In this issue:
- Fixing London’s airport mess
- TSA expanding trusted traveler
- President responds on airport PFCs
- Miami planning Airport City PPP
- Will Charlotte convert to an airport authority?
- Gary Airport PPP proposed
- Upcoming Conference
- News Notes
- Quotable Quote
Controversy continues to rage in Britain over whether and where to expand airport capacity in the economically robust Southeast. Although six commercial airports serve London and environs, the lion’s share of flights occur at the three former BAA airports: Heathrow, Gatwick, and Stansted. Heathrow is maxed out, with demand exceeding its two-runway capacity, while Gatwick and Stansted each has significant unused capacity for its single runway. So the political controversy is all about which airport or airports will get government permission to add runway capacity.
When Margaret Thatcher privatized the three major London airports in 1987, they became, in effect, investor-owned utilities. And because the Thatcher government unwisely privatized BAA as a near-monopoly, it created a new regulatory body to protect airport users from monopoly pricing. Within the last few years, the government mandated-on competition grounds-that BAA sell off both Gatwick and Stansted. The new owner of each would like to add a second runway, with Gatwick calling on the government to embrace a “New York model” of competing hub airports. Heathrow, meanwhile, argues that multiple hubs don’t make sense and that it is, and should remain, “the” UK hub, competing with Paris’s DeGaulle, Germany’s Frankfurt, and Amsterdam’s Schiphol, each of which has more than Heathrow’s two runways.
As is always the case with airport expansion, there is significant opposition from airport neighbors on grounds of noise exposure, and from environmentalists, many of whom object to expansion of flying, per se, on grounds of both conventional engine emissions and CO2 emissions. To assuage the former, various groups have put forth six different proposals for a replacement for Heathrow on the coast far to the east of London-none of which would survive serious environmental review and most of which would cost $60-$100 billion, including new high-speed rail service to connect them to where people live and work. That cost is far beyond what any privatized airport could afford, meaning it would require massive taxpayer subsidies. In addition, these proposals all depend on Heathrow being shut down-which might have been conceivable when it was owned by the government, but would be unprecedented for a profitable investor-owned company in this day and age.
Advocates of making “full use” of the London airports’ existing capacity (such as London Assembly, which just issued its report, “Airport Capacity in London”) highlight the currently unused capacity at Gatwick (12%) and Stansted (47%), and argue that Heathrow could serve more passengers “if larger capacity aircraft were used.” These assertions show considerable ignorance of aviation and markets. Airlines, not politicians, decide which airports to operate from, in order to best serve their customers. And airlines, not politicians, decide which size aircraft make sense on which routes. The U.K. government has no legal authority to tell airlines which airports to use or what size planes to fly.
It seems clear to me that Heathrow should remain a hub (not necessarily “the” hub-consider JFK and Newark each functioning as a hub) and that it should obtain planning permission to add runway capacity-but in a way that minimizes harm to its neighbors. The best proposal I’ve seen is set forth in “Bigger and Quieter: The Right Answer for Aviation.” This detailed report was written by Tim Leunig and published late last year by Policy Exchange. It calls for expanding Heathrow to the west, with four runways, while expanding its existing terminals and other facilities on land now used for the two existing runways. Shifting to western runways would reduce the noise exposure to West London (east of the airport), since most arrivals take place from the east, making final approaches over West London’s dense neighborhoods. The area to the west of Heathrow is much less densely populated with a few industrial properties, a reservoir, and the M25 motorway (which would have to be bridged or re-routed). The Economist recently endorsed this as the best solution, and it has received coverage in Aviation Week, as well.
Heathrow West is the only proposal consistent with the UK airport sector remaining an investor-owned industry, with neither airlines nor airports micromanaged by government. It will allow for continued growth of air travel by allowing the London airports to respond to customer demand, rather than the preferences of politicians. Let’s hope the Davies Commission, charged with recommending the best way forward, sees the logic of this approach.
