In this issue:
- Can Registered Traveler Be Revived?
- New Data on High-Speed Rail vs. Air Service
- A New Pricing Proposal for LaGuardia
- Airport Fire/Rescue Proposal Not Cost-Effective
- Alternatives to Higher Small-Town Subsidies
- News Notes
Can Registered Traveler Program Be Revived?
For reasons that have never been disclosed, the Transportation Security Administration refused to implement Registered Traveler as the kind of risk-based aviation security program that Congress intended. The cost-effectiveness of such an approach-focusing limited aviation security resources away from lower-risk travelers and toward higher-risk travelers-was documented early on in studies by RAND Corporation and Carnegie-Mellon University. More recently, operations researchers at Virginia Commonwealth University and the University of Illinois at Urbana-Champaign released a study offering further support. As published in the June 2009 issue of IIE Transactions, it reported their development of a risk-based security screening methodology. The research was supported by the National Science Foundation, the Air Force Office of Scientific Research, and the Department of Homeland Security. (www.scienceblog.com/cms/research-details-mathematical-model-effectively-screening-airline-passengers-21887.html)
But despite the strong support in Congress and academia for risk-based airport screening, the TSA seems determined to drive a stake through the heart of what remains of the RT program following the demise of leading provider Clear. TSA is now proposing to delete all the RT member data from the program’s central database. This despite the fact that at least one other RT provider-FLO Corporation-is potentially in the market to acquire the data on Clear’s 250,000 members and restart the program. And despite the fact that the sale of the membership data is the only hope for Clear’s creditors to be paid some or all of what they are owed.
The TSA’s plan is being challenged by two members of the House Homeland Security Committee, Rep. Bennie Thompson (D, MS) and Rep. Peter King (R, NY). In their August 20, 2009 letter to DHS Secretary Janet Napolitano, they wrote that “We believe the plan to sweep all of the information from this database is shortsighted and could potentially undermine restoration of the program.” Thompson and King were among those reaffirming support for a risk-based RT program via language in the TSA Act of 2009, passed by the House several months ago. So far, the Senate has not yet acted on TSA reauthorization, and whether the eventual Senate bill will include a comparable RT provision is uncertain.
TSA’s continuing hostility to a risk-based RT program is supremely ironic, given that its sister agency within the Department of Homeland Security continues to expand the risk-based international RT program. Earlier this month, Customs & Border Protection announced that its Global Entry program has been expanded to 13 more airports, bringing the total to 20. Under Global Entry, pre-screened low-risk air travelers get expedited re-entry into the United States from abroad, using kiosks to bypass the often-lengthy passport control lines.
When the Senate holds confirmation hearings for the nominee for TSA Administrator next month, they should grill him on ending the agency’s hostility to a risk-based domestic Registered Traveler program. And the Senate should enact RT language comparable to what the House has already done requiring TSA to implement such a program, as Congress mandated in the original Aviation & Transportation Security Act of 2001.
New Data Undermine Case for Rail vs. Short-Haul Air Service
“For reasons of carbon reduction and wider environmental benefits, it is manifestly in the public interest that we systematically replace short-haul aviation with high-speed rail.” That was the pronouncement August 5th by UK Transport Secretary Andrew Adonis. The Reuters report that included this statement says the current Labor government plans to develop a national network of high-speed rail (HSR) lines, beginning with a new line from London to Birmingham.
As the U.S. government gears up to do likewise, we are seeing a growing number of reports that question whether these huge commitments of tax dollars actually make sense. A UK report by Booz Allen Hamilton, released in August (though completed in 2007) concluded that construction and operation of the planned north-south HSR network would emit more CO2 than continued short-haul air travel over the next 60 years. HSR would only produce net carbon savings if it captured 62% of market share from airlines. But if train service is doubled from current levels (as some propose), HSR would need a market share of 73-85% to achieve net carbon savings.
