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Archive for the ‘Evan’s Commentary’ Category

Final order on BAA break-up

baaAs 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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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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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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Hey Lexington, oversight much?

Out of Lexington, Ky., (h/t to Erin Lamos) comes the jaw-dropping news, reported over the past six weeks in the Lexington Herald-Leader, of the Blue Grass Airport director’s wildly excessive and inappropriate spending — and the lack of oversight that allowed him to get away with it for two years.

On November 23, Jennifer Hewlett reported that Michael Gobb, the airport’s executive director since 1998, racked up $200,000 in travel and expenses between 2006 and 2008. The airport, a “component” of the Lexington-Fayette County consolidated government, paid $13,000 for a twelve-day trip to St. Petersburg for a conference,$8,100 for a conference in Croatia, $5,500 for a conference in San Diego (“Gobb spent $834 at Island Hoppers, a store that sells resort wear. He later reimbursed the airport $313.”), and $3,800 for a conference in Washington, D.C. According to the airport, Gobb networked at these conferences in an effort to bring new air service to Lexington. But according to the paper:

Airlines that have come to the airport during Gobb’s tenure include ATA Connection, TWA, American Eagle and Allegiant Air, according to Lovely. (The first two have since left. ATA went out of business, and TWA was bought by American Airlines.) . . .  According to FAA figures, the number of passengers boarding planes nationally increased by 13 percent from fiscal years 1999 through 2007, while the number boarding at Blue Grass was down 1 percent for calendar years 1999 to 2007.

Subsequent articles followed, detailing a chain of absurd expenses (in addition to Gobb’s company car and gas, pricey cell phone service, and numerous club memberships on top of his $219,450 salary):

  • “Tens of thousands of dollars” spent on gifts, ostensibly airport clients, including $6,500 worth of bourbon and other liquor and “$6,000 . . .  spent during the same period at toy stores . . . to keep airport employees and vendors, not clients, happy.”
  • “Gobb travels business or first class internationally because of back problems.”
  • A $26,000 conference trip to Hawaii for Gobb, airport chairman Bernard Lovely, and three other airport officials.
  • A $4,500 Texas strip club excursion in 2003 ostensibly for entertaining American Airlines executives. (“No American Airlines executives attended the strip club outing.”)

As the scandal mounted, the state auditor was called in to review the airport’s expenses, then Gobb was suspended before he resigned. Now the county council, which oversees the airport board, has asked Bernard Lovely to step down as airport board chairman. In developments reported today, the state auditor has put law enforcement on notice of “possible criminal wrongdoing” at the airport.

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If your dollars and mine weren’t at stake, I would probably have to refrain from criticizing or poking fun at the Essential Air Service. It’s like hunting cattle: it’s just not very sporting. That said, Ben Mutzabaugh shares a doozy of an EAS grant over at Today in the Sky. Hagerstown, Maryland, and Lancaster, Pennsylvania, will both be getting Cape Air service (five times daily for Lancaster) to Baltimore-Washington International Airport. Hagerstown is about seventy-five miles west of BWI and a similar distance northwest of Washington, D.C. Lancaster, which was aided a few years ago when Pennsylvania’s congressional delegation helped jury-rig the EAS qualifications, is ninety miles from BWI.

The ridiculous thing is that Lancaster is only a forty-five minute drive from Harrisburg International Airport, which has seven airlines serving thirteen destinations, eleven of which are major connecting hubs. “Major connections” is not what Lancaster and Hagerstown’s Cape Air passengers will enjoy at BWI: “‘Cape Air has ticket- and baggage-sharing agreements with all major airlines except Southwest and AirTran, so customers won’t need separate arrangements for separate legs of a trip.’ Of course, Southwest and AirTran are the top two carriers at BWI, so the lack of agreements with those two airlines will limit connecting possibilities out of BWI.”

Of course, the combined $2.6 million in subsidies for these cities isn’t even a rounding error these days, but come on. It’s a new year. Let’s have a new approach to small community air service.

