In this issue:
- Re-regulate the airlines?
- Airport employee screening
- More checkpoint improvements
- America’s first all-new privatized airport
- Aircraft survivability-an overdue question
- News Notes
Crandall Says Airline Deregulation Has Failed
This year marks the 30th anniversary of the Airline Deregulation Act of 1978. As intended, the legislation led to sweeping changes, opening up both fares and routes to competition. Previously, under the misguided belief that airlines were essentially public utilities (like electricity, gas, or water), both fares and routes had been set by the Civil Aeronautics Board, which limited the number of carriers on each route and set identical fares that reduced airlines to competing on things like who offered better meals and pillows. The cost of that cartelization of the industry was fares that only the relatively well-off could afford. One of the best characterizations of what airline deregulation wrought was “the democratization of air travel.”
So it was with great dismay that I opened Aviation Daily on June 11th to be greeted by a page 1 headline, “Crandall Calls for Reregulation, Changes to Pricing, Bankruptcy, Labor Rules.” Had one of the great survivors of airline deregulation-inventor of “yield management” and frequent-flier programs, master of hub-and-spoke operations-really gone over to the dark side?
Well, not quite. Crandall’s speech to the Wings Club in New York on June 10th really did say that “unfettered competition just doesn’t work very well” in airlines and that “airlines look and are more like utilities than ordinary businesses.” But that was early on. As he got into it, Crandall did not actually call for anything like a return to the cartel enforced by the CAB. Rather than reregulation, he called for some kind of government intervention to cause airlines to de-emphasize congested hubs and offer more non-stop, point-to-point service. His suggested mechanism is an air-fare regulation that would require that a flight from A to B via a hub be priced at the sum of the local fares (from A to hub plus from hub to B).
Crandall’s intent is noble-to decongest hubs by encouraging more non-stop flights and the use of larger planes on flights to and from hubs. But direct government intervention in air fares is a blunt and overly intrusive way to encourage such changes. Far more straightforward-and consistent with continued competitive choices for air travelers-is simply to price the aviation infrastructure properly. That would mean replacing weight-based runway charges with market-based charges, to maximize the economic value of using scarce runway capacity at congested airports.
Crandall points in that direction when he calls for government to not allow more flights to be scheduled at congested airports than the airports’ actual hourly capacity. But again his proposed remedy is anti-competition and anti-consumer. It would scale back all existing operations proportional to their current size-and presumably freeze that allocation in place. But that would throw out one of the main benefits of 30 years of airline deregulation-low barriers to entry for companies with potentially better ideas: Southwest, JetBlue, AirTran, Virgin America, etc. Commercial aviation was transformed by deregulation from a very static industry-no new carriers licensed at all during the CAB’s decades in charge-to a dynamic industry, in which entrepreneurs are free to try new approaches. Even though most new airline business models don’t make it, those that do have produced enormous benefits for air travelers.
I think Crandall is right that some of the other ground-rules facing commercial aviation need re-thinking-such as (1) bankruptcy laws that allow carriers to continue operating and charging low fares while stiffing their creditors and (2) labor legislation that lets unions hold carriers to ransom. But I think he’s naïve about the potential of high-speed rail to relieve airlines of the burdens of serving short-haul markets. Serious high-speed rail in 250- to 400-mile markets would require tens of billions in subsidy from general taxpayers. By contrast, aviation just about pays for its entire airport and ATC infrastructure cost, via various user taxes.
The 30th anniversary of airline deregulation is an appropriate time to think hard about U.S. aviation policy. Bob Crandall has done us all a service by raising questions about the current policy and legal framework. Fortunately, he has not called for a return to the bad old days of the CAB.
Whatever Happened to 100% Airport Employee Screening?
In March 2007, two airline employees were arrested at Orlando International Airport and charged with smuggling guns and marijuana to Puerto Rico. Their M.O. was to hide the contraband at night on planes scheduled to fly to San Juan the next day. The incident set of a nationwide furor over the relative lack of access control for the airside portion of commercial airports. Some in Congress and the media called immediately for 100% physical screening of all airport workers with access to the airside, a plan which the Orlando airport began implementing on its own after the incident. An October 2007 report from the Government Accountability Office (GAO-08-139T) on aviation security listed perimeter security, access control, and biometric IDs as three areas in which TSA has “generally not achieved” what is required.
Since 100% physical screening could be very costly (Orlando spent $5 million in its first year on equipment and salaries, and estimates annual costs will be about $3 million), the two airline trade groups worked with the Transportation Security Administration to develop and test alternatives. Last year TSA set up roving teams of inspectors to do random checks of airside workers, and some airports (like Chicago’s O’Hare and Midway) implemented biometric ID cards for all airport employees. TSA and the airport associations proposed a six-month pilot program to rest a variety of techniques at six airports during 2008. In January, Congress authorized just a 90-day pilot program at seven airports, and it got under way in May.
