Babbitt: White House makes it official

Here’s the White House press release announcing the nomination of Randy Babbitt as the next administrator of the FAA.

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Back from Arizona

I’m back in Washington after a good couple of days in Phoenix. Thanks to US Airways for hosting this media event — and especially for inviting bloggers and other social media folks and recognizing the increasingly important role we play in the media universe. The US Airways corporate communications office put on a great program.

It was also a pleasure to meet and see folks from the aviation media community — Richard Velotta from the Las Vegas Sun, Victoria Day from ATA, Lori Ranson from Flight, Bill Swelbar of the Swelblog, Holly Hegeman of Plane Business, and Joshua Freed of AP.

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“World’s Most Alienating Airport”

I couldn’t resist sharing this gem of a video from The Onion:

Prague’s Franz Kafka International Named World’s Most Alienating Airport

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US Airways on perimeter restrictions at DCA, LGA

TEMPE — On most policy issues at the national level, airlines work through their trade association, ATA. Yesterday, I asked C. A. Howlett, US Airways senior VP for public affairs, about what issues he works on that the ATA does not get very involved in. “The biggest issue that is US Airways-specific is the Reagan National Airport perimeter rule.” National is one of US Airways’ key focus cities. He said that although the airline favors reducing barriers wherever they exist, “a more practical political solution is to create more exemptions to beyond-perimeter flying.” This would add to the twenty-four (in practice, twelve round-trip) exemptions, which include US Airways’ routes to Phoenix (one of which I am about to take back to Washington).

The key, Howlett said, is to make these changes in the pending FAA reauthorization bill, because the perimeter at National is congressionally mandated. US Airways is also interested in increasing beyond-perimeter exemptions at LaGuardia Airport, where it has a focus city operation. At LaGuardia, however, the perimeter is a locally adopted rule which does not require federal action.

One of the obstacles to perimeter exemptions is the objections of communities within the perimeter that fear losing service to big West Coast markets.  “Our approach would protect small and medium markets within the perimeter,” Howlett said. “We would say that an airline could use up to some percentage of its existing slots to fly beyond the perimeter, provided that those flights were taken from large or medium hubs. . . . What we’re doing is trying to protect the city that has maybe two flights to DCA. . . . We’re building in protections so that communities don’t lose service.” Howlett offered the example of, say, Delta taking one flight out of the Atlanta market, which would not make much of a difference, to add a flight to Salt Lake City. Besides, he said, there is just not that much demand for nonstop travel from National to the West Coast. A few more exemptions should meet that demand.

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“There’s no part of our operation that government can’t find a way to improve.”

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.

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US Airways’ Doug Parker on challenges for the airline industry

TEMPE — US Airways chairman and CEO Doug Parker opened the airline’s annual media day with remarks on the state of the airline industry, pointing out financial, political, and labor-related challenges in the year ahead and calling on airline managers to change the way they think about industry competition.

Parker has long been an apostle of consolidation in the industry, leading America West to take over US Airways in 2005 and attempting to take over Delta in 2006-07. He pointed out today that no single airline has more than a 25 percent share of the U.S. airline market. “In a network business, that’s a lot of fragmentation. It’s a fragmentation that makes it hard to produce returns for shareholders,” he continued. “More [integration] will produce even more value.” He said that US’s hostile takeover of Delta attempt spurred the Delta-Northwest merger, and he added that whether US Airways is in mergers or not,  the airline will benefit: “Where the real value occurs is the reduction of fragmentation.”

As for government affairs, Parker said that “this is a business that is overtaxed, that is in many ways overregulated.” In what I interpreted as a veiled reference to House transportation chairman Jim Oberstar (D-Minn.), who has declared war on airline consolidation and networking, he said: “We have many in congress who view aviation as a public good.” Airlines have to focus on little issues like service to individual congressional districts. Congress, he said, wants to harness the industry to serve its own interests. [Not unlike most other industries, these days –ed.]  The regulatory picture looks bleak, he said. “This one is probably not going to get better. . . . The best we can do on this one is hold the line. . . . Our message through 2009 is ‘do no harm.’ Let us compete, leave us alone.”

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Breaking: Randy Babbitt picked for FAA

TEMPE — Just heard from one of the other bloggers here that former Air Line Pilots Association head Randy Babbitt has been picked to lead the Federal Aviation Administration. Here’s the news as reported in the Wall Street Journal.

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Continental’s Kellner (and US’s Parker) revisit reregulation

TEMPE — US Airways’ media day program is about to begin, but I wanted to share this non-US related interview by Loren Steffy from the Houston Chronicle:

Larry Kellner served me a cup of coffee with the aplomb of a veteran flight attendant, and then, a few moments later, served up a stunning comment about the airline industry.

“If the government wanted to re-regulate the business, I wouldn’t be opposed to it,” he said.

