In this issue:
- Airglades proposes privatized cargo airport
- E.U. agrees to passenger name record accord with United States
- Airport privatization news from Europe
- Potential U.S. high-speed rail competition for aviation
- TSA making progress with PreCheck
- Assessing Kip Hawley’s new book
- News Notes
- Quotable Quotes
In August 2010 many in the aviation community were surprised to learn that a tiny general aviation airport in Clewiston, Florida had filed an application to join the federal Airport Privatization Pilot Program. But later that year, the FAA approved the application, granting one of the slots in the program to the Hendry County Airglades Airport. Few details were released last year, other than that the proponent, Florida Cargo Fresh (a group of agribusinesses in the region), plans to expand the airport into a kind of cargo reliever airport for giant Miami International. Consequently, I was pleased to have an opportunity to talk with several of those involved with the project, during last month’s AAAE/LeighFisher Associates Global Airport Privatization Conference in Miami. They were also handing out copies of the January-March 2012 issue of Airliners & Airports Magazine, which has a feature article on the project.
What the proponents have in mind is to develop the Airglades property into an airport with a 3,000-acre footprint comparable to MIA, adding an 11,700-ft. runway, a Perishable Cargo Center, and an Aircraft Conversion & Modification Center. MIA has long been the principal U.S. passenger and cargo gateway to Latin America and the Caribbean. Until I moved to Florida in 2003, I had no idea what a huge role air cargo plays at MIA, but a guided tour of the warehouses and distribution centers west of the airport several years ago made this very plain. MIA is quite large, but like most other close-in airports in major metro areas, it has little or no room to add to its footprint, to accommodate future growth. Previous proposals to add reliever airports-one in the eastern Everglades in the late 1960s and another to commercialize Homestead Air Force Base in the 1990s–were shot down by active opposition, especially from environmental groups.
The Florida Cargo Fresh group envisions the expanded Airglades as initially attracting a significant portion of the perishable cargo now coming into MIA from Latin America-fruits and flowers, primarily-and later some or all of the many aircraft refurbishment and modification activities now located on the north side of MIA, freeing up space for growth in MIA’s core functions. The Airglades Airport is close to U.S. 27, an important north-south truck route up the center of the state from Miami (close to MIA), eventually intersecting I-4 southwest of Orlando and intersecting the Florida Turnpike and I-75 further north. The proponents have support from the local economic development types, who have been promoting various ideas for an “inland port” in this long-depressed region just south of Lake Okeechobee for the past decade. They have also reached out to cargo brokers and forwarders, whose organization is part of the project’s advisory council (though not, so far, endorsing the project).
It’s an intriguing idea, and one that differs significantly from the others currently in the Pilot Program, in that its principal focus is to make large investments to turn a very small airport into a much larger provider of airport infrastructure. But is the business model viable? To get some perspective, I asked MIA Director Jose Abreu (former Florida DOT Secretary) about the Airglades proposal. He raised a number of points that put the proposal in perspective.
MIA does not see any near-term need for cargo reliever capacity, Abreu told me, pointing out that some of the current cargo tenants are introducing automated processes to speed the movement of incoming cargo from planes to trucks or to outgoing air cargo flights (thereby getting more use out of their existing space). On the specific subject of perishables, he first noted that as a form of air cargo, perishables are high-volume/low-value cargo that is shipped by air only when necessary. It makes business sense for cargo airlines only if they can attract high-value cargo for the backhaul trips to Latin America-cargo such as high-tech goods, pharmaceuticals, industrial machinery and parts, etc. Perishables need frequent service during specific times of the year, which also requires a high volume of profitable backhaul cargo. That kind of volume is much easier to find within a major metro area than in the middle of the Everglades agricultural areas. Finally, he also noted the advantages to cargo carriers from being concentrated at a single major hub, with all the support services close at hand and with the ability to have one carrier backstop another when it has more time-value cargo than it can handle by itself.