In the pilot program, Boston Logan, Jacksonville (FL), and Craven Regional (NC) will test 100% physical screening. Denver, Kansas City, Eugene (OR), and Southwest Oregon Regional will each test a set of alternatives to 100% screening, including behavior detection, random checks, security awareness training, and portable screening equipment. Boston and Denver will also evaluate biometric access controls.
This approach strikes me as far more sensible than imposing a nationwide mandate for 100% physical screening. As I wrote in Issue No. 24, many airport and airline employees need to go back and forth between secure and non-secure areas many times each shift, so making them go through passenger-type screening would be very time-consuming. Airline passengers are also largely unknown quantities, whereas airport workers have already passed a background check. It seems likely that more-detailed background checks and biometric ID cards, plus random checking, would be far more cost-effective than 100% physical screening. But a 90-day trial is pitifully short, compared with TSA’s original proposal of six months, so it’s not clear how much we will really learn from this experiment.
As of now, besides Orlando only two other airports do 100% employee screening-Miami and Phoenix. Like Orlando, both decided to do so after a serious security breach. In Miami’s case, it was the 1998 busting of a major drug-smuggling operation at the airport, while in Phoenix it was last July’s exposure of essentially open access to secure areas during the night shift, when only rent-a-guards were on duty.
More Checkpoint Improvements Being Rolled Out
Assuming we must continue to have checkpoint screening of passengers indefinitely, what’s the gold standard we should be looking toward, both for better security and greatly reduced hassle? Seems to me it would include much better detection of threat objects in carry-on bags, fast and unobtrusive screening for threat objects on everyone’s person (not just at secondary screening), and not having to remove liquids or laptops from carry-ons. And all at a cost comparable with today’s checkpoint costs.
We’re not there yet, but there is tangible progress toward most of these goals. First, TSA is moving fairly rapidly to replace old-fashioned one-dimensional X-ray units with advanced 2-D (multi-view) machines. By using both high-energy and low-energy X-rays from different angles, the 2-D machines allow much better identification of objects within a carry-on bag-and potentially, identification of the chemical composition of substances in containers. That, in principle, could lead to getting rid of the Ziploc routine for carry-on liquids.
TSA has awarded contracts, for 500 machines each, to Rapiscan and Smiths Detection, and these are being rolled out across the country. As of late May, two airports had been fully switched over to the Smiths aTiX machines, Albuquerque and Denver. TSA’s Christopher White told Aviation Daily that by the end of FY 2008 (Sept. 30, 2008), “We expect the majority of security checkpoint lanes in major airports to have advanced X-ray machines.” And that is good news for air travelers. With ongoing software algorithm development, it’s conceivable that TSA could give the OK for airports using one or both of these new machines to eliminate the requirements to remove laptops and/or liquids from carry-on bags. All of BAA’s U.K. airports are now equipped with the Smiths aTiX machines, and laptop removal is no longer required there.
Another improvement is possible by using another Smiths innovation-the iLane advanced conveyor system. In addition to returning empty bins back to the front of the line (preventing delays due to lack of bins, and saving TSA staff time), iLane also provides a secondary belt onto which screeners can shunt a suspicious item, rather than stopping the main belt and making everybody wait while the discrepancy is resolved. That could significantly speed up the lines. Four iLanes are in place at Baltimore’s BWI airport, and they are also at many of the BAA airports in Britain.
There is also progress on body-imaging systems. The only ones that have been tested at airports to date-backscatter X-rays and one version of millimeter wave scanning-require the traveler to stand in a booth for up to a minute. That takes up so much time that it is only feasible for secondary screening. What’s needed is a scanning system that can detect weapons and explosives under clothing while the passenger walks through the checkpoint. TSA is testing a millimeter-wave camera system from QinetiQ North America, which can reportedly screen people from up to 20 yards, without requiring them to stop. But thus far, the tests involve only transit stations and TSA labs, not airports. Another full-body millimeter-wave body-imaging system is made by Brijot Imaging Systems; their website shows their GEN 2 system screening people as they walk at normal speed through what could be an airport checkpoint lane (www.brijot.com). A nother approach, being pioneered by Britain’s ThruVision, uses terahertz rays to do the same thing, also while people are moving. Its T-ray camera system is called T5000.
Cost remains a challenge. The 2-D systems cost about twice what conventional 1-D machines cost. I have not yet seen any cost estimates for walk-though millimeter-wave or T-ray systems, but they would be logical replacements for today’s inadequate metal-detectors. The combination of 2-D X-rays for carry-ons and routine walk-through body imaging would make for a major increase in aviation security.
Branson Airport Breaks the Mold
About five years ago I first learned that a group of investors was attempting to develop a private, for-profit airport to serve the popular country-music city of Branson, MO. The nearest airport with scheduled service is Springfield, 52 miles to the north. And that airport has no low-cost service (except a handful of Allegiant Air flights), despite Branson’s general appeal to low-budget travelers. But for a number of years there seemed to be no progress on getting the airport off the ground.
That changed last June, when Branson Airport LLC issued $113 million in bonds, underwritten by Citigroup, to fund construction. The partnership itself invested $25 million, to make up the total of $140 million for the project. Ground-breaking took place last July 20th, and you can go to the airport web site (www.bransonair.net/aviation) to see both ground-level and aerial photos of the construction. Paving began in April and the terminal building contract was awarded in May. Opening date is projected as May 2009.
