Opinion

Felix Salmon

How important are gleaming airports?

Felix Salmon
Oct 1, 2010 04:17 UTC

Greg Lindsay knows a lot about airports: in fact he’s just written a whole book about them, called Aerotropolis. So I thought I’d ask him whether my uninformed ramblings about airports and infrastructure made any sense.

Specifically, I asked him about freight, which is where a huge amount of the real value in airports lies. How do freight airports compare to what we air passengers are used to? What’s their architecture like? Are the most modern and efficient freight airports just as beautiful, or even more so, than passenger airports, or are they just big ugly concrete sheds? How do they compare to the great resorts of America? (That one for Larry Summers.) And how important are they, from an infrastructure perspective?

He replied:

In many cases (especially overseas), the busiest cargo airports are also some of the busiest passenger hubs. Maybe the best example is Hong Kong, which cost $20 billion to build (still the most expensive ever) and boasts a passenger terminal which is both one of the nicest shopping malls and biggest buildings in the world. That’s what Larry Summers probably has in mind. But maybe more important is the airport’s cargo terminal, which is the second busiest in the world (after the FedEx hub in Memphis) and has all the ambience of the Port Authority Bus Terminal — it’s basically a giant loading dock hundred of feet tall. But you can’t have one without the other. The gleaming terminal isn’t a loss leader — it rakes in millions from duty free and other sources — and it attracts the passenger traffic which makes being a cargo hub possible. Eighty percent of the Apple iPods in the U.S. were made at the giant Foxconn plant in Shenzhen and flown to LAX in the bellies of Cathay Pacific passenger flights. Hong Kong’s airport is what makes it possible for Apple to manufacture nearly all of its products in a single factory on the other side of the world. So yes, sometimes it pays to have a gleaming airport.

I had one follow-up: How important is the “gleaming” bit? If Hong Kong’s new airport had all the atmosphere of Newark International, but still had the same capacity, what difference would that make? Here’s what I got back:

Bling doesn’t matter. Size matters. Speed and efficiency matter. Being able to move 50 million people a year in and out quickly and painlessly is the point. America’s airports can barely do that. Summers was wrong to compare airports and resorts; what makes Hong Kong’s or Beijing’s or Dubai’s super-sized terminals important is the fact that they’re super-efficient and haven’t outlived their lifespans by a good 20 years — not because they resemble a dragon or are filled with palm trees. Newark is a perfectly fine airport (the Continental piece of it, anyway), but an even better example is JetBlue’s Terminal 5 at JFK. It’s a big, cheap steel box with some nice restaurants and free WiFi inside, which distracts you from the fact that it was engineered to turn planes around in record time, which directly affects the airline’s bottom line. If all of our airports were that good, we’d be fine. And it cost a fraction of the airport resorts in Asia.

So I’m still not convinced that a major investment in airports is the best — or even a modestly good — use of federal infrastructure-investment funds. Yes, America’s airports are miserable places to travel through. But if what we want to do is boost long-term GDP, then there are better places for the government to spend its money. As and when airports get replaced and upgraded, they will naturally become more modern and efficient. Sadly, however, that’ll take time — and it might not make the passenger experience much better.

COMMENT

I completely agree that a gleaming airport for passengers is an attraction that brings in traffic, and therefore allows the airport to function as a money-making venture. My problem is that the government should have little or no part in funding said airports and I’m shocked that they actually do. If an airport can’t afford to cover it’s operating and construction costs why is it being built in the first place?

Mathieu
http://www.cocoonbarcelona.com/

Posted by MathieuBCN | Report as abusive

The Larry Summers view of airports

Felix Salmon
Sep 29, 2010 20:48 UTC

It doesn’t matter whether you fly private or whether you fly commercial: you still have to fly from an airport. Which clearly annoys the Obama administration’s top plutocrat, Larry Summers. Justin Fox was in Washington on Tuesday to hear Summers give a speech on the inadequacies of US infrastructure. And he came up with a truly classic example to make his point:

“Compare the quality of our great resorts with the quality of the airports you take off from to visit those great resorts.”

It’s clearly not easy, being Larry Summers. For all his millions, he still needs to travel from A to B, and keeps on finding himself stymied. First of all he lost his Harvard town car and chauffeur when he moved to Washington, and stood out there for demanding a similar car and driver in recompense for not getting the job of Fed chairman.

And now, it seems, the poor chap has to navigate airports fit only for the masses, while making his way to luxury resorts designed to pamper the every whim of the gilded elite.

