Smart Regulation Cuts Airport Congestion

Posted by & filed under CGR Staff, Rochester Business Journal.

Kent Gardner

Score a hit and a miss for federal regulators.

Nearly three years ago I wrote a piece for the now-defunct New York Sun complaining about delays from New York’s Kennedy International Airport (JFK). In August 2007, nearly a third of scheduled departures were late. The average delay was an hour and many planes waited far longer. But why would a plane leave the gate only to get in a big line? As it happens, at most major U.S. airports the FAA grants permission to take off on a “first come, first served” basis—and “first come” is defined by pushing off from the gate, even if this means queuing up behind 40 or 50 other planes, burning fuel to keep the plane’s cabin temperature tolerable and roll the plane forward a few feet every couple of minutes. Thus the FAA rule guarantees a level of tarmac congestion that can spiral out of control when other factors—like weather—intervene.

Tarmac delays occasionally hit the headlines. Caught without an effective emergency plan in a February 2007 snowstorm, jetBlue left a number of planes stranded away from JFK’s gates for many hours, a few as many as 11. Yet it was an event in Rochester—Minnesota, not New York—that prompted action. A Continental flight en route to Minneapolis was diverted to Rochester, and passengers were stuck on the plane for six hours.

In response, the Airline Passengers Bill of Rights was introduced in the U.S. Senate in 2009. While still pending, many elements were incorporated as regulation by the Department of Transportation. One element is a schedule of fines. Airlines leaving passengers cooped up in a plane for more than 3 hours would pay fines of up to $27,500 per passenger per infraction.

And the fines had the desired effect. After all, profitability can be elusive for airlines. Soaring fuel prices in 2006 and 2007 were followed by the Great Recession. Airlines began counting every last pretzel (and charging for them). A possible million dollar fine for a single aircraft incident certainly got their attention. A study released a couple of weeks ago reviewed statistics for May, the first month the rule was fully in effect (see Flights taking-off more than 3 hours after pushing away from the gate fell from 34 in May 2009 to only one in May 2010. Apparently the stupid airlines had to be threatened with fines to do the right thing by passengers! (High five, regulators!)

But wait a minute. Of those flights sitting on the tarmac for more than 2 hours, cancellations more than tripled (from 3.9% to 14.2%). In New York, Dallas and Chicago, cancellations under these conditions hit 20% (v. 5-8% the year previous). So here’s the question: Would you rather spend more time on the ground or have the flight cancelled? With a big fine in the offing when they mess up, flight cancellations seem to have become the airlines’ reflex. And as the Internet now allows the airlines to fill planes to near capacity, cancellations have ripple effects that may take days to resolve. Regulation is a righteous hammer—but it can have unintended consequences.

Air travel can’t be a free-for-all, of course. But regulation needn’t be so ham-handed, either. Earlier this year, JFK had to close a runway for four months, eliminating one-quarter of its capacity. Recognizing that the delays would go from aggravating to preposterous—and would force airlines to risk the new outsized fines—airport managers began assigning departure times. Airlines are now assigned departure times in 15 minute blocks by a private contractor employing former air traffic controllers. They study weather conditions, juggle airlines’ requests and match this up to historic airport performance.

Under the new system, the lines are down from 40 or 50 planes to 6 or 8. When delays occur, passengers wait in the terminal, not sealed up in aluminum tubes. The airlines can swap spots if priorities change. Fuel burn is down, saving money. And this will also contribute to improving air quality in the New York area—jet turbines are particularly dirty when run at the jet equivalent of idle. In a quote reported by the Wall Street Journal, the manager of airport operations at JFK observed that “We’re certainly seeing that there is a more efficient way to run an airport.” The FAA is considering putting the same system in place in other congested airports like Chicago O’Hare, Dallas-Fort Worth, Atlanta and Dulles. Score one for consumers.

So what took them so long? And what lesson can be learned from studying two very different solutions to related problems? The fines demonize the airlines, assuming that airline management is either stupid or indifferent to customer satisfaction. Yet in most markets—certainly New York City—the airlines face considerable competition. Both stupidity and consumer indifference will be punished in the market, as the success of upstarts like Southwest and, yes, jetBlue, demonstrate.  jetBlue’s response to its failings was to develop a “Customer Bill of Rights” that spelled out specific compensation for particular adverse events.

The second solution—assigning slots—is a systems approach that recognizes that the airlines aren’t empowered to cooperate with one another to stagger take-off slots. It is up to the regulators to impose some order on the system. In my 2007 column I urged the FAA to auction slots, a system I still support (see for the old column). Savvy regulation can achieve many of the benefits of an auction system.

Kent Gardner, Ph.D. President & Chief Economist
Published in the Rochester (NY) Business Journal August 13, 2010