The big question, of course, is whether there will be commitments for airline service by then. The company is aggressively marketing the airport to low cost carriers (LCCs), pointing out that many Branson visitors avoid the Springfield airport in favor of more-distant airports like Kansas City, Little Rock, St. Louis, and Tulsa, to which they can fly on LCCs and then drive 3 to 4 hours to Branson. Branson Airport executive director Jeff Bourk (formerly deputy director at Portland, Maine) told Aviation Daily‘s Airports weekly (May 27, 2008) that because the airport has no FAA grants, it is not constrained by FAA grant agreements, as are nearly all other air-carrier airports. Hence, Branson can offer an airline an exclusive N-year deal on serving Branson from City A. That assurance of no competition means the airline could charge a somewhat higher fare, but still less than what it would cost on a legacy carrier’s regional affiliate to serve Brans on via Springfield.
Branson Airport has also negotiated a unique public-private partnership deal with the city, which wants to expand convenient air service. Under a 30-year agreement, the city will pay the airport $8.24 for each arriving visitor, with an annual cap of $2 million. Thus, the city has a direct stake in the airport’s success.
As the airline industry goes through a wrenching time, and smaller cities are losing air service, the Branson model will be worth watching.
How Vulnerable Are Airliners to Bombs?
Better late than never, the TSA has asked three national labs to research the actual vulnerability of airliners to bomb damage. Yes, “everyone knows” that a bomb can bring down an airliner. But what are the most vulnerable points, and how large an explosive is required to do the critical amount of damage? At this point, it appears that nobody knows. We do know that some large airliners have survived hits by shoulder-launched, heat-seeking missiles in the Middle East, which suggests that losing a wing-mounted engine to such a missile is not necessarily fatal. But what about small improvised explosive devices in overhead bins or cargo holds?
That is the kind of question Lawrence Livermore, Los Alamos, and Sandia Laboratories will be exploring. Each is to work independently, primarily via computer modeling, and each will peer-review the others’ work. Preliminary results are due at TSA by sometime this fall. The results may well lead to revising the requirements for screening both checked luggage and carry-ons. TSA Administrator Kip Hawley says that little research on airframes and explosives has been done over the past decade, and the fleet has changed considerably since then. “This is something that when the new administration comes in, I think, will give them a very good handle on some of these issues with huge security and cost implications down the line,” he told Aviation Daily.
It’s too bad Congress didn’t have-or ask for-this kind of data when it rushed to pass the Transportation Security Act in late 2001 (legislate first, think later). But as I said, better late than never.
Registered Traveler Keeps on Growing. Clear last month opened RT lanes at Salt Lake City, making that the 16th airport in the Clear network. And this month the company announced a major deal with Delta Airlines, under which it will operate Clear lanes in the Delta terminals at JFK, LaGuardia, and Los Angeles. LAX has not previously had any RT service, so that’s another addition to the network, at least for Delta flyers. And BWI Airport has issued an RFP for Registered Traveler service, which would mean that travelers at all three Washington/Baltimore area airports will soon have RT service available.
Prague Airport Privatization a “Go.”. The Czech government announced early in June that it will proceed to sell its 100% stake in the Prague Ruzyne airport. The thriving (and profitable) airport is taking advantage of rapid growth in central and eastern Europe, and a proliferation of LCC service. A number of leading airport companies have expressed interest, and media reports estimate the airport could be worth in excess of $6 billion. The privatization is scheduled to be completed in the second half of 2009.
Noteworthy New Book. I heartily recommend a new book by friends and colleagues George Donohue and Russ Shaver. Terminal Chaos: Why U.S. Air Travel Is Broken and How to Fix It was published in May by the American Institute of Aeronautics and Astronautics as part of their Library of Flight Series. More details at www.aiaa.org/donohuepress.
Citigroup Invests in Vancouver Airport Unit. Last month Citi Infrastructure Investors (CII) announced a deal to acquire 50% of YVR Airport Services Ltd., a subsidiary of the Vancouver International Airport. YVR will then become CII’s vehicle for investing in the airport sector. YVR operates 18 airports in seven countries. CII is Citigroup’s fund for investing worldwide in infrastructure enterprises, comparable to other recently created funds from Morgan Stanley, Goldman Sachs, Macquarie Bank, and others.
Landing Fees a Small Expense. From all the cries of alarm raised by airlines over proposals for congestion-priced landing fees, you might think that landing charges were a significant cost item in airline operating budgets. Data compiled by Oliver Wyman for fourth quarter 2007 present a different picture. For the six network (legacy) carriers, landing fees averaged 1.5% of their cost per available seat mile (CASM). The four leading LCCs averaged 2.4%, and the nine principal regional carriers averaged 3.3%. Those categorized as “select” (e.g., Alaska, Hawiian, Midwest) averaged 1.7%. Just so we can keep these things in perspective.