I don't have a ton of occasions to offer unvarnished praise to Bush administration officials but Transportation Secretary Mary Peters' op-ed about airport congestion is right on the money. Her idea, basically, is that airlines should pay money in exchange for permission to use runways with the price being higher at high-demand times and lower at low-demand times. This is commonsense and should do something to mitigate the spike in delayed flights over the past couple of years, but incumbent airlines don't want to upset the status quo and are lobbying to keep the current flat-rate system in place.
« Liberal Fascism | Main | Bush Speaks »
Airport Auction
23 Jul 2008 02:51 pm
Comments (26)
I don't have a ton of occasions to offer unvarnished praise to Bush administration officials but Transportation Secretary Mary Peters' op-ed about airport congestion is right on the money. Her idea, basically, is that airlines should pay money in exchange for permission to use runways with the price being higher at high-demand times and lower at low-demand times.
Congestion pricing should be applied to transportation in general. That means, among other things, that people should generally have to pay more to use mass transit during rush hour.
I work in the utility industry, where regulated fixed prices were replaced by congestion pricing with some success. But airline prices already include the congestion component. Consumers pay more for seats at more congested times, and the airlines collect the congestion rents. The consumer benefits because some of those high priced seats need to be sold at steep discount in order to fill the plane, or sometimes cheap tickets are offered on empty flights in order to move the plane to a place where it can fly a high demand flight. It's hard to see where there's any consumer benefit from moving the congestion rent from the airlines to the airports. Ti might be a good thing for the environment, but if you travel by air, not so much.
That means, among other things, that people should generally have to pay more to use mass transit during rush hour.
As, on the Washington subway, they do.
I wonder if this already happens in Europe, enabling the low-cost airline system. I recently flew from London to Malaga. The prices were substantially lower to fly into smaller airports, and also to fly very early in the morning and late at night. Chatting to the check-in agent, I was surprised to learn that my 02:30 flight was full. She informed me that it was cheaper for the airline to use the airport at that time, not because the demand for tickets was any lower than during the day.
Mixner, I agree in theory that people should have to pay more to use public transport during rush hour, but it does lead to extremely full trains right after 9:30am when the peak-time pricing ends. The difficulty of selecting exactly the hours which count as peak time led to the London Tube dropping their idea of peak pricing from 7-9.30, enabling a more even spread of passengers throughout the 6-10am hours. Comparing the tube and the overground trains is fascinating - the latter has peak pricing, the former does not, and the overground is substantially more crowded as people tend to bunch - either into the peak pricing (if their employers pay for their travelcards) or just before or after the peak times. I think at least in London the solution is to increase capacity and train frequency instead of using peak pricing.
I am fine with this idea too, but once again I think it is worth noting that in a hub-and-spoke world with rising fuel prices, this means some people are going to end up with even more service reductions than they are already facing. That is because this idea generally favors larger planes at peak times, which works against smaller planes running spoke routes. But those spoke routes need to arrive at hubs during peak travel times, since it does them no good to land at hubs when a lot of the connections they need won't be available. So this is going to price yet more spoke routes out of the market.
Which is economically efficient, but I think we need to be thinking about alternatives to flying for these people being priced out of air travel.
DTM touches on an issue being ignored: congestion pricing for runway space is all well and good, but it only helps if the money is used to good effect. Is the money raised from congestion pricing at airports going to build more runways? Support rail alternatives to reduce airport congestion? Or is this just about saying, "congestion pricing is good, so we should do it" ?
DTM - I'm not so sure this would hurt the hub and spoke model that much, though it might mean that there are fewer flights spread out over the day. If small regional airports can only support 300 passengers a day, it might make sense to put them onto four flights of 75 rather than ten flights of 30. More realistically, there would be three flights of 30 (early in the morning and in the evening) and three flights of 75 (late morning/middle of the day), for a slightly increased capacity of 315.
True, there might be longer layovers at the other end, but it would probably work out in the aggregate. Especially because there would probably now be more flights on the second leg. (My experience with small airports has almost always been small city --> large city --> large city; since there would be more large city to large city flights (or at least seats), that end of things should be better).
DTM touches on an issue being ignored: congestion pricing for runway space is all well and good, but it only helps if the money is used to good effect.
Actually, if the peak times are actually over capacity right now, congestion pricing and using the money light the airport managers' stogies might still be better than the status quo: instead of passengers being delayed or outright canceled because of a thunderstorm hundreds of miles away, as they are now during peak times, there would just be fewer flights in the first place.
An unexpectedly canceled flight you were expecting to fly is, in my opinion, WORSE than having fewer prime-time flights available in the first place.
