Why Air Travel Is So Hard In The U.S. | CNBC Marathon
The airline industry is brutally ruthless. It makes a hockey game look like a kid's garden party. Can you make a lot of money? A lot of people are millionaires. Can you lose a lot of money in there? Absolutely. Spirit Airlines losing about $50 million in revenue because of a spate of delays and cancellations. It's TSA's job, it's airport security's job to provide a adequate level of deterrence so that bad actors or terrorists or criminals decide to attack somewhere else besides aviation.
Investing in U.S. airline carriers can be a risky move. Warren Buffett learned this the hard way. Twice.
The airline industry is brutally ruthless. It makes a hockey game look like a kid's garden party. Commercial airlines have historically struggled to deliver sustainable profitability.
I think the stats would bear that out, especially pre-pandemic. But investors tend to stick with the sector despite the volatility. Can you make a lot of money ? A lot of people are millionaires. Can you lose a lot of money in there? Absolutely. So it's a high stakes game. Over the long term, these businesses can be profitable. Over short periods, you can run into challenges.
I mean, they're putting you in a metal tube, taking you up to 30, 40,000 feet and transporting you at hundreds and hundreds of miles an hour to get from point A to point B. And if you think about the substitutes for that service, there really aren't any. So it's kind of surprising to me that an industry that delivers that kind of a service and does it with like an absolutely impeccable operational and safety record, is able to come under such pressure. Airlines had a ten year streak of profitability, and that was very quickly ended by the COVID 19 pandemic.
And that was a crisis airlines said had a larger impact than even the 9/11 attacks. Airline stocks have been on a wild ride since December 2019, begging the question, should investors steer clear of the sector? And if air travel is such an integral part of society and the economy, why do passenger airlines struggle to stay profitable? Airlines face many potential external risks that could impact a carrier's bottom line. We can break them down into two categories: price shocks and demand shocks.
Price shocks are when an airline's operational costs suddenly shoot up due to extenuating factors. The biggest and most obvious ones of these are oil prices that translate directly into jet fuel. Jet fuel is, for most airlines, their biggest expense, and it's one that's not always very easy to pass on to the customer. So as you start to see oil prices rise, that again comes right out of the airline's profit and loss statement. The steep rise in oil prices in 2008 during the Great Recession created a price shock.
Airfares trended downward despite fuel costs going up, causing cash info problems for airlines. Carriers began unbundling airfares from other services like baggage checks, food and drink purchases, and flexible reservation changes in order to recoup the losses. Part of the problem is tickets are sold in advance at a specific price in advance, and then the input cost that drives profitability can vary sometimes on a day to day basis. Another example of a price shock is a sudden increase in labor costs, such as what the industry experienced during the pandemic. Airlines have told me that they have had to increase, sometimes multiple times, the starting wages for new hire employees. So depending on the price of jet fuel, it or labor can be the number one cost for an airline.
Demand shocks are when a big event has reduced the number of people flying. There have been a number of demand shocks in the past 20 years, such as 9/11, the SARS outbreak, the Great Recession, swine flu and, of course, COVID. These events vary in severity, but the industry took a hit from all of them. Airlines are already operating on very thin margins, but when an event like that comes in, the airlines really suffer. In 2001, airline profits declined a little more than $12 billion, compared to 2000.
The Great Recession led to a profit swing of more than $40 billion, and the pandemic led to year over year losses of nearly $153 billion in 2020. Soon after 9/11, Congress approved a $15 billion bailout to help prop up the airlines, as well as limit the carrier's liabilities in the wake of the attacks. At the time, the 9/11 bailout was the largest airline bailout that we had ever seen. The government stepped in again in 2020 as pandemic restrictions led to a huge decrease in travel demand. Congress passed the CARES Act in late March 2020. The bill allocated about $50 billion in grants and loans for passenger airlines.
The government basically propped up the airlines until a point where hopefully we now have enough demand that the business can be sustainable again. One of the key parts of the legislation is the Payroll Support Program, or PSP. The policy was created to prevent airlines from laying off or furloughing workers. On the surface, that might seem a bit strange because if they're flying less capacity, certainly they should be using less people and they should just lay off employees. It's not that simple. Because the industry is so safety conscious, if a highly trained employee, such as a pilot, goes on leave, that person must go through weeks of retraining to make sure they're ready for commercial service again, which comes with added costs and complications. So in terms of the Payroll Support Program, that protection of pilots, mechanics, flight attendants, and other ground staff was was a big deal because the rehiring cost could be painful for an industry that had lost billions.
