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Entries in Unintended Consequences (2)

Tuesday
Jul282009

Propagating Harm: Senators Boxer and Snowe; and Kate Hanni

The festering issue of whether to enact a Passenger Bill of Rights is on its most aggressive track, both publicly and in Congress. Last week the Senate Commerce Committee approved its version of the FAA Reauthorization Bill. Tucked inside was the Boxer-Snowe amendment, which resurrects the Airline Passenger Bill of Rights nearly two years after it first reared its ugly head on Capitol Hill.

Among other things, the Boxer-Snowe version requires airlines to let passengers off of an aircraft that is delayed on the tarmac for three hours or more.

I ask, is this really a cause for Congress? Is this “issue” worthy of all the angst we see in articles like in the USA Today, which is to my eye drafted to drum up controversy replete with anecdotes and devoid of the relationship to the sheer number of flights consumers enjoy.

It is anecdotal and emotion driven by a populist appeal that seems to be driving this debate. With the airline industry already in fierce competition for customers and revenue, my bet is that the industry is more than capable of addressing this issue on its own as evidenced in the recent focus on operational results. But Congress too often seeks a legislative solution where the private sector should prevail, as we’ve seen before and will unfortunately see again. And in these cases, it is clear that the law of unintended consequences is alive and well.

At MIT, I am fortunate to work with learned academics and industry experts who produce a volume of impressive research on airline operations and performance and schedule recovery. Among it is some interesting data that shows airline schedule planning may actually propagate the kind of air travel delays that has some in Congress pushing bills that very likely will add to, and not ameliorate the problem.

Professor Amy Cohn of the University of Michigan is a Sloan Industry Studies Fellow researching the passenger airline industry. Her research illustrates that plans that look good on paper often do not perform well in practice. Cohn argues that, with the complex nature of airline networks, a little “slack” built into the schedule actually improves performance – but offsets the benefits of system optimization. Much good work has been done to make this capital and labor intensive industry as efficient as it can be, particularly given the many variables that affect performance – from a crew member calling in sick, to a mechanical problem, to a geopolitical event, or to the weather.

Consumer Benefits of Airline Schedules Have Been Significant

Schedule planning has provided a wide range of benefits – primarily for consumers. Over the past 20 years, passengers have seen connecting times fall significantly – which is particularly important to those who do not live in hub cities and face a combination of flights to get to their desired destinations. This opaque airline practice has resulted in more productive time for the airline passenger. It has helped to make airlines significantly more efficient because time saved on the ground translates into money saved for the airline. These cost savings have also been passed along to consumers in the form of lower fares

In addition, schedule optimization has permitted added frequencies to non-stop destinations, providing consumers a wider array of departure times and, in some instances, a wider choice in carriers and hubs.

All Anecdotes, Few Facts and Little Analysis

Federal legislation like the Passenger Bill of Rights proposal could significantly undo the progress the airline industry has made. And the real shame is that the legislation borne of one unfortunate delay and an angry but media darling passenger activist named Kate Hanni is the product of anecdotal, and often unsubstantiated evidence rather than serious analysis. Anecdotes produce sensationalist stories like the one in the USA Today. But real research tells a different story. According to the Air Transport Association and the US Bureau of Transportation Statistics, all but one of the airline efficiency metrics are at their best levels since 2000, including flight cancellations as a percent of domestic departures, on- time arrival rates, mishandled bags, customer complaints, and taxi-out times in excess of three hours.

So why the focus on an arbitrary three hour time limit? Why not two hours? Why not three hours and 17 minutes? As it is, the legislation now in Congress is designed to affect no more than .014 (1q’09 according to ATA) percent of domestic passengers. Of that small subset of passengers, who, if anyone will actually benefit from the legislation? Well that depends on how many of those passengers would rather wait a little while more in hopes of getting clearance to take off, and how many would prefer to return to the gate and call it a night and risk the ultimate arrival. Now I will add that in order to wait out a delay, there is a rightful expectation of a fully functioning aircraft and onboard amenities that allow a bearable experience.

