In this issue:
- The government ID card loophole
- Airlines vs. LAX, round 1
- Capacity expansion via airport privatization
- Market pricing for LaGuardia—and others?
- Partially privatize airport screening
Last winter (in Issue No. 22) I commented on the boarding pass loophole case, in which the FBI had decided to drop its case against the college student who told people how they could make phony boarding passes on their computers. The idea was to show that anyone who wants to can bypass the "no-fly" and other watch lists by creating a fake boarding pass with her real name (to match her government-issued ID card at the checkpoint line), then at the boarding gate use her actual boarding pass (issued to the phony name she gave the airline to avoid its being matched against the watch list). The ploy works because the airline never checks to see if the boarding pass you present at the gate has the same name as on your government-issued ID card.
Now comes the other side of the coin: fake photo IDs. In May, KCTV, the CBS affiliate in Kansas City, created a phony ID card for one of its employees, making it look similar to a driver's license, complete with photo. Needless to say, the reporter had no trouble using the card to get through the security line at the Kansas City airport (twice) and at Dulles.
So what are we to make of the Transportation Security Administration's continued insistence that frequent flyers enrolled in the Registered Traveler program must present a government-issued photo ID card at the checkpoint, even though they have passed a background check and are carrying a biometrically encoded ID card that proves they are the same person who passed the background check? Aviation Daily quotes a TSA spokesperson as saying the government ID card "is a key step in stopping a potential terrorist."
What garbage! In the May 29th issue of the Airports supplement to Aviation Daily, Verified Identity Pass founder and CEO Steven Brill is asked why TSA requires RT members to show both cards. Brill's reply: "For no reason that anyone outside TSA can figure out. I haven't heard Federal Security Directors say it makes sense. No one says it makes sense. . . . It's all so laughable and ridiculous. It shows that the bureaucracy of TSA prefers to kill the program. The whole point of biometric identification is you don't want people to rely on facial images; there's no standard for photo IDs in the U.S. You could show your library card." Or one that you make on your personal computer, as KCTV did.
What's needed is not imposing a duplicate requirement on RT members, but closing the loophole that permits everyone else to use phony boarding passes and IDs. One way to do that would be to have boarding pass readers at the checkpoints; another would be to go back to requiring passengers to present both their boarding pass and their ID card (photo or biometric RT) at the gate, so the name on the ID card would have to match the name on the (real) boarding pass.
I got some flack from a couple of readers for my take, last issue, on the current dispute between a number of airlines and Los Angeles World Airports (LAWA). The issue concerns rate increases imposed earlier this year for airlines in Terminals 1, 3, and the Bradley International terminal at LAX. The airport is in the process of shifting from the traditional "residual cost" system for calculating land-side charges to the more modern (worldwide) method called "compensatory." Under the former, airlines that sign long-term lease agreements pay rates for services that are recalculated each year, based on the difference between the airport's total costs and its revenues from all sources except airlines (hence, they pay the residual). A compensatory system is more like normal rents in commercial buildings or shopping malls, based on current market values.
The airlines raised many points, but the core of their argument was that it is unfair and discriminatory for airlines in those three terminals to pay market-based rates when airlines that still have years to go on old (residual) leases will continue to pay far less. The DOT's Administrative Law Judge (ALJ) accepted the core of this argument, ruling that the rate increase for carriers in the three terminals "is unreasonable" and "unjustly discriminates" against those carriers. He made a number of other points, such as that LAWA's financial information was "inherently inaccurate," which I'm not competent to judge.
But on the core issue, I think the ALJ is wrong. The rule of law requires that parties to a lease agreement live up to its provisions for the agreed term. LAWA has no choice but to honor the terms of its residual-cost leases for the remaining years of their term—unless it pays off the bonds which are linked to those lease terms (which it has said it intends to do). But if it cannot negotiate new terms, under the compensatory provisions that are now its policy, as old leases expire, then it would be stuck forever with the residual-cost system. The ALJ himself acknowledged in his ruling that compensatory rate setting is a reasonable method, and that airports may choose the rate-setting method they will use. But he seems to have ignored the problem of transitioning from one system to another—and the necessity of temporary inequities while both old and new systems operate in parallel.
The next step rests with DOT Secretary Mary Peters, who has until June 15 to accept or reject the ALC's ruling. After that, the loser can appeal to a federal court.
Years ago, in a presentation on potential benefits of airport privatization, I suggested that an investor-owned company might be better at expanding airport capacity than government departments or airport authorities. My reasoning was that their profit motive might provide a stronger incentive to think creatively about overcoming opposition to large expansion projects. While airport privatization is still too new a phenomenon to provide much evidence on this proposition, a recent case in Germany is at least a provocative example of what I had in mind.
Frankfurt is the world's 8th busiest airport (by passenger enplanements), and the 3rd busiest in Europe (after Heathrow and Paris-deGaulle). It is the largest airport in Germany, and Lufthansa's largest hub. Like most large airports in Europe, it was privatized during the past decade (though state and local governments retain partial ownership of its shares). The parent company, Fraport, not only owns Frankfurt but also has ownership stakes in several other airports in Germany and in Australia, Chile, Portugal, and Turkey.
