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

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 Fo

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  1. 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

  2. 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

  3. 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

  4. 1775 K Street, NW Suite 500 Washington, DC 20006 Congestion at the Most Delayed Airports July 2004 vs. Summer 2003

  5. 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.

  6. 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

  7. 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

  8. 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

  9. 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.

  10. 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

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

  12. 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)

  13. 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)

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

  15. 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

  16. 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

  17. 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

  18. 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

  19. 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”

  20. 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?

  21. 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

  22. 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)

  23. 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

  24. 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

  25. 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

  26. “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

  27. 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.

  28. 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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