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Reason Foundation

Air Traffic Control Reform Newsletter #73

May 2010

Robert Poole
May 23, 2010

In this issue:

Baggage Fee Issue’s ATC Implications

My immediate reaction to congressional “outrage” over Spirit Airlines’ planned fees for carry-on baggage was scorn. As an editorial in the Chicago Sun-Times put it, “If customers don’t want to pay the extra fee, they’ll fly on another airline. Or drive. Or take a train. Or stay home. The market will sort it out. Affordable plane rides are not guaranteed in the Constitution. . . . When politicians such as [Sen.] Schumer confuse rights with privileges, they add to a widespread skepticism that government doesn’t know when to butt out.” Amen to that, I said, my libertarian juices flowing.

But as I looked a bit deeper into the issue, an aspect that has received little attention became evident. Spirit and other low-fare carriers are not paying their way for using the air traffic control system. And charges for baggage are one reason why.

Unlike nearly all other countries, whose ATC system users pay fees for its services, the U.S. system is paid for by means of aviation excise taxes, which are accounted for in the Aviation Trust Fund. For airlines, the large majority of what they pay is the 7.5% tax on each ticket. Since that tax is based on the ticket price, the long-term downward trend in air fares has meant that this source of Trust Fund revenue has grown more slowly than the growth of air travel. That has squeezed the FAA’s budget in recent years, especially as low-cost carriers (LCCs) have steadily gained market share.

On top of that, the last five years have seen rapid growth in a la carte pricing, especially by the LCCs. So-called “ancillary revenue” from things like baggage fees, premium seats, use of online reservations systems, etc. has become a significant source of revenue. According to US DOT figures, AirTran now gets 11% of its operating revenue from ancillary fees, while Spirit got nearly 21% last year. But the champion to date is Allegiant, whose ancillary revenue was a whopping 29% in 2009, according to its annual report. The strategy of these airlines is to charge (and advertise) rock-bottom fares but make up for this by charging extra for the kinds of things that used to be included (in some cases, even soft drinks, pillows, and blankets).

But since our absurd system of paying for ATC services relies on a tax on the nominal price of the ticket, airlines adopting the most aggressive a la carte strategies end up paying less for ATC than competitors receiving exactly the same ATC services but charging fares that include various “extras.”

So in all honesty, I must admit that Schumer has a point. His proposed Block Airlines’ Gratuitous Bag Fees (BAG Fees) would define carry-on baggage as a necessity for air travelers. And under existing Treasury Dept. policy, that would include bag fees as part of the definition of “air fare” for purposes of computing the 7.5% ticket tax.

In its FY2007 budget proposal, the FAA proposed to shift airlines from ticket taxes to ATC fees, but Congress ignored the proposal. So Congress still has an excuse for micromanaging how airlines choose to compete in today’s deregulated airline marketplace. By the way, Allegiant, AirTran, and Spirit are among the few profitable U.S. airlines (apart from Southwest). Apparently many passengers prefer low fares and optional amenities.

NextGen Equipage Question Still Unresolved

Recently the Ash Center for Democratic Governance and Innovation convened a panel of experts to look into the key challenges in transforming air traffic control by implementing NextGen. Given both the caliber of the attendees and the excellent set of readings listed in the report “Assuring the Transition to the Next Generation Air Transportation System,” I was expecting great things when I sat down to read it.  But although it got the key challenges right, I was disappointed in its rather vague recommendations for a “networked governance strategy” for NextGen. (ash.harvard.edu/extension/ash/docs/nextgen.pdf)

The five key challenges are identified as financing, incentivizing investment, gaining acceptance of “new products,” anticipating possible failure modes, and governance.  I’m going to focus these comments on the first two: financing and incentives for equipage. To begin with, the discussion of financing equivocates in its basic premise, which is that “Government has always underwritten air traffic control infrastructure . . . as public benefits.” That’s misleading, since ATC infrastructure is paid for out of the Aviation Trust Fund, whose funds come from aviation excise taxes. So it’s aviation users that pay for ATC infrastructure, not “government” (which in ordinary language means general taxpayers).  This faulty premise is then used to give credence to the premise that, perhaps, “government” should subsidize aircraft equipage for NextGen.

Without answering this question, the report goes on to a frank discussion of the problems with incentivizing airlines (in particular) to spend the money to add things like controller-pilot datalink, ADS-B/In, and the upgrades necessary for RNP precision flying. Among these are the challenges of applying the FAA’s proposed “best-equipped/best-served” incentive during a long transition period, possible resistance from local communities if RNP-equipped planes continually overfly particular areas (due to their highly precise tracks), and when it might make sense to use mandates (i.e., “sticks” instead of or in addition to “carrots”).

