In this issue:
- World airport privatization study
- Why Registered Traveler is not a security program
- Airports and competition
- Check boarding passes at the gate?
- Terminal bomb scanner
- News Notes
- Quotable Quotes
New Global Airport Privatization Report
In my discussions with reporters and municipal officials over the prospects of U.S. airport privatization beyond the impending Midway Airport transaction, I’m continually amazed at how little they seem to know about the scope of this phenomenon worldwide. I’ve tried to fill that gap via a recap each year in Reason Foundation’s annual privatization reports, posted at www.reason.org. But those reports are only snapshots.
So I’m happy to report that this information void has recently been filled by a highly detailed 128-page report, World Airport Privatization: 2008 and Beyond. It comes from David J. Bentley Associates in Manchester, UK. The report provides an excellent history of airport privatization, organized by type of transaction (initial public offering, lease/concession, build-operate-transfer, trade sale (auction), and corporatization/commercialization). And that’s just Chapter 1. The second chapter provides a region-by-region, country-by-country review of which airports have been privatized, under what circumstances, and by what method. This is really the heart of the report, accounting for more than half the page count.
If you are a mayor considering privatization and people ask you if there are actually experienced airport companies that might be interested, and financiers available to do the deal, Chapter 3 provides profiles 80 airport operating companies and capital providers active in this market. Other chapters discuss likely near-term acquisition prospects, global aviation trends, and geopolitical issues of potential relevance to privatized airports.
I have a few nits to pick with the section on the United States, mostly matters of word choice or interpretation, but a few minor inaccuracies. One example is the attempt to privatize Niagara Falls (general aviation) airport, via a lease to Ferrovial Aeropuertos. It’s true that this firm had been selected by the local airport authority in 2001, but the deal never came to fruition (as implied by the text). Also not accurate is the statement that Dubai Ports World “gained ownership of six U.S.[sea]ports that P&O controlled.” That’s how the popular press portrayed that controversial transaction, but that deal involved neither “ownership” nor “ports.” Rather, it was a lease of individual terminals at the six ports in question.
Overall, though, this report is a great resource, one that I will keep on my shelf and refer to frequently. The bad news, though, is that it costs $1,750 for a PDF version or $1,950 in hard copy. If you’d like more information, including a detailed table of contents, contact Bentley at: djb@djbentley.fsbusiness.co.uk, referring to AP2008.
TSA’s Double Standard on Registered Traveler
Ever since Michael Levine and Richard Golaszewski first proposed the idea of Registered Traveler (originally called Trusted Traveler), I’ve been a fan of this idea on its original grounds as a way of devoting more security resources to higher-risk travelers by spending less on lower-risk ones. The concept was that people who were willing to be pre-cleared in advance (by submitting to a background check analogous to getting a security clearance) could get expedited processing at airports, as long as they could prove (biometrically) to be the person who had undergone the background check. This would not only save frequent flyers like me a bundle of time and hassles; it would also be an important step toward a more risk-based screening system, in which the Transportation Security Administration could shift resources from low-risk travelers to higher-risk travelers-a win-win proposition.
Researchers at places like Carnegie-Mellon University and RAND Corporation did studies to quantify the cost and time savings such a program would likely produce. And companies like Verified Identity Pass invested a lot of money to develop RT programs and get them approved by the TSA. But despite the great promise, RT members like me are still required to go through the same hassle at the checkpoint as everyone else; the only benefit is being able to skip the long lines waiting to have boarding passes matched to driver’s licenses.
Earlier this year, in several interviews reported in this newsletter, TSA Administrator Kip Hawley explained that because his agency cannot be sure that “sleeper” terrorists won’t qualify as RT members, all those previously vetted, card-carrying Registered Travelers must still schlep through the regular screening process. Hawley says, “It’s not a security program but an ID program.” But why is RT limited in this way?
It turns out that the fingerprint data collected by Clear and the other providers has been routinely turned over to the Transportation Security Clearinghouse (operated by the American Association of Airport Executives). This clearinghouse was set up following the 9/11 attacks to help airports get FBI criminal history checks done on the huge numbers of airport employees, contractors, and vendors who need access to secure areas at airports. The clearinghouse charges airports $27 per person, and the FBI apparently processes these background checks quickly and efficiently. An official at AAAE whom I interviewed last month told me that some 200,000 sets of fingerprints sent in by RT providers since the inception of the program have just sat there, because TSA has never given permission for them to be sent to the FBI for criminal history checks.
So let’s get this straight. The TSA says RT cannot be a security program because it does not actually pre-clear RT members (via a criminal-history check). All TSA does is run RT applicants’ names against its watch list-which would happen anyway whenever a member purchases a ticket. There is no criminal history check because TSA has refused to authorize one.
