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A Solution That Can't Get Off the Ground

Congestion pricing, a basic economic tenet, would end most delays.
Congestion pricing, a basic economic tenet, would end most delays. (By Reed Saxon -- Associated Press)

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By Steven Pearlstein
Wednesday, October 3, 2007

Thirty years ago, Alfred Kahn, head of the Civil Aeronautics Board in the Carter administration, gave a speech to an industry conference in which he made this analogy:

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Suppose everything that came out of a cow were sold at a uniform price per pound -- tenderloin, sirloin, ground chuck, soup bones. What would happen? In all likelihood, demand for choice steak cuts would soar, even as overpriced hamburger and bones rotted on store shelves. And to meet this new demand for steak, huge swaths of the country would have to be converted to cattle ranching and growing cattle feed, crowding out other uses for that land.

Kahn's message: If you misprice things, you prevent markets from matching supply and demand and wind up misallocating scarce resources. And what is true for hamburgers and land, he argued, also applies to the limited space at and near airports during peak hours. To solve that problem, Kahn recommended that the price paid by airlines for airport and air space in peak periods be high enough so that it not only brought demand in line with supply, but gave officials the money and incentive to add runways or air-traffic-control capacity whenever the price being paid for peak hours exceeded the cost of adding capacity.

This concept of "marginal cost pricing" ought to be familiar to anyone who has taken a basic college course in economics. But what is so astonishing is that 30 years after Kahn laid out the case for it, a decade after it was proposed by the Clinton administration, six months after it was officially embraced by the Bush administration, and in the midst of a veritable consumer revolt over flight delays and cancellations, "congestion pricing" is no closer to reality.

Who is responsible for killing this simple and sensible solution to a problem that costs the economy an estimated $9 billion a year in wasted time and money? Is it the airlines, or private pilots, or operators of corporate jets, or airport authorities, or members of Congress? The answer is no different than in a classic Agatha Christie mystery: They all did it.

Topping the list of culprits are the nation's airlines. In their zeal to expand service and take market share from competitors, they have deliberately overscheduled flights at peak times, knowing full well that, as then-FAA administrator Marion Blakey put it, their schedules "are not worth the electrons they are printed on." Scheduling at peak times allows airlines to sell more tickets and charge higher prices. And when the flights are delayed or forced to sit on the runway, the airlines can send out their beleaguered employees to blame it on the weather or anonymous folks at air traffic control.

In a letter last week to Transportation Secretary Mary Peters, James May, the president of the Air Transport Association, said the industry was opposed to any policy aiming to "artificially" constrain demand. Perhaps it doesn't occur to May that a system that charges the same price for steak and hamburger is the artificial one, by creating artificial demand. Or perhaps what he is really thinking, but dares not utter, is that now the airlines get to collect premium fees for peak-hour flights, while under a system of congestion pricing, that premium would go to the government and airport authorities who could use it to expand capacity.

Although the airlines overstate the impact of corporate jets, there is no getting around the fact that every plane takes up about the same amount of space in the air or in the landing and takeoff queues. And yet the smaller private planes not only don't pay a premium for using the airspace during peak time -- they don't pay anything near their fair share of the cost of running the air traffic control system at any time of day. Over the years, they have defeated any attempt to impose "user fees" on corporate jets by whipping up opposition from weekend pilots of propeller planes who never quite realize that they would be exempted from these fees. In the view of the general aviation lobby, congestion pricing is the worst kind of user fee -- one that might make even a corporate bigwig think twice before getting in line ahead of a 747 with 400 passengers.

Of all the opponents of congestion pricing, the ones with the best arguments are members of Congress from rural areas, who never miss a chance to force the rest of us to subsidize their inefficient lifestyles. They understand that any system that uses prices to ration peak-time slots at major airports will probably reduce service to places with fewer passengers using smaller planes. What they apparently don't understand is that congestion pricing can be tweaked to offset those tendencies.

Harder to understand is the knee-jerk opposition from Democratic leaders such as James Oberstar of Minnesota, chairman of the House Transportation Committee, who wants to "solve" the congestion problem by requiring all airlines at crowded airports to accept a proportionate reduction in the number of peak-hour flights. Apparently Oberstar would rather have politically pliant bureaucrats and airline executives decide where to cut than leave it consumers to make the trade-off between price and convenience.

And let's not forget the airport authorities, who privately acknowledge that congestion pricing makes sense but won't embrace it publicly because it takes attention away from the industry's favorite solution: adding capacity.

Congestion pricing works. When it has been used on highways, it spreads out demand so that more people wind up using the roads, not fewer. It has been so successful in relieving gridlock in central London that New York is about to try it. And it has allowed ports to increase tonnage without adding a dock or a crane.

The only reason it is not being used to solve the overcrowding problem in aviation is that it threatens a system that has been carefully designed to protect every interest but one -- the traveling public.


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