reshape the international order. )t was the economic 3evastation of
'ritain an3 %rance 3urin! 0orl3 0ar )), as well as the rise of other powers, that le3 both countries to relinFuish their empires. )n the late 1C60s, 'ritish lea3ers conclu3e3 that the lacke3 the economic capacit to maintain a presence "east of $ueN., $oviet economic weakness, which cr stalliNe3 un3er Jorbachev, contribute3 to their 3ecisions to with3raw from #f!hanistan, aban3on (ommunist re!imes in ;astern ;urope, an3 allow the $oviet /nion to fra!ment. 'f the 5&S&

debt problem goes critical! the 5nite3 States wo$ld be compelled to retrench! red$cing its military spending and shedding international commitments. 0e face this 3omestic challen!e while other ma(or powers are e8periencing rapid economic growth. ;ven thou!h co$ntries s$ch as China! 'ndia! and /ra:il have profoun3 political, social, 3emo!raphic, an3 economic problems, their economies are growing faster than ours, and this co$ld alter the global distrib$tion of power& These trends co$ld in the long term prod$ce a m$lti>polar world& 'f 5&S& policyma%ers fail to act and other powers contin$e to grow! it is not a @$estion of whether b$t when a new international order will emerge& The closing of the gap between the 5nite3 States and its rivals co$ld intensify geopolitical competition among ma(or powers! increase incentives for local powers to play ma(or powers against one another! and $nderc$t o$r will to precl$de or respond to international crises beca$se of the higher ris% of escalation. The sta%es are high& 'n modern history! the longest period of peace among the

great powers has been the era of 5&S& leadership. ' contrast, m$lti>polar systems have been $nstable! with their competitive dynamics res$lting in fre@$ent crises and ma(or wars among the great powers& ail$res of m$lti>polar international systems prod$ced both world wars. American retrenchment co$ld have devastating conse@$ences& Bitho$t an American sec$rity blan%et! regional powers co$ld rearm in an attempt to balance against emerging threats& 5nder this scenario! there wo$ld be a heightened possibility of arms races! miscalc$lation! or other crises spiraling into all>o$t conflict. #lternativel , in seekin! to accommo3ate the stron!er powers, weaker powers ma shift their !eopolitical posture awa from the /nite3 $tates. ;ither wa , hostile states wo$ld be emboldened to ma%e aggressive moves in their regions. As rival powers rise! Asia in particular is li%ely to emerge as a :one of great>power competition. 'ei5in!6s economic rise has enable3 a 3ramatic militar buil3up focuse3 on acFuisitions of naval,
cruise, an3 ballistic missiles, lon!-ran!e stealth aircraft, an3 anti-satellite capabilities. (hina6s strate!ic mo3erniNation is aime3, ultimatel , at 3en in! the /nite3 $tates access to the seas aroun3 (hina. ;ven as cooperative economic ties in the re!ion have !rown, (hina6s e>pansive territorial claims G an3 provocative statements an3 actions followin! crises in Qorea an3 inci3ents at sea G have roile3 its relations with $outh Qorea, Japan, )n3ia, an3 $outheast #sian states. $till, the /nite3 $tates is the most si!nificant barrier facin! (hinese he!emon an3 a!!ression. 7iven the ris%s! the 5nite3 States m$st foc$s on restoring its economic and fiscal

condition while chec%ing and managing the rise of potential adversarial regional powers s$ch as China. 0hile we face si!nificant challen!es, the /.$. econom still accounts for over 20
percent of the worl36s JB+. #merican institutions G particularl those provi3in! enforceable rule of law G set it apart from all the risin! powers. $ocial cohesion un3erwrites political stabilit . /.$. 3emo!raphic tren3s are healthier than those of an other 3evelope3 countr . # culture of innovation, e>cellent institutions of hi!her e3ucation, an3 a vital sector of small an3 me3ium-siNe3 enterprises propel the /.$. econom in wa s 3ifficult to Fuantif . &istoricall , #mericans have respon3e3 pra!maticall , an3 sometimes throu!h trial an3 error, to work our wa throu!h the kin3 of crisis that we face to3a . .he polic Fuestion is how to enhance economic !rowth an3 emplo ment while cuttin! 3iscretionar spen3in! in the near term an3 curbin! the !rowth of entitlement spen3in! in the out ears. Aepublican members of (on!ress have outline3 a plan. $everal think tanks an3 commissions, inclu3in! +resi3ent *bama6s 3ebt commission, have 3one so as well. $ome consensus e>ists on measures to pare back the recent increases in 3omestic spen3in!, restrain future !rowth in 3efense spen3in!, an3 reform the ta> co3e @b re3ucin! ta> e>pen3itures while lowerin! in3ivi3ual an3 corporate ratesD. .hese are promisin! options. .he ke remainin! Fuestion is whether the presi3ent an3 lea3ers of both parties on (apitol &ill have the will to act an3 the skill to fashion bipartisan solutions. 0hether we take the nee3e3 actions is a choice, however 3ifficult it mi!ht be. )t is clearl within our capacit to put our econom on a better tra5ector . )n !arnerin! political support for cutbacks, the presi3ent an3 members of (on!ress shoul3 point not onl to the 3omestic conseFuences of inaction G but also to the !eopolitical implications. #s the /nite3 $tates !ets its economic an3 fiscal house in or3er, it shoul3 take steps to prevent a flare-up in #sia. .he /nite3 $tates can 3o so b si!nalin! that its 3omestic challen!es will not impe3e its intentions to check (hinese e>pansionism. .his can be 3one in cost-efficient wa s. 0hile (hina6s economic rise enables its militar mo3erniNation an3 international assertiveness, it also fri!htens rival powers. .he *bama a3ministration has wisel move3 to stren!then relations with allies an3 potential partners in the re!ion but more can be 3one. $ome (hinese policies encoura!e other parties to 5oin with the /nite3 $tates, an3 the /.$. shoul3 not let these opportunities pass. (hina6s militar assertiveness shoul3 enable securit cooperation with countries on (hina6s peripher G particularl Japan, )n3ia, an3 Lietnam G in wa s that complicate 'ei5in!6s strate!ic calculus. (hina6s mercantilist policies an3 currenc manipulation G which harm 3evelopin! states both in ;ast #sia an3 elsewhere G shoul3 be use3 to fashion a coalition in favor of a more balance3 tra3e s stem. $ince 'ei5in!6s over-the-top reaction to the awar3in! of the Iobel +eace +riNe to a (hinese 3emocrac activist alienate3 ;uropean lea3ers, hi!hli!htin! human-ri!hts Fuestions woul3 not onl 3raw supporters from nearb countries but also embol3en reformers within (hina.

