ac – regional econ – i/l – at: turn – control

Two mid-sized U.S. airports have been hit pretty hard by cuts in airline service in recent years. Ontario (ONT) California has seen its passenger volume shrink from 7.2 million in 2007 to less than 3.9 million in 2013, primarily due to airlines cutting back on less-profitable routes. And now Cleveland (CLE), formerly an important Continental hub, is being de-hubbed by the merged United-Continental, as I predicted back in 2010. The airline announced in early February that it would cut its average daily departures 64% by this June, which translates into 51% fewer passengers (since many of the flights being eliminated are on regional jets). In response, Moody's Investors Service said the change is "credit negative" for the airport, but did not (yet) reduce its bond rating Both airports face a difficult task in attracting replacement service, because their costs are higher than those of comparable airports. In the case of CLE, its cost per enplaned passenger last year—before the new cuts—was $15.37, which Moody's says is nearly twice the average of the U.S. airports that they rate. And with the smaller volume that's in store, Moody's estimates it will soar to as high as $25. Ontario's CPE is also in the double-digit range, and is considered by airport consultant Oliver Wyman to be one of the highest for medium-hub airports. (CPE is calculated by adding up all the airport's charges to airlines, such as landing fees and space rentals, and dividing by the number of passengers.) Given their high costs, both airports need rather drastic change in their cost structures to become competitive—what Bob Hazel of Oliver Wyman terms a "game-changer" in the case of ONT. And that is likely to be more difficult within the scope of normal government management. ONT is owned by Los Angeles World Airports (operator also of LAX and Van Nuys), which although operated as an enterprise fund, is still essentially a department of the city government, which likes to micro-manage its business decisions. In discussions with Ontario officials about fixing the airport's problems, LAWA has noted that any solution must provide protections for airport workers, a number of whom are City of Los Angeles employees. Yet if the situation is analogous to a bankruptcy, protecting existing jobs is not the number one priority—survival is. CLE, too, operates as part of its city government.

First, I want to thank Admiral Stone for working with the Nevada delegation, the airport director, and the FSD at McCarran Airport to resolve problems the airport experienced at the beginning of the year. As you are well aware, in January, departing passengers -- and our chairman mentioned this -- stood in line for up to four hours after attending one of the largest conventions in Las Vegas. This, obviously, is unacceptable for a community that depends on its airport for its very livelihood, and, as I have said on many occasions, almost 50 percent of the people that come to Las Vegas to enjoy our wholesome family entertainment come through McCarran Airport. That's 36 million visitors. People who stand in line for four hours are going to think twice before coming back to our community, and that would have a economic impact that I'd hate to think about. You've heard what we said, and I appreciate that.

From removing shoes and belts for metal detectors to privacy concerns about full-body scans, some airline passengers feel like they receive a virtual shakedown at airport security. Add understaffed checkpoints, overworked screeners and equipment glitches to the mix, and passenger screening quickly becomes a recipe for disaster. As customer complaints skyrocket, so does the risk of dangerous mistakes. These are among the reasons cited by 17 airports that have opted out of the Transportation Security Administration's (TSA's) traditional screening model in favor of its alternative program, which uses contract security companies. Montana's Glacier Park International Airport (GPI) is hoping to become the 18th airport in TSA's Screening Partnership Program (SPP). Positive reports about the program attracted the notice of GPI airport director Cindi Martin years ago. After talking to current participants, Martin suspects SPP might work at her airport, which sees about 200,000 passengers annually, most during the area's busy summer tourist season. The airport's active search for an alternate screening strategy began in 2007, when TSA cut GPI's screening staff in half based on its Staff Allocation Model - a formula used to determine staffing levels for passenger and checked baggage screening. "We'd already been experiencing a lot of customer service complaints, and the airlines were taking delays because of screening delays," Martin recalls. A TSA reduction would have dealt yet another blow to an already stressed situation. So Martin embarked on what she terms "a very frustrating process" to have staffing numbers reviewed. TSA eventually increased staffing, but not significantly and not soon enough. "By the time we'd gotten an increase, given the length of time it takes the TSA to hire and train people and put them on the floor, they were unable to staff us appropriately for the summer," she explains. "That was the real clincher for us." Private screening companies, she learned, were much more able to flex their staffing levels to meet the airport's varying needs. Unlike the federal government, they could expand their ranks when GPI's passenger loads triples during the summer and contract when the airport's split-flight schedule takes affect in winter. Martin remains cautiously optimistic that the airport's SPP application will receive authorization from TSA before this summer. "My understanding is that all the necessary due diligence has been done, and there is nothing that would stop our application from being approved," she reports.

