Yes, This is Real Congestion Pricing for Airports*

Michael Giberson

*Well, almost real congestion pricing. It may not be the real thing, but it is a reasonable facsimile and a step in the right direction. It is not quite the real thing, because, as I observed last time, the FAA “will not allow airport authorities to charge prices sufficient to balance demand with capacity without regard to allowable costs.” The underlying system remains explicitly cost-based ratemaking, only now the FAA is suggesting congested airports squish those costs around into rates that help reduce congestion.

Early reaction from the airline industry accuses the U.S. Department of Transportation of trying to sneak congestion pricing in the back door, and scolds the administration for pursuing the idea despite opposition from the airlines.

“We’re concerned that Secretary Peters is still determined to pursue congestion pricing when we thought it was clear the idea of congestion pricing was rejected by the airlines,” [International Air Transport Association] spokesman Steve Lott said.

I’m not sure how it could be considered a back door attempt when the FAA itself explicitly raises the issue in their policy document.

The New Jersey Port Authority, which operates the three major New York City area airports as well as two regional airports, was reportedly lukewarm, calling the proposal “small steps … when dramatic action is needed.” Meanwhile, Airport International said, “During 2007, airports in the US recorded their worst ever delays. Over three-quarters of these delays were recorded at the New York airports.”

If the New Jersey Port Authority doesn’t respond to this opportunity by implementing congestion fees of some sort, I’d encourage congested airports with flights departing into the New York City airports at congested times to consider figuring out the costs to the originating airports from NYC-based delays and reflecting that amount in their NYC-bound flights. (Or, to be fair, to the extent that an airport faces costs due to congestion at another airport, reflect those costs in fees on departing flights to those airports — but of course over three-quarters of the delays in 2007 were recorded at the New York airports, so you can see where these fees would bite.)

Additional econoblogging of the FAA congestion fee proposal: “Rationales” by Daniel Hall at Common Tragedies and “Yes! FAA proposes regulation to allow congestion pricing“at Evan Sparks’s Aviation Policy Blog.

ADDENDUM: USA Today ran an editorial on the topic of airport delays on December 18 along with commentary from Senator Charles Schumer. USA Today wrote:

In recent months, the Bush administration has advanced several workable responses to JFK’s delays, to the jeers of a gaggle of critics — airlines, the authority that runs the New York area airports, and the New York congressional delegation.

One of the most promising ideas is congestion pricing — charging airlines more to use valuable runway space at the busiest hours each day, usually the evening rush. This would push airlines to quit overscheduling at those times and space out flights more evenly through the day.

Sen. Charles Schumer, D-N.Y., argues in the space below that congestion pricing is not viable. How would he know? It’s never been tried; foes oppose even a pilot program. Some of the other options Schumer suggests might work over time, but it’s folly to pretend they’d do anything before next summer’s peak travel period, much less this month’s holiday season.

Schumer, in his companion piece, wrote:

Now, the Transportation Department is set to unveil a proposal to cut flights and sell hourly slots to the highest bidder. But auctioning flights would raise fares, limit consumer choice and strike a blow to the economy. It wouldn’t shorten the wait at the gates or increase capacity. It would force airlines to pay a premium to fly that will surely be passed on to travelers. And it would reduce options for those flying to small and midsize cities.

Flight rationing, like congestion pricing, is not a viable solution. It is experimental game theory. America’s busiest airports should not be the guinea pigs for an ideological solution that has never been tested at any airport, let alone the nation’s busiest.

Unfortunately, the FAA is not proposing to auction off take-off and landing slots. (But see this post for more on that provocative idea.) Instead, Schumer likes opening up military air space for civilian air travel, installation of an “air czar” to manage operations in the Northeast, along with improving staffing and technology in air traffic control.