And now a word about Secretary Peters

Transportation Secretary Mary Peters usually gets a bad rap in aviation policy circles. Even though her professional background is in highways, she ought to be better versed in aviation than this or this suggests. But I am very unimpressed with her latest initiative, announced Tuesday in Atlanta: a comprehensive national transportation policy. It is based on reducing gridlock and includes several market-oriented, incentive-shaping changes. I haven’t read the full plan yet, and I will soon engage with the aviation section, but the timing of this is ridiculous. Five months before the end of an administration is not the time to announce a “complete overhaul” of U.S. transportation policy. Her tone seems to believe she is working in 2001; she speaks of “unveiling” a Bush administration plan. Um, didn’t we have seven and a half years to do this? Peters herself has been secretary for almost two years; surely we could have seen a national plan before now.

The likelihood, therefore, of this transportation agenda being enacted is slim to none. Barack Obama’s transportation plan has some different objectives than the president’s, including more density and more federal-level involvement in planning. John McCain doesn’t seem to have much of a transportation policy apart from opposing porcine transportation earmarks. Either will likely diverge from the just-proposed plan. This plan, which I’m looking forward to reading, is years overdue and now arrives too late to be useful.

But now it’s time to pivot and praise Secretary Peters. Her transportation department has often advocated introducing market forces into the U.S. transportation infrastructure, and her July 22 op-ed in the New York Times defending the FAA’s peak pricing plan is good. She opens with a discussion of slot pricing that echoes what most economists say is wrong about landing fees: that they are weight-based. She also exposes the airlines’ inconsistency in opposing congestion pricing:

The airlines prefer the status quo, which is simply not working. Americans deserve better.

At a recent Congressional hearing, the head of the airlines’ primary lobbying organization, the Air Transport Association, asserted that pricing is not an effective mechanism for balancing supply and demand for landing slots. When lobbyists argue that basic economic principles do not apply to the industry they represent, a red flag should go up.

After all, the airlines themselves lower ticket prices to attract passengers when demand is low and then raise prices to maximize revenues when demand is high. What would happen if airlines were required by the government to charge the same ticket price for travel on Dec. 24 as they charge in the middle of September? There would either be rationing of extremely scarce seats on Dec. 24 or exorbitantly high prices for widely available seats in the middle of September. In either case, this inefficient outcome would damage the economy broadly and the aviation sector specifically.

Peters conveniently neglects to mention the FAA’s failure to make technological improvements that would have permitted airlines to meet demand, but she does explain part of the reason why: there’s a disconnect between the funding for those improvements and use of the system.

The argument championed by airline lobbyists and some of their Congressional supporters that “we just need more capacity and technology, not pricing” incorrectly assumes that these are competing concepts. But the main reason we have failed to add capacity and modernize our air traffic control system is that our approach to paying for aviation infrastructure completely disconnects the price of using capacity from its true costs and thus promotes overuse at popular airports and during popular flying times. . . . Independent economic experts of all political backgrounds agree that either auctions or congestion pricing is far preferable to the failed experiment we have now.

Congestion pricing is the most rational and efficient way to allocate congested and in-demand runways and airspace. This is part of Deregulation 2.0, the unfinished work of airline deregulation. We (successfully) deregulated the industry three decades ago; it’s now time to unleash competition in the aviation infrastructure sector. Peters agrees:

In the 1970s, many of the industry’s lobbyists took the position being espoused today — that basic economic principles could not be applied to commercial aviation, that competition would not work and that consumers would be harmed if airlines were given the freedom to design their own networks and to set prices based on market forces.

The lobbyists were wrong then. They are wrong today.

What can I say? When you’re right, you’re right.