The Swedish daily Dagens Nyheter published (August 21, 2009) a summary of a report on proposed HSR in Sweden, prepared by the Expert Group for Environmental Studies, for the Ministry of Finance. It is based on an analysis by consulting firm WSP for the National Railways Administration. Basically a social benefit/cost analysis, it concluded that the net social benefit (including environmental benefits) was only 80% of the project cost. The HSR system would eliminate only one percent of the transport sector’s carbon emissions, at a very high cost per ton.
The Swedish study did not include the carbon emissions due to the construction of the HSR system, only that from its operations, unlike the UK study. The most comprehensive study on the total carbon footprint of different transport modes remains the one released in June by UC Berkeley analysts Mikhail Chester and Arpad Horvath. They found that leaving out carbon emissions due to the very energy-intensive construction of HSR lines and stations can make HSR appear far more carbon-friendly than it actually is. Including construction CO2 in the assessment increases the carbon footprint of an airline trip by 31% (compared with only including emissions from operations). But for rail systems, the impact is vastly greater: the lifecycle carbon footprint of rail is increased by 155%.
Finally, you might also want to read an excellent overview of HSR’s costs and benefits compared with short-haul air travel. “The Economic Effects of High Speed Rail Investment” by Gines de Rus of the University of Las Palmas in Spain is Discussion Paper No. 2008-16 from the Joint Transport Research Centre of the OECD and its International Transport Forum. One of its most interesting components is three tables comparing total costs (including environmental) and total revenues for the highway, rail, and air transport sectors of France, Germany, Netherlands, and Spain. As you might anticipate, the air transport systems are generally self-supporting, the roadway systems close to self-supporting (except Germany’s), but the rail systems cost far more than they take in. Excluding from revenues explicit subsidies for certain “concessionary fares,” the rail systems cover 55% of their costs in France, 41% in Germany, 39% in Netherlands, and 26% in Spain.
As de Rus concludes, “The case for HSR investment can rarely be justified on the benefits provided by the diversion of traffic from air transport.”
A New Pricing Proposal for LaGuardia (and other Congested Airports)
In 2007, the Reason Foundation published a policy brief by Michael Levine, asking whether the politics surrounding runway congestion pricing could be overcome. (http://reason.org/news/show/congestion-pricing-at-new-york) In a recent online aviation discussion group, airline consultant Hubert Horan took up the Levine challenge. Rather than paraphrase what he wrote, I invited him to present that case here, as a guest article. I hope you find it as thought-provoking as I did.
We have a congestion/capacity problem, because for decades there has been political gridlock preventing even modest changes to aviation funding systems which, combined with obstacles to major infrastructure construction, has made it impossible to add major capacity in and around high traffic areas with congested airports.
Key to understanding the gridlock problem is recognizing that all of the key interest groups are either opposed to building more capacity where it is economically justified, or in paying their share of what that new capacity would cost. While each interest group has some legitimate concerns, most of their public pronouncements are just political posturing designed to ensure gridlock and protect the status quo. No incumbent airline wants the capacity that would support new competition, and they’ll fight any new “user fees” that raise their costs. Many airports care much more about political prerogatives and blocking any restrictions on how fee revenues can be used than they do about supporting local economic growth or minimizing delays. No local politicians or members of Congress have the motivation to fight the opposition to new capacity based on noise and NIMBY considerations.
Any kind of longer term solution requires two things: a quasi-market mechanism that sets prices for the use of scarce runway capacity at the levels needed to eliminate “excess demand”, and a “capacity-supplying” entity with incentives to maximize the social return on air capacity investments (i.e., expenditures justified by eliminating congestion/delay and creating economically productive new capacity).
What difficult but plausibly achievable intermediate steps should Congress/DOT take to move us in that direction? The near-term focus should be reducing bad incentives and political roadblocks. These proposals should be considered in the context of Mike Levine’s question, “Is it possible to fashion remedies, perhaps “impure,”that if adopted will produce a result better than the current situation?”
