FTS DOT OST
Moderator: Lori Irving
April 16, 2008
1:46 pm CT
Brian Turmail: Good morning everyone. This is Brian Turmail with - I’m a spokesman over at the US Department of Transportation. I appreciate everyone taking the time to dial in this morning.
We did - for those of you who may not have received them yet - distribute all of the release and fact sheet materials for the announcement about twenty minutes ago. If you don’t yet have them you can find them at our Web site at www.dot.gov. There should be a link to the release and the materials right at the top of the page.
What we’re going to do, just quick run a show - is D.J. Gribbin, who is the General Council for the US Department of Transportation, will start with some brief opening remarks. And then we’ll open up for questions and we’ve got two folks here who will be answering questions. The first is D.J.; the other is Mike Sammartino who works for the Federal Aviation Administration as the Director of Systems Operation.
So with that being said, we will turn it over to D.J. for some opening remarks before we start taking questions.
D.J. Gribbin: Thank you, Brian. I want to thank - echo Brian’s comments, thank you all for joining this call. As you mentioned, my name is D.J. Gribbin, I’m the General Counsel at the Department of Transportation, as well as Advisor to the Secretary on aviation issues.
This morning, US Transportation Secretary Mary Peters announced a series of new measures to do three things, strengthen passenger protections, improve consumer choice and reduce congestion throughout the US Aviation systems.
What I would like to do on the call this morning is just give a brief overview of some actions and then open it up to your questions. Let me start with what we are doing to improve passenger protection. The Secretary announced new changes to the department’s bumping rule, which requires airlines to double the cap on compensation to passengers who are involuntarily bumped from their flight.
Under the new rule, which goes into effect next month, flyers who are involuntarily bumped would receive up to $400 if they are rescheduled to reach their destination within two hours of their original arrival time or four hours in the case of international flights, and up to $800 if they are not rerouted within that timeframe.
The actual compensation paid to passengers is determine by the price of the ticket, and as I mentioned by the length of the delay. The new rule also extends the compensation to cover more flights, including aircraft seating 30 through 60 passengers. The current rule covers flights with more than 60 people. The payments are in addition to the value of the passenger’s ticket, which the flyer can use for ultimate transportation or have refunded if not used.
In addition to the bumping rule, the Secretary also announced new air traffic measures designed to help cut delays this summer. The first measure involves new and greater flexibility for aircrafts to use alternative routes in the sky to avoid severe weather. This includes a new routing alternative that provides an escape route, the Canadian air space from the New York region - the airlines can fly around some of the thunderstorms and high winds.
In addition to the Canadian escape route, the FAA will open a second westbound route for air traffic - akin to adding another interstate highway lane in the sky. It provides a parallel route along a heavily traveled aviation corridor helping cut westbound delays from the New York area.
Finally, the Secretary announced a proposal for a new way to manage congestion in New York’s LaGuardia Airport. Even though this facility has been capped since 1968, it’s still consistently one of the top three most delayed airports in the nation. Forty percent of flights into the New York region are delayed, delays that ripple across the country and throughout the entire system. One-third of the nations air traffic flys in, out, or over the New York air space - and last summer that traffic accounted for a stunning 3/4 of chronic airline delays.
Limitations on the ability to expand capacity and an increasing demand for air travel have put us at a crossroads. We can rely on caps alone, we’ve already implemented at LaGuardia or we can apply market - mechanisms. What is clear is that LaGuardia caps alone aren’t working to address high customer demand, prices and delays. We believe customers should be able to pick which flights serve LaGuardia based on where and when they want to fly rather than the government picking which airlines get to serve the airport.
Under the supplement rule making announced today, the department is proposing two market based options that would require unlimited number flights operated by the airlines in a given day, known as slots, to be made available through an auction process.
This proposal increases choices for passengers and adds competition, which is proven to lower fares. It also cuts delays and funds new aviation capacity projects for the region. But let me kind of briefly explain what both of these options are. Under the first option, all carriers would be given up to 20 slots a day with a ten-year life as a rule.
