# Presentation: 176343

**Top Ten Myths about US Airports**
**The Future of Air Transportation: **
**Challenges and Opportunities for Airports**
**2005 FAA Forecast Conference**
**Washington, DC****	****	****	****	****          March 17, 2005**

**AIRPORTS COUNCIL INTERNATIONAL**

-   North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

- David Z. Plavin, President
- ACI North America

## Capacity and congestion
State of the industry 
Security

**AIRPORTS COUNCIL INTERNATIONAL**

-  	  North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

- Capacity and congestion
- State of the industry
- Security

***Major issues for airports, today:***

## 20-25 airports account for just about all delay and congestion in the system
a problem for ALL airports
Demand is returning – planes faster than people
ATC infrastructure not keeping pace – funding not adequate
Runways: difficult for airports to build; take ten years
Half of these airports probably unable to add capacity
Other ATC improvements needed – probably not enough

Just beginning to discuss economics

**AIRPORTS COUNCIL INTERNATIONAL**

-  	  North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

- 20-25 airports account for just about all delay and congestion in the system
- a problem for ALL airports
- Demand is returning – planes faster than people
- ATC infrastructure not keeping pace – funding not adequate
- Runways: difficult for airports to build; take ten years
- Half of these airports probably unable to add capacity
- Other ATC improvements needed – probably not enough
- Just beginning to discuss economics

***Myth #1*****:****	****Capacity and Congestion are not major problems**

## Congestion at the Most Delayed Airports July 2004 vs. Summer 2003

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

**Congestion at the Most Delayed Airports ****July 2004 vs. Summer 2003**

| Airport | % Delayed 
Summer 2003 | % Increases in Flights 2004 vs. 2003 | Percent Delayed 
July 2004 |
| --- | --- | --- | --- |
| Newark | 27 | 7 | 35.3 |
| Philadelphia | 25.4 | 7 | 31.2 |
| NY-Kennedy | 25.1 | 20 | 31.1 |
| W. Palm Beach | 24.5 | 12 | 28.2 |
| Atlanta | 24.2 | 9 | 27.4 |
| Raleigh-Durham | 23.5 | 13 | 29.8 |
| Ft. Lauderdale | 22.3 | 10 | 26.5 |
| WDC-Dulles | 22.5 | 17 | 28.1 |
| Orlando | 21.8 | 9 | 25.5 |
| NY-LaGuardia | 21.7 | 8 | 33.7 |
| Baltimore | 21.7 | 5 | 24.5 |
| San Antonio | 21.3 | 6 | 23.6 |
| Chicago-O'Hare | 21.2 | 9 | 28.5 |
| Boston | 21 | 9 | 29.4 |
| Cincinnati | 19.6 | 6 | 24 |
| RED: Airports with  scheduled operations for the Summer of 2004 that exceed schedules filed in the 
Summer of 2000. |  |  |  |

## Congestion: What are people doing to address the options?

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

**Congestion: What are people doing to address the options?**

- LGA: High-Density Rule Expires 12/31/2006. Replacement?
- Chicago Voluntary Agreement: Show Cause Order/Follow-on NPRM.
- Massport: Board approval of Peak-Period Pricing.
- NEXTOR: Simulations of Administrative Measures, Congestion Pricing, and Auctions.

## redistribution of customer money
heavily weighted to small airports
Federal grants for capital projects
Local subsidies
Closed system
Airport and Airways Trust Fund
Competition for declining fund balances

***Myth #2:*****	****US airports are heavily subsidized**

**AIRPORTS COUNCIL INTERNATIONAL**

-  	  North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

**redistribution of customer money**
**heavily weighted to small airports**
- Federal grants for capital projects
- Local subsidies
- Closed system
**Airport and Airways Trust Fund**
- Competition for declining fund balances

**AIRPORTS COUNCIL INTERNATIONAL**

-  	  North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

***Myth #3*****:  AIP and PFCs are interchangeable**

- PFC created in 1991 as _**supplement/ complement**_ to AIP; exception window in Anti-Head Tax Act
- Not the same airports, airlines or dollars
- Not the same projects
- Large airports with PFCs have already given back 75% of their entitlements
- Airlines have a concern, too
- BOTH come with excessive strings

## Myth #4:	Airlines pay for everything

**AIRPORTS COUNCIL INTERNATIONAL**

-  	  North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

***Myth #4*****:****	****Airlines pay for everything**

- Actually, _**passengers & shippers pay for everything**_.  Airports and airlines, both, spend and invest and bill their customers
-   Directly – passenger charges (PFC)
-   Indirectly
-   Airport businesses
-   Parking
-   Food and retail, advertising, other airport concessions
-   Airlines – annual expenses of over $118 billion
-   Landing fees - $2.49B (‘03)
-   Rents: terminals, cargo buildings, offices - $2.69B (‘03)
-   Federal aviation charges
-    Ticket taxes
-    FIS charges
-    Security fees