1. Flat-Rate Landing Fees at Highly Congested Airports. Within today’s residual-cost system, all airports at (or approaching) capacity would be required to structure landing fees so that every plane pays the same rate; hence, 757 rates would go down while regional jet (RJ) rates would go up. At LaGuardia (LGA), every existing slot holder would retain its current slots, but with structural incentives for airlines to maximize airport throughput given today’s capacity. The assumption here is that airlines “overschedule” RJs since this is the cheapest way to protect slot “assets” and keep out low-cost carrier (LCC) competition. Airlines now doing this will face higher costs, but will be free to cover those costs with revenues from a bigger plane or sell the slot to someone else. This is a “market solution” in the sense of using incentives to let market participants reallocate resources, instead of letting DOT/FAA staff assign slots or make scheduling decisions. Slot values might change, but no slots get confiscated, and airlines never had a “right” to this week’s slot values anyway. If throughput increases, the public has just achieved an increase in LGA capacity at a tiny fraction of the cost of building new runways.
This first step doesn’t “solve” the capacity problem, but (if I’m right about the RJ issue) it would significantly reduce the external costs that the capacity problem imposes on consumers, airports and local economies. Legacy airlines argue that they fly all those RJs because their New York customers demand that type of high frequency/high fare service, and they are only motivated by the strong profitability of these flights; asset hoarding and LCC competitive threats have nothing to do with it. But the recent Delta/USAirways LGA/DCA slot swap suggests that past scheduling practices did not optimize short-term route profitability, and these carriers are strongly focused on longer-term slot asset values.
2. “Small City” Funding Mechanism for Congested Airports. Any future slot optimization system will have serious problems if there are big chunks of slots excluded from the system and handled “politically”. But a rigid demand for no exceptions whatsoever isn’t realistic given how the political process actually works. I don’t think those “small city” claims would survive serious scrutiny, but they are still a political obstacle. So I propose a system where concerned cities/states could acquire and control some of the slots, based on the system they’ve used in France for many years. (The Orly slots used by most little planes are controlled by regional governments, not the operating airline). Congress would establish a funding pool linked to the EAS (Essential Air Service) program, and an EAS-like bidding process for cities/states that wanted federal subsidies to buy slots. The controlling city/state could contract with any airline to operate the flight at whatever rates the airlines would accept. These “public” slots could be transferred to other local governments but couldn’t be sold back to the airlines. In a more perfect world I wouldn’t want taxpayer money spent on these kinds of local airline routes, but I think this is a small price to pay for eliminating the “small cities” political barrier to more efficient use of LGA capacity, just as the original EAS program eliminated a political obstacle to deregulation.
3. Future Slot Sales on Blind Auction Basis. Slot sales would have to follow the “Blind Auction” approach outlined in Mike Levine’s recent paper, whereby the selling airline wouldn’t know the identity of the purchaser in advance, and with subsequent public disclosure of both the high and second-highest bid. This would provide greater transparency about the opportunity cost when airlines retain slots supporting unprofitable flights, and would reduce one barrier to LCC entry. I’d place a non-punitive excise tax on all slot sales (10%?) to recapture a bit of the scarcity rents, and to help fund the “small city” and other administrative programs.
4. Zero-tolerance Use or Lose. I would tighten rules that allow airlines to retain slots without actually using them, including specific prohibition on bankruptcy estates retaining slots that weren’t being operated.
I think it makes more sense to let the dust settle from these initial steps before trying to tackle the more difficult slot pricing and capacity supply questions. If flat-rate fees at LGA have a notable impact, it makes it much easier to structure the next phase of capacity programs. It would also make it possible to reduce hourly slot caps without reducing airport throughput or airport revenues. If flat fees have little impact on scheduling or throughput at LGA, the next phase of capacity becomes much more expensive, but there will be clear evidence that cheaper approaches hadn’t worked.-Hubert Horan.
New Airport Fire Requirements Not Cost-Effective
Early in my career, I worked for a consulting firm called Public Safety Systems, Inc. Among other things, we applied minicomputer systems to police and fire dispatching, and that is where I learned about the National Fire Protection Association (NFPA), as well as the power of the firefighters unions.