Meanwhile, over the next five years we would make 8% of the additional slots currently used by an airline available to any carrier via an auction. And we would retire an additional 2% of the slots to help cut the record delays at the airport. Under this proposal proceeds from the auction will be invested in new congestion release and capacity initiatives (unintelligible) New York region. That’s the first option.
Under the second option, it would give airlines access to 20 slots a day for a ten-year period, a similar base that we have in the first option. Beyond those flights we would require 20% of the slots currently used by the airlines to be made available over the next five years, to all airlines through an auction. Under this option, the carriers will retain the net proceeds of the auction, but they would not be allowed to bid on their own slots.
Both options provide financial stability to the airlines operating at LaGuardia by providing them with a defined right to operate at the airport for a decade, something that they do not have today. These rights are given in recognition of significant financial investments airlines have made in the airport’s infrastructure.
Our plan strikes a sound balance between protecting investments by incumbent carriers and ensuring all airlines have the ability to fly to New York’s LaGuardia Airport, and in addition also improving fares. While the status quo of LaGuardia has led to stagnant service, delays and unnecessarily high fares, open access and competitions gives flyers more choices, fewer delays and lower fares.
In addition to those three announcements, I also want to let you know that we’re holding an Aviation Consumer Forum in Miami tomorrow (Thursday, April 17, 2008). As the Secretary said, the central goal of these efforts is to improve passenger experience in our nation’s air transportation system. And to do that, we need to hear directly from travelers about the issues that they face.
Now, that is why the Secretary actually wants a series of these forums, to hear directly from consumers and to help educate travelers about their rights. Now, we’re going to have staff from the Department’s Consumer Protection Office on hand to share their expertise and to hear input from the public at tomorrow’s forum.
So, with that Brian why don’t I wrap up and we can take questions.
Brian Turmail: We can - I don’t know if the operator has walked folks through how they punch into the system for questions, but we’re ready to take questions now.
Coordinator: One moment, please, for the first question. Thank you. Our first question comes from Nancy Cordes with CBS News.
Nancy Cordes: Thanks a lot. I just have a question. Now that you’ve made these two rules, proposals, what happens next? Who has to agree to them and how long does that take?
D.J. Gribbin: What happens next is that we’ll have a 60 day comment period where we will take comments from the public, and obviously, from are key stakeholders. But then we will spend a period of time analyzing those comments, assimilating them and then move to a final rule.
I’d also wanted to add that that’s on the congestion relief, the bumping rule is final.
Nancy Cordes: So the Port Authority of New York and the airlines don’t have to agree to it as well?
D.J. Gribbin: They all - we have - last year we spent about nine weeks, as part of an aviation rule making committee…talking with the Port Authority, airlines and everyone else about what - why we think using market forces is the right way to manage congestion in New York. So they’ve had an extensive period of time to comment - (unintelligible), in addition, they will have those 60 days to comment. Both the Port Authorities and the Airlines have expressed concerns about (unintelligible).
Coordinator: Thank you. Our next question comes from John Hughes with Bloomberg News.
John Hughes: On the LaGuardia rule which of the two options does DOT prefer at this point? And can you get this rule issued in final form before you leave offices, is that the plan, and roughly when would you expect the final rule out?
D.J. Gribbin: Yes, we can get it done before the end of this year. We expect that the rule would be final and that we’ll be able to actually conduct an auction before this administration comes to a close.
As far as our preference, at this point we really don’t have a preference. We have -- based upon a variety of comments we’ve collected over the course of time -- come up with two options, one of which is the federal government sort of declaring ownership over a set of slots and auctioning them from the federal government. The other, which is less involvement from a federal government standpoint, encourages the carriers to trade them amongst themselves.
The problem we’re trying to address is historically the rights to these slots have been uncertain and illiquid, and as a result carriers have tended to hoard them and not trade them, and we want to do what we can to stimulate trading.