**AIRPORTS COUNCIL INTERNATIONAL**

-  	  North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

***Myth #5*****:****	****Taxes, Fees, Airport charges are heavy contributors to airlines financial woes**

-  _**Landing Fees**_
**Airport landing fees are not going up in real terms. **
**To the contrary, landing fees – as a percentage of operating costs – have remained remarkably constant over the past 30 years. **
**ATA Quarterly Airline Cost Index: landing fees accounted for only 2.2 percent of airline’s operating expenses in 3Q2004. **
**That is about the same amount carriers spent on food and beverages during the same period and about the same percentage carriers spent on landing fees in 1971.**

**AIRPORTS COUNCIL INTERNATIONAL**

-  	  North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

-  _Labor and Fuel_
- According to the ATA, labor and fuel make up almost 50 percent of the airline’s operating costs.
- During the second quarter of 2003, labor costs were over 37 percent of the airline’s operating expenses.
- During that same period fuel accounted for 12.6 percent of airlines operating costs. That percentage increased even more as the price of fuel continues to rise.

## Labor Savings Overwhelmed by Increase in Fuel Costs Airline Unit Cost Change, 1Q2002 vs. 3Q2004(from Eclat Consulting)

***Labor Savings Overwhelmed by Increase in Fuel Costs***** Airline Unit Cost Change, 1Q2002 vs. 3Q2004****(from Eclat Consulting)**

## Dickens Said It Best 
“Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery”. 

			David Copperfield* 

Compliments to 
Pat Murphy (Gerchick/Murphy) 
Mike Levine (Yale)

- “Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery”.
- 			David Copperfield*
- Compliments to
- Pat Murphy (Gerchick/Murphy)
- Mike Levine (Yale)

## Slide 13

## Six Network carrier losses total $9.4 billionUS Air carriers 2004 Financial Results (U.S. DOT)

**AIRPORTS COUNCIL INTERNATIONAL**

-   North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

***Six Network carrier losses total $9.4 billion*****US Air carriers 2004 Financial Results (**U.S. DOT)

## Airlines and the National EconomyAirline Revenue as Percent of US Gross Domestic Product (from Eclat Consulting)

***Airlines and the National Economy*****Airline Revenue as Percent of US Gross Domestic Product**** ****(from Eclat Consulting)**

## Estimated 2005 Collections of Aviation Taxes & Fees*

- 	*Some taxes and fees shown include collections from non-U.S. carriers

- Sources: ATA; Federal Aviation Administration; U.S. Department of Homeland Security; U.S. Office of Management and Budget

**DHS Collections = $3.2B (20%)**

**AATF + LUST = $10.5B (67%)**

**Estimated 2005 Collections of Aviation Taxes & Fees***

## 
Federal aid
Federal infrastructure
“Single till”
Sharing consumer services revenues
Tax exempt financing (US)
Marketing incentives
Direct payments from communities

**AIRPORTS COUNCIL INTERNATIONAL**

-  	  North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

- Federal aid
- Federal infrastructure
- “Single till”
- Sharing consumer services revenues
- Tax exempt financing (US)
- Marketing incentives
- Direct payments from communities

***Myth #6*****: Airlines operate without ****	****	****	****  subsidies**

**AIRPORTS COUNCIL INTERNATIONAL**

-  	  North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

***Myth #7a*****:****	**** Airports are monopolies, predatory and out of control**

-  Airports: self-sustaining, not-for-profit, governmental
- Heavily regulated
-  Real competition among airports
- Air service
- Connectivity
-  Look to maximize opportunities for maximum    numbers of flights to maximum numbers of destinations at lowest sustainable fares
-  No incentive to abuse market power

## Regulation

**The Theory of Regulation **-
-  Airports as “monopolies”
- “Airports abuse market power”
- “Need to protect airlines”
***BUT, what about airports as government?***
***Who provides the infrastructure?***

**AIRPORTS COUNCIL INTERNATIONAL**

-   North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

**Regulation**

**The Legal Framework for Regulation – **worldwide model, but with major variations
- Feds tell the airport how to charge customers
- Feds tell the airports what it may do – and what it may not do - with its money
- “Federal money” has strings attached
***It is BROKEN and needs to be scrapped, especially as Feds withdraw from funding***

## 1994: US Regulatory Creep begins

- Congress tells the US DOT to:
- Establish a policy on “the reasonableness of airport fees”
- Set up expedited processing for “unreasonableness” complaints
- Establish a policy for “Airport Revenue Diversion”
- Require reporting of airport payments to other units of government
**1996: Regulatory Creep begins to mushroom**
- 1.	Congress adds new revenue diversion section
- 2.	Adds revenue diversion audit requirement
- 3.	Imposes draconian penalties for “diversion”

**AIRPORTS COUNCIL INTERNATIONAL**

-   North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

**1994: US Regulatory Creep begins**

## Myth #7b:	Airports are colluding with airlines to restrict competition from new entrant, low cost carriers

**AIRPORTS COUNCIL INTERNATIONAL**

-  	  North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

***Myth #7b*****:****	****Airports are colluding with airlines to restrict competition from new entrant, low cost carriers**

-   Economic Deregulation of airlines began in 1978
-         to encourage airline competition
-         open new routes to new travelers
-         bring down fares to consumers
-   By these measures, deregulation has been highly            successful
-   Spoils go to the low cost provider
-   Has it contributed to the death of major carriers?
-      Is that a good or bad thing?

