Passenger Use Fees, Not Blank Checks Building Tomorrow’s Airports Around the World

Over the past several months, I have heard a lot of talk from airline and aviation labor leaders about the support other countries contribute to the success of their national airlines.  These arguments are used to buttress the campaign to enact a National “Airline” Policy.  My counter-argument (we are pushing for a National “Aviation” Policy) has been that these nations and their airlines succeed in the global transport network not only because they have policies that encourage a growing role for aviation, but because – and largely because – they have invested in aviation infrastructure.  Anyone who has ever traveled to, or through, Singapore, Hong Kong, Incheon, Doha, Abu Dhabi or Dubai can see that very plainly.  (See related Centerlines Blog from the Dubai presentation at our Customer Service Seminar last week in Florida.)

 “Aviation’s importance as a catalyst for growth is well-understood in the Middle East and particularly in the Gulf region, where airports rise ahead of the demand curve, not behind it.”   IATA's Tony Tyler

“Aviation’s importance as a catalyst for growth is well-understood in the Middle East and particularly in the Gulf region, where airports rise ahead of the demand curve, not behind it.”

– IATA’s Tony Tyler

 

I have pointed this out continually, and have also pointed out that these places – and others – use a passenger user fee similar to the American PFC or Canadian AIF to generate revenue.  It is not some sheikh or government just writing a check and printing money as some might have you believe.

This is done because leaders (government and business) in those places are looking to the future.  They are not building for yesterday’s traffic or yesterday’s customer or yesterday’s economy.  They are building for tomorrow.  They are shaping their future.

While the governmental systems in most of these places are not ones I would want to emulate, I do applaud their vision, and especially applaud their recognition that modern airport infrastructure, airfield and landside, is critical.

Because I run the airport trade association my words are dismissed by some.  But listen to the words of one of the world’s great aviation leaders:  “Aviation’s importance as a catalyst for growth is well-understood in the Middle East and particularly in the Gulf region, where airports rise ahead of the demand curve, not behind it.”

Who said this?  Some airport director?  Some airport association leader?  No, it was Tony Tyler, Director General and CEO of IATA, the International Air Transport Association — the worldwide voice of airlines.  IATA has been a leader in moving toward a modern system to develop airport infrastructure and Tony, in his current role and in his previous role at Cathay Pacific, understands that.

I agree with Tony and with so many airline leaders around the world who see things the same way.  I remain hopeful that we can work with America’s airlines to build a better future for our passengers; one that helps airlines grow profitably into the future and allows communities the ability to prosper in the 21st century economy.

User Fees are Not Wacky Spendthrift Ideas

There has been a lot of attention paid recently around Washington to how to pay for transportation improvements.

The U.S. Chamber of Commerce has been an important player in this and they should be; the business community is heavily invested (if you will) in how well our transportation system works.  Their president, Thomas Donahue, made an important speech earlier this week on a range of economic issues and when he touched on transportation he said that the users should pay.  Makes sense, I think.

capital domeAlso earlier this week Virginia Gov. Bob McDonnell, who has been under heavy pressure to do something to increase investment in the Commonwealth’s transportation infrastructure, announced a plan that would eliminate the gas tax and substitute an increased sales tax.  Reaction is mixed, but I was interested to hear Republicans interviewed say they are reluctant to embrace this because they feel users should pay.

What is interesting about all this is that two of the more noted conservative institutions in the country, the U.S. Chamber and Virginia Republicans (many of them anyway, the governor is a Republican after all) are publicly embracing a user fee approach to finance infrastructure.  And (without passing judgment on the governor’s specific plan as I am not intimately familiar with it) I agree with them.  Indeed, all those places all over the world we like to point to as being ahead of us in investing in infrastructure use some sort of user fee approach.  Whether in the form of a straight fee or a fuel tax or whatever, the principle of user pays makes sense and, if the levels are set correctly, it works.