Coordinator: Thank you. Our next question comes from David Montgomery with McClatchey Newspapers.
David Montgomery: Yes, can you elaborate a little a bit on these consumer forums. First of all, why was Miami chosen as the first one and where else do you expect to hold them? I assume big airports like DFW and O’Hare would also be on the list.
D.J. Gribbin: Yes. We will have forums in Miami, Chicago and San Francisco. What we’re trying to do, actually, is spread them across the country. So those three cities have incredible demand and what we want to do is gauge the experience of passengers we’ve had in those locations.
So again, tomorrow is the first forum and the dates for the other forums will be in June and September.
David Montgomery: And that will be in Chicago and San Francisco?
D.J. Gribbin: Chicago and San Francisco, that’s correct.
David Montgomery: Okay, Chicago next and then San Francisco?
D.J. Gribbin: No. We haven’t actually determined where we’re going to do the next one. Miami first, we determine the general dates and then we’ll do Chicago and/or San Francisco.
Coordinator: Thank you. Our next question comes from Martin Vaughan who is of Dow Jones Newswire.
Martin Vaughan: Could you tell me with respect to LaGuardia proposal - can you clarify to what extent will carriers that are operating there have to give up, you know, their existing slots? Can you make that a little clearer under the two options?
D.J. Gribbin: Sure, Martin that’s a good question. Under the first option, we take a base of 20, anybody operating 20 flights or less over the course of the day is not affected. And anybody above that, what we will do under Option 1 is to withdraw 10% of their slots over the course of five years, so 2% a year.
The current regulations, you may be familiar with, requires a reduction of 10% a year for 10 years. The airlines and the airport commented that that was far too disruptive. So we have scaled back a bit and are looking at 2% a year for five years and then we’re also going to (unintelligible) take the 2% five years. Of that 2% we’re going to set aside a portion for delay reduction and then auction the rest, so that’s Option 1.
Martin Vaughan: Two percent for delay reduction and the rest would be auctioned?
D.J. Gribbin: Correct. The rest of the 10% over the course of five years.
Martin Vaughan: Okay.
D.J. Gribbin: So we will withdraw 10% over the course of five years, of that 10%, 2% will be retired for delay reduction - the other 8% will be auctioned off.
Martin Vaughan: Okay.
D.J. Gribbin: And then under Option 2, we tell each carrier you need to - over the course of five years you need to auction 20% of your slots, or 4% a year. You can’t bid on your own slot; you obviously can bid on slots similar times by competitors.
What we’re trying to do here is we’re trying to stimulate a market so we have more efficient use of this air space. Right now the average number of seats per aircraft is declining at all three New York airports, which is somewhat indicative of the perverse measures we have in place currently.
Martin Vaughan: So under Option 1, you’re not cutting back any more slots than would be cut back under the current rule, in fact, you’re cutting back less.
D.J. Gribbin: That’s correct under the current NPRM we proposed withdrawing 10%, and then we didn’t propose a way to reallocate those.
Martin Vaughan: Okay.
D.J. Gribbin: So yes, we’re withdrawing significantly less than 10%.
Martin Vaughan: Okay. And also on the bumping rule, those limits, the $400 and $800, those are not minimums those are maximums, right?
D.J. Gribbin: That is correct. The way it works is, if you buy an airline ticket and you are involuntarily removed from a flight, so in other words, the airline say, “Would you like to give up your seat”, you say “No”, they can’t get enough, they remove you anyway. Then you are - you get the value of the ticket that you held on that airline at that point in time plus two times the value of a one-way ticket up to those caps.
Martin Vaughan: So that’s in the, I mean, the airlines are required then to use that formula, the value of the ticket plus two time - the two times the value of the one-way ticket, I think, is the relevant part there, right?
D.J. Gribbin: That’s the part that is capped.
Martin Vaughan: Okay. Thanks.
D.J. Gribbin: You’re welcome. Next question.
Coordinator: Thank you. Our next question comes from Kathy Wolfe with Congressional Quarterly.
