Tuesday, August 12, 2008

No reports of widespread fainting spells

The legislative and policy-making process has been likened to a sausage factory, so no one knows how this will come out. But in light of the discussion of applying economic principles to public policy problems (exotic and even sinister for some, but not for others), here is today's WSJ editorializing on peak-load pricing at airports. No reports of widespread fainting spells yet.

Fixing the Unfriendly Skies

Here's your political puzzle for the day: Whose side would you be on in a tussle that features the Federal Aviation Administration and New York City Mayor Mike Bloomberg squaring off against Texas GOP Senator Kay Bailey Hutchison, Democratic Senator Chuck Schumer and the Port Authority of New York and New Jersey?

That's a tough one for people who like to think the mere presence of one of these players means little good could happen. Hint: What's on the table is a proposal to auction takeoff and landing slots at the nation's most congested airports.

This is a good idea, and we have to admit the real ringer in that lineup is the FAA, not normally associated with anything rational. In fact, the FAA is suggesting that market forces be allowed to untangle the ungodly mess of "traveling" through LaGuardia, JFK or Newark airports. Alleviating this nightmare with the FAA's proposal "seems to me to make a lot of sense," Mayor Bloomberg remarked. "You encourage big planes that carry more people." But from the Port Authority and Senators Schumer and Hutchison has come a simple response: Never!

Yesterday, the Air Transport Association -- the airline lobby -- challenged the auction in court, calling the government "intellectually dishonest." The Port Authority has promised to ban any airliner that uses an auctioned slot. Senator Schumer says the DOT is "hell-bent on jamming" the plan down New Yorkers' throats. Senator Hutchison is the top Republican on the Commerce Committee, and bonus points to readers who've already figured out a Texan's interest in faraway New York City.

Many airlines have admirably invested in airport infrastructure. Theoretically deregulated, the industry still has had the federal government allocating slots. Since 1969 when the High Density Rule put a limit on LaGuardia's flights, all three airports have been subject to limited operations each hour, causing constant delays.

Now comes the FAA with a strategy to, of all things, get the government out of the business of determining supply. Opening a market system where airlines would be free to bid on the slots they value most would increase capacity and lower ticket prices. Today some slots are consistently overbooked, with others left nearly empty. Even if a slot is underperforming, the airlines hold onto it. Why sell when there is no market? The entry barriers to entrepreneurs remain formidable.

The FAA has a fair proposal on the table. The auctions would occur over five year periods and enable carriers to lease their slots to other carriers, giving them the opportunity to buy back into the market.

The Port Authority replies the FAA has no right to "confiscate" the slots, which they claim as their own. But this property is derived from the FAA. The Port Authority also says auctions might raise marginal costs. But when new entrants join the market, fares likely will drop. Southwest Airlines expanded into Philadelphia International Airport in 2004 and fares dropped considerably.

There's no doubt the fuel-price spike has made life uncomfortable for the likes of American Airlines and Continental Airlines, both based, by the way, in faraway Texas. We suspect that most regular travelers have opinions of their own about the comfort level at these three chronically delayed airports. The FAA's auction idea deserves a chance to untangle one of travel's worst problems.