In this issue:
- Reforming TSA's screening opt-out program
- Dealing with airport monopolies
- Charlotte illustrates security gaps
- HSR's threat to airlines
- Radiation and backscatter scanners
- News Notes
- Quotable Quotes
How to Reform Opt-Out Airport Screening
As reported here last month, on Feb. 15th the Senate voted unanimously to continue the Security Screening Partnership (SSP), the program under which airports can opt out of TSA-provided screening and use TSA-approved security contractors instead. And in April the Republican leadership of the House Homeland Security Committee introduced legislation along the same lines, HR 1586. Both actions were in response to TSA Administrator John Pistole's surprise announcement in January that he was rejecting several pending applications for SPP and would accept no more. That unilateral decision seemed in direct conflict with the statutory authorization of SPP in the 2001 legislation that created the TSA and which guaranteed all airports the opportunity to opt out.
I was pleased to see that the Blue Ribbon Panel for Aviation Security, whose report was released by the U.S. Travel Association in March, addressed this issue. Its report, "A Better Way: Building a World Class System for Aviation Security," called the current SPP "ineffective" and noted, correctly, that it "gives private firms little flexibility to change or improve the screening process" (a point the GAO has raised several times). Unfortunately, its recommended changes don't go far enough. Like the House and Senate measures, the Panel calls for TSA to acknowledge the statutory basis for SPP and issue fixed timelines for considering SPP applications. It also says TSA should provide performance metrics for major airports, allow SPP airports to "shift resources between threats in the airport environment, utilize airport-specific lane management tools, execute multi-year equipment purchases, and include customer service criteria in employee evaluations."
Those are all fine, but they don't address the extreme centralization of the program, compared with airport security outsourcing in Europe, and service-delivery outsourcing by state and local governments generally. Early in my public policy career, public-sector outsourcing was my principal focus. I wrote the first book on the subject, Cutting Back City Hall (Universe Books, 1980). In standard outsourcing practice, if a government outsources a function, it issues a request for proposals to pre-qualified firms and selects the one whose proposal offers the best value for the money. But that is not at all how SPP operates.
If an airport board and management decide they want to outsource screening, they are not allowed to issue an RFP seeking bids only from TSA-approved airport security firms (which is how things work in Europe). Instead, they must submit a request to the TSA, and then TSA decides (using undisclosed criteria) whether the airport should be approved for SPP participation. If the decision is yes, then TSA assigns one of its approved firms to the airport. TSA signs the contract, and the company reports to the TSA, not to the airport management. By doing things this way, the TSA ensures the continuation of fragmented security at the airport, with the contractor reporting to TSA but all other security functions reporting to airport management. Having the firms selected by and reporting to TSA also ensures the very inflexibility which Congress, the GAO, and the Blue Ribbon Panel all cite as serious problems.
So in addition to changing the contracting process to allow each SPP airport to select, and manage the contract with, the TSA-approved firm of its choice, Congress should also require TSA to develop screening outcome measures to substitute for the current input measures (such as requiring the use of body scanners). This would encourage innovation among SPP firms, and might well attract new entrants such as AR Challenges. This Israeli-based company, with U.S. and Canadian operations, is offering what it calls a Trust-Based Security (TBS) model that differs dramatically from current TSA screening. Founder Rafi Sela told Aviation Daily in January that the system has been demonstrated at Ben Gurion International in Tel Aviv, and that he is hoping to announce a pilot program soon at London Stansted Airport.
The leaders of the House Committee on Homeland Security announced on April 15th that they are beginning work on an authorization bill for the TSA, in which they "plan to address the need for fundamental reform of TSA," because "the evolving nature of the threat against our transportation system has led to a growing need for TSA to better target its resources and operate in a more intelligence-driven and risk-based manner." That would be an appropriate vehicle for real SPP reform.
