Posts Tagged ‘competition’

From the blog of the Reason Foundation, the think tank with one of the country’s leading aviation policy programs. Key quote:

The main downside is that once the three remaining slots in the Pilot Program are filled, nobody else can privatize their airport—unless and until Congress expands that legislation. And that has to be seen as a huge question mark. As of today, Congress is a full year late in reauthorizing the Federal Aviation Administration, and with it the long-running airport grants program. If they give aviation such a low priority, it’s hard to imagine them rushing to expand an obscure piece of aviation legislation, especially to expand the scope of the dreaded P-word.

Still, city and county budgets are likely to be in worse shape next year than they are now. If America’s mayors and legislators call for expanded airport privatization, even a Democratic Congress might actually take them seriously.

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DALLAS — Chicago’s Midway Airport is the first major airport in the United States to be privatized. Yesterday it was announced that it had been sold to “a consortium consisting of Citi Infrastructure Investors, YVR Airport Services (a joint venture between Vancouver airport and Citi Infrastructure Investors) and John Hancock Life Insurance,” according to the Financial Times. It will be operated by the Vancouver airport owner. The big surprise, according to Southwest Airlines folks I talked to last night, was how competitive the bidding was in a tight economy. The final price was $2.5 billion, and among the bidders were consortiums including the biggest names in airport infrastructure: Germany’s Hochtief, GECAS, Aeroports de Paris, and Australia’s Macquarie Group. (Southwest folks are very pleased with the opportunity to work with a private owner, and as the largest airline at Midway, they’ve been consulted and involved in the process all along.)

The great thing about this purchase is that it gives us an opportunity to test the performance of a privatized airport in the U.S. market, which is almost entirely under public ownership. It is part of the FAA’s Airport Privatization Pilot Program, and the Midway experience may clear the way for more infrastructure privatization in the future.

Chicago Midway in $2.5bn privatisation deal [FT]

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Is "Straight Talk Express" now the regional affiliate of Straight Talk Air?

Is "Straight Talk Express" now the regional affiliate of Air McCain?

I haven’t had any luck getting the McCain campaign to fill me in on the details of his aviation plan (if he has one). His website has one mention of aviation, and it’s a throwaway press release on the air traffic control communications outage in August with a boilerplate call for reform in Washington. However, his twenty-six years in Washington and his chairmanship of the Senate committee that oversees aviation mean he has a pretty wide paper trail. Two of the most important issues on which he’s weighed in are air traffic control modernization (and how to fund it) and international aviation agreements.

John McCain has a track record of supporting market-based air traffic control reforms. In a 2001 interview with General Aviation News, which is full of revealing nuggets, he discussed a Reason Foundation report proposing a commercialized, nonprofit government corporation to provide air traffic control services (much like NAV CANADA). The interviewer was especially concerned about McCain’s support for user fees, the bete noire of the general-aviation community, and asked: “You have advocated ATC user fees in the past. Do you continue to support that approach?” McCain replied:

While there are a number of ideas about how to fund the aviation system, I have not yet come to a final conclusion about the best solution. The Commerce Committee will continue to examine different proposals and ideas, including a user-fee system. As I have often stated publicly, I am always open to new and fresh ideas on how to provide the proper funding to ensure a safe and efficient air-transportation system. The issue of user fees is closely linked to funding for the FAA, which is absolutely critical to the future of aviation in our country. The national air transportation system needs a predictable and reliable funding stream that is not subject to unnecessary budget pressures and gimmicks. A positive step in the right direction was the funding provided through the most recent FAA reauthorization bill, commonly known as AIR-21. But AIR-21 is not a permanent solution, and ensuring adequate funding for the long-term future of aviation remains a challenge.

While avoiding an endorsement of the Reason proposal, McCain did promise to include commercialization in the Commerce Committee deliberations on ATC: “However, the issue of ATC modernization is certainly an issue that the Commerce Committee will be looking into this year, and I expect ATC privatization will be included in the overall scope of the debate.”

User fees seem to appeal to McCain’s populist political persona and rhetoric. While acknowledging that user fees should not be structured to harm recreational users, he assails business jets’ use of the system: (more…)

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No sooner do I say that the BAA case will be a hot topic this fall on yesterday’s Things with Wings Radio Show (thanks, Benet!) than BAA beats the Competition Commission to the punch and puts London’s Gatwick Airport up for sale. According to BAA’s chief, quoted in the Financial Times, “We have decided to begin the process of selling Gatwick Airport immediately. . . . Gatwick has long been an important and valuable part of BAA and the decision to sell was not taken lightly. We believe the airport’s customers, staff and business will benefit from the earliest possible resolution of current uncertainty.” This comes after the Competition Commission’s provisional findings indicated that it would order BAA to sell off two London airports and either Edinburgh or Glasgow in early 2009. (See my posts on the provisional findings here and here.)

According to the International Herald Tribune, BAA will continue to contend for keeping Stansted Airport — “At Stansted, we believe that a change of ownership would interfere with the process of securing planning approval for a second runway, which remains a key feature of government air transport policy” — and its three Scotland airports.

The Competition Commission released a statement today indicating that between now and its 2009 final report, it will “take account of any action by BAA in the meantime which may impact the competition problems we have provisionally identified.” Will the Gatwick sale delay the commission’s final recommendations, or will it come quickly enough to send signals about competition in the new London airport market?

