Reforming the ATC System to Promote Economic Efficiency

Transcription

1 Refrming the ATC System t Prmte Ecnmic Efficiency Drthy Rbyn The Brattle Grup NEXTOR Natinal Airspace System Perfrmance Wrkshp Asilmar Cnference Center Pacific Grve, CA September 5-6, 2007

2 Agenda Symptms Prblem #1: Gvernance Prblem #2: Financing Cnclusins 1 1

3 Key Pints Flight delays, utdated technlgy and rising unit csts are symptms f the underlying prblem with ur ATC system The prblem itself is ne f faulty incentives a result f the current a) gvernance structure and b) financing system ATC is a 24/7 service business being run ut f a traditinal gvernment agency Passenger-tax financing (tgether with weight-based landing fees) is perverse, and cntributes directly t flight delays The federal gvernment can substantially reduce delays by pricing the scarcity f airways and runways. Hwever: FAA has failed t make the efficiency case fr user fees DOT s Rates & Charges Plicy remains majr (perceived) impediment t airprts use f cngestin pricing/slt auctins/flat charges 2 2

4 I. Symptms 3 3

5 Symptms Flight Delays Flight delays are the mst visible symptm f ATC prblem Figure 1 Flight Delays 120,000, ,000,000 80,000,000 Hurs 60,000,000 40,000,000 20,000, Surce: ASQP and T100 Dmestic Segment Year 4 4

6 Symptms Flight Delays Flight delays are a drag n the ecnmy Cst t airlines $7.7B (2006) Cst t pax $3B-$13+B Published delay statistics understate true csts Flight cancellatins Missed cnnectins Airline schedule-padding (see Fig. 2) 5 5

7 Symptms Flight Delays Figure 2 Increase in Flight Travel Times Air Time Grund Time Year Surce: Steven A. Mrrisn and Cliffrd Winstn, Delayed! U.S. Aviatin Infrastructure Plicy at a Crssrads, in Aviatin Infrastructure Perfrmance: A Study f Cmparative Plitical Ecnmy, edited by Winstn and Gines de Rus (Brkings Press, frthcming). 6 6

8 Symptms Flight Delays Prximate cause f increase in delays is decline in aircraft size 140 Figure 3 Average Seats per Aircraft in the U.S. Cmmercial Dmestic Fleet Surce: Department f Transprtatin, Federal Aviatin Administratin, FAA Aerspace Frecasts, Fiscal Years and FAA Aerspace Frecasts, Fiscal Years

9 Symptms Flight Delays Figure 4 Change in Average Seat Size by Airprt All Departures % % -0.1% -6.8% 9.9% -18.9% -10.4% -11.4% -4.2% ATL DFW EWR IAD IAH JFK LGA ORD PHL July 2002 July

10 Symptms Flight Delays As a result f dwngauging, the increase in departures has exceeded the increase in passengers Figure 5 Dmestic Scheduled Air Traffic Departures & Passenger Traffic Passengers (Right scale) (Millins) 6.0 Depatures (Left scale) (Millins) Year Surce: Department f Transprtatin, Bureau f Transprtatin Statistics, U.S. Air Carrier Traffic Statistics 9 9

11 Symptms Outdated Technlgy A secnd symptm is ur utdated ATC technlgy Aging technlgy limits capacity and raises csts Imprecise radar wide separatin f aircraft Terrestrial navaids inefficient air rutes Aging equipment expensive maintenance Chrnic prblems with mdernizatin: Mst FAA mdernizatin prjects have a recrd f (1) prmising mre capability than they ultimately deliver, (2) being cmpleted later than prmised, and (3) csting far mre by the time they are cmpleted than the initial cst estimates. Refrming the Federal Aviatin Administratin: Lessns frm Canada and the United Kingdm, by Clintn V. Oster, Jr., with the assistance f Jhn S. Strng, IBM Center fr the Business f Gvernment (2006), p

12 Symptms Flat Prductivity & Rising Unit Csts Symptm #3 is the FAA/ATO s flat prductivity and rising unit csts 160 Figure 6 Cntrller Prductivity & ATC Unit Csts 3, Instrument Operatins Per Cntrller 3, Expense Per Instrument Operatin ,500 2,000 1,500 1, Expense per Instrument Operatin ($2006) Instrument Operatins per Cntrller Fiscal Year

13 II. Prblem #1 Gvernance 12 12

14 Prblem #1 Gvernance As a traditinal gvernment agency, FAA is nt wellsuited t perating a 24/7, high-tech, service business FAA faces mre cmplex incentives than des an rdinary business Wh is the custmer? Russ Chew s three value chains Cngress as de fact custmer Federal budget rules and cnstraints Pressures t verstate benefits and understate csts f large investment prjects Lack f technical versight exacerbates principal-agent prblems Incentives t maximize utput 13 13

15 Ecnmists Rx: Mve ATO ut f FAA Mst ecnmists favr mving ATO ut f FAA Efficiency ratinale Safety ratinale Less agreement n where t put it, since it remains a mnply Independent gvernment crpratin (e.g., USATS) User-wned cperative (NavCanada) Private crpratin with rate regulatin (NATS) Key questin: Where and t what extent can system take advantage f cmpetitin? Current examples Cntract twers Flight Service Statins ADS-B Cntract What s pssible lnger term? Histry f netwrk industries: technlgy creates ptential fr cmpetitin in what was nce a natural mnply