Dealing with Airport Monopolies
Do airports need economic regulation? Many of my free-market colleagues would answer, reflexively, no. But I think the answer is more complicated than that. Regardless of ownership structure-which these days ranges all the way from a city department (O'Hare) to fully investor-owned (Heathrow)-some airports have competitors and others don't. The San Francisco Bay Area has three separately owned commercial airports (SFO, SJC, and OAK), each of which offers both domestic and international service. That's real competition. At the other extreme, Atlanta and Seattle are each served by a single monopoly airport. And in some metro areas with multiple air-carrier airports (Houston, New York) the air-carrier airports are all owned by a monopoly provider organization.
These thoughts came to mind as I read a very impressive paper by Hans-Martin Niemeier, "Regulation of Large Airports: Status Quo and Options for Reform," presented at the OECD International Transport Forum's 2009 conference in Leipzig. (www.internationaltransportforum.org/jtrc/discussionpapers/DP200910.pdf) Prof. Niemeier recognizes that where effective competition exists, economic regulation is not necessary. But he argues that in most real-world situations, "the intensity of competition is not strong enough to make regulation completely redundant." He finds much to criticize in current airport regulation, concluding that its scope is too narrow in some respects and too large in others. Cost-based regulation, the most common form, provides "incentives for gold-plating, high costs, and inefficient price structures." He favors price caps that leave the structure of charges unregulated, so as to allow for congestion pricing to improve airport efficiency.
Overall, his paper is a call for "a rational dialogue on regulation of airports," especially since we are in an era where corporatization and privatization are producing major changes in airport governance. There is much economic inefficiency among major airports today, he finds, which competition and enlightened regulation could reduce, leading to economic gains for regions or countries that move in those directions.
I was reading Niemeier's paper last month when a news report crossed my screen from Atlantic City, NJ. It turns out that the Port Authority of New York & New Jersey is studying the possible acquisition of Atlantic City International Airport. Local boosters are enthused, because since the Port Authority took over Stewart Airport three and a half years ago, it has invested a lot of money in that airport, though so far with little to show for it in terms of increased airline service. The Atlantic City airport is currently owned by the South Jersey Transportation Authority, which also owns and operates the Atlantic City Expressway toll road. Plans are afoot to merge SJTA with the New Jersey Turnpike Authority, but those plans are complicated by SJTA's airport ownership. Hence, supporters of that merger also favor the sale or lease of the airport.
But let's take a look at this from the standpoint of monopoly versus competition. As I reported in Issue No. 52 (December 2009), a very well-done economic study of the impact of airport ownership form on airport productivity found that the worst form of ownership is U.S.-type multi-modal authorities. They tend to milk their airports to cross-subsidize their other activities, as the Port Authority does in various ways. And by adding Atlantic City to its current portfolio of Kennedy, LaGuardia, Newark, Stewart, and Teterboro, the Port Authority would further expand its near-total airport monopoly in the whole New York metro area.
Were federal policymakers to take economic research seriously, they might consider breaking up airport monopolies in metro areas where competition among airports could increase productivity and better serve airport customers. As with the London airports formerly all owned by near-monopoly BAA, existing agencies could be required to sell or lease enough of their airport portfolio to stimulate meaningful competition. And in those metro areas where real competition exists, the DOT could remove current restrictions on airport pricing and financing (such as the federal cap on passenger facility charges).
Charlotte Incidents Highlight Security Gaps
On April 19th, the Charlotte-Mecklenburg Police Department released its report on the November incident in which a 16-year-old stowed away in the wheel well of a US Airways 737 and froze to death, his body discovered under the landing path of the plane near Boston. Although the report was heavily redacted due to sensitive security information, it revealed that the teenager apparently gained access to the plane by going over or under the fence while the plane remained stationary on a taxiway for 37 minutes, during its overall taxi-out time of one hour and 14 minutes. The police investigator gave his professional opinion that law enforcement at the airport "does not adequately reflect the type, size, and functions of an organization that should be in place at a major metropolitan airport."
In the month prior to the report's release, two more breaches of the airport perimeter occurred, according to the Charlotte Observer. On March 12th, about $13,000 worth of power tools were stolen, and on March 14 about $150 worth of diesel fuel was stolen from an FAA contractor. Those breaches occurred two weeks after the airport and the police department briefed the City Council on plans to increase airport police staffing, make "structural improvements" to property, and enhance its electronic screening.