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Daily departures, back from the dead edition

I’m back from my vacation, well-rested and ready to dive back into aviation policy blogging. My flights to and from the West Coast were aboard Virgin America, which, despite the several operational kinks they have to work out, offers an in-flight coach experience equal to or better than anything else in the market. I owe a huge thanks to my guest posters last week, Brett Snyder and Benet Wilson, for their excellent contributions last week. Here’s what I missed in Daily Departures form, in roughly reverse-chronological order:

• Airline passengers in China “scuffled with police” over mistreatment and “improper manner” of handling by China Southern Airlines. These passengers are taking their “rights” into their own hands. See here for interesting background on Chinese civil dissent. [AFP]
• Another architect of airline deregulation, Michael Levine, said that reregulation of the industry would impede competition and innovation without controlling the spiraling costs that are hurting the airlines today: “Re-regulation will get us the worst of both worlds. . . . It will not be able to [lower fuel prices and stop the industry downturn] even if it slows it for a while. And trying to do so will simply postpone the inevitable adjustment and is a prescription for waste . . . from inefficient wealth transfers to politically powerful interests at the expense of the traveling public and the economy as a whole.” [ATW Daily News]
• Can you get to Mexico, Canada, and the Caribbean without a passport? Yes, as long as you have a “passport card,” a sort of passport-lite that works for those regions. [Budget Travel]
• European antitrust rules favor the merger of British Airways and Iberia. [FT]
• Transportation Security Officers are getting their new, blue uniforms — but Congressman Bennie Thompson (D-Miss.) says that step alone won’t improve morale at the agency. [Towers and Tarmacs]
• Congress unanimously passed the FAA safety reform bill I analyzed before my vacation . . . but several congressmen missed the vote due to, ironically, an emergency landing on their Continental flight. [ATW Daily News and Today in the Sky]
• This is what a leader does: makes a bigger sacrifice himself than that required of those on the team he leads. Plaudits for JetBlue CEO Dave Barger. [Today in the Sky]
• Virgin Galactic rolled out WhiteKnightTwo, the Rutan-designed aircraft that will serve as the launch vehicle for commercial spacecraft SpaceShipTwo. [SPACE.com via Planenews]
• Don Brown has a pair of posts looking at the seeming controller shortage in Australia with a criticial eye on the corporatization of that country’s airspace. [Get the Flick]
• Boeing bets on China’s aerospace industry with its controlling stake in a joint venture with China’s AVIC I. [Aero-News.Net]
• The Hague ruled that the Netherlands’ “green” travel tax is legal. (That doesn’t keep it from being a stupid idea.) [ATW Daily News]
• Is Milan’s “woeful” Malpensa airport to blame for problems in Northern Italy’s economy? [FT]
• It is reported that BAA and the British government invented a jet the does not exist, even on the drawing board, to justify its proposed third runway at Heathrow. [Jetwhine]
• “I guess I am glad somebody’s futures are going up in value. My airline travel futures, also known as frequent flier miles, seem to get devalued constantly.” [Coyote Blog]

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Is The No-Fly List A Punishment Tool?

Today’s guest blogger is Benet Wilson, a reporter for Aviation Week/Aviation Daily and primary author of Towers and Tarmacs, a fantastic blog that allows her to share her unparalleled knowledge of airports and how they operate. Enjoy! –ES

I really appreciate Evan asking me to do a guest blog. I work from home 4 days a week, and as an early riser, I’m on the computer between 5 and 5:30 a.m. each morning. I usually turn on the TV to watch “Anderson Cooper 360” on CNN. The Thursday show had a story about reporter Drew Lewis, who found himself on the Transportation Security Administration’s (TSA) No-Fly list, coincidentally, right after he did an investigation about the lack of air marshals on U.S. flights.

I’m not a conspiracy theory, grassy knoll type of girl, but my crap detector went off after hearing this particular story. Lewis is an investigative reporter for CNN, so any reasonable person would have to think that he travels pretty regularly. He then does what could be seen as a negative story on TSA. Then all of a sudden, he finds out he’s on the No-Fly list? TSA says that “any connection between Griffin’s reporting and his name being added to the no-fly list is absolutely fabricated.” Ok, but it just doesn’t smell right to me.

And Drew Lewis is not the only one. Sen. Ted Kennedy (D-Mass.) has been on the list, and Rep. John Lewis (D-Ga.) – one of the guiding lights of the Civil Rights movement – can’t get his name off the list. The CNN story said that Homeland Security Secretary Michael Chertoff testified before Congress last week and said he would be “happy” to help Lewis in his efforts to get removed from the list. That’s nice, but one, why is his name on the list in the first place and two, what about all the people who don’t have direct access to Mr. Chertoff to get their name off the list?

