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Monday, May 12, 2008

RAA Blasts Feds on FAA Bill, Congestion Pricing

Indianapolis, IN – Regional Airline Association members had choice words for Congressional failure to pass the long-overdue Federal Aviation Administration reauthorization legislation, effectively killing changes for a bill this year, despite continuing efforts to bring it to a Senate vote again. Most chalked it up to an astonishing lack of leadership at a time when Congress has spent the last year huffing and puffing about delays while accomplishing absolutely nothing on the modernization that would yield massive fuel and environmental efficiency. The 49-42 vote in the Senate was far below the 60 needed to end debate.
“It is appalling to see how officials kick the FAA for lax regulatory policies in the midst of the safest period in air transport in history,” said RAA Chair Bryan Bedford, who is also the CEO of Republic Holdings, Inc. “We have the safest air transport system on the planet. Our regulators are the go-to guys when people want to learn how to get things done right and not only are they criticized, but Congress ties their hands by not giving them the funding they need. We have the technology and the right approach on the aircraft and on the ground. What we are missing is leadership in Congress. Once again we look for leadership from elected officials. We are worried about burning fuel and Congress is worrried about a passenger bill of rights and whether we have have enough pretzels and diapers on the airplanes. They are worried about the effect of the problem not solving the problem. Modernization would lower cost, reduce fuel consumption and emissions and it will address delays.
"No doubt, in August and September, we will be watching Congress grill industry and regulators on why it doesn’t work and we will be telling them the same thing we’ve been telling since 2000. We need the investment so give us the sustainable funding for modernization," Bedford continued. "Back then [during the last delay crisis] the system worked. After 9/11 there was a decrease in capacity, delays dropped and operations ran extremely well. Then we let our guard down and said the problem was solved. Now we are grappling with high fuel and the same thing will happen, capacity will go down and so will delays. The system will work again.”
But, he added, this time the industry and regulators cannot let their guard down. It must continue the pressure to increase investment in modernization in order to accommodate future rising demand cycles.
The bill failed as Democrats tried to insert transit and highway funding provisions into the aviation bill, something Republicans would not accept. Instead, industry can expect more inadequate continuing resolutions that do nothing to address what the industry sees as a capacity problem that will remain unresolved without modernization. Republicans also objected to Democratic efforts to prevent Republican amendments not favored by Senate Majority Leader Harry Reid (D-NV).
House legislation, passed last year, has been awaiting reconciliation with a Senate bill. In addition to non-aviation provisions, the bill was likely derailed over provisions to strengthen FAA oversight. Last year it was derailed over a disagreement on user fees, finally resolved just as the oversight scandal erupted.
Regional airlines were relieved the proposed user fees, which would have added $125 million in new costs to member airlines were dropped. The association noted that the proposed Senate bill also protected small and medium-sized Essential Air Service communities as well as provided for general aviation to pay more for their use of the system.
While RAA has historically remained silent on controversial issues favored by their major partners such as the Air Transport Association-based user fees, both Chair Bryan Bedford and President Roger Cohen made a point that the organization broke with their major-carrier counterparts. “The success of these efforts was nothing short of remarkable,” said Bedford. “In a world where consumers are asking for policy leadership and where the FAA needs a stable predictable funding stream, we are very disappointed that leadership in Washington is not making that happen.”
Still airlines spent much of the convention complaining about the proposed congestion pricing at New York airports, overwhelmingly favored by the Department of Transportation. Executives said that no matter what DOT may want to call it, it is still just another tax on the already overtaxed passenger.
In a panel discussion that pit economists against operators, it was clear that reality and theory were at odds when Battle Group Economist Dorothy Robine disagreed with Bedford’s contention that airlines were acting irrationally in pricing their product. Her deep economic theory lacked credibility after that no matter how much she protested that congestion pricing worked for every other commodity. She also noted that airlines used congestion pricing, charging more for a peak-time ticket than for off peak. What she seemed to miss, however, is the fact that adding costs on to airlines that are already hemorrhaging money was not the thing to do, no matter how much economic theory may call for it.