Charles,
First, there is no guarantee the relevant airlines would be able to pay for that set of routes either.
Second, it is almost surely true that the net time penalty to decreasing the number of routes from this airport will cause a fall in demand. Keep in mind that people are actually going one small airport-one large airport-many large airports (and sometimes on to many small airports on the other side). So there won't be enough new routes from the first hub airport to every other relevant hub airport (and possible further spoke airports) to make up for the loss of routes on the initial spoke. So you are going to lose a lot of total routes as well, which means a lot of extra time travelling. And that will mean some people will just decide not to travel, thanks to the time penalty.
And that sets off a vicious cycle: you have lost demand and so have less revenue base to pay landing fees, so have to further cut routes, and so on. This can lead to entire airports losing service, as has happened in the past when other changes have rendered significant numbers of small routes uneconomic.
Now don't get me wrong: I have no problem with us adding more capacity along the more economic routes, which is what congestion pricing would do. But without overall capacity increases--and higher fuel prices are already causing capacity reductions--that will mean further capacity reductions elsewhere. And in many cases that will mean capacity for entire routes dipping below the necessary economic threshhold, and in some cases it will mean entire small airports dipping below the necessary economic threshhold.
So we need a plan for dealing with all that.
You are missing the real politics/economics here.
Congestion pricing is perfectly reasonable as a general concept, but the Bush DOT thinks it is a magic bullet that will solve delays at New York airports in a way that will allow them to avoid spending any money on fixing ATC/FAA and other infrastructure needs. The DOT isn't standing up to airline lobbyists, who all want the ability to clog up LGA and DCA with 50 seat planes, so that Airtran and Southwest can't enter and drive down prices. The DOT is bowing to the ideologues ("market" solution but no spending) without doing anything that would upset airline oligopoly behavior. The DOT, like any other bureaucracy, wants to be able to say it "did something" about LGA delays, without having to upset any of the entrenched interests that created the mess.
I don't have a ton of occasions to offer unvarnished praise to Bush administration officials but Transportation Secretary Mary Peters' op-ed about airport congestion is right on the money.
To be fair, this administration hasn't ALWAYS been wrong (though that was the case most of the time). The problem is that that even when they were right, they still managed to f*** up the execution. Think No Child Left Behind, the war in Afghanistan, or the need for aid (eventually) for Katrina victims.
Some good points all around, though we're definitely getting into the "we really don't know what would happen realm." I would expect a lot of flights that now go to high demand airports to shift to lower demand airports, so this might not actually be a huge problem in aggregate. To use Chicago as an example, right now, O'Hare is way more in demand than Midway. If prices went up at O'Hare, some flights would shift to Midway. This would decrease demand at O'Hare, which would then have more slots to fill.
Also, I would anticipate that the impact of increased fees during peak hours would not be a decreased number of flights, but instead higher capacity on the flights that do occur in those hours. If the total number of flights decreased, it would be proof that we were charging too much. Basically, fees should be priced so that they are roughly the same per passenger, assuming a 25-50% increase in passengers. This would push everyone to basically use one size up during rush hours.
While I do recognize the risk to small airports, it is possible that you would actually see increased direct flights between small and medium airports or small airports and large airports further away (e.g., small airport to popular vacation destinations). While not helpful to everyone, it would make the loss of some spoke/hub flights less painful.
Not that I'm necessarily endorsing this change - I think it would be important to see studies on it, etc., instead of just what I happen to think of off the top of my head - but I could imagine scenarios where it would be generally helpful. Though, perhaps, it would have to be implemented in tandem with infrastructure improvements, like high speed rail lines between nearby airports (so you could quickly get from Midway to O'Hare or LaGuardia to JFK).
Never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never, ever, never trust the Bush Administration when they say deregulation will fix anything.
It is psychopathic to suspect otherwise.
That means, among other things, that people should generally have to pay more to use mass transit during rush hour.
As, on the Washington subway, they do.
As, on Twin Cities buses and trains, they do also.
FAA and DOT have been working this issue a long time, and it is a contentious one. It's contentious because it's a hard problem.
The three NYC airports (all administered by the Port Authority) are quite different from one another. LGA receives almost entirely domestic traffic, much of it from smaller communities in New York state that have service often supported by the DOT"s Essential Air SErvice (EAS) program, which subsidizes small market services. These cities can't be served in larger aircraft, but have representatives who ensure they they have service to the Big Apple. (Northwest Airlines also has a big EAS network in the rural north central part of the country, with flights in small aircraft feeding Minneapolis St Paul)
JFK is an international gateway almost entirely, with the exception of jetBlue's domestic service centered at JFK
Newark is a domestic and international hub for Continental, and another international gateway city.
