Listening to the recent Energy/Air Service Summit organized by the American Association of Airport Executives, one would think that fuel was the airline industry’s only problem. While it may be the focus of much attention, Cyriel Kronenburg, assistant director airport & ATC charges
North & South America, International Air Transport Association said government actions are conspiring to do more damage to the airline industry at a time when it can least afford it. Describing an industry under seige from more than just fuel, Kronenburg pointed to taxes, emissions trading and new experimental programs including congestion pricing and, most importantly, failure to modernize the air traffic control system.
Kronenburg laid out a compelling case that governments at state, federal and even local levels need to change their views of airlines from their personal ATM machines to a critical part of their economic infrastructure.
“States must refrain from punitive taxes,” he said. “States should be looking at aviation as an essential part of their infrastructure instead of pushing them away and having airline passengers pay for everything. They need to realize how serious the situation is. It is not just fuel. It is the entire environment in which we are operating. This leads to capacity cuts, service reductions and job losses in a domestic market that is in shambles with more bankruptcies expected.”
He criticized the “ancient and costly taxation model” and the “complete failure” to reauthorize the Federal Aviation Administration.” He called for funding reform including moving away from the current government- and congressional-controlled funding mechanisms. While he called for a cost-based funding scheme in which each user pays for its own costs – highly controversial since it pits general against commercial aviation and has stalled reauthorization for two years, he said he is not only speaking about business jets being subsidized.
He noted that airline passengers subsidize rail, highways and all kinds of other systems that are not exclusively used by aviation. For instance, he pointed to a the Canadian passenger traveling to the United States being required to pay for US customs, AFIS and many other fees while those traveling by car pay nothing for the same services.
He said that experiments with congestion pricing or other market mechanisms will devastate the industry at a time it is already collectively set to lose billions of dollars worldwide. Kronenburg also pointed to security as a huge problem in which more and more fees are piled on airline passengers. He called for a complete overhaul of security worldwide to standardize and harmonize procedures and move responsibility for it to the government rather than an airport-by-airport approach paid for by the passengers. He called on airports to help airlines achieve the goal of making security a government responsibility not that of the passengers.
He and other speakers also pointed to the proposed U.S. Exit program which will cost the industry $12 billion in the next decade for security measures covering outbound passengers. “Stop experimenting with airline passengers,” said Kronenburg, who asked why passengers should pay for beat cops writing traffic tickets and other municipal costs such as bridges, tunnels, railway stations and court houses, costs that should be borne by the municipality, not the passenger.
All these fees and taxes make it just that more difficult for airlines and result in capacity cuts during economic downturns during which airports much adjust their budgets. But even here, he said, airports must not require all airport costs to be borne by the carriers that remain at the airport after capacity adjustments. He called on airports to follow airlines in reducing unit costs which have increased tremendously in the last several years. Kronenburg added that, while some airports are well advanced in cutting costs, others haven’t even started. He also said that cities must stop thinking of airports as a tax-free way of paying for their needs.
In addition to the myriad airport, federal and municipal taxes and fees, he noted that the European Union has now imposed a costly emissions trading scheme which Congress is working to follow. “This will have a massive impact in the billions of dollars in additional costs on airlines,” he said.
Kronenburg noted that, worldwide, 26 airlines have gone bankrupt worldwide. Air Transport Association economist John Heimlich noted that 10 have gone bankrupt in the U.S. since Christmas, only two of which remain in operation. That does not include the end of ExpressJet’s branded operation, he said. That service drew accolades not only from Heimlich but others speaking at the conference. Heimlich also said the 29,000 industry jobs have been lost and 97 of the more than 600 commercial airports have lost schedule service since last year.
Heimlich reported during the conference that, year over year for the first quarter, airline costs have jumped 31 percent driven largely by fuel costs. “The last time costs experienced such a rapid hike was in the second quarter of 1980 when it was over 40 percent,” he said. “Not withstanding the improvement in fuel efficiency and labor productivity, we have a cost per seat mile that is at an all time high.”
Kronenburg pointed out that productivity in the airline industry is up by 65 percent while non fuel unit costs are down 18 percent since 2001. In addition, DOT Secretary Mary Peters reported that U.S. airlines are moving 12 percent more passengers and 22 percent more freight while using four percent less fuel. He asked how airlines can cut more costs in the face of the productivity improvements and capacity and other cuts they are already making.
“Quite simply, governments need to stop interfering,” he said. “It is a free market and they should let the market work. They need to stop experimenting with U.S. Exit. They should stop experimenting with congestion pricing and most of all they should get rid of the 60-year-old, ancient bilateral system. And they must make it a priority to overhaul National Air Space funding because NextGen is absolutely essential for airlines to be able to cut costs and fuel. The current funding system is not viable. We all need to work together urgently. This is not something we can hold out for much longer than a year because, within a year, you will see major names disappear from market.”