Since the end of the Cold Bar! a stable economic and financial condition at home has enabled America to have an e8pansive role in the world& Today we can no longer ta%e this for granted& 5nless we get o$r economic ho$se in order! there is a ris% that domestic stagnation in combination with the rise of rival powers will $ndermine o$r ability to deal with growing international problems& 1egional hegemons in Asia co$ld sei:e the moment! leading the world toward a new! dangero$s era of m$lti>polarity.

ATs

ATL 0$rst 6nvironment

The environmental benefits of trains over planes are small
Transport 1esearch Center < [*ctober 200C, *;(B Aeport, http://www.internationaltransportforum.or!/5trc/3iscussionpapers/B+200C0?.p3f "(ompetitive )nteraction between #irports, #irlines an3 &i!h-$pee3 Aail,- .J Given the limited scope for cheap greenhouse gas abatement in aviation, Section 5 asks if it makes sense to increase the availability of high-speed rail alternatives. 0igh>speed rail can s$bstit$te for air transport on mid>range distances and prod$ces fewer emissions per trip, especially when electricity is produced in non-carbon-intensive ways. 0owever! life> cycle emissions, relevant in an ex ante analysis, for rail arguably are high, given the high emissions from trac% infrastr$ct$re constr$ction (see, e.g., Chester and orvath, !""#$ and maintenance. owever, a broader comparison of costs and benefits shows that (a$ high> speed rail lin%s are socially desirable in a certain set of circumstances and sho$ld not be viewed as a general alternative to air transport, and (b$ environmental benefits play a fairly minor role in the overall eval$ation of high>speed rail pro(ects&

Affirmative
0igh f$el prices and less baggage money have p$t airlines on the brin% Ball Street 2o$rnal! 1, [2a 12, http://online.ws5.com/article/'.-(*-2012091??1082?.html ""'.$: /$ #irlines := *peratin! +rofit $lumpe3 401 Bespite &i!her Aevenue,- .J .he 'ureau of .ransportation $tatistics sai3 /&S& airlines recorded a )-* year>over> year drop in operating profit in the fo$rth @$arter, $nderscoring the ongoing challenge of high costs to f$el planes. .he '.$, a unit of the /.$. Bepartment of .ransportation, sai3 the airline ind$stry?s operatin! profit sl$mped to 91&1E billion in the fourth Fuarter, 3own from 91&"K billion a year earlier& *peratin! revenue, meanwhile, rose 61 to 7:6.69 billion. ;any airlines have reported deteriorating profitability in recent @$arters as climbing f$el costs chip into reven$e gains. #s part of their fourth-Fuarter revenue, airlines collected 9=<, million in baggage fees! down from 93,3&3 million a ear earlier. %ees to chan!e fli!ht reservations totale3 796?.1 million from *ctober to Becember 2011, up sli!htl from 799C.9 million in the same perio3 a ear earlier.

Airlines doing worse than e8pected

A/C News -<+ @$cott 2a erowitN, Jul 22n3 200C, http://abcnews.!o.com/'usiness/stor Ui3V81:048?<pa!eV1]..-.IkbLMu+=D 2.$ 0hile some parts of the econom are showin! si!ns of recover ! the airline ind$stry looks like it is headed for a t$rb$lent ride! en3in! with at least one ma(or carrier possibl going o$t of b$siness& # 3eathl combination of b$siness travelers staying home! decreased cargo and more flights than there is demand has led the nation?s ma(or airlines to spend more money than they are ta%ing in from tic%et sales& /ltimatel , consumers will pa the price throu!h hi!her airfares, more fees an3 si!nificantl fewer choices& CThe ind$stry is doing worse than we had tho$ght,P Aa Iei3l, an in3epen3ent airline anal st, sai3 3escribin! the earnin!s announcements so far& C0ith the fuel lower than last ear an3 with the capacit cuts, the thinkin! was the airlines coul3 return to profitabilit b sprin! [ .hat 3i3nOt turn out to be the case.P American Airlines reported last week that it lost 9)<- million in the secon3 Fuarter! Continental Airlines T$esday anno$nced a 9,1) million loss for the same perio3 an3 Delta! the world?s largest carrier! 0e3nes3a mornin! said it lost 9,E= million& ;ven the !oo3 news from the airlines isnOt that !oo3. $outhwest announce3 that it ha3 earne3 79: million in the #pril-June perio3 but that was 3own 3ramaticall from the 7421 million earne3 3urin! the same perio3 last ear. /nite3 #irlines parent compan /#K earne3 a profit of 728 million but that was thanks to one-time !ains. Kast ear at this time, the compan ha3 a !iant loss of 72.?: billion. #nal sts consi3er /nite3Os financial position to be the most precarious of all the ma5or carriers.

