TAMPA — This year's F. Russell Hoyt National Airports Conference, hosted by the American Association of Airport Executives, was highlighted by serious discussions about the future funding of the U.S. aviation system and a reiteration by Rep. John Mica (R-FL) of his goal to make the Transportation Security Administration more accountable and to get the feds to pay for passenger screening systems at airports. Other key presentations looked at the future of the airline industry in the U.S. and the potential impact of the oncoming entry level jets.
Rep. Mica, who serves as the chairman of the House Aviation Subcommittee, has been a long-time critic of the agency he helped to create in 2001, the TSA, with the enactment of the Aviation and Transportation Security Act. Mica told attendees that he is putting TSA “on notice” that he wants changed the current status of how security is implemented at U.S. airports. Toward that end, several days following his remarks Mica helped get language into federal legislation that will ease liability concerns for airports that may have an interest in opting out of TSA-implemented security at their facilities. As Mica told the nearly 300 airport managers in attendance, “I would like to get you to opt out” — particularly the largest 29 U.S. airports.
“What’s going to work is to have the operation airport-based,” says Mica, with federal management and airport/private operation of the screening process.
Rep. Mica says that part of the problem with the security situation today is that Congress mandated a “one size fits all” solution, what he terms a centralized, Soviet model. He says that classified reports that have compared TSA’s efforts with the private screening pilot program clearly show that the private efforts with TSA oversight are more efficient. Mica also maintains that attracting more technology companies into the security arena will lead to more rapid implementation of new technologies and increased efficiency.
On the subject of the financial health of the air carriers, Rep. Mica says that it should not be the role of the federal government to “bail out” private businesses. “The answer,” he suggests, “is for them to have viable businesses, to increase fares.”
Health of the Air Carriers
Ray Neidl, an airline analyst with the investment firm Calyon Securities, says that the wind of change now befalling the air carrier segment will bring with it an era of consolidation. This will occur either via mergers or partnerships, he says. “I’m not a big fan of mergers, from an analyst’s standpoint,” says Neidl, calling them “messy.” Partnerships, on the other hand, are cleaner, he says.
Neidl expects that Delta and Northwest, which both filed for bankruptcy protection in September, will come out of the process “lean and mean.” Of the much publicized prospect of the two carriers merging, Neidl says that would most likely only occur after each has gotten its own economic house in order.
Airline management, says Neidl, still thinks in terms of market share and maintains capacity in the system that shouldn’t be there. “Demand is so strong, the airlines should have been more aggressive with prices,” he comments. “We’re getting a free ride as customers.”
Robert Fornarco, president/COO of AirTran Airways, a keynote speaker here, reiterated Neidl’s observation regarding the legacy carrier’s focus on market share rather than reacting to market forces. He says the mindset is, “Harm the competitor ... and go bankrupt.
“Probably the most important thing we do at AirTran is we act quickly,” he says.
AirTran currently has 99 aircraft in its fleet, according to Fornarco, and will have 127 by year-end 2006. Since 9/11, he says, the airline has added 18 cities to its route structure.
On the subject of the role the federal government has played in the current situation, Calyon Securities’ Neidl agrees with the air carriers in their argument that the high percentage of aviation taxes and user fees hurts the market. What other industry pays 26 percent of its revenues for taxes/user fees? he asks.
A few other Neidl observations:
• Calyon estimates that the U.S. airline industry will lose $600 million in the third quarter and a total of $4.8 billion for calendar year 2005.
• The industry has too much capacity, too many airlines, and too many hubs and seats.
• Unions will be forced to cooperate with airlines in bankruptcy, and the government should rethink its anti-trust policy on airline mergers.
• AMR Corporation and Continental should both remain solvent in the short term; however, Continental may need to file Chapter 11 by summer 2006.
• Independence Air “should have been out of business in February.” It is the leasing companies, says Neidl, that are keeping the carrier afloat; the fear is a bankrupt Independence Air will dump too many regional jets into the marketplace.
• The end-game scenario: The industry will have two or three “worldwide U.S. legacy carriers” that have full-service hubs fed by strong regional feeders, and three or four low-cost carriers serving primarily point-to-point routes.
• The Boeing 787 will “revolutionize” the industry. And, echoing perhaps the obvious, Neidl says, “Something drastic is going to have to happen if fuel prices don’t come down.”
Bring on the Funding Debate
Ed Bolen, president of the National Business Aviation Association, says that “FAA reauthorization is all we’re hearing about in Washington. It’s about two fundamental issues: It’s about money and who controls that money.” A new aviation reauthorization bill is needed by October 1, 2007, but Bolen points out that FAA is driving a discussion with industry to rethink how the system is currently funded.
Toward that end, FAA Associate Administrator for Airports Woodie Woodward again strongly encouraged the industry to take up the dialog of new funding mechanisms. She says that the agency itself is open to the airport industry argument that it needs greater latitude in how it operates an airport’s business. She also questions, as do airport groups, why FAA is involved in approving passenger facility charge (PFC) applications by airports.
John Meenan, executive VP/CEO of the Air Transport Association, again puts forth the air carrier position that it continues to pay too much in taxes and cautions that Congress does not yet recognize the “much deeper crisis” the industry is in today. Meenan also maintains that business aviation needs to pay more for its use of the system.
Bolen says that general aviation groups want the fuel excise tax to remain as the mechanism by which the segment supports the system. He does, however, leave open the debate on whether the rate should be increased. Fuel taxes, he asserts, fairly tax users based on usage, while also encouraging owners to buy modern, fuel-efficient aircraft.