In fact, some airlines already see a business case to equip their fleets with some NextGen capabilities. Southwest is spending $750 million to upgrade its entire fleet for RNP capability, and will make use of both FAA-developed and its own contractor-developed RNP procedures, at as many airports as possible. UPS has made a big investment in ADS-B/In for the majority of its fleet that converges on its central hub in Louisville every night. By contrast, despite having received FAA-funded ADS-B equipment for 20 Airbus A-330s in a demonstration project, US Airways CEO Doug Parker last month declared that “our position is so long as we have to pay for [equipage], we prefer not to have it.”

This divergence among airlines strengthens the case for best-equipped/best-served (BEBS) and weakens the case for government-subsidized equipage. How can it be fair to airlines that have spent their own money (Alaska, Southwest, UPS) if the government then subsidizes comparable capabilities for their competitors?

In a speech earlier this month at the American Association of Airport Executives’ conference in Dallas, FAA Administrator Randy Babbitt estimated that about 30% of airliners have first-phase equipment already, and that the near-term goal should be to get to a tipping point of perhaps 50%, where enough planes are equipped that the laggard airlines decide they need to do likewise to be competitive. That’s clearly what an effective BEBS policy could motivate.

The Harvard report did come up with a promising idea to incentivize progress toward equipage (and NextGen implementation more broadly). And that is to “select five or six geographical areas” where NextGen benefits might be greatest, and encourage the formation of local stakeholder networks to remove barriers to implementation. Key chokepoints such as the New York City metro area are obvious candidates.

Really Fresh Thinking on Air Traffic Management

I wish I could have been at this year’s ATM Global Conference in Amsterdam (but unfortunately it overlapped with the FAA Aviation Forecast Conference, where I was on a panel). But thanks to Aviation Intelligence Reporter’s April issue, I learned of a remarkable discussion on the ATM Global program. Both Neil Planzer of Boeing ATM and Marc Baumgartner, president of the international air traffic controllers organization IFATCA, suggested that what would truly bring about progress is competition among ANSPs.

Planzer’s remarks along those lines were delivered extemporaneously, so he was unable to send me a presentation or text. But I had a good email interaction with Baumgartner, who sent me his Powerpoint presentation. It presents a powerful vision of what next-generation air traffic management could be like. He correctly sees today’s manual, labor-intensive system as burdening controllers with numerous housekeeping tasks. Moreover, because of its many limitations, controllers have to make up for this “by inventing work-arounds and deviation from the rules to make it work.” By contrast, the performance-based ATM future he envisions would include:

I was very pleasantly surprised by the embrace of these principles by the head of the organization representing ATC unions in numerous countries. If these principles gain acceptance by controller organizations around the world, the path toward NextGen and the Single European Sky will be much clearer. We may be able to avoid rear-guard battles to preserve the status quo such as aviation witnessed when technology made flight engineers in cockpits obsolete, or what the railroads went through to eliminate the position of “fireman” on diesel locomotives (where shoveling coal was no longer needed).

To be sure, Baumgartner’s next slide argued for what he expects in return from air navigation service providers: a “just-culture” environment, sufficient air traffic controllers, an agreed-upon ethical code, and a realistic (and shared) vision of the future of air traffic management. Those strike me as eminently fair and realistic expectations.

Actually, the “competing ANSPs” part does not appear in Baumgartner’s presentation, but apparently surfaced during the panel discussion, in response to Planzer’s provocative proposal. In his email to me, Baumgartner said he stated that “as a next step [after automated separation is implemented], one could imagine that this service provision could be contracted by any service provider at a market price, depending on the availability of infrastructure, etc. One could even go so far that a ‘stock market’ or [other] trading system could be set up to operate some of the north-south or east-west axes”—such as the main north-south flows in Europe or the east-west axis in the United States.

That such discussions are going on in Europe, where nearly all the ANSPs have been commercialized and are accountable directly to their aviation customers, throws into sharp relief the backward nature of ATC provision in our country.

ATC Progress in Panama and India

The technologies involved in NextGen are not limited to what we think of as the developed world—Australasia, Europe, and the United States. Some major advances are taking place in the developing world, as these two examples illustrate.

Aviation Week (April 19th) carried a story on the implementation of RNP at the two major airports in Panama: Tocumen International and Howard. The goal at Tocumen is to permit simultaneous approaches to the airport’s closely spaced parallel runways, 3L and 3R. Panama’s ANSP Autoridad Aeronautica Civil (AAC) is developing the system with Boeing Aviation Infrastructure and Boeing subsidiary Jeppeson Co. The main airline serving Tocumen is Panama’s Copa, which decided to re-equip with RNP-capable 737 NGs and Embraer 190s. Most of the other traffic is from international carriers whose planes are also mostly equipped. To handle non-equipped traffic, AAC will keep in place the existing VOR/ILS navigation aids. Initial RNP operations are scheduled to begin by the end of this year.

