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A modest propsal to ensure safety, efficiency and customer service at the airport

A modest propsal to ensure safety, efficiency and customer service at the airport

Old May 27, 11, 4:01 pm
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A modest propsal to ensure safety, efficiency and customer service at the airport

From another thread:

Originally Posted by Mr. Elliott View Post
One thing the TSA does not teach their airport security screeners is basic customer service.

McDonald's employees have better people skills than airport security screeners.

Mr. Elliott
And there's the rub. The TSA has no incentive to provide basic customer service. At McDonald's, the employees report to their managers, who report to their managers, etc., all the way up the chain to either the franchisees or the company, depending upon who owns the store. But no matter what happens, the entity has a higher power: the almighty shareholder. If the McDonald's clerk is rude, the customer might not come back. If the customer doesn't come back, sales fall. If sales fall, earnings fall. If earnings fall, the shareholders get angry and call for the CEO's head. And if the CEO gets fired, he can no longer afford another ivory backscratcher. The CEO likes his backscratchers, so he will see to it that correction action is taken if his toys are at risk.

Since The Sports Authority has gone private, the stock symbol "TSA" has become available. Thus, I propose the following: We incorporate the TSA and take it public. Clearly, the government has done a poor job of protecting the rights of its "shareholders" and, apparently, its employees. I have no doubt that an independent board of directors would do a much better job.

The income statement and compensation would be based on a number of factors. Every employee of the TSA, from the line workers to Mr. Pistole, would be given shares in the stock, with the percentage of total compensation from stock being much higher at the top than at the bottom. Base salaries would be lower, but the potential capital appreciation from the share price would more than offset the base salary hit (Of course, if the share price falls, total compensation would be lower.).

The income statement on any company is, in its most simple form, net profits=revenues-expenses-taxes. Thus, we need to assess the drivers of each line item. There would be virtually no depreciation charges, so we are dealing in mostly cash revenues and expenses on the IS. I see no reason for the organization to carry debt and would be happy to incoporate that into the charter so that no wise-guy decides to lever up the company and buy back a ton of stock or pay out a one-time dividend to drive