As an economist, Summers should know that it makes perfect sense for great resorts to spend enormous amounts of energy on the kind of quality he’s talking about: that’s their comparative advantage, the very heart of what they’re selling. Meanwhile, Summers isn’t really even the customer of the airports he’s passing through: the airlines are the customers, and the passengers are the goods being transported. So the airport doesn’t have much in the way of economic incentives to ease Summers’s way.

I’m sure that Summers has encountered lots of shiny new airports in his travels around the world, in comparison to which US airports look decidedly crumbly. But a lot of that is simply a function of age: it’s easy for Chinese airports to be super-modern and efficient, just because they’re brand new. (And have the advantage of very low construction costs.) It’s much harder for Delta’s Marine Air Terminal to be as Summers-friendly: it was built in 1939, long before anybody ever so much as imagined the TSA. (Indeed, it was before the planes which landed there even landed on solid ground: it was designed to service sea planes.) But because the terminal is one end of the Delta Shuttle from National Airport, I’m sure Summers knows it well.

More to the point, a lot of the money spent on shiny new airports around the world is simply wasted, from an economic perspective. National governments, especially in developing countries, like to show off when it comes to the airports where luminaries like Summers arrive. But all that expense isn’t really necessary for the smooth functioning of the airport.

Summers has been a vocal proponent of infrastructure investment, but if his idea of good infrastructure investment is cosmetic airport revamps which give him plusher lounges and colder drinks, then that’s just depressing. The really crucial infrastructure investment is in things like the national electricity grid, or NYC’s Water Tunnel 3 — expensive, yes, but decidedly unglamorous.

So let’s leave the provision of luxury to America’s great resorts, and maybe to the airlines trying to upsell Summers to a first-class seat. When it comes to infrastructure investments, there are much more important priorities.

COMMENT

So, you are a snob and an elitist if you prefer to spend hours and hours of your life in a functioning, 21st century facility instead of a dysfunctional shithole where nothing is done well?

It is like American airlines themselves. Are they crappy because they are old? No, they’re crappy because they are not run for the benefit of their consumers. The superiority of Asian carriers is about attitude; ditto their airports.

If there’s no edible food at JFK and there’s acres of sushi and champagne bars in Bangkok’s Suvarnabhumi it has nothing to do with how old JFK is. It’s because Americans don’t give a damn and Thais do. And to say that hub airports – by being opulent – don’t attract billions in revenue on many levels is highly questionable. I bet they do, and I’m sure they make money for their countries too.

But aside from that it’s also a question of pride. So American carriers and airlines are getting to feel distinctly third world. What’s the upside?

Posted by gamlet | Report as abusive

Ben Baldanza defends charging for carry-ons

Felix Salmon
Apr 9, 2010 17:53 UTC

Blog comment of the day comes from Ben Baldanza, the CEO of Spirit Airlines, with a crystal-clear explanation of why his fees for carry-on baggage make a lot of sense. It’s really worth reading the whole thing, but here’s the gist:

  • The fees reduce the amount of time it takes to board and exit the plane, benefiting everyone.
  • They reduce the chance that someone will be parted from their bag at the jetway because there’s no more baggage space left in the passenger cabin.
  • They eliminate the perverse monetary incentive to carry on a bag.
  • They make pricing transparent: Sprit has reduced fares “by at least as much, or even more than the amount of the carry-on fee”, says Baldanza. “Southwest makes you pay for checked bags even if you don’t check bags, since they have to cover those costs but give you no break if you don’t use the infrastructure. At Spirit, you spend only for what you use and don’t pay for what you don’t use.”

Baldanza says that Spirit’s sales “have soared” since the announcement was made; I’d love to see some numbers on that. And I can’t wait to see the reply to Baldanza from Bill Taylor, who wrote the original blog entry saying that the fee is “a horrible idea” and “a pretty interesting case study in the wrong ways for companies to respond to tough economic times–a reminder of how so many leaders manage to make bad situations worse”. Has Baldanza’s comment changed his mind at all?

COMMENT

What a load of bull. That idiot Ben Baldanza wants us to believe after making the announcement of a ridiculous new fare addition for carry on’s people came out in droves to book tickets. Yeh right, I’m sure after the announcement the ticket sales really soared…. In a downward direction, that is. I’ll never fly Spirit Airlines thats for sure, and I hope when the higher ups see what a mistake they have made mister Baldanza will be looking for a new job. Golden Parachute and all.