Kathy Wolfe: Hi, yeah. Actually, I think I just answered my own question, and that was what the current status of the slots are because I was a little bit confused because I think that 2000 FAA bill mandated that slots be eliminated from LaGuardia. So I was curious if this was going to backwards or better what the current status was, but I think you may have answered that.
D.J. Gribbin: That’s very efficient of you Kathy, answering your own question. I would just add to the brief bit of history under the high density rule at LaGuardia, which has existed since 1969 until it was taken off by Congress at the beginning of January 1, 2007, LaGuardia was capped and we had a regime that was in place then. From January 1st of last year until today we’ve had in place operating authorizations to expire when the LaGuardia rule is made final. And so right now there is a fair amount of legal uncertainty around just what - who owns what in terms of slots at LaGuardia.
I think one of the benefits of this regulation that we create some certainty in terms of what the airlines have and give them a lot of flexibility to borrow against that or sell that or lease it or do whatever else they want to.
Kathy Wolf: All right. Thanks a lot.
Coordinator: Thank you. Our next question comes from John Hughes of Bloomberg News.
John Hughes: D.J., a couple of questions. What happens with the cap that’s in place now at LaGuardia? I think 75 an hour during peak times; does that cap stay on or go away, or what happens?
D.J. Gribbin: Well, technically as a legal matter the current cap goes away. We are currently using operating authorizations to limit flights into LaGuardia, and those operating authorizations expire when the LaGuardia rule becomes final. The cap stays at 75 operations per hour.
John Hughes: Okay. So basically, the ground floor for all of this is the total number of flights allowed per hour is going to stay where it is as we move forward in this plan, except for the extent that you reduce them by 2% a year, then you’re reducing them under the cap; is that right?
D.J. Gribbin: That is correct.
John Hughes: Okay. And then the follow-up question is I’m just trying to anticipate the airline furor that I’ll hear in a while I’m sure, because they’ve said in the past that this idea adds cost for travelers because you’re raising costs at the end of the day that the airlines will pass on to consumers, and I want to get you to address that cost issue.
And they also say that at the end of the day this doesn’t reduce delays, that this type of approach isn’t affective. You obviously, I guess, believe that it is going to. And to the extent this will reduce delay, give us a sense of how much you expect delay to go down under your options.
D.J. Gribbin: So, I’d like to answer those in order. On the cost to consumers, the airlines have been critical - Option 2, I think you can argue, would not have any additional cost to the consumers because the airlines will be trading amongst themselves and if the market works, those trades ought to be - everyone ought to stay in essentially the same position as when they started. So the significant question is Option 2, if there is any impact on the cost to consumers.
Under Option 1, to the extent the airlines are paying the FAA for the right to operate a small segment of their flights, those costs could get passed onto consumers. The (ATA themselves estimated there’s a $12-1/2 billion cost of congestion in aviation right now. And, as I mentioned earlier, New York City is actually the focal point for that congestion.
Congestion in New York City affects, you know - we met yesterday with people from Heathrow - and it affects London, it affects airports all over the continent. So there’s a significant congestion cost that’s being born today by consumers. And whether that’s because you’re sitting on a tarmac and you can’t get there on time, or in my case I had to actually take a train to New York because I had a 9:00 am speech and I couldn’t rely on, you know, the airlines to get me there on time. So now I’m paying for a train ticket, a hotel room and meals.
I think the airlines are looking at it - this situation - as if we are in a vacuum as opposed to what savings will consumers realize through congestion relief versus additional costs they may incur. We’ve have found over and over again that more choice, more competition, results in lower fares to consumers.
John Hughes: And how about the - just the - how much do you expect delay to go down at LaGuardia under either of these options or both.
D.J. Gribbin: I don’t think we have run a model yet on the delay reductions that will occur under a 2% reduction at LaGuardia. Again, as we announced today, the FAA is doing a number of things to help provide alternatives to reduce serious delays. We’ll continue to expand capacity in the area, but this really doesn’t - airlines agree that a cap should be put in play.