One of the great virtues of airport privatization is that the viability of a proposal like Airglades will be assessed not by politics but by the market. Director Abreu has raised the kinds of points that must be addressed in Florida Cargo Fresh’s business plan. That plan will, of necessity, undergo stringent due-diligence review by those asked to invest money in the project. If Florida Cargo Fresh succeeds in raising the money, I will wish them well. But I will also rest easy as a taxpayer, knowing that if the project goes belly up, the losses will accrue to those investors, not to millions of Americans whose airline ticket taxes have supported white elephants such as Mid-America Airport near St. Louis and the John P. Murtha Airport in Johnstown, PA, both of which are known for their empty terminals.
Aside from the aviation trade press, I did not see much news coverage of last month’s decision by the European Parliament to approve a painstakingly negotiated agreement between the European Union and the United States on the use of Passenger Name Record (PNR) data for aviation security. The new accord replaces one negotiated with the European Commission in 2007, shortly before E.U. law changed to give the European Parliament an approval role in data privacy matters. And since the latter body includes a number of “privacy zealots,” it turned out to be a difficult and contentious negotiation.
E.U. intransigence on this issue was denounced by the Washington Post‘s editorial board in 2010 and by a bipartisan joint resolution of the House and Senate Homeland Security Committees in 2011. PNR data was used to apprehend the Times Square bomber in 2010 and has enormous potential value in spotting would-be terrorists seeking to enter the United States, especially from visa-free countries in Europe.
I became aware of the importance of PNR data back in 2003, while researching and writing the Reason Foundation policy study, “A Risk-Based Security Policy.” As part of that research I learned from aviation consultants R.W. Mann & Company about an exercise they ran to illustrate the usefulness of PNR data. Working with Airline Automation, Inc., they defined a threat scenario similar to that used by the 9/11 hijackers. They then searched a database consisting solely of 5 million PNR data records from a two-month period before and after the 9/11 attacks. The search for the defined travel pattern yielded 13 unique data records, which included every one of the 9/11 hijackers as well as some others). It took less than 30 seconds, using a laptop computer. Details about this exercise are in a text box labeled “The Richness of Passenger Reservations Data” on p. 23 of the policy study. (http://reason.org/news/show/127390.html)
The final E.U./U.S. agreement includes a number of restrictions on how long such data can be kept and who can gain access to it. DHS can retain the data for an initial five years, though it is to be “depersonalized” after six months, unless it is being actively reviewed. It will be stored up to 10 more years in a dormant database and then deleted-again, with exceptions for records being actively reviewed. Travelers can ask DHS to see their own data, so as to spot errors and ask them to be corrected. Also, airlines will now have to submit PNR data 96 hours before flight time, rather than the current 72 hours.
As a libertarian, I dislike the government keeping records on me. But the terrorist threat to aviation is real, and I think this kind of use of PNR data is an essential tool.
BAA has agreed to sell its 100% interest in Edinburgh Airport to Global Infrastructure Partners (GIP) – an investment fund – for a cash consideration of £807.2 million, with the sale approved by the U.K. Competition Commission. The sale is expected to close by the end of this month. GIP, which acquired London Gatwick Airport from BAA in December 2009 for £1.5 billion and also owns London City Airport, had been vying with a consortium led by JP Morgan’s infrastructure fund to acquire the airport. The price, at more than £800 million and a little more than half what GIP paid for London Gatwick, is high at over 16 times earnings; recent airport transactions have been more on the order of 12-13 times. This reflects Edinburgh’s growth profile, balanced traffic mix and expansion potential. The price is, however, well below the 30 times earnings level reached in the pre-recession mid-2000s. The sale will also offer some comfort to New Zealand’s Infratil, another fund, which wants to sell nearby Glasgow Prestwick Airport, despite the profile differences of the two airports. The high price, following those achieved in the Brazilian concessions recently, indicates the airport business is on the rebound.