But there was pushback to the 2020 bailout. We have privatized the gains and we socialized the losses. We seem to do it every single time. Airlines had faced criticism . Some Democrats said, You spent a lot of your cash on stock buybacks and dividends instead of a rainy day fund and raising worker wages. The legislation included some restrictions to deal with these concerns. There were limits on CEO compensation, salaries, bonuses and things like that, and the airlines were prohibited from laying off any workers for a set period of time for each of those three bailout packages.
I think the government realized that with the massive evaporation of demand that if they didn't somehow support the airlines, that there was a credible risk of failure by perhaps several airlines. And with that comes a lot more unemployment. If airlines fail, who loses? If the national transportation system fails, who's the loser? Everybody in the country, including other countries that depend on us.
There's a whole spectrum of ways airlines go to market, but the two buckets that are broadly accepted are full service carriers and low cost carriers. Full service carriers are more business oriented. They operate out of hubs, which are essential airports that many different commercial routes fly through in order to make connections easier. Think Delta, American Airlines, and United.
These legacy carriers also tend to have more infrastructure within their business and operate several different types of aircrafts, as well as provide services such as lounges and business class. One shoe doesn't fit all. What about business class versus first class versus coach? It's a marketplace and you shouldn't tell the customers what to buy.
You ought to give them the menu and tell them, tell us what you want and we'll go give it to you. These models, however, are more expensive to run. That adds quite a bit of fixed cost, but it also generally adds complexity, which makes it a little bit harder to be agile and puts them a little bit more exposed to both acute events and bigger shifts in the market. Low cost carriers, on the other hand, run a more streamlined operation. Think Southwest, Spirit, and Allegiant Air. These carriers run an operation with lower overhead. They typically have a simpler business
model, use only one type of plane, and unbundle amenities from ticket prices. They've proven, as a sector, to be quite a bit more resilient to shocks in the past. And the poster child for low cost carriers historically has been Southwest.
And up until the pandemic, they delivered 47 years of straight profitability. The business models vary between these budget carriers. Spirit paved the way for the unbundling practice. While Southwest has a motto of "bags fly for free". But Southwest keeps its costs low in other ways, such as only providing one class of service, which means no business class. Regardless of the business model, all passenger airlines are very asset intensive.
Every carrier must invest in things like aircrafts, facilities on the ground, training centers, labor, and making sure they meet government-regulated safety standards. For the vast majority of airlines, they're responding to what the market is telling them, and there is a lot of demand for cheap airfares. So if you're trying to meet that passenger demand, you need to think about ways that you adjust your cost base to do that profitably. The airline industry is highly regulated from a safety standpoint, but the government used to also regulate the business side of passenger airlines. Until the late 1970s, the government set in regulated airfares, which meant the airlines had to compete based on what services they offered rather than offering the lowest cost flights. The Airline Deregulation Act of 1978 allowed airlines to set their own fares and routes without needing government approval.
After that period, we entered an era, which we are still in, where airlines are more competing on price. And, because it's such a low margin business, airlines tried to pack as many people in a plane as possible, which has been the reason why legroom has shrunk on airplanes year after year. The airline industry has struggled to be sustainably profitable forever, but in particular in the U.S.,
since the deregulation, it has had really high highs and really low lows. The deregulation in '78 forced airlines to shift from basically utility type businesses to free market businesses. And it was a brutal bloodletting. The deregulation sent the industry into decades of upheaval and adjustments as the business practices shifted. The demand of the marketplace led to a lot of airlines going out of business or restructuring their operations. There have been more than 200 bankruptcy filings since the industry was deregulated, according to Airlines for America.
