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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FAA funding taking a hit from falling travel demand

Matt Phillips at the Middle Seat Terminal points to a recent GAO study of the FAA Airport and Airway Trust Fund, which pays for aviation infrastructure services like air traffic control. The balance of the trust fund, which is funded by a combination of ticket taxes and fuel taxes, has been declining. Part of the problem? Ticket prices do not necessarily correspond to the number of planes using air traffic control services. As I wrote last fall, “[The Air Traffic Organization] is funded by taxes on jet fuel and airline tickets. Thus, revenue might fall if airlines introduce jets that are more fuel efficient. Aviation is a cyclical industry, so it sells fewer tickets during slowdowns, cutting ticket tax revenue. Moreover, ATO’s revenue has nothing to do with actual use of the air traffic system.”

Good news, then, that President Obama’s budget proposal indicates that his Department of Transportation is thinking outside the box on this issue.

GAO: As Fares Decline, FAA Trust Fund Projected to Shrink More [Middle Seat Terminal]

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LaHood’s DOT: second-fiddle and proud of it

Transportation Secretary Ray LaHood, one of Obama’s token cabinet Republicans, isn’t going to rock the policy boat. According to National Journal, he’ll take his cues from the White House on emissions:

Addressing the role that the department will play as Congress and the administration move forward on climate change legislation this year, LaHood said he would take his cues from Obama and White House energy and climate adviser Carol Browner. “We’re going to be in the room,” LaHood said, adding, “I’m going to take my leads from Carol Browner. I’ll be a good, faithful soldier on this.”

Lisa Caruso also reports that Clinton-era FAA chief Jane Garvey is about to be nominated for deputy secretary of transportation. She also reports that Randy Babbitt, a former Eastern Airlines pilot and Air Line Pilots Association president and current consultant, is the most likely choice for a five-year term as FAA administrator.

What should we expect from Babbitt? Well, he’ll have to thread the needle of being a union guy moved into management. According to a pilot source, Babbitt was very political as head of ALPA from 1991 to 1998. ALPA is in the tricky position of being a union — a solid Democratic bloc — made up more of Republicans than Democrats, especially in the past when the commercial pilot workforce was composed of greater shares of ex-military guys. “Babbitt had the union endorse Bill Clinton, and there were a lot of individual union members who quit the union [over that],” my source said. “Prior to Clinton, the union had never endorsed a political candidate for president.”

Looks like Babbitt is about to reap his political rewards.

LaHood Predicts More High-Speed Rail Funds [National Journal]

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Fatal crash in Buffalo

News reports indicate that a fifty-seat Dash 8 operated by Colgan Air for Continental Airlines, traveling from Newark to Buffalo, crashed shortly before landing a little after ten, killing all forty-four passengers, four five crew members, and a person on the ground.

This is the first fatal commercial aviation accident in the United States since Comair flight 191 in Lexington, Kentucky, in August 2006.

[Updated 2/13, 8:30 am]

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In the Middle East, which comes first: growth or airports?

A new paper from the Center for International Private Enterprise at the U.S. Chamber of Commerce examines the development of the aviation sector in the Middle East and North Africa. (Thanks to colleague Mitch Boersma for passing this along.) Jawad Rachami points out that the region’s “share of global passenger traffic is expected to hover at less than 6 percent in the next 20 years, and the region’s share of the world’s total number of flights is expected to remain at about 3.5 percent during the same period,” arguing that “[t]his is reflective of MENA’s poor integration into the global economy and the weakness of its market and governance institutions.” Moreover, the leading node of aviation growth in the region is Dubai, which accounts for nearly three times as much traffic as Cairo, the region’s second-largest airport.

Rachami identifies four “trajectories” for aviation growth in the region. The first are “leaders” like Dubai and the other Gulf states, which have invested oil money and sovereign investment revenues into strategic infrastructure investments.

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You know, there’s an easier way. . . .

I saw this item earlier today, but it was linked on Drudge tonight, so I figure it’s going viral and thus worth a notice. Gordon Brown’s top climate change adviser, Adair Turner, testified to the Environmental Audit Select Committee that “We will have to constrain demand in an absolute sense with people not allowed to make as many journeys as they could in an unconstrained manner” — that is, according to writer Perry Flint, “the possibility of rationing air travel, limiting UK citizens to just a few vacation trips abroad by air per year in order to reduce the impact of carbon dioxide emissions.”

Of course, superior to rationing air travel (not that there won’t be a thousand exemptions and caveats that would either render the system useless or inequitable) is simple pricing. If you decide that air travel imposes significant negative externalities that justify restricting its growth, then why not just raise the price to the appropriate level? It’s a lot more sensible to implement than a rationing scheme.

UK environment czar looking at limiting holiday trips to save CO2 [ATW Daily News]

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What’s in the stimulus for aviation?