Meanwhile, municipally owned Manchester Airport Group (MAG) has confirmed it has been in negotiation with various investors to sell an equity stake of up to 51% to finance its own bid for London Stansted Airport, which is next on the U.K. agenda now that Edinburgh has been sold. The interested parties include Industry Funds Management Pty Ltd., Hong Kong’s Cheung Kong Holdings Ltd., and a joint venture between private equity fund 3i Infrastructure plc and the sovereign wealth fund Abu Dhabi Investment Authority (ADIA). All have made indicative first round bids. Other infrastructure investors that entered into discussions with MAG earlier this year were Canada Pension Plan Investment Board, RREEF (Deutsche Bank), and Morgan Stanley Infrastructure. Borealis (OMERS), another Canadian pension fund, which was part of a consortium that bid with MAG for Gatwick Airport in 2009, did not enter early stage talks on this occasion and neither did the Greater Manchester Pension Fund, which was also part of MAG’s Gatwick bid. The equity sale will be conditional on MAG making a successful bid for Stansted. In other words the investors buy directly into MAG, and indirectly into Stansted, but only if MAG’s bid for Stansted is accepted; otherwise they buy into nothing. The investors are also not permitted to bid separately for Stansted.
Portugal is in the process of selecting investment banks ahead of asset sales planned for 2012, including in national airline TAP and airport operator ANA Aeroportos de Portugal SA. The two aviation companies will be sold separately, in processes that will overlap in time. The overlapping timing is important, because the value of the airports depends on the future of the airline company, and the future of the airline company is also related to who manages the airports.
The Slovakian government is considering leasing Bratislava Airport to a strategic investor. The government estimates the airport requires around €350 million investment over the next 10 years.
Spain’s Valencia regional government plans to sell Castellón Airport, including the land on which it sits. Castellón opened March 25, 2011 but has yet to receive authorisation from the government to operate services. It is one of several “ghost airports” that were built in Spain during the boom years that have subsequently failed to attract much, or even any, traffic.
This information (which is believed to be correct at the time of writing) and comment is by David J Bentley of Big Pond Aviation, Manchester, UK. www.bigpondaviation.com
International research has generally found that high-speed rail obtains the largest share of its net new (i.e., not previously slower-speed rail) passengers from airlines, not automobiles. And the corridors where HSR competes best are from 200 to 500 miles in length. My colleagues at Reason Foundation have been critical of most U.S. HSR proposals, and one of those that was vetoed by a state governor was the $2.5 billion project for the 80-mile route between Orlando and Tampa, a route so short there is no scheduled air service on it.
With these points in mind, I was intrigued by the list of the top 100 U.S. airline O&D City-Pairs, compiled by Oliver Wyman PlaneStats.com and published in Aviation Daily‘s Jan. 5, 2012 issue. The figures are for the first half of 2011. I have extracted the figures for all routes shorter than 500 miles (except for inter-island routes in Hawaii).
|City-Pair||Passengers||Distance||Avg. Fare||Yield (¢/mi.)||Rank|
|Los Angeles-SF||7.37M||340 mi.||$98||28.9¢||1|
Several things jumped out at me from these figures. First, you will note that the Washington, DC to New York route, where Amtrak operates its most successful service by far, ranks only 65th in air passenger volume, thanks to the competition from rail. At the other end of the scale, the number one short-haul airline market is Los Angeles-San Francisco, with more than seven times the airline passengers as DC-NY. That route is the big enchilada in the very troubled California HSR plan, whose completely unrealistic business plan calls for it to get the lion’s share of its passengers from people who now make that trip by car! Then again, with airfares averaging only $98 in that market, and frequent non-stop service from four greater-LA airports to three Bay Area airports, it’s hard to imagine trains departing from downtown LA (only) going single file to downtown SF (most of them making a number of stops) being at all door-to-door time-competitive with convenient air service. Moreover, all the air routes are pretty much straight lines, whereas the HSR (if it’s ever built) is planned for a dog-leg route, and even so will require tens of billions of dollars in bridges and tunnels to get across the mountains separating the Central Valley from the LA Basin.
Looking at the highest yields in the table suggests that Amtrak is missing out on larger market share in the Boston-NY market, whose airline yield is even higher than that of NY-DC. Dallas-Houston and LA-Las Vegas are also higher-yield routes where HSR might have a chance competing on price with airline service.
But let me point out two other issues the airline/airport world ought to keep in mind if faced with competitive threats from HSR. First, if an airline route between City A and City B turns out to be a dud, the airline and airport capital can pretty readily be converted to alternative, potentially more viable uses. By contrast, if an HSR route is developed between those same two points and turns out to have far less ridership than needed to cover its cost, the large majority of the capital costs are “sunk”-and hence wasted.
