Airport Policy and Security Newsletter #23

Topics include: newsletter changes; data-mining and risk-based screening; LaGuardia and O'Hare slots; the return of U.S. airport privatization; Registered Traveler keeps growing; and other news.

In this issue:


A Note to Readers

You may have noticed that the name of this newsletter has changed, from "Airport Security Newsletter" to "Airport Policy News." A few words of explanation are in order. After four years of covering airport security issues, from my post as Reason Foundation's Director of Transportation Studies, I faced a dilemma. While airport security does keep evolving, I increasingly found myself returning to the same rather narrow set of subjects, not necessarily adding that much additional value for long-time readers.

Two alternative courses for broadening the scope of the newsletter's content were plausible: either expand to cover a broader set of transportation security issues or focus on a wider set of airport issues, including security. Since my primary focus is transportation policy (not security), after consultation with my Reason colleagues, I decided on the latter course. Hence, as you will see, this issue covers an array of airport policy issues, most of which will likely be addressed legislatively this year, as Congress debates FAA reauthorization as well as possible revamps of airport security.

I hope you like the new approach—and I'm sure you'll let me know, one way or the other.

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Data-Mining and Risk-Based Security

The uproar that followed the Department of Homeland Security's November Federal Register notice about its Automated Targeting System (ATS) was rife with hypocrisy. Members of Congress and privacy advocates cried "Who knew?" about a decade-old program that assigns relative risk scores to travelers entering the United States. It reminded me of the classic scene in Casablanca—could gambling really be going on in this innocuous bar?

First of all, ATS began screening international air passengers in the mid-1990s—long before 9/11 and creation of DHS and the Transportation Security Administration. Its basic idea has also been in use for domestic air passengers in the form of CAPPS (Computerized Air Passenger Prescreening System) since 1998, at the recommendation of the Gore Commission. CAPPS uses an algorithm to determine that certain passengers warrant secondary screening at passenger checkpoints; it also randomly selects some additional passengers for secondary screening. So the idea of assessing the relative risk of air passengers is hardly some new assault on privacy, concocted in secret! It's a long-used tool for wisely allocating limited security resources, to ensure that those raising red flags have somewhat more of those resources directed to them.

To be sure, CAPPS has serious limitations and was supposed to be replaced years ago by a more sophisticated CAPPS-II. Privacy concerns led DHS to replace that planned system with a more limited program called Secure Flight—which has been held up by internal problems as well as privacy objections, and is now unlikely to be in place until sometime next year. That means airlines are still the ones operating CAPPS, and accessing only partial and non-real-time government watch lists as part of that process. When Secure Flight is finally implemented, the TSA itself will operate the new risk-scoring algorithm and the checking of passenger records against a far more comprehensive, real-time watch list (also still under development).

Privacy advocates like Jim Harper of the Cato Institute and the folks at the Electronic Frontier Foundation raise good points about the need for strong privacy protections, and especially better redress procedures for those whose names incorrectly end up on watch lists. But what really galls me is some critics' persistent misrepresentation of what ATS and Secure Flight are intended to do. Security consultant Bruce Schneier, with whom I've debated, penned the "On My Mind" guest column in Forbes, Jan. 8, 2007. He attacks risk-scoring algorithms as intended to "divine a person's terrorist leanings" and "uncover[ing] terrorist plots." He and Harper both then point out that given the millions of people that need to be processed by such algorithms, even a 99.9% accuracy rate produces huge numbers of "false positives."

But that is a total misreading of what these systems are for. Their task is not to identify terrorists or counter their plots. Rather, it is to decide where best to apply scarce resources. A "false positive" is not taken out and prosecuted; he or she merely goes through secondary screening, as a further check to see if they might represent a threat. And as Forbes editor William Baldwin noted in the same issue, if we are really concerned about these "false positives," part of the process could be monetary compensation for the inconvenience of secondary screening.

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Replacing Airport Slots with What?

How do you allocate limited airport landing/takeoff capacity when the demand for that capacity exceeds the supply? In a market economy, the normal answer is to allow the price mechanism to work, so that market participants themselves decide which are the most-valued uses of that capacity. Those unwilling to pay the market price can choose less-costly (because less in-demand) alternatives.

Fortunately, there are few cases in the United States where it's either physically or politically impossible to expand airport capacity. One of those cases is LaGuardia, one of three relatively close-in air-carrier airports for the New York City metro area (and one of six overall, if you count MacArthur, Stewart, and White Plains). Whether the FAA's defined hourly capacity limit of 81 is exactly the safe limit is beside the point. It's been clear ever since Congress decreed that administratively allocated slots at LGA would cease as of this year that some better mechanism was needed to ensure the best use of LGA's capacity.

