December 10, 2007
Series Editor: Ian Parry
Managing Editor: Felicia Day
Assistant Editors: John Anderson and Adrienne Foerster
Welcome to the RFF Weekly Policy Commentary, which is meant to provide an easy way to learn about important policy issues related to environmental, natural resource, energy, urban, and public health problems.
Flight delays are becoming more and more common as growth in demand for air travel outpaces our ability to expand airport capacity. How should policymakers respond to the problem of airport congestion? Is there a case for policy intervention at all for hub airports, where one carrier operates most of the flights, and therefore should mostly take into account the risk that running one extra flight will cause other flights to be held up? These are some of the important, and intriguing, issues discussed in this week's commentary by Jan Brueckner and Kurt Van Dender, two prominent economists in the field of transportation and urban policy.
Next week Robert Mendelsohn and Nicholas Muller will discuss how economists go about quantifying the damages from local air pollution, and how large these damages are relative to the overall size of the US economy.
Using the Price System to Reduce Airport Congestion
Jan K. Brueckner and Kurt Van Dender
Driven by the growth in demand for air transportation, flight volumes at many major U.S. airports have increased sharply in recent years. Since the flight capacity of airports has hardly changed, the increase in traffic volume has led to more and longer delays, a trend well documented in newspaper stories and the evening news. In 2007, 24 percent of flights arrived late, up from 15 percent in 2003.
What measures are appropriate for handling airport congestion? Building more capacity is one option, and some capacity expansion will surely be needed despite its high cost as traffic expands. Another response is to cut flight volumes through direct government intervention in airline scheduling decisions, as the Federal Aviation Administration did at Chicago's O'Hare Airport. A more systematic approach relies on a "slot" system, where airlines cannot schedule flights as they please but must instead acquire landing or take-off slots, issued by the airport, in order to operate. Such a system of "slot constraints" has been used at four major U.S. airports and is de rigueur in Europe.
In the presence of a competitive fringe, partial internalization of congestion is eliminated. If large carriers restrict their flight volumes to limit self-imposed congestion, the fringe carriers would simply fill the gap, leaving overall congestion unchanged. Therefore, each big carrier's incentive to take account of self-imposed congestion is neutralized, and partial internalization disappears. The FAA observed exactly this kind of "gap-filling" behavior after convincing United and American Airlines to cut their flight volumes at O'Hare airport.
Since internalization of congestion is either partial or nonexistent in these two cases, policy intervention is required. Congestion pricing, which makes airlines pay for the congestion they fail to internalize, is an attractive option. Daniel (1995) calculated congestion charges for the Minneapolis-St. Paul airport, assuming that the competitive-fringe model (and the absence of internalization) is realistic. He found that the congestion charge for each flight should equal about $1,000 (in 2007 dollars) on average during the day. But once the charges have had their intended effect of reducing congestion by shifting flights to off-peak hours, the average charge would fall to approximately $360. With partial internalization, congestion charges would have somewhat smaller magnitudes. But regardless of which case applies, some level of congestion pricing would be required at most large airports.
Unlike pouring concrete for more runways, congestion pricing is virtually costless to implement, and by reducing peak traffic volumes, it will make our airports seem magically larger. While airlines strongly oppose congestion pricing, the industry seems not to recognize that congestion charges can replace the current weight-based system of landing fees. With fees dropping to zero in off-peak hours, reflecting the absence of congestion, the carriers' overall costs need not rise by much. In any case, peak-hour congestion charges are likely to be passed on to passengers, widening the current differential between peak and off-peak fares and generating the traffic shift toward less-congested hours.
Views expressed are those of the author. RFF does not take institutional positions on legislative or policy questions.
To receive the Weekly Policy Commentary by email, or to submit comments and feedback,
Jan K. Brueckner and Kurt Van Dender, 2007. "Atomistic Congestion Tolls at Concentrated airports? Seeking a Unified View in the Internalization Debate," CESifo Working Paper No. 2033.