FTC Staff Comment Before the Federal Aviation Administration Concerning Charges for Use of Washington National and Washing Dulles International Airports

..
lEFORE THE
FEDERAL AVIA nON ADMINISTRATION
'SHINGTON, D.C.
Charges for Use of Metropolitan
Washington Airports
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Docket No. 25204
Comments 	of 	the 	Bureaus 	of 	Economics, Competition, and 	Consumer
Protection of the Federal Trade Commission!
IntrQduction
The Federal AviatiQn Administration (FAA) prQPQses tQ adjust some of
its 	landing 	fees 	Jnd 	other 	charges 	fQr 	the 	use 	of 	Washington 	National
Airport 	(National) 	and 	Washington 	Dulles 	International 	Airport 	(Dulles}.2
The FAA's goal appears to be the reCQvery Qf the histQrical costs assQciated
with the airfields. 	In these comments we suggest that air travelers CQuld be
better 	served 	if 	the 	FAA 	set 	charges 	consistent 	with 	the 	gQal 	of
econQmically efficient pricing of airport services.' 	Efficient prices WQuld, in
general, 	better 	guide 	carriers' 	use 	of 	airport 	facilities 	and 	would, 	in
particular, encourage carriers to shift flights out of congested peak periQds.
CQnsumers 	would 	benefit 	from 	the 	resulting 	reductiQn 	in 	delays. 	. In 	the
IThese CQmments represent the views of the .Federal Tnde Commission
staff, and dQ not necessarily represent the views of the CommiSSIon itself or
of 	any 	individual 	CQmmissioner. 	The 	CQmmission 	has, 	however, vQted 	to
authorize the Bureaus tQ submit these comments.
2 	52 Fed. Reg. 7446.
'Economically efficient charges would be equal tQ the added costs that
the provisiQn of services imposes on society.

Jonger run, consumers and taxpayers would benefit because efficient pricing
would reduce pressures for costly expansion of airport capacity.·
Tbe Federal Trade Commission (FTC or Commission) is an independent
regula tory commission, created in J 914 by tbe Federal Trade Commission Act,
aod 	empowered 	to 	prevent 	unfair 	metbods 	of 	competition 	and 	unfair 	or
deceptive acts or practices in or affecting commerce. 	Government policies
tbat impose unnecessary costs on consumers are of particular concern to the
Commission.
The 	Commission's 	Bureaus 	of 	Economics, 	Competition, and 	Consumer
Protection 	ba ve 	a 	specific 	interest 	in 	issues 	involving 	airport 	access,
including the allocation of takeoff and Janding rights (or ·slots·) to airlines
at 	restricted 	airports. 	FTC staff research 	has led 	to the publication of a
report 	on 	slot 	allocation,5 	and 	the 	FTC 	staff 	has 	participated 	in 	earlier
administrative 	proceedings 	involving 	airport 	access. 8 	We suggest 	that the
current 	proceedings 	offer 	8n 	opportunity 	to 	price 	airport 	access 	more
efficiently, thereby replacing price structures that result in costly delays to
air travelers during peak periods and that provide incorrect price signals to
carriers regarding airport use.?
.. 	In 	these 	brief 	comments 	we 	will 	not 	attempt 	to 	provide 	detailed
specifications 	for 	efficient 	prices 	of 	airport 	services. 	Instead 	we 	will
present some general principles to which such prices should adhere.
5 	See 	D. 	Koran 	and 	J.D. 	Ogur, 	Airoort 	Access 	Problems; 	Lessons
Learned from Slot Regulation by the FAA, Bureau of Economics Staff Report
to the Federal Trade Commission, May 1983. 	. - -.'
& 	Most 	recently, 	FTC 	staff 	filed 	comments 	in 	the 	Department 	of
Transportation (DOT) proceeding on Discussion Authority for Agreement to
Shift Schedules, Docket No. 44634.
T 	In 	our comments before DOT in Docket No. ~4634, the FTC staff
proposed that, if delays exceed an efficient level, DOT impose additional
(footnote ~ntinued)
2