The FAA's proposal, still a work in progress, leaves a lot to be desired. While aiming to gradually phase in slot auctions over a 10-year period, it also would interject new micromanagement. In order to retain access to slots, airlines serving LGA would have to meet FAA-set average per-plane capacity targets. The idea is to stop airlines "wasting" valuable capacity with 50-seat regional jets, when the same slot could serve much larger planes. But that's exactly the kind of decision the market should sort out. Airlines should be free to choose to serve City X from LGA with three 50-seat RJs instead of one 150-seat 737, but should pay the economic cost of that choice. Once slot auctions were fully phased in (under the FAA plan) that would be the case. The cost of a slot would be spread over 50 passengers if they kept using RJs rather than over 150 if they used one 737 instead.

Instead of waiting 10 years for the market-based system to phase in, the FAA could get market allocations immediately by allowing LGA to switch from its traditional weight-based landing fees to one that charges the same price for all landings, regardless of the size of the plane. The Air Transport Association, which has bitterly criticized the FAA's LGA proposal, should love this approach. After all, in the air traffic control sphere, it argues that all planes, regardless of size, should pay the same rate for terminal ATC services. "A blip is a blip," as ATA puts it.

In a presentation last summer, called "Why Don't Airports Charge for Congestion?" DOT's Nancy Kessler laid out the legal issues involved in airport charging. Federal law only requires that airport charges be "reasonable" and "not unjustly discriminatory." Several years ago, the FAA approved MassPort's plan to charge peak/off-peak landing fees at Boston Logan under certain circumstances. But FAA has seemed unwilling to encourage the Port Authority of New York & New Jersey (which operates LGA) to shift to slot-value pricing. (And the PA itself prefers regulating the size of planes, rather then letting the market sort this out.)

In the end, if the airlines continue to challenge the FAA's phased-auction proposal, the decision will likely be dropped in the lap of Congress, as part of the contentious FAA reauthorization bill. Since members of Congress tend to interpret "cost" in accounting terms rather than economic terms, I'm not optimistic that we'll end up with anything like a market-price solution to the LGA problem.

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U.S. Airport Privaization, the Second Time Around

One of the topics I've been interviewed about repeatedly during the last six months is Chicago Mayor Richard Daley's plan to lease Midway Airport to an investor-owned airport company. Over the last two years, Daley has become one of the country's leading privatizers, leasing the Chicago Skyway and the city's parking garages. In the case of Midway, Daley is not just talking: last fall the city filed a formal application with the FAA's Airport Privatization Pilot Program. And in nearby Milwaukee, county officials are seriously looking into doing likewise for their major airport, General Mitchell International Airport.

The first wave of U.S. airport privatization took place in the 1990s, beginning when Albany, NY attempted to sell or lease its airport. That action took the FAA by surprise, leading to serious internal debate (in which I was an outside advisor) which concluded that privatization was not possible under then-current law, primarily due to airport grant restrictions. The two main obstacles were that if an airport were leased or sold, all previous Airport Improvement Program (AIP) grants would have to be repaid, and more important, the FAA decided that the grant provision requiring all "airport revenues" to remain on the airport (or within the airport system) and be used solely for airport purposes applied not just to operating revenues from landing fees and retail but to the city's proceeds from selling or lease of the airport.

It was to get past those obstacles that Congress enacted the pilot program legislation in 1996. It allows up to five airports to be leased or sold, only one of which can be a large hub and one of which must be a general aviation airport. Historically, U.S. airlines strongly opposed airport privatization, and their lobbying resulted in the inclusion of a two-part airline approval requirement. A city or county that privatizes an airport can only take the lease revenues into its general budget if 65% of the airlines operating at the airport approve the deal. (It's actually a two part test, requiring the OK of airlines accounting for 65% of the annual landed weight and 65% of the number of airlines operating there.) In the airline environment of the 1990s, it was expected that no city would ever get such approvals—hence the pilot program would be a dead letter. And the only airport approved under the program—Stewart Airport, north of New York City—failed to get those approvals, so owner New York State has had to use its lease revenues for Stewart and its other state-owned airports.

Given this record, why did Daley proceed with Midway? My speculation is that the changed world of airline finances has reframed the issue for the carriers. Historically, they were willing to sign long-term lease and use agreements, obligating themselves to pay the "residual costs" of airport operation (the difference between total annual costs and all non-airline revenues). That made these "signatory" airlines risk-sharing partners with the airport. In fat years, that meant the airlines did fine, with a low residual cost to cover via landing fees and space rentals. But in bad years, when passenger traffic was thin (and airline revenues likewise thin), the residual cost could be a lot higher, hitting airlines when they were down. The global airport companies now operating over 100 airports in Europe, Latin America, and Australia know their customers, and are willing to offer predictable landing charges and space rentals, enabling airlines to predict future costs. My guess is that this gives Mayor Daley and would-be acquirers of Midway the basis for a win-win deal. And if Daley succeeds in privatizing Midway, I predict that this transaction will open the door to phase 2 of U.S. airport privatization, just as Daley's lease of the Chicago Skyway has ushered in a new era of investor-owned toll roads in this country.