0S1 only trades off with inefficient and e8pensive regional flights The68aminer 1,+ @0ill Aeisman,
http://www.sfe>aminer.com/local/transportation/2012/0:/hi!h-spee3-rail-coul3-freevaluable-space-sfo &i!h-spee3 rail coul3 free up valuable space at $%* http://www.sfe>aminer.com/local/transportation/2012/0:/hi!h-spee3-rail-coul3-freevaluable-space-sfo]i>NN1 uko&C(3D 0hile the state6s hi!h-spee3 rail pro5ect is e>pecte3 to re3efine how people travel on trains! local officials are ban%ing on the plan having an e@$ally important impact in the s%ies. Small! inefficient flights between .he (it an3 the Kos #n!eles area acco$nt for 1E percent of all domestic travel at the $an %rancisco )nternational #irport. 0ith the option of travelin! between the two cities in 5ust two hours an3 :0 minutes on hi!h-spee3 rail, travelers ma start eschewin! the short fli!hts, a 3evelopment that woul3 open up more !ates for lucrative international an3 transcontinental travel at $%*. "There is no @$estion that international travel brings a m$ch higher economic benefit to the region!M sai3 (harles $huler, a spokesman for $%*. .And with high>speed rail! we+ll be able to red$ce the n$mber of short>ha$l trips to the Aos Angeles /asin and introd$ce more international flights&M Aaurie #n3erson, spokeswoman for the tourism !roup $an %rancisco .ravel, sai3 international travelers stay longer and spend more money than domestic visitors& #n increase in such travel coul3 intro3uce $an %rancisco to a whole new market of future tourists. ".he more visitors we !et, the healthier our cit is,, sai3 #n3erson. #lon! with re3ucin! air travel to Kos #n!eles, hi!h-spee3 rail also coul3 re3uce connectin! fli!hts to $%* from (entral Lalle cities such as %resno an3 2o3esto. .A plane with )- people from resno ta%es the same slot as a K-->person ($mbo (et from /ei(ing!M sai3 Jim KaNarus, public polic 3irector at the $an %rancisco (hamber of (ommerce. .0igh> speed rail will eliminate that problem! and allow for a higher fre@$ency of large planes to land at the airport.,

Airline fail$re inevitable D fo$r warrants Al$ise 1,+ @$usan J. #luise is presi3ent of Iational Iews $ n3icate an3 she has been
a 5ournalist for more than thirt ears, 2a 2Cth 2012, )nvestorplace.com a Fualifie3 source http://www.investorplace.com/2012/09/:-reasons-lower-fuel-prices-wont-liftairlines/D 2.$ Aower oil prices gave most 5&S& airline stoc%s a bo$nce last wee% not a s$rprising development since f$el acco$nts for as m$ch as K-* of an airline+s operating costs& J+2or!an @IM$;:J+2D anal st Jamie 'aker last week estimate3 that the savin!s from lower fuel woul3 create 79.9 billion in annual "win3fall, profits for the airlines. Bhile lower f$el prices are good news! airlines have lots of other problems! so be choos when pla in! the sector. 0ere are fo$r reasons to do$bt the sector+s latest attempt to ascendL $el Frice Polatility 't+s not ($st high (et f$el prices that are eating airlines+ collective l$nch it+s wild swings in f$el prices. (arriers make ver precise measures of suppl an3 3eman3, an3 3etermine how to !et the most ban! for their fuel buck. )n the commercial aviation in3ustr , that6s known as capacit plannin!. 0hen fuel prices are hi!h, airlines are more likel to re3uce capacit b fillin! all the seats in smaller, more fuel-efficient aircraft. 0hen fuel prices are low, the can increase capacit b fl in! lar!er aircraft. #lthou!h most airlines tr to miti!ate hi!h fuel prices with tactics like he3!in! @or in Belta #ir Kines6 @IM$;:B#KD case, bu in! an oil refiner D, they can also lose big when f$el prices fall $ne8pectedly& The ;ess in 6$rope The sit$ation in 7reece will %eep casting a pall over 6$rope in the near

f$t$re and the continent already had been headed toward recession& That+s bad news for 5&S& airlines that fly there! like Belta, /nite3 (ontinental @IM$;:/#KD, #merican #irlines @+)IQ:##2A=D an3 /$ #irwa s @IM$;:K((D. 5&S& airlines will need to decrease capacity to 6$rope as the year wears on& Airlines for America IAKAJ! the trade gro$p that represents 5&S& carriers! says airlines will c$t capacity to 6$rope by nearly 3* in the fo$rth @$arter of this year& .hat coul3 be tou!h on earnin!s because ;urope remains /.$. airlines6 lar!est international market. Belta alrea3 has announce3 plans to cut its trans-#tlantic capacit b 91 after Kabor Ba . 7 0igher TSA Ta8es Airlines aren+t getting a lot of help from Congress& A %ey Senate committee last wee% advanced a bill that wo$ld do$ble transportation sec$rity ta8es from the c$rrent 9,&E- for a one>way flight segment to E& .hat affects ever airline inclu3in! $outhwest-#ir.ran @IM$;:K/LD, Jet'lue @I#$B#=:J'K/D, #laska #irlines @IM$;:#KQD, $pirit @I#$B#=:$#L;D an3 $k 0est @I#$B#=:$QM0D. #lthou!h carriers will pass the ta> hikes on to their passen!ers, revenue is still likel to take a hit. ")t6s a simple eFuation: Bhen yo$ add ta8es! demand for air travel is dampened! res$lting in lost (obs and lost air service!M sai3 #:# +resi3ent an3 (;* Iicholas ;. (alio. "*ur customers to3a pa 201 W 760 on an avera!e 7400 3omestic roun3trip ticket W of their ticket prices in ta>es, on par with ta>es for alcohol an3 tobacco, pro3ucts ta>e3 to 3iscoura!e their use., 2er!er &iccups (onsoli3ation has been proven time an3 a!ain to be a !oo3 thin! for airlines: )t 3elivers broa3er reach, economies of scale an3 financial benefits. 'ut marria!e is eas compare3 to the 3ail challen!es of livin! to!ether after the hone moon. Belta6s combination with Iorthwest in the mi33le of the Jreat Aecession was acclaime3 as a success stor , in lar!e part because Aichar3 #n3erson, B#K6s chief, ha3 spent more than three ears runnin! Iorthwest in the earl 2000s. 6ven so! the merged carrier still str$ggled with its labor $nions& 5nited Continental is fightng thro$gh ma(or comp$ter integration glitches now! and its c$stomer approval has pl$mmeted& ;arl into the process of inte!ratin! operations with #ir.ran, $outhwest has ma3e some pro!ress G notabl subleasin! #ir.ran6s 'oein! @IM$;:'#D ?1?s to Belta so that the combine3 carrier coul3 stan3ar3iNe on the 'oein! ?4?. #ir.ran, which alrea3 flies to 2e>ico, last week launche3 new international fli!hts to that countr an3 to +uerto Aico. 'ut $outhwest6s fli!ht atten3ants last week vote3 3own a 3eal that woul3 have allowe3 the carrier to fl internationall or over water. Thorny iss$es li%e these pose significant challenges for combined carriers it the near term&