Second, every HSR project being proposed or built today anywhere in the world has all or nearly all of its capital costs being paid for by general taxpayers. At best, the operating and maintenance costs are hoped to be recoverable from passenger fares. This is in stark contrast with air service, for which 100% of the infrastructure costs (airports and air traffic control) are paid for by fees and charges paid by passengers and airlines. (That is not strictly true for the routes to Podunk being subsidized via the Essential Air Services [EAS] program-but even that is being paid for largely by overflight fees paid by international airlines, not by general U.S. taxpayers.) Consequently, the aviation industry would be completely justified in lobbying hard against any and all attempts by federal and state governments to use large sums of general tax money to create competition with self-supporting air service.
I am but one of many PreCheck members who complained about having to wait in unpredictably long premium-traveler lines in order to find out-via the TSA document checker scanning the code on their boarding pass-whether they had been approved for expedited screening for that particular flight (even though about 9 times out of 10 that would prove to be the case). To my pleasant surprise last month, at Checkpoint 2 at MIA, I spotted a large new sign saying “TSA Pre√ Enter Here.” The attendant scanned my boarding pass and waved me into this empty line, where I went straight to the document checker, who scanned it again and opened the gate to the PreCheck screening lane. As usual, I breezed right through. Total elapsed time: less than 90 seconds. The same thing happened this week for my trip to Las Vegas, and again on my return, where the same arrangement was in place at LAS. An article about PreCheck’s implementation at SEA-TAC at the end of April (making it the 13th airport with the program) showed a photo of a similar “Enter Here” line. TSA has listened, and the PreChek program’s user-friendliness has climbed a significant notch higher.
What else should TSA be doing, besides getting PreCheck to all 35 promised airports by year-end? First, it should get rid of the current program’s extreme airline-specific nature. OK, if they are going to use an individual airline’s premium-traveler’s flight history as a main criterion for low risk, that’s fine for vetting. But once accepted into the program as an American Platinum member, I should be welcome in the “Enter Here” lane at SEA-TAC (where that access currently extends only to Alaska Airlines premium travelers, which is nuts). If I am low-risk, that status should apply to me whichever participating airport I’m flying out of, and whichever airline I need to use for the trip at hand.
Second, as I’ve written before, the program really needs to be extended to a broader subset of air travelers, starting with all those holding a current Secret or above security clearance. To go beyond that, it definitely makes sense to amend the eligibility rules to require an FBI criminal history background check and security threat assessment, as has long been required for all airport workers who have access to the secure areas at airports. For the life of me, I cannot see why one level of scrutiny should be applied to those who have access to the front doors of airliners and a different standard to those who have access to the engines, the cargo holds, etc.
As an interim solution, I have applied for membership in Customs & Border Protection’s Global Entry program (which does require a background check, as well as a fee to cover the costs). TSA apparently will accept Global Entry members in PreCheck lanes, so that will solve my problem at the airports where there is not an AA-specific Precheck lane. My wife (who is not a premium-level flyer) is also applying to Global Entry, which will enable us to go through the PreCheck lanes together when we travel together, as well as speeding us through border formalities when we return by air from overseas.
Former TSA Administrator Kip Hawley has been getting extensive exposure for his new book, Permanent Emergency: Inside the TSA and the Fight for the Future of American Security (Palgrave Macmillan). It’s difficult to dismiss the views of someone who’s had first-hand experience dealing with the evolving nature of security threats, coping with a growing (but not unlimited) budget, and being second-guessed by 535 members of Congress and several overseers (GAO, CBO, DHS Inspector General).
Hawley makes a number of provocative suggestions, such as to eliminate the bans on most bad objects other than guns (e.g., pocket knives, etc.) and to use a bit better technology to eliminate the annoying ban on liquids. Because TSA checkpoints are now coping with a huge volume of carry-on bags, which Hawley attributes to airlines charging fees for checked bags, he calls for eliminating baggage fees. But wouldn’t it make better sense to urge airlines (which need the revenue) to charge for carry-ons rather than checked bags? I know flight attendants would cheer such a change.
