Future Debate

FUTURE DEBATE

Congestion pricing is center stage as industry meets to hear FAA forecasts

By John F. Infanger, Editorial Director

April 2001

WASHINGTON — The mood at this year’s Forecast Conference, hosted annually by FAA, was mixed, conflicted by a generally optimistic outlook for aviation amid an uncertain economy. It served as the official coming out to the industry of new DOT Secretary Norm Mineta, while offering up official projections. On Day 2, a breakout session featured a lively debate on airport economics and peak period pricing.

Held in March, the conference focused on continued optimistic outlooks for the airline industry and business and general aviation. The greatest challenge facing the industry continues to be congestion at the nation’s largest airports, which stirs a dual debate over modernization of the air traffic control system and the merits of peak period pricing at the most congested airports.
As DOT Secretary, Mineta brings to the office a distinguished resume that includes former mayor of San Jose, CA, and long-time Congressman who had a significant voice in aviation matters as a committee member in the U.S. House. He subsequently served as the chair of the National Civil Aviation Review Commission, a working group which cautioned that the ATC system was approaching gridlock and that new mechanisms are needed for long-term solutions. Those recommendations, relegated to collect dust on a regulatory shelf in Washington, may be reopened by Mineta.
As evidence, the Secretary again expressed his support for separating the operation and safety of ATC into two separate divisions under DOT. He also reaffirmed his commitment to streamlining the approval process for new runways and other significant airport construction via expedited environmental reviews.

Capacity and Airport Pricing
Also at the conference, Mineta again expressed an openness toward implementation of pricing mechanisms that could help alleviate congestion at peak hours at some major U.S. airports. The topic surfaced as the primary discussion topic for a breakout panel on Day 2 of the conference.

Aviation Demand Forecast Large U.S. Air Carriers
Fiscal Years 2001-2012

Aviation Activity
Historical
Forecast
% average annual growth
1995 1999 2000 2001 2001 2002 95-00 99-00 00-01 01-02 11-12 Enplanements
(millions)Domestic 496.3 576.1 604.1 620.7 639.0 927.4 4.0 4.9 2.7 2.9 3.6 RPMS
(Billions)Domestic 392.6 473.1 502.8 519.4 537.5 822.9 5.1 6.3 3.3 3.5 4.2 Cargo TRMs
(Billions)Domestic 12.4 14.0 14.7 15.0 15.7 25.8 3.4 4.9 2.0 5.1 4.8
Aviation Demand Forecasts and Assumptions Regionals/Commuters
Fiscal Years 2001-2012

Aviation Activity
Historical
Forecast
1995 1999 2000 2001 2002 2012

Regional/Commuters

Enplanements (Millions)
298-C Carriers
Form 41 Carriers
55.8
34.8
21.0
74.3
36.8
37.5
79.6
34.8
44.7
84.1
32.2
51.9
89.5
34.0
55.5
154.1
56.1
98.0
RPMs (Billions)
298-C Carriers
Form 41 Carriers
11.9
7.5
4.4
18.9
9.3
9.5
22.3
9.1
13.2
24.4
8.0
16.3
26.5
8.7
17.8
52.2
16.0
36.2
Average Trip Length
Regional/Commuter Departures