Subsidies help Lancaster restore air service; Hagerstown also to get flights [Today in the Sky]

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One of the surprises about the rumored Ray LaHood nomination for secretary of transportation — set to be announced tomorrow — is that he has so little transportation experience. He is on the powerful House Appropriations Committee, and would thus be well positioned to oversee Barack Obama’s planned burst of infrastructure spending. LaHood did serve on the Aviation Subcommittee back in the late 1990s, and during that time, he cosponsored — which, in Congress, usually means you slapped your name on the bill for some political reason — several aviation-related pieces of legislation:

  • Federal Aviation Administration Revitalization Act of 1995 (HR 2276, 104th Cong.). This legislation would have made the FAA an independent agency no longer under the authority of the DOT, although DOT approval would have been required for FAA rulemaking. Also gutted the aviation staffers at DOT who report to the secretary. This legislation passed the house in 1996 before stalling in a Senate committee.
  • Airline Passenger Safety Act of 1996 (HR 3618, 104th Cong.). Prohibits chemical oxygen generators from being transported by aircraft. Went nowhere in the House.
  • Aviation Disaster Family Assistance Act of 1996 (HR 3923, 104th Cong.). Requires the National Transportation Safety Board, which investigates airplane crashes, to appoint a liaison for families of plane-crash victims and name a national nonprofit to handle post-crash care for victims’ families. Also requires airlines to submit plans for their dealings with victims’ families and urges state bar associations to forbid their ambulance-chasing members from contacting victims’ families for thirty days. Passed by House; not taken up in the Senate.
  • HR 2252, 105th Cong., directs the transportation secretary to retaliate against foreign countries that violate air service agreements with the U.S. with respect to cargo carriers. Hearings were held.
  • Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (HR 1000, 106th Cong.). The FAA reauthorization bill.
  • HR 4529, 106th Cong., which amends federal aviation law to prevent people with criminal convictions that “indicate a propensity for placing contraband aboard an aircraft in return for money” from holding aviation-security jobs. No action.
  • Small Airport Safety, Security, and Air Service Improvement Act of 2002 (HR 1979, 107th Cong.). This bill, which never made it past the Senate, would have provided funding for construction of control towers and installation of equipment.

Interestingly, LaHood voted “no” on the 2007 FAA Reauthorization Act — the as yet incomplete FAA legislation. The House’s version, spearheaded by Rep. James Oberstart (D-Minn.) did not include a provision for user fees for air traffic control services, unlike the Senate version that saw the two houses at loggerheads. Why did LaHood join most Republicans in voting no? I’ll try to find out.

LaHood is an Arab-American (of Lebanese and Jordanian descent). In 1998, he vociferously opposed the use of profiling in rooting out potential terrorists or hijackers. He insisted that screening systems be entirely non-discriminatory.

Adrian Schofield offers a couple of notes over at Things with Wings. One may be related to one of the bills above and involves a vigorous response on international air services agreements. The other places him in opposition to FAA commercialization or restructuring in 1995.

Now, the secretary of transportation works on more than aviation. But the FAA is the largest subagency within DOT, and LaHood’s aviation record is pretty thin on the ground.

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It’s pretty common knowledge that the United States has for years underinvested in “infrastructure” — from the power grid to physical plants to transportation — and thus one of the first priorities of the next administration should be to devote massive resources to repairing infrastructure. And I’m sure the commuter inching forward on a Dallas interstate on his way home from work or a passenger on a regional jet at LaGuardia groaning as yet another thirty-minute delay is announced would agree. And Barack Obama has endorsed a massive infrastructure spending program in hopes of stimulating the economy. So then — let’s get busy! Where to start?

As Bob Poole writes in yesterday’s WSJ, the mayors of 427 cities have helpfully identified more than 11,000 “ready-to-go” infrastructure projects worth $73 billion. Okay, there’s a start. And what kind of projects are these? Poole lays out several of them: a “waterfront duck pond park,” community centers, tennis centers, “life style centers,” a “Grand Central Station” in San Francisco for a rail line that doesn’t exist, and the like. (More “infrastructure priorities are listed here.) That is, the mayors have, in a recession and what is widely acknowledged as a crisis in infrastructure, presented the taxpayers with a gold-plated wish list. No doubt Congress would be happy to pony up the money in exchange for naming rights.

Why are these projects even on the list? For several reasons. First, they’re discrete and local. Highway, airport, and major transit projects often require consultation with and the involvement of multiple authorities, making it harder for the spending to have a quick impact — even if its long-term effect would outweigh that of a duck pond by a factor of, oh, infinity. Another reason might be the “spaghetti” approach: throw it at the wall to see if it sticks. No harm in trying, right? ask the mayors. (No harm, indeed, except perhaps the derision of a few lowly bloggers.) (more…)

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