Let’s take a look at the “American Recovery and Reinvestment Act of 2009,” passed by the House on January 28 and now under review (with some amendments) by the Senate. In these line items, aviation is currently set to get somewhere in the area of $2.5 billion.

For the TSA:

For an additional amount for ‘Aviation Security’, $1,200,000,000, to remain available until September 30, 2010, for procurement and installation of checked baggage explosives detection systems and checkpoint explosives detection equipment: Provided, That no later than 45 days after the date of enactment of this Act, the Secretary of Homeland Security shall submit to the Committees on Appropriations of the Senate and the House of Representatives a plan for the expenditure of these funds.

For the FAA:

For an additional amount for necessary investments in Federal Aviation Administration infrastructure, $200,000,000: Provided, That funding provided under this heading shall be used to make improvements to power systems, air route traffic control centers, air traffic control towers, terminal radar approach control facilities, and navigation and landing equipment: Provided further, That priority be given to such projects or activities that will be completed within 2 years of enactment of this Act: Provided further, That amounts made available under this heading may be provided through grants in addition to the other instruments authorized under section 106(l)(6) of title 49, United States Code: Provided further, That the Federal share of the costs for which an expenditure is made under this heading shall be 100 percent: Provided further, That amounts provided under this heading may be used for expenses the agency incurs in administering this program: Provided further, That not more than 60 days after enactment of this Act, the Administrator shall establish a process for applying, reviewing and awarding grants and cooperative and other transaction agreements, including the form and content of an application, and requirements for the maintenance of records that are necessary to facilitate an effective audit of the use of the funding provided: Provided further, That section 50101 of title 49, United States Code, shall apply to funds provided under this heading.

For airports:

For an additional amount for capital expenditures authorized under sections 47102(3) and 47504(c) of title 49, United States Code, and for the procurement, installation and commissioning of runway incursion prevention devices and systems at airports of such title, $1,100,000,000: Provided, That the Secretary of Transportation shall distribute funds provided under this heading as discretionary grants to airports, with priority given to those projects that demonstrate to his or her satisfaction their ability to be completed within 2 years of enactment of this Act, and serve to supplement and not supplant planned expenditures from airport-generated revenues or from other State and local sources on such activities: Provided further, That the Federal share payable of the costs for which a grant is made under this heading shall be 100 percent: Provided further, That the amount made available under this heading shall not be subject to any limitation on obligations for the Grants-in-Aid for Airports program set forth in any Act: Provided further, That section 50101 of title 49, United States Code, shall apply to funds provided under this heading: Provided further, That projects conducted using funds provided under this heading must comply with the requirements of subchapter IV of chapter 31 of title 40, United States Code: Provided further, That the Administrator of the Federal Aviation Administration may retain and transfer to ‘Federal Aviation Administration, Operations’ up to one-quarter of 1 percent of the funds provided under this heading to fund the award and oversight by the Administrator of grants made under this heading.

More soon on this. The legislation includes language to make sure that these funds to go immediately ready projects, but although that might have some stimulative effect, it’s hardly the optimal use of infrastructure improvement dollars.

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Try, try again: McCain introduces bill to lift DCA perimeter

On Tuesday, Senators John McCain and John Ensign introduced the Abolishing Aviation Barriers Act, which would lift the 1,250-mile flight perimeter rule at Ronald Reagan Washington National Airport and would end federal support for the Port Authority of New York and New Jersey’s 1,500-mile perimeter rule at LaGuardia Airport. This is an old hobbyhorse of McCain’s, as it stands to benefit his Arizona constitutents.

I’ve written previously about McCain’s efforts to undermine and abolish the perimeter rules — and about the other ways in which Congress likes to meddle in Reagan National Airport’s operations. Congress should support the McCain-Ensign bill. The perimeter rule has outlived its usefulness now that Dulles Airport has come into its own, and a pricing mechanism would be a better way of rationing scarce terminal and runway space at Reagan National.

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Delta-NWA merger update, and more

A few observations from my holiday travels:

• The Delta-Northwest merger is going swimmingly. My layover in Atlanta demonstrates that Delta has already adopted and integrated Northwest’s famous approach to customer service.
• By the way, the Westin Hotel near the Atlanta airport (not my final destination) has very comfortable beds.
• On the flight back from Memphis, we boarded from the ramp, which meant walking out of an abbreviated jetway and down a set of airstairs attached to it (look out the window a few seconds into this video). As I was about to go through the boarding door, a woman ahead of us turned back, a look of bewilderment on her face, and called back to the gate agent, “There’s no plane there!” She kept insisting that there was no plane until another passenger and I gently pointed out that the CRJ900 on the ramp was our aircraft and that we just had to walk down the stairs.

I hope you all enjoyed the holidays. Back with more this week!

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