Several months ago, I read that ITT, which is installing and will operate the FAA Air Traffic Organization’s U.S. network of ADS-B ground stations, was seeking to expand this business internationally. So it came as no surprise earlier this month to see that the company has proposed playing a comparable role in India. This comes in response to the Airport Authority of India’s decision to use ADS-B nationwide, as well as over the Bay of Bengal and the Arabian Sea. ITT’s proposal would have the company develop, operate, and maintain the system through September 2025. “We will provide the same contract for India [as in the United States],” said David Melcher, head of the relevant ITT business unit. “AAI has indicated that the ADS-B system should be in place in India by 2015. That’s faster than the U.S. This has a great potential for future growth in India.”

That the U.S. ATC system was the world’s best, as well as the world’s largest, was long an article of faith among many at the FAA, in Congress, and elsewhere. But just as mobile phones are enabling developing countries to skip the land-line phase, new ATC technology is available worldwide and can enable comparable progress in air traffic management. This is no time to rest on our laurels.

A Silver Lining from Iceland’s Volcano Cloud

The shutdowns of major portions of European airspace due to the Icelandic volcano eruption last month cost airlines, airports, air navigation service providers, and air travelers several billion dollars. But the fragmented response of national air safety agencies does seem to have given a needed boost to the always-uncertain prospects for actually implementing the European version of NextGen—the Single European Sky (SES).

The EU Transport Minister successfully argued that the crisis illustrated the cost of fragmentation of both EU airspace and European aviation decision-making. He therefore called for accelerating both the SES-2 legislative package and the SESAR ATC modernization program. Early in May, EU transport ministers agreed to make certain SES-2 milestones take effect this year, rather than in 2012. They also agreed to have a draft deployment schedule for SESAR ready by September. And they agreed to speed up the development of functional airspace blocks, potentially the most controversial aspect of the whole SES project, since its intent is to eliminate country borders as defining units for the provision of traffic management services.

Confusion was evident in many US media reports on the airspace shut-downs, in which the implication was created that the various ANSPs were the parties deciding whether planes could fly or not. In fact, these decisions were made by aviation safety organizations, such as the UK’s Civil Aviation Authority. Some of the confusion may have arisen because of the dual role of Eurocontrol, which coordinates high-level flight activity between countries (and actually operates high-level ATC in one segment of upper airspace). Eurocontrol thus has some regulatory and some operational functions, in contrast to the general separation in nearly all of Europe these days between ANSPs and air safety regulators. (Also contributing to US media confusion is the combination of air safety regulation and ATC operations in a single entity, the FAA, in this country.)

However the Single European Sky eventually materializes, retaining the separation between ATC operations and aviation safety regulation should be a core principle.

News Notes

DOT’s Draft Strategic Plan
The US DOT has issued a draft strategic plan for 2010-2015 and has put it on the DOT website for comment (www.dot.gov). Alas, the current draft gives short shrift to aviation, focusing nearly all its attention on surface transportation and the administration’s “livability” initiative to get people out of cars and freight off of trucks. The draft plan also provides no real justification for committing tens of billions of general taxpayer dollars to creating competition for self-supporting short/medium-range airline service, in the form of high-speed rail. Aviation stakeholders should submit comments aimed at rectifying these shortcomings.

Safety/Operations Conflict of Interest Fixed
The administration plans to split in two the agency that has historically has dealt with offshore oil rigs. The Interior Department’s Minerals Management Service would be split into two separate entities. One would inspect oil rigs and enforce safety regulations, while the other would oversee drilling leases and collect royalty payments. I hope they will soon see the logic of doing likewise in aviation, separating the provision of user-paid air traffic control (the Air Traffic Organization) from the aviation safety regulator (the remainder of FAA).

Integrating Civil and Military ATC Down Under
Australia has announced a Joint Operational Concept under which the Royal Australian Air Force and the civilian air navigation services provider Airservices Australia will jointly procure next-generation ATC technology. As spelled out in the government’s Aviation White Paper, the move aims to reduce overlaps, increase cooperation, improve communications between the two entities, and deliver better controller training. Between Australia and the Pacific Island Flight Information Regions of the Solomon Islands and Nauru, Airservices is responsible for air traffic management over about 11% of the earth’s surface.