Airline ind$stry is not %ey to the economy> stoc% mar%ets Gay -E+ @John Qa , $eptember 2?th, 2009 http://www.5ohnka .com/2009/0C/2?/airlinesan3-the-canine-features-of-unprofitable-in3ustries an3 John Qa is an 'ritish economistD The efficient ind$stry hypothesis s$ggests that if an ind$stry loo%s partic$larly attractive! or $nattractive! then companies will enter! or leave, until the attractiveness or unattractiveness 3isappears. 'ut then there are businesses which !overnments are keen on. .he airline in3ustr is one of them an3 governments fight to allow their ta8payers to po$r ever more money into blac% holes& 0arren 'uffett observe3 that the world airline ind$stry has not made a dime for investors in a cent$ry of manne3 fli!ht. &e sai3 this in 1CC1, acknowle3!in! his mistake in bu in! stock in /$ #ir @now known as /$ #irwa sD. #lthou!h 2r 'uffett en!ineere3 a profitable e>it from his investment, matters are no better& /$ #ir is un3er (hapter 11 protection, alon! with /nite3 #irlines an3 now Belta an3 Iorthwest #irlines& The ban%r$ptcy co$rt ($dge is as essential to yo$r flight as the pilot& .he $a!e of *maha ar!ues that in3ustr factors !enerall 3ominate profitabilit : "0hen a mana!ement with a reputation

for brilliance tackles a business with a reputation for ba3 economics, it is the reputation of the business that remains intact., 'ut what !ives an in3ustr a reputation for ba3 economicsU ) have alwa s favoure3 the efficient in3ustr h pothesis, the business analo!ue of the efficient market h pothesis&

Decline of domestic air travel inevitable > decreased demand

/loomberg News "#)#1, ["0h /$ airlines nee3 to a3apt to a slow-!rowth future, http://www.bloomber!.com/news/2012-06-04/wh -u-s-airlines-nee3-to-a3apt-to-a-slow!rowth-future.html- .J Yet 5&S& airlines face a long>term challenge that should concern industry executives as well as investors. That impediment isn+t wages! f$el prices or a stagnant economy. 't+s growth in demand for air travel, which has been anemic at best for more than a decade! even when the economy was e8panding& Steadily dropping fares are the only reason traffic has grown at all since ,---& And witho$t s$bstantive cost> c$tting innovation in the ind$stry, that pace isn+t s$stainable. Coca- Cola Co. cant increase its business through constant price cutting, and neither can airlines. 'f inflation-adjusted fares hadn+t dropped 1= percent from ,--- to ,-1-! my research suggests that domestic travel wo$ld have declined&

0igh f$el prices and economic trends cr$shing the airline ind$stry now Ball Street 2o$rnal! 2$ne E [ Jlobal #irlines %l )nto O$tormO
http://online.ws5.com/article/$'10001:2:092?02404C1820:9??::80448??:1??26.html.J 0igher f$el costs and a treachero$s economic environment are weighing on global airlines! inclu3in! =antas an3 ;mirates #irline. #siaOs carriers last ear earne3 :?1 less in net profit than in 2010, at /$7:.8 billion, accor3in! to the #ssociation of #sia +acific #irlines. Kast month, (atha +acific #irwa s Kt3. sai3 it was consi3erin! whether to accelerate the retirement of a!in! aircraft after it warne3 of P3isappointin!P first-half financial results. $in!apore #irlines Kt3. an3 Qorean #irlines recentl poste3 Fuarterl losses, forcin! both to rethink sche3ules an3 a35ust aircraft 3eplo ment to boost profits. 6ven fast>growing ;iddle 6ast airlines! once perceived to be imm$ne from global trends! have started to voice concern abo$t b$siness conditions& P't?s a perfect storm of adversity now facing airlines!C .im (lark, presi3ent of Bubaibase3 ;mirates #irline, sai3 in an interview. P.he euro is !oin! south, the poun3 is !oin! south, fuel costs are still too hi!h.P #mi3 those challen!es, thou!h, ;tiha3 #irwa s of #bu Bhabi sai3 .ues3a it has bou!ht a nearl :1 stake in =antas rival Lir!in #ustralia Kt3. L#&.#/ 0.001 $hares in Lir!in #ustralia close3 at :1 #ustralian cents @:0 /.$. centsD each 2on3a , leavin! the compan with a market capitaliNation of C06.2 million #ustralian 3ollars @/$7881.9 millionD. .hat !ives an implie3 valuation of #749.C million on ;tiha3Os 4.C61 stake. # spokesman for ;tiha3 sai3 it woul3 like to raise its hol3in! to at least 101. ;tiha3 operates 2: fli!hts a week between #bu Bhabi in the +ersian Julf an3 #ustralia.