Who Wins?

The truth is, you can’t legislate smooth travel conditions. Weather is a reality and weather causes delays. And yes, delays add to the angst of travel and wets the appetites of those in the media that thrive on the travails of travel. In those cases of severe weather and flight irregularities, some fliers may be happy just to wait out the delay if it means getting to their destination. A return to the terminal, after all, just adds to the chaos for later flights as the airline struggles to get crews on planes and passengers on their way. And the issues propagate. Imagine the mood on a plane queued to take off following a weather delay if the pilot suddenly announces that they are headed back to the terminal because Congress says they have to. Whose “rights” does that protect?

What Does This Have to Do With Reauthorization?

Of the .014 percent, or the .01 percent of domestic departures during the first quarter of 2009, of domestic passengers impacted by tarmac delays greater than three hours, shouldn’t we also be asking how many of those delays could possibly be laid at the feet of Congress and the government because they did not keep their promise of upgrading the air traffic control system? That’s a legislative solution that would benefit all airline passengers, every community and the industry itself. Whereas the USA Today article was largely sensationalistic with its statistical story and included vignettes about crying babies and the like, at least the reporter talked to an airline and a knowledgeable consultant about the old and inefficient air traffic control system.

The USA Today article rightly makes this case. "Because of the antiquated air-traffic-control system in which we — and every airline — operate, we're restricted as to the operational improvements we can make," Bryan Baldwin, spokesman for JetBlue Airways, told the newspaper

Aviation consultant Michael Boyd said airline CEOs "should form a conga line" to the FAA and demand the country's air-traffic system be modernized. That could increase airspace capacity and reduce the number of waiting planes.

That alone would do far more to reduce congestion and delay than would a phony and likely counterproductive passenger “bill of rights.”

Don’t get me wrong. The airlines deserve some blame here. We would not be facing the prospect of such a ludicrous proposal if the airlines did not fail their passengers and fail them more than once. But remember, they do operate nearly seven million flights per year - significantly more than when competition was born. Their failures pale in comparison. Passengers could, and have, experience serious repercussions from a prolonged wait on the tarmac – whether from lack of food, water, medicine or simply the need to get off the plane and attend to personal matters. But that is an issue that can be solved with a directive, a renewed focus on customer service and basic human comforts, not a piece of legislation that certainly will result in unintended consequences. Airlines and airports are making progress on that front and addressing delays that they can control. But last I checked, weather was not among them.

This issue needs study – a very detailed study – and it sure as hell is not the 2008 ARC study - on the issues . There is a solid foundation of scholarly work to build on and adapt that work to this particular issue. Those that perform the study need to understand how airline operations work and then determine how an airline can best address the anecdotes (outlier events) given the unique constraints placed on airlines, airports and the air traffic system each and every day as there is no one size fits all solution that seems to be called for in the ill advised Boxer-Snowe legislation.

The real issue is in the root cause of airline delays, and the answer will be found to incubate in the air traffic control system. The FAA reauthorization bill comes around only once every so many years. Is Congress going to use this opportunity to pass a meaningless “protection” for a few passengers, or take a bold step and do what it takes to build a better air traffic control system for the good of all?

I thought the administration was going to take parochial interests out of legislation. This legislation should be about funding the FAA in order to modernize the air traffic system and increase its safety – not tarmac delays; not propping up a non-essential Essential Air Service program; and certainly not about anti-trust immunity.

More to come on these issues.

 

The next post will examine the baseline of pay and productivity issues the airlines face as labor seeks to return compensation lost from past negotiations.