This has been the crux of our argument on the PFC for years now.  The PFC is not a federal tax, it is not a federal ANYTHING, except a federal limit on the ability of a community to set a user fee to pay for its own aviation infrastructure.  The PFC, as important thinkers like Bob Poole of the Reason Foundation have argued for years, is the best conservative approach to financing airport infrastructure.  It is paid by users, it is not filtered through Washington or a state capital, it is tied to specific projects, stakeholders and the community must be consulted, and it has an expiration date.  If you gave a conservative a blank sheet of paper and asked him or her to draw up a perfect infrastructure financing scheme my bet is it would look just like this.  And such an approach would benefit the airlines too, that is why airlines all over the world have pushed for such a model.

These are not wacky spendthrift ideas.  They are solidly conservative and prudent and right for these economic and political times.

Will there be sequestration? I don’t think so

I was at an aviation event the other day and ran into a friend who runs another aviation association.  Say something about sequestration, she asked.  Ok. Here are a few thoughts.

First, I strongly believe it will not happen.  That Congress and the president will figure something out.  For a whole variety of reasons, I think the climate is right for some sort of deal.capital dome

I do agree that if sequestration happens, NextGen would take a big blow.  This cannot be permitted to happen.  But pardon me for being a little jaded.  I’ve been working on air traffic control reform and modernization since 1993 when I authored a presidential commission report calling for satellite based navigation by 1997.  It didn’t happen then because certain interests didn’t want it and, frankly, the airlines did not care.

In the end, the best way to move this along is to change the way it is financed, allow access to capital markets, as proposed by our 1993 commission and so many others.  The real lesson from sequestration is that getting air traffic control modernization out of the usual Washington way of doing things is the best answer.

The same is true with airport infrastructure. Although the federal grant program is not impacted by sequestration, it just shows how unreliable Washington is as a partner.  We must allow airports more freedom to generate their own resources.

Bottom line.  Doubt it will happen, but I think sequestration really shows how we need less Washington in the matter of aviation infrastructure.

Just before I started writing this I learned of the death of Sen. Daniel Inouye.  Senator Inouye is the second longest serving senator ever, and one of the greatest Americans of the 20th century.  He was a true war hero, who left his arm on a battlefield in Europe during World War II.  He was a great patriot and senator, one of those people who knew how to get something done.  He was an important part of the Watergate Committee in 1973. Such was his integrity that, even though he was a Democrat, no one ever questioned his aggressive pursuit of the truth.  When I arrived in the Senate as a young staffer six years later, I could easily see the quality of this man.  Later, I had the honor of testifying before his committee.  And I still recall going to some ceremony in the Senate a few years ago, taking my seat and then looking up a moment later as Senator Inouye asked if he could sit next to me.  No pretense, no “great man” vibe.  Just one of the greatest people this country ever produced politely asking if a seat was taken and if he might be able to sit there.  I can’t stop smiling thinking about it.  What a great man.  They say his last word was “Aloha.” So I will say Aloha, Senator Inouye.

An Industry Veteran Has It Right

I was talking to a friend the other day, one who has been in the aviation industry a long time and worked with and for airlines for much of that time.  He expressed to me, unasked and unprompted, his concern with the airline industry’s initiative to enact a National Airline Policy rather than a National Aviation Policy.  How can we leave out all the other sectors, he wondered?  Where would this kind of approach leave us? On the outside, looking in, he guessed.

greg-blog-photoThat conversation turned my mind back to the speech Sen. Jay Rockefeller gave earlier this year to the Aero Club of Washington.  Sen. Rockefeller was lamenting the fact that it took so long to get an FAA bill enacted, and I should say it was an effort he poured his heart and soul into. With much justification, he said that the reason was the aviation industry never came together. He implored us not to let that happen again. That, in large part, is why the ACI-NA board passed a resolution favoring a National Aviation Policy, and specifically mentioned policies to promote every sector.

So, back to my friend, the airline veteran. How do you square what Sen. Rockefeller asked us to do with what the airline industry, as a group, is doing? You cannot. Dividing the industry makes no sense. As I have written before in this space, the only real thing that is keeping the aviation industry as a whole from moving together is the airlines’ unwillingness to engage on the issue of airport infrastructure. I know they like to point to various countries

So when will the airlines get the message and work with the rest of the industry?

around the world as having enlightened policies, but the point they miss is they have AVIATION policies not airline policies. They use policies to build and modernize airport infrastructure that can benefit airlines but are banned/limited here, partly because airlines have decided to cut off their nose to spite their face.