2r. (lark of ;mirates cautione3 that many global carriers co$ld be forced to retrench. Kast month, ;mirates sai3 its latest fiscal- ear net profit fell ?21 after the compan took a /$71.6 billion hit from hi!h fuel costs. 2r. (lark a33e3 .ues3a that the price of /rent cr$de oil will need to drop to between 5S93- and 5S9<- a barrel! from abo$t 5S91--! to revive margins&

F$blic f$nded rail is both environmentally and economically better than air networ%s
Transport 1esearch Center < [*ctober 200C, *;(B Aeport, http://www.internationaltransportforum.or!/5trc/3iscussionpapers/B+200C0?.p3f "(ompetitive )nteraction between #irports, #irlines an3 &i!h-$pee3 Aail,- .J Be Aus6 @2008D anal sis consi3ers hi!h-spee3 rail pro5ects at the level of in3ivi3ual links. )n contrast, Adler et al. @2008D analyse a 6$ropean networ% of high>speed rail connections @a )--%m#h .;I networ% an3 a 160km/h conventional networkD, where the shape of the network is 3etermine3 within the anal sis. .he fin3 that the .;I network prod$ces net benefits Iand higher benefits than an all>air networ%D, at least when access char!es are base3 on short-run mar!inal costs @an3 the train operator ma>imises profits in a 3ere!ulate3 environmentD. 'f rail is re@$ired to brea% even! the networ% is not worthwhile& )nstea3, if deficits resultin! from short-run mar!inal cost pricing are financed from costly p$blic f$nds! the networ% passes the cost>benefit test. .he 3ifference between the outcomes of both stu3ies is attributable to network effects an3 to assumptions on pricin! rules an3 bu3!etar constraints, an3 not so much to 3ifferent assumptions on costs, 3eman3 an3 3iscountin!.

Airlines loosing federal f$nding now Bashington Fost 11+ @Iovember 19th, 2011,
http://www.le>isne>is.com/hottopics/lnaca3emic/D Frospects that Congress will resolve a bitter deadloc% over long>term federal f$nding for aviation this year are slim! $enate (ommerce (ommittee (hairman John B. Aockefeller )L warne3 2on3a . P0e cannot continue on this 3isastrous path, but we do stand on the precipice of losing another AA rea$thori:ation bill this ear,P Aockefeller @B-0.La.D sai3 in a33ressin! the #ero (lub of 0ashin!ton, an aviation in3ustr !roup. P0eOre willin! to 3o what we have to 3o, but on the other si3e of the buil3in! there?s no movement and no give& *nce a!ain we are stalled&C .he con!ressional stalemate, which le3 to a shut3own of the %e3eral #viation #3ministration this summer, comes at a critical hour. #irlines are reluctant to be!in investin! up to 710 billion in a revolutionar air traffic s stem without confi3ence that the %## has lon!-term fun3in! to 3evelop the plan& .he issues that have stalle3 a compromise on bills earlier this ear in the $enate an3 &ouse affect a relative han3ful of the millions of #mericans who will fl this ear, an3 the primar han!-up is of interest to har3l an of them. )t is a 3ispute over a labor rulin! that woul3 make it easier for emplo ees of Belta #ir Kines to unioniNe. &ouse Aepublicans are 3ea3 set on un3oin! a rulin! b the Iational 2e3iation 'oar3, which sai3 that airline unioniNation efforts shoul3 be 3eci3e3 b a ma5orit of those who vote& .he rulin! ne!ate3 a lon!-stan3in! rule that sai3 eli!ible voters who opte3 not to vote woul3 be counte3 as votin! a!ainst unioniNation& The N;/ r$ling is e8pected to have its most immediate impact on Delta! which has so far staved off $nion organi:ers& P) am an!r at the situation,P Aockefeller sai3. P) 3o not un3erstan3

how this fi>ation with one airline can be seen as paramount [such- that the 0o$se wo$ld sh$t down the AA to get its way! which the 3i3.P &ouse .ransportation (ommittee (hairman John K. 2ica @A-%la.D has sai3 that Aepublicans woul3 be willin! to compromise if the $enate woul3 a!ree to allow union 3ecertification b a simple ma5orit vote. Aockefeller sai3 he woul3 take part in a bipartisan meetin! .ues3a mornin! with three of his counterparts in the &ouse an3 $enate. P0e will have almost nothin! to sa to each other,P he sai3. The other iss$es holding $p the bill have been the n$mber of slots that sho$ld be allocated to airlines $sing 1eagan National Airport! !overnin! where those planes shoul3 be authoriNe3 to fl , an3 fe3eral subsi3ies to provi3e re!ular airline service to rural airports& CNone of these iss$es is more important than the development of the ne8t>generation traffic control system! not even close!C Aockefeller sai3. PIevertheless, the small issues that 3ivi3e us ma ultimatel 3ictate the outcome.P (on!ress has approve3 22 short-term fun3in! e>tensions since the last fun3in! bill e>pire3 in 200?. 0ith bu3!et cuts loomin!, Aockefeller sai3 failure to pass a lon!-term %## bill this ear coul3 prove catastrophic. P)f the %## reauthoriNation 3oes not pass soon! ' believe it will be a long time before an AA rea$thori:ation will pass any Congress!C he sai3. CCongress may abandon reg$lar AA a$thori:ation bills altogether in favor of more discrete aviation legislation or ($st plain c$ts& # lot of people are ver much in favor of that.P