Just last week, the ACLU held a press conference to recognize the 1 millionth name added to the No-Fly list, which we covered July 15 in Aviation Daily (subscribers only). Meanwhile, TSA has been delaying the implementation of Secure Flight, its computerized airline passenger screening program, since announcing its creation back in 2004. The last we reported was by then end of this year, but it doesn’t look like that deadline will be met.

One of my favorite television shows is “Boston Legal” on ABC. The Jan. 16, 2007, episode, entitled “Nuts,” featured a case where uberlawyer Denny Crane (played memorably by the legendary William Shatner) was unable to take a romantic trip to Hawaii with his midget girlfriend’s mother (never mind — it would take WAY too long to explain) because he had been put on the No-Fly list.

Crane asks Alan Shore (played by James Spader) to try and settle the issue with an official from TSA, who tells them that it takes a pile of paperwork and an “indefinite” amount of time to be removed from the list. So Crane asks Shore to represent him in a lawsuit against the government to be removed from the list.

The government argued that the list was necessary in the wake of the 9/11 attacks and the ongoing war on terror. They apologized that some people are inconvenienced, but said it was the price that had to be paid for security. Shore pointed out U.S. policy that keeps some terrorists off the no-fly list in order not to tip their hand, but that ordinary, non-threatening, law-abiding American citizens remain on the list, potentially forever. I thought his closing was brilliant, and I’ve posted some of it, below.

Some of the new iPods, you can load up to twenty thousand songs on them… The technology in this country is staggering! And yet, the government can’t get their computers to erase my client from the No-Fly list. Even though they admit he shouldn’t be on it.

Instead, nobody named Denny Crane can fly. Now! Mr. Winchell is correct, he doesn’t need me to indict Homeland Security, the 9/11 commission already did that… I’m sure Tom Ridge is a nice man, capable too, as is Michael Chertoff.

Jets can not only fly by computer, but they can now take off and land on auto pilot. Should we truly be stumped by this No-Fly computer list? How about something as simple as issuing a flyer’s license?
It could have your picture, fingerprints, you show it, scan the card and your fingers at the gate, if it’s a match you get your aisle seat! This can’t be undoable. Expensive? Maybe. But judging from recent spending patterns we’ve got billions to throw around. Halliburton alone has profited ten billion from the war, maybe we could get them to kick in.

Is it really against national security to think outside the box? This isn’t about beating up on Homeland Security. Everybody knows they’re trying, I’m sure they’re good people, but they simply cannot dispatch a representative to this courtroom to say the problem isn’t fixable, while thousands of Americans are being denied due process. It so easily has to be fixable. And in the meantime my client sits here today, a law-abiding man, grounded!

I’m a law-and-order type of girl and I know that we live in a world where many people want to do bad things to our citizens because we’re American. But is it really that hard to cull the No-Fly List to remove law-abiding citizens who happen to be misfortunate enough to have the name of an actual terrorist? Aren’t we the nation that sent a man to the moon?

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Small City Air Service in Oregon

When Evan asked me to guest post, I was honored. On my blog, The Cranky Flier, I write broadly about airline travel but I don’t often get to dig in deep to look at policy issues. The more I thought about what to write, the more I kept coming back to the Bay Area. No, not THAT Bay Area. No, not the one in Florida either. I’m talking about Coos Bay (Oregon) and it’s evil twin, North Bend. (Ok, it’s not really evil at all.)

I know, that’s weird, right? People don’t think of Coos Bay and North Bend very often. And to be honest, when I first heard the name, I had to look it up on a map despite having family in Portland. So that you don’t have to do the same, here it is in all its glory, with just a little bit of editorializing.

I chose to write about Coos Bay, because one of my readers mentioned that my blog had been brought up on an episode of Think Out Loud, a program from Oregon Public Broadcasting. If you find this topic interesting, I’d recommend heading over and listening to all 52 minutes of the program.

The main topic was the loss of air service in Oregon. They mentioned my blog because of an old post of mine expressing my opposition to the Essential Air Service program. This program was a very interesting look at several issues regarding Oregon’s shrinking air service, but I thought it was interesting to focus on the issues facing Coos Bay and North Bend.