There is good news for frequent fliers this month. In an April 30th interview in the New York Times, TSA Administrator John Pistole said that thanks to agreements the U.S. government has reached with the E.U., Canada, and Australia, PreCheck lanes will soon accept members traveling on international flights to these places, not just domestic flights. And both Pistole and DHS Secretary Janet Napolitano have been saying for several months that their goal for this year is to have one in four daily air travelers “in some sort of expedited traveler program” like PreCheck or Global Entry. (The figure for 2012 was one in 12.)
One way that will be done is by adding airlines, such as JetBlue and Southwest, to PreCheck; an article by Scott Wong on Politico (April 7th) said that both airlines have expressed interest in joining. Having a Global Entry card entitles members to use PreCheck lanes regardless of which airline they are flying, and 1.5 million people are now enrolled in Global Entry. But TSA is also hoping to expand PreCheck beyond high-level members of airline frequent flier programs. To do that, it hopes to contract with private firms to recruit and enroll members. Earlier this year, it issued a Request for Information to interested firms, asking them to propose their business model for doing this. Each company or team needed to be sponsored by an airport. Responses were due by April 1st, and TSA said it would review the proposals and get back to those submitting the best ones within a month or two-so that may be about to happen.
I hope this effort will involve a realistic background check, like that required for Global Entry, as well as a biometric ID card so that the person showing up at the PreCheck lane can prove he or she is the person who was pre-cleared. Adding those features, of course, would add costs, so there should be a membership fee, as there is for Global Entry.
These efforts to expand the trusted traveler programs have raised concerns among civil liberties groups in both the United States and Europe. The German Commissioner for Data Protection and Freedom of Information was quoted in a March 11 New York Times article as saying that any such risk-assessment system “must be proved to be effective at rooting out terrorists.” But that is a category mistake. Trusted traveler programs are what RAND Corporation has called “positive profiling.” They are not intended to root out terrorists but to root in very low-risk travelers. Jay Stanley of the ACLU was quoted in the same article saying that “any attempt to predict who is likely to engage in [terrorism] is inevitably going to sweep up a vast number of innocent people”-which again gets the purpose exactly backwards.
Times reporter Susan Stellin does point out a potential unfairness in such programs, citing the case of a woman who was denied membership in Global Entry and believes it was because she had been questioned by police as a teenager but never charged with a crime. At the time of the article, at least, she had received no response from the trusted traveler ombudsman at Customs & Border Protection, which operates Global Entry. Since we know government can and does make mistakes, there needs to be some kind of redress for people denied membership because of erroneous information.
In its FY 2014 budget proposal, the Administration proposes to increase the federal limit on airports’ passenger facility charges from the current $4.50 to a new maximum of $8, for all airports. In exchange for increased self-help funding capability, the budget also proposes to reduce the budget for grants from the Airport Improvement Program (AIP) by $450 million. That is a higher PFC cap than the $7 the Administration proposed last year, and the reduction in AIP spending is half the $926 million proposed in FY 2013.
DOT Deputy Secretary John Porcari said the proposal was in response to the offer by large hub airports to give up AIP grants in exchange for an uncapped PFC. “We heard loud and clear from our partners at large hub airports that a PFC increase, they think, is the most effective way to do these vital capital improvements, and we agree,” he told Aviation Daily, adding that “Large hubs are the ones that can make the best use of the passenger facility charge; they are the most anxious of all the airports out there to make greater use of PFC capacity.”
I asked an attorney who works with airports for his reactions to the proposal. He replied that “An $8 PFC is not an uncapped PFC, but many large and medium hub airports will be able to handle projects with that number.” He also noted that the $450 million reduction in AIP grants is close to the amount of cost savings the large hubs had proposed by them giving up both entitlement and discretionary grants. “So this is progress for airports, though it remains to be seen whether an across-the-board PFC increase [all commercial service airports] will be attractive to Congress, where only large hub airports are giving up some grant funding.”
