Wingman: O'Hare Capacity Problem Shows Need for Market Solutions

On August 18^th, Department of Transportation Secretary Norman Y. Mineta and FAA Administrator Marion Blakely announced a settlement whereby U.S. domestic airlines serving Chicago O'Hare would agreed to "voluntarily" limit their scheduled arrivals during the busiest time of day in order to reduce flight delays around the nation by an estimated 20 percent.

Perhaps this action was justified as a way to deal with a difficult runway capacity problem in the short term, but Wingman agrees with those who believe it shouldn’t have any application beyond this emergency situation.

Some big U.S. airports are now busier than ever, with operations rebounding to pre-September 2001 levels, but with delays going up as well.  Recent data from the Bureau of Transportation Statistics show that more flights in the first half of 2004 was accompanied by a sharp increase in flight disruptions.

All of this led to the federal government's action at O'Hare in August.  But what should we take from this to help make decisions about future airport capacity policy questions?

User's Views

An instructive hint comes from how various interest groups responded.  The squabbling amongst users – attempting to make their case politically, rather than economically – began immediately.

United and American, which handle nearly 90 percent of O'Hare flights, acceded to the government’s "request," but said they wanted the right to trade arrival times, and complained that all carriers should make some cuts in their schedules.

Smaller carriers expressed concern that any flight cuts in their relatively sparse schedules would further boost the dominance of American and United, and would ultimately lead to less competition and higher-priced tickets.  One carrier that operates three arrivals during peak hours at O’Hare said the FAA should consider restricting military and general aviation flights during these hours and others suggested reducing the number of regional jets.

The National Business Aviation Association expressed frustration over limiting general aviation flights into O'Hare, and urged that airport access be examined on a regional and national level, not at individual airports, and government to consider investing more in reliever airports.

The Right Solution

Secretary Mineta described the agreement with O'Hare users as "gift" to Chicago’s passengers.  While the agreement might reduce delays, making a flight to Chicago less convenient to travelers is hardly a gift.

Delays are bad, no question, but many would have preferred a solution based on market incentives, which represents the individual choices about relative value.

Rationing – which is what arbitrary "caps" really are – creates perverse incentives, such as attempting to game the system via political maneuvering, while taking attention away from finding ways to increase capacity.  Market incentives, on the other hand, create positive incentives, such as making investments in new aircraft and airport systems that increase capacity and reduce fares for the public.

Economist Dorothy Robyn, who once served as a special assistant for economic policy to President Clinton, noted that, "Many people blame airlines for scheduling more flights at peak periods than congested airports can handle.  But over-scheduling is just a symptom. The real culprit is outdated government policies that fail to efficiently allocate the airport capacity that we do have."

Current airport landing fees are an example of this.  Fees that are based solely on an aircraft's weight ignore the delay costs that peak-period users impose on others at a congested airport, and provide little incentive for users to shift flights to off-peak hours or less-congested airports, or to substitute fewer flights in larger planes.

Alternative Approaches to Managing Airport Capacity

Most U.S. airports accommodate flights on a first-come, first-served basis. When too many arrive to be accommodated, queuing results.  Queuing is rationing by delay, and it is wasteful to both airlines and passengers.

An administrative alternative to queuing is the use of "slots," or arbitrary quotas.  Although slots may be preferable to excessive airborne vectoring, they have major defects.  First, scarce runway capacity does not necessarily go to those who value it the most. Second, because slots are given away for free, the airlines that get them can capture the increased revenue that scarce capacity generates (what economists call "scarcity rents"). Finally, slot systems limit new entry and discourage competition.

On the other hand, if runway use is priced by market principles, those using the runway would have to adsorb the costs they could otherwise pass on to others in the form of delays.  And if airports could charge more to use their runways, when demand is high, they could use this revenue to finance new capacity.

This is not a radical concept.  It happens constantly in free economies, and usually with little notice by consumers.  Passengers who value peak service would pay for it, and those who don't would shift to off-peak flights and benefit from lower fares. Most passengers would be better off because their total travel costs, including delay costs, would drop significantly.

Since airport runways will likely become an ever scarcer asset, how we allocate their use has important long-term implications for airspace modernization as well as public policy.  Let's choose wisely.   09-13-2004.

Do you agree with Wingman?  Let him know right now!

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