Check out this three-part series in Forbes that highlights the real causes of delays in our air transportation system.
Here is the series:
Part I: Passengers Face Unnecessary Delays, Cancellation This Holiday Season
November 24, 2015
BY: Kathryn Creedy
As passengers head home for Thanksgiving and Christmas they will inevitably be facing unnecessary delays and cancellations because airlines refuse to do anything about their dismal on-time rate preferring instead to pad schedules to game the system into making you think you are arriving on time.
They also prefer to delude passengers into thinking that air traffic control (ATC) system congestion and weather are to blame, when in fact, they account for only a quarter of delays and cancellations. Airlines wrongly think that fixing the ATC system will solve the problem and are advocating ATC privatization as part of the solution.
Privatizing ATC, would, say airlines, providing a more certain funding stream for the massive NextGen/modernization remake – moving from the antiquated ground-based system to a more efficient satellite navigation system.
My problem with such proposals is it is premature to even consider such a radical change. While a steady funding mechanism to support NextGen efforts would be nice, the fact remains that we really don’t know what we need because the airline industry’s operational failures won’t allow us to actually determine the present and future air traffic control needs.
The fact is, Congress won’t solve the problem with privatization or even higher spending. It will take the combined pressure from all stakeholders – including passengers and stockholders – to bring airline operations in line. The problem is neither faction is active in the debate even with so much at stake. Why is it that airlines and their stockholders do not understand what every other industry has already proven? Six Sigma Operational Excellence, in the airlines’ case delivery of flights on time with minimal flight time, not only saves money – in the billions – but provides more in profitability and a better understanding of what is actually needed.
The industry, regulators and Congress have been chasing modernization for 50 years without success. Indeed, very little has changed since the Federal Aviation Administration (FAA) took control of the system in 1958. The first efforts began in the 1960s to meet ever-increasing passenger demand. In the 1970s, Congress imposed a series of user fees on passengers and shippers filling the Aviation Trust Fund designed to fund the changes necessary to eliminate growing travel disruptions.
To be sure there is a funding problem because Congress refuses to spend the money passengers pay into the system. While passengers love to complain about the $36.7 billion in airline-imposed fees collected annually, they remain silent, perhaps even unaware, they are subject to a $14 billion rip-off each year in government fees and taxes that amount to 20% of their ticket – a higher taxation rate than such sin taxes as alcohol and tobacco.
Consider that for a moment. Sin taxes are designed to discourage use. But that same mentality applies to an industry we should encourage because it contributes $1.3 trillion to the economy every year. Taxes on passengers have unnecessarily skyrocketed 400% over the past two decades so the federal tax bite on a typical, $300 domestic round trip, one-stop ticket, is $63.
Taxpayers heavily subsidize both rail and public transit. Aviation, on the other hand, is heavily taxed and is the only transport mode completely funded by users. These taxes and fees go into the Aviation Trust Fund to pay for the Federal Aviation Administration (FAA) and the Air Traffic Control (ATC) system and its modernization. The problem is, the money goes in but its use in improving the system is a 50-year failure.
Why should we care? If the government were actually to spend the money, it might mitigate the 28% of delays and cancellations that result from ATC congestion and weather. Another consideration is the fact that airline-caused disruptions, delays and cancellations cost passengers $8.5 billion in time lost, missed connections and missed travel activity, according to the U.S. Travel Association (USTA). Delays and cancellations keep nearly one in five travelers from completing their trip, according to a 2013 Phocuswright and Amadeus study. They cost the economy $30 billion annually, according to Airlines for America (A4A). Delays and cancellations were cited by passengers as two major factors in why they abandoned aviation altogether. That decision, costing 38 million lost trips, resulted in the loss to the economy annually of $85 billion and 900,000 jobs, according to the USTA.
Much has been written about this problem, including yesterday’s story from The Associated Press about record-breaking increases in taxi times to and from the gate because of congestion. Not to worry, say airlines, those increases are baked into the schedule so you’ll arrive on time. But that is the problem.
Airlines have padded schedules to improve their still-miserable on-time rate so that a flight between New York and Washington, which took 50 minutes in 1960s, now takes well over an hour. Or, instead of taking the five hours it took in the 1960s to traverse the American continent, it now takes seven thanks to changes in airline networks, hubs and padded schedules. Airlines pad so they can game the system by making you think you arrived “on time” when, in fact, only 60% of flights are on time. DOT would have you believe the on-time rate is in the high 70s or low 80s but that counts only arrivals within 15 minutes of scheduled time, not on time arrivals.