The auction approach for managing congestion is probably most directed at LGA, which is fouled up all the time, but it's hard to imagine how a lot of the cities serving LGA currently could do so with larger aircraft.
Some of the comments above address the impact of the auction activities on fares, but it's important to remember that fares are highly managed by airlines, who try to match ticket prices to demand as closely as possible. In a high demand market like NYC, airlines are extracting a lot of scarcity rents already -- the impact of auctions would likely be to extract money from airlines, not from passengers, who are already paying top market fares. Airlines right now don't have a lot of spare cash sitting around.
Some comments express concern about the impacts of auctions on the hub and spoke system, but hub airports ( LGA is not one of those) tend to be dominated by the hubbing carrier, who because of that dominance has incentives to keep things moving as well as possible, while keeping other carriers at arm's length. This would make for some interesting outcomes for auctions at a crowded hub airport (O'Hare, for example, where both United and American have hub operations) because to maintain the hub presence, those airlines would have to be willing to take on the vast majority of available slots.
Other commenters mention European airports. Most busy airports in Europe have explicit administered slot controls -- rationing by quantity restriction. Low cost carriers in Europe have aggresively cut deals with out of the way airports to bring them traffic. As to late night/early morning traffic -- in many parts of Europe (and the US), there are very stringent noise related restrictions on after hours aviation activity.
It's an interesting and complicated market, and I'm happy to see Secretary Peters step up in this way. DOT and FAA staff have worked very hard on these issues.
FAA and DOT have been working this issue a long time, and it is a contentious one. It's contentious because it's a hard problem.
The three NYC airports (all administered by the Port Authority) are quite different from one another. LGA receives almost entirely domestic traffic, much of it from smaller communities in New York state that have service often supported by the DOT"s Essential Air SErvice (EAS) program, which subsidizes small market services. These cities can't be served in larger aircraft, but have representatives who ensure they they have service to the Big Apple. (Northwest Airlines also has a big EAS network in the rural north central part of the country, with flights in small aircraft feeding Minneapolis St Paul)
JFK is an international gateway almost entirely, with the exception of jetBlue's domestic service centered at JFK
Newark is a domestic and international hub for Continental, and another international gateway city.
The auction approach for managing congestion is probably most directed at LGA, which is fouled up all the time, but it's hard to imagine how a lot of the cities serving LGA currently could do so with larger aircraft.
Some of the comments above address the impact of the auction activities on fares, but it's important to remember that fares are highly managed by airlines, who try to match ticket prices to demand as closely as possible. In a high demand market like NYC, airlines are extracting a lot of scarcity rents already -- the impact of auctions would likely be to extract money from airlines, not from passengers, who are already paying top market fares. Airlines right now don't have a lot of spare cash sitting around.
Some comments express concern about the impacts of auctions on the hub and spoke system, but hub airports ( LGA is not one of those) tend to be dominated by the hubbing carrier, who because of that dominance has incentives to keep things moving as well as possible, while keeping other carriers at arm's length. This would make for some interesting outcomes for auctions at a crowded hub airport (O'Hare, for example, where both United and American have hub operations) because to maintain the hub presence, those airlines would have to be willing to take on the vast majority of available slots.
Other commenters mention European airports. Most busy airports in Europe have explicit administered slot controls -- rationing by quantity restriction. Low cost carriers in Europe have aggresively cut deals with out of the way airports to bring them traffic. As to late night/early morning traffic -- in many parts of Europe (and the US), there are very stringent noise related restrictions on after hours aviation activity.
It's an interesting and complicated market, and I'm happy to see Secretary Peters step up in this way. DOT and FAA staff have worked very hard on these issues.
FAA and DOT have been working this issue a long time, and it is a contentious one. It's contentious because it's a hard problem.
The three NYC airports (all administered by the Port Authority) are quite different from one another. LGA receives almost entirely domestic traffic, much of it from smaller communities in New York state that have service often supported by the DOT"s Essential Air SErvice (EAS) program, which subsidizes small market services. These cities can't be served in larger aircraft, but have representatives who ensure they they have service to the Big Apple. (Northwest Airlines also has a big EAS network in the rural north central part of the country, with flights in small aircraft feeding Minneapolis St Paul)
JFK is an international gateway almost entirely, with the exception of jetBlue's domestic service centered at JFK
Newark is a domestic and international hub for Continental, and another international gateway city.