These incidents all occurred at Charlotte/Douglas International Airport, but they should serve to remind us of two ongoing problems affecting all U.S. airports. One is that the huge over-emphasis on passenger and baggage screening since 9/11 has left access control of secure areas, perimeter security, and in-terminal security as much lower priorities, de-facto. Yet all of those areas are vulnerable to those bent on doing harm to people, property, and planes. An aviation security policy based on risk management rather than security theater would take a far more balanced approach.
Second, these incidents illustrate the fragmented approach to airport security that is inherent in having one agency-the TSA-providing passenger and baggage screening and another agency-the airport-responsible for everything else. Under a unified approach, the airport would be responsible for providing all security, with the TSA in the role of regulator of overall airport security. That's essentially the European approach, and I think it makes for more integrated and more accountable security.
High-Speed Rail's Threat to Airlines
The Chinese government's massive investment in high-speed rail (HSR), budgeted at some $300 billion, has been having serious negative impacts on Chinese airlines. China Southern last year lost half the passengers on its Guangzhou-Wuhan route, thanks to HSR trains running at 350 kph (217 mph) on this 522-mile route. On the shorter 280-mile route between Wuhan and Nanjing, the airline lost so much business that it pulled out altogether, even though the HSR trains on that route only run at 160 mph. Altogether, reports Aviation Daily, air service has been cancelled on 70% of the routes to and from Wuhan that are less than 600 km (373 miles) in length.
Those kinds of impacts have caused major worries for carriers on the country's busiest route, Beijing to Shanghai, where HSR service is to begin in June. Though much longer (at 944 miles) than what is typically seen as the optimal distance for HSR to be competitive (150 to 500 miles), the planned HSR speed of 380 kph (236 mph) was expected to yield trip times of just under four hours, which Air China and China Eastern viewed with trepidation.
Then came the revelation of major problems with the Chinese HSR program-large-scale cost overruns, embezzlement, and shoddy construction of the infrastructure-has led to some major changes. On Feb. 25, the head of the program was fired for "severe violations of discipline," apparently referring to embezzling tens of millions of dollars. And in mid-April, the government announced that speeds on the lines will be reduced to 300 kph (186 mph), in part to save energy and also out of safety concerns over the poor quality of the new track and roadbed. The program has accumulated $271 billion in debt thus far, and revenues that are far lower than projected mean the HSR agency will have trouble meeting its 2011 debt service, according to a cover story in Caixin Weekly (April 4, 2011)
I'm writing about this here because the fledgling U.S. HSR program could pose a similar threat to short-haul U.S. airline service. To be sure, all but one of the current U.S. projects receiving federal funding are higher-speed rail, not true HSR. The former are modest upgrades to existing Amtrak passenger service aimed at getting speeds up to 90 mph and in a few cases to 120 mph, if the freight railroads that own the tracks can be persuaded to sign the necessary agreements. But the $60 billion California HSR project, if it's ever built, would be true HSR, operating on its own high-speed right of way, aiming to compete directly with the airlines linking southern and northern California cities.
When asked at last year's FAA Aviation Forecast Conference why billions of dollars in general tax revenues should be used to create competition to self-supporting (including airport and ATC infrastructure costs) tax-paying airlines, DOT Secretary Ray LaHood simply asserted that the President and the public "want high-speed rail" and that therefore airlines should "get with the program." That's hardly a justification, and recently the GAO reported that in making HSR grants, the DOT has done essentially no benefit/cost analysis to attempt to show that massively subsidized HSR is justified.
Now that Congress (or at least the House) has zeroed out new HSR funding for 2011, I hope the airline industry will consider taking a stand against the government borrowing tens of billions from the Chinese to create competition to U.S. airlines. It's hard to imagine any other U.S. business not resisting such an effort.
More on Radiation and Backscatter Scanners
Within several days of each other, two articles on the backscatter X-ray version of whole-body scanners crossed my screen. The headline on the first read: "Analysis Suggests Cancer Risk of Backscatter Airport Scanners Is Low," from US Fed News, March 29th. A few days later, the next headline, from the San Francisco Examiner (April 4th) read: "Airport Scanners May Raise Radiation Risk if Used Improperly, Study Says."