But most of these bankruptcies were for Chapter 11 proceedings, which allows a business to use the law to restructure the organization's assets and finances rather than to liquidate it. When an airline goes bankrupt, it doesn't necessarily mean that you're not going to see that airline again. Airlines that we all fly on today, Delta, American, United, all of those airlines over the last 20 years have declared bankruptcy and gone through a restructuring process. United was the first of the major airlines to file for Chapter 11 in December 2002. That kicked off a wave of Chapter 11 filings. U.S. Airways filed in September 2004 and Delta and
Northwest both filed on September 14th, 2005. Obviously, that's not a perfect solution because you're asking your partners to sort of take some of the consequence of the restructuring. But it's been a way for airlines to sort of get back on their feet, protect those jobs, protect those assets, and rebuild in a way that is ultimately better for their shareholders, their employees, and their customers. They were coming out of bankruptcy, looking for ways to get a bigger share of the market. They embarked on this big game of musical chairs where it wasn't clear exactly which airline was going to end up with which airline.
Delta purchased Northwest in 2008, putting pressure on the other airlines. After years of negotiations, Continental and United merged in 2010. Continental, as large as it was, was still the fourth or fifth largest airline in the U.S., depending on how
you measured it. And they needed scale. You saw Delta by Northwest, let's say U.S. Air merged with United by the end of it. So it was a kind of do something or be forever in fifth place or fourth place, which is not a sustainable goal. Through consolidation, we have seen airlines compete by not competing. In the Olympics, it doesn't matter how good you are, if you're number four or below, you're not getting one of those metals.
And Wall Street want not just profitability, but they want to see a path towards sustained profitability. By 2015, the consolidation led to what are now considered the big four airlinesL Southwest, Delta, United, and American Airlines. As of July 2021, those four airlines control about 65% of the U.S. market. The strategy of consolidating paid off for airlines, at least for a while. Coming out of the recession, consolidation in the U.S.
has certainly contributed to the profitability of the airline industry, especially in the five or six years before COVID, when there were record levels of profit. The airlines paid down their balance sheets, for the most part, they reduced debt, they improved stockholder equity, but also they went about massive, massive changes in how they do business. Analysts are widely expecting the industry to rebound in the next few years, but there are some caveats. The big question for analysts is when will people start flying again after the pandemic? The business traveler, who can be sometimes five times more profitable than a leisure traveler, has been historically the core customer for airlines. But the business traveler is not yet back in large numbers, and they won't be back until sometime, domestically, until probably 2023, 2024, and the rest of the world, 2024 to 2025. And some portion of business travel that existed before the pandemic is not coming back.
We estimate right now it's probably 20% may not return even by 2025. So that's going to put more pressure on airlines to cater to leisure travelers. Demand is definitely very important. What kind of price point tight recovery is also very important? Assuming oil prices stay at these levels, pricing will probably stay elevated. That might not be a great message for the consumer, but it's a better message for the shareholder. There are pretty significant debt loads that have come along with the pandemic.
Right now, rates are pretty low, but they're probably heading up and they're facing issues in their supply chain like many other companies. And that includes, by the way, things like pilots. The airlines are in a better place than many people would have thought early in the pandemic, which is not to say they're out of the woods, but they've done a pretty good job of responding and addressing what would normally have been existential threats and finding a way to to weather through the worst of the storm. After two years of being grounded, air travel is back. The TSA reported passenger volumes could soon exceed those from 2019. But growing travel demand has hit a few pockets of turbulence in the last year due to lack of staff and increasing bad weather.
We are seeing more intense weather in Florida and we are seeing snow in Texas. In April, thunderstorms in Florida led to airlines delaying more than 9000 flights and canceling over 3000. And over Memorial Day weekend, 2500 flights were canceled throughout the U.S .
due to storms in New York, Florida and the mid-Atlantic. We saw last summer in 2021, Spirit Airlines losing about $50 million in revenue because of a spate of delays and cancellations. Southwest a few months later had one that cost it about $75 million. In 2019, the estimated cost of delays in the U.S. for airlines was $8.3 billion and the cost for
passengers was $18 billion. The biggest cause for delays in the U.S. is weather.
The challenging days are those thunderstorms, those pop up summer thunderstorms, and severe weather season, which is between April and September, where we have the bulk of the nation traveling. And that's when we have the most inclement weather. Florida has seen a travel boom over the pandemic and has been particularly affected by delays and cancellations due to an increase in storms, which are expected to get worse in the future. And even though you may have perfect weather at your departure airport, bad weather in another area can have a cascading effect on the entire country. We're operating probably right about 5600 daily departures. It's very complicated when we're managing through multiple hubs throughout the country that all have the opportunity to have different types of weather and different types of potential disruptions.
