Economically Challenged

Airports meet in Boston, and the industry’s business model tops the issues list


Speaking of Congestion
Edward Faberman, executive director of the Air Carrier Association of America, raised an important question asking the panel of guest speakers: “Where have we protected competition, and what changes are being made that are going to promote and improve the airspace system?”

Slot auctions and passenger delays were at the forefront of the congestion management session.

“Delays are significant,” says Faberman, who referenced out-of-control flight delays over the last year which usually began at one of New York’s three metropolitan airports.

The delays are a result of major congestion at airports across the country. Takeoff and landing slot auctions have been proposed as a solution to congestion, though Faberman believes the auctions will only stifle competition among airlines. If the government were to put up 70 percent of airport slots into an auction format, then maybe that would increase competition, Faberman says.

“If you want someone to add flights and people want real competition from low-cost carriers, that isn’t going to happen by auctioning just a handful of slots,” says Faberman. “Yes, we support modernization of the system…, Congress has to move forward. Let’s not take small steps that are going to hurt our future just so we can say we’ve accomplished something.”

The privatized airport system of Europe has not had the same congestion problems as the United States, notes David McMillan, director general for Eurocontrol, the European Organization for the Safety of Air Navigation.

“We produce a myriad of statistics on a regular basis which show those airports which cause the most delays in the European air traffic network, and for the past couple of years, New York has figured very largely among those airports causing delays,” says McMillan.

McMillan talked of three ways to properly manage congestion: increase and optimize capacity; congestion pricing when necessary; and thinking in terms of the entire system as a whole.

“It is my belief that we need to stop talking about an air traffic control system, we need to stop thinking of airports as being nodes; and think about an aviation system where airports are absolutely integral to the planning, optimization, and management of the system,” McMillan says.

Douglas Lavin of the International Air Transport Association (IATA) suggests the use of IATA’s Worldwide Scheduling Guidelines, a process which governs the allocation of slots at congested airports. The guidelines, which have been used successfully for 60 years according to Lavin, are used at 140 airports worldwide.

“Why focus on economic experiments when we should be focused on increasing capacity?” asks Lavin. “The idea that you need to protect competition at New York airports is ludicrous, you look at the number of flights, number of carriers, number of destinations; I find it hard to believe that congestion at New York airports should be suffered at the expense of the so-called need for increased competition.”

The future of airline consolidation
The panel for this session agrees that airline consolidation is at least part of the solution for airlines struggling to stay aloft amid rising fuel costs and deteriorating cost savings. While consolidation may seem inevitable, a lively debate emerged about just how airlines should align with each other in a way that antitrust regulators, shareholders, and workers’ unions can all approve.

Bill Swelbar, research engineer at the Massachusettes Institute of Technology international center for air transportation, and, prolific industry blogger at swelblog.com, states that Wall Street has shown us that consolidation occurs in two ways: financial pressures and merger & acquisition activity.

“While true that some financial institutions may be to big to fail, can the same be said of the airline industry? And we do need to stop thinking about this in U.S.- centric terms,” said Swelbar.

Swelbar relates that the industry is fragmented; it has chronically over-expanded in the up-cycles, and has not had the discipline to remove uneconomic capacity in the down-cycles.

“Markets punish excesses- but aren’t many of the excesses in this industry the result of an industry that has too many stakeholders standing in the way of an industry that has needed to consolidate for years?” asks Swelbar.

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