The Bay Area lies along the Pacific, a “mere” 222 mile drive from Portland. According to Google Maps, that’ll take you a good 4 hours and 3 minutes. Up until this summer, service was relatively consistent. Portland saw year-round connectivity, and there was often summer service to Seattle.  It probably wouldn’t surprise anyone to see that Horizon’s service was rapidly becoming less and less viable.  Why?

• The price of oil skyrocketed
• The cost of operating at the airport had risen (I assume, since there’s a brand-spanking new terminal)
• Horizon announced the end of service with its 37-seat aircraft and will now operate nothing below 74 seats

I imagine that Horizon was just aching for a way to get out, but it’s not that simple.  The government doesn’t allow the last airline serving an airport to pull out without permission.  So, Horizon would have had to file 90 days notice so that the government could try to find a replacement.  “Try” is a key piece of this, but in this case, Horizon got lucky before they even filed the notice.

On June 27, SkyWest (operating as United Express) announced it would start twice daily service down to the real Bay Area (San Francisco), 500+ miles to the south, on July 7.  That same day, Horizon filed with the government to stop its 3 to 4 daily flights to Portland (PDF) on October 11.

So for now, Coos Bay/North Bend has mixed feelings.  They’re going to miss their more frequent Portland connection, but they do now have service to San Francisco.  But what happens next?  SkyWest is slowly phasing out its 30 seat Brasilias.  How will it be replaced?  And if it doesn’t make financial sense, then how can they end this service?

It’s a very sticky situation when it comes to service to smaller communities.  Essential Air Service subsidies can help with some areas, but now even larger ones that could support some subsidy-free service are feeling the pain.  With fuel prices where they are, things aren’t going to get easier.

If you’re a small airport, your #1 goal should be to keep user costs low, because that’s your best bet to maintain service.  But now, even low airport costs aren’t enough to guarantee service.  The government is going to have to take a long look at how small community air service is going to be handled in the future, because the current model isn’t working.

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Happy (con)trails

I’m headed off to the West Coast for a week; in the meantime, a few of the aviation blogosphere’s top writers have graciously agreed to offer some policy perspectives in this space. I hope you enjoy their writing, and I’ll be back with you soon.

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FAA safety reform bill exposes agency’s institutional schizophrenia

Representative James Oberstar

Yesterday, Jim Oberstar (D-Minn.) and three cosponsors introduced bipartisan legislation to ensure “arms-length” safety regulation of airlines by the FAA. The legislation comes as a result of the inspection debacle that took place this spring. During hearings on the subject, Oberstar repeatedly criticized what he called a “cozy” relationship between the FAA and the airlines it inspects.

For news coverage, see the Washington Post story. Now, let’s dig into the legislation, which you can find through THOMAS or the GPO.

The Aviation Safety Enhancement Act of 2008 (HR 6493) calls for:

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FAA orders peak pricing . . . sort of

Over lunch today with Daniel Hall, we talked about the nation’s chronic underinvestment in infrastructure (and infrastructure maintenance). One of the key problems is what to do in the in-between time between our current system and our hypothetical, complete infrastructure Nirvana. The best way of allocating scarce transportation space — from highways to runways — is to charge users for the negative externalities caused by their presence at a given point in the transportation system. That is, we need to use congestion pricing.

A rule proposed in the winter by the FAA to permit a sort-of congestion pricing mechanism has just become a regulation “intended to provide greater flexibility to operators of congested airports to use landing fees to provide incentives to air carriers to use the airport at less congested times or to use alternate airports to meet regional air service needs.” So let’s look at the text:

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The collar-color identity crisis of the airline pilot

As I was preparing this post, I noticed that Sean O’Neill at This Just In has written something similar. So, go read his work, then come back here for further reflections.

Commercial airline pilots: blue-collar or white-collar? Working class or middle class? (Never mind the fact that “working class” and “middle class” are swiftly becoming relics of a past era of social stratification.)