CNBC went to the Federal Aviation Administration's Air Traffic Control System Command Center in Warrington, Virginia, to get an inside look at how the FAA deals with increasingly severe weather situations that can delay and cancel flights and cost airlines billions. So the national airspace system or NAS is a complex, busy place. The FAA was created in 1958 to oversee it. Today, it manages more than 19,000 airports and 45,000 flights daily.
We control 70% of the world's air traffic. The mission for every air traffic control facility is to ensure that the flying public reaches their destination safely and as efficiently as possible. All right. Good morning, everyone. Looking at the
maps this morning, we have a cold front off the East Coast, a few storms out there. Newark, we're keeping an eye on the demand for this afternoon, but we expect the conditions are going to be perfect for secondary arrival. Runways should be able to keep the rates up. The command center is run 24/7 and is in constant communication with all participants in the airspace, which includes airlines, flight operations, general aviation, the military, and the National Weather Service. Now, when constraints happen in the NAS, we collaborate with those same entities to solve those issues, be it rocket launches in the airspace, inclement weather, VIP movement and special events like, say, for instance, the Masters.
We solve that issue together collaboratively with traffic management initiatives. All right. Good morning, everyone. Looking at the maps this morning, we have a low pressure developing over the southern plains with a cold front into Texas. That's going to be our big system today. We're expecting quite a bit of development very close to Dallas this morning. Probably block the traffic between Fort Worth and Houston. The problem is Texas.
Right now we do have Texas in the plan. DFW and Dallas Love, they just put in place the north to DFW, so stuff coming from the Chicago area in the northeast are going to wrap around to the west side of the weather. With travel demand coming back in full force, the airspace is as crowded as ever. Congestion happens every day, so we get what is known as spikes in certain times of the day.
Just like anything with rush hour. Everyone wants to get to work at a certain time and get home at a certain time, so we meter that traffic out. By that I mean we slow down the problem. So the controllers that are working that airspace have a chance to safely maneuver those aircrafts through to their destinations. Okay. Special event on the timeline. We do have the Formula One race down in South Florida and we have possible ground stops. The Florida market is really booming.
And as that demand increases, we're bolstering our staffing to ensure that we meet those rising demands in the Florida market. And that's where most of the traffic for leisure is flowing nowadays. But Florida has seen an increase in storms leading to thousands of flights being canceled this past April. In recent years, storms have gotten more frequent and severe due to climate variability. Weather plays a huge factor to any traffic management initiatives that we're implementing. Today is a Texas day, so we have thunderstorms ranging in the Texas market and up into the Memphis market as well.
If you look at overall cancellations, weather and air traffic control issues that drive the bulk of the cancellations that airlines are impacted by. We say air traffic control, it's because of the limitations that weather puts on air traffic control, that constrains where aircrafts can fly. Meteorologists play an important role within the air traffic system and have a team on staff at the FAA control center. A huge part of what we do is based upon coordination and collaboration with meteorologists in the airline industry. And so while we here are providing that informative piece, that forecast for decision maker here, there are meteorologists within the airlines that are doing the same for their stakeholders.
And together as part of this enterprise, we're collaborating to make sure that we're on the same page, that we're kind of speaking with one forecast voice. Here in the U.S., the southern Great Plains have some of the strongest storms on earth, and while some weather events are more predictable and schedules can be rearranged around them, others must be avoided.
Certainly, as hazards go, you want to avoid a tornado, you don't want to be close to those storms. There's no safe way to fly around a tornado. When you're looking at a winter storm or you're looking at a hurricane, in many instances, you're going to have two or three days of lead time before that storm is going to impact a congested corridor or a high impact terminal. But thunderstorms can be especially tricky to predict ahead of time. There are some days where you can provide a forecast.
You see those thunderstorms coming. There's other times where it's a very fast process to build up and to fall apart. And that is a big challenge, I think, for meteorologists, is you want to get that timing and location of that thunderstorm information right. And they can move those airplanes then and
keep people safe. There are roughly 100,000 thunderstorms in the U.S. every year. Thunderstorms can create a few dangerous weather elements like rain, hail, and lightning.