Posted by MJ88 | Report as abusive

Charging for carry-ons

Felix Salmon
Apr 6, 2010 19:51 UTC

Airlines save money when their customers check bags rather than carry them on board the plane. How to encourage their customers to do just that? They don’t seem to be jumping at the idea of the negative bag-check fee. But how about charging money for carry-ons? Spirit Airlines has now announced it’s going to do just that: while a small carry-on which fits underneath the seat in front of you is fine, anything which requires stowing overhead is going to cost at least as much as that checked bag.

The point is that it makes no sense to penalize people for doing something — checking their luggage — which makes the flight more pleasant for their fellow passengers, and which saves money for the airline as well. Unless you have a baby, you don’t need more than a small bag’s worth of stuff on the flight itself. So if you insist on carrying that huge wheelie suitcase or duffel bag on board, then why should the airline let you do so for free if they’d otherwise charge you to check it?

And as Basili Alukos notes, we’re still talking here about sums of money significantly less than it would cost to ship the same bag. Maybe, if people start having to pay good money to travel with luggage, they might start traveling with less. Which would be a boon to everybody.

COMMENT

I totally agree, with a proviso. I recently booked and flew a round trip that was partially on Southwest. I had forgotten their non-cooperation policy. I was forced to carry on an excessively large bag, risking intervention by Southwest, irritating other flyers, slowing boarding and deboarding, and discarding toiletries coming and going, because otherwise Southwest would have dumped my bags outside security in Phoenix, almost guaranteeing a missed connection. I won’t be flying Southwest any more, but my point is that an airline which refuses to cooperate with others in routing checked bags should not encourage checked bags.

Posted by igiveup | Report as abusive

The negative bag-check fee

Felix Salmon
Mar 26, 2010 18:18 UTC

Back in September, Joe Brancatelli made a compelling case that bag-check fees at major airlines were actually losing them money, rather than making money. And that was before Southwest airlines embarked on a major marketing campaign touting the fact that they check bags for free — a campaign that Eric Joiner calls “pure marketing genius”.

Eric has some very smart and well-informed analysis of the economics of checking bags: essentially, if, like Southwest, you only have one kind of aircraft, then checking bags saves you money because it speeds up the rate at which passengers get on and off the plane. And he knows that the economics of reducing the bag-check fee from $25 to $0 are essentially the same as the economics of reducing it from $0 to -$25. And so:

What if an air carrier said…rather than charge you a fee to check a bag, They would PAY you to do so?

I love this idea. A lot of people, of course, simply hate the idea of risking their bags being lost, and/or of milling around at a baggage carousel waiting for their bags to arrive. But many others would love the idea of getting paid, in dollars or in frequent-flyer miles, for checking their bags — especially if they had realtime information on exactly where their bags were at all times. (I think the current paper baggage tags would need to be replaced by tags with RFID chips, but that’s doable.)

The result? Passengers would get on and off planes more quickly, the airlines would make more money, and everybody would be happier. It’s a vast improvement from the status quo, where, according to Eric, airlines sometimes deliberately lose bags:

Consumers think the airlines lost the luggage. In fact many times the airline couldn’t accommodate it so they chose to pay a premium to deliver it to you later, often at the cost of your loyalty and future business.

So, Southwest (or JetBlue, or Virgin America, or one of you guys), whaddyathink? Who wants to be the first airline with a negative bag-check fee?

(HT: Ryan Schick)

COMMENT

What is ironic is that I have been yacking about the strategy of baggage handling since 2008. I wrote the article linked below which is really what I think about this subject. Its more valid today that it was then.

http://www.freightdawg.com/2008/02/heres -why-i-don.html

Posted by ejoiner | Report as abusive

The connection between airport security and credit cards

Felix Salmon
Mar 21, 2010 16:59 UTC

While I was waiting in an interminable security line at America’s friendliest airport today, a woman’s voice came over the intercom and scolded us that it was basically our fault that the screening was taking so long, and proceeded in a mildly unintelligible voice (the intercom’s fault, not her own) to go into great detail about exactly what had to be done with both small and large containers of liquids, gels, aerosols, and whatnot. People who didn’t fully understand the liquids-and-gels policy, she said, were causing unnecessary delays for everybody else.

It’s worth remembering, here, that the TSA’s security policies “are designed to be unpredictable” and to change from week to week and from airport to airport. Frequent fliers might eventually learn to navigate this kind of security theater with Zen-like grace, but for most travelers it will always be a confusing and exasperating hassle. If the TSA feels the need to implement confusing policies, then it’s a bit much for its officials to then turn around and blame the public for getting confused.