In an interview with Huffington Post, Hawley criticized the current opt-out program for security screening, characterizing it as “Do the same things that TSA does, pay your officers no less, and here’s a surcharge for your profit.” HuffPo accordingly headlined its story “Former TSA Chief Opposes Privatizing Airport Security.” But aside from the mandate that pay scales for certified security company screeners be the same as those of TSA screeners-which Congress put into the legislation-the rest of the way the program works has been spelled out by the TSA itself, mostly on Hawley’s watch. In a normal outsourcing program, TSA would certify the security companies (as to training requirements and other factors) but would then let airports hire and supervise them (as takes place in the U.K. and most of the rest of Europe). TSA could specify various performance measures (outcomes) but would leave it up to each company to develop its own processes and procedures to meet them.
And even under today’s far more rigid system, the fact that basic pay scales must, by law, be the same, does not mean costs end up the same. As the House Transportation & Infrastructure Committee’s detailed comparison of privatized screening at SFO and TSA screening at LAX revealed, there are large differences in staffing patterns and in the mix of full-time and part-time screeners, leading to substantial differences in cost (like 40% for equivalent levels of passenger volume). For Hawley not to know (or admit) this is appalling.
And while claiming to favor a risk-based approach to aviation security, he remains unalterably opposed to even as small a Trusted Traveler program as the current TSA PreCheck. It was Hawley himself who prevented the agency’s “Registered” Traveler program from becoming a meaningful security improvement, by refusing to allow those of us who’d signed up, been fingerprinted and iris-scanned, and submitted background information to be vetted by the FBI, like airport workers are. (This was confirmed to me by the person in charge of AAAE’s clearinghouse that submits similar information to the FBI for criminal history background checks for airport workers. They had to sit on mountains of RT applications rather than sending them to the FBI, since TSA never gave the OK to do so.) Because of this, Hawley was able to say that Registered Traveler was only an identification program, not a security program, and therefore its members got exactly the same screening as all other passengers.
Hawley still believes that Al Qaida will recruit American frequent fliers to join PreCheck and wreak havoc. But that is precisely why TSA includes a random element in this program, as I and all other Trusted Traveler advocates have always called for. While I have my disagreements with current TSA Administrator John Pistole, he deserves a lot of credit for getting beyond Hawley’s hang-up on this aspect of risk-based security.
Two Finalists for San Juan International. The Puerto Rico Public Private Partnership Authority announced on May 2nd that two of the six consortia it had prequalified have been selected to make final proposals for a 50-year lease of Luis Munoz Marin International Airport in San Juan. GAA is led by Ferrovial Aeropuertos and Macquarie Infrastructure. And AAH is led by Aeroportuario del Sureste (Mexico) and Highstar Capital. David Alvarez, head of the PPPA, said the final selection will be made by the end of June.
Houston Airport Director Backs Southwest International Service. On April 9th, Houston Aviation Director Mario Diaz recommended to the mayor and city council that they approve the proposal of Southwest Airlines to develop an international terminal at Houston Hobby Airport. The construction cost would be met by increasing the passenger facility charge at Hobby from $3.00 per passenger to $4.50. Diaz’s recommendation was backed by a study done for the city by InterVISTAS Consulting and GRA, Inc. that concluded there was a large potential market for international service from Hobby. United Airlines, still bitterly opposing Southwest’s plan (due to its potential competition with UA’s giant hub at Houston Intercontinental), released its own study the following week, done by William Swelbar of MIT’s Center for Air Transportation. A decision by the mayor and city council is expected soon.
New Airport Noise Study Under Way. The Airport Cooperative Research Program has commissioned Harris Miller of Miller & Hansen, Inc. to develop and validate a research protocol for a large-scale study of the relationship between airport noise and public annoyance. The last large-scale study was done in 1978, and since then air traffic volume has increased significantly, while aircraft have become significantly less noisy. Hence, the current relationship between exposure and annoyance may be considerably different from what it was in the 1970s. The project is ACRP #02-35.