As an example of the importance of overhead costs and how they are allocated, at one of the SPP airports we visited, general and administrative and overhead costs accounted for half of the difference in TSA’s estimated $14 million cost difference between SPP and nonSPP operations. • According to identified effective practices, strategic workforce planning requires, among other things, that agencies develop strategies that are tailored to address gaps in the number, deployment, and alignment of human capital approaches for enabling and sustaining the contributions of all critical skills and competencies. 2 SPP contractors and TSA have different views regarding whether unnecessary redundancies exist at SPP airports. • Private screening contractors at four of the six SPP airports we visited stated that they believed that unnecessary redundancies exist between supervisory TSA and contract screening personnel. For example, contractor officials at one airport said that TSA’s screening managers perform the same responsibilities as the contractor’s supervisors. No TSA personnel were assigned at the remaining two SPP airports that we visited.

Further, who do you think really foots the bill for new scanning technology like those full-body scanners that we have all grown to love? Eventually the increase in the TSA’s budget has to be subsided somehow, and the agency typically finds a way to pass that cost increase on to the airline, which hands it down to you, the innocent traveler. body-scanners A sample of the images that TSA agents view with the new full-body scanners. In a 2010 column for the New York Times, Nate Silver explained how increased security measures can affect our economy (and the travel industry) on a macro scale. “More stringent security procedures, in essence, function as a tax upon air travel, and produce a corresponding deadweight loss. Teleconferences are often a poor substitute for person-to-person interaction, and when people are reluctant to travel, some business deals don’t get done that otherwise would have. Recreational travelers, meanwhile, may skip out on vacations that otherwise would have brought them pleasure and stress-relief (while improving revenues for tourism-dependent economies). The tenuous profits of the airline industry are also affected, of course. Revenue losses from the new bag-checking procedures may have measured in the billions, according to the Cornell study.” He then goes on to talk about how the passengers who choose not to fly may choose ground travel instead, which can be deadly: “Other passengers may substitute car travel for air travel. But this too has its consequences, since car travel is much more dangerous than air travel over all. According to the Cornell study, roughly 130 inconvenienced travelers died every three months as a result of additional traffic fatalities brought on by substituting ground transit for air transit. That’s the equivalent of four fully-loaded Boeing 737s crashing each year.” -

Other airports currently using contract screeners also cite flexibility as their primary benefit. According to SPP participants, the ability to adjust staffing levels quickly facilitates more efficient screening and shorter wait times, which translates into satisfied customers and safer flights. On its website, TSA describes how giving private contractors permission to tweak its traditional staffing model fosters greater flexibility. Although TSA determines staffing levels for private contractors based on airport layout, equipment type, number of passengers, etc., the private companies can tailor those levels to an airport's unique needs. According to TSA, the "actual number of contract screeners may differ from how the federal government would staff the airport."

I would encourage you -- I do not know -- I got the feeling from that discussion that you do not measure passenger delays, and, as has been pointed out, the purpose of TSA was to restore confidence and return people to the airports and to flying, but the one thing that's going to drive them away is lengthy delays and unpredictable delays. I've heard comments from the fast-food industry that as hamburgers and breakfasts are sold across the nation that a computer is showing exactly how many units are sold in what area and they begin to dispatch their ingredients to those areas where the sales may be running a little bit high. I think anything short of that very, very pragmatic addressing of the needs for screeners in some areas and the excess of screeners in other areas is needed here. We need to approach this like a business. We need to direct the resources where they need to be without overdirecting in other areas.