Felix Salmon

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.

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.

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)

Eric Lipton has an excellent summary of a scathing government audit of a scheme to improve the quality of the information that states and cities have about traffic congestion. (The report isn’t meant to be online until later this afternoon, but I downloaded it from the inspector general’s website with no problem, and have put it here.)

What seems to have happened is that a small group of lawmakers, all of whom received campaign contributions from a financially-troubled company called Traffic.com (a subsidiary of Navteq), pressured the Federal Highway Administration to give sweetheart deals to the company which involved less money for the public and much less benefit for people stuck in traffic.

Traffic congestion is estimated to cost Americans $78 billion a year, and a good way of bringing that number down is to be able to inform drivers in real time where bottlenecks are. To that end, the government paid Traffic.com the full cost of installing sensors along highways in 27 cities. But then, astonishingly, the cities in question weren’t allowed to share that information with the public:

The Massachusetts Highway Department, the report says, was formally prohibited from using the data to offer highway message board estimates to Boston-area commuters on traffic delays. Local and state governments were also prohibited from posting the traffic information on government Internet sites or traffic information telephone hotlines, unless they paid Traffic.com a fee for the data.

The inspector-general doesn’t attempt to calculate the amount of money lost to congestion which might have been saved had Traffic.com’s information been more freely available. But it does show how Traffic.com managed to get around the requirements to share its revenues with the states:

Although the Federal task orders specified that the public partners would share TTID revenue, FHWA allowed the service provider to reserve the public partners’ shares for system operations or capital improvements related to the service provider’s assets. The certified public accounting firm’s 2002 report quotes the service provider’s financial statements that said, “[the shared revenue] will be reinvested in the Company for upgrades to the digital traffic systems.”

In English, Traffic.com was basically saying “yes, we owe you this money, but we’ll just plough it back into our own privately-owned company instead, I’m sure you’ll be OK with that”.

Was the highways administration indeed OK with such shenanigans? The general message from the report is that the bureaucrats knew that the deal was a bad one, but that they didn’t want to pick fights with powerful lawmakers.

The FHWA Deputy Executive Director’s April 2001 memo stated, “. . . there may be less expensive ways of acquiring the data. We believe that competition will allow the marketplace to sort this out and result in the greatest return on the public investment in these data.” However, FHWA referred us to at least nine letters from members of Congress that generally directed the Department and FHWA to use the ITOP accelerated procurement process, rather than full and open competition, to select a service provider.

Members of Congress might not be authorized to direct the Federal Highways Administration on such matters, but that doesn’t stop them from trying — or the FHWA from complying. This is one reason why all public-private partnerships should be negotiated through an arm’s-length agency which is insulated as much as possible from Congress.

The FHWA, in its response to the report, is a little sheepish, but also proves its mastery of the art of producing incomprehensible gobbledygook:

We do appreciate the OIG’s recognition that FHWA’s implementation of TTID necessarily balanced statutory requirements in order to achieve the legislative objective of providing private technology commercialization initiatives to generate revenues.

Insofar as this means anything at all, it’s wrong. The primary legislative objective here wasn’t to generate revenues for Traffic.com or anybody else: it was to reduce congestion. It would be great if both the FHWA and the OIG kept their eyes more on that particular prize. Although I suspect that this whole scheme is becoming increasingly outdated, and that over time aggregated information from GPS-enabled phones and other devices is going to provide much better real-time congestion data than expensively-embedded road sensors.

Alex Pareene has a wonderful rant about New York’s MTA, which picks up on this astonishing line from the Daily News:

In addition to the 2010 budget, the MTA released a four-year fiscal plan. It envisions 7.5% fare and toll hikes in 2011 and 2013 as the agency tries to establish a pattern of regular inflation-based increases.

‘Cos obviously consumer prices generally are going to rise by 15.5% between now and 2013.

Pareene also has a very good point about the fungibility of city revenues:

Fares are simply taxes—incredibly regressive taxes, just like the sales taxes that New York City residents suffer to fund our own transit while suburban New Yorkers bitch about the prospect of being charged to clog our streets with their cars, and Jersey dicks bemoan the tolls they have to pay to enter the city where they make all of their money while contributing nothing back.

This is one reason why Charles Komanoff’s plan for reducing MTA tolls while implementing a congestion charge makes so much sense — and it’s a reason which has yet to fully penetrate the consciousness of most New Yorkers. There’s no particular reason why the MTA’s revenues should cover the MTA’s costs, especially when the MTA benefits the city in so many other ways, such as reducing congestion and increasing possible population density and therefore total taxes. Yet somehow everybody seems to blindly accept that the MTA should cover most of its costs through selling MetroCards. Sad.

Joe Brancatelli reports on airline fliers’ stubborn refusal to pay even a nominal sum for wifi:

Passengers “want to be connected, [but] they want it to be free,” Doug Murri, Southwest Airlines senior manager of technologies, told a group of airline and entertainment executives this past summer. Alaska Airlines, testing the same satellite-based WiFi system as Southwest, reports that passenger usage plummets when it charges a fee. The higher the fee, the faster the decline. “Even when we charge $1—and we did try $1—we see a drop-off in people willing to pay,” Alaska Airlines executive Craig Chase recently told the Wall Street Journal.

There’s a lesson here for anybody wanting to put a paywall around their website. Fliers are perfectly happy to pay $7 for a copy of the Economist to read on the plane, or even $4 for a copy of People magazine. And I’m sure if they spent their flight on the internet they would claim to value that experience at least as much as the experience of reading a single magazine. But getting them over the hump of paying anything at all for web content is still turning out to be all but impossible.

Joe Brancatelli finds a wonderful inverse relationship when it comes to ancillary airline fees:

Here’s an indisputable fact: During the second quarter of the year, the nation’s largest airlines collected $669.5 million worth of baggage fees from the nation’s hapless passengers. That’s an attention-grabbing 275 percent increase from the second quarter of 2008.

But here’s an indisputable truth: The more baggage fees that the big airlines pile on their customers, the faster their overall revenue is collapsing. In fact, the only carriers that escaped a double-digit revenue decline in the second quarter were the two that still allow all passengers to check at least one bag for free.

Brancatelli makes a compelling case that for every dollar you gain in extra baggage revenue, you lose vastly more in revenue overall:

American Airlines, for example, generated an industry-leading $118.4 million in bag fees during the second quarter, a 219 percent year-over-year jump, says the BTS. Yet its total revenue in the second quarter dropped 20.9 percent to $4.88 billion from $6.17 billion in 2008′s second quarter.

That’s a drop of more than ten times the increase in bag fees. Even if bag-revenue margins are super-fat and seat-revenue margins are super-thin, this kind of thing can’t possibly be a good way of making money — especially not when it alienates your passengers at the same time. And even the airline execs know it:

“Baggage fees are the kind of shortsighted things that are killing us,” the top U.S. executive of a European airline told me recently. “The accountants we have are great at tracking the ‘ancillary’ revenue we generate whenever we invent something like a baggage charge. But they have absolutely no way to match that against our potential overall revenue exposure if travelers book away from us. And no one holds them accountable for their one-way accounting. It’s a scandal.”

You wanna blame the accountants? Feel free. But it’s the senior management which is really responsible. Do they really think that raising baggage fees is cost-free?