November 3 - Optimizing NextGen Investment


Airline Passenger-Rights Legislation Can Help

Radnor, PA, November 3, 2009--Business Travel Coalition (BTC) today issued the following statement in response to U.S. Department of Transportation (DOT) Inspector General’s October 28, 2009 Congressional testimony regarding concerns over achieving mid-term goals for the Next Generation Air Transportation System (NextGen) to address airport congestion problems currently impacting airports, airlines and customers, particularly in the New York City (NYC) area.

From the IG’s written testimony: “NextGen is an important initiative to enhance capacity, reduce delays, and fundamentally change the way air traffic is managed in the United States.”


BTC STATEMENT

A substantial NextGen implementation risk is not addressing the congestion-problem holistically. Sub-optimal results will likely be evidenced if NextGen technology is merely overlain on the unworkable architecture of over-scheduling of flights and associated airline policies, processes and practices at these congested NYC airports. Pouring scores of billions of dollars of new technologies on irrational scheduling practices is akin to “paving the cow paths,” i.e. step-change improvements in efficiency and innovation would not be possible. Incremental improvements are certainly achievable, but true reengineering must take place to secure the greatest return possible on NextGen investment.

BTC believes that pending legislation in the U.S. Senate (S.213) and House (HR 674) that would phase in a requirement that passengers be given the option of deplaning at 3 hours of an extended ground delay would provide the catalyst for such overall reengineering efforts, especially at NYC-area airports. The specific 3-hour concept is central as an agent-of-change.

While NYC-area and Philadelphia airports can typically amount to some 12% of the Operational Evolution Partnership (OEP) 35 operations, they can cause more than 45% of the delays and 48% of the delay minutes throughout the National Airspace System (NAS) resulting in material financial, lost-productivity and environmental costs for all stakeholders.

The delays are chiefly caused by over-scheduling of flights where the demand exceeds capacity at critical times of the day; using many regional jets (70 passengers and below) instead of fewer larger jets; and increasing non-air carrier operations, such as private jets.

Solutions for the over-scheduling problem at NYC have been (1) politically unpalatable, such as DOT-sanctioned slot auctions, (2) impossible to develop and implement because of antitrust laws, or (3) competitively unfeasible because airline “A” would not unilaterally reduce its schedule only to have airline “B” fill in and increase its market share, and in some cases raise airport-costs for airline “A.”

A Congressionally-mandated passenger-deplanement rule in excess of 3 hours (preferred by most airlines) would likely encourage airlines to ignore the consequences of potential DOT fines in order to maintain market shares at NYC, and elsewhere. Alternatively and very importantly though, according to industry experts a 3-hour rule could only be workable for NYC airports if airlines drew down their schedules and reengineered operations to better match the capacity-limitations of the airports.

If they did not, negative media publicity and resultant political pressure from so many “illegal” delays would be a weekly event with attendant calls for further Congressional intervention. Airlines would have very strong unilateral incentives to right-size their NYC airport operations during the hopefully generous time before such legislation were to become effective.

Interestingly, reduced NYC-airport airline flight schedules may not necessarily negatively impact airlines' bottom lines, especially if a single flight operated with larger equipment can replace several small regional jets. Additionally, an improved pricing environment from reduced capacity would be an offset as would significant operational benefits from more efficient system-wide operations across the U.S.

With airline industry capacity and operations declining, now would be an opportune time to both economically model and test this hypothesis before demand returns in full force.

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