Ironically, it was the industry that first talked about this so-called schedule creep in trying to bolster support for trust fund expenditures to make the ATC system more efficient. But there is more to the story than just pointing the finger at ATC and Congress as so brilliantly reported by Dan Reed in his Forbes series Airlines’ 40% Failure Rate: 850,000 Passengers Will Arrive Late Today — And Every Day Airlines have a share in the blame as well.
Even so, airlines are sticking with their solution and pushing for privatization. If the solution were only to develop steady expenditures of the Aviation Trust Fund for its intended purpose, I would favor it. I’ve been decrying the state of the Aviation Trust Fund for decades – since the late Senator Daniel Patrick Moynihan railed against Washington money laundering in the 1980s when he called on Congress to put trust back in the trust funds, which collect money for social security, highways and aviation. Instead of spending that money, he charged, Congress holds it back in a shell game to make the deficit look smaller.
Thirty years later, the situation remains unchanged except that Congress is getting bolder evidenced by the recent highway bill, now in conference between the two houses, that would transfer aviation security fees specifically designed to pay for costs related to aviation security after 9/11 to the decimated Highway Trust Fund. The security fees Congress targets amount to $5.60 per one-way ticket or $11.20 per trip per passenger. Congress could have provided a much-needed raise to the gasoline tax used to fund the Highway Trust Fund but chose instead to raid the security fund. The airline industry is currently considering whether or not to test the legality of the move.
Passengers have paid untold billions into the Aviation Trust Fund since taxes and fees were imposed in the 1970s to pay for a system that has changed very little in terms of delays and cancellations. Why? No one cares. They are nobody’s constituent and, because they are considered “rich,” they have become the automatic teller machine whenever the government says it needs more money. In fact, Congress is the one who invented fees passengers love to hate in the first place. Don’t want to raise taxes? Impose a fee, instead. Congress may talk about lowering taxes but such fees beg the question as to the impact of user fees on the overall tax rate.
Don’t get me wrong. I favor infrastructure spending which has been cited by numerous studies and blue-ribbon commission recommendations now gathering dust at DOT simply because of the failure to spend the funds paid in by consumers to repair crumbling infrastructure, expand airports and move from a ground based to a satellite-based air traffic management system. The simple fact is Congress does not care about aviation.
Case in point: the last bill authorizing the FAA came only after 23 continuing resolutions over several years. That should tell us that aviation is not high on the Congressional agenda, despite the industry’s contribution to the economy and lost taxes to local, state and federal governments that result.
Should passengers support airline efforts to privatize the ATC system? Polls indicate they already oppose such a move and they are right since little would change if it were passed. Part II will examine whether or not it will finally free the passenger from the dysfunctional commercial aviation system.
Part II – ATC Privatization Unlikely to Mitigate Delays and Cancellations
November 24, 2015
BY: Kathryn Creedy
Home for the holidays sounds fetching until you consider what you have to do to go by air. Airlines have resurrected an old saying popular in the dawn of aviation – if you have time to spare go by air.
As passengers wait fuming in the inevitable conga line of aircraft waiting for takeoff, they have much to ponder. Every year, they send $14 billion to Washington in user fees and taxes for few improvements to the system. In addition, airlines are trying to distract them from complaining by saying the solution lies in air traffic control reform.
Airline proposals, and Congressional actions, to privatize the air traffic control system into some sort of quasi public-private partnership as many other countries have done promises air traffic control NextGen/modernization and the subsequent easing of delays and cancellations, for which passengers have been waiting since it was first proposed in the 1960s. Since then the costs for failed modernization efforts have grown from about $6 billion to $12 billion to, now, $40 billion with little to show for it.
Airlines for America (A4A) opposes complete privatization of the ATC system, a model, it says, could put efficiencies and safety behind profitability although that has not occurred in other countries where air traffic management has been privatized. Rather, A4A supports a commercialized approach, focused on the shared goal of enhancing the efficiency of air travel for the customers.
“Adopting an independent, not-for-profit model is the most effective way to achieve the efficiencies currently lacking in the system, by enabling our ATC to run like a commercial business, governed by and accountable to all stakeholders,” it told Forbes.
Delta, however, disagrees. It opposes the change saying such action would be distracting and could stall the little progress being made moving from a ground based to a satellite based air traffic navigation system. It also fears cost increases that would have to be passed on the passengers.
