New DOT and FAA Initiatives

Transcription

1 New DOT and FAA Initiatives Reducing delay, operations at LaGuardia, and helping passengers U.S. Department of Transportation April 18, 2008

2 DJ Gribbin, General Counsel of the U.S. Department of Transportation DJ is the principal legal advisor to the Secretary Prior employment: Division Director at Macquarie Holdings, Inc. Chief Counsel of the Federal Highway Administration Koch Industries NFIB Rep. Larry Combest U.S. House of Representatives Committee on the District of Columbia

3 LaGuardia Supplemental Notice of Proposed Rulemaking Summary of LGA SNPRM

4 Background High Density Rule (HDR) Expired January 1, 2007 The Notice of Proposed Rulemaking (NPRM) introduced August, 2006 This SNPRM modifies the NPRM to address the concerns raised in response to the NPRM Currently, LGA operates under a temporary order

5 Proposed Changes Slots will be required for operating scheduled flights during peak hours All slots expire in options for allocating slots Under both options, the vast majority of slots will be grandfathered to scheduled air carriers currently operating at the airport. Option 1: All carriers get a protected base of up to and including 20 slots a day Above that base, 10% of slots would expire over the first 5 years of the rule, and 8% of those slots would be reallocated via auction and 2% retired. Option 2: All carriers get a protected base of up to and including 20 slots a day Above that base, 20% would expire and be reallocated via auction

6 Auctions for Reallocation of Slots What will be auctioned? Slots that expire over the first 5 years of the rule will be reallocated via an annual auction. New capacity or returned capacity Who can buy/sell slots? Air carriers can buy or sell slots Who gets the proceeds of the auction? Option 1: FAA will spend the proceeds on congestion and delay management initiatives in the NYC area Option 2: Carrier initially holding the slot cannot bid on their own slot, but does get to retain proceeds after paying the FAA the costs associated with the auction

7 Secondary Market Proposed rule creates a secondary market FAA will run a transparent bulletin-board board system where carriers can buy, sell, and lease slots to each other When a carrier wants to lease, buy, or sell slots outside the auction process, they will notify the FAA and FAA will post the relevant information on the bulletin board Transactions would not have to be blind, and could include cash and non-cash payments.

8 Summary of the concerns Cost to consumers Government tax Relationship between physical assets and investments Reduced demand for air travel Economic Disruption Impact on small communities and GA

9 Cost to Consumers Won t t pricing just increase ticket prices for consumers? Response: Congestion is expensive; ATA estimates it costs our economy $12.5 billion a year. Pricing = reduced congestion = reduced costs of congestion Increased competition puts downward pressure on fares

10 Government Tax Isn t t market-based pricing just another tax? Airports and airport authorities are monopolies and, therefore, not market-based themselves. Response: Under Option #1: Proceeds are dedicated to congestion and delay management initiatives in the New York City area Under Option #2: Any proceeds resulting from the auction go to the airlines

11 Relationship between physical assets and investments Airlines have invested hundreds of millions, and even billions, in terminal, gates, hangars, and other facilities at airports. Airlines need to realize a return on those investments Response: DOT does not want to discourage future investment LGA SNPRM Recognizes the investments airlines have made at LGA by providing incumbents with 10-year terms for 80/90% of their slots All carriers are entitled to a protected base of operations

12 Economic Disruption Airlines face significant pressures Record high gas prices Low ticket prices Economic slowdown Low-cost and foreign carriers DOT understands the importance of airlines financial health to the health of airports and the general economy Response: Economic Benefits of pricing Reliable schedules Better utilization of fixed costs LGA SNPRM DOT agrees that its original proposal of auctioning 10% of slots annually for 10 years would be too disruptive Carriers benefit from a ten- year property interest

13 LGA Option 1 & Option 2 Annual operations impacted Option 1 Option 2 14 Slots for Auction 36 Slots for Auction 1154 Grandfathered Slots 1132 Grandfathered Slots

14 Reduced demand for air travel If market-based pricing results in slightly higher fares, won t t it deter consumers from flying? Response: Congestion is the true deterrent USA Today: savvy travelers avoid flying into NYC whenever possible Number one customer complaint is related to delays, congestion, and cancelled flights Reduced congestion = reduced delays = increased demand for air travel

15 Small communities and GA Wont market-based pricing will make it harder for GA to access airports and for airlines to serve small communities? Response: DOT realizes that pricing does not take into account all of the public policy concerns involved in airport access LGA SNPRM Makes provisions for up to 72 unscheduled operations a day Unlike the NPRM, this SNPRM removes the upgauging proposal and any distinctions based on class of user while maintaining the perimeter rule Under the existing order, there has been no derogation of service to small communities so we believe this SNPRM will not result in a disruption to small communities The auctions apply to a very small number of flights