Liveblogging Randy Babbitt’s confirmation hearing

The Senate Commerce Committee is holding a hearing today to review several nominations in its purview, including FAA administrator-designate J. Randolph Babbitt and DOT deputy secretary-designate John Porcari. Opening statements are going on now. Babbitt is, as you know, the former president of the Air Line Pilots Association and a pilot at Eastern. According to Mark Warner (D-Va.), who is chairing the hearing at the moment, Babbitt is “the right person to lead the FAA at the moment.” (Wow, tough crowd.) Porcari is Maryland’s secretary of transportation.

Opening statements by Babbitt and Porcari have been posted on the committee’s website.

I’m not on the Hill today, but I am watching the hearing’s live webcast. I’ll bring you aviation-related highlights of the hearing throughout the day, so refresh this post for the latest updates. Stay tuned!

Babbitt

11:43. Interesting item from Babbitt’s testimony: “I have worked with members of Congress on major aviation safety issues, including one of which I am most proud, ‘One Level of Safety.’ I led this project in 1993 while I was president of ALPA. This program resulted in required regional carriers to operate under the same rules and at the same level of safety as their major carrier counterparts.” Of significant relevance given the attention paid to small-lift provider safety standards in the wake of the NTSB’s Colgan Air crash hearings.

11:48. Frank Lautenberg (D-N.J.) was principally responsible for torpedoing the confirmation of Robert Sturgell, former president Bush’s FAA nominee. He’s much happier with Babbitt today, about whom, when he slips up and says “if you are confirmed, he adds “if you’re not it will be a miracle.” Lautenberg asks about the New York / New Jersey / Philadelphia airspace redesign. Would Babbitt put a hold on the redesign until frontline air traffic controllers ha had a chance to weigh in? “I’m not exactly certain where that process stands at this time,” Babbitt replies. “On a personal basis, I would really like to solicit input from all the stakeholders in that area. . . . I think it’s very important that [controllers] have input in this process.”

Lautenberg then raises a parochial concern that is more than parochial, given the airport’s role in the system: reported controller shortages at Newark Liberty International Airport. “Can you assure us that the Newark tower will be staffed to the volume of performance we require there?” Babbitt: “It’s my hope that every tower in this country will be staffed and manned to the highest degree.” He refers to the “bubble of controllers being in a similar age, a band of age” who are going to retire soon. (And already are.–ed.)

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Headless horsemen

Retired air traffic controller and blogger Don Brown had a great item yesterday. “President Obama’s budget includes cutting a ‘long-range navigation system’. . . . It took me a day or two to figure out they were talking about LORAN — Long-Range Aid to Navigation. Now, you tell me, did anyone (besides me) mention that LORAN was supposed to be the backup system for GPS? . . . Well, actually it was the DOD (you know, the folks in charge of GPS) via the JPDO that was warning everyone. I just happened to include it in my blog. Remember?”

Then, Brown links to a James Fallows post reporting on a GAO finding that the “U.S. Air Force, which runs the GPS satellites, has not managed to get new ‘IIF’-model satellites ready in time to replace the ones that are wearing out.” Brown: “So, we’re going to eliminate the system that GPS made obsolete, just in time for the GPS system to become unreliable. I assume the thought that the left hand of the government doesn’t know what the right is doing pops into your mind also.”

This reminded me of a new article by Jonathan Last about the natural process of knowledge decay in institutions. He documents the $92 million process of reconstructing the formula for “Fogbank,” a substance included in late-Cold War nuclear warheads whose formula had since been lost to history. Knowledge is lost, distorted, housed in human capital. Think of what happens when the admin in your office who’s been there for twenty-five years retires. No matter how much she writes down, she still takes away (and does not replace) a vast amount of institutional memory and knowledge.

And when you’re dealing with an institution as large and complex as the U.S. government, these kind of gaps are bound to happen frequently. The FAA thinks, “GPS, it’s a great system, let’s make it the basis of air traffic control.” (This is not a post on merits of Next Gen, FYI.) The Pentagon doesn’t bring a replacement for the current GPS system on line fast enough. And the OMB, eager to find redundancies in the federal budget, cuts the GPS back-up without knowing about delays in deploying its successor system. This is natural in giant institutions. We should probably be more surprised when systems actually work.

