The administration tried to boost its decision to move ahead with slot auctions again last week, using the airfare data, which, according to U.S. Secretary of Transportation Mary E. Peters, “underscores the need to allow all airlines access to aviation markets, particularly where local airports have hourly flight limits.” The statement was met with a collective industry groan as it struggled to take in the latest in the convoluted DOT logic.
The department released statistics that show average domestic airfares in the second quarter of 2008 are up eight percent nationwide. DOT’s audacity in claiming the New York area markets are not competitive was immediately challenged by the Air Transport Association.
The Port Authority of New York and New Jersey, which vehemently opposes auctions, estimates that fares could increase by as much as 12 percent and as many as 30 small- and medium-sized markets could lose service to New York under the illegal DOT auction scheme. The General Accountability Office ruled the department’s proposed slot auction illegal. Even so, the department is proceeding with plans to auction 293 slots at the New York airports. Related Story

A Year’s Difference
“What I wouldn’t give for the issues we had this time last year,” said Regional Airline Association President Roger Cohen in opening last week’s session on what the industry will look like when the economic dust settles.
“Last year the topics on our mind were pilot shortages and regional airline growth and how it was being blamed for delays,” he said. “In May we were talking about the impact of fuel. Today it is fuel prices, capacity cuts and the near religious fervor of the Bush Administration to auction slots at New York and what it would do to small and medium sized communities.” Indeed, Cohen reported the single most important call he gets is communities asking what happened to all the flights they used to enjoy.
Fuel volatility remains a key issue for regionals for what it does to the balance sheets of their partners, according to outgoing Republic Airways Holding Spokesperson Warren Wilkerson, who left the industry on Friday to take over a similar post for the Indiana Convention and Visitors Bureau. He described a damned-if-you-do-and-damned-if-you-don’t scenario in which the quarterly earning reports went negative in the industry’s strongest quarter because of losses on fuel hedging.
“The bigger issue for us,” he said, “is the retreating economic and the removal domestic capacity which is incredible. Orlando is down 18 percent. After 9/11, when capacity was down 11 percent, a study indicated that every one percent decline in capacity equaled a 39 percent demand in hotel stays. Now, at 18 percent and you can see the impact. A lot of that capacity is not coming back at least not in the short term and with the move toward slot auctions there will be more. The FAA has figured out every way to reduce problems except the one thing that would help which is to improve the performance of the control system. Fuel is now the least of it, in the face of that.”

The Regional Airline Association outlined DOT’s contortionist reasoning regarding slots during last week’s industry meeting in Washington. He said it was no accident that the final rule on slots, which said DOT did not have to adhere to the GAO ruling, came out while Congress was away and that the auction slated for January 4.
“It is so distressing to us that we can only assume that DOT doesn’t get the newspapers over there and doesn’t understand what this will do to air service to even medium sized communities,” he said.
“Then,” said Legislative Director Faye Malkarkey Black, “they have the nerve to tell us that wouldn’t matter because that is what the Essential Air Service is for. This, from an administration that has consistently sought to kill the program over the last seven years. They want to take away something that is already owned by the airlines. They only way slots will be of any economic use is to use them for large cities and international markets not small communities.”
Speaking during an RAA panel discussion, ATA’s John Heimlich went further describing DOT’s convoluted reasoning. “Its amazing,” he said. “The FAA says it has less capacity at the New York airports. I can understand about all the rooms having been booked but I don’t understand how the inn got smaller all of a sudden.” He noted the increase in block times just to accommodate delays and the inability of the system to handle demand. “With the increase in block times, we lose our competitiveness with the train or automobile,” he said. “Some aviation issues just need to be treated as a national economic priority.”
ATA also pointed to DOT’s contortionist reasoning. DOT reversed its course, said ATA, from its earlier astonishing claims that slot auctions will reduce congestion. “DOT now claims that since New York is not a competitive market, auctions are necessary to increase competition and lower fares,” it said. “Let's set the record straight: New York is the most competitive market in the United States, with nearly 80 airlines serving JFK, La Guardia and Newark airports. So it is hard to imagine why New York would somehow benefit from even more competition - even assuming that auctions would attract carriers not now serving New York airports.
“DOT compares fares in second quarter 2007 to fares in second quarter 2008 to demonstrate that average fares increased 8 percent,” ATA continued. “Given that the price of a barrel of oil during this same period increased nearly 100 percent - from around $65 a barrel to $124 a barrel - the more appropriate question might be why airfares increased so little. This latest argument sadly confirms the Department's willingness to spin its wheels to mask its failure to implement proven operational and airspace redesign measures that will enhance capacity and reduce flight delays in the New York area. Auctions do not enhance capacity or give passengers more options and they do not result in lower fares.”

