Watchdog: Accountability

Not-so-friendly skies: Airline industry faces immense problems, but there are solutions

|
Transportation,Watchdog,Accountability,FAA

Part five of a five-part series

It has been 35 years since President Carter signed the 1978 Airline Deregulation Act, but the measure’s promise of lower cost, more convenient commercial air travel and a wider range of choices for consumers have in many respects gone unmet.

Before 1978, commercial travel had the glamor of a cruise ship, with passengers dressing up and swanky cocktail lounges in the first-class cabins of larger aircraft. But it was also a private reserve for corporate fliers and the well-to-do. Not anymore.

As more people have taken to air travel, the practice of “capacity discipline,” or “right-gauging,” has resulted in airlines scheduling fewer flights, and those flights that are on the schedule are typically packed to the gills.

Right-gauging flights leads to right-gauging routes, as airlines cut direct flights from medium-sized airports and feed more flights into central hub airports.

There are now 29 hub airports that account for at least 1 percent of the country’s total air traffic volume. Airports outside that elite circle of 29 are finding it increasingly tough to remain economically viable.

For the nation’s smaller airports, a federal subsidy program helps keep them open, even if there is little demand. In Colorado, for example, three airports that feed passengers to Denver International Airport — San Luis Valley Regional Airport, Pueblo Memorial Airport and Cortez Municipal Airport — receive a combined $6 million annually to keep the runway lights lit. Nebraska has seven airports receiving Essential Air Service payments. Alaska has more than 40.

The airports receiving EAS payments are small and used only sparingly, so cutting the program would not impact a huge number of people.

But the real problem of isolation is not with the 150 hobbyist airports that secured a place at the feeder. Rather, it is the many larger airports that generate less than 1 percent of the nation’s total annual commercial air traffic, but more than enough to make them ineligible for EAS subsides. These airports are trapped in the middle between the hubs and the hobbyists.

As Michael Wittman and William Swelbar note in a study published by MIT earlier this year, the biggest factor in determining where airlines locate flights is always profitability: “At the end of the day, the airlines' individual route profitability will continue to decide which airports are served and which are not. Financial incentives may attract service for several months, but only economically viable routes will survive.”

In other words, it’s not enough to offer tax incentives and related cost-reduction incentives to airlines. The nonhub airports — all of which are publicly owned — must somehow persuade more travelers to use them, while lowering costs and boosting revenues for the airlines providing flights.

There are general reforms that would make the airline industry stronger overall, including privatizing security and air traffic control, opening up gate leases to more competition, creating a level negotiating field between airline management and employee unions, and reducing or entirely ending anti-trust interference by the Department of Justice in the industry’s mergers and acquisitions, based on New Deal-era concepts of publicly enforced equity.

But more specific reforms to help the 246 airports caught in the middle primarily focus on reducing or eliminating the 20 to 25 percent of each fare that goes to the federal government for flights departing from those facilities.

At airports already in the 1 percent club or growing to become members, commercial airline travelers would pay the full tax, and those departing on flights from airports that aren’t in the club would qualify for a lower tax, possibly under a progressively graduated traffic schedule.

Busy airports stressing the system would continue to contribute more, and airports bringing less stress would get a break that would also be an incentive for passengers to use them more frequently.

Another, more radical, approach to the problem for nonhub cities is contracting out airport operations to private firms, much as thousands of municipalities do with services like garbage pickup and road maintenance, or even privatizing the airports entirely like the federal government does with national park services.

“The benefits of a more entrepreneurial approach to running airports include increased operating efficiency, improved amenities, and more rapid and efficient expansion in capacity to reduce congestion. Airlines, passengers, private-plane owners, and taxpayers can all benefit from this new commercial approach to airport management,” according to the Cato Institute’s Chris Edwards and Robert Poole.

“For existing state and local airports, the simplest form of privatization is to contract out management of the airport on a short-term basis. But long-term leases can shift much greater responsibility and entrepreneurial incentive to the airport company, while liberating much of the city's previous investment in the airport,” Edwards and Poole said.

“To create new airport facilities, the private sector can be brought in as a partner and granted either a long-term or perpetual franchise to finance, design, own, and operate the new facility. Full private ownership and management of airports is also possible and is becoming fairly common in Europe,” Edwards and Poole said.

The FAA has been experimenting for more than a decade with a demonstration project known as the Airport Privatization Pilot Program, which currently has 10 slots for interested participants, according to the agency’s website.

Under the program, long-term airport leases are negotiated between municipalities and private entities. “Airline rates and charges are frozen for the initial years and then increase at the Consumer Price Index,” according to Poole.

Such an arrangement provides airlines with predictable costs, which can be an incentive to long-term agreements. In addition, Poole notes, “for airports in fast-growing areas like Austin that need expansion, investor-financed expansion projects can bring new sources of capital to the airport, as well as shifting or all of the project risks to the investors.”

To date, the industry has been lukewarm toward the demonstration project, with only two applicants — Luis Munoz Marin International Airport in Puerto Rico and Hendry County Airglades Airport in Florida — currently participating. Five airports, including Chicago Midway International Airport, withdrew applications after submitting them.

One facility completed the program: Stewart International Airport in Newburgh, N.Y., which is now operated by the Port Authority of New York and New Jersey.

Neil McCabe is a Washington-based journalist who covers national politics and public policy issues.
View article comments Leave a comment