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Swine flu: the dark side of international air travel

The outbreak and rapid spread of the H1N1 swine influenza virus in Mexico and now the United States puts policymakers and business leaders in a difficult position vis-a-vis air travel. Pandemics exploit all the virtues of the air travel boom of the past few decades — a system that transports people and goods for travel, commerce, and economic opportunity suddenly becomes a primary agent of deadly disease. It’s the downside risk of international economic and cultural integration. Such integration still pays handsome benefits, however, and the risks can be mitigated by a multilateral public health infrastructure poised to go into action.

We are now in a critical moment for U.S. and World Health Organization (WHO) policymakers and the international aviation industry. To declare a pandemic right now and impose travel restrictions (as the U.S. and WHO have not done) might overstate the threat from swine flu and excessively impair travel to Mexico and U.S. border regions. But this outbreak appears to be unusually aggressive, with high mortality, suggesting that policymakers should nip it in the bud regardless of the cost to the travel industry. As the first case was reported in Europe, EU authorities issued travel advisories for the United States and Mexico. The danger to the aviation industry from either an over-aggressive response or from a widespread pandemic is high. In April and May 2003, at the height of the SARS epidemic in Southeast Asia and Canada, air traffic in the Asia-Pacific region dropped 45 and 51 percent, respectively. U.S. carriers with extensive routes in Asia — Northwest and United, especially — also suffered. This is an even worse problem in a recession, in which the prospect of future growth after an epidemic-related contraction is limited.

Part of the problem for policymakers is that U.S. citizens are inexperienced with pandemic response procedures. We are used to frequent and easy travel, not only by air but also locally, for work, school, or recreation. With deadly infectious diseases like smallpox and polio eradicated, we have become lazy. Less than half the number of people for whom the annual flu vaccine is recommended get it. Activists play on fear to spread the unproven belief that ingredients of children’s vaccines can cause autism, and their success in misinforming the public is correlated with a spike in pediatric measles infections (Megan McArdle referred to parents who decline to vaccinate their children as “twee BoBo sociopaths“). Our cities are unaccustomed to quarantines. How would you react to an order to stay indoors except for essential business? Would you obey it? The discipline of disease control is honed over time and cannot be immediately adopted with success. Moreover, the scale of the United States is also unsuitable for a concerted public health response. It’s one thing to isolate SARS in a tiny enclave like Hong Kong (which is extremely vigilant, at any rate) or on an island like Taiwan (unconscionably prohibited by Beijing from receiving WHO support during epidemics, by the way).

Whether or not this swine flu outbreak becomes an epidemic or a pandemic, policymakers and airline industry leaders need to be prepared for the dark side of global integration. Preventing the spread of epidemic diseases should be at the top of any government’s list.

Further reading:

• ICAO guidelines for handling communicable diseases
• IATA information and statement

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Good riddance to Dutch travel tax

The Dutch travel tax has been so successful, it has to be scrapped:

The Dutch Government is to scrap from July 1 its air passenger ticket tax, first dubbed the ‘eco’ tax when it was introduced against major opposition by aviation and local industry last year. The controversial departure tax, which ranges from 11 to 45 euros, is blamed for a steep decline in passenger traffic at the main Dutch airports, particularly at Amsterdam Schiphol.

The tax was billed as a “green tax,” meaning that it was intended to raise the cost of flying sufficiently to deter passenger travel — and hence greenhouse gas emissions — on the margin. It apparently did this swimmingly well, better than I would have expected:

Schiphol Airport, Europe’s fifth biggest in terms of passenger enplanements, recorded a drop of 430,000 passengers in February, a 13.7% fall against the same month a year ago. The number of locally boarding passengers fell by 17.7%. The number of transfer passengers, who were exempted from the tax, declined by 8.5%.

As the story notes, this tax was not levied on transfer passengers in an attempt to keep KLM and its Schiphol hub competitive with airlines based at Paris, London Heathrow, Frankfurt, and Copenhagen. Since transfer passengers make up a huge share of Schiphol’s business, the surcharge would never have made much of a dent in the Netherlands’ aviation carbon footprint. The fact that transfer passengers were exempted and that the tax is pulled just when it seems to be working vindicates the complaints that it is a “revenue grab.”