NFPA has standards for airport rescue and fire fighting (ARFF), and so does the International Civil Aviation Organization (ICAO), both of which are voluntary unless made mandatory by action of the relevant governments. Current FAA standards for ARFF are not as stringent as those of NFPA or ICAO-but that could be about to change. Section 311 of the House bill to reauthorize the FAA (HR 915) would require the FAA to adopt these more-stringent (and hence more-costly) standards. In response to concerns expressed by airport groups, the Transportation Research Board’s Airport Cooperative Research Program (ACRP) commissioned a study. It’s a web-only document, “How Proposed ARFF Standards Would Impact Airports,” by Richard Golaszewski, Benedict Castellano, and Robert E. David. (http://onlinepubs.trb.org/acrp/acrp_webdoc_007.pdf)
The study compares current FAA ARFF standards under Part 139 of the Federal Air Regulations with what would be required under either ICAO or NFPA standards. It uses 11 years worth of data on accidents at 476 U.S. airports governed by Part 139 defined by FAA as Class I, II, and III. (The smallest airports, Class IV, were excluded because of very little passenger service.) The research task was estimate whether the additional fire-fighting staff and equipment under ICAO or NFPA would have made a significant difference to the outcome of the response to each incident. The standards impose more stringent requirements for ARFF response times, which affects the number and location of fire/rescue stations. They also prescribe minimum numbers of vehicles and rules for the number of firefighters to be on duty.
The study analyzed fatal air carrier accidents over the 1997-2007 period for airlines (both scheduled and non-scheduled) as well as air taxi and commuter operations. Eleven of the 23 fatal accidents for Part 121 airlines occurred far from airport property and so were not relevant for ARFF response. Nine others involved cases where fire/rescue response would not have made a difference (e.g., someone killed by walking into a propeller or by a collision between a plane and ground equipment). The other three-a runway overrun with fire, a crash into a maintenance hangar with fire, and a takeoff from a too-short runway with crash and fire-were analyzed and the conclusion in all three cases was that quicker response time would not have prevented any of the fatalities.
The summary of this safety analysis noted the relatively small number of fatal accidents during 11 years, and estimated that at best one life might have been saved due to faster response time.
What about the costs? Using a sample of airports from each size category, the researchers surveyed airport operators to determine the current and projected numbers of vehicles and firefighters under either NFPA or ICAO standards. Those numbers were then extrapolated to all the airports in each category. For the most stringent version-the NFPA two-minute response time standard-the total number of firefighters would more than double for the 476 airports included in the study. Smaller increases would be needed for the NFPA three-minute standard or the ICAO three-minute standard. Vehicle numbers would increase by similar amounts. The annualized operating and depreciation costs of the NFPA two-minute standard would be approximately $1 billion, the majority of which would be payroll costs for the additional firefighters. In general, the cost impacts would be greater the larger the airport, though the increased cost per enplaned passenger would be greater for the smaller airports (ranging from 28 cents/passenger at the largest to nearly $28/passenger at the Class III airports, for the NFPA two-minute standard). Even the least stringent NFPA standard would increase the Class III cost/passenger by nearly $14 (but only 3 cents/passenger at the largest Class I airports).
What I recall from my early exposure to NFPA is that, like most safety-oriented organizations, they want increased fire safety without much concern for cost or cost-effectiveness. And organizations like the International Association of Fire Fighters (the largest U.S. fire union) clearly want-and lobby for-standards that create more union jobs. Based on the ACRP’s careful analysis, it’s hard to see much of a case for what the House bill seeks to impose, especially on smaller airports.
Alternatives to Rural Air Subsidies
As the Senate Appropriations Committee discussed (and then approved) a 29% increase in funding to subsidize rural airline service, a flurry of newspaper articles appeared around the country. Many focused on Ely, NV as the poster child for the program’s excesses. Joe Sharkey’s syndicated New York Times column noted that Ely tops the list of subsidy per passenger, at $4,500. Only 414 people flew out of Ely in 2008, with an average load of 0.7 passengers per flight. Many of the other 150 towns and cities receiving subsidized air service cost taxpayers several hundred dollars per passenger.