I continue to hope the entire aviation industry can come together. Airports are willing and I know most other sectors are willing as well.  So, why will the airlines not heed Sen. Rockefeller’s great advice and join the effort to come together?

Get Ready For Holiday Travel

Kudos to TSA Administrator John Pistole for holding a press conference at Reagan National Airport Tuesday about the busy Thanksgiving holiday travel period that is less than a week away.  We have widely supported TSA’s risk-based security initiatives and I applaud the agency for proactively sharing how these initiatives help ensure, as he put it yesterday, “…effective security in the most efficient way.” Also that travelers should check the TSA website to make sure they understand the rules for liquids, aerosols and gels in their carry-on bags.

TSA Administrator John Pistole

I will be doing the same thing on behalf of the nation’s airports early next week through a series of TV and radio interviews. I’ll use those forums to discuss how airports are preparing for the high volume of anticipated traffic and inform the public about what they can expect at airports this holiday season.  America’s airports are prepared to meet the needs of holiday travelers and airports want passengers to have a great experience regardless of whether it’s Thanksgiving, the December holiday season, or any day of the year. The main message is to be prepared – check the airport, airline and TSA website to make sure you have all relevant information.  Also to pack your patience!

Airports are complex environments, with airlines, federal agencies, concessionaires and airport staff all responsible for different things.  But everyone is working together to make the travel experience safe, secure and whenever possible, convenient for passengers not only during the holidays, but throughout the year.

A key part of making the passenger experience enjoyable is reducing the wait time at the security checkpoint line or for processing international arriving passengers by CBP.  The key to success is for TSA and CBP to have adequate staffing to handle the millions of passengers who will travel not only during the holiday season but all year round. We are already experiencing problems at international airports so I am concerned about what might happen if Congress and the President don’t address the looming sequestration threat.  I am not alone – lots of people are concerned about the cuts we could see early in the new year.  Administrator Pistole was asked a question about that on Tuesday and he responded that “…the bottom line is to keep the frontline security operations in full force, to keep the movement of people and goods moving smoothly.”

Earlier in the press conference he emphasized how PreCheck and technology are helping to increase efficiency.  In facilitation we have Global Entry and pilot programs for Automated Border Control.  But there is more that needs to be done.  We also need better recognition that airports are a key driver of our economy, responsible for 8 percent of U.S. GDP and an estimated 7 percent of jobs.  They are critical for our global competitiveness.

Brookings study does a real service

A short time ago, I posted a guest blog on the National Journal transportation blog site,  the topic this week is on recent Brookings study on international air travel and our international airports. The study found them lacking due to the inability to invest in needed upgrades. More importantly, it spelled our a series of recommendations to fix the situation.

Here is my blog and my thoughts on two of the recommendations:

The Brookings study shines an important light on a key fact: that a very few airports support a great percentage of this country’s international traffic, even traffic that begins elsewhere. In an increasingly global economy we must make the best of this tremendous asset; our competitors are certainly doing so. Yet, we have a set of policies in this country that utterly fail to take this into account.

Happily, the Brookings study proposes two policy changes long championed by Airports Council International – North America that could make a big difference: making permanent the exclusion from alternative minimum tax of airport private purpose bonds and – most importantly – allowing airports to generate their own resources by removing artificial federal restraints on those airports.

In particular, this second tool is one that is used all over the world. Airlines and others like to point to places like Dubai and China and say they are investing in new facilities and we need to do the same. Yet, those places use exactly the tools that federal law prohibits here – a passenger user fee. In the United States, we largely rely in a system of government grants that is under severe pressure and the issuance of debt that can never be a long-term stand-alone strategy. The passenger user fee is severely limited, at the insistence of airlines who believe it gives airports too much control over their own future, and supported by the federal government, at least tacitly, which supports the current Washington-based system.

So, I believe the Brookings study does a real service in pointing out the importance of our international gateways and the fact that current policies hold them back. I do not think doubling down on Washington is the answer. And I also think we need to keep in mind that we have a system of airports in this country. If anything, the federal involvement should be re-oriented, and airports need to be able use the same tools in use by our competitors all over the world. It will help our economy, our communities and, I would argue, our airlines. If we do this, our international gateway airports will be able to do their part to undergird our national competitiveness.