It will fry your components if you get a lightning strike for an aircraft. So we try to avoid those areas. We want to ensure that we go around those and not through those. Meteorologists at the control center monitor multiple types of radar maps that can identify lightning and the height of storms in relation to the altitudes of aircraft. The white boxes that you see are denoting the top of the thunderstorm. So if you've got thunderstorms that have their tops around, say, 37 or 38,000 feet, you know, that's at the level that your commercial airliners are flying. So you don't want to fly through those. You've got to be able to fly around them safely.
And, see, right now, a lot of these airplanes are moving in and trying to get in through these thunderstorm gaps and get into Fort Worth. But even if you go around a storm, it can still cause problems. Around thunderstorms, you're dealing with effectively induced turbulence. And one of the things that can be sinister, if you will, is that it may not necessarily impact aircraft right around the thunderstorm. It may impact
aircraft that are 100 or 150 miles away from that thunderstorm as that turbulence propagates out, away from the center of the storm. Unusual weather events have also been happening in different parts of the country. If you never anticipated having a snowstorm in Atlanta, you don't have the same sorts of snow fighting and de-icing capabilities that you have in Detroit. So on that basis, when you do have a snowstorm in Atlanta, it's a pretty serious problem.
And the first thing you know, that we are never going to compromise is safety. When you have weather and impacts that are out there, we can't fly through that and we're not going to jeopardize the operation in any way, shape or form. While the FAA is making sure planes are safely passing through the airspace efficiently, the airlines are the ones dealing with the repercussions of delays, which include weather but also airport congestion, late arriving passengers and crew, and mechanical issues.
When there's weather events in there, I think most customers are understanding of the fact that there potentially are going to be delays. They're less understanding sometimes about, I can't get to my destination with full flights. I might not be able to get to my destination for a couple of days, which obviously can ruin the experience. Once we get into delays, we get into internal airline mechanics where combination of practical availability of crews and then in some cases, contractual limitations or FAA limitations cause the originally scheduled crew members not to be available to fly a flight. And of course, if that's the last flight of the night and there are no further reserves, well, that's it for the day. Unfortunately, those customers are going to
be overnighting at an airport. Okay. We still have Dallas Logan for the Boston Brown stuff, GDP. We'll keep anything that comes in just
in case. When an airport has a ground stop, inbound flights are held at their origin airport until weather or other disruptions ease. There were 939 ground stops in the U.S.
in 2021. One thing that airlines try to be careful about doing is not delaying endlessly. So if they're keeping their crews from getting to their destination, let's say that they're not sure when the flight is going to take off. Sometimes what they'll
do is just cancel it outright, get those crews either reassigned to another flight. Everything at an airline costs an airline by the minute, whether it's a minute of flying time or a minute of a fuel burn, crew, time, pilots, flight attendants. So every one of these delays increases cost . On the revenue side of the equation, having had a bad experience with that airline, a lot of people simply say to themselves or say to their corporate travel manager, Don't ever schedule me on airline X again because I'm not going to be delayed like that ever again. Airlines like American are trying to yield more control over delays during big weather events, using a new tool it created called HEAT, which stands for Hub Efficiency Analytics Tool.
It looks at our aircraft routings. It looks at where the aircrafts are coming from. It looks at our crew limitations. It takes into consideration our customers that we have large connecting groups on flights coming in, and we take all this and model it around what we believe the limitations are going to be imposed from the weather. And we can use this tool to allow ourselves to delay through the operation, allow ourselves not to cancel. HEAT is a simple concept, but incredibly complex when working with up to hundreds of flights impacted by weather. It was rolled out in mid-April and used during
a thunderstorm in Dallas. American said HEAT reduced cancellations by 80%, while the number of diversions dropped by 62% compared to a similar storm in April 2019. The ops research algorithms that we've developed to be able to manage these, it just wasn't present, you know, 20 years ago. We've gotten a lot better, but we're not satisfied with where we are right now. We're continuing to look to find better ways to manage these situations because the best science out there isn't going to tell us exactly how it's going to unfold. And we've got to be able to be very nimble and adaptive to the scenario as it plays out.
The contract issues which a lot of airlines are discussing right now, it's that schedule reliability issue, which is the number one factor for employees. So getting this reliability issue solved has implications which are really in the billions of dollars for a major carrier and of course, that's billions of dollars in revenue potential as well if you simply do a better job. It is common for airlines to add time to a flight schedule to give it some wiggle room for on time arrival. But that's in perfect conditions. We build the schedule for a normal day. We don't build schedules anticipating that thunderstorms are going to happen. And that's why on those days you have delays because if you have a perfect weather day, everything's arriving early and then you create complications in the system.