Monday
Mar092009

Jim "Hell NO”berstar and Thomas K. Merton

 Jim "Hell NO”berstar and the Fear Mongers; Thomas K. Merton and the Unintended Consequences

Saturday morning’s headline in the Washington Post read: “Job Losses Could Drown Stimulus.” The headlines in the Wall Street Journal read: “Jobless Rate Tops 8%, Highest in 26 years”. Getting the FAA Reauthorization bill moving toward action on the floor of the House, Congressman Jim Oberstar does the unthinkable. He attaches ill-conceived language to the reauthorization bill that would make it increasingly difficult for airlines to form new, or maintain international alliances to augment revenue –whether those airlines with applications for alliances now under consideration, or current alliances that must win anti-trust immunity every three years.

The FAA Reauthorization bill is, in and of itself, critical to commercial aviation. It funds many of the operations and projects necessary for the effective functioning of the nation’s airspace, and also includes monies to implement NextGen technology to upgrade the nation’s air traffic control system. In an industry in which all stakeholders will benefit from enhanced efficiency, NextGen is critically important.

But the current version of the reauthorization bill does not come close to making this a priority. Instead it is a bill that serves primarily as a vehicle for the amendments that Oberstar and his labor constituents find appealing, including funding for US-based maintenance and aviation repair facilities; an initiative to legislate the Aviation and Safety Action Program (ASAP); and language that includes key elements of the Passenger Bill of Rights.

As I read what the House and Congressman Oberstar are proposing, I started thinking back on my courses in economics and public policy. And in this case, the law of unintended consequences comes to mind.

In the Concise Encyclopedia of Economics, Rob Norton writes: “The law of unintended consequences, often cited but rarely defined, is that actions of people—and especially of government—always have effects that are unanticipated or unintended. Economists and other social scientists have heeded its power for centuries; for just as long, politicians and popular opinion have largely ignored it”.

 

Some Background on the Subtitle

It was during the Delta-Northwest merger discussions and related testimony before Congress that I first began to pay close attention to Oberstar’s remarks and motivations. When asked if there would be any airline mergers, it was Oberstar who responded “Hell, no.” Thus my nickname for the Congressman, Jim “Hell NO”berstar.

Then it was the witness list of past critics of consolidation, including the Business Travel Coalition and others, who lined up to offer their “analysis” -- insisting that the world was coming to an end because the airline alliances would soon control over 90 percent of the activity across the Atlantic. It was this group that I dubbed the Fear Mongers. As the process continued, the one hit wonders were born.

Bands are often influenced by those that came before them. Unfortunately, “Hell NO”berstar and the Fear Mongers failed to acknowledge the sounds of Thomas K. Merton and the Unintended Consequences.

 

 

Thomas K. Merton

In a 1936 paper, American Sociologist Merton wrote the first meaningful analysis of unintended consequences in a paper entitled: “The Unanticipated Consequences of Purposive Social Action.” According to Wikipedia: Possible causes of unintended consequences include the world's inherent complexity (parts of a system responding to changes in the environment), perverse incentives, human stupidity, self-deception or other cognitive or emotional biases.

Merton listed five possible causes of unanticipated consequences:[3]

 

  1. Ignorance (It is impossible to anticipate everything, thereby leading to incomplete analysis)
  2. Error (Incorrect analysis of the problem or following habits that worked in the past but may not apply to the current situation)
  3. Immediate interest, which may override long-term interests
  4. Basic values may require or prohibit certain actions even if the long-term result might be unfavorable (these long-term consequences may eventually cause changes in basic values)
  5. Self-defeating prophecy (Fear of some consequence drives people to find solutions before the problem occurs, thus the non-occurrence of the problem is unanticipated)

Of the five possible causes, ignorance and error are perhaps the most insidious. Oberstar has clearly demonstrated error in assessing the structure of the airline industry. Most recently, Oberstar insisted that the Delta-Northwest merger would lead to a domino effect of other mergers in the industry.

That certainly did not happen.

