Common Ground for Airport Investment

Common Ground for Airport Investment

February 19, 2015  | ENO CENTER FOR TRANSPORTATION

One might think that investing in airport infrastructure would be something that airport authorities and airlines would agree upon. Airport operators want to provide better services, and airlines want better airports. This would seem to be a no-brainer. Except that, of course, everything comes down to who pays and who gets to make the investment decisions.

The airports want airlines to pay but also want to maintain control over investment decisions. The airlines are willing to pay but also want to maintain control over investment decisions – hence the impasse. This battle plays out at the federal level in the debate over the Passenger Facility Charge (PFC), a fee that airports can add on to tickets and use to fund airport infrastructure. This issue arose yet again last week, when the U.S. Travel Association (USTA) spoke out about the need to lift the federal cap on PFCs. With the Federal Aviation Administration (FAA) Reauthorization coming up this year, we can expect this issue to be one that continues to engender conflict.

It does not have to be this way. The areas of agreement between airlines and airports are much greater than the areas of disagreement. Both parties want to make wise investments in airports that result in improvements for passengers. Both parties want to reduce airport delays. Both parties want to avoid unnecessary or wasteful expenditures. Both sides even agree that the airlines, and their passengers, must ultimately pay for any improvements. The source of the disagreement comes down to who controls investment decisions. This seems like an inherently solvable problem if both sides simply talked to each other and worked out a solution.

In fact there are many areas where airports and airlines could come together on policy solutions. Here are some ideas for them to consider if they ever decide to do so:

  • Reform federal grant programs for airports.

The Airport Improvement Program (AIP), a federal grant program for airport improvements, amounts to approximately $3.5 billion in annual spending based on revenues from aviation taxes and general funds. Even a cursory review of how those funds are spent reveals that they are not being used in a manner that ensures maximum return on investment. The vast majority of these funds are distributed by formula, but larger airports that levy PFCs must forego a portion of their AIP money, most of which is then redistributed to the smaller airports. The result is that the funds made available to larger airports are too small to make a significant difference in their budgets, while funds to smaller airports can be essential to their existence. Approximately 35 percent of AIP grants go to non-primary airports that handle 0.25 percent of U.S. passenger volume. While there may be both a political and economic justification for the federal government subsidizing smaller airports with low traffic volumes, the AIP would nonetheless appear to be a gross misallocation of limited resources.

It is time to recognize the AIP program explicitly for what it is – a federal program to subsidize smaller airports. There is nothing inherently wrong with such a program as long as there are clear national goals and performance measures to help ensure the money is spent effectively. Currently, the funding is not targeted to these airports based on any clear purpose. Is the goal to make sure that rural or smaller communities are not cut off from air service? Then that should be explicit and we should develop measures that distribute the funds on that basis. Alternatively, is the purpose to foster economic growth through airport investment? Then there should be some accountability for whether the program is achieving that goal. Congress needs to be specific about the goals for this program and then distribute the money on that basis. As it stands now, the airports with the most traffic and the major airlines likely both agree that the AIP is of little use to them.

  • Create a structure for PFC flexibility.

The problem with the PFC fight is that it often devolves into a black and white issue with no grey area. As if the only two options are lifting the federal cap on PFCs – currently $4.50 – or not lifting it. The issue is not whether to raise the PFC, but rather how can we best fund airport investment? The answer would seem to be that whatever mechanism we choose needs to include both airports and airlines in the decision to raise and spend revenue.

This speaks to the idea of creating a new methodology by which proposed PFC increases, or any method of raising airport revenue that directly impacts airline passengers, can be fairly evaluated. If airports and airlines can agree on an objective methodology for evaluating revenue increases, such as an analysis of the economic costs and benefits of the proposed investments that will be made, this might shift the discussion away from the mechanism and towards the desired goals and outcomes. Congress could increase the PFC cap for airports if they are able to meet these criteria. If this policy were in place, only the airports that were truly making beneficial investments would be able to raise the PFC.

Although airline and airport goals will not always align, at least the discussion could focus on the value and purposes of the investment decision at stake, rather than the mechanism. Airports and airlines could save millions of dollars in lobbying costs and focus instead on what they are trying to achieve together.

  • Encourage cooperation with regional transportation authorities.

One of the conflicts that can often arise between airports and airlines is how to manage and pay for airport ground connections in congested metropolitan regions. While airports often want to improve their product with better ground transportation connections, airlines typically resist having any of their revenue contributions used for such investments. This creates challenges for airports seeking to make these investments. Meanwhile, other local transportation authorities are often completely separate entities from the airport authority and may not perceive regional connections to the airport as their responsibility. The result is that ground connections to airports, despite their economic significance, can become an afterthought in a region.

Institutional change is needed and the federal government can be a driver, especially in the largest metropolitan areas. Without using AIP or PFC funds (which the airlines would oppose), the FAA could encourage these entities to work together more closely on regional connections. For example, they could make some portion of AIP money or a PFC increase contingent upon a plan for improved ground access where relevant. This could go a long way towards creating better ground connections to airports such as rail, dedicated bus lanes for express services, and improved road access.

Conclusions

The suggestion that airports and airline sit down and hammer out these types of solutions is not a new one. However, despite this concept being around for some time, it has not yet happened. This suggests that one or both parties are not particularly interested in solving the problem. We are unlikely to see change or even productive discussions intended to resolve these issues unless and until the representatives of both parties begin to focus on finding a solution.

Perhaps it is time for a neutral party to get involved and attempt to assist in finding solutions. It is unfortunate that the Administration budget proposal appears to take the side of the airports in the PFC discussion, because U.S. DOT could potentially act as a convener on this issue. Congress is also likely to be a challenging partner in this process. As a neutral think-tank Eno stands ready to step in and work with any and all parties involved to develop ideas and solutions.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of The Eno Center for Transportation.

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