Bedford peppered the congestion pricing panel with questions and statements, concluding by asking where in the world congestion pricing had been successfully tried. None of the five panelists, including Senior Vice President Delta Connection Don Bornhorst, Robine, MassPort CEO Tom Kittenson, former DOT official Andy Steinberg and Pinnacle President and CEO Phil Trenary, could offer an example.
Indeed Bornhorst indicated that it made no sense to impose the two-part congestion pricing scheme because, with fuel at $120+ per barrel because a natural reduction in capacity will occur just as it has whenever the industry has faced similar crises. The proposed scheme would charge airlines by operations as well as by weight, meaning cost per seat will increase for smaller aircraft.
“The oil supply is the same, demand for oil is down, although, globally it is up a little, yet we’ve seen an increase of $70 in the price,” said Bedford. “The result will be a significant reduction in capacity and degradations in the amount of service Americans have grown accustomed to and the low fares making air travel so affordable.”
“This is very toxic to the industry and to individual carriers,” said Trenary. “We’ve already seen capacity adjustments and changes and there will be a larger reduction in capacity beyond Labor Day. Congestion pricing will only result in an increase in costs on a unit basis and a reduction in direct services to many communities. This stands starkly against the needs of the air transportation management in the skies and ground. These two issues are tied closely together because we keep seeing aircraft sitting on the ground unable to get into the system because we are unable to maximize the full potential of the air traffic control system. This is effectively just another tax on passengers, shippers and small carriers.”
What regionals seemed most bitter about is the relative value placed on the needs of business travelers and their home town economies, which will be the most likely victims of congestion pricing, compared to leisure travelers. “What happens to travelers who need direct service to New York from Louisville, Lexington, Dayton, Birmingham, St. Louis, Oklahoma City and Columbus,” said Trenary. “What makes their flights so much less important that the dozens of leisure flights between New York and Florida. You can’t turn your back on these cities. Not all of these towns are Yahooville. We’re talking about communities with over one million population, where there is business growth and where people want to go. If you say you can’t get to New York you are saying the air transportation system does not fit into the nature of what customers want.” Trenary quoted a speech by Former Civil Aeronautics Board Chair Alfred Kahn, known as the father of deregulation, saying that the government does not have the authority to govern airline scheduling.
“At end of the day, the most telling thing is the fact that the congestion pricing proposal masks the real problem,” he continued. “I think the job [the FAA has] done is fantastic and now they have real traction on moving ahead with next gen and that is the is the right answer of what needs to be done. For customers to lose airline service is not decision we need now.”
“You have to start form understanding the cost of delays is huge and dwarfs the costs of some of the solutions, whether or not they are good ideas,” said Steinberg, former DOT policy maker, who tried to explain DOT’s position, saying congestion pricing would probably be cheaper. “The costs of delays range from $9 billion to $15 billion or 10 percent of airline revenues.”
RAA’s Cohen objected to the new LaGuardia congestion proposal which would take slots away from incumbent carriers for possible auction, the proceeds of which would go to capacity enhancements. However, LaGuardia has no room to expand, he noted. But Steinberg, who said that technological advances such as ADS-B and RNP will not yield maximized benefits unless all operators can purchase the equipment necessary, countered that funding could be used to provide subsidies for aircraft operators to purchase the equipment necessary.
Again, Bedford stumped the panel when he asked where auctions have been used successfully to enhance capacity. “Layering more cost on airlines isn’t going to make them profitable,” he said. “That will only raise prices that will reduce demand and ultimately reduce supply and therefore eliminate congestion.”
“I hate being the guinea pig, I don’t want to be the experimental guy to get congestion pricing when we haven’t seen it work successfully anywhere else on the planet,” he continued. “No one has turned to congestion pricing as the solution for allocating scarce resources. Consolidation may be our last best hope to allow capacity to rationalize itself. Of course that is going to be painful and mean a reduction in hubs, reduction in regional capacity, and higher fares. We just can’t continue to sustain $7-8 billion in losses to subsidize cheap air fares for Americans.”
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