Thursday, February 16, 2017

What Do Airlines Want from Trump (And Can He Deliver)?



President Trump meets airline executives asking for relief
Trump meets airline executives (AP photo)



As you've likely heard, the White House called a meeting last week with several airline CEOs to discuss policy initiatives. The meeting was attended by the CEOs of Delta, United, and Southwest, three of the four largest US airlines. Missing was American Airlines CEO Doug Parker who had a scheduling conflict. Also in attendance were the CEOs of Alaska and JetBlue airlines along with the president of Airlines for America, a trade group.

The airlines' requests to Trump were the usual requests for three things: a privatized air traffic control system, a lighter tax burden, and a lighter regulatory burden. It's a fairly unremarkable list with these three being perennials on the airline wish list. The question is what is the President in a position to offer and how likely is Congress to go along with these initiatives. Let's take a look at each one.

Air Traffic Control


The airlines have been after this policy initiative for quite some time. In their view, red tape and bureaucracy significantly slow the deployment of new technologies which would serve to raise the efficiency of the national airspace system (NAS). New technologies promised by programs such as NextGen have suffered cost overruns and deployment delays resulting in extra costs for airlines.

Airlines complain that they have purchased and deployed the technology needed for the upgrades to the NAS but foot dragging and cost overruns at the FAA mean the promise of these new technologies remains unfilled. Airlines estimate that inefficiencies, delays, and cancellations cost upwards of $30 billion annually.

As a user, I can vouch for this view. The airplanes that I fly have been equipped with Required Navigational Performance (RNP) approach capabilities for perhaps five years and yet RNP approaches, which promise more efficient airspace use are almost nonexistent. And for those airports which do have a RNP approaches installed, controllers are extremely reluctant to assign them, usually giving such clearances late at night or only assigning the final approach segment which confers no advantage over traditional approaches.

The same is true for a technology known as CPDLC, which is a data link directly to controllers. We use this equipment only for obtaining our preflight clearance, not for inflight use as designed. So the critique that the FAA is not holding up its side of the modernization bargain is indeed accurate.

Trump expressed sympathy with the CEOs about the snail's pace of modernization but the important question is whether Congress can deliver as air traffic control privatization can only be accomplished through legislation. Bud Shuster, the current chair of the House Transportation and Infrastructure Committee is on board, stating in a recent opinion piece that the Aviation Innovation Reform and Reauthorization Act will be used as a vehicle for change.

The Senate, which passed an 18 month FAA funding reauthorization last April, is less enthusiastic about reform efforts. What remains to be seen now is whether the Senate will act on reform knowing that any bill which includes reform is likely to be signed by the President.

Taxes


Airlines have long complained and with some justification, that they are overtaxed. Airlines have become something of a cash cow for the federal government with the federal tax rate on airlines being higher than that of so-called sin taxes on tobacco and alcohol. Sin taxes, of course, are designed to reduce the demand for those products.

Industry trade group Airlines for America states that the total tax burden on airlines has increased over 400% in the last two decades from $3.7 billion in 1990 to over $16 billion in 2016. Some of these taxes were imposed in the wake of 9/11 to pay for the increased security costs of operating the TSA.

Here again, the President has limited ability to unilaterally provide relief as most of the taxes on airlines are determined by Congress. One possible policy prescription might be to raise the passenger facility charge which pays for individual airport improvements, while concurrently reducing broad based airline taxes such as the passenger ticket tax and the segment tax. The latter taxes go to fund the Airport and Airway trust fund which airlines complain is fully funded and yet not used by Congress to pay for airport improvements.

Regulation


Airlines complain that while the industry was officially deregulated decades ago, they are still highly regulated by unnecessary rules which negatively impact the ability of airlines to profitably grow and create jobs. The President does have some latitude in this realm to determine the pace and style of enforcement of regulation and did promise the airline chiefs that he was sympathetic to their cause and would work to provide regulatory relief.

Other issues which are on the minds of airline leadership but were not addressed in the meeting include the recently approved permission given to Norwegian Airlines to operate flights by their subsidiary known as NAI to the US from Europe. Industry and labor leaders have criticized the Obama administration for giving their approval to what they believe is an unfair application of the Open Skies Agreement. Their complaint stems from NAI's incorporation in Ireland which is they believe will be used to circumvent Norwegian labor laws.

In a recent White House briefing, however, Press Secretary Sean Spicer mentioned that foreign airlines like Norwegian will be providing US jobs by basing ground and flight crews in the US as well as through their purchase of Boeing aircraft. Thus, it seems unlikely at this point that Trump will reverse the Obama administration's approval of NAI's application to serve the US.

Also not discussed in the meeting was the complaint by some US airlines about the so-called Mid East Three (ME3) airlines and their alleged abuse of the Open Skies Agreement. The complaint against the ME3 concerns the alleged subsidies that these airlines receive from their respective governments which give the ME3 an unfair competitive advantage.

In Conclusion


While President Trump was sympathetic to the complaints brought to him by the airline chiefs, his range of options is limited without the help of legislation from Congress. ATC privatization is a highly polarizing topic and may be difficult to achieve without at least a few Democratic senators joining the effort which seems unlikely. Tax and regulatory reform may have better chances for passage with a sympathetic administration leading the charge.

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