Now here comes the double standard. If TSA maintains that the FBI criminal history check is too limited to screen out potential sleeper terrorists, then why does it accept that very same ($27) criminal history check for several million airport workers? Those people typically enter secure areas without passing through a magnetometer and without having their possessions (such as tools) routinely X-rayed. Yet many of them have access to the ramp area where they could put weapons or bombs on board aircraft parked there.
With a new Administration taking over in January, there will be new leadership at the Department of Homeland Security and TSA. I hope one of their priorities will be to get serious about risk-based aviation security policies-such as getting back to the original concept for Registered Traveler.
Do Airports Have “Market Power”?
Now that airports are more correctly being analyzed as businesses, the question of airports’ monopoly-like “market power” is coming under increased scrutiny. In many metro areas, there is only one airport offering scheduled airline service. And in those larger metro areas with multiple airports, they are often owned and operated by the same entity (e.g., New York, Houston, London). It’s not just airlines that worry about being charged above-market rates, as airports exploit their market power; economists and other analysts express the same concerns.
But the relationships between airports and airlines are often quite complex. One of the more interesting papers I’ve read on this issue was written for the Joint Transportation Research Center of the Organization for Economic Cooperation & Development (OECD) and the International Transport Forum (ITF). “Impacts of Airports on Airline Competition” is the work of Tae H. Oum of the University of British Columbia and Xiaowen Fu of Hong Kong Polytechnic University. It’s paper No. 2008-17. (www.internationaltransportforum.org/jtrc/DiscussionPapers/jtrcpapers.html)
They note that because airports seek to increase their revenues from retail concessions, they have an interest in expanding passenger throughput, and that reduces their incentive to exploit their market power vis a vis the airlines. Airlines may not seek to expand as much at airports that cost them a lot more to operate at. But the airport/airline relationship will vary, depending on the airport’s function (major connecting hub or not) and the composition of its airline tenants. An airport that serves as a fortress hub for a major airline has incentives to make that relationship work well-and that may have negative implications for significant entry by new airlines.
It is in this context that Oum and Fu discuss airport regulatory alternatives-primarily single-till price regulation, dual-till price regulation, rate of return regulation, and Australia/New Zealand style light-handed regulation. (These are all defined in the paper.) While the authors lean toward single-till price caps, they point out that “in the long run, airports under price cap regulation tend to under-invest in capacity expansion,” which leads to congestion and reduced opportunities for competition via new-entrant airlines. They point out many other complexities that make airport regulation difficult, and suggest that in those metro areas fortunate enough to have multiple airports, it would be wise for them to be under separate ownership, so that competition between airports could serve to counteract airport market power. They note the positive implications for competition of the impending privatization (via long-term lease) of Chicago Midway and the upcoming divestiture by BAA (under regulatory pressure) of London Gatwick. They also note in passing the common ownership of the three major airports serving the New York metro area, though deigning to suggest breaking up that monopoly via a Midway-style long-term lease of one or more of those airports.
This is an insightful paper that will give anyone interested in airport regulatory issues useful food for thought. The two appendices also provide a handy overview of (1) the principal alternative forms of airport regulation and (2) the various forms of government and investor ownership of airports.
Check Boarding Passes at the Gate?
For several years, aviation security critic Bruce Schneier has been criticizing TSA airport screening as “security theater.” He has shown how to make a mockery of TSA watch lists by purchasing a ticket under a fake name (using, admittedly, somebody else’s credit card-presumably stolen, if you are actually a terrorist), then make a copy of the boarding pass, altered to feature your real name. If you are on the TSA watch list, the fake name lets you escapes detection by the airline when you buy the ticket. And by forging your real name on the altered boarding pass, it matches your real driver’s license at the only place they are matched-at the entrance to the security lines. Once through security, you throw away the altered boarding pass, then use the real one to board the plane. The loophole is that there is no matching of name and boarding pass at the gate.
This little scam received mass-market exposure in the November issue of The Atlantic, in an article called “The Things He Carried,” by Jeffrey Goldberg. He and Schneier employed the phony boarding pass gambit at several airports, as well as getting past TSA screeners with liquids, box cutters, and other forbidden objects. Goldberg reports getting through security at O’Hare wearing a “Beerbelly,” a neoprene accessory for sports events that is worn under your shirt and holds up to 80 oz. of liquid, complete with drinking tube. (He reports carrying only two cans’ worth of Bud Light.)