***6ssential Air Service Disad***

Negative

1NC Shell
1. Essential Air Service subsidies now FoxNews.com 6/19 (%ssociated &ress, 'une (), !"(!, ouse panel boosts rural air service
subsidies, http*++www.fo,news.com+us+!"(!+"-+()+house-panel-boosts-rural-air-servicesubsidies+$..S WASHIN !"N # !ea $art% lawma&ers 'rom rural areas were amon( t)ose 'i()tin( t)e )ardest to $reserve tax$a%er subsidies 'or airline 'li()ts into and out o' small towns last ear after senior Aepublicans trie3 to eliminate the oft-criticiNe3 pro!ram. /ow, the ouse %ppropriations Committee is awarding the program an (( percent budget hike. /e,t year, th e subsi3ies woul3 reach a recor3 721: million un3er a bill the J*+-run committee approve3 .ues3a . .he subsi3ies can reach hun3re3s of 3ollars per ticket G an3 can e>cee3 71,000 in a few routes. # recent chan!e to the pro!ram will soon take care of such 71,000-plus cases, but critics of the pro!ram sa more nee3s to be 3one to shelter ta>pa ers from runawa costs. Kast ear, the &ouse vote3 to eliminate the pro!ram in the lower :8 states b 2014. 'ut rural tea part lawmakers like Aeps. Aick 'er!, A-I.B., an3 Qristi Ioem, A-$.B., were amon! those who fou!ht to save it. )nstea3 of killin! the air subsi3ies, (on!ress in %ebruar approve3 a watere3-3own set of chan!es when passin! a measure renewin! fe3eral aviation pro!rams. .he subsi3ies increase approve3 .ues3a came as the panel also move3 to cut foo3 ai3 to poor nations overseas an3 fun3in! for implementin! new 0all $treet re!ulations. .he ;ssential #ir $ervice pro!ram is a pro3uct of 3ere!ulatin! the airlines 3urin! Jimm (arterOs presi3enc . It was establis)ed to (uarantee t)at small communities would continue to (et commercial air services even t)ou() t)e routes were no lon(er $ro'itable a'ter dere(ulation. .he pro!ram awar3s contracts, usuall worth between 71 million an3 72 million a ear, to subsi3iNe airlines that serve airports such as ;scanaba, 2ich., +ueblo, (olo., an3 $cottsbluff, Ieb. $uch subsi3ies work out to as little as 76 per passen!er for airports like (o3 , 0 o., an3 $ault $te. 2arie, 2ich. 'ut subsi3ies can often reach hun3re3s of 3ollars each wa on a roun3 trip fli!ht to an3 from isolate3 places like Qalaupapa on the islan3 of 2olokai in &awaii or Jreat 'en3, Qan., whose three or so passen!ers a 3a benefite3 from a subsi3 e>cee3in! 7600 in 2010, the most recent ear for which 3ata is available. .he program0s budget has 1uadrupled since the !""( budget year, when it was 2ust 35" million. %fter the Sept. ((, !""(, terrorist attacks, however, airlines pulled out of smaller unsubsidi4ed markets, leading more cities to re1uire ta,payer subsidies to keep their flights. In *++9, t)e subsidies cost -1.6 million but /um$ed to -101 million in *+1+ and to -19. million 'or t)e on(oin( bud(et %ear. !)at &ind o' s$iral )as earned t)e $ro(ram man% detractors amon( (overnment watc)do( (rou$s and anti2waste conservatives. $o when &ouse Aepublicans last ear took up le!islation renewin! fe3eral aviation pro!rams it containe3 a provision to eliminate the pro!ram b 2014. .hat !ot the attention of newl -electe3 tea part freshmen, man of whom reclaime3 for the J*+ 3istricts occupie3 b rural, P'lue Bo!P Bemocrats. Just as the support much-maligned farm subsidies, rural conservatives like 5erg dropped the anti-government rhetoric when a program is popular back home. 67ural regions rely on (the 8ssential %ir Service subsidies$ for vital air transportation,6 5erg said on the ouse floor in 9ebruary. 3In Nort) 4a&ota, air$orts li&e 5amestown and 4evil6s 7a&e would not be able to $rovide critical air service wit)out t)is su$$ort.3 'er!, Ioem an3 others won public assurances that the pro!ram woul3 not be kille3 in the en3.

,& 0igh Speed 1ail trades off the 6ssential Air Frogram

;a$rina 11+ @Barrell .o33 2aurina, http://www.pulaskicount

(ount Bail D2.$

3ail .com/news.phpUview$tor V26?1, +olaski

0a nesville-$t. Aobert Joint #irport 'oar3 member Qevin &illman took aim at +resi3ent 'arack *bama6s plans for hi!h-spee3 rail service 3urin! the airport boar36s .hurs3a evenin! meetin!. "2a be we nee3 to be focusin! on the movement 3evice of the 21st centur versus the movement 3evice of the 1Cth centur ,, &illman sai3. *bama has pushe3 for lar!e amounts of mone to help states buil3 hi!h-spee3 rail links, but the "essential air service, fun3in! which subsi3iNes small airports such as those at %ort Keonar3 0oo3 which have less than 10,000 annual passen!ers has come un3er scrutin . /n3er the fe3eral pro!ram, private carriers receive contracts with local airports to provi3e passen!er air service which the otherwise mi!ht not be financiall able to 5ustif . )n the case of the 5oint municipal airport at %ort Keonar3 0oo36s %orne %iel3, (ape #ir, a 2assachusetts-base3 carrier, receive3 the contract an3 is offerin! multiple fli!hts per 3a to $t. Kouis for 79C per trip. 0a nesville (it #3ministrator 'ruce &arrill tol3 airport boar3 members that he, $t. Aobert (it #3ministrator #lan (lark, out!oin! boar3 chairman 2ike %rance, an3 #irport 2ana!er (hris $chrantN will be atten3in! a conference on the essential air service pro!ram ne>t week in 0ashin!ton, B.(. ") ori!inall aske3 the ma ors if the wante3 to atten3 an3 then #lan (lark an3 ) kin3 of !ot 3ele!ate3 an3 2ike %rance an3 (hris are !oin! to !o,, &arrill sai3. "0e think it6s an important service to our communit an3 we are !oin! to tell our con!ressional lea3ership of the importance of that service., %un3s for the trip come from the airport6s marketin! !rant, &arrill sai3, an3 it6s similar to a trip ma3e several ears a!o. &illman, who previousl serve3 as the $t. Aobert (it #ttorne an3 now is the electe3 +ulaski (ount +rosecutor, ur!e3 airport boar3 members atten3in! the conference to emphasiNe the benefits of air service over rail lines to +ulaski (ount . ")t seems to me that the current a3ministration6s focus is on rail, which 3oesn6t come within a hun3re3 miles of us,, &illman sai3. ".he onl public transportation we have linkin! us to the rest of the worl3 is air., ;ven the hi!hest spee3 trains 3on6t !o as fast as a :00 mph aircraft, &illman sai3. "'asicall the alrea3 sai3 the hi!h spee3 rail woul3 !o alon! 4C mph,, sai3 %rance.