Everyone agrees that LaGuardia needs to be capped. That’s not the issue, the question is, do we cap LaGuardia and essentially freeze LaGuardia in time so you don’t allow for new entrance, don’t allow existing carriers to expand their operations, if you lock it in time. Or do we have the cap that allows some dynamic market activity to happen underneath it.
And, as you can probably guess, we’re fond of the second option because as history has demonstrated time and time again, if you lock up a market and block out competition, which results in poor services, higher fares and reduced customer satisfaction.
John Hughes: To the extent that you don’t require people who have fewer than 20 slots to give up anything, I guess you’re sort of making an exception for new entrance or small fry in a way. And is that the only consideration that the so-called new entrants are getting under this plan?
D.J. Gribbin: No actually, I mean, this is - the benefits to a new entrant is right now, if we were to do what the airlines want and just cap LaGuardia, and allow them to operate in those slots in perpetuity, new entrance are locked out. There’s just essentially no way for them to get into LaGuardia.
But what we would allow under either Option 1 or Option 2, new entrants could step up and purchase the number of slots they need to start a viable business at LaGuardia. That’s exactly the kind of competition we’re looking for.
Before we go to the final two questions, just a sort of a note to - respect to those who might have been interested, in addition to the Miami aviation forum, the next one will be in Chicago on either June 24 or 25, and then the third one will be San Francisco in September, and we don’t have a date range yet for you. So, just an update on that one question.
I guess we’re ready for the next question.
Coordinator: Thanks, your next question comes from (Hanson Pierson) with CNBC.
(Hanson Pierson): Well, specifically, at LaGuardia how will these slot proposals impact say the incumbent shuttle operators, Delta and US Air?
D.J. Gribbin: Well, I’m not sure anyone is going to be impacted majorly. Again, we’re letting, either under Option 1 or Option 2, we’re allowing them to keep either 90% or 80% respectively of what they’re currently operating.
Remember that the 10% or 20% is phased in over five years. - we did that for a couple of reasons - one, we want to honor investments that the airlines have made in these airports from a physical infrastructure standpoint, and from the cost of just building up a market to deliver passengers in and out of LaGuardia.
And we wanted to allow them to protect their most valuable routes. So the degree that airlines have routes that are particularly popular and important to them, this rule allows them to protect those. What it doesn’t allow them to do is protect every single flight whether it’s valuable or not, that they’re operating in LaGuardia because they want to block out a new entrants or a competitor from coming into that market.
(Hanson Pierson): Thank you.
D.J. Gribbin: Sure. Next question.
Coordinator: Thank you. Our final question comes from Nadine Godwin with Travel Weekly.
Nadine Godwin: I’m wondering if I missed something on Option 2. I was looking for the piece that also lets you retire some slots or reduce flights. Did I miss it or is it not there?
D.J. Gribbin: Option 2 does not - again we’re - does not include a withdrawal. Option 2 in essence was can the market with some stimulus fix itself without a direct federal intervention.
This goes back to the question I think John asked earlier, how do you address delays? And what we’re really trying to do is we’re trying to provide an incentive for airlines to provide services for more passengers using the same number of aircraft. So that is the delay mitigation under Option 2
Nadine Godwin: But if the same number of slots are still available, you could still have, I would have thought, the same amount of congestion. Am I missing something? - I’m still missing something.
D.J. Gribbin: Today, you’d have a similar amount of congestion. What’s new is you allow the ability to more passengers in the future without increasing that level of congestion.
Nadine Godwin: Okay.
D.J. Gribbin: So it’s more of a prophylactic measure.
Brian Turmail: Thank you D.J. Thank you everyone. If you have follow-up questions obviously contact us at the US Department of Transportation. The main media number is 202-366-4570 and we’ll be happy to get that - you any information you need. Otherwise, thank you for the taking the time to dial in and I appreciate everyone’s participation.
Have a good day.
END