## 2000: Regulatory Creep becomes a gallop

- 	To “promote airline competition,” Congress adds new requirements:
- Requiring airports (not airlines!) to file “competition plans”
- Condition for airports to receive federal government funding approvals

**AIRPORTS COUNCIL INTERNATIONAL**

-   North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

**2000: Regulatory Creep becomes a gallop**

## 75% Of U.S. Domestic Passengers Have Access to Low Fares Offered by LCC’s

- Notes:  Low cost carriers include:  WN, ZA, FL, TZ, W9, F9, KP, N7, P9, QQ, NK, SY, NJ, W7, WV, KN, B6, J7, HP and DH. Passengers with access to LCC service are defined as those passengers traveling in city-pairs where a single LCC has at least a 5% share of O&D passengers.* *
- Sources:  LECG (U.S. DOT OD1B)

**Passengers With Access to LCC Service**

**LCC Share of Domestic O&D Passengers**

## 
An easy misconception: Federales think it’s true
The federal system of government
Deference owed to the states
US airports developed, owned, and operated by local and state governments
Feds tell airports what to do and how to do it
Some good lessons to learn from Canada

**AIRPORTS COUNCIL INTERNATIONAL**

-  	  North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

- An easy misconception: *Federales* think it’s true
- The federal system of government
- Deference owed to the states
- US airports developed, owned, and operated by local and state governments
- Feds tell airports what to do and how to do it
- Some good lessons to learn from Canada

***Myth #8:*****	****US airports are owned and operated by the federal government**

## 
Financial partner, provider, regulator; sometimes all three
DOT, DHS, HHS, EPA
US Congress
Starts out by asserting jurisdiction and putting in some money
Entices locals into federal control with surprisingly small sums
Locals come cheap
“Sticker shock:” cannot sustain financial partner role
Sometimes continues to “provide”
Regulates, instead, increasingly to include the requirement to provide and build out space and services at no cost to the feds

**AIRPORTS COUNCIL INTERNATIONAL**

-  	  North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

- Financial partner, provider, regulator; sometimes all three
- DOT, DHS, HHS, EPA
- US Congress
- Starts out by asserting jurisdiction and putting in some money
- Entices locals into federal control with surprisingly small sums
- Locals come cheap
- “Sticker shock:” cannot sustain financial partner role
- Sometimes continues to “provide”
- Regulates, instead, increasingly to include the requirement to provide and build out space and services at no cost to the feds

***Myth #9*****:****	****Federal government pays the cost of its operations**

**AIRPORTS COUNCIL INTERNATIONAL**

-   North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

-  **Myth #10: The US Federal Government has taken over security**

-    Who IS in charge? National security vs separation of powers
-    Federal Government Agencies (DHS:TSA,CBP, etc) agencies 	still growing, testing the range of their roles and 	responsibilities; inevitable impact on airports and local law 	enforcement
-    Financial Issues
-   Already clear that it will have substantial direct and indirect costs
-   Already clear that the federal government will not fully fund the carrying out of the responsibilities with which it has charged the security providers and regulators; likely to
- get worse over time

## “Aviation Security is National Security?” or “Full Cost Recovery” TSA Proposed Security Fee Increase ($5.50 one-way, $8 RT)

***“******Aviation Security is National Security?” or “Full Cost Recovery”***** TSA Proposed Security Fee Increase ($5.50 one-way, $8 RT)**

**User Fees 56% of total**

**User Fees 83% of total**

- $1.15 billion reduction

**AIRPORTS COUNCIL INTERNATIONAL**

-   North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

**GAO: TSA lacks a sustained risk-management approach to or systematic analysis of its programs **

- The nine airport LOIs ($957.1 million) will *save* the federal government $1.3 billion over seven years. At these LOI airports, personnel to operate  baggage screening will be reduced by 78% from 6,645 to 1,477.
- Yet, TSA FY2006 Budget proposes to cut >$1 billion of general fund money out of TSA, more than doubles the security fee, and reserves no money for additional  LOIs.

## Where do we go from here?The Aviation Partnership

**AIRPORTS COUNCIL INTERNATIONAL**

-   North America

- 1775 K Street, NW
- Suite 500
- Washington, DC   20006

**Where do we go from here?****The Aviation Partnership**

**Airlines**
**Airports**
**Government**
- Resource provider
- Service provider
- Regulator