The auction approach for managing congestion is probably most directed at LGA, which is fouled up all the time, but it's hard to imagine how a lot of the cities serving LGA currently could do so with larger aircraft.
Some of the comments above address the impact of the auction activities on fares, but it's important to remember that fares are highly managed by airlines, who try to match ticket prices to demand as closely as possible. In a high demand market like NYC, airlines are extracting a lot of scarcity rents already -- the impact of auctions would likely be to extract money from airlines, not from passengers, who are already paying top market fares. Airlines right now don't have a lot of spare cash sitting around.
Some comments express concern about the impacts of auctions on the hub and spoke system, but hub airports ( LGA is not one of those) tend to be dominated by the hubbing carrier, who because of that dominance has incentives to keep things moving as well as possible, while keeping other carriers at arm's length. This would make for some interesting outcomes for auctions at a crowded hub airport (O'Hare, for example, where both United and American have hub operations) because to maintain the hub presence, those airlines would have to be willing to take on the vast majority of available slots.
Other commenters mention European airports. Most busy airports in Europe have explicit administered slot controls -- rationing by quantity restriction. Low cost carriers in Europe have aggresively cut deals with out of the way airports to bring them traffic. As to late night/early morning traffic -- in many parts of Europe (and the US), there are very stringent noise related restrictions on after hours aviation activity.
It's an interesting and complicated market, and I'm happy to see Secretary Peters step up in this way. DOT and FAA staff have worked very hard on these issues.
sorry about the repeated long posts. That's what I get for trying to do this on the train.
For those interested in these aviation issues, the FAA and DOT are also pushing for major changes in the way the aviation infrastructure is funded. Most funding (which goes into an Airports and Airways TRust Fund) comes from the ticket tax that everyone pays. It's an excise tax on ticket price -- obviously the fact that one paid a higher or lower ticket price has little to do with how much aviation infrastructure one uses. The FAA is trying to move to a system of user fees, based on an aircraft's use of high value airspace (that is, the higher flight levels only accessible to well equipped jet and turboprop aircraft) and high value airports. This change is supported by airlines and strongly opposed by corporate and high value private aviation, who currently only pay fuel taxes even though they contribute to the congestion affecting high value airspace that in turn affects everyone.
Again, the Bush administration is promoting the user fee structure, partly as a way to fund needed modernization of the country's aviation infrastructure (see more here at http://www.faa.gov/regulations_policies/reauthorization/ ). This pits lobbyist vs lobbyist (airlines vs corporate and private aviation).
again, another interesting issue.
charles,
The problem with trying to swap point-to-point for spokes is that point-to-point in many cases already isn't economic, and rising fuel prices are making fewer and fewer such routes economic all the time (largely because small jets are less fuel efficient). In that sense, the hub-and-spoke system was the only thing keeping service at many small airports viable in the first place, so can't really be dispensed with in response to additional costs along spoke routes.
bdbd,
I believe LaGuardia is classified as a hub airport for both American and USAir. That is precisely because routes out of small airports in the region served by those carriers fly to LaGuardia first, then connect to flights from LGA to other destinations.
Incidentally, when one carrier dominates an airport I believe it is called a "fortress hub", but my understanding is that not all hub airports are fortress hubs. Again, it is really just a question of whether one or more carriers is using that airport to collect passengers and transfer them to common flights.
That was a good op-ed. I think people tend to forget that despite the fact that many successful de-regulatory policies helped bring affordable air travel to the masses, the gov't is still the ultimate market maker for these huge networked businesses. That means they get to fuck with the ground rules for airplane firms and airports from time to time. This seems like a good idea to me.
DTW -- there may be a few connections for AA and USAir at LGA, but I don't think the airport is a hub in any meaningful sense for either airline. Certainly not for USAir which operates a significant hub in Philadelphia and would probably choose to flow connecting traffic through there whenever possible. Frankly, the delay and congestion situation at LGA is too pervasive to support the coordinated scheduling that a real hub operation has to rely on. The presence of a few connecting opportunities doesn't constitute a hub, I don't think.
I haven't heard the term "fortress hub" in several years, and I think the term and concept have been overcome by events to a large extent. You might see a highly dominated airport in a location where there is a relatively modest amount of local traffic and a lot of connecting traffic -- USAir's hub and international gateway in Charlotte is a good example. But the financial situation of most US airlines now makes it hard to "attack" another airline's hub, and hard to "defend" a hub against a well organized "attack" by another airline. For example, USAir basically rolled over and took its medicine when Southwest moved into Philadelphia a few years ago.
bdbd,
I'm not sure what you mean by "hub in any meaningful sense". LGA may not be among any airline's most important hubs, but that doesn't mean it isn't a hub at all.