It turns out that both were covering the same study, by UCSF radiology professor Rebecca Smith-Bindman, MD, published online in Archives of Internal Medicine, March 28, 2011. In both articles, Smith-Bindman reported that the doses of radiation emitted by backscatter machines are extremely low, and that an average person would absorb 100 times more radiation during his or her flight than in a single scan. A special analysis of 5-year-old girls making one round trip a week concluded that this potentially more vulnerable group would not significantly increase their lifetime risk of cancer.
However, Smith-Bindman's study was based on the radiation specifications for the machines, as they are supposed to operate. In both articles Smith-Bindman criticized the TSA for not allowing independent researchers to measure the actual amounts of radiation from the machines, in regular airport use. "We don't know the doses of radiation they would emit or how they would malfunction," she told the Examiner. "We're assuming they work as intended, but I fully believe TSA should be prudent and allow more independent testing." In the journal article, Dr. Smith-Bindman notes that human error or machine malfunctions could cause the scanners to exceed their specs and expose air travelers to higher levels of radiation.
Perhaps once the TSA workforce is unionized, one of their first (justified) demands will be to wear radiation monitoring badges, as is standard practice for all medical and research personnel who work with radioactivity.
San Juan Airport Privatization Agreement Imminent?
The April issue of Public Works Financing reports that a memorandum of understanding will be signed in May with the airlines serving Luis Munoz Marin International Airport. The agreement is necessary in order for the Commonwealth's government to be able to use lease proceeds from the planned privatization for non-airport purposes. An RFQ from prospective bidders for the long-term lease is expected as early as June.
Minority Stake Offered in Milan Airports
Reuters reported early last month that SEA, the company that owns Milan's Malpensa and Linate airports, will offer a minority stake via an initial public offering (IPO) of shares. The city government currently owns 84% of SEA, and the IPO will reduce that to no less than 51%. Mediobanca, Morgan Stanley, and Banca IMI are arranging the IPO. SEA will join other airport companies already listed on the Milan stock market: Gemina (Rome), Florence, Pisa, and Venice.
Global Airport Investors Database
Big Pond Aviation's database on global airport investors, an Excel spreadsheet with data on each company, its current investments, previous bids, recent financial results, etc. is now available for purchase online, either as a single document or also with four quarterly updates. Details at: www.bigpondaviation.com/publications.html.
RAND Expert on Aviation Security
Jack Riley, vice president and director of RAND Corporation's National Security Research Division, gave a speech at the recent Airport Revenue News Conference, on rethinking aviation security 10 years after 9/11. "Air Travel Security Since 9/11" is now a RAND paper and is well worth reading. You can download the speech at www.rand.org/pubs/corporate_pubs/CP635.html. RAND will have additional material on this subject on their website later this year, closer to the anniversary date.
Two Bids for New Airport in Mexico
Two teams have submitted proposals to design, finance, build, operate, and maintain the planned new Riviera Maya airport in Tulum, Quintana Roo, under a long-term concession. The airport will include an 11,000-foot runway, control tower, and terminal building sized to handle 3 million annual passengers. It is located 63 miles south of Cancun.
Branson Airport Aids AirTran Chicago Service
Privately developed Branson (MO) airport has joined forces with the city's chamber of commerce in developing a $680,000 marketing campaign promoting AirTran's nonstop flights to this tourist destination from Chicago Midway. (Southwest will continue to operate AirTran under its own name for the time being.) The campaign will pay for television ads in the Chicago market.
EU Liquids Rule on Hold
Fearing chaos as some European governments refused to implement new rules on screening liquids, aerosols, and gels that I wrote about in March, the European Commission on April 29th recommended that all EU countries hold off on implementing the rules that had been set to go into effect on May 1st. The U.S. Department of Homeland Security had also opposed the new rules, citing security concerns similar to those raised by the governments of France, the Netherlands, Spain, and the U.K.
