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.
Fiscal Years 2001-2012
Aviation Activity
(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
Fiscal Years 2001-2012
Aviation Activity
Regional/Commuters
Enplanements (Millions)
298-C Carriers
Form 41 Carriers
34.8
21.0
36.8
37.5
34.8
44.7
32.2
51.9
34.0
55.5
56.1
98.0
RPMs (Billions)
298-C Carriers
Form 41 Carriers
7.5
4.4
9.3
9.5
9.1
13.2
8.0
16.3
8.7
17.8
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.