Want to Fix New York Air Congestion? Try Competition

Transportation Secretary Ray LaHood’s rescission of a proposal to auction slots at New York City–area airports triggered a heated discussion at the Times’s Freakonomics blog. Stephen Dubner argues, based on a conversation with an airline pilot, that shutting down close-in LaGuardia Airport would improve air traffic flow over New York City and allow more traffic at JFK and Newark airports. Many commenters made the excellent point that it would be difficult for JFK and Newark, which are already near capacity, to handle LaGuardia’s traffic. (If you split up the passenger traffic at LaGuardia between JFK and Newark, that would mean a 24 percent traffic increase at JFK and a 33 percent increase at Newark.) This would inevitably increase the cost of flying to and from (and through) New York. Dubner’s correspondents recommend banning so-called regional jets at New York City airports, a proposal that is well and good but that is much easier done with pricing mechanisms than with arbitrary bans.

If we assume that New York–area airport and air traffic capacity is fixed indefinitely, then delays are a market signal that fares need to rise anyway. The best way to accomplish this is not through the Department of Transportation’s ill-thought-out slot auction but by putting a hard cap on the number of operations each airport can handle in a given time period and charging market rates for using landing slots at high-volume times—i.e., congestion pricing. This is probably the best short-term fix, given rising demand for travel in the New York City area.

A better approach that might bring costs down in the long run—and that Dubner does not mention—is to break up the monopoly owner of JFK, Newark, and LaGuardia: the Port Authority of New York and New Jersey. The Port Authority airports do not compete with one another; they have no incentive to do so. As the late Dick Netzer wrote several years ago in City Journal:

In New York, operation of each of the three airports should be contracted out to a different firm, with the idea of encouraging competition in service and user charges. Who can doubt that a private operator at JFK, contending with another private operator at Newark, would have tried long ago to overcome the airport’s disastrous design?

London has long maintained a similar situation to New York in that its three major airports are owned by a single firm (BAA, a private-sector operator and the exception that proves the rule in terms of how to privatize an airport). Earlier this year, the UK Competition Commission ordered BAA to sell off two of its London airports. Why? According to the commission’s findings, charges were higher than they might otherwise have been, customers (i.e., airlines and passengers) could be poorly treated because of the lack of competition, and BAA was unable to conduct major airport upgrades simultaneously. There is a burgeoning literature (one example of which I reviewed on American.com) on airport privatization, which is happening favorably around the world. It might be worth a try in New York City.

This article was originally published on the Enterprise Blog on May 26, 2009.