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Archive for August, 2008

Ronald Reagan Washington National Airport, like LaGuardia in New York, is well-known for its perimeter restrictions. Flights are limited to 1,250 miles from the airport. This restriction, which dates to 1969, is due in part to noise concerns but more to a kind of industrial policy: the desire to drive long-haul traffic from the desirable, close-in National (almost no big-city airport is as convenient) to the then-new Dulles International Airport in what was then the middle of nowhere in Virginia.

Dulles has since come into its own. It is one of the nation’s busiest airports with room to grow, a hub for United, and a link to dozens of intercontinental destinations. Dulles serves widebodies that National cannot. And more importantly, Dulles is no longer in the middle of nowhere. It’s at the junction of booming Fairfax and Loudoun counties and close to major business centers like Tysons Corner.

There is little risk of Dulles disappearing if the perimeter rules at National are removed. That has been one of John McCain’s biggest aviation policy priorities — and one he has had ample opportunity to pursue from his perch on the Senate Commerce Committee. You might find it funny that a powerful senator would care much about a sole airport’s operations, but you see, members of Congress love to interfere in the management of National, whether it’s mandating that the D.C. Metro system change its signs to reflect the “Reagan” name change or intervening to protect a home-state flight. Congress is perfectly parochial: in March, Senators John Ensign (R-Nev.), Barbara Boxer (D-Calif.), and McCain joined to sponsor legislation allowing airlines with slots at National to use them for beyond-perimeter flights (S 2783). Virginia Representative Jim Moran, a Democrat whose district includes the airport, opposes any such loosening, fearing that noise will increase for his constituents.

McCain has sponsored other legislation with respect to the perimeter. He was responsible for language in the 1999 FAA reauthorization act that permitted twelve round-trip flights outside the perimeter. These slots would have (and eventually did) benefit McCain’s hometown airline, America West. Now US Airways, it continues to serve Phoenix thrice daily from National airport.

In July 2005, McCain introduced S 1599, the “Abolishing Aviation Barriers Act of 2005,” which would have abolished perimeter restrictions at National and prevented enforcement of the perimeter at LaGuardia. The legislation, cosponsored by Ensign and Jon Kyl (R-Ariz.), didn’t get out of committee, but it should have. McCain clearly has parochial interests at stake: direct flights to his home state and benefits for his hometown airline.

Even so, the perimeter rule is out of date. Dulles is not Montreal-Mirabel; there’s no need to protect it anymore. A better way to drive flights to Dulles (or the other competitive D.C.-area airport, Baltimore-Washington) would be to place a strict cap on National flights and raise landing fees to an optimal level.

(Side note on National: if you take the footpath from the Metro station to Terminal A, as I do when I travel for Christmas, you’ll notice a parking lot right next to the terminal entrance with license plates from all over the country and congressional placards in the windshields. That’s right, members of Congress get to park for free in super-convenient spaces. Something to think about next time you take the train or park way out in the econo lot.)

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Obama vs. McCain on aviation

Happy Labor Day weekend, everyone. What’s been a relatively quiet month in the policy world is ending with a few huge bangs in the political world. I was very impressed with Senator Obama’s inspiring acceptance speech in Denver last night. It was a tremendous event. I’m also very pleased with Senator McCain’s selection today of Alaska governor Sarah Palin, whom I think of highly, as his running mate.

But I don’t want this blog to become a political battleground. As much as I enjoy writing about aviation policy, it’s not a high-salience issue when I vote. Therefore, I’ll try to keep my choice off the blog. But I do want to focus on the candidates’ aviation policies (or, in McCain’s case, his lack of one). I’ll be surveying their published plans, digging through their voting records (like this parochial rent-seeking by McCain), and watching the campaign trail for comments on aviation and transportation (like this gaffe by Obama).

Look out for aviation-related election blogging over the next two months!

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More on the BAA case

I have a guest post on the Competition Commission’s remedies for BAA’s common ownership over at Towers and Tarmacs. Thanks to Benet Wilson for the invitation!