The Proposal
The FAA proposal would modify existing landing fees at National and
Dulles 	so 	that 	general 	aviation 	and 	air 	carriers 	that 	have 	aot 	formalJy
contracted for airport use (non-signatory carriers) would pay for landings on
the same basis and at the same rate. 8 	Under the proposal the FAA would
charge these aircraft operators a new uniform rate per thousand pounds of
aircraft 	weight. 	General 	aviation 	would 	also 	be 	subject 	to 	a 	uniform
minimum fee at both airports.Q
The 	air 	carriers 	that 	do 	contract 	for 	airport 	use 	(the 	signatory
carriers) could 	ultimately 	be affected by the 	FAA proposal as well. 	The
Metropolitan Washington Airports Act of 1986, which authorizes the transfer
of National and Dulles to the Metropolitan Washington Airports Authority,
requires that alJ 	air carriers' and 	general aviation be charged on 	the same
basis, with the exception of the minimum landing fee. 10 	Hence the proposed
pricing basis, subject to later modification by the Airports Authority, could
(footnote continued)
limits on slots as needed, and make those slots marketable by cash sale. 	We
noted that an alternative solution to excessive delays would be to impose an
added charge on aircraft operations during congested peak periods. 	Although
DOT's 	Final Order 	rejected 	our approach 	in 	favor 	of carrier meetings 	to
shift flights out of congested periods. DOT observed that our approach could
have merit if excessive delays were expected to be permanent at an airport.
8 	General aviation consists of private and corporate aircrafL
~ .--
~he current general aviation landing fees were set in 	1968 and have
not been changed since 	then. 	The fees are based on aircraft weight, and
are differentiated 	by engine type. 	A minimum fee is charged all aircraft
except certain aircraft under 3,500 pounds, which pay nothing to land at DulJes.
10 	P.L. 99-591, S. 6005(c)(l0).
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become the uniform standard applicable to the signatory carriers wben their
contracts expire in December 1989.
Analysis
Economic 	theory 	suggests 	that 	efficient 	prices 	should 	Teflcct 	the
marginal costs that the provision of services imposes on society. 	When an
aircraft 	lands, 	its 	use of airport services imposes several costs on 	society.
Some of these costs are imposed directly on the airport (such as 	the costs
of 	providing 	physical 	facilities), 	while 	other 	costs 	may 	be 	imposed 	on
passengers on other flights 	(congestion costs), and 	still other costs may 	be
imposed 	on 	residents 	living 	near 	the 	airport 	(noise 	costs).u 	Tbese 	costs
identify 	the 	different 	factors 	on 	which 	efficient 	charges 	would 	depend.
These factors are not limited to aircraft weight.
To begin with, the airport incurs costs to provide runways and other
necessary 	landing 	facilities. 	Although 	some 	costs 	of 	providing 	these
facilities may vary with aircraft weight, another portion does not. 	A landing
by one aircraft, regardless of its weight, precludes the use of a runway for
the length of time required 	to complete the landing. 	Hence, a 	portion of
the cost of providing the runway for the landing is independent of aircraft
weight.
- .~ - 	.'
11 	See 	S.F. 	Borins, 	·Pricing 	and 	Investment 	in 	a 	Tnnsportation
Network: the Case of Toronto Airport: Canadian Journal of Economics XI,
no. 4, November 1978,680·700.
4

The airport also incurs costs to provide terminal services. 	These costs
vary· with 	the 	Dumber 	of passengers on 	an 	aircraft. 	Hence, an 	efficient
charge for 1crminal services would vary with the Dumber of passengen.lJ
Costs 	also 	vary 	by 	time 	of 	day. 	During 	a 	congested 	peak 	period,
additional landings would increase the delay costs incurred by passengers on
other 	flights. 	By 	contrast, 	during 	an 	uncongested 	off-peak 	period, 	the
airport 	can 	provide additional 	landings 	without 	delaying other pa~sengers.
Hence, 	efficient 	landing 	fees 	should 	be 	higher 	during 	peak 	periods 	than
during off-peak periods. 1S
Finally, 	aircraft 	Doise 	can 	impose 	costs, 	which 	may 	be 	reflected 	in
reductions in the value of property located near airports. 	Efficient landing
fees should vary with the burden imposed on nearby residents by the noise
generated by aircraft, and hence noise fees would vary with the amount of
Doise and perhaps the time of day.
The foregoing analysis suggests that the changes proposed by the FAA
are an 	inadequate move toward 	more efficient pricing for the services of
12 	It 	is 	possible 	that 	the 	number of passengers 	is closely correlated
with aircraft weight. 	If so, weight could provide a reasonable approximation
of the number of passengers, for the purpose of setting terminal charges.
IS 	Estimates of optimal landing fees 	are presented in S.A. Morrison,
~stimation of Long·Run Prices and Investment Levels for Airport Runways:
in T.E. Keeler, cd. Research in Transportation Economics. v. I, 1983, 103·J30.
Assuming the current capacity at National, 	the estimated optimal i976 peak·
period 	fee 	is 	5283, and 	the 	estimated optimal off-peak 	fee 	is $137. 	By
comparison, actual landing fees in 1978 were $35 for a DC9·30, aDd $49 for
a 	B727·200. 	The estimates for less congested airports Juggest that optimal
fees at Dulles could be lower than existing fees for some aircraft types.
s