David Plavin, head of Washington-based Airports Council International-North America, rhetorically asks: Why has something not been done to modernize ATC and also alleviate airport congestion when FAA has been forecasting for a number of years significant growth to the system? His answer: "Because it’s politically difficult."
Ed Merlis, senior vice president for the Air Transport Association, which represents the major air carriers, echoes Plavin’s sentiment. "In an ideal world," he says, "the airlines believe in market forces. However, we live in a political world.
"How many believe that if Congress were to OK a congestion pricing scheme at (New York) LaGuardia, that communities represented by members on the Senate Commerce Committee and others wouldn’t be exempted? Or general aviation, or ...?" Once exemptions to access are put in place, he says, the purpose of the pricing mechanisms is defeated. In addition, Merlis says that ATA is not in favor of granting any type of favored status to general aviation under such a system.
Plavin points out that 96 percent of all airport-related delays in the U.S. system are at 25 airports. LaGuardia (LGA) is often the target of such discussions because of its proximity to the city and its inability to expand, and the capacity problem was again brought to the forefront when slot controls were eased recently. The resulting rash of applications for access by air carriers forced FAA and the Port Authority of New York & New Jersey to implement a lottery system, which was generally applauded by this panel. The lottery, says Plavin, was "a political cop-out," and a long-term solution is still being explored.
For some, including several panelists, one answer is peak period pricing, intended to encourage airlines to utilize other nearby airports in lieu of paying higher fees. For example, an alternative to LGA is Republic Airport on Long Island, which is being utilized by Southwest Airlines.
Plavin, long a promoter of peak pricing, points out that Southwest’s primary motivation for using secondary city airports is not price but an ability to get better utilization of its aircraft, thus reducing overall costs.
Panelist Ian Macdougall, airport charges manager for BAA Plc, which operates London’s airports as well as U.S. facilities in Indianapolis and Harrisburg, PA, says that BAA first implemented peak pricing in the U.K. in the 1970s and the overall impact was that it did not significantly change patterns of demand by carriers. In the ’70s and ’80s, BAA tried various peak pricing mechanisms, including: a summer surcharge of weight; a passenger charge for terminal development; and, a peak multiplier on aircraft parking charges.
During the 1990s, says Macdoug-all, BAA "partially moved away from peak pricing" because increasing passenger counts has led to an environment in which peak periods have become less distinct. In addition, he says that such pricing is hard to calculate and is unpopular with airlines. BAA’s current rate structure is much less related to patterns of demand or even landing weight, a popular mechanism in the U.S.
That said, Macdougall adds that there remains in London a correlation between congestion and pricing. "Heathrow is more expensive than Gatwick, and Gatwick is more expensive than Stansted," he says. The U.K. government is responsible for reviewing BAA’s pricing every five years.
Terming the issue one of "demand management," FAA’s David Bennett, who is director of the Office of Airport Safety & Standards, says the agency is reviewing such pricing proposals, as allowed by the AIR-21 legislation implemented by Congress in 2000. "We’re not in the debate yet," he says of the study, and projects that FAA expects to make some recommendations by mid-year.
FAA favors adding capacity, says Bennett, pointing out that FAA and DOT have been viewed in the past as being negative toward peak pricing. However, he says, the industry has yet to clearly define the parameters of such a pricing mechanism and his office has not received any applications from airports to implement such fees.
Among the options FAA is considering, says Bennett, are:
• congestion pricing;
• subsidization — peak versus non-peak pricing; and
• an auction of capacity; a limit on the number of operations would be set by the government and then the market would determine the pricing.
One potential stumbling block to peak pricing, explains Bennett, are the grant assurances which require guaranteed access once federal monies are accepted.
Meanwhile, economist Rick Warren-Boulton, a principal with MiCRA and who served in the Reagan Administration, says that allowing market forces to dictate access and pricing is the solution. There is no need to over-study and over-regulate. "You have to learn to let go," he says. "The market and consumers will give you the information you need."

Heard at the Conference ...
Leo Mullin, Delta CEO:
• The United/US Airways merger is one of the most significant events to occur in aviation. "It could possibly remake aviation."
The most damaged by the merger will be the next level of air carriers — Delta, Continental, and Northwest. Regulators should not look at this as a "small event."
* * *
Michael Conway, CEO, National Airlines:
• "I went through five airsickness bags" watching the proceedings regarding the agreement by Ameri-can and United to control 50 percent of U.S. airline seats and create a "no-growth pact" between them.
• There have been no major strides made in management-labor relations among the majors; "the bitterness prevails." The leading "culprits" are the pilots and ALPA.

GA Stays Strong
General aviation is projected to have a fleet of 245,965 aircraft in 2012, a 0.9 percent annual growth rate, says FAA. Some other predictions ...
• Turbine-powered aircraft, including rotor, will grow at four times the rate of piston: 2.7 vs. 0.6 percent.
• Turbine-powered fixed wing aircraft will grow at 3 percent, to a total of 12,280 jets and 6,600 turboprops.
• Single-engine piston aircraft will increase annually at 0.7 percent, from 151,640 units in 2000 to 164,800 aircraft in 2012.
Says FAA, "The current forecast assumes that the business use of general aviation aircraft will expand at a more rapid pace than personal use." This, says the agency, continues to be largely influenced by fractionals.

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