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I’ve been digesting the UK Competition Commission’s provisional findings on BAA, and I’ll have more to say on the proposed remedies later. Here, in summary form, is what the Commission has found.

BAA was privatized with control of London’s three main airports in 1987 primarily to increase airport efficiency and provide a solid financial base for future expansion. It has not done this. “More than 20 years later, there is inadequate capacity, particularly runway capacity, in the South-East.” Furthermore, BAA’s airports are widely criticized by airlines, travelers, and other stakeholders. The Commission acknowledges that BAA is not entirely to blame — they do not oversee air traffic control, immigration and HM Customs, or airline operations. But BAA is not blameless. They are unresponsive to “the interests of airlines and passengers,” reports the Commission.

Is the lack of competition between BAA’s airports inevitable? Evidence suggests not. The Commission points out strong competition between Belfast’s airports, Birmingham and East Midlands, Cardiff and Bristol, and Liverpool-Manchester-Leeds Bradford. And BAA’s airports are easily substitutable, especially for leisure travelers — there is no natural monopoly in airport services in the Capital or Edinburgh-Glasgow as there is in, say, Aberdeen (where BAA ownership has been OK’d by the Commission).

BAA argues that competition is restricted not by common ownership but by capacity constraints. The Commission agrees, and it also fingers three other culprits in capacity constraints: the planning process, which slows up capacity development; government policy, which shapes future runway investments; and price regulation of airports. But this, the Commission argues, does not absolve BAA: “We acknowledge that to some extent BAA’s actions can be attributed to Government policy and/or the planning system and we have noted the interdependences between them. But in our view, as the owner and operator of the three major airports in the London area, BAA has to be regarded as responsible for their achievements and shortcomings.”

Because of capacity constraints, even if BAA were broken up today, there would be limited competition between airports in the short run. But the Competition found that “under separate ownership . . . we would expect the market structure to be sufficiently competitive so as to incentivize airport operators to overcome the current constraints on expanding capacity and to expand capacity to facilitate competition with one another, increasing competition in the longer term.” In other words, even though external forces impede airport expansion, BAA had little reason to seek out competitive expansion.

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Barack Obama has been watching the Olympics and marveling at how amazing China’s infrastructure is.

Here’s the text:

Everybody’s watching what’s going on in Beijing right now with the Olympics. Think about the amount of money that China has spent on infrastructure. Their ports, their train systems, their airports are vastly superior to us now, which means if you are a corporation deciding where to do business, you’re starting to think, “Beijing looks like a pretty good option.”

China’s infrastructure may indeed look impressive, but I wouldn’t say that “their airports are vastly superior to us now.” The new Beijing airport is very fancy, but according to Anming Zhang and Andrew Yuen of the University of British Columbia, “travel delays have become a serious problem at some of the major Chinese airports,” the military has a chokehold on air traffic control and routing, and air traffic control staffing is at “20-40 percent of the level needed to meet the minimum safety standards” (much worse than the FAA’s staffing shortages). To the extent that China’s aviation system has improved, it is as a result of liberalization and privatization. (See their chapter in Aviation Infrastructure Performance.)

But let’s assume for a moment that China does actually have a better transportation infrastructure than we do. How did they get it? By being a repressive, authoritarian regime. If the Party wants to build something, it does! It’s easy to displace ten thousand people to expand your airport, or two million to build the Olympic complex. Compare this to Chicago O’Hare, whose long-awaited expansion continues to be impeded by homeowners protecting their property in court. (Of course, given Obama’s connections to Mayor Richard Daley, perhaps he secretly admires Daley’s “easier to ask forgiveness than to ask permission” approach to airport planning.)

There’s none of this messy environmental review process in Beijing. That’s one of the main reasons it takes so long to build a runway here. And China takes advantage of cheap labor in terrible working conditions. Here, governments are required by the Davis-Bacon Act to pay prevailing (read: union) wages for public works projects, which drives up costs further. Obama supports Davis-Bacon and cosponsored legislation in 2005 to repeal George W. Bush’s suspension of Davis-Bacon in Katrina-afflicted areas. Is Obama really admiring China for its exploitation of labor?