Infrastructure Investment Is A Community Issue

Invited to participate in a National Journal blog, ACI-NA President Greg Principato today posted the following blog in an answer to this question: Can the link between consumers and infrastructure wonks be drawn more closely?

Unfortunately, in aviation as with many other industries, consumers may not have the best understanding of government policies that have a big impact on them or their communities. Earlier this year ACI-NA conducted national research that showed consumers don’t fully understand how airports are funded, but when educated, they largely support airport infrastructure investments.

A majority (61%) recognized the importance of airports to the economy, with 33% saying they are “extremely important” to their local economy, a finding that is consistent with a recent ACI-NA report that found that 10.5 million jobs and $1.2 trillion in spending were attributable to economic activity generated by the nation’s 490 commercial airports. But despite widespread public support, only one in four Americans were aware that the federal government has the power to limit how airport improvement funds are spent at the local level. Even fewer people (16%) know that general tax revenues are rarely used to fund commercial airports.

ACI-NA is working to change that and has recently launched a national public education campaign aimed at fostering awareness and understanding of the vital role that America’s commercial airports play in economic growth and job creation.

This is critically important because local communities need to come together to support improving airport infrastructure. The FAA projects that domestic passenger and cargo volumes will at least double over the next decade. To give you a frame of reference, in 2012 we expect 730 million people will travel through America’s airports. By 2024, we expect that number to swell to 1 billion people.

It’s a mistake to get too wonky on this issue because the most important thing for consumers is that their airports run efficiently and help to generate positive economic impacts in their communities. This point has been underscored by the pervasive political discussions regarding local and national elections–people want policies that will help create jobs and restore economic growth.  Well, vibrant airports are essential for communities as they seek to grow their employment base and attract new businesses. But we need to ensure that our airport infrastructure can continue to support the growth that it’s helping to create.

Airport infrastructure is not an aviation issue but a community issue and an economic development issue. We need to start talking in those terms so that Main Street understands their stake in airports being able to build and maintain effective modern infrastructure.

The entire discussion can be found online at the National Journal blog site.

As I have said and the Post now reports — airline baggage fees costing U.S. Treasury millions

I was thumbing through the Sunday Washington Post last night and came across an article in the Business Section called “Moneybags.”  I figured it was about hedge fund managers or Alex Rodriguez.  But it was about the bag fees and other fees charged by the airlines.  And not so much that the airlines charge those fees, but the fact that by doing so the Aviation Trust Fund is being shortchanged, with big implications for the future of the American air transportation system.

Now I have been one of those saying all along that airlines can charge whatever they want.  It is a deregulated system and if the customer will pay then, as long as everything is fairly disclosed, they can charge how they want.  That doesn’t always make me popular in some quarters.

But what I have also pointed out is that by moving to this model the system we have for funding aviation investments in this country is now broken and in need of reform.  And that if we don’t reform it then we will be short of the revenue we need to really implement NextGen and to fund capital improvements (if someone can show me how to do those things without money I am all ears.).  And NextGen is something the airlines all tell me they really want and need (count me skeptical on that score, but that’s another post).

At the same time, the fiscal cliff Congress has built as an incentive for a new debt deal looms and millions of people now know a new Washington term “sequestration.”  I wrote about this earlier this week in an AOL.com article.  All of these things conspire to push the implementation of NextGen; and efforts to build a 21st century aviation infrastructure, further into the future.

I have said it before.  Most of the aviation community understands these things and knows we need to address them.  The ACI-NA Board passed a resolution calling for a new National Aviation Policy to deal with them.  Included in this policy is rationalizing the tax and regulatory regime under which airlines operate.  It was not an “airport-only” resolution.  I think most of the aviation community agrees with this.  The only thing keeping us from dealing with it is the refusal of the airlines (as a group) to work with airports and discuss ways to modernize the system for financing airport infrastructure.  I truly hope that cooler heads will prevail and that we will be able to all work together to build the kind of air transportation system we all say we want; a system that will ensure a competitive future for a competitive nation.