“We believe the funding issue could be addressed through changes in the FAA budgeting process without privatizing the organization,” Delta Senior Vice President of Operations Steve Dickson recently told Columnist Cranky Flier. “You don’t see the same kind of difficulties in other agencies of the federal government. If that’s the problem, let’s address that. You don’t need to privatize.”
I don’t buy it and I think such suggestions incredibly naive. First, the industry has been complaining for decades about the FAA budgeting process with little effect. In addition, Congressional failure to steadily fund the program is as much FAA’s fault as it is legislature’s since numerous General Accountability Office (GAO) studies call into question FAA’s abilities to do the job.
Secondly, taxes and fees are being collected but held hostage to a budget considerations and a dysfunctional Congress. If fees have to rise to break this pattern, so be it. It would probably be cheaper than the $30 billion passengers waste every year to cancellations and delays or the 10% to 15% they pay in unnecessarily higher fares because of what ATH Group President Michael Baiada calls airline “operational dismality.”
As for Delta’s concern about distracting the progress that is being made, I would agree, change will be disruptive. We must proceed with caution. Aviation analyst Bob Mann said it best when he said any changes toward that end should be considered with one goal in mind. First Do No Harm.
“Instead of focusing on privatization,” said Baiada, who has been studying airline operations and attempts to improve the ATC system for decades, “The question Congress and the GAO should be asking first is what causes delays. Unfortunately, the ATC system is too often the scapegoat for the airline’s problems. The consensus is clear. Privatization and NextGen will do little for airline delays and congestion. The solution to airline delays must rest with the individual airlines and their adoption of Operational Excellence to drastically improve their performance, i.e., their daily blocking and tackling.”
Airlines could be excused for not getting their act together sooner given the serial bankruptcies and mergers that took up the first 15 years of this century. They have done a masterful job in putting their companies on a solid financial footing and tout their profitability and growing profit margins to Wall Street. But pealing back the layers reveals they could be doing so much better financially, according to Baiada.
Now, with sustained profits, they have no excuse and they know it. Years ago, at a US Airways media day, Doug Parker, who is now CEO of the merged US Airways/American Airlines, talked about how expensive bad operations are and how his airline was trying to improve on-time rates.
Earlier this year both United and Delta launched efforts to improve on-time performance. When asked to analyze these efforts, however, Baiada concluded they were little more than more schedule padding designed to influence the useless performance standards issued monthly by DOT. They are little more than marketing efforts designed to attract passengers.
“They’ve buffered the problem rather than fix it,” he said. “What improvements we’ve seen have more to do with FAA’s airspace redesign at Houston, which actually increased flight time and holding despite the agency’s claim Houston is a NextGen success. Everyone has been talking about better on-time rates but that has more to do with the great weather we’ve had for months. Delta bought performance with increased block and gate times as well as spare aircraft. Your reason for not cancelling should be great operations, not the fact that you can roll up another aircraft. ATC and weather are smaller contributors than the airlines want us to think.”
Passengers, however, should not be fooled since Delta and United efforts have nothing to do with actually improving the system and getting passengers where they want to go in the minimum time with maximum efficiency. DOT reports that passengers experienced 77 million minutes of delays for domestic flights in 2014. That is 12,000 years lost by travelers, according to Nate Silver, writing for FiveThirtyEight.com.
As for American, its strategy is to return to banking its flights at its hubs in order to improve passenger connection times. The problem is that this increases congestion during these banks. The last time flights were banked by airlines, delays and cancellations rose exponentially.
Baggage Fees Exacerbate the Problem.
Baiada noted that airlines have actually worsened the problem by imposing baggage fees, which amounted to $3.5 million last year, according to DOT.
“The reality is bag fees are a wash when it comes to financial performance,” he said. “In fact, you can make a strong case eliminating baggage fees would be a good fiscal move. The revenue may be a very visible line item in the annual report, but no one analyzes the added production costs to charging for bags.”
Baiada pointed to his experience as a United captain saying the $700 million the airline makes annually for such fees may look great but it comes with a high cost.
“First there is the additional effort by the agent, very late in the boarding process, to check the bag which adds a minimum of three to four minutes to the already confusing boarding process as passengers try to find overhead space for their bags,” he explained. “When the overhead bins are full, they have to carry them to the front of the aircraft to be checked. And once everyone is boarded, it then typically requires an additional one to two minutes to move the now gate checked bags (which are free) from the jetway to the cargo hold. The situation is reversed in deplaning. The extra bags in the overheads add another one to two minutes to de-plane the aircraft.”