 

The Unintended Consequences

For whatever reason, the 8th District Congressman from Minnesota remains a loud voice on aviation issues. Perhaps, as it has been described to me, aviation is so far down the ladder that the industry is assigned the lowest common denominator when it comes to representation. When I compare the Congressional advocate voices of aviation to Congressional advocates like Bob Corker and the business acumen he has lent to the public policy debate on the auto industry, this airline industry is best described as suffering a leadership void.

In his analysis of Oberstar’s legislative objectives, Merrill Lynch analyst Mike Linenberg said: “The first major ATI agreement was implemented between Northwest and KLM in 1992 and became the basis for a major joint venture which as of KLM’s last fiscal year (ending March 2008) generated approximately $600 million of operating income on about $4 billion of revenue,” Linenberg said in commentary released on March 6: “The ATI agreement has been a huge positive for the growth in air travel to Minnesota (Northwest has a major hub in Minneapolis) and the company’s local employees, which, ironically are constituents of Representative Oberstar who hails from the same state.”

Linenberg continues: “Our view is that if airlines could operate like most other global industries and be allowed to pursue cross-border mergers, then there would be no need for alliances, and therefore, legislation like what is being proposed above would be unnecessary. But oddly enough, Representative Oberstar is also proposing another clause in the aforementioned FAA bill that would potentially make it difficult to achieve some of the foreign ownership objectives expected to be part of phase two negotiations of the U.S. – EU Open Skies Agreement.”

I am also reminded of a piece I read recently on American Airlines’ Negotiations website by Jeff Brundage citing the number of passengers American carries each and every day as a result of relationships with partners. Brundage writes that American carries 8,200 passengers each day from international feed, or enough to fill 73 MD-80’s. 73 MD-80’s represents approximately 25 percent of American’s domestic narrowbody fleet and approximately 15 percent of its total fleet. And this, despite the fact that American does not even have anti-trust immunity.

But if this is where we are headed, then organized labor’s mouthpiece Oberstar potentially causes employment in the industry to be cut yet again – not because of the price of fuel or a failing economy - but rather because of twisted logic being used in implementing public policy. The very thing Merton’s paper addressed in 1936. The Air Transport Association estimates that 15,000 airline industry jobs are at risk. I believe the number is significantly greater even before considering reprisals from the international community.

It is sad when all you can be is cynical when it comes to airline issues on Capitol Hill. In other words, let’s not make the most fundamental infrastructure architecture efficient because that might translate into an improved bottom line for the industry’s air service providers. Instead, let’s punish all things outsourcing even if it is in the best interest of a specific airline; and let’s be sure to legislate provisions from the Passenger Bill of Rights because that will surely aid all stakeholders.

Aviation labor, which has been a long time financial supporter of Oberstar’s campaigns, should be thinking long and hard about this. Unions are about dues-paying members. If Oberstar is successful in this effort, then labor may well have fewer members.

 

CONCLUDING THOUGHTS

It is true that the airline industry needs to get smaller just like banks and other far flung network-based industries in this economic environment. Past legislation and bad management-labor decisions have pushed the auto industry to the brink. Past legislation and bad labor-management decisions ensured that the US would be only a secondary producer of steel. If Oberstar wants to implement public policy that ensures that US commercial aviation is nothing but a feeder system to the more efficient global carriers, then public policy, like H.R. 915, should be passed. If labor wants fewer jobs as a result of their PAC contributions and inward thinking, then you succeeded in your lobbying efforts. But I am sure that is not how you will explain it to your remaining members.

At some point Oberstar and Congress must recognize the conflict of interest between consumers and labor. I thought the Obama administration is first about job creation, then job preservation. Not only does this bill work to reduce jobs it also has a detrimental effect on consumers as well through reduced service options, the loss of reciprocal frequent flyer benefits and increased costs to the consumer based on the failure to address issues fundamental to the industry’s success to name a few.

Ignorance, error and self-serving interests seem to be guiding aviation public policy yet again. Will we ever learn?