No, the Olympics are just another excuse for Obama to beat up on the Bush administration. Fair enough, it’s an election; but he owes it to us to get the facts straight. The United States has an infrastructure problem. We have especially failed to provide an aviation infrastructure that can grow to meet demand. Looking to China will not provide useful solutions.

H/T: Hot Air

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The Competition Commission has published its provisional findings. Key passage:

Our provisional view therefore is that a number of features each give rise to an AEC:

(a) As regards common ownership:

(i) Common ownership of Edinburgh and Glasgow is a feature which prevents competition between them.

(ii) Common ownership of the three BAA London airports is a feature of the market which prevents competition between them; the effectiveness of competition between them absent common ownership is likely to increase in the longer term, with the increased incentive to invest, although we also see some scope for competition between them in the short-term despite existing capacity constraints.

(iii) However, Heathrow’s position as the only significant hub airport in the South-East and indeed the UK is a feature which restricts competition between airports for some airlines.

(iv) Common ownership of Southampton and both Heathrow and Gatwick is a feature of the market which prevents competition between them, as shown in particular by the lack of responsiveness of BAA to developing Southampton to satisfy the requirements of its airline customers.

(v) Common ownership of the BAA London airports further restricts competition between airports through its effects on capacity constraints; and exacerbates the inadequacies of the regulatory system, reducing the benefit of regulation, distorting competition between airlines.

(b) Aberdeen’s comparatively isolated geographical position and other factors that make it unattractive to serve a catchment of Aberdeen’s size with more than one airport are features preventing competition to Aberdeen.

(c) Aspects of planning restrictions are features which restrict competition by contributing to the current capacity constraints at the BAA London airports.

(d) Aspects of Government policy restrict or distort competition by contributing to the current capacity constraints at the BAA London airports.

(e) The current system of regulation of airports is also a feature which distorts competition between airlines.

Much more commentary on this not unsurprising decision coming soon.

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One of the few cases where Adam Smith advocated public provision was that of large-scale infrastructure, and in particular transportation infrastructure, which he saw as a prerequisite for economic growth. His rationale was essentially an institutional one: private finance markets were neither large enough nor sophisticated enough to handle the scale and the long payback period associated with such investments. Ironically, in most developed countries, the modern world sees governments increasingly going to the private financial markets to fund infrastructure investments, either in their entirety or in some form of partnership, because the governments do not have the ability to raise the necessary capital. The sums involved are large. The World Bank estimated in 1995 that airport infrastructure alone would require $350 billion for upgrading and maintenance by 2010, and that was before the additional security systems now needed. Smith’s argument, however, may still have some validity regarding lower-income nations where capital markets are poorly developed, risk is high, and access to international funds can be very expensive.

– Kenneth Button, “Air Transportation Infrastructure in Developing Countries: Privatization and Deregulation,” in Aviation Infrastructure Performance: A Study in Comparative Political Economy, ed. Clifford Winston and Gines de Rus (Washington: Brookings, 2008).

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At Cato at Liberty, Michael Cannon writes:

With fuel prices surging, commercial airlines have started charging passengers for once-gratis amenities (sodas, the first checked bag, pillows-n-blankets) and have increased fees for other amenities (alcoholic drinks, additional checked bags).  A recent [Washington Post] editorial ["Pillows and Planes," August 13] describes these fees as “picking passengers’ pockets” and “idea[s] to separate you from your money.”
Are you kidding me?  Those amenities weigh down the plane.  The fees therefore distribute higher fuel costs to passengers who consume more fuel.  As important, they allow passengers to avoid getting their pockets picked by avoiding those amenities.  (Don’t want to pay for checked baggage?  Pack light.)  The only people those fees hurt are the free-riders whose amenities were being subsidized by everyone else.  The fees don’t allow pocket-picking; they put an end to it.
I have seen several writers of the progressive ilk all up in arms about these extra fees.  Which in my mind confirms that there is no foundational position among progressives on such matters, only opportunistic attacks on corporations for whatever they happen to be doing.  They want air travel pricing to be bundled into one rate, covering all potential services one may or may not use.  But wait, they want cable TV pricing to be unbundled, with a la carte pricing rather than one rate so viewers can pay for only what they use.
Regular readers will know that I harbor little regret for the a-la-cartization of air travel; indeed, as I’ve previously written, “Governments and consumer advocates would do well to keep in mind that air travel price competition is thwarted by snowballing customer service requirements.”