The suspension of this tax also illustrates a tax problem. In an age of free movement across jurisdictional boundaries, tax competition is heightened, especially in areas like the low countries where a competing, lower-tax airport may be just a short drive away. “The airport operator along with Dutch carrier KLM had previously warned that potential passengers would try to avoid the tax by flying from airports across the border in Belgium or Germany,” the story report. “The Belgian Government has already abandoned a proposal to introduce a similar tax.” Unless the EU or a larger jurisdiction is going to impose a charge like this one, countries that impose it on themselves in a global downturn are making an economic death wish.

See my previous posts on the Dutch travel tax here, here, and here.

[H/T: Cranky]

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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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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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TSA contracting out: how’s it going?

There’s a new GAO report out today that’s very, very meta: it’s an evaluation of the Transportation Security Administration’s own report on a study of the effectiveness of the Screening Partnership Program (SPP), which allows airports to contract airport security out to TSA-approved security firms.

The TSA study examined security at Greater Rochester International Airport in New York, Jackson Hole Airport in Wyoming, Sioux Falls’ airport in South Dakota, Kansas City International Airport, San Francisco International Airport, and Tupelo Regional Airport in Mississippi. TSA found (unsurprisingly) that “screening at SPP airports currently costs approximately 17.4 percent more to operate than at airports with federal screeners, and that SPP airports fell within the ‘average performer’ category for the performance measures included in its analysis. . . . the contractor concluded that passenger screening at the SPP airports has historically cost from 9 to 17 percent more than at non-SPP airports, and private screeners performed at a level that was equal to or greater than that of federal TSOs.” (This is unsurprising because the law requires that “private screening companies selected by TSA must provide its screening personnel compensation and other benefits at a level not less than the compensation and other benefits provided to federal government personnel.” When you add in another layer of management because of the contractor, you get — surprise — higher costs.)

The GAO determined that TSA’s study employed flawed methodology because it failed to “include the impact of potential overlapping administrative staff on the costs of SPP airports,” “account for workers compensation, general liability insurance, and some retirement costs paid by the federal government, as well as the lost corporate income tax revenue from private screening contractors, when replacing private with federal screening,” “call for statistical analyses to determine the level of confidence in observed differences in performance between SPP and non-SPP airports,” among others. Conclusion: “[W]e believe that TSA should not use the study as sole support for major policy decisions regarding the SPP.”

So, why is this study of a study of a study important?

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A sneak attack on airline alliances

By now, you’ve probably read about House Transportation Committee chairman Jim Oberstar’s bill calling into question granting antitrust immunity to international airline alliances. The text of the legislation (HR 831, introduced on February 3) is pretty straightforward, but its intent is masked by a more innocuous prescription.

First, it calls for the Government Accountability Office (GAO) to issue a report on these exemptions addressing these questions: What public benefits do the antitrust exemptions offer, and could they be achieved without offering the exemptions? Has granting exemptions “resulted in reduced competition, increased prices in markets, or other adverse effects”? Have there been increased fares for consumers at hub airports for international alliances? What is the minimum number of worldwide alliances to ensure competition on busy international routes? Should antitrust immunity applications be treated like proposals to merge — and thus be given stricter regulatory scrutiny? Finally, the GAO should recommend whether any existing or proposed antitrust exemptions should be revoked.

Second are the actual teeth in the measure. The bill automatically terminates antitrust exemptions after three years; they must be renewed by the secretary of transportation under new rules that are to be based on the GAO’s own recommendations. This is the most onerous section of the bill, and this is where Oberstar has placed his intentions. Three years is an awfully short time for business planning. If you’re an executive at at U S of Airlines, and you’re staking revenues and future growth on a potential agreement with Air Europe, you need confidence that the agreeement won’t be voided just a couple years down the line because of changing political winds. Political influence and uncertainty in business decisions hamper investment. (Just look at the finance sector — investors are confused because they don’t know how or when the government will next make a major intervention.)

So, if Oberstar’s aim is to hinder these sorts of deals, then even though he’s not banning them outright, he’s on the right track. And make no mistake: Oberstar is trying to crack down on international alliances. He says as much in his remarks upon the bill’s introduction.

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