)& 6ssential Air Service is %ey to economies of small pop$lation centers Sch$mer 11+ @(huck $chumer, /$ senatorZ 2.$
http://www.facebook.com/note.phpU noteTi3V10190:001220199?6<i3V19??124C:06D .o3a , 5&S& $enator (harles ;. $chumer announce3 his opposition to a propose3 amen3ment to cut the ;ssential #ir $ervices @;#$D pro!ram 3urin! the %e3eral #viation #3ministration @%##D reauthoriNation this wee %& .he %## reauthoriNation bill calls for an a33itional 7?4 million for the ;#$ pro!ram that $chumer supports, but $enator John 2c(ain has offere3 an amen3ment to repeal the entire pro!ram. Si8 r$ral airports in New Qor%! as well as more than 1-- others across the co$ntry! benefit from the federal 6 ssential Air

Service program! and wo$ld be at serio$s ris% witho$t this f$nding& Iot onl 3oes the 6AS program provideRsS air services to un3erserve3 rural communities! b$t it is an economic engine in those regions! contrib$ting to the s$ccess of local b$sinesses and promoting (ob creation and growth& C.here is no Fuestion about it - access to air travel is good for b$sinesses! good for (obs! and good for the financial health of the comm$nity!C $chumer sai3& P.his amen3ment not onl cuts off entire communities from air service, but irresponsibl en3an!ers their economies as a whole. 0ithout reliable airports in these rural communities, businesses an3 5obs will suffer. ) will fi!ht this tooth an3 nail to make sure that /pstate Iew Morkers have access to reliable, affor3able air travel., 6ssential Air Services f$nding provides critical s$bsidies to s$pport commercial air service to $nderserved r$ral comm$nities across the co$ntry& )n Iew Mork, there are si> rural airports 3epen3ent on the ;#$ pro!ram for their survival: Jamestown receives 71,490,804, 0atertown receives 71,228,44:, 2assena receives 71,2C?,614, *!3ensbur! receives 71,494,C16, +lattsbur!h receives 71,4?C,29?, an3 $aranac Kake an3 Kake +laci3 receive 7 1,466,948. This wee% the Senate is debating the ederal Aviation Administration I AAJ 1ea$thori:ation /ill which sets air travel policy for the entire co$ntry& Mester3a , $enator 2c(ain propose3 an amen3ment to the %## reauthoriNation eliminatin! ;#$ fun3in! which if passe3 woul3 strike a critical blow to /pstate Iew Mork6s airports an3 irreparabl harm the econom in those re!ions. .he ;ssential #ir $ervice pro!ram was 3evelope3 after the airline in3ustr was 3ere!ulate3 in 1C?8. Bere!ulation !ave airlines the free3om to 3eci3e which markets to serve an3 how much to char!e for that service. This led to a scarcity of air service in many r$ral comm$nities across the co$ntry where operating costs were higher and pop$lations were smaller and less dense& .he ;#$ pro!ram was put in to place to !uarantee air service to these un3erserve3 communities & 6AS provides s$bsidies to comm$ter airlines across the co$ntry to serve appro8imately 1K- r$ral comm$nities! inclu3in! seven communities in /pstate Iew Mork. 0ithout ;#$, there woul3 likel be no sche3ule3 air service to Jamestown, 0atertown, 2assena, *!3ensbur!, +lattsbur!h, $aranac Kake an3 Kake +laci3. $enator 2c(ain6s proposal woul3 force Iew Morkers in those re!ions to travel lon! 3istances to access air service, but woul3 also eliminate hun3re3s of 5obs an3 harm local businesses that rel on air service for their success.

K& Small economies provide the %ey internal lin% into the economy /a(racharya <E+ @'hishna Ian3a 'a5rachar a, is a +ost-3octoral %ellow with
the Bivision of Bemo!raph an3 $ociolo! , Aesearch $chool of $ocial $ciences, #ustralian Iational /niversit , woul3 like to acknowle3!e with !ratitu3e the comments an3 support of Javin Jones, 2ike Bou!lass an3 'rian 2urton. %iel3 work for the stu3 was con3ucte3 with financial assistance from the ;ast-0est (enter +opulation +ro!ram, &awaii, an3 the )nternational (enter for )nte!rate3 2ountain +romotin! $mall .owns for Aural Bevelopment: # Liew from Iepal Bevelopment @)()2*BD. http://www.un.or!/Bepts/escap/pop/5ournal/v10n2a4.htmD2.$

The proponents of small town development see an important role for small towns in improving the conditions of the r$ral poor in developing co$ntries& irstl , an ar!ument for promotin! small towns is that they provide mar%ets for $rban cons$mer goods from higher>level towns and act as trading centres for agric$lt$ral goods from r$ral areas @Aon3inelli, 1C8:Z Jaile, 1CC2D. )t is believe3 that urban population !rowth an3 a!!lomeration in small towns creates increase3 3eman3 for a!ricultural pro3ucts from nearb rural areas. $econ3l , small towns are seen as possible locations for providing non>farm employment for the growing r$ral pop$lace in hinterlan3 villa!es @Jaile, 1CC2Z Keinbach, 1CC2D. 0ith e>pansion of emplo ment in small towns, the can act as alternate 3estinations for potential mi!rants to lar!e cities @2athur, 1C82D. .he rapi3 !rowth of lar!e cities often results in !reater re!ional ineFualities, problems of !overnance an3 environmental sustainabilit , all of which call for !reater attention to smaller towns from eFuit consi3erations as well @;$(#+, 1CC1Z Jones, 1CC1D. .hir3l , proponents of small towns consider them appropriate locations for concentrating p$blic services! s$ch as agric$lt$ral development services! health services and ed$cational facilities! for reaching a larger r$ral pop$lace @.a lor, 1C81J& )t is assume3 that the provision of a!ricultural cre3it an3 inputs at the small town level can intro3uce farmin! innovations at the lowest level, rather than allowin! them to filter inefficientl 3own the hierarch of urban centres an3 transportation routes causin! time- an3 3istance-3ela effects.