While he didn’t mean the wholesale regulation of yesteryear, it’s still a surprise coming from the chief executive of Continental Airlines, the nation’s fourth-largest carrier by traffic.

Thirty years ago, airline executives battled fiercely to preserve government control of routes and pricing. Former American Airlines chairman Bob Crandall, then a rising executive, declared profanely that deregulation would ruin the business.

Fast-forward to today, and Kellner, agrees, at least up to a point.

“What we’ve got today doesn’t work,” he said in an exclusive meeting with me and several Chronicle colleagues. “It isn’t creating a stable industry.”

Kellner isn’t calling for a return to the good old days when fares were so high most people took the bus. Airline deregulation has always been about price, and in that sense, it’s been a roaring success.

Where it has failed, though, is on the cost side. Most airlines today have a cost structure that’s changed little since deregulation, which impedes consistent profitability. . . .

Read the whole article. It’s a good reminder that corporations are not inimical to regulation of their industry as long as it protects their profits and limits new entrants (for example, banks have been fighting tooth and nail to keep non-bank companies like Wal-Mart from horning in on their business, lest competition trim margins). The leading opposition to airline deregulation came from established national airlines and labor unions. Deregulation was (and remains) a consumer-friendly reform.

(H/T: ATW Daily News)

UPDATE, later today. Perry Flint of Air Transport World asked US Airways CEO Doug Parker about Kellner’s remarks. Parker said he had not read what Kellner said but that he would “disagree” about the need for reregulation. Indeed, he said, “I would hate to see us start moving back in the other direction at this point. . . . We’re still in the process of getting ourselves through a very lengthy deregulation process.” As part of this, he wants to ditch airport perimeter rules at DCA and LGA and reduce “barriers to investment.”

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Evan on the road

I’m writing from Tempe, Arizona, where I’ll be attending US Airways’ media day tomorrow. I’m looking forward to meeting and interviewing US Airways officials, as well as meeting with the other aviation reporters and bloggers gathered here. Watch this space for posts tomorrow from US Airways’ HQ.

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Final order on BAA break-up

As expected, the UK Competition Commission has finally released its order on breaking up British airport behemoth BAA. (Warning: very large PDF.) I’ve blogged a number of times on this issue in the past, and these posts will be good places to start if you’re new to the issue. Here are the key remedies for the adverse effect on competition posed BAA’s ownership of the three main London airports and three of Scotland’s busiest airports:

• The sale of both Gatwick and Stansted airports, each to different purchasers: “Divestment of one of Gatwick or Stansted would leave around 60 per cent of London’s runway capacity in BAA’s hands and would not comprehensively remedy the AEC we have identified because BAA would continue to own two airports that would otherwise substantively compete with each other under separate ownership.” BAA has already moved to sell Gatwick. (Forcing BAA to divest Heathrow was never on the table.)
• The sale of either Edinburgh or Glasgow airport. As for the timeframe of these divestitures, BAA wants to put the Stansted sale ahead of the Scotland sale so that Stansted can move forward with tentative expansion: “Following the completion of the Gatwick sale process, we would require the divesti-ture of Stansted earlier than that of either of the Scottish airports due to its relative scale and importance in addressing the AEC and detriments we have found and in the interests of resolving uncertainty with respect to the planning inquiry for a new runway at Stansted so as to facilitate the development of capacity as soon as it may be required.”
• To address airline complaints about poor service at Heathrow, the UK aviation regulator — the Civil Aviation Authority (CAA) — should “strengthen consultation processes and provisions on quality of service.”
• “In relation to the economic regulation of airports, we fully support a licensing regime of the kind favoured by the DfT with different licence obligations for airports of different sizes and market power, as it would introduce more flexibility to the regulation of airports. In particular, under such a regime, the regulator would be able to relax the intensity of regulatory scrutiny, where it saw opportunities for increased competition.” The commission adds that the primary duty of the CAA is to consumers, with only an ancillary duty to airlines.

The more interesting part of this report is seeing how, in crafting these final remedies, the Competition Commission weighed the submissions of BAA and other parties. BAA suggested congestion pricing as a means of reducing heavy traffic at peak times, but the commission rejected this argument: “We do not view peak-pricing and/or making maximum use of existing runway capacity as an end in itself (particularly if it results in poor service quality). Rather we view spare runway capacity, the size of which depends on the efficiency of runway utilization, as a factor which may facilitate competition between airports and, in so doing, ensure the best possible outcomes for customers in terms of pricing, service and innovation.” I agree. Peak pricing is the fairest and most rational way of allocating sparse air traffic capacity on an interim basis, but the goal for governments should be to ensure sufficient infrastructure to meet demand. If, as the Competition Commission charges here, BAA’s structure inhibits this process, then it should be amended.

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