After reporting a number of such ploys, Goldberg then recounts a visit with TSA Administrator Kip Hawley, where he questioned Hawley about the boarding pass loophole in particular. After some double-talk, Hawley told Goldberg that boarding passes will eventually be encrypted, so that TSA can follow their progress from printer to gate. I’m not clear how that’s supposed to work with print-at-home boarding passes, but the idea of having a final check at the gate is a good one, if the watch list is to accomplish its purpose of ensuring that high-risk travelers get extra scrutiny and really bad guys don’t get to fly at all.
I will note in passing that the only airport I’ve used that does security at the gate is Vienna (at least for international departures). Screening staff apparently move from gate to gate, depending on flight departure times. That means if you get to the gate very early, you’re stuck waiting a long time for security to open up. But the airport apparently expects you to spend that time at the retail shops which are all over the place, a few steps from every gate, rather than just standing in line.
It would be more passenger-friendly (and I suspect, less costly) to retain centralized screening checkpoints, but require boarding pass/driver’s license matching at the gate, as part of the boarding process.
Terminal Bomb Scanner in Testing
One of the points Schneier (see above) and I have both made for years is that large concentrations of people in airport ticket lobbies (especially around lobby-based explosives detection machines) and at screening checkpoints are obvious targets for suicide bombers. Yet apart from the occasional roving law enforcement officer, nothing appears to have been done to detect people wearing explosives under their clothing.
The TSA has recently tested a scanner at the Denver and Minneapolis/St. Paul airports aimed squarely at this problem. As reported by Thomas Frank in USA Today (Oct. 6, 2008), the scanner detects infrared (heat energy) emitted from the human body, at a distance up to 30 feet. It looks for cold spots, where dense objects block the usual pattern of body heat. Made by British company QinetiQ North America, the $210,000 device is mounted on a tripod at a busy location. It does not emit energy (such as X-rays), nor does it produce images. Instead, it simply sounds an alarm, at which point a screener stops the person for questioning.
This may or may not be a workable technology, but I’m glad to see the TSA finally attempting to deal with the suicide-bomber threat at airport terminals. This is also something that might be usable at transit stations and other places where there are large concentrations of people.
RT Without the Fuss. Privatized Luton Airport near London has decided to offer the functional equivalent of the non-risk-based U.S. Registered Traveler program-without the signup and ID card routine. Instead, travelers can purchase a ticket to use priority checkpoint lanes, from kiosks in the terminal or online, from home or office. The priority lane is due to be in operation by year-end.
New Airport Revenue Source: Natural Gas. The Allegheny Airport Authority in September authorized Pittsburgh International Airport and the county’s general aviation airport to solicit bids for natural gas drilling. The decision is subject to approval by the County Council, which owns the land on which the airports are located.
Separate Checkpoints for Cockpit Crew. The TSA and Southwest Airlines cooperated this fall on a 60-day pilot project at Baltimore-Washington International, using a biometric kiosk for cockpit crew. By matching fingerprints and a stored photo, the system is intended to identify pilots and first officers, allowing them to avoid going through the regular checkpoint screening. The kiosk is located in the exit lane of the secure area near baggage claim. The process takes only five seconds. Similar pilot programs (called crewPASS) have been in operation at two other airports.
Commercial Flights from GA Airport. An alternative to busy SEATAC airport may soon exist for Puget Sound area residents. The city council of Everett, about 25 miles north of Seattle, voted unanimously to permit Horizon Air to begin commercial flights at Paine Field. The airline plans service to Portland and Spokane, using 76-seat Bombardier Q400 aircraft, starting next spring. Several previous attempts to launch commercial service from GA airports, in other parts of the country, have faced vigorous public opposition.
“Morrison and Winston (2000) . . . among others, found empirical evidence that a dominant airline’s control over key airport facilities, such as slots and gates, is likely to impose significant entry barriers to other potential competitors. Gonec and Nicoletti (2000) studied 102 air routes connecting 14 major international airports. They found in a large number of international airports congestion phenomena are reported to exist, and a single airline controls more than half of the available slots. This implies that dominant carriers are frequently in a position to use slot dominance at congested airports to close out competitors or raise costs for rivals on certain routes. As a result, few international routes are truly open to competition.”
–Tae Oum and Xiaowen Fu, “Impacts of Airports on Airline Competition,” OECD/ITF Joint Transport Research Centre Discussion Paper No. 2008-17
“Competition officials in Brussels have long been pursuing two loss-making airlines, Alitalia and Olympic, over illegal subsidies. Both are tragedies born of patronage on an epic scale. For years, decisions about hubs and route maps have been dictated by politicians and trade unions trying to preserve local fiefs. Their payrolls have been bloated by the appointment of mistresses of the powerful, their in-laws, and idiot nephews. Privatisation and restructuring now await these flag-carriers.”
–Charlemagne, “Europe’s Baleful Bail-Outs,” The Economist, Nov. 1, 2008