Chicago Gets Last Midway Privatization Extension. When Rahm Emanuel ran for mayor of Chicago, he expressed opposition to former Mayor Richard Daley’s plan to lease Midway Airport via the federal Airport Privatization Pilot Program. Once in office, however, the city asked for and received from FAA an extension of time to hold onto its “large-airport” slot in the program. With the last extension about to expire, Chicago’s CFO wrote to the FAA asking for one last extension, to Dec. 31, 2012. The FAA granted that extension on April 30th. If the city has not submitted a privatization plan by then, the application will be terminated.
Reason’s 2011 Annual Privatization Report Released. For the past 25 years, my Reason Foundation colleagues and I have documented the various uses of privatization and public-private partnerships in a series of Annual Privatization Reports. The latest edition was released on April 26th. While most of the report is U.S.-focused, my section on aviation is global in scope. You can download it from the Foundation’s website at: http://reason.org/news/show/annual-privatization-2011-aviation.
Gwinnett County Advisory Body Rejects Commercial Flights. The sole bidder responding to Gwinnett County’s RFP on privatizing Briscoe Field-Propeller Investments-envisions its future as, in part, an alternative to Atlanta Hartsfield International Airport for short/medium haul passenger service. But on April 30th, the Airport Privatization Citizen Review Committee voted 6-0 (with five abstentions) against commercial service at the airport. Most of the abstentions were by members who had not had time to read the draft report on the privatization proposal, which had been circulated earlier the same day. The committee’s role is to advise the County Commission regarding the future of Briscoe Field.
Correction re Fort Lauderdale Runway Noise Agreement. A News Note last month incorrectly stated that the FAA’s Feb. 16, 2012 letter to FLL Airport Director Kent George disallowed the use of federal AIP money to soundproof homes. Its objections focused on the Voluntary Sales Assistance Program, which is available to 857 homes within the 65+ DNL noise contour. Airport Director George sent a detailed response to the FAA’s concerns on April 6, 2012, proposing several changes to the noise agreement between Broward County (owner of the airport) and the City of Dania Beach (directly adjacent to the south runway that will be lengthened). The two governments have extended the time for final agreement to May 8th, and have requested an FAA decision by that time. George’s letter also notes that a return to litigation, which would delay the runway’s construction, would cost the airport $5-6 million per month. The south runway was officially closed to traffic in mid-April.
“Over the next three years we are prepared to work with airlines and others to construct new modern system to build and upgrade [airport] infrastructure: a system that gives airports and their communities the ability they need to invest in modern infrastructure, a system that permits the air transportation system, and the companies within it, to flourish, a system that positions our nation as a key linchpin in the global economy throughout the 21st century and beyond. In short, we are talking about the need for a comprehensive aviation policy that addresses the needs of airlines, aviation infrastructure, and airports.”
-Greg Principato, President, Airports Council International-North America, remarks before the Global Airport Cities Conference, Denver, April 26, 2012
“Dozens of other airports have asked the TSA to let them switch to private screening companies, but the agency has said no to almost all of them, giving only one reason: ‘There is no clear advantage to the federal government.’ Give me a break! I bet McDonald’s would like to tell Burger King, ‘You may not open a store here. There’s no clear advantage.’ . . . The TSA’s urge to hold power is universal. All governments work that way. After 43 years of reporting, I’ve learned that whenever something goes wrong, no matter what it is, no matter if private solutions are perfectly possible, politicians instinctively react by demanding a government solution. ‘Yes we can!’ they say. I say, “No they can’t. And they shouldn’t try.”
-John Stossel, “The TSA Just Won’t Let Go,” The Wall Street Journal, March 10, 2012
“My goal is not to be on the Frommer’s list [of the world’s 10 worst airport terminals] in 12 to 24 months.”
-Patrick Foye, Executive Director, Port Authority of New York & New Jersey, at groundbreaking for Delta terminal expansion at LaGuardia, April 12, 2012
“Governments need money. In Europe [privatization is] driven by money and regulatory requirements. In developing nations it’s also driven by a need for expertise. There is money out there; the infrastructure funds are still there. It might be more difficult than in the spring of 2008, but stock markets have recovered, and investors are looking for opportunities.”
-David Feldman, Exambela Consultancy, “Airport Sales Set for 2012 Takeoff,” Airline Business, April 2012