No Reason to Oppose Airport Deregulation

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By Debby McElroy
I was recently interviewed by Mark Koba, Senior Editor at CNBC.com, who was doing a story about airport finances. Mark, being a business reporter who understands the benefits of the free market, was amazed that airports were so limited by government regulations.  He was also intrigued by the concept of airport deregulation and the benefits to passengers and communities that would come from providing airports more economic freedom.

The article covered the issue well but as you might expect also included three quotes opposing airport economic deregulation.  The first one, from Professor Price at The Metropolitan State College of Denver, was flat out wrong – stating that “Airports are not really economically regulated, with the exception of grant money from the government.”  I would encourage him to read the PFC regulations which significantly limit the infrastructure projects that can be funded by user fees paid by passengers. For example, you cannot use PFCs to build a new parking structure, even though many passengers would strongly support this.  Additionally, he should read the DOT Rates and Charges Policy which limits the ability of airports to impose market-based fees at congested facilities or at busy times, something the airlines do with airline fares. (The reason it costs more to fly at 8 AM on Monday morning versus 3 PM on Tuesday afternoon.)

Speaking of the airlines, the second opposing comment was from Sharon Pinkerton, ATA’s Senior Vice President, Legislative and Regulatory Policy, who said “We’re opposed to raising the PFC because it is like a direct tax on passengers who already pay high taxes.”  While I commend Sharon (a colleague I respect and an effective airline lobbyist) for not labeling the PFC a tax (a lie promulgated by other airline lobbyists), the PFC pales in comparison to both taxes and airline baggage fees.

According to the latest DOT data, the average fare in the fourth quarter of 2010 was $337, pretty low if you have tried to book a flight just about anywhere this summer.  But let’s say that is the fare and you are connecting, so there are four legs to the round-trip flight.  Adding in all federal taxes and assuming the maximum PFC ($18), the total fare would be $405.08. But let’s also be realistic and figure in the cost to check one bag. The average fee for checking a bag on a network airline (excluding Southwest and JetBlue) is $25 each way, so add another $50 to the trip cost, bringing the total to $455.08. Doing the math, you find that federal taxes are 11% of the trip cost, baggage fees are 11% and the PFC is 4%.

The airlines also fail to mention that they are paid to collect PFCs- more than $80 million in 2010.  In contrast they are not paid one cent to collect federal taxes and segment fees.

The third naysayer is Professor Lee McPheters at Arizona State University, who expressed concern that airport deregulation would lead to higher fees for airport users, including passengers and airlines, a point I would also dispute.  Airline deregulation led to lower fares and more competition – why does he assume it would be different for airports? On what basis does he reach this conclusion?  I would argue that passengers would receive similar benefits with airport deregulation and that airlines and airports would work more cooperatively in an environment where both were not constrained by archaic economic regulation.

Reasonable people disagree and I always enjoy a spirited debate.    But let’s use accurate information and real data when discussing airport economic deregulation.