All of which reminded me of nothing so much as the acres of agate type which accompany checking accounts, credit cards, and pretty much all other consumer products. We consumers never read the small print, but we end up being blamed when we’re dinged by billions of dollars in unexpected fees every month. “It’s not the banks’ fault,” say their apologists: “it’s the consumers’ fault for not keeping a solid grip on their personal finances”.

Well, some people don’t keep a solid grip on their personal finances. That’s simply a fact of life. And if you happen to fall into that particular subset of the US population, there’s no reason that you deserve to pay enormous amounts of money to your bank. It might be the reason that you get dinged so much, but it doesn’t really make it your fault – especially in a world where banks deliberately profit from creating as much complexity and confusion as they possibly can. Why else would they be so opposed to offering plain-vanilla products?

COMMENT

I think a lot of bank fees are the legacy of checking accounts, where passing a bad check was a form of fraud. The current fee structure should be reformed.

Simply trying to take out money when there is none there should be charged, but it should be on the scale of the failed transaction, since there is no one else to pay that fee.

Regulation that forces banks to make their terms clear is vastly preferable to setting dollar limits. Then good banks can compete on fees.

A simple chart explaining what happens when your account is overdrawn is key to making that market work.

Posted by mattmc | Report as abusive

Why car tracking isn’t a privacy issue

Felix Salmon
Feb 18, 2010 16:33 UTC

Last week, weighing in on a miles-travelled tax, I said that “there really is something quite creepily Big Brotherish about trying to track every single vehicle in America”. But then I heard from Bern Grush of Skymeter, and he’s persuaded me that you don’t actually need to make tracking information available in order to tax miles travelled.

Under his system (and of course he has a system capable of implementing this), anybody who’s pre-paid for their miles will simply see those miles essentially erased from their tracking device as they’re driven — along with the money leaving their pre-paid account. If you pay after you drive the miles, at the gas station, for instance, then the tracking data gets erased then and there.

Of course, you have the option to retain and not erase the data, if you want to keep it for your own records. But if you do that, there’s always a risk that someone could subpoena it.

In a Please Rob Me world, then, where Federal authorities are pushing to be able to track your cellphone, the privacy issues associated with a miles-travelled tax are probably the least of our privacy worries — so long as they’re very clearly articulated, and so long as the default settings are for absolute privacy. If you want to worry about people being able to track your movements, either in real time or in retrospect, then you should probably worry much more about your GPS-enabled phone and your FourSquare checkins than about any tracking device in your car.

COMMENT

mattmc: Yessir, put that way, VMT is stupid. But that is the fault of a very poorly chosen name for the time-distance-place charge, which the Europeans (whom we cannot possibly copy for fear of looking like pansies) call it. Reminds me of the Johnny Cash song “A boy named Sue”.

But that is not the intent of the VMT charge (note, I said intent). The intention is that distance is weighted by where, when and what you drive. So your country mile with your Tesla will be way way cheaper than my Manhattan mile in my Escalade.

Raising the gas tax is plain useless (indeed it is stupider still, than the common misunderstanding of the VMT charge). That would be taxing the thing we want you to stop using (gas) in order to pay for the infrastructure we need (roads) to allow you to drive the thing we want you to start using (EVs). How stupid is that?

If you don’t see that imagine we decide to fund the entire US medical system on tobacco taxes (since we’re making lousy progress with any other idea), and then we run out of tobacco? Who’s going to operate on your prostate, then?

Posted by BernGrush | Report as abusive

The problems with a nationwide VMT tax

Felix Salmon
Feb 11, 2010 12:50 UTC

Andrew Samwick calls a tax on vehicle miles travelled (VMTs) “one of the most ridiculous policy proposals I’ve read in a while”, and Ryan Avent responds with a defense of the idea. The weird thing, here, is that they’re both right. Samwick agrees with Avent that congestion charges — essentially VMT taxes which vary according to the route you take and the time of day that you drive — are “worthwhile policy measures”. And it’s pretty clear that if we’re going to have congestion charges, we’re going to need to implement some kind of VMT-tax technology. (I’m a fan of Skymeter, myself.)

So yes, a flat nationwide VMT tax makes little sense — but the fact is that once VMT-tax technology was introduced, it would have lots of knobs and dials allowing it to be anything but flat, and to charge much more for VMTs in central business districts during rush hour than for VMTs in the middle of Wisconsin on a Sunday afternoon.