A final note:  One of my real “Welcome to Washington” moments came right after I got here in 1979.  I was a 23 year old, freshly-minted, Senate staffer and was briefing my boss on the merits and demerits of a bill to bail out the Chrysler Corporation (yes, boys and girls, the issues don’t really change).  We got on a Senate elevator and I continued to talk.  I all of a sudden realized that the others on the elevator were all listening to me.  Their names were George McGovern, Frank Church and Birch Bayh.  All people I had grown up admiring.  The fact that they listened actually made me more confident; it was a real key moment.

So, I was saddened to learn yesterday that Senator McGovern had passed away.  Most of you know him as a failed presidential candidate, but he was so much more:  a hero of World War II, a dedicated public servant and a genuinely nice fellow.  He and Bob Dole worked closely together on programs to ensure that children and others in this country would have access to the food they would need.  He worked later in life with Jack Kemp on tort reform issues.  He was someone willing to work across the aisle with anyone who could help solve a problem.  One of the real ah ha moments I had (a series of moments, I guess) was seeing Senator McGovern in action, and also seeing Senator Barry Goldwater work (Sen. Goldwater’s office was right next to ours, talked to him a few times, another nice fellow and not the devil I was told he was when I was a kid).  The two of them represent, to many people, polar opposites in American political ideology.  But each was willing to work across the aisle.  Each wanted to legislate.  Hopefully they are getting together in the Senate in the sky and can help inspire today’s political leaders to look to a time when such things were possible.  Sen. George McGovern.  RIP.

Florida Airports Address: The Need for Change

I’ve just returned from the Florida Airports Council meeting in Naples.  This is usually the third largest annual airport conference in the United States and offers a full program touching on the key issues facing airport operators.  Florida is a state heavily dependent on aviation; indeed more than 10 percent of the national impact of the airport economic engine, as measured by our Economic Impact Study earlier this year, comes from Florida.  This is the second time I have been invited to speak.

As you might imagine, I focused my speech on the need for a new airport financing model.  One Florida airport director has told me that a project recently completed at his airport could not be accomplished today given the out-of-date system.  He was lucky to have completed his project, but others are not quite as lucky.

Greg Donovan, of Northwest Florida Regional Airport and president of the Florida Airports Council, and Greg field questions at the July 25 event.

Our message must be getting through because I now see things coming from important airline voices designed to counter our arguments.  You might think I am happy about this, and perhaps on a certain level I am.  But, as I always point out, I am NOT anti-airline and I don’t know any airport directors who are.  I truly believe that if we can reform and modernize the system by which we finance airport infrastructure, airlines would benefit financially and in every other way.  They may not have as much control at airports as they do now, and the competitive landscape may be more wide open, but they will do better, I am convinced.

There have been calls for a national “airline” policy.  I, and others (most recently Chicago Aviation Commissioner Rosemarie Andolino in a well-received speech at Washington’s Aero Club) have called for a national “aviation” policy.  One that recognizes that the purpose of air transportation is the movement of people and products to destinations and markets and, by so doing, promotes economic development and activity.

No airline executive I have ever heard believes the current set of federal policies, including various taxes and fees, is very good.  They might be surprised to know I agree with them.  I saw a piece by the CEO of United Airlines (I fly United a lot, made 1K for 2012 on July 8) a few months ago where he talks about the mish-mash of policies that adds up to a burden on airlines.  He might be surprised to know I agree.  What we are doing now does not keep us globally competitive, and we need to change.  But that need is across the board.

If you go to www.airportsforthefuture.org you will see plenty on this from the airport perspective.

Here’s one from the airline perspective:  in the 1997 FAA reauthorization (which did NOT include a PFC increase) included changes in aviation taxes and fees.  The legacy airlines, in fact, insisted that the tax section be looked at and “re-balanced” as they felt the previous regime favored the low cost carriers a little too much.  And, the re-balancing (reducing the ticket tax and adding the segment fee) had that basic effect.  But by opening all that up for discussion, the other changes that were made (mostly the increase in the international arrival/departure fee) means that airlines have paid $11.8 billion MORE than they would have otherwise since that time ($10.6 billion net if you subtract the savings from the other changes mentioned above).  Yes, if nothing were done and current law had been maintained, the airlines would have saved a net of $10.6 billion.  And have we seen Customs and Border Protection Services, which are supposed to be supported by those fees, improved since then?  That answer is an absolute NO.  Are the airlines happy about that?  No!  Are the airports happy about that?  No!