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Wide open skies

Last week, the Financial Times carried an editorial on expanding “open skies” between the U.S. and Europe. After heralding the decline of flag carriers (even more marked with the proposed merger of BA and Iberia), the editors write: “Governments . . . must deal with the remaining obstacles to effective global airline consolidation.”

The US once led the way in deregulating air travel. However, the first European Union-US “open skies” agreement, which came into force in March, showed the Europeans are now keener to open up air traffic. The deal gave US carriers the right to operate flights between EU member states — but the US denied European operators access to its domestic market. After a slow start, Europe can reasonably claim it is now the leading advocate for a freer air-travel industry.

The current open skies negotiations’ top issue is whether the U.S. will allow foreigners to own more than 25 percent of voting stock in U.S. airlines, the quota that nearly scuttled Virgin America. According to the FT,

These absurd anachronisms must be abolished as soon as possible. Removing restrictions on cross-border ownership would pave the way for mergers between US and European carriers. Since the US and the EU dominate the airline industry, it would encourage other countries and regions to abolish their restrictions. Consolidating large airlines adds to their networks and allows significant economies of scale. Confining international operators to operating largely from one continent is ridiculous.

Americans discovered in the 1970s that confining airlines to certain regions or routes was also ridiculous. But what are the obstacles today to opening our airlines to foreign investment and our domestic routes to cabotage (i.e., allowing foreign carriers to operate domestically)? First, U.S. airlines fear competition from rivals that may still enjoy state subsidies or are simply better airlines. There’s no reason to shield them from competition; protectionism is both economically and politically retrograde. Second, small communities fear losing service. What incentive, they say, would Lufthansa have to maintain service to Hibbing, Minn.? Well, Northwest doesn’t have much of an incentive either, apart from a subsidy, so that’s a non-issue. Third, some fear that the U.S. will not be able to exercise sufficient safety oversight over foreign airlines. The solution here is to ensure that the parallel safety institutions in open skies partner countries are equal in quality to the FAA and that all parties are subject to ICAO standards. Furthermore, if we already trust an airline to operate at U.S. airports and over U.S. airspace, there is no reason to block it from a domestic flight. The fourth concern is labor. China is preparing to ramp up its pilot training program to meet domestic needs, but what if a U.S. airline could pump in cheap laborers domiciled in, say, China, who commute to the U.S. to work? At the moment, however, that’s not the situation we’re in. China is instead hiring hundreds of pilots from overseas, as are Middle Eastern, African, and other airlines. The U.S. has become a talent pool for airline pilots. In fact, allowing European cabotage might actually increase the U.S. pilot base, should European airlines wish to take advantage of lower relative labor costs.

Should we expect any tectonic shifts at the open skies negotations?

However, despite acute domestic problems, it is the US government that is standing in the way of a new deal on foreign ownership. Banning foreign takeovers may win populist acclaim, but American consumers should not thank their politicians for shielding their airlines from help from abroad.

Borders in the sky [FT]

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Stories like this — “A laptop containing the unencrypted security data for 33,000 travelers using the Clear system was stolen at San Francisco International Airport on July 26, according to CBS5 Television” — are pretty depressing. TSA is ineffective, and the contractors hired to make up for problems caused by TSA — that is, Clear — turn out to be ineffective too. Passengers who paid to avoid security problems get to enjoy more. Way to go.

We wouldn’t need to have passengers’ unencrypted personal information in unattended laptops if we had a security agency that focused on actual threats, not on equal-opportunity harassment for the sake of feeling better about flying.

“Clear” Air-Travel Pass Data Stolen From SFO [Slashdot via Megan McArdle]

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