Brief Thought on the Cost of Air-Traffic Control

by Reihan Salam

Brad Plumer recently interviewed David Kendall of the centrist think tank Third Way:

The think tank Third Way, for instance, has tried to estimate the effects of the budget “trigger” that’s supposed to take effect soon. Those cuts would lead to fewer food inspectors, fewer air-traffic controllers, and so forth. And that would mean more delays and cases of food poisoning, and so forth. And Ryan’s budget, for its part, goes even deeper.

So I asked Third Way’s budget expert David Kendall, who did the original analysis, to run a few numbers for Ryan’s budget. He noted that, for instance in 2014, under Ryan’s plan, spending on transportation would be 26.1 percent lower than it is today. If that size cut was applied to air-traffic control, Kendall notes, “there would be 3,092 more flight cancellations and 68,683 delays annually. At the U.S. average of 49 passengers per flight, that’s enough to strand 151,503 more people at the gate and make 3,365,685 more people late every year.”

This struck me as impressively precise. And because 26.1% is a very deep cut, Kendall’s analysis seems plausible enough on the surface. One wonders, however, if there is another way to dramatically reduce flight cancellations and delays. We’re not going to spark some kind of organizational revolution in air-traffic control between now and 2014. And right now, the federal government is pinning its hopes on the expensive, satellite-based NextGen air-traffic control system which won’t be fully operational for some time (unlike the Death Star). But what if the key is pricing scarce resources more effectively? 

Though somewhat dated, this 2007 report by the Brattle Group offers some insight into the challenges facing our air-traffic control system:

Although the job of keeping aircraft separate must be regulated for safety, it is not inherently governmental. To the contrary, it is a 24/7 high-tech service “business” trapped in a command-and-control federal bureaucracy. In an effort to allow ATC to operate more like a business, it was restructured as a separate unit within the FAA in 2004. The Air Traffic Organization (ATO) has made enormous strides toward becoming more performance-based and customer-oriented. But severe constraints remain, and congressional micromanagement, which the ATO structure was never designed to address, is still pervasive. Most economists believe that ATC should be moved outside of the traditional government bureaucracy altogether. In addition to the efficiency benefits, this would enhance safety by making the ATO independent from FAA regulators—a key but often overlooked consideration. Short of moving the ATO out of the FAA, there are steps the government can take to increase user input, and the Administration’s proposed advisory board is an excellent start. In addition, the FAA could reestablish the ATC Subcommittee to its Management Advisory Committee, and provide more disclosure on ATO spending on capital and operations.

Problem two is financing. The mechanism used to finance ATC (passenger taxes, principally) directly encourages overuse of scarce capacity. First, airlines pay for ATC capacity only indirectly, through passenger taxes. Moreover, a small aircraft contributes less in taxes than a large one, even though it costs the ATC system about the same to serve them (size doesn’t matter). For example, a 140-seat Airbus A320 flying from Denver to Phoenix contributes $1498 in taxes whereas a 50-seat regional jet (RJ) pays only $502. That partly explains why the use of RJs has more than tripled since 2000. Airlines are providing what customers want—more frequency; but government policy lets carriers reap the benefits without paying the cost. Most important, the current funding system ignores the congestion costs that additional flights impose on other travelers. Because users are not charged their full cost (and because airlines pay only indirectly), they use the ATC system inefficiently.

The weight-based landing fees imposed by local airports—in keeping with their understanding of ambiguous and outdated federal policy—have the same perverse effect as ATC taxes. They ignore the large costs that delays impose on others at a congested airport—costs to which small and large aircraft contribute in roughly equal measure.

In short, delays are a direct result of the government’s perverse system of charging for aviation infrastructure. Airline overscheduling is a classic tragedy of the commons, and current financing mechanisms not only permit the equivalent of overgrazing—they promote it.

Replacement of the current ATC financing mechanism with efficient (marginal cost) pricing would be the single most effective step the federal government could take to reduce delays and improve the air traffic system. In the short run, when supply is fixed, prices would provide an incentive for more efficient use of scarce air traffic control capacity (allocative efficiency). This would reduce delays by discouraging inefficient uses—flights for which aircraft operators don’t value the capacity enough to pay its cost. Prices would also encourage more efficient provision of ATC services by the FAA (productive efficiency). Among other things, the FAA could offer, and customers could purchase, the services that best met their needs, as opposed to the current, one-size-fits-all. In the long run, a system of prices would encourage efficient investment (investment efficiency)—a key benefit as the FAA moves to a next-generation system. [Emphasis added]

I assume that Kendall is well aware of these debates over ATC services, and perhaps they wouldn’t generate significant savings in the short term. But I’d say that it’s worth a try.