It's estimated delays cost airlines several billion dollars in additional expenses. Dallas, Newark and Chicago had the most delays over the past year. Since bigger airports have more operations, it could lead to more chances of delays. We did have a bird strike coming out of Newark. They were short term holding while they worked through that, everything should be good now. And every now and then there's the occasional odd delay.
We've had people streaking on the runway, nothing really too strange. We've seen it all. And it's not just passenger planes that are impacted, but cargo planes, too. Anybody else with concerns about the construction? Fedex. Yeah, Fedex.
With flight disruptions expected this summer and air travel set to hit new records, the FAA and airlines have a tough job ahead of them. Airlines are trying to capitalize on every bit of demand that is out there. In some cases, they know that they're not going to be able to handle it. So we've seen them cut their capacity and kind of admit that maybe they had sold more flights or more seats than they were able to handle. It has been extremely stormy in some parts of the U.S. and airlines are trying to build in a little bit of wiggle room by cutting that capacity.
We've took out some of the planned growth that we had into the summer. We're going to keep essentially our current level of operations intact throughout the summer. We're not going to grow at all because the reliability of the product that we're providing the customer is more important than, again, chasing that last dollar of revenue. I think folks are understanding of weather events and the impact they have, but the day after and two days after, they struggle a bit with, why is that still impacting you? And that's what we've spent a lot of time trying to understand how we can better manage those events so that when the storm or the storm event is over, we can recover really quickly and get ourselves back to normal operations.
One thing passengers can do, if it's possible, is to be flexible and to be patient and to know that this is a little bit of a tricky summer. They are going to probably encounter things like weather here and there that could delay their flights. It's really important also to know your rights. If an airline cancels your flight, you are entitled to a cash refund. Sometimes airlines will offer you a voucher or a credit, but you you are entitled to a refund. And the Department of Transportation lists all of passenger's rights on its website.
It's a very dynamic system, and we work very, very hard to ensure that you are not delayed. But when delays happen, be patient with us and understand that we are doing it for the safety and for you to make sure that you get to your destination safe and that you have a positive flying experience. There once was a time when getting through airport security was quick and easy.
Before 9/11, you used to be able to go through airport screening to meet friends or family coming in. There was no checking of ID or anything. X-ray machines were still, by and large, black and white images. The FAA's performance standards for
screeners were almost nonexistent. After the attacks on 9/11, the Transportation Security Administration, or TSA, was created and security screenings became much more thorough. Back before 9/11, there was no such thing as a screening line. Today, the process entails getting out your boarding pass and ID. Most people have to take off their shoes, put them back on, and remove laptops, liquids, belts and jackets.
If you set off the machine or our randomly selected pat downs can add to wait times. Bottlenecks are a really big problem at airports generally and travel demand, except for the pandemic, when we took a huge pause globally, has been growing, and airports don't grow every year. Despite enhancements in technology like millimeter wave imaging and CT scanners, the airport security process has been slow to evolve, but that may soon be changing. Airlines still have an interest in keeping that line moving, and they have partnered with the TSA on various initiatives, new kinds of technology that can speed the process along. Delta, JetBlue and American Airlines are just a few in the U.S. starting to test facial recognition for
boarding and TSA checkpoints. The TSA is also working with companies on designing better screeners so passengers don't have to remove anything from bags and can leave their shoes on. The goal is to integrate it into the existing body scanners that are there today. So you'll be able to walk in, keep your shoes on, and you'll do the full capability detection from the shoes on up. As of 2019, the airport security market was worth $10.78 billion and is expected to grow to over $11 billion by the end of 2027.
Smiths, Detection, Analogic, and Raytheon are some of the big names working in the space. The TSA just marked its 20th anniversary. We take a look at how far we've come in airport security and the ways the TSA and airlines are looking to speed up and make airport security even safer. Today, airplane hijackings are rare, but were more common back in the 1960s and 70s. This led to airport passenger screenings for weapons and firearms being federally mandated in 1973. Metal detectors were the main source of screening, but knives and razor blades were still allowed.
