Infrastructure investment is now back on the agenda with a vengeance, leading to high-level summits on both sides of the Atlantic. While Europe worries where the runways will come from, the USA frets about the FAA‘s dwindling funds
Air transport is nothing if not cyclical. No sooner has the traffic returned than it is time, once again, to fret about whether the infrastructure can handle the demand. Memories from the last peak of heaving airports and mounting air traffic delays are painful enough, but there is real risk that chronic lack of infrastructure will seriously constrain growth, certainly in Europe and North America. On both sides of the Atlantic summits have been held to ask where new infrastructure can be found, and more significantly, who is going to pay for it?
While it is true that Asia-Pacific too is in need of infrastructure spending, its markets are running at a different pace. Apart from the severe but surprisingly brief impact of the SARS epidemic, the region's traffic has continued to power ahead throughout the cycles. The challenge there is to set free massive pent up demand. As covered in this magazine, China is talking of building three airports each year over the next 15. In the more mature markets of North America and Europe the politics of infrastructure investments are more complex, mired in a web of environmental, land-use and funding issues. But in both regions the need to invest is looming.
With a good economic wind, demand for flights in Europe could be 2.5 times higher in 20 years' time than it is today according to a joint study put out by Eurocontrol, the region's air traffic management body, and the European Civil Aviation Conference, a 50-year-old inter-governmental forum. As things stand today, even if air traffic congestion is resolved (and progress is finally being made) there simply will not be enough Tarmac to cope. The study identifies the need for 10 new major hubs and 15 medium-sized airports. In reality, getting more than a handful of runways built is likely to represent a major triumph. Even to see through the projects that are already in prospect, Europe's airports warn that they will need to see a major overhaul of the charging system to fund the $55 billion or so that they will need over the next 20 years.
The European Commission has now waded into the debate with a new consultation paper on airport capacity. It is under few illusions that the real work will have to take place at local and national levels, but it aims to kickstart the debate. It is right to do so. Still pinned down in the fist fight over charges, airports and airlines seem little closer to laying the foundations for a big vision for future investment. There is also the matter of winning an environmental argument that threatens to close the show.
The US market has investment issues of its own. The FAA reckons that the number of passengers handled by the US system will hit the billion mark in 10 years' time, up from just under 700 million last year. But already as traffic eases back to pre-2001 levels, congestion has returned with a vengeance. During four years of malaise there have been few structural changes to prepare for this reappearance of traffic.
The Aviation Trust Fund that collects revenues from aviation users through various taxes to fund air traffic control and airport improvements, and a portion of the FAA's expenses, has been in reverse. In a key measure of its state of health, the fund's reserve of free cash has fallen dramatically, from $7.3 billion at the end of 2001 to just $2.4 billion. Not least that is a consequence of a fall in ticket tax revenues, which have fallen along with fares.
All the signs are that this reservoir of future infrastructure funding is in danger of falling further still without real structural changes. Congress is now calling for that debate to be had out in the open. Yet the federal government is pushing for cuts, not increases, in funding for capital investment schemes and at the same time proposing to hike aviation taxes to pay for spiralling security costs.
The FAA, which is highly reliant on the trust fund, believes part of the solution lies in a form of cost-based funding, where charges are tied to the cost of providing the service. "In simple terms, we can't do it all and right now we can't pay for it all," says FAA administrator Marion Blakey. Even during the depths of the downturn, airport and air traffic organisations warned states not to lose sight of the capacity issue. No one is surprised it arrives back on the agenda a little late, and it is more likely to be a policy muddle to patch and fix the system rather than any grand vision.
Ironic perhaps that just as traffic picks up, a lack of capacity could hamper the recovery. While heads have been down dealing with the task of day-to-day survival, the old demons of congestion may have been out of sight but they never truly went away.
Source: Airline Business