Fare Increases
Not surprising, the most dramatic fare increases were in regional airline markets. Average domestic air fares in the second quarter of 2008 reached the highest level of average fares for any quarter in the 13 years measured by the U.S. Department of Transportation's Bureau of Transportation Statistics (BTS).
The Air Transport Association said DOT’s “never-ending but imaginative claims are beginning to seem like throwing spaghetti at the wall to see what sticks.”
Of the top 100 airports based on originating passengers, the highest second-quarter average fares were in Cincinnati; followed by Greenville/Spartanburg, SC; Knoxville, TN; Madison, WI; and Grand Rapids, MI. The lowest fares in the top 100 airports were at Dallas Love, TX; followed by Burbank, CA; Houston Hobby; Chicago Midway; and Oakland, CA.
The largest year-to-year average fare increases for the second quarter among the 100 largest airports, ranked by 2007 originating passengers, was 21.1 percent in Greenville/Spartanburg, SC; followed by Knoxville, TN; Minneapolis/St. Paul; Chicago Midway; and Washington Reagan National. The biggest year-to-year average decrease was 3.8 percent in Charleston, SC; followed by Salt Lake City; Austin, TX; Oakland; and Milwaukee. The largest average fare increase from the second quarter of 1995 was 196.9 percent at Dallas Love, followed by Lubbock, TX; El Paso, TX; Houston Hobby; and Las Vegas.
The largest average fare decrease from the second quarter of 1995 to the second quarter of 2007 was 35.1 percent in White Plains, NY. The other top five average fare decreases over this period took place at Manchester, NH; Newburgh, NY; Akron/Canton, OH; and Jackson, MS.

ATPI Up Dramatically
A separate measure of fares, the BTS Air Travel Price Index (ATPI), reached an all-time high in the second quarter, up 4.1 percent from the previous high set in the first quarter of 2008. The ATPI was up 7.2 percent from the second quarter of 2007 to the second quarter of 2008. The ATPI is up 13.0 percent from its pre-9/11 second quarter high set in 2001 and up 19.4 percent from its post-9/11 second quarter low set in 2003.
While the ATPI measures changes in fares, average fares measure the actual amount paid by passengers, including taxes and fees. Average fares take account of both the level of fares and the number of passengers purchasing fares at different levels. Average fares do not necessarily account for the level of service, as ATPI does.
The largest year-to-year fare index increase for the second quarter among the 85 largest airline markets, ranked by passengers, was 15.9 percent in Islip, NY; followed by Buffalo/Niagara, NY; Providence, RI; Boston; and Washington, DC. There were no year-to-year ATPI decreases. The smallest year-to-year increases for the second quarter were for trips originating in Salt Lake City; Spokane, WA; Oakland, CA; Austin, TX; and Milwaukee.
The largest fare index increase from the second quarter of 1995 to the second quarter of 2008 was 96.8 percent in Long Beach, CA. The other top ATPI increases over this period took place at Burbank, CA; Cincinnati; Ft. Myers, FL; and Las Vegas.
“Even though caps can cut delays, they also eliminate competition, and without competition, airfares rise,” Secretary Peters said, noting that fares at capped airports increase at a faster rate, with Newark Liberty up 16 percent after caps were put in place in May. “Competition is the key to lower fares, and slot auctions are the best way to get new airlines to serve New York’s airports while caps are in place.”
Airfares at airports with histories of hourly flight caps, like O’Hare, where caps were recently lifted, JFK and LaGuardia airports, also increased faster than the national average, Secretary Peters added. Meanwhile, airfares declined by more than 25 percent in a single year when a new airline began serving Philadelphia, demonstrating that competition helps keep fares low.