Incidentally, the Centre for Asia Pacific Aviation reported in January that last year saw the second-highest number of major airport privatizations—15—since this phenomenon began in 1987 with Margaret Thatcher's initial public offering for the British Airports Authority (now BAA plc, recently acquired by Ferrovial).

Ironic footnote: Just as a new wave of US airport privatization seems to be launching, Stewart is being de-privatized. National Express, the U.K. company that won the bidding in 2000, is leaving the airport business and is in the process of accepting an offer for the airport from the Port Authority of New York and New Jersey.

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Registered Traveler Keeps on Expanding

January brought the national roll-out of the CLEAR Registered Traveler program, expanding from its original base at Orlando to Cincinnati, Indianapolis, and San Jose. The New York area got its first CLEAR lane at JFK Terminal 7 (British Airways) and two more area terminals will soon join them: JFK Terminal 1 (Air France) and Newark Terminal B (Virgin Atlantic).

CLEAR provider Verified Identity Pass had to cope with two glitches during the month. First, the ShoeScanner portion of its GE Secure Registered Traveler kiosk has TSA approval to detect explosives but not metal weapons. So RT members with metal in their shoes still had to remove them to go through security. (GE is working on that problem, and about 1/3 of Orlando RT customers are having to remove their shoes at this point.) Second, out of the blue TSA announced that all RT members—despite having a biometrically encoded ID card that proves they are the person who passed the background check—must still present a government-issued photo ID card to get through security. Kind of makes a mockery of TSA's background check, doesn't it?

A new (fourth) RT provider has entered the scene, Vigilant Solutions. Jacksonville (FL) Airport Authority announced its new Preferred Traveler program in partnership with Vigilant. It has three levels of membership, offering a variety of services in addition to a faster security process. Silver, Gold, and Platinum memberships range from $150 to $350 per year, and include things like special parking amenities and a dedicated airport lounge. And because of the national inter-operability of all RT programs, those who sign up with PT at Jacksonville will have access to all other RT airports around the country.

The RT concept continues to expand overseas. CLEAR will soon be operating at Toronto, and a joint Canada/U.S. program called NEXUS now includes air, highway, and maritime travel between the two countries. It's a joint program between both countries' customs and border agencies that lets background-checked frequent travelers cross the border more quickly. Kiosks already exist at Vancouver Airport, and the Canadian government says more airports will join the program in 2007. Australia's tourism minister has called on that country's Customs & Immigration agency to test a Registered Traveler program for incoming tourists. Indonesia is testing such a program at the Jakarta airport; that program is an adaptation of the successful program in use for the past five years at Amsterdam Schiphol airport.

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Quotable Quotes

"Suppose we charged for oil paintings by the pound. You'd have more than congestion: you'd have riots at the art dealers with Van Gogh paintings for sale. We don't have any hesitation in other markets about letting price rise to ration such scarce goods and equate demand with supply. When people criticize the airlines for their scheduling practices, as responsible for congestion, the carriers respond that it's not their fault—they schedule flights when and where travelers demand them. They're perfectly right. But what it means is that [airports] are charging too little at the times and places of excessive congestion, and too much when and where there is ample or surplus capacity."

--Alfred Kahn, the father of airline deregulation

"Each year DHS spends $4 billion on airline passenger screening and over half a billion more on air marshals and another $4.7 billion on zapping a billion bags, even though no piece of checked luggage has ever downed an American airliner since 1988. One economist calculates that requiring people to spend an extra half hour in airports costs the economy $15 billion per year."

--John Mueller, author of Overblown: How Politicians and the Terrorism Industry Inflate National Security Threats, and Why We Believe Them (Free Press, 2006), quoted in Forbes, Nov. 27, 2006, p. 54.

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News Notes

Private Screeners in Florida. Soon after my last issue went out, the TSA finally gave the OK to Key West and Marathon airports to hire a private screening company, relieving TSA of the cost of semi-permanently stationing 15 of its expensive supplemental National Screening Force at Key West. The shift to private screeners, under the agency's Screening Partnership Program, will permit the launch of screening services at Marathon airport, enabling Delta Connection to begin long-planned service there in mid-February.

Remedy for TSA Conflict of Interest? A former FAA official, in response to my piece last time about TSA having a built-in conflict of interest between its regulatory role and its service provision (screening) role, pointed me to a standard of the International Civil Aviation Organization which appears to be relevant. It reads:

"Each Contracting State shall ensure that the management, setting of priorities, and organization of the national civil aviation security quality control programme shall be undertaken independently from the entities and persons responsible for the implementation of the measures taken under the national civil aviation security program."

This provision appears in Annex 17, paragraph 3.4.7 that was effective April 1, 2006. The United States is one of 180 ICAO Contracting States. My correspondent asks the leading question: What has the DHS/TSA done to implement this provision? And I will add: Is anyone in Congress interested in taking this on?

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Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy





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