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Posts Tagged ‘2008’

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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