He also noted that bag fees moves the frequent flyers to the head of the boarding queue to guarantee that they have room for their bags. Typically, these customers have aisle seats, requiring them to get up to allow the later boarding passengers to access the middle and window seats, again increasing production time at the gate.
“Bag fees adds a minimum of five minutes to the boarding and de-planning process, and this is for just the narrow-body aircraft,” he said, explaining why just a few minutes added time actually matter. “In an interview with the Chicago Tribune, Southwest stated adding just a few minutes to the block time for each flight would require an additional eight to 10 aircraft to fly the same schedule. Using that as the baseline for an airline with 600 aircraft such as Southwest or United, the five minutes of lost aircraft production time would require United to purchase, crew and operate an additional 18 aircraft to fly the same schedule with bag fees versus a United operation without bag fees. And, while the cost of ownership of these additional 18 aircraft is in the billions, it is the lost opportunity cost that compounds that additional cost. If you do the math just for United that bag fee amounts to $708 million in lost revenue per year per aircraft. Not to mention the customer frustration. The combination makes baggage fees a loss.”
Not everyone agrees that bag fees are the problem. IdeaWorks Company President Jay Sorenson pointed to two examples to support his theory. First, he noted that Ultra-Low-Cost Carriers Allegiant and Spirit have extremely smooth boarding processes because they charge for carry-on bags. When they were first imposed, Spirit President Ben Baldanza said he was trying to change passenger behavior in order to speed up the boarding process and it worked. Efficient boarding means fewer aircraft are needed to fly the schedule.
Sorenson also pointed to Southwest, which does not charge for bags, but has equal boarding congestion as its mainline competitors. “I think it’s the passengers,” he told Forbes. “It comes down to the fact American’s love their carry-ons and don’t want to let them go.”
Regardless, boarding procedures are just the tip of the iceberg, according to Baiada, compared to the loss of billions in direct and opportunity costs related to antiquated and dysfunctional airline operating systems. While airlines may not understand that operational dismality is a huge cost issue, others do. Indeed, an entire consulting industry has emerged to help them improve efficiency of their operations, their gates and their aircraft. These consultants understand the problem only too well, confirming Baiada’s assertions there is a lot airlines can do to get you there on time.
“The problem with consultants,” he said, is they are all trying to solve highly localized problems and may not take a system-wide view of the problem or see it as a production problem,” he said. “How many times have you arrived at the airport only to wait 20 minutes for a gate? That disconnect between arrival and gate readiness is very costly. The aircraft, a $150 million asset, is being delayed because the airline can’t get a $30-an-hour employee to the gate on time.”
Baiada also criticizes airline fuel saving efforts. “Aircraft are routinely dispatched to fly slow to save fuel but that causes the disconnect at the gate on arrival,” he said. “These types of things, and many more poor decisions on the local level, are costing big dollars and no one’s paying attention. Airlines say quality is too expensive. They say reaching a 85% on time rate is too expensive but that suggests the added costs of delivering only 60% of flights on time is not too expensive. That makes no sense. Operational excellence is not too expensive. It actually reduces your costs.”
In his landmark series, Forbes Reporter Dan Reed explained why shareholders should care. He said operational dismality costs airlines between $21 billion and $30 billion annually in wasted operating costs and lost revenue opportunities, or about 11% to 20% of the combined revenues for United, Delta, Southwest and American. Airlines, Baiada added, could recoup that loss by operating 85% of its flights on time while boosting revenue opportunities significantly.
“It boggles the mind that shareholders are not demanding operational excellence because operational dismality costs billions of dollars,” said Baiada. “There is absolutely no reason airline shareholders need to suffer such low margins. For example, although current airline margins are in the teens, this is driven by low fuel prices and high demand with the airlines’ capacity discipline. Without that, airline margins would be much, much lower. The airlines’, and therefore shareholder, margin problem stems from the airline’s unmanaged operation and dismal product quality.”
The real problem, said Baiada, is airline managers have no understanding of how the ATC system works nor do they have an interdisciplinary understanding of how their own airline works. “The different departments have conflicting goals when the single-minded goal should be delivering the passenger to the destination, bag in hand, on time, every time,” he said. “After over 30 years as an airline pilot, my airline never managed my departure or arrival time from a system perspective in terms of schedule reliability, connections, arrival capacity, demand, gate availability, crew legality, maintenance, or anything else.”