E& I'nsert econ impact hereJ

Affirmative
!)e Essential Air Service is not &e% to t)e econom% and it is waste'ul s$endin( # Semmens 819 ('ohn Semmens and :ctober ()#(
http*++www.thefreemanonline.org+columns+essential-air-service-subsidies-2ust-plane-foolish+$ *ne of the ar!uments that is alwa s offere3 in opposition to 3ere!ulation of transportation is that some remote, sparsel populate3 re!ions will be 3enie3 essential services. )n or3er to neutraliNe this ar!ument an3 !et airline 3ere!ulation passe3 in 1C?8, (on!ress provi3e3 for subsi3ies to support "essential air service., Kittle thou!ht was !iven to 5ust e>actl what constitutes "essential air service., (onseFuentl , the ;essential air service< subsidy program is one of the most wasteful perpetrated by the federal government. .he ma5or accomplishment of this subsi3 pro!ram is to finance un3erutiliNe3 sche3ule3 commercial air service. .he or3inar person Fuite naturall ima!ines that "essential, must mean necessar or in3ispensable. =hat is ;necessary< or ;indispensable< about flying largely empty aircraft around various parts of the country> .he official 3efinition of what is "essential air service, is 3etermine3 in a completel arbitrar an3 sill fashion. )f a point on the map had scheduled air service at some time during the ()-#?# base period, it is entitled to a subsidy for the provision of scheduled air service until ()##. Since most of these points receiving scheduled service between ()-# and ()?# 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. @n other words, past waste serves as the 2ustification for future waste. .here shoul3 be no misun3erstan3in! of what is bein! subsi3iNe3, thou!h 3efen3ers of the pro!ram 3o their best to 3isseminate mislea3in! interpretations of the meanin! of "essential air service.< =hat is being subsidi4ed is business and tourist travel. .his pro!ram is not !ivin! ai3 to the 3estitute. )t is not fee3in! starvin! chil3ren. @t is simply utili4ing ta,payersA money to allow businessmen and tourists to pay less than the full cost of their transportation. .he subsi3 can be substantial. *n one series of routes in Iew ;n!lan3 it amounts to about 7:0 per passen!er. )n 2ontana, it amounts to 7C0 per passen!er, in #riNona to 7200, an3 in one section of Iebraska over 7600 per passen!er. Bhis is unconscionable waste. 0hat 5ustification can there be for reFuirin! that ta,payers finance some %ri4onanAs vacation to the tune of 3!"" or some /ebraskanAs business trip to the tune of 3-""> Bhere is no 2ustification. Bhere is no reason why the users of air service should not pay the full cost of that service. %dvocates of the subsidy point out, 1uite correctly, that re1uiring riders to pay the full cost will reduce the number of trips made. So what> Bhere is nothing inherently beneficial about air travel. Brips should only be made if the benefits outweigh the costs. .his wei!hin! process is 3istorte3 when part of the cost is covere3 throu!h an involuntar pa ment b a thir3 part Gnamel the ta>pa er. 2ore trips than woul3 be 5ustifie3 b the benefits are taken because the user is not pa in! the full cost. .his wastes scarce resources an3 re3uces the !eneral welfare of the societ . #ware of the pitiful current operatin! results un3er the "essential air service, pro!ram, some of its proponents have sufficient !all to claim that the real problem is un3ersubsi3iNation. .he C%5, they assert, is too niggardly in its subsidy awards. @f the C%5 would only authori4e sufficient fun3s for lar!er aircraft an3 more freFuent service, we coul3 reall 3evelop the sche3ule3 air service s stem. .he subsi3 , these people assure us, is an "investment, that will pa off in the lon! run. .hese claims are unfoun3e3 an3 the reasonin! is fallacious. ' wa of illustration, let6s e>amine an e>ample from #riNona.

Aecent subsi3iNe3 service to +rescott has been performe3 with an ei!ht-passen!er (essna :02 at a loa3 factor of about 201. .hat is, less than two passen!ers per fli!ht are enplane3 or 3eplane3 at +rescott. #3vocates of a lar!er subsi3 ar!ue that the small plane discourages many would-be passengers. Bo buttress their case they point out that enplanements at &rescott in ()-# were ten times greater than the most recent year (-""" vs. -""$. @n ()-#, a larger aircraft and more fre1uent arrivals and departures produced more passenger trips. /n3isclose3 in this simplistic comparison is the fact that in 1C68 the loa3 factor was onl 81. .his is the eFuivalent of three passen!ers boar3in! the :0-seat aircraft emplo e3. .hus, in 1C68 three of :0 seats were fille3 vs. two of ei!ht in 1C?C. .his e>ample woul3 appear a rather convincin! 3emonstration of the inelasticit of 3eman3 for air service. /o sane person could seriously propose to add C" seats in order to fill one, and claim that this is a wise ;investment.< @nvestments that will pay off in the long run will be undertaken by private capital. Bhere is no need for subsidy. +rivate firms are a3eFuatel familiar with start-up costs for new pro3ucts an3 services. %irms have been known to sustain several ears of losses in or3er to buil3 a market. @n fact, the lack of willingness of a private business firm to engage in providing a service unless subsidi4ed is a convincing e,pression of the firmAs belief that there will not be a long-run payoff on their investment. )n the past ear, the fe3eral !overnment has spent nearl 7C0 million in subsi3ies for sche3ule3 air service. .his e>pen3iture has involved a coercive e,propriation of funds from the general public in order to finance inefficient and wasteful air service. Bhe nation is ill-served by this policy. .he market place is well-suite3 to the task of selectin! an3 fun3in! investments that will increase consumer choice an3 welfare. .he "essential air service, subsi3 can onl interfere with the market6s abilit to ascertain an3 meet societ 6s !enuine nee3s. !)ere is no reason 'or t)e retention, and am$le /usti'ication 'or t)e elimination, o' t)is subsid% $ro(ram. :on(ress would do well to dis$ense wit) t)e ;essential air service< $ro(ram.