Sunday, April 15, 2007

FAA and user fees

The current FAA funding bill runs out soon, and the FAA and Bush administration are pushing an airline-backed plan for a new funding model. OK, I'm a pilot, so let me back up and explain the background. Today, the FAA, which provides safety oversight and runs our air traffic control system (the safest and most efficient in the world, I might add), primarily out of three sources: (a) a tax on aviation fuel, (b) a tax on airline tickets, and (c) a contribution from the general fund (i.e., regular federal taxes kick some in). It's super efficient to collect, it's proportional to the usage (fly more - use more fuel or buy more tickets - pay more), and it's worked well for...ever.

The new proposal not only jacks up the tax on aviation fuel (which would make sense if the FAA were underfunded, which it isn't), but more significantly impose new "user fees" on a variety of FAA provided services, including (most notoriously) any service provided near a major metropolitan airport. Since most major population centers are near major metropolitan airports, this means that most services for most pilots would carry non-trivial itemized charges. And since many of these services are not optional, this would add considerable expense to flying for the same services that are provided with adequate funding today.

I generally don't buy lobbyist arguments without a healthy dose of qualification, but (the lobbying arm for the general aviation community) has a wealth of articles explaining why this proposal is an obscenely bad idea, that are pretty much on target.

Therefore, I won't go into depth here except to summarize the key arguments against it:
  • The FAA funding model isn't broken now, so why change it?
  • With a wide variety of fee-incurring events, the cost of billing pilots and collecting for services rendered becomes significant relative to the revenue collected, resulting in a far less efficient model
  • It raises the cost of flying for everyone, without any offered benefit.
  • It has supremely bad - and dangerous - incentives built in.
I can pretty simply explain the "dangerous incentives": if you're a pilot in the air and have a situation develop (emergency or not), I think we'd all agree that the right thing is for the pilot to worry about their safety first. At the moment, there is no incremental cost associated with diverting to an airport, requesting assistance from Air Traffic Control (ATC), or getting an in-flight weather update from flight service. But if a call to flight service would incur a $10 fee, pilots would have an incentive to avoid the call and might find themselves inside a thunderstorm. If diverting to the closest airport or practicing landings have incremental costs, then pilots will have bad incentives to make bad choices. Of course, with the current fuel-based taxes, the pilot has paid for the service before takeoff, so there's no counter-incentive to taking advantage of every safety option available.

The European model for funding aviation services is built mostly around user fees. The net result? Almost no aviation in Europe other than the airlines.

Which brings me to my point. The main lobbyists in favor of this plan have been the airlines. I spent 6 years in the travel industry, and I might not have learned much, but I can say this: the airlines are among the most irrational self-destructive self-worst-enemy businesses out there (with the possible exception of the RIAA), so if they want something it is almost certainly a bad idea. Case in point is the fact that the airlines, as a whole, have lost money since the inception of the business a century ago. (Southwest airlines is a notable exception, but I digress).

Anyhow, at the risk of venturing a bit into the world of conjecture, the airlines' primary goal is to shift some of their cost burden onto general aviation. For an industry that is notoriously bad at making money or providing customer service, this is a not unreasonable goal. And it has a nice side effect of reducing traffic from private pilots in what the airlines regard as "their" airspace.

However, it seems to me that the airlines should be wary of getting what they want. For if this proposal passes, we will surely see two changes in aviation: (a) general aviation pilots will make poor safety decisions due to goofy financial incentives, resulting in more accidents, and (b) partly due to the nickel-and-diming, the increased overall taxation, and the resultant decreased safety, fewer private pilots would fly.

Thus the airlines would almost certainly get their side effect (greatly reduced general aviation), but they are ignoring classic price elasticity economics: if the price of flying goes up, fewer pilots will fly, therefore the contribution from those pilots will decrease. What will be the net effect? The FAA will want to maintain its funding level, so it will raise its fees. This will squeeze yet more general aviation pilots out of the system. Yet the airlines don't have any choice about availing themselves of FAA services, so they will end up picking up the tab. And it will be even more expensive for them than it is today, because they will have greatly reduced the contribution to the FAA from general aviation, requiring them to pick up the slack. Ahhh...unintended consequences. Nope, that's never bitten the airlines before.

Ronald Reagan is quoted as saying that the scariest words in the English language are "Hello, I'm from the government and I'm here to help." I think that the proposed user fees are a case where we could adapt this aphorism as "I'm from the airlines, and I have a good idea." In either case, the best response is to run away.

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