BAA Estimates $2 Billion from Sale of Stansted
Ordered by the UK Competition Commission to divest London Stansted Airport, in addition to its previous sale of Gatwick, BAA has apparently decided not to fight the order. But it is seeking flexibility as to the timing, in hopes of realizing at least its "regulated asset base" value of about $2 billion. CEO Colin Matthews told Reuters, "We would like some flexibility not to have to sell at the worst possible time in the market; naturally that's a concern for our shareholders who are concerned that they get a decent return."
"It's funny, but not really, when you stop to consider how easy it would be to fashion a sharp object-certainly one deadlier than a pair of rounded-end scissors-after boarding an airplane, from almost anything within your reach: a wine bottle, a first-class juice glass, a piece of plastic molding, and so on and so forth. Heck, if you're seated in first or business class, they give you a metal knife and fork. But more to the point, pun intended, why do we still care so much about pointy objects? When it comes right down to it, the success of the Sept. 11 attack had nothing-nothing-to do with box cutters. The hijackers could have used anything. They were not exploiting a weakness in [carry-on] luggage screening, but rather a weakness in our mind-set-our understanding and expectations of what a hijacking was and how it would unfold. The hijackers weren't relying on weapons; they were relying on the element of surprise."
--Patrick Smith, "Ten Years After 9/11, Airport Security Still Not Getting It," Ask the Pilot, Salon.com, April 19, 2011.
"Last week Sir Martin Broughton, British Airways chairman, laid into airport security's 'one size fits all' approach, which once led to Henry Kissinger being hauled aside for additional screening. This follows the US Travel Association, which has criticized officials' focus on past attempted atrocities . . . when terrorists were almost certainly plotting new methods. Both Sir Martin and the association called for a 'trusted traveler program' which would fast-track pre-screened passengers through security. I agree, and would add another point: airport security is too large and too full of distracted staff following procedures rather than alertly assessing dangers. . . . We need a smaller, more mobile, more highly-skilled travel security force, fed by intelligence, assessing risk and acting in ways that people least expect."
--Michael Skapinker, "Airport Checks Fail the Common Sense Test," Financial Times, April 25, 2011.
"[T]here is more to this [liquids] saga than mere stupidity. To make something as completely ridiculous as airport security, you need a number of other base elements. Greed, for example, can cynically be added to the mix just for good measure. A ban on allowing liquids into an airport is a huge boon to airport concessionaires. [European] Airports opposed any lifting of the ban. They get to sell water and other drinks, as well as cosmetics, airside to a captive market at unchallengeable prices. These two points might also be related. Naturally, the opposition was dressed up as 'security concerns.'"
--Andrew Charlton, "Liquids, Aerosols and Gels: Common Sense is LAGging Behind," Aviation Intelligence Reporter, May 2011.
"Every society accepts some risks as part of its overall social contract. People die when they drive cars, they die when they drink, they die from crimes, they die when planes go down, they die on bikes. The only way to eliminate the risks would be to eliminate the activities-no driving, no drinking, no weapons of any kind, no planes or bikes. While the risk/reward tradeoffs vary between, say, Sweden and China, no nation accepts the total social controls that would be necessary to eliminate risk altogether. Yet when it comes to dealing with terrorism, politicians know that they will not be judged on the basis of an 'acceptable level of risk.' They know that they can't even use that term when discussing the issue. And they know for certain that if-when-a plane blows up with Americans aboard, then cable news, their political opponents, Congressional investigators, and everyone else will hunt down any person who ever said that any security measure should be relaxed. This is the political tragedy of 'security theater.' In reality, we do accept a greater-than-zero risk of death from terrorist attack. Otherwise, we'd never fly-or would strip everyone nude before boarding, do cavity searches, and carry no cargo. We accept the bargain for efficiency reasons. We accept it on 'price of liberty' grounds. But politicians can't come out and say that any risk is acceptable. Nor can they take the risk themselves of saying that security-theater rituals should be dropped, because of the risk of being blamed when the next attack occurs. Thus, security theater is a ratchet. You can add it, but you can't take it away."
--James Fallows, The Atlantic November 2010 (http://www.theatlantic.com/national/archive/2010/11/like-a-full-body-massage-thinking-about-the-tsa/66923/)