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Top Ten Myths about US Airports The Future of Air Transportation: Challenges and Opportunities for Airports 2005 FAA Forecast Conference PowerPoint PPT Presentation


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AIRPORTS COUNCIL INTERNATIONAL. North America. 1775 K Street, NW Suite 500 Washington, DC 20006. 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.

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Top Ten Myths about US Airports The Future of Air Transportation: Challenges and Opportunities for Airports 2005 FAA Forecast Conference

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AIRPORTS COUNCIL INTERNATIONAL

North America

1775 K Street, NW

Suite 500

Washington, DC 20006

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

David Z. Plavin, President

ACI North America


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AIRPORTS COUNCIL INTERNATIONAL

North America

1775 K Street, NW

Suite 500

Washington, DC 20006

Major issues for airports, today:

Capacity and congestion

State of the industry

Security


Myth 1 capacity and congestion are not major problems l.jpg

AIRPORTS COUNCIL INTERNATIONAL

North America

Myth #1:Capacity and Congestion are not major problems

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


  • Congestion at the most delayed airports july 2004 vs summer 2003 l.jpg

    1775 K Street, NW

    Suite 500

    Washington, DC 20006

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


    Congestion what are people doing to address the options l.jpg

    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.


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    AIRPORTS COUNCIL INTERNATIONAL

    North America

    1775 K Street, NW

    Suite 500

    Washington, DC 20006

    Myth #2:US airports are heavily subsidized

    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


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    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 l.jpg

    AIRPORTS COUNCIL INTERNATIONAL

    North America

    Myth #4:Airlines pay for everything

    1775 K Street, NW

    Suite 500

    Washington, DC 20006

    • 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


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    AIRPORTS COUNCIL INTERNATIONAL

    North America

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

    1775 K Street, NW

    Suite 500

    Washington, DC 20006

    • 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.


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    AIRPORTS COUNCIL INTERNATIONAL

    North America

    • 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.

    1775 K Street, NW

    Suite 500

    Washington, DC 20006


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


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    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)


    Six network carrier losses total 9 4 billion us air carriers 2004 financial results u s dot l.jpg

    AIRPORTS COUNCIL INTERNATIONAL

    North America

    1775 K Street, NW

    Suite 500

    Washington, DC 20006

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


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


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    Estimated 2005 Collections of Aviation Taxes & Fees*

    DHS Collections = $3.2B (20%)

    AATF + LUST = $10.5B (67%)

    *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


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    AIRPORTS COUNCIL INTERNATIONAL

    North America

    Myth #6: Airlines operate without subsidies

    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


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    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


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    AIRPORTS COUNCIL INTERNATIONAL

    North America

    1775 K Street, NW

    Suite 500

    Washington, DC 20006

    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?

    • 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


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    AIRPORTS COUNCIL INTERNATIONAL

    North America

    1775 K Street, NW

    Suite 500

    Washington, DC 20006

    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”


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    AIRPORTS COUNCIL INTERNATIONAL

    North America

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

    1775 K Street, NW

    Suite 500

    Washington, DC 20006

    • 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?


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    AIRPORTS COUNCIL INTERNATIONAL

    North America

    1775 K Street, NW

    Suite 500

    Washington, DC 20006

    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


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

    LCC Share of Domestic O&D Passengers

    Passengers With Access to LCC Service

    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)


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    AIRPORTS COUNCIL INTERNATIONAL

    North America

    1775 K Street, NW

    Suite 500

    Washington, DC 20006

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

    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


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    AIRPORTS COUNCIL INTERNATIONAL

    North America

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

    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


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    AIRPORTS COUNCIL INTERNATIONAL

    North America

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

    1775 K Street, NW

    Suite 500

    Washington, DC 20006

    • 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


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

    User Fees 83% of total

    User Fees 56% of total

    $1.15 billion reduction


    Slide28 l.jpg

    AIRPORTS COUNCIL INTERNATIONAL

    North America

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

    1775 K Street, NW

    Suite 500

    Washington, DC 20006

    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 l.jpg

    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


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