I'm also not sure I understand your claim "USAir . . . operates a significant hub in Philadelphia and would probably choose to flow connecting traffic through there whenever possible." There are many reasons why airlines don't route all their spokes into just their most important hubs, and instead use a host of secondary hubs as well. For one thing, those primary hubs are capacity constrained. For another, if there is demand for originating flights in a potential secondary hub (likely the case in LGA), it can make sense to route some spokes there to increase volume and thus efficiency on the relevant routes. And so on.
Anyway, this is just semantics. My original point was that if you are currently being served by a small airport and relying on connections at a large airport for most of your routing, congestion pricing may render a lot of those total routes uneconomic, and potentially your whole airport uneconomic. Whether or not you want to call that large airport at which you are making connections a hub or not isn't relevant to the economics of all this.
DTM -- I understand your general arguments, but we are talking a
specific case. I"m afraid you are off the mark regarding the facts of this particular case. I doubt whether the economics or viability of airline
service at LGA, an airport that serves one of the world's major
metropolitan areas, and an airport that operates at or over capacity
throughout most of the day, is contingent on there being connect
services available.
Such a thing may be true at some other airport, but then it would also
be unlikely that a slot auction would raise much revenue there, or have much effect on service patterns.
"hub in a meaningful sense" could be defined as an airport at which an
airline schedules some operations in a way that supports some
connecting traffic. I doubt that that's true at LGA, even though some
passengers might make connections there.
LGA is certainly not a hub in this sense, and USAir's schedule there is not designed to facilitate connecting traffic (given the pervasive delays at LGA, as a practical matter it's hard to say that scheduled flights exist there at all, once the morning rush has started!). A few people may choose to connect at LGA,but, for example, if you look at USAir's route map, nearly all, if not all, of the cities that USAir serves from LGA also feed the PHL hub. These details are not just semantics, they are the essence of what goes into the operating models of large airlines.
That's all for me. My point has been that the aviation infrastructure funding issues that Peter's op ed raised are ones that career civil servants (and some politicals) have been working for a long time at DOT and FAA, and there are some interesting proposals on the table, even though there is little public interest on these perhaps arcane issues.
There's a public infrastructure investment and funding shindig at Brookings tomorrow -- might be interesting: aviation infrastructure will be one of the topics http://www.brookings.edu/events/2008/0725_infrastructure.aspx
I would encourage airlines to add connections to small cities using buses.
For example, I live 250 miles from New York, with no direct flights to New York. Thus flying to Europe often involves either two extra connecting flights with ample opportunities for missed flights, or taking a bus to New York, except that these buses run only twice a day, and to Chinatown, and not to airports.
In general, the traffic on the busiest airports could be decreased using trains and buses, with only small addition to the travel time, and big decrease in costs. In the case of my pet peeve, an ideal solution would be a shuttle train service from all major New York airports to Pennsylvania Station in Newark, from where buses could connect with various locations in PA and NJ, plus stops for LIRR terminal and Amtrak/commuter station in Manhattan.
Small planes are shaky, noisy, dangerous, inefficient, vulnerable to bad weather etc. and they often provide pretty crummy value, if there existed alternatives.
I would encourage airlines to add connections to small cities using buses.
For example, I live 250 miles from New York, with no direct flights to New York. Thus flying to Europe often involves either two extra connecting flights with ample opportunities for missed flights, or taking a bus to New York, except that these buses run only twice a day, and to Chinatown, and not to airports.
In general, the traffic on the busiest airports could be decreased using trains and buses, with only small addition to the travel time, and big decrease in costs. In the case of my pet peeve, an ideal solution would be a shuttle train service from all major New York airports to Pennsylvania Station in Newark, from where buses could connect with various locations in PA and NJ, (this train shuttle should also connect with LIRR terminal and Amtrak/commuter station in Manhattan, in those case train provides a precious insulation from traffic jams).
Small planes are shaky, noisy, dangerous, inefficient, vulnerable to bad weather etc. and they often provide pretty crummy value, if there existed alternatives.
Comments closed August 06, 2008.
| 
Heads in the Sand
So Bush has a public official taking to an Op/Ed against lobbyists. How long till she gets fired?
"It’s understandable that the airline industry wants to protect its interests. But the Transportation Department is in the business of protecting consumers, fostering competition and providing reliable air travel, not placating special interests. Independent economic experts of all political backgrounds agree that either auctions or congestion pricing is far preferable to the failed experiment we have now."
She must be new to the Bush admin.
Posted by A Different Matt | July 23, 2008 3:17 PM