I 	•
National and Dulles. 14 	Perhaps the most serious omission from the proposal
is the absence of peak/off-peak price differentials.1I
One 	important 	benefit of peak/off-peak 	price differentials would 	be
reduced delays during peak periods. 	Higher prices during peak periods would
provide an 	incentive to shift some aircraft landings to orr-peak periods.ttl
If 	delays 	are 	greater 	at 	National 	than 	at 	DulJes. 	peak/off-peak 	price
differentials would also provide an incentive to shift some aircraft l.ndings
14 	An additional 	inefficiency could 	be imposed 	by The Metropolitan
Washington 	Airports 	Act 	of 	1986. 	which 	specifies 	tha t 	-_the 	Airports
Authority may require a minimum landing fee not in excess of the minimum
landing fee for aircraft weighing 12.500 pounds.- 	P.L. 99-591, S. 600S(c)(lO).
This requirement cobld make it difficult or impossible to set efficient landing
fees for small aircraft.
16 	Under Section 	6009(a)(I) of the Metropolitan 	Washington 	Airports
Act of 	J986. National and 	DulJes. after transfer to the Airports Authority.
will 	fall 	under 	the 	fee-setting 	requirements 	of 	the 	Airport 	and 	Airway
Improvement Act of J982. 	Although these requirements are not currently
applicable to National and DulJes. the FAA may nevertheless consider them
in 	this 	proceeding 	in 	anticipation 	of 	the 	future 	transfer 	to 	the 	Airports
Authority. 	In 	particular. 	the 	requirements 	include 	a 	prohibition 	on
discriminatory 	fees 	(49 	U.S.C. 	2210(a)(l», 	a 	limitation 	on 	the 	use 	of
revenues--with 	certain 	exceptions--to 	covering 	capital 	and 	operating 	costs
directly 	related 	to 	the 	transportation of 	passengers or property (49 U.s.c.
2210(a)(l2». and a requirement that Federal funds be excluded from the rate
base 	for 	establishing 	fees 	(49 	U.s.C. 2210(a)(9». 	While we 	do 	Dot claim
expertise in the area of FAA statutory authorities, it is Dot apparent to us
that any of these requirements would prohibit the establiShment of peak/off-
peak differentials for landing fees. 	In addition. we note that economically
non-discriminatory 	fees 	are 	those 	based 	on 	the 	added 	costs 	of providing
service; fees 	that are unrelated 	to the added cost of providing service are
discriminatory in economic terms.
l~he experience 	of 	the 	three major airports in the 	New York area
with 	peak-period 	surcharges 	provides ~vidence on'" the 	l'espoIriiveness 	of
leneral 	aviation 	to 	peak/off-peak 	price 	differentials. 	. In 	1968. 	the 	Port
Authority of New York and New Jersey raised the peak-period landing fee
Cor aircraft with fewer than 25 seats to S25. while keeping the orr-peak fee
.t S5. 	As a result. general aviation activity decreased by J9 percent overall.
and by 30 percent during peak hours. (U.s. Congress. Office of Technology
Assessment. 	Airport 	System 	Development. 	August 	J984. 	pp. 	111 and 	131-
132). 	This experience also clearly demonstrates that peak/off-peak pricing
differentials are administratively feasible.
6

(rom 	National 	to DuJJes. 	In 	the Jonaer run, peak/off-peak pricing would
reduce pressures (or expansion of airport capacity used only in peak periods.
If the value of aircraft landings is high enough to justify payment of peak-
period 	landing 	fees, 	revenues 	could 	be 	provided 	to 	cover 	the 	costs 	of
ripancing delay-reducing additions to airport capacity.
Conclusion
Efficient airport pricing would permit a more complete realization of
the 	potential 	benefits 	of 	airline 	deregulation. 	Although 	deregulation's
benefits thus far have been substantial, they are still limited because airlines
are not guided by efficient prices in their choice of airports to serve and
times 	of the 	day to provide that service. 	Efficient airport pricing would
give carriers the economicaJJy correct price signals, and this improvement in
efficiency would ultimately redound to the benefit of the traveling public .
. _'
7