Feedback on New-Technology Aircraft Article
Last month’s report on the NASA-Ames study on the impact of new types of aircraft brought this response from aviation economist Rich Golaszewski of GRA, Inc. “One of the problems with short take-off and landing (STOL) aircraft is that they cost more to buy and fly. The operator who makes the investment in them does not capture the value created in terms of increased capacity/reduced congestion at existing airports. It just creates capacity for its competitors who continue to fly lower-cost conventional aircraft. . . . GRA described this ‘value capture’ problem in civil tilt-rotor economics work in the 1990s. These aircraft would require almost no runway length to operate and could add capacity at congested airports. While I’m always open to new concepts, STOL requires efficient pricing of congestion to work. These vehicles invariably have higher acquisition and operating costs—the extra performance to fly STOL costs more (and will continue to do so until we repeal laws of physics and aerodynamics). Unless the operator can capture revenues to offset these higher costs, it is at a disadvantage and has no incentive to acquire and operate them.”

X Prize Founder Interview
A very engaging interview with Peter Diamandis, creator of the X Prize won by Burt Rutan for the first repeatable private-sector suborbital flight, was taped recently by my colleagues at Reason.TV. You can catch it on YouTube: www.youtube.com/watch?v=Kzimgk6FdtY.

Reliable Funding Source?
One of the arguments raised by defenders of the ATC status quo is that there is little or nothing to be gained by switching from excise-tax funding of this country’s air navigation service provider (the ATO) to direct customer payments (as in the rest of the civilized world).  Last week Aviation Daily reported yet another likely delay in enacting the FAA reauthorization bill, suggesting that it may not take place until after the summer recess. That would make it three years since the previous authorization expired at the end of FY2007 (Sept. 30, 2007). How do you make serious plans for major capital modernization when your funding is subject to this kind of chronic uncertainty? In Canada, most of Europe, and in Australia and New Zealand, airspace users pay the ANSP directly, every month. That de-politicization of funding is what makes it possible for those ANSPs to go to the bond market to raise capital funding for modernization—and to garner investment-grade bond ratings.

Quotable Quotes

“There is a worthy body within ICAO called the International Airways Volcano Watch Operations Group, or IAVWOG. (They must have been up all night working on an acronym as unpronounceable as an Icelandic volcano.) This group has been working for a decade or so on a number of the very issues that IATA demanded, petulantly, for a systematic approach to address. IATA knows about it, because pilots from Lufthansa and Qantas, in the name of IATA, have attended some of the meetings, systematically, scientifically addressing the issues. At their most recent meeting, in March this year, speaking as IATA, one of these pilots noted that ‘strong efforts’ had been made to get industry representation, ‘But unfortunately, these efforts had not been successful.’ The engine and airframe manufacturers were there, but lacked any sort of commercial input to their calculations. So the airlines knew the risks of a volcanic eruption, knew that work was needed to know what were safe concentrations of dust in the atmosphere, and knew of international efforts to coordinate monitoring. IATA knew too, of course. It coordinated the airline pilots’ attendance. But they did not think it important enough to actually send any staff or make known their efforts before their Director General was interviewed demanding that this very work be done.”
--Andrew Charlton, “Why We Have Trade Associations,” Aviation Intelligence Reporter, May 2010

“Maybe transportation bureaucrats will come to their senses and mandate that passengers receive, say, a full refund or, perhaps, a 150% fare refund if the plane eventually does take off, instead of imposing these draconian, counterproductive fines. Given Washington’s current weird move, however, don’t count on it. Of course, if Washington were truly serious about clogged airports, it would have modernized our air traffic control system years ago. Astonishingly, if we had the most up-to-date system ATC could handle more than twice the traffic it does today. Washington politicians should be paying big fines for their obstructionism on modernization, not the carriers.”
--Steve Forbes, “Plane Posturing Has a Price,” Forbes, April 26, 2010.

“NextGen is not a proposition of unfettered access to airspace and airports. While NextGen has the promise of creating more capacity and reducing delays, a key component to assure this outcome would be a playbook that executes all aspects of NextGen along with a joint understanding between industry and government that scheduling behavior has to be appropriate. The first steps of NextGen notwithstanding, we are already seeing the kind of scheduling behavior that increases delays at Atlanta, Chicago, and San Francisco. That type of behavior, if continued, will virtually eliminate the benefits of NextGen. Technology and procedures alone are not going to provide the answer. Technology, procedures, and cooperation are. . . . The FAA and DOT are still forced to resort to the use of blunt tools when the situation with delays gets out of hand: slots, caps, restrictions, and rules. There’s an easier way. It may seem amazing, but today we can fully model the impact of scheduling changes. We know full well the impact of over-compression in scheduling—but folks do it anyway. And that’s got to stop if we truly want a world-class aviation system. . . . The math here is not that difficult. If you have more airplanes on the schedule than a runway can handle, if the board on the wall shows more aircraft arriving and departing than we have runways and gates, everyone loses.”
FAA Administrator Randy Babbitt, speech at Aviation Week & Space Technology NextGen Forum, May 20, 2010.


Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy


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