In November 2001, in the aftermath of the September 11th attacks, when 19 hijackers used mace and knives to take control of several aircrafts, President George Bush signed the Aviation and Transportation Security Act into law, which established the TSA. Federal standards were created. The focus has been to take airport security screening far more seriously.
The TSA's job is to oversee transportation systems in the U.S. with a primary focus on aviation. It employs over 60,000 people, which includes federal air marshals, dog teams, explosive specialists, and passenger screeners. We're significantly better prepared to thwart an attack like we saw on 9/11. At the airport, the TSA originally screened passengers with metal detectors, adding millimeter wave full body scanners in 2010. For bags, it uses X-ray and computed tomography, or CT, imaging machines.
Various terrorist attempts over the years have shaped how we go through security. At Seattle-Tacoma in Washington and here at Logan, shoes were being inspected today. The shoe bomber, for example, is the reason we take off our shoes when we go through airport security for the most part. Liquids are taken out from some
attempts for making the explosives out of liquids. A large part of it is still reactive, but we have to be both reactive and proactive, because what history has taught us is if we fail to secure a gap in security, that gap will continue to be exploited until we fill it. The TSA is part of the Department of Homeland Security and operates on a budget set by Congress. The total budget allocated in 2019 was just over $8 billion. Part of the budget is paid by airline
passengers through a September 11th security fee collected from the airlines . In 2019, these fees added up to $4.2 billion. And a fun fact, the TSA also makes a small amount from the loose change left at checkpoints.
In 2019, it collected over $900,000. It uses a risk-based, intelligence driven approach and admits that the majority of people traveling pose little to no threat to aviation. It introduced TSA PreCheck in 2013 to allow vetted passengers to bypass some of the standard screening procedures.
You pay in to join it. $85 for five years. You agree to share fingerprints. You agree to let the TSA do a background check on you. But in exchange, you get to go through a fast tracked security. You don't have to remove your shoes. Your laptop and other electronics can remain in your carry on luggage.
It takes a large percentage of the population that pose little to no risk, and it gets them out of the primary checkpoint lines, which take longer to go through. So now we can make the whole checkpoint process faster. TSA says 95% of PreCheck passengers wait less than 5 minutes. It even pokes fun at itself with posters that say You Should Only Get Dressed Once a Day to encourage people to join PreCheck. The program CLEAr is also an option to get to the front of the line for $179 a year.
But you still need to remove your shoes and other items when screened unless you also have PreCheck. In the U.S., the TSA screens more than 2 million passengers, 5.5 million carryon items, and 1.4
million checked items daily . At Denver International Airport, which is one of the busiest airports in the world, if traveling on a Monday around 10 a.m., average wait times are typically between 45 to 60 minutes. The TSA is investing in other technologies in an effort to speed up the process. Automated screening lanes have been popping up throughout the U.S.
and airlines are turning to biometric screening to improve and streamline getting through security. But even with better technology, in 2015, an internal investigation performed by Homeland Security Red Teams revealed that TSA agents failed to identify weapons and explosives 95% of the time, leading some to call the TSA simply security theater. U.S. officials said these vulnerabilities were addressed. There's also a lot going on behind the scenes to help thwart threats and attacks. There are some areas where the FBI might know what we've deterred because they've caught those types of acts early on, but they've never been made public.
We're used to incorporating tech in our lives, paying for groceries, ordering a car, ordering food. So airlines are trying to play a little bit of catch up with what the expectation is of today's customer. Delta recently announced it partnered with the TSA to streamline security. Delta SkyMiles customers with TSA PreCheck can choose to use facial recognition to drop bags, go through security, and to board the plane without taking out your ID or boarding pass. When the lines are long, the airline managers and staff get worried. Long lines mean there's a greater likelihood that they will have to hold flights, delay flights, to make sure that the people who are stuck in line can get through security.
In 2020, the TSA started rolling out credential authentication, technology or CAT, which allows the person being screened to put their ID into a machine instead of handing it to an agent. It's linked to a database that shows PreCheck and flight information, removing the need to also scan a boarding pass. It's also testing CAT with a camera that takes a photo to confirm your ID to minimize contact between officers and passengers.
