Airport Investments Discussed in House Transportation and Infrastructure Hearing
March 29, 2019
On March 26, the House Aviation Subcommittee hosted a hearing, “The Cost of Doing Nothing: Why Investment in Our Nation’s Airports Matters.” To open the hearing, Rep. Peter DeFazio (D-OR), the chairman of the full Transportation and Infrastructure Committee, listed some striking numbers: the Federal Aviation Administration forecasts that over the next five years, US airports will register need for $35.1 billion in Airport Improvement Program (AIP)-eligible projects. The situation for non-AIP eligible (a.k.a. “groundside”) airport needs is “even bleaker”, stated DeFazio, with the Airports Council International estimating needs of $126 billion per year in investments at US airports.
AIP funds are typically allocated to airfield projects, while non-AIP eligible terminal capital construction projects receive funds from the Passenger Facility Charge (PFC) Program. Currently, this program allows for fees of up to $4.50 per enplaned passenger at commercial airports to be collected. This has been the rate since 2001, and the fee hasn’t been indexed to inflation. If that was the case, the PFC would be about $8.50 today.
As to be expected, the consistent divide between airports, who would like to see a raise in the Passenger Facility Charge (PFC), and airlines, who oppose the additional charge (which they would have to collect) manifested. Themes of assessing current and future infrastructure needs (as opposed to infrastructure wants), granting more control over the fee to localities, and considering various compromises arose throughout.
- Tori Barnes, Executive Vice President of Public Affairs, US Travel Association (written testimony here).
- Ted Christie, CEO and President, Spirit Airlines (written testimony here).
- Lawrence J. Krauter, Chief Executive Officer, Spokane International Airport (written testimony here).
- Joe Lopano, CEO, Tampa International Airport (written testimony here).
- Candace S. McGraw, CEO, Cincinnati/Northern Kentucky International Airport (written testimony here).
- Marc Scribner, Senior Fellow, Competitive Enterprise Institute (written testimony here).
Current and future infrastructure needs
In his statement, T&I Ranking Member Sam Graves (R-MO) pressed the committee to think about infrastructure needs rather than infrastructure wants. In response to Rep. Thomas Massie’s (R-KY) question about what additional PFC funds would be spent on, McGraw listed updates to various “behind the scenes” infrastructure, including the baggage system and mechanical/HVAC systems. Following this, she stated that her airport would look at adding additional ticket counters. In all cases, she stated, decisions are incumbent on good airport management to determine appropriate projects.
The PFC’s ability to finance debt came up a number of times. Krauter indicated that the PFC forces airports to finance investments over a long period, resulting in nearly as much in interest payments as is paid for the project itself. He indicated that modest increases in the PFC would substantially shorten the financing period and bring down interest costs, allowing the PFC to fund medium- and long-term projects. Ms. McGraw indicated that because airlines no longer sign on to 30-year airport use agreements as they did in the past, airports take on inherent risk that may result in balance sheet debts.
In support of his argument that PFCs aren’t the best tool for airports to raise funds, Christie said that most US airports are in excellent financial health, with investments, passenger flows, and revenue all on an upward trajectory. He indicated that “airports enjoy investment-grade bond ratings in an era of low interest rates. Capital is cheap.” He further stated that airlines have similarly made investments despite their lack of access to investment-grade bonds or capital markets.
Later, Lopano indicated that PFCs are “one piece of the pie.” Airports enjoy having good credit ratings, but he stated these are possible due to PFCs.
Returning control to localities
Based on surveys of air travelers by the US Travel Association, Barnes indicated that the top three frustrations of air travelers are airline fees, the overall cost of flying, and general hassles. With respect to the former, 58 percent of flyers indicated they would be willing to pay up to $4 more per ticket to facilitate airport improvements. She pointed to an example of O’Hare Airport using the PFC to renovate vacant gates and transition their use to low-cost carriers like Spirit Airlines as evidence that, “for airports that choose them, PFCs work and they grow travel.” She also stated that the more passengers know about the increase in fees and how they affect their airports, the more likely they are to support those fees.
Rep. Doug LaMalfa (R-CA) asked panelists why Congressional action should be used to increase PFCs, instead of relying on locally-available tools. Funds should be locally-controlled and, as is currently the case, overseen by a board of directors that controls the airport and lends oversight and accountability, stated Lopano. Scribner indicated that rather than signaling an increase in government control, an increase on the PFC would in fact signal the federal government stepping back and granting local responsibility to the airports and their boards.
McGraw iterated the limits on what kinds of user fees an airport can impose. Specifically, ridehailing service fees and parking fees, in addition to PFCs, should all be set based on local conditions, she said. (Ed. Note: See this recent Los Angeles Times article on how LAX has used ridehailing fees to replace lost taxi and parking revenues.)
Compromise arose both in the sense of considering a variety of revenue options available to airports, but also settling the debate about increasing the PFC.
Rep. Donald Payne (D-NJ) asked if there were other ways airports could raise revenue that would have a limited effect on customers. Lopano pointed to landing fees and parking fees, but stated that it is incumbent on those who use the facility to pay their fair share. Scribner indicated that major non-aeronautical revenue sources like parking and car rental fees are facing risks as passengers arrive at airports in different ways, such as in ridehailing vehicles. He stated that PFCs represent a low risk, sustainable source of revenue for airports.
Rep. Rodney Davis (R-IL) pointed to fear that both sides of the PFC debate would get dug in and a solution ultimately would not be achieved. Ms. McGraw stated, “we’re not asking for it to be raised to $8.50, but rather for airports to have the ability to do so if there is need.” She suggested that the consultation process with carriers allows room for them to object to projects they don’t support.
Scribner stated that the bill introduced in the last Congress by Reps. Massie and DeFazio was a start to an effective compromise. This bill would have eliminated the PFC cap and required airports going over $4.50 in PFC fees to return 100% of their AIP funding, in addition to reducing AIP spending authority by $400 million per year.