Thursday, May 15, 2008
On my way home
I'm on my way home from Seattle this morning on a really packed plane. Indeed, I cannot remember when I have been on a plane that was not packed. This business about the airlines running at high load factors is really very painful. If it is this way when the economy is soft, what is it going to be like when we return to some decent growth?
We need more airports or to expand the ones we have. It is time to expand Trenton/Mercer County to take regular jet service, Yardley suburbanites be damned!
12 Comments:
By 
, at
Thu May 15, 10:31:00 AM:
Be careful about damning Yardley surbanites, as one of your lawful readers is one. The plane traffic is bad for part of Yardley Borough and its neighbor, Lower Makefield Township, as our the freight train whistles that blow at all hours of the night. The latter are romantic if you hear them in the distance; they are quite annoying if you hear them within 100 yards at 1-hour intervals after midnight.
The difference, of course, is that builders built into the train whistles and buyers bought with knowledge that the Septa/Conrail line runs through both municipalities. While (some of the) same homeowners have the airport as a concern, it's always been a sleepy regional jetport. Turning it into something more has been a huge issue -- prompting a fight between the locals south of the Delaware River and the FAA. The expansion, I believe, has been somewhat mooted because certain airlines have backed out (including Southwest, I believe).
At any rate, I'm not sure that expanding Trenton's airport will alleviate your pain much anyway, TH, as it's not as though they can more than double the airport from say 4 slots to 8. There's not room for expansion beyond that. Such expansion might get you better flights to Boston and Florida, but not much more.
And, lastly, be careful about us lovable Yardleyites. We brake for ducks who cross the road, have a great Memorial Day parade, have excellent choices for sweets, and have 2 Starbucks for your coffee-drinking pleasure. Pay us a visit!
The Centrist
By 
Noocyte, at
Thu May 15, 11:23:00 AM:
Weighing in with the Centrist. As a fellow Yardley denizen, I have been pleased (and relieved!) at the relative 'bubble-resistance' of the local real estate market. The prospect of an endless succession of bigger jets barreling into TTN is disconcerting for how it would drop the floor of housing values for a great many good folks who didn't sign on for that (unlike the aforementioned trains which evoke Kerouacian fantasies and make me late for clients in my Langhorne office).
I don't know the solution to the congestion you've experienced (though a complete revamping of the ATC system would be a good start), but swelling TTN wold have, IMHO, a prohibitively high cost to return ratio.
And as for those Starbucks, one of them has a little patio right on the shady shore of picturesque Lake Afton, where you can sit and watch ducks and geese and the occasional swan glide by over the lip of your Mocha. We could really live without the extra decibels. By all means, though, do come see for yourself!
By Cardinalpark, at
Thu May 15, 11:23:00 AM:
TH - actually, no, we need less service at a higher price. My guess is that that was an unprofitable flight you were on. Why? Because jet fuel is currently running over $3.50 a gallon.
Right now, the airlines cannot hope to make a profit because there is simply too much capacity, and therefore prices are too low, to generate a profit.
The industry essentially needs to be re-regulated as a "natural monopoly" (like utilities), allocate capacity to agreed markets and set high enough prices to generate a significant return on capital.
Either that, or the entire industry will go bankrupt (again). And you really can't blame labor or management for this. Fuel costs are a market-based phenomenon.
The fact is, the airline industry fits the textbook microeconomic definition of a natural monopoly (like cable, telecoms or utilities) and simply needs to be treated like one.
It does consumers little good to have their carriers go broke every cycle and fail to invest in aircraft, maintenance, airports, terminals and the air traffic system. Maybe we benefit from cheap (i.e. below cost) tickets, but the long term cost of an air traffic system with no capital is socially too high.
By randian, at
Thu May 15, 11:51:00 AM:
Why should I care if airlines go bankrupt or have low return on capital? That's between them and their shareholders. It's not my problem.
By , at
Thu May 15, 11:56:00 AM:
The airlines were only partially deregulated. There are still massive amounts of regulation in the air industry. To call for a reregulation of the air industry is similar to asking the tax payers to bail out the large banks for playing the market with house mortgages. It is morally incorrect.
We have forgotten that under heavy regulation, the airlines were given profits by the taxpayer. The seat pitch was larger because there was no incentive to compete. I remember Branif being full quite often. Texas International was often full. But there was some leg room. Recently one airline I fly on regularly took out the coat closets so that they could get in another row of seats.
Airports are owned by cities not by the airlines. To deregulate that issue would be wonderful. The US Federal government owns the air navigation facilities and air traffic control facilities. The upgrades that were to be implemented 8 years ago were delayed because of budget fights.
If you want to do a bit of research, in the mid 1960's Congress made air travel the prefered method of travel in the US. That moved passengers away from other forms of transportation and onto the planes. At that time we were testing high speed trains. The high speed trains that were being tested were great trains, but track weld problems made the regulators (Congress) throw in the towel without a fight. BTW for those who might take a vacation in Colorado the test engines are at the Pueblo, Colorado airport museum.
Dave
By randian, at
Thu May 15, 12:04:00 PM:
It should be bleeping obvious that trains are a terrible idea for medium and long haul travel. You don't need to acquire or build anything between points of travel if you're flying. That's a huge savings in money and time. Heck, trains are a bad idea for short-haul travel, too. Look at the absurd difference in costs between roads and trains.