The Essential Air Services (EAS) program began life in 1978 as a 10-year effort to ease the transition from the regulated-cartel approach that prevailed prior to passage of the Airline Deregulation Act of 1978. In the old days, airlines cross-subsidized service to rural cities with profits from their more-lucrative routes, but that no longer worked once every airline was free to fly anywhere. And since rural areas exist in most states, and every state has two Senators, EAS took on a life of its own, gradually expanding in size and becoming permanent.
Last month the Government Accountability Office released its latest study of EAS (“Options and Analytical Tools to Strengthen DOT’s Approach to Supporting Communities’ Access to the System”-GAO-09-753, available at www.gao.gov). In the course of looking into ways of reducing the EAS burden on taxpayers, GAO provides many insights into how the program operates. For one thing, about a third of its budget comes from foreigners! EAS receives about $50 million per year in overflight fees paid by aircraft owners (airlines and business jets) who use the U.S. air traffic control system while flying over U.S. territory. The balance comes from the Aviation Trust Fund (which means that you and I, as airline passengers, pay for most of EAS via our ticket taxes.)
GAO also points out that even as the number of small towns participating in EAS has grown over time, the number of participating airlines has shrunk from 34 in 1987 to just 10 as of 2009 (of which four serve 85% of the routes). Also, some of the requirements Congress has imposed-such as planes with at least 15 seats and at least twice-daily service-have contributed to very low load factors and high costs per passenger. The average load factor for EAS flights was 37% in 2008-compared with about 80% for regular air service.
Fundamentally, EAS appears to me to be a vain attempt to preserve an America that no longer exists. As GAO’s report points out, many EAS communities have lost population over the last 30 years, meaning there is less demand for such service. The whole phenomenon of low-cost carriers (LCCs) has emerged during these three decades, leading many people in rural areas to drive 70 or 100 miles to an airport offering low-fare LCC service, rather than flying on a high-fare (despite subsidy) local EAS flight. And intercity bus service is enjoying a renaissance, offering new options to those “stranded” in rural America. So it’s not at all clear why U.S. air travelers (and foreigners) should be taxed $175 million per year to provide a few small-plane flights to 100+ rural towns.
In an effort to reduce the tax burden, GAO reviews the pros and cons of a number of possible reform measures, including allowing smaller (e.g., nine-seat) planes and less-frequent service, consolidating EAS flights from nearby towns at a single airport, and limiting eligibility to the most remote towns. Those would help a bit, but I think we need to think further outside the box.
GAO does note that on-demand air taxi service and intercity bus service offer additional options that might cost less and provide better service than EAS in its current incarnation. And its report provides a fascinating appendix showing how the use of geographical information system (GIS) tools can identify small community transportation options.
But here are two additional ideas. Instead of having airline passengers on regular routes subsidizing small-town air service, why not take at face value the claims of small-town boosters that airline service makes them more viable places to live, work, and do business? In other words, let those communities put their money where their mouth is and come up with funding to assist one or more airlines with some level of air service. Some small and medium-size cities have been doing this for years, with varying degrees of success-for example, Wichita (KS), Myrtle Beach (SC), and Roswell (NM). These efforts generally involve local tax money and/or waivers of (city-owned) airport landing fees and other charges. Another way of approaching the problem is for the business community, typically the chamber of commerce, to come up with funding, as is done in France, where their chambers operate most of the smaller airports.
As the GAO report concludes, “Changes in the aviation industry and the nation’s financial situation over the past 30 years may make this an opportune time to revisit [EAS] program objectives and evaluate design options for the program.” I agree.
Shoe Scanner on the Market
Although General Electric developed a prototype shoe scanner for use by defunct Registered Traveler provider Clear, it was never able to win TSA approval. Now comes IDO Security, with a $6,000 magnetic shoe scanner. Though not yet approved for U.S. use, the New York-based company has sold its MagShoe device to Israel’s Ben-Gurion, Spain’s Madrid Barajas International, Rome’s Fiumicino, and Hong Kong International. CEO Michael Goldberg told Aviation Daily (Aug. 21, 2008) that he is “unable to discuss prospects for its use at airports in the United States,” presumably because testing at TSA is under way.
Airport Privatization Recap
Each year my colleagues at the Reason Foundation produce an Annual Privatization Report, covering a wide range of fields in which governments have sold, leased, or outsourced the operation of traditionally government-run functions. In the 2009 edition, released last month, I wrote the chapter on air transportation, most of which is devoted to airport privatization. You will find the report at http://reason.org/apr2009.
Last Gatwick Bidder Withdraws
In mid-July, the third of three bidders for BAA’s proposed sale of London Gatwick airport-Manchester Airports Group-withdrew from the bidding. The MAG team consisted of Manchester Airport, Canada’s Borealis pension fund, and the Greater Manchester Pension Fund. BAA had hoped to raise £2 billion ($3.28 billion) from the sale, but due to both the current reduced levels of passenger traffic and credit market conditions, all three bids were far below that level. In withdrawing, MAG said it would not raise its £1.38 billion offer to BAA’s new minimum requirement of £1.5 billion. BAA is still appealing a Competition Commission order that it sell Gatwick and two other airports within two years.
Risk-Based Security Paper Available
The policy paper I wrote last fall for the OECD’s International Transport Forum has now been published. It compares the aviation security approaches taken by Canada, the European Union countries, and the United States and argues for a more risk-based approach. I presented it at a round-table discussion in Paris last December and again, slightly revised, at the ITF’s annual Leipzig conference on transportation policy in May. The paper appears in the OECD/ITF report, Terrorism and International Transport: Towards Risk-Based Security Policy, Round Table #144. Go to: www.internationaltransportforum.org/Pub/new.html.
St. Petersburg, Russia Airport to Be Privatized
At the end of June, the city government of St. Petersburg announced the winning bidder for a 30-year concession to expand and operate Pulkovo Airport, the city’s main commercial airport. Fraport, Horizon Air Investments, and Russian state bank VTB comprise the winning team. They will invest an estimated $1.5 billion to build a new terminal and make other improvements. The city will receive 11.5% of the airport’s revenues. Whether this deal will increase the odds that Kosovo will attract bidders for its proposed privatization of Kosovo International Airport remains to be seen.
Guards Flunk GAO Covert Testing at Federal Buildings
There is no better test of the ability of a security system than covert testing, in which “red team” members simulate terrorist attempts to get through without being found out. The Federal Protective Service is responsible for protecting about 9,000 federal facilities (and, like TSA, is part of the Department of Homeland Security). Recently, the Government Accountability Office sent covert testers “carrying the components for an improvised explosive device” through security checkpoints at 10 federal facilities. At all 10, they got through without question, assembled the explosive device, and walked freely around the facility with the device in a briefcase. Read the report and weep. (GAO-09-859T, at www.gao.gov.)
Third Chicago Airport Gets New Funding
The proposed public-private project to develop a new south-suburban airport at Peotone, IL received a shot in the arm last month, when Gov. Pat Quinn signed a budget bill that includes $100 million to help the state DOT acquire the remaining 2,000 acres needed for the airport. The current plan calls for the state to acquire the land and manage the airside, while a private consortium develops and operates the landside (terminal, parking, etc.).
New Airport Screening Contracts in Roswell and Montana
Roswell (NM) International Air Center is getting a new airport screening contractor, under the TSA’s Screening Partnership Program. The new provider is BOS Security of Athens, GA. BOS is replacing a previous contractor that provided airport screening there from 2007 to 2009. The new contract will run until 2014. And TSA has announced that Trinity Technology Group of Fairfax, VA has been selected to provide screening at seven small airports in Montana.