The problem is in the implementation: it’s hard to have a compulsory VMT tax, since that involves attaching some kind of meter to every American’s car, and Americans are not going respond well to that idea. Hell, even New York cabbies went on strike to protest GPS devices being put in their vehicles to track their every movement.

A single city can implement VMT metering by attaching carrots as well as sticks: cheaper and more convenient on-street parking, say, for metered vehicles, and lower insurance, based on miles travelled rather than a flat monthly fee. And people who still opt out of the scheme can just be charged very large sums manually for entering the city — something eminently doable in Manhattan, for instance, simply by installing a couple of tolls on East River bridges. But that kind of thing doesn’t scale well to the nation as a whole, and there really is something quite creepily Big Brotherish about trying to track every single vehicle in America.

So although I’m a fan of a cap-and-trade system over a carbon tax, and although in theory a VMT tax is to the gas tax as cap and trade is to a carbon tax, I can’t get very excited about the idea of a nationwide VMT tax. The difficulty of implementing it is just too great, and the marginal upside is too small. Let’s start with a couple of cities, and work out from there. Starting nationwide is far too ambitious.

COMMENT

The answer to traffic conjestion isn’t more taxes, its technology. Check out KPTV in Portland. They put webcams around the city at major traffic areas and anybody with internet can check before their commute if they should take another route or postpone their trip until another time. If people around the country had real time webcam info and traffic bulletins/advisories, part of the driving population wouldn’t be flying blind, thereby reducing some of the conjestion. If government were really doing their jobs, they would have more and better electronic signs on the highways giving us advanced warning of upcoming conjestions and alternate routes to take. Car pooling and park and ride schemes also help but eventually we need to think about decentralizing big urban areas, there are too many drivers and too few roads in some places.

Posted by csg57 | Report as abusive

Flyglobespan, holdbacks, and E-Clear

Felix Salmon
Dec 17, 2009 15:45 UTC

What was the proximate cause for the overnight failure of Flyglobespan airlines, which has stranded thousands of passengers far from home as Christmas fast approaches? Douglas Fraser explains:

It was liquidity that did for Globespan – or to be precise, the cash that ought to flow from the company that carries out its credit card transactions with passengers.

This is a business that gets a lot of its payments up front, but these payments weren’t making their way into the Globespan coffers. Quite a lot of that money seems to have been withheld by a company called E-Clear, which specialises in credit card transactions for the low cost airline business.

What we’re talking about here is something called credit-card holdbacks, which brought down Frontier Airlines last year. It’s all quite legal, as I explained then: all airlines deal with something called an “acquiring bank”, which passes on their credit-card income while holding back a certain percentage so that they can refund travelers their money should the airline fail.

In Europe, E-Clear seems to have carved out a niche in the high-risk business of processing airline credit card transactions. As Flyglobespan teetered on the brink of insolvency, E-Clear had two choices: either buy the airline itself, or let it fail. It chose the latter.

So I’m not persuaded by the dark mutterings from Flyglobespan’s administrators:

Administrators said they planned to investigate why a “significant” amount of cash from credit card bookings did not reach Flyglobespan.

Bruce Cartwright, of PWC, said this was not to do with the credit card companies, but the way money reached the airline when online transactions were processed by a company called E-Clear.

He said: “That money goes into a booking site and is then passed to the airline.

“There does in this case seem to have been a significant build-up of cash that has not reached the company.”

I’m not sure what he’s talking about when he refers to “a booking site”, but my guess is that E-Clear is going to end up losing money on this whole deal, thanks to the number of people who booked travel on their credit cards and are now due a refund. Yes, E-Clear will have held back a large amount of Flyglobespan’s money, for precisely that eventuality. But I’m sure it had the contractual right to do so.

The only twist in this case, as opposed to the Frontier Airlines case, is that in Europe low-cost airlines force passengers to pay extra when buying tickets on their credit cards, precisely because that credit-card income gets held back. (If you buy a ticket on your debit card, that’s cheaper, but don’t expect your money back if the airline fails and your flight never takes off.) It seems that the canny Scots knew that buying on their credit cards was a good idea regardless — after all, Flyglobespan’s credit-card income seems to have made all the difference between flying and failing.

So if you do find yourself flying in Europe and wondering whether it’s worth paying extra to charge your credit card, remember the insurance which comes with it. It’s not always particularly valuable: if you buy a low-cost ticket you only get a refund back, which won’t cover the cost of a last-minute replacement flight should the airline fail. But it’s still better than nothing.

(Thanks to Joe Brancatelli for the heads-up)

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