In the white-collar column: pilots are professionals who require a government license to practice. They are required to have bachelor degrees. Although less so today, in the past, they often came from the military officers corps, whose members tend to exit into middle-class lives. And commercial airline pilots enjoy an average annual wage of $148,810.

In the blue-collar column: pilots are operators of machinery. They have strict uniforms and ranks. They are organized into highly regimented seniority structures. They are unionized. They are paid by the hour. They are highly vulnerable to layoffs and furloughs. And they start their careers making less than $20,000 per year in many cases.

Indeed, the airline pilot is a strange blend of blue and white collars, as if he washed his colors with his whites. As one of Patrick Smith’s correspondents writes, “Pilots are a weird blend of white- and blue-collar, neither tradesmen nor professionals, and the usual definitions don’t apply. What do you call someone who spends tens of thousands of dollars on his own training, then endures years in an ill-paid apprenticeship, in a notoriously unstable industry, cemented into a seniority system, unable to freelance or change companies? I don’t know, but it’s not a professional. Of course, neither are we true blue-collar workers, who at least have transferable skills. And I suspect the ubiquitous seniority system, originally set up to protect pilots from capricious promotions and demotions, may be our greatest hindrance.” The seniority system is a holy grail of the unions.

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Kansas City weighs airport light rail

…and finds that it’s not really a local priority. “We have other issues that are far more compelling,” says visitors bureau president Rick Hughes. And little wonder: Kansas City is a low-density, sprawling, suburban city without a solid downtown residential core. Most people would have to drive to rail stations to use the system. Kansas City compares unfavorably with many other big cities with airport rail (either currently operating or planned): San Francisco, Seattle, New York, and Washington. All of these cities are dense, and airport rail includes not only tourists and business travelers but also residents getting to and from airports. (I love the Metro connection to Washington’s Reagan National Airport.)

Even though I’ve castigated the Washington Post for trying to manipulate Washingtonians into feeling inferior for not having a rail link to Dulles Airport, I actually think rapid rail to Dulles would be a really good idea. When airport rail is pursued for tangible and real benefits — and not because “people see it as a sign of a major league city,” as KC’s transportation authority chief says — it’s a worthwhile investment.

But will it work in Kansas City? Think again.

Light rail to KCI is no sure draw [KC Star via Today in the Sky]

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“Stop Oil Speculation Now” won’t make oil cheaper

I’m going to resist the airline lobby’s link bait for their Stop Oil Speculation Now website (google it if you care), but the airline CEOs’ letter calling for passengers to lobby Congress for tighter regulation of oil futures “speculation” deserves some attention. The aviation blogosphere sees through this as the bad proposal it is (see Elliott, Snyder, PlaneBuzz, Upgrade, TJI). Indeed, economists from across the ideological spectrum — from Paul Krugman to WSJ op-ed writers — don’t blame “speculation” for the rapid run-up in oil prices. While some of the run-up looks bubblicious, for the most part, oil futures prices reflect estimates of existing and projected demand and existing and projected supply. As Craig Pirrong writes, “Futures and swap markets facilitate the efficient management of price risks, and speculators are an important part of that process. For instance, a producer of oil may want to lock in the price at which he sells his oil in the coming months in order to hedge against fluctuations in its price.” Another economist whose work I follow recently wrote, “Financial markets are driving today’s prices to match expectations of tomorrow’s values.” Speculators are doing the work of price discovery.

And for crying out loud, what is with the airlines’ complaint about “speculators who trade oil on paper with no intention of ever taking delivery”? Do they really want only those who will personally use oil to buy it? What if I’m a sharp, entrepreneurial guy who can make money buying and selling oil? (I’m not.) Why should the government limit my ability to “truck and barter” in a commodity that’s otherwise freely traded? Instead of making oil cheaper, it would restrict the full measure of price information a functioning market can provide.

The challenge of leadership is running a business in hard times as well as good. As Brookings Institution economist Clifford Winston told me recently, airline profitably depends more on the handling of “shocks” than on wringing out efficiencies. The airlines’ proposal is a Band-Aid, a substitute for actually handling the shock of rising costs.

The airline CEOs call the oil market “over-heated.” What’s really over-heated is the rhetoric and reasoning of their proposal.

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