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Posts Tagged ‘competition’

I’ve done several off-blog items on the subject of international airline alliances lately. Here they are:

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TEMPE — Echoing Doug Parker’s plea for the government to “do no harm” to the airline industry, C. A. Howlett, US Airways’ top government affairs officer, outlined the challenges the industry — and US Airways in particular — face in the policy environment. His primary focus was the pending FAA reauthorization bill. Put off since 2007, the bill has been passed by the House but no action has been taken in the Senate. “We will maybe get this in calendar year 2009 but no one is betting anything heavy on that particular forecast,” he quipped.

Howlett is in no rush to get the House bill passed, because it has several provisions that give US Airways and other airlines pause. The bill increases the Passenger Facility Charge (PFC) from $4.50 to $7.00. PFCs are used to fund airport improvements but are levied by airlines when passengers buy tickets. This, Howlett said, would add $2 billion to the airline industry’s costs. “Airports have the ability to raise revenues by raising our landing fees and charges,” he added. “Not all airports are the same. . . . [Raising landing fees is]a better way to finance projects.” Besides, he said, airports got $1.1 billion in the stimulus bill, plus $1 billion for security improvements.

Also of concern in the House’s FAA bill are labor issues regarding collective bargaining procedures, the passenger’s bill of rights provisions, and limitations on foreign repair stations. Howlett said that there is a provision inserted at the behest of the firefighters’ union that would cost US Airways alone $15 million per year at their hubs. (more…)

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On American.com today, I review Aviation Infrastructure Performance: A Study in Comparative Political Economy, edited by Clifford Winston and Gines de Rus. The book, which I highly recommend, includes several reviews of how other countries’ aviation infrastructure sectors have performed under varying levels of privatization — and what lessons could be learned for the United States.

Should We Privatize Airports? [The American]

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The Financial Times reports on government findings that one-third of London Heathrow Airport’s passengers are on connecting flights, which magnifies “[t]he importance of the role that connecting passengers play at the UK’s busiest airport [that] has long been a source of conflict among campaigners for and against a third runway.” The issue is a hot button in UK politics, with the opposition Conservatives dead set against a new runway and London’s mayor proposing a new airport in the Thames estuary east of the city.

The figures on transfer passengers illustrate the network effect benefits of big hubs like Heathrow. Today, more than 76 percent of connecting passengers connect from one non-UK destination to another — up from 57 percent twenty years ago. These connections redound to the benefit of London travelers as well, who have more destinations than their city alone would otherwise support. “Without [connecting passengers,] the scale of the network and range of destinations as well as the number of daily services that can be supported on routes would suffer, damaging Heathrow’s attractiveness compared to European rivals such as Paris Charles de Gaulle, Frankfurt and Amsterdam Schiphol.”

Building a new airport — a perennial idea — would do little to improve Heathrow as a hub. If Heathrow is not improved as a hub, it will eventually fall behind Frankfurt, Paris-Charles de Gaulle, Amsterdam, and Madrid-Barajas as a major connecting hub. London doesn’t need a new airport; it has three perfectly good ones, all of which can be reasonable expanded, and two smaller ones. What it needs is a hub that can compete on even ground with its European rivals.

Important role of transfer passengers [FT]

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The Wall Street Journal has a fascinating item today (via the WSJ‘s great new Middle Seat Terminal blog) on the vigorous competition emerging between Moscow’s two main international airports. I’d long read of the older, state-owned Sheremetyevo Airport as a hellish transportation hub with limited services, long lines for immigration, and oft-solicited bribes. Then, according to report Daniel Michaels, it was forced to bring its game when the privately owned Domodedovo Airport renovated a terminal in the 1990s, built a rail link to downtown, and began wooing new airlines — and even carriers that had previously served Sheremetyevo.

Moscow’s airport rivalry highlights a paradox of the global aviation industry: Airlines compete fiercely with each other for customers, but they face many monopolist suppliers, such as air-traffic control systems, fuel distributors and airports. Resulting costs and poor services get passed on to travelers.

Regulators world-wide are starting to tackle the issue — and some see Moscow as a paradigm.

Britain’s competition authority, for example, last year considered breaking up BAA, the company that runs London’s three big airports. In testimony before the regulator, officials from the International Air Transport Association, a trade group, cited Moscow as evidence of the benefits that competition could bring London’s airport system. IATA testified that fees at Moscow’s fast-growing, privately owned Domodedovo Airport are as much as 20% lower than at Sheremetyevo, the state-owned hub of flag carrier Aeroflot.

This echoes a point I’ve made before: we have a relatively competitive airline sector and a relatively uncompetitive airport infrastructure sector.

The article also points out that privatization alone will not bring competition. Consolidating ownership in a single firm, either private (BAA) or public (Port Authority of New York and New Jersey), will not engender competition. One sees more competition (and lower published airport use fees) at the three San Francisco Bay Area airports, each of which are publicly owned by different authorities, than at the three New York area airports. And the case of Moscow confirms this.

But can private airports really work here in the United States? Two fascinating items from Brett Snyder illustrate an experiment in this. Branson, Missouri — a totally retro vacation spot not far from my hometown of Memphis — is building a brand-new airport entirely without federal money. The airport will be entirely privately owned and financed. It’s not just a new terminal project: this is an entirely new airport project — 7,000-foot runway, terminal, tower, general aviation facilities — designed to offer competitive service to low-fare airlines.

The owners of the airport have also kept their construction costs down. Writes Snyder: “To flatten the tops of the mountains, build a 7,000 ft runway, erect a terminal, construct a control tower, and create a 2.5 mile access road with 2 bridges has only cost $155 million. That’s $35 million in equity with the balance in debt. As a comparison, Indianapolis spent $1.1 billion on its new (much larger) terminal and control tower.”

We need more experiments in privatization like Branson, Chicago’s Midway airport, and others here in the United States. Competitive privatization may provide the needed funding for upgrading and maintaining our aviation infrastructure.

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Britain is keeping in place — and raising — its Air Passenger Duty, a per-passenger charge levied on airline itineraries originating in Britain. The government had promised to design a new charge based on aircraft; the current charge does not correlate actual emissions to charges for them. Two aircraft of identical capacity but with different fuel efficiencies are assessed the same amount of APD. Even worse, private aircraft, cargo aircraft, and transfer passengers (mostly at Heathrow) are exempt from APD, meaning that commercial travelers to destinations in Britain are bearing the brunt of aviation’s climate impact there. If Britain is serious about taxing its own travelers and airlines to mitigate climate change, then it needs to align charges with actual impacts.

See also my earlier post on the challenges of green taxation in aviation.

UK flight taxes to rise as reform dropped [FT]

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My story in The American magazine is now up on its website. Here’s the lede: “Thirty years ago this October, the era of affordable mass air travel was unleashed. Why was this revolution stalled, and what can be done to finish it?”

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