He noted that every other industry, except airlines, has adopted six sigma production standards because it drives continual efficiency, lower costs and higher profits. “It’s simple logistics, which is a different view of the problem than what airlines take. ATC privatization or NextGen/modernization is not going to fix this. The only thing that will fix it is changing the internal processes. All those other industries trying to improve efficiency know what airlines haven’t figured out yet including that big data, command-and-control logistical, supply chain processes could be employed by the airlines to dramatically improve their operations to add upwards of 25 percentage points to their on-time arrival performance in just a few years. The ROI to implement Operational Excellence would be measured in months, if not weeks. ”
Part III – Passengers, Shareholders Need to Force Airlines to Straighten Up and Fly Right
November 24, 2015
BY: Kathryn Creedy
If past is prologue, and despite overwhelming financial incentive to improve operations, it is highly doubtful airlines will improve.
Case in point: For 10 years, airlines pledged to solve the problem of passengers being held captive for hours on board aircraft awaiting departure clearance. Nothing happened, despite a hue and cry from consumer groups, which ultimately led to the Tarmac Rule, which imposes $27,000 in fines for keeping passengers on board for more than three hours. While it eliminated such lengthy delays it exponentially increased cancellations and resulted in a conclusion by the General Accountability Office that cancellations, coupled with capacity discipline, meant it took cancelled passengers 18 hours to reach their destination.
Ideaworks Company President Jay Sorenson said the same thing will happen with tackling airline-caused delays and cancellations. “The airline industry has never been able to fix its own problems,” he said.
Baiada agrees. In fact, he criticizes ATC managers for enabling airlines to have such lousy operations. Indeed, he calls on them to force airlines to improve their operations. It is, in fact, critical that pressure be brought by ATC managers, passengers and stockholders before we even begin to address changes such as privatization. Airline failures make the entire debate about privatization moot.
First, we don’t really know what the true capacity of the ATC system is because airlines are running inefficient operations. Until that is quantified we have no clue what is needed for the future of the ATC system or even modernization despite 50 years worth hand wringing about ATC. Without action by airlines to improve their operations, any progress toward NextGen/modernization will fail miserably. As Baiada pointed out – airlines need more aircraft than necessary to perform current schedules. But more planes equals more congestion on runways. That calls into question not only what is needed for the ATC system but also airport development plans aimed at reducing congestion, delays and cancellations.
“The company that executes operational excellence will win but airlines believe they can’t do it,” Baiada concluded in Reed’s series. “They can’t believe it is possible or profitable. Then think ATC won’t let them. That is all just flat wrong and comes from mental roadblocks and lack of vision by airline management. They should take back control of their aircraft and stop shirking their responsibility. If they did that they’d make more money while they’re at it.”
Baiada is right. In fact, I agree the way we think about air traffic control is completely wrong. What we need to do is step back and reconsider the mission of ATC. What is needed is not aircraft control – that should, as Baiada suggested, rest with the airlines – but enabling flights to get you where you want to go. While the separation and safety that has given us the safest system in the world must be maintained, air traffic should be about enabling air traffic, not controlling it.
Baiada thinks airlines are crazy not to reconsider their operations. “They are essentially turning over billions of dollars in assets used for revenue production and letting the government decide whether or not flights arrive on schedule,” he said. “No other manufacturer would let the government make such critical decisions, except for the airlines.”
The sad fact of the matter as far as passengers are concerned is no one cares. We’ve seen in Part I that Congress does not care about building a 21st Century ATC system. We’ve seen in Part II, that airlines don’t care because internal processes are working at cross purposes with contradictory goals.
We know from past experience that airlines will not work on behalf of the passenger unless they are gaming the system with on-time marketing ploys.
For delays and cancellations to be reduced, airlines must care about their passengers and getting them to their destination with as little hassle, as little flight time as possible, and on time. For their part, passengers must understand the $14 billion ripoff perpetrated every year as Congress fails to invest in aviation programs and the 20% increase in fares that results. For 40 years, the industry has tried and failed to enlist the customers in their fight for funding for much needed ATC improvements despite the rising cost of government taxes and fees.
Perhaps it is time for the passenger to wise up and go after airlines to start the process that would give us the answers for determining what the system really needs.