Frankfurt has long been constrained by limited runway capacity. Its plan to add a third runway has been held up—as is often the case—by the opposition of an adjoining land-owner. In this case, it was chemical company Celanese, whose large Kelsterbach plant was right beside the location of the planned runway. The company planned litigation if the runway were built, due to the risk of a chemical disaster if a plane crashed into the plant.
But now that Fraport has its bottom line at stake, it was willing to up the ante. Late last year it announced an agreement with Celanese to resolve the problem. Fraport will pay the company $858 million to buy the site and move the plant. The company will cease operations by the time the runway is ready to open in 2011. And it will then have until 2015 to complete the plant's relocation.
To be sure, $858 million is not chicken feed, and presumably this sum will be folded into the runway project's cost, to be recovered from landing fees over the runway's useful life. Transportation economists always talk about requiring users to pay the full costs of their decisions. Airport expansion is often an expensive proposition, as in this case. But it makes sense for the airport's customers to pay those costs.
The important point is that a commercial transaction will accomplish this important gain for better air transportation.
I'm impressed with what the FAA proposed on airport congestion in its reauthorization bill, and hope somebody in Congress will include it, as this process plays out. It's a big improvement on previous plans for "market mechanisms," all of which struck me (and may others) as far too full of micromanagement.
Indeed, the beauty of what FAA proposed is its simplicity and general applicability. Instead of focusing just on LGA (or DCA or ORD), the proposal would create a pilot program for testing market allocation at up to 15 congested airports. And instead of trying to spell out the details and predetermine certain outcomes (as in the agency's 2006 proposal for LaGuardia, which tried to manipulate aircraft size and favor non-incumbent airlines, rather than letting the market handle such questions), it would simply allow airports meeting a rather simple definition of demand exceeding capacity to "implement a market-based mechanism," such as a "congestion fee or auction." The airport would first have to consult with airlines and other aircraft operators and the FAA Administrator. Revenues in excess of administrative costs would go into an escrow account to be used for eligible airport improvement projects.
This is simplicity itself, and would permit an airport (like LGA) that has day-long congestion to, for example, add a flat congestion fee to every landing and take-off during those congested hours—or even to replace the traditional weight-based landing fee with a flat charge per operation, applicable to everyone who uses one of those scarce and valuable landing or take-off slots. But, as written, the measure would foster experimentation, so we could all learn whether other forms of charging—say based on the amount of time each plane occupies the runway, or slot auctions—might work better. There's been a lot of theorizing on this subject, but very little empirical testing.
The other part of the FAA proposal may be more controversial. It would permit the Secretary of Transportation, in the case of an airport whose congestion was causing significant ripple effects on the National Airspace System, to impose a market-based mechanism (via rulemaking). In that case, the FAA Administrator would establish the details, and excess revenues would go into a federal Airspace Congestion Management Account, whose monies could be used for a limited set of purposes, presumably in priority order, with the first listed being to expand the capacity of the airport in question and the next priority to expand other airport capacity in the region. (In the case of LGA, for example, if it proved politically impossible to expand its airside capacity, the funds could be used to expand, say, MacArthur or JFK.)
We are about to see another round of congressional horse-trading, to allocate a few additional slots at Reagan National (DCA). There is no way to prove that a new slot for service to Milwaukee is better than using that slot for more service to Atlanta. These will be arbitrary decisions, hearkening back to the worst days before deregulation, when all decisions on new airline service were made politically (excuse me, "administratively"). How much simpler—and more efficient—it would be if we let those decisions be made in the marketplace.
Former TSA head David Stone, a retired Navy Rear Admiral, offered two provocative suggestions on airport screening at a counter-terrorism conference in Quebec last month. First, since TSA continues to have problems retaining part-time screeners (though it says its attrition rate is less than it used to be), why not let private companies provide the part-timers? Presumably, the companies would have to meet the same standards as those the TSA has certified to operate airport screening overall, under its Screening Partnership Program. And if they could manage part-timers better, it would save TSA (and us taxpayers) a lot of money on recruitment and training costs.
Stone's other suggestion was even more dramatic. Since baggage screening technology is costly and (we hope) needs to be replaced fairly often with faster and more accurate devices, why not treat them the way private industry treats copiers? Don't buy them, but lease them, with payment based on the extent of use. In fact, Stone suggested that screening companies operate the machines, which would mean privatizing baggage screening while leaving passenger screening to the TSA workforce. That idea might even fly with the polarized members of Congress. Those (like Rep. John Mica, R-FL) who consider the current TSA screener workforce too big and inefficient might welcome its shrinkage to the size needed to handle just passenger screening. At the same time, if that downsizing of the total workforce allowed some increase in the number of passenger screeners, to reduce long lines at screening checkpoints, that might please others (such as Rep. Peter DeFazio, D-OR) who want to see the TSA work better.
Were these proposals being made by an outsider, they might not go anywhere. But given Admiral Stone's prior service as the Federal Security Director at LAX and then as head of TSA, they may well be taken seriously. Stone says current TSA Administrator Kip Hawley is aware of his proposals. But thus far Hawley has made no public comment.