No airport operator likes this result.  We want to see these kinds of things changed; we want our aviation system:  airports, airlines, manufacturers and others, to be globally competitive.  The time is ripe for a fresh look at all of this.  Calls for a policy focused on only one segment of the industry distract from what this country really needs.

Air Line Pilots Association President Lee Moak said recently at another Aero Club of Washington speech that the industry agrees on 95 percent of the important issues and we should focus there.  I agree.  And, I believe that if we do that, we can improve the landscape over that 95 percent while finding a way forward on the other 5 percent that can work for all of us – and especially for the travelers and shippers who depend on us.

Along the Way I Gave a Speech

I just returned from a three city, 11 day trip; starting in Las Vegas, continuing to Pasadena/Burbank and then to Denver.  Along the way I saw some beautiful things.  The Pasadena City Hall, which I saw from my hotel room there, is as beautiful a public building as you’ll ever see and the Rocky Mountains, which I could see from my room in Denver, are…well…the Rockies.  I saw some creepy things, in my room at the Planet Hollywood Hotel in Las Vegas was a kimono worn by Buffalo Bill in Silence of the Lambs (it was in my sleeping room!).  I saw some things I’d always wanted to see, such as Dodger Stadium (the 35th Major League ballpark I’ve visited).  And, I saw one of my oldest friends and a former college roommate (talented fellow named Julius Thompson, he actually won the Gong Show!)

Delivering the opening address at Global Airport Cities last week in Denver.

I also saw, through the three venues, roughly 1,300 folks, most of them ACI-NA members.  In Las Vegas I saw our Environment and Ops committee members, in Pasadena I saw our Airport Board Members and Commissioners, and in Denver I attended the Global Airport Cities conference, where I saw a number of airport directors and leading executives of key companies that supply airports and their passengers with goods and services.

Whenever I take a trip like that, I am always amazed at the energy, vision and intelligence of the airport community.  And, I am thankful to work for an industry that does so much to connect us to the world and to each other.  And, I must say, it is great to work for an industry where we don’t have to spin our good intentions, they are at the core of what we do every day.

But our ability to invest in our future, and that of our communities, is endangered.

In Denver, I gave a speech answering those in the airline community, in government and elsewhere, who say we do not need to invest in our aviation future.  Who say that our market is mature; that there will be no more growth.  Who say it does not matter that our competitors are investing in newer, more modern, efficient, facilities; they are just trying to build what we already have, not to worry.

I think these folks are wrong, and a quick look at demographics, economics and history shows they are.  The U.S. will add the equivalent of the population of Japan in the next few decades; we are, as Fareed Zakaria said, the only demographically dynamic country in the industrialized world.  New businesses and new industries are being invented and created all the time.  Our economy is incredibly dynamic, even now.  According to the World Trade Organization, 50 percent of U.S. exports, by value, travel by air.  Do none of these things matter?

What some are saying right now reminds me of what steel and auto executives said after World War II.  We know how that turned out.  By the 1970’s and 80’s Capitol Hill was crawling with people representing both industries begging for protection.  I worked there back then, I saw them.  Airlines are already doing that, working against Export-Import Bank support for sales of U.S. aircraft to non-U.S. airlines (to be clear, I am not taking sides in this one; not something we are involved in.  But it IS an example of the aviation industry feeding on itself).

I pointed out that by not investing and by concluding that the future will be devoid of growth we can guarantee that we will be right.

Afterwards, I got a lot of nice comments.  That’s to be expected, most people are polite.  But the most interesting comments I got were from those who are either from some of the parts of the world that want to supplant the US as a global aviation hub, or from many who have worked in those parts of the world.  They agree that I am right.  You see, some in the U.S. may be complacent about keeping our dominance, or perhaps figure that it is assured till the end of their own careers.  But there are a lot of folks out there who have us in their sights.

I invite you to read the speech and share your thoughts.