And now comes the fun part: airport operators have been circling Gatwick for weeks now, planning their bids for whenever BAA was forced to relinquish the airport. Potential buyers include the Australian infrasturcture giant Macquarie Group, Manchester Airport Group (which owns Manchester Airport in England), Hochtief (which operates and owns shares in several European airports), Singapore’s Changi Airports International, and Fraport (which runs Frankfurt International Airport). The most interesting entry in the mix is Richard Branson, involved through either Virgin Atlantic or the umbrella Virgin Group (news reports are unclear). Virgin has expressed interest in joining a consortium to bid on Gatwick. With this cast involved, the sale of Gatwick may be one of the highest-profile airport deals ever.

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A misleading lede

I was surprised by this lede in a recent Financial Times story: “Most Americans spurned air and road travel over the Labor Day holiday weekend but flocked on to trains as high oil prices and the economic downturn continued to hold sway over US consumers’ spending patterns.”

First, most Americans (like me) did spurn weekend travel. According to the FT story, 51 million people traveled by air, train, or more than fifty miles by car. The story is right that air travel is down and train travel is up, but look at the figures:

  • Airline passengers: down 1 million people, or 6.5 percent, to 16 million people.
  • Road warriors: down 320,000 people, or 1 percent, to 34.4 million people.
  • Amtrakkers: up 10 percent to a total of 322,000.

Does that sound like “flocking” to you? 1,300,000 fewer people traveled on airlines and highways over Labor Day than last year, and the FT would have you believe that 30,000 more travelers on Amtrak constitutes a massive shift in mode preference.

(And why does the FT reporter leave out bus travel? Greyhound serves almost as many passengers per year as Amtrak at 25 million, let alone all the other motorcoach operators. Surely coaches can be much more easily substituted for travel than Amtrak.)

Outside of the dense northeast corridor, Amtrak is simply not a viable substitute for air and car. Its cross-country routes are too long, its schedules too infrequent, its destinations too few, and its delays too common. That’s not to say that some sort of high-speed rail system won’t work here–just that Amtrak ain’t it.

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I’ve been digesting the UK Competition Commission’s provisional findings on BAA, and I’ll have more to say on the proposed remedies later. Here, in summary form, is what the Commission has found.

BAA was privatized with control of London’s three main airports in 1987 primarily to increase airport efficiency and provide a solid financial base for future expansion. It has not done this. “More than 20 years later, there is inadequate capacity, particularly runway capacity, in the South-East.” Furthermore, BAA’s airports are widely criticized by airlines, travelers, and other stakeholders. The Commission acknowledges that BAA is not entirely to blame — they do not oversee air traffic control, immigration and HM Customs, or airline operations. But BAA is not blameless. They are unresponsive to “the interests of airlines and passengers,” reports the Commission.

Is the lack of competition between BAA’s airports inevitable? Evidence suggests not. The Commission points out strong competition between Belfast’s airports, Birmingham and East Midlands, Cardiff and Bristol, and Liverpool-Manchester-Leeds Bradford. And BAA’s airports are easily substitutable, especially for leisure travelers — there is no natural monopoly in airport services in the Capital or Edinburgh-Glasgow as there is in, say, Aberdeen (where BAA ownership has been OK’d by the Commission).

BAA argues that competition is restricted not by common ownership but by capacity constraints. The Commission agrees, and it also fingers three other culprits in capacity constraints: the planning process, which slows up capacity development; government policy, which shapes future runway investments; and price regulation of airports. But this, the Commission argues, does not absolve BAA: “We acknowledge that to some extent BAA’s actions can be attributed to Government policy and/or the planning system and we have noted the interdependences between them. But in our view, as the owner and operator of the three major airports in the London area, BAA has to be regarded as responsible for their achievements and shortcomings.”

Because of capacity constraints, even if BAA were broken up today, there would be limited competition between airports in the short run. But the Competition found that “under separate ownership . . . we would expect the market structure to be sufficiently competitive so as to incentivize airport operators to overcome the current constraints on expanding capacity and to expand capacity to facilitate competition with one another, increasing competition in the longer term.” In other words, even though external forces impede airport expansion, BAA had little reason to seek out competitive expansion.

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The Competition Commission has published its provisional findings. Key passage:

Our provisional view therefore is that a number of features each give rise to an AEC:

(a) As regards common ownership:

(i) Common ownership of Edinburgh and Glasgow is a feature which prevents competition between them.

(ii) Common ownership of the three BAA London airports is a feature of the market which prevents competition between them; the effectiveness of competition between them absent common ownership is likely to increase in the longer term, with the increased incentive to invest, although we also see some scope for competition between them in the short-term despite existing capacity constraints.

(iii) However, Heathrow’s position as the only significant hub airport in the South-East and indeed the UK is a feature which restricts competition between airports for some airlines.

(iv) Common ownership of Southampton and both Heathrow and Gatwick is a feature of the market which prevents competition between them, as shown in particular by the lack of responsiveness of BAA to developing Southampton to satisfy the requirements of its airline customers.

(v) Common ownership of the BAA London airports further restricts competition between airports through its effects on capacity constraints; and exacerbates the inadequacies of the regulatory system, reducing the benefit of regulation, distorting competition between airlines.

(b) Aberdeen’s comparatively isolated geographical position and other factors that make it unattractive to serve a catchment of Aberdeen’s size with more than one airport are features preventing competition to Aberdeen.

(c) Aspects of planning restrictions are features which restrict competition by contributing to the current capacity constraints at the BAA London airports.

(d) Aspects of Government policy restrict or distort competition by contributing to the current capacity constraints at the BAA London airports.

(e) The current system of regulation of airports is also a feature which distorts competition between airlines.

Much more commentary on this not unsurprising decision coming soon.

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