By Escort81, at
Thu May 15, 12:33:00 PM:
TH -
To paraphrase W, "don't mess with Bucks County."
Maybe TTN would benefit from VLJ air taxi service of the sort Pogo (and ex-American Airlines CEO Crandall) is trying to develop. But the economic answer is probably not commercial service for regular jets. Perhaps eight years ago, I used to take ATRs up to Hanscom in suburban Boston, but that carrier struggled and tanked, and that was when fuel was less than a third of what it is now.
Well, we should save CP's post on this subject in case he ever applies for a position at the Cato Institute, because it would immediately disqualify him (as I am sure Randian would attest)! I happen to agree with him that some kind of re-sorting of airline regulation would be helpful, though how that would work so that we don't end up with another Amtrak is very complex. I don't think we are looking at reviving the CAB, but clearly, the last 30 years of actual experience has not been kind to airline investors, managers, unions, or passengers (in terms of the actual travel experience, setting aside lower fares for the moment), and any increase in the number of crashes of commercial planes would prompt investigations about deferred maintenance.
We may be headed in that direction (redefining regulation) anyway, as the majors are looking to combine in some fashion, so that eventually, there may only be 3 or 4 airlines with 90+ % of the lift capacity, a situation that is basically putting a sign on itself saying "regulate me." Southwest is kind of the wild card in the mix, since it has always operated in a different way from the majors (and indeed is not part of the Orbitz consortium online, by way of example), and had a long track record of profitability and safety up until recently. People like to get on the SW website and bang away at the $59 fares to FLA -- you can't even drive to NC for that!
Maybe we could put Al Gore in charge of the new federal entity that will regulate air travel. Built into the price of the ticket will be carbon offsets, so we can feel good about that fun business trip that requires a red eye back from the west coast. Welcome to five digit coach fares -- see how many people fly then.
In the meantime, TH, count your blessings that you are in the business that you are in and not a manager of an airline or any other part of the travel and leisure business that consumes large amounts of fuel. My old PU roommate (also known to The Centrist, who posted above) is in such a business, and the stock price will not budge no matter how well his firm executes against plan (ex-fuel costs). It is like torture, nearly as bad as water boarding.
By , at
Thu May 15, 12:41:00 PM:
Well, I'm with TH on this one. If TTN doesn't work, we need a new airport further up river, or we need to buy Yardley out and expand TTN. Of the last twenty flights into EWR I've been on every single one was late due to air traffic congestion into the airport, and while PHL is better it's the worst run, worst designed major airport in America. It's expensive for the airlines to use, too.
We need another airport.
By Cardinalpark, at
Thu May 15, 03:20:00 PM:
Randian - you should care about airline bankruptcies because they impose risks and costs upon you and broader society. Liquidations actually wind up swallowing 90 days of customer money. We have had several such liquidations in the last few months, by the way, in addition tto more ordinary course chapter 11 restructurings.
In addition, the industry -- through heavy government taxation -- is responsible for capitalizing airport systems, including atc and safety. And you rely upon airlines to fund maintenance expenditures. At a certain point, it is derelict to have an undercapitalized industry.
Back to the microeconomic point. There are cetain industries that are meant to be monopolies - high capital, high fixed cost businesses, like utilities. IF you let them engage in "perfect competition", another microeconomic concept, they will never generate a profit or a return because they price to marginal cost. They will squander capital and impose high societal costs.
That's why industries like utilities are regulated. The benefit of agreeing to be highly regulated (and therefore capping your return on capital)is that you get to fix prices such that you generate a ROC.
The industry today is highly regulated, heavily taxed, and is perfectly competitive...an unattractive and eventually a dangerous mix.
So when I say regulation, I say they should be DOT regulate to allocate markets and earn a rate of return (kind of likee trucking or other transportation businesses).
Otherwise, this industry will become a dangerous liability, and you won't be able to blame anybody other than industry structure and economics -- though politicians and journalists will undoubtedly scapegoat people.
By randian, at
Thu May 15, 03:39:00 PM:
"They will squander capital and impose high societal costs."
What societal costs? Do tell. As for squandering capital, that's utterly 100% totally irrelevant to anybody but their shareholders.
Rate of return regulation is a terrible idea. Why? Because the inevitable response of companies to such regulation is to increase costs as much as possible. That's the way companies increase profits in a cost-of-capital regime. The customers have no choice but to pay since they foolishly granted a monopoly.
By , at
Thu May 15, 05:55:00 PM:
For what it is worth, the MagLev train in Shanghai Pudong is really nice. That was an American technology train built by Germans using their equipment in China.
If the government would get out of the regulation business, it would be easy to have maglev spurs around the country. Let private industry fund them and keep the profits. Just imagine moving at 200 or 300 mph from Newark to home.
By the way the utility idea just don't work very well. When Southern California's power requirements went up and brown outs were happening, electrical rates in Idaho were raised by the utility company because they had a federal OK to share power. Why should anyone 800 miles away have to pay higher rates for people in SoCal?
Why should taxpayers continue to pay for federally mandated airline service to Alburque that was set up during WW II? Get the government out of transportation.
Dave
By , at
Thu May 15, 10:27:00 PM:
Hope your sister is getting on ok.
