The following post was written by Greg Principato, who was President of Airports Council International--North America, the trade association representing U.S. and Canadian airports, from 2005-2013. He was also Executive Director of the National Commission to Ensure a Strong Competitive Airline Industry (Clinton Administration) and a member of the Secure Borders and Open Doors Advisory Committee (George W. Bush Administration).
From the end of the Second World War into the 1990s, the United States had the world’s best and most modern aviation infrastructure. Our airlines used that infrastructure to develop modern hub networks. We moved more people and cargo than anyone. We showed the world how to get people and products to ever more destinations and markets.
But having showed the world, we grew satisfied and stopped investing. Meanwhile, much of the rest of the world, the Persian Gulf region, Asia, Australia, and even Latin America, is investing in a big way. Anyone flying from Singapore to New York’s JFK can see the difference. Hong Kong has become the world’s leading cargo airport, and Beijing (or maybe Dubai) will soon become the world’s busiest for passengers. Their airports are more modern, more efficient, and, yes, more pleasant. Our competitors are positioning themselves to be the transportation hubs of the 21st century global economy, while we remain positioned to dominate the 20th.
Our competitors fund and govern their aviation industry and infrastructure with the explicit goal of competing in a global economy. We do not. We govern and finance the U.S. aviation system the same way we did when the goal was simply flying people around our own country, at a time when the federal government set routes and fares. International travel was a small slice, and U.S. carriers dominated. Our financing system dates from the 1970s and our governance system from the 1920s. It is hopelessly and irretrievably out of date, and the results show.
The way we fund airports makes flexibility, efficiency, and good decision-making almost impossible. We have a federal airport grant program, funded out of the tax on tickets, with many restrictions on how it can be spent. Airports often access capital markets by floating bonds, especially for large capital projects. Sometimes these bonds are tax exempt, and sometimes not, depending on their use. Most airports around the world charge a passenger user fee. U.S. airports may do this, but federal law limits it to $4.50, very low by international standards, and places severe restrictions on its use. Airports sometimes go to the Federal Aviation Administration (FAA) to negotiate, square foot by square foot, how they pay for projects.
No one likes this arrangement. Yet it does not change, because everyone thinks they will lose if we change. Airports like the “comfort food” the federal check provides. Airlines like a limited passenger user fee because it gives them more control at airports. Airports chafe under the passenger user fee limit, but then argue only for a slightly higher limit. If an airport and its stakeholders want to do a certain project and finance it a certain way, then it should be of no concern to the federal government. That is the way it works around the world, where economic freedom yields good decisions and modern infrastructure. And yet, many in the U.S. airport community really want the government to set a number, a higher number, but a set number. They would rather have that than true economic freedom.
Airlines and airports have designed policy goals for short-term benefit. Neither group's goals add up to a global strategy. Combined, they leave our aviation infrastructure non-competitive. So, what should be done?
First, by 2016 the thirty largest U.S. airports should be dropped from the federal grant program and the passenger user fee limit raised to $8.50 (restoring the original purchasing power of the fee when the $4.50 limit was set). By 2018 this should be expanded to the next twenty largest. Any smaller airport could opt in. The ticket tax would be reduced to account for a smaller federal grant program.
Second, by 2020 the thirty largest U.S. airports should be removed from municipal governance and converted to a corporate form of governance. Many will say that some of our competitors have a strong state hand in governing. That is true. But those places are willing and able to invest, while U.S. airports are hamstrung. There are models all over the world for how to finance airports, from the Crown corporations in Canada, to various forms of concession agreements, to outright privatization. Each community can decide which is best for its situation. Airports outside the thirty largest that left the federal program would have until 2025. Once this is accomplished, federal rules limiting passenger fees would be eliminated and airports would also be able to make more competitive decisions on their retail and food and beverage offerings. This model has proven around the world to actually enhance airport-airline cooperation.
Finally, the current system of taxes and fees that fund aviation infrastructure should be reformed. It is inefficient and costly. The Secretary of Transportation would appoint a joint stakeholder/government panel to recommend reforms to be enacted when the FAA is reauthorized in 2015.
Some may see these proposals as extreme or impractical. If we do nothing we can limp along, fighting the same old fights, secure in the knowledge that our domestic market will keep a certain number of airlines and airports afloat. And that may be good enough for some. But we will no longer be a hub of international activity. Cargo will flow through other places, taking with it the businesses and services that locate in such hubs. International travelers will increasingly avoid the United States, first for connections and then to even visit at all. (Our visa and immigration processes have something to do with this as well). Our airlines, which once led the world, will be reduced to feeders for the big international players of the future. If you don’t believe this can happen, ask anyone old enough to remember when Pan Am and TWA dominated international travel.
Other countries have managed this because they better understand the role of air transportation in the global economy. Why can’t we?