Making the Most of a Downturn

Says Winston, “The current pricing scheme at congested airports is totally perverse; people should pay for the delays they impose on others.”

Director of Aviation at New York and New Jersey, Bill DeCota, took issue with Winston’s position stating, “We don’t disagree on the basic concept of congestion pricing in many different markets; we just disagree on its applicability to airports.”

So do airports get involved enough in their own capacity issues? According to DeCota, physical capacity on the ground is “fundamentally what we do when it comes to planning airports.”

“We have taken a very impressive stance in New York by spending some $15 billion on physical capacity in trying to build things out. When it comes to airspace, FAA is really the sovereign ruler,” says DeCota.

Winston says, when dealing with congestion, airports should implement the least expensive policy of congestion pricing because it would signal what additional capacity is needed and revenue can be raised efficiently. “The concern I have with the position that is representative of many airports is that these are expenditure-based policies on expanding capacity without using price mechanisms,” he says.

It would not work to get airlines to pay a premium for using an airport during peak periods because the reality is that the market-clearing price would be much higher than anyone would be willing to pay, says DeCota.

“One of the worries that we had was that if you try to use price as a determinate, all you would do is lose service to small communities. Ultimately, we think there would be a market-destabilizing effect created by congestion pricing,” says DeCota.

Winston stresses that the whole idea of pricing is to get people to express their willingness to pay for the benefits they are receiving from a facility balanced against the costs they incur for using that facility, “so it doesn’t make sense to say there is no such price, or that the price would be too high.”

“When it comes to aviation,” says DeCota, “price is very discriminate. It’s fundamental economics in that people need to have an economic value greater than the price; it’s a very different thing when it comes to airports. At one time we talked about auctions; if you auction certain flights to certain carriers, you would have to exempt small communities, new entrant carriers, start-ups; people that are really vital to the overall equation.”

By attempting to map different experiences together, Winston says he wants to move airports in a direction where the intercity transportation system has already gone. “Whatever airports are now, I truly believe they could be a lot more if they were free from the constraints of government; and the only way to do that is to privatize. We need to place airports responsible for setting their own pricing and the like,” says Winston.

“So there’s a capacity problem; instead of fixing the capacity problem, our federal government decided to cap the number of flights in the hopes of getting to a better situation. That has worked to a certain extent, but it discourages economic activity, and it also dissuades jobs; it has an economic consequence for New York City.

“A slot auction, by charging people for access, doesn’t do anything but create royaling. It says to a carrier that already has service to an airport, that has already invested in its terminal, that has a lease with me: you could potentially lose significant amounts of your air service, and you have to pay a higher price to get it back. It does absolutely nothing to improve the delay situation, nor does it reduce flights.”

• The Port Authority’s response:
• To initiate a notice of proposed action which asked for public comment on the issue.
• An aggressive public relations campaign; letter-writing efforts.
• A flight delay task force, which has proposed more than one hundred recommendations on how to enhance capacity, reduce flight delays, and improve customer service without initiating slot
• auctions.
• To file a motion in the U.S. Court of Appeals. (The court ruled that the slot auction may not be held until a federal court rules on objections from New York airport officials and airlines.)
• A letter to Transportation Secretary Ray LaHood, asking that the proposal to auction slots be removed.

At LaHood’s confirmation hearing held in January, the nominee gave his opinion on the auction proposal stating, “If you’re really trying to cut down congestion, then eliminate the slots. But the idea of then going back and re-auctioning them, it doesn’t make any sense to do that.”

Adds DeCota, “I think there is going to be a very positive view that the way you stimulate this economy is through more activity at airports. So I am very hopeful that the focus is on capacity, and that there is a whole new sentiment with this Administration.”