It says photos will not be saved. My expectation is TSA would very much like this to become the standard. Our research shows that 81% of airline passengers in the U.S. Are willing to share their personal data with airlines they fly regularly. The challenge is that biometrics still scares some people, and I think that the fact that the TSA is controlling this data, not the airline, may be an issue because there are some people who actually may trust the airline with their data more than a government agency. But what about passengers who don't want to opt in to a background check and still need to take off their shoes? Most people travel once a year, if that.
That's why TSA I mean, for all this technology, a lot of it is a TSA agent just kind of yelling like, take off your shoes and belts and empty your pockets and take your laptops out. And it's just, you know, for all the tech that we're starting to see, a lot of it is verbal cues of reminding people just so they can keep that line moving. @AskTSA is a Twitter account where travelers can ask what they can and can't bring through security. It also has an award winning Instagram account showing absurd items passengers try to get through the checkpoint.
The TSA has several initiatives working to enhance screening technology. The Innovation Task Force works with the industry to find and test better solutions. It also has a program called the Capability Acceptance Process, or CAP, that allows acceptable screening equipment to be donated to speed up deployment and enhance security. It also awards contracts to companies working on security solutions.
They put out a broad agency announcement which allows vendors and and others to apply for grants for innovative and next generation technology. It's part of kind of the TSA that's investing in new technology to kind of streamline their process. In the past, Analogic and Smiths detection, among others, have been awarded contracts for CT scanners that can scan in 3D and identify explosives without the need to remove liquids or electronics. Liberty Defense was awarded 500,000 from the TSA. The company is working on a walk through screener called the Hex Wave and a shoe screener.
We'll take a reflection off of the foot to see if there is anything in the shoe area that could be a potential threat. The goal is to integrate it into the existing body scanners that are there today. So you'll be able to walk in, keep your shoes on, and you'll do the full capability detection from the shoes on up. Liberty has an exclusive license to the technology that was developed by Pacific Northwest National Laboratory and funded by the Department of Homeland Security. It's probably about a three year program until we see it at airports. The Hex Wave looks like a walk-through metal detector, but with capabilities similar to the body scanner.
You'll be able to detect any type of anomaly. So if it's metal, non-metallic, liquids, plastics, ghost guns, drugs. We'll be able to identify those as threats that shouldn't be on the body. The company will go through an 18 month program coordinating with the TSA and then begin testing in an airport or a lab. The agreement is specifically for screening airport workers, but they hope it could be used for general screening as well. While there has not been a plane hijacking in the U.S.
since 2001, new security concerns have emerged. Now we worry about suicide bomber in the terminal building. We worry about active shooter in the terminal building. And a threat that's always been there has been the threat of the insider because they effectively have the keys to the House. They effectively bypass a lot of the security that passengers have to go through.
The TSA has seen a record number of guns coming through airports, a number that has been rising annually over the past seven years. You know, since the beginning of this calendar year, since the beginning of 2021, we stopped well over 4000 live weapons from getting on board aircraft, a little over 3000 other classes of firearms like stun guns and firearm components. With more guns being found than ever before and long lines before security, Liberty sees a use case for its technology even before you reach TSA. We're looking to be at the entrance before people even come into the airport. So the land side, before they go to the aviation checkpoint.
The future of airport security looks like biometrics, 3D scanners, and better threat detection, some of which are starting to be deployed today, but not everywhere. Each airport is different, so it may take some time before you experience one of these new technologies. Every airport has its own unique airport security program. It's just differences in geography,
differences in operational methods. It's way too different for a one size fits all solution. I'm not sure if we will ever get to the point where people can simply walk through without having to have their carry on bags x-rayed. So I think you'll still have to go through some kind of a screening area. The hope is for these systems to be implemented in the next few years. For now, choosing to pay for background checks and using your face as identification may be the fastest way through airport security.
TSA will never be perfect. It's an imperfect system. And I agree with those that say if somebody really wanted to carry out an attack on aviation, they could be successful. Our primary role in aviation security is deterrence. It's the FBI's job to go out there and catch terrorists. It's Department of Defense's job to go out there and prevent terrorism from reaching our shores.
It's TSA's job, it's airport security's job, to provide a adequate level of deterrence so that bad actors or terrorists or criminals decide to attack somewhere else besides aviation. And in those areas, I think we're doing a much better job of deterrence than we used to be. There's always going to be room for improvement.