16 III. Prblem #2 Financing 15 15

17 Prblem #2 Financing Tax financing directly encurages veruse f scarce ATC capacity Airlines pay nly indirectly Small aircraft cntribute less than large aircraft, even thugh cst t serve them is same DEN-PHX: A320 cntributes $ seat RJ cntributes $502 Mst imprtant, it ignres cngestin csts Business jets cntribute far less than the burden they impse DEN-PHX: 6-pax Gulfstream pays nly $133 Weight-based landing fees cmpund prblem 16 16

18 Prblem #2 Financing Basing charges n ticket value/aircraft weight made sense at ne time Frm f Ramsey pricing Apprpriate way t cver csts absent cngestin But nw that apprach is perverse and it cntributes directly t delays Size shuld nt matter! 17 17

19 Prblem #2 Financing Tax financing encurages inefficiency n FAA s part as well ATO lacks basic custmer feedback N incentive t prvide value-added services because it can t charge fr them Tax financing impedes investment Tax revenues dn t signal where/hw much investment is needed Investment gets shrtchanged because it s n-budget 18 18

20 Ecnmists Rx: Efficient (Marginal Cst) Pricing A shift frm taxes t efficient prices (cst-based user fees) culd have far-reaching benefits: Mre efficient use f ATC system fewer delays (allcative efficiency) Mre efficient prvisin f ATC (prductive efficiency) Mre efficient investment in innvatin and new technlgy (investment efficiency) 19 19

21 Ecnmists Rx: Prices and Allcative Efficiency In shrt run, prices wuld lead t mre efficient use f scarce ATC capacity Ideally, fees wuld vary by time f day/seasn t reflect delay csts But there s case fr starting with a flat, per-flight charge Cngestin is due in part t current, perverse financing mechanism A flat charge wuld reduce cngestin by eliminating bias tward small a/c In shrt, first the cake (flat fee); then the icing (cngestin charge) 20 20

22 Ecnmists Rx: Prices and Prductive Efficiency Prices wuld encurage mre efficient prvisin f ATC services by FAA Users can cmpare value t cst even where chices are limited FAA culd cmpare csts and revenues t decide which services (r facilities) t expand r cntract FAA culd ffer and users culd buy value-added services: An airline culd pay mre t get pririty in system (r pay less fr reduced service) Several airlines culd buy extra services during peak hurs Adptin f fee-fr-service by FAA s Lgistics Center had pwerful impact n prducer (and user) behavir Paying custmers prvided mre direct feedback Lgistics Center tk the custmer feedback mre seriusly 21 21

23 Ecnmists Rx: Prices and Investment Efficiency With FAA mving t NextGen, mst imprtant benefit f prices may be t guide investment and facilitate technlgy adptin Market signal as t what users are willing t pay fr Key tl t help FAA vercme equipage prblem NavCanada charges less fr aircraft equipped with datalink Nn-price ptins (e.g., ffering preferred airspace) can achieve same gal but with greater difficulty Mre generally, prices culd facilitate deals with and between user grups With prices/user fees, FAA wuld have ptin f private brrwing 22 22

24 IV. Cnclusins 23 23

25 Cnclusins Flight delays, utdated technlgy and rising csts are the symptms, nt the prblem The underlying prblem is: A gvernance structure that frces the ATO t deal with multiple value chains A financing system that guarantees veruse f the system because users dn t pay their real cst N easy gvernance fix as lng as ATC is a mnply, althugh incremental steps t increase user input and accuntability are key By cntrast, financing fix is straightfrward at least intellectually: Mving t efficient prices fr ATC is the single mst imprtant thing the federal gvernment culd d t prmte aviatin Prices wuld reduce delays and facilitate investment Prices wuld even address gvernance by creating direct link between users and ATO Prices are equitable: users pay their csts n mre, n less 24 24

26 Cnclusins, cnt. In sum, efficiency case fr pricing ATC i.e., the case fr intrducing ecnmic incentives is pwerful: Mral exhrtatin desn t change peple s behavir. Prices d. (Austan Glsbee) Why, then, has n ne made that case fr user fees as part f the FAA reauthrizatin debate? In a summer when delays have becme a natinal nightmare, why has the FAA nt argued fr user fees and cngestin pricing as the immediate respnse? Instead, FAA s case fr user fees has been all abut cst recver/revenue adequacy: We need NextGen t meet expected demand. T finance NextGen, we need a stable, predictable revenue surce. User fees are stable and predictable. Similarly, ATA has ignred efficiency; its case fr user fees has been all abut equity making business jets pay their fair share 25 25

27 Cnclusins, cnt. Maybe it s nt t late Airprt cngestin pricing may be an easier sell than user fees Airprts have the authrity Public fficials and press get cngestin pricing There are ways t address airline ppsitin Time is right: the federal gvernment can substantially reduce delays and d s befre next summer Remember: A crisis is a terrible thing t waste