My guess is that the proposal is unlikely to go anywhere in Congress this year. At a hearing before the House Transportation Appropriations Committee on April 16th, Rep. Ed Pastor (D, AZ), the Ranking Member, pointed out to DOT Secretary Ray LaHood that Congress generally handles PFC matters in multi-year FAA reauthorization bills, one of which was enacted last year. If that attitude is widely shared, it’s hard to see any action being taken on the proposal this year.
Miami International Airport (MIA) has finished a complete makeover of its terminal complex, with the spacious new North and South Terminals now in full operation (except for a few remaining gates for American in the North Terminal). The project also included creating the Miami Intermodal Center (rental cars, transit, and commuter rail), linked to the terminals by a new people mover. So what does MIA do for an encore?
It turns out MIA has considerable under-utilized real estate on either side of the main access road to the terminals. Several years ago it put an “Airport City” concept out to bid, and the winner was Odebrecht, a global company that was a major player in the terminals modernization. The initial concept included a medical center and an energy plant plus two hotels, but stakeholders raised various concerns about demand, security, and other matters. The revised plan has three main components: (1) a business park with Class-A office space, retail, restaurants, and a 150-room hotel, (2) a convenience center, aimed partly at airport workers, including retail and a gas station, and (3) a hospitality center with a 400-room Four Diamond hotel connected to the terminal, 25,000 sq. ft. of conference and event space, plus a fitness center, bars and restaurants, etc.
Together, these three elements involve about $500 million of private investment, at Odebrecht’s risk. The plan calls for a 40-year lease with a 10-year option, generating in excess of a billion dollars for MIA over that period, including market-based land rent, a percentage of gross revenues, and the return of the properties to MIA at the end of the lease. In addition, Odebrecht is required to replace the facilities that will be demolished to make room for the new development.
So what’s not to like? Because MIA is owned by Miami-Dade County, the county commissioners must give their approval of the deal. And here politics enters the picture. Odebrecht USA is a subsidiary of Brazil-based Odebrecht, a major global company. Another subsidiary has a project under way at the Port of Mariel Cuba, and a state law enacted last year forbids state and local governments from contracting with firms that do business in Cuba. That law was promptly challenged and ruled to be unconstitutional, but that decision is being appealed. So this very promising project appears to be on hold, pending either the appellate court’s decision or a bout of political courage on the part of a majority of the commissioners.
This kind of interference in airport business decisions would not likely exist were MIA to be de-politicized via a governance change, either to an airport authority or conversion to an investor-owned utility (privatization).
Footnote: The Government Accountability Office in March released a report on “Airport-Centric Development” (GAO-13-261). The report distinguishes between airport cities (on-airport development like MIA’s project) and more speculative aerotropolis projects (off-airport developments, such as the struggling “Global TransPark” in Kinston, NC).
A major political battle is under way in North Carolina over the governance of Charlotte International Airport (CLT). The airport, which is US Air’s largest hub, has always been a department of the city government. But there is now a bill in the legislature to create an airport authority, on whose board the city and surrounding counties in the metro area would be represented. The bill has already been approved by the state Senate, and a vote in the House is expected by the end of this month.
I don’t know enough about the local politics to assess the pros and cons, but from a distance this appears to be a fight over control. City officials are adamantly opposed to losing control of “their” airport, even though under federal law the City cannot derive any net revenue from the airport. Evidently, various legislators and metro-area county officials have a different view.
What does serious research tell us about airport governance models? The best study I’ve seen is one from 2008, published in the Journal of Urban Economics. I wrote about it in Issue No. 52, December 2009, and here is a brief summary. In “Ownership Forms Matter for Airport Efficiency,” researchers Tae Oum, Jia Yan, and Chunyan Yu used a data set of 109 airports of many sizes and types: 27 were government-owned (like CLT)), 25 were run by a U.S. airport authority, 16 had majority or totally private ownership, 12 were government corporations (like Amsterdam Schiphol), 7 were owned by U.S. port authorities, and the rest had mixed ownership.
The researchers’ econometric model basically assessed how efficiently each airport converted its various inputs into outputs, and the findings were striking. Airports with private ownership, corporatized government airports, and those run by airport authorities were significantly more efficient than those with majority or 100% direct government ownership. And among the four different types of government ownership, the least efficient were those owned and operated by U.S. port authorities.
These findings suggest that those pushing for an airport authority for CLT probably have right on their side. And on April 30th, we learned that one of those favoring the authority model is Jerry Orr, the long-time director of CLT. He told the Charlotte Observer that “This airport ought to be an airport authority,” and that he’s held that view for all 38 years he’s been running the airport. Needless to say, politicians favoring the status quo quickly denounced Orr, with state Sen. Malcolm Graham calling for Orr to be fired. But the former chairman of the city’s Airport Advisory Committee, Shawn Dorsch, commended Orr for speaking out, noting that a city-funded study released late last month had concluded that shifting to an authority would make sense. Alas, Dorsch was removed from the Committee by Mayor Anthony Foxx, for supporting the change against the city’s wishes.
It’s dismaying to see such raw politics in action, rather than a good-faith search for the best governance model.
Gary, Indiana’s airport was renamed Gary/Chicago International Airport several years ago in an effort to position it as the third airport for the greater Chicago metro area. It has undertaken a $162 million project to lengthen its runway and add FAA-required runway safety areas at each end. That project required relocating three sets of railroad tracks, a project that is still under way, postponing completion of the runway extension until late this summer. With all these changes, the airport still has only one scheduled airline customer-Allegiant-and only minimal service.
So the airport authority is pinning its hopes on private investment. It aims to attract about $100 million in capital investment under some kind of public-private partnership agreement. Last month a joint city/airport committee recommended hiring legal and financial advisors to develop a request for proposals, aiming to have the RFP ready for release by the end of summer. Since the city does not have the money on hand to pay for these contracts, it aims to compensate them via success fees that would come out of the initial financing of the hoped-for PPP deal. The winning bidder would obtain the right to develop airport land, in addition to upgrading the terminal and more aggressively marketing the airport to airlines.
That is a tall order, given that Gary/Chicago has managed to attract only one small airline with very limited service. It’s not clear what market niche the airport could most realistically fulfill that is not already being met by O’Hare or Midway. A possible model would be Orlando/Sanford, which has carved out a niche for itself serving trans-Atlantic charter flights and some degree of budget-airline domestic service. It will be interesting to see what responses Gary gets once it issues the RFP.
Global Airports PPP Conference, the 3rd Annual AAAE/LeighFisher Airport PPP Conference, June 2-4, Westin Georgetown, Washington, DC. (Robert Poole speaking) Details at: www.events.aaae.org/sites/130604/index.cfm
Airports Docked to Save Controller Jobs. In giving the FAA enough budget flexibility to shift funds from capital spending to operations, thereby ending furloughs of controllers and (presumably) averting the shut-down of contract towers, Congress found the money in a portion of the Airport Improvement Program. Airport groups are protesting, with Airports Council International-North America sending a letter to FAA Administrator Michael Huerta stating that “This must be the first and only time AIP funding is used for FAA Operations. We will adamantly oppose this practice in the future.” Problems like this cannot occur in most other developed countries, whose air traffic control system is funded by fees and charges paid directly to the ATC corporation by airspace users. That keeps the ATC budget entirely out of the national government budget and not subject to government budget cutbacks.
Tower Shut-Down Decisions Based on 30-Year-Old Data. A week before the FAA began shutting down contract towers in response to the sequester, an AP story broke the news that the benefit-cost data the agency continues to use to decide whether a small airport has enough traffic to warrant a control tower stem from the mid-1980s. The methodology used airport accident data from 1983-86 in those calculations, which have never been updated, despite dramatic reductions in accident and fatality rates since then. In response to AP’s query, FAA acknowledged that none of the formulas had been updated since 1990 but said the agency was “in the process of updating this policy.”
Pilots Opposing End of FFDO Funding. The Administration’s 2014 budget proposal calls for zero funding for the cost-effective Federal Flight Deck Officer program, under which airline pilots volunteer for firearms training and are then authorized to carry a gun in the cockpit. Among the groups calling for the program to be retained is the Southwest Airline Pilots’ Association. A 2012 study by researchers Mark Stewart and John Mueller estimated that FFDO has a dramatically higher benefit/cost ratio than the Federal Air Marshals program.
Australian Fund Sells Airport Stakes. The Australian Infrastructure Fund (AIX) has reached an agreement to sell its minority stakes in five airport companies to the government-owned Future Fund, for $2 billion. The latter was set up in 2006 to invest the capital of the country’s public-sector pension funds. Four of the five airport investments are in privatized Australian airports; the fifth is a 40% equity stake in Hochtief Airport Capital, which owns stakes in the airports of Athens, Düsseldorf, Hamburg, and Sydney.
Air Beats Rail Between Scotland and London. In an April 16th story, Reuters reported on a survey by The Herald (Glasgow) on weekend travel between Scottish cities and London. Both British Airways and Virgin Atlantic flights were as much as 60% less costly than rail service, including the cost of checked luggage and the airlines’ complimentary meal.
CLEAR Adds San Antonio Airport. Front-of-the-line provider CLEAR announced late in April that it will introduce its service this summer at San Antonio. CLEAR members receive a biometric ID card that permits them to bypass screening lines after identifying themselves at a kiosk in the security area. Unlike PreCheck members, however, they must still undergo normal screening
PreCheck Notice on Boarding Passes. TSA has announced that boarding passes may now include the words “TSA PreCheck” on those (presumably frequent) occasions when the passenger is eligible to use the special lanes providing expedited screening. Delta, United, and US Airways are the first airlines to announce that their boarding passes will soon include this feature.
LaGuardia Adding Runway Overrun Protection. The Port Authority of New York & New Jersey has announced a $203 million project to add protection against planes running off the ends of runways 13 and 22. Since the airport does not have room to add standard runway safety areas, it will instead install an engineered material arresting system (EMAS) at the end of each. The EMAS will be installed on each runway’s existing platform decks over the water. An EMAS is built largely from compressible concrete and must be repaired or rebuilt in those cases where it stops an aircraft by deforming under its weight. EMAS installations already exist at Kennedy and Newark airports.
Pilots Pushing for Secondary Cockpit Barriers. Rep. Michael Fitzpatrick (R, PA) has introduced a bill to require airlines to install secondary barriers to restrict access to airliner cockpits when cockpit crewmembers need to open the existing cockpit door in flight. The bill has bipartisan co-sponsors and is being supported by the Air Line Pilots Association.
“The best option is to expand Heathrow not to its north, but to the west, by building up to four new runways over what is now a reservoir. Although detailed noise studies have yet to be done on this proposal, simply moving the runways a couple of kilometers to the west offers the scope for almost doubling Heathrow’s capacity while significantly reducing the numbers of those subjected to oppressive din. Capacity would be provided where the demand is: the high price of landing slots at Heathrow shows how badly airlines want to be there. People and companies would not have to migrate across town. The public subsidy [if any] required should be relatively modest. . . . On the evidence so far, going west is best.”
-Editorial, “Heathrow: Our Solution,” The Economist, March 30, 2013
“[PreCheck is] based on the notion that the vast majority, if not everybody, on any given day-almost 1.8 million people that we screen every day-are not terrorists. They simply want to get from Point A to Point B safely. We started with the elite frequent fliers. Because we knew from intelligence that they were less likely to be a possible terrorist. . . . I think one of TSA’s jobs is to promote the free movement of people and goods with the best security. I didn’t see the one-size-fits-all as being sustainable. Clearly treating everybody as a potential terrorist-I didn’t see that as being sustainable.”
-John S. Pistole, in Jad Mouawad, “Frustrated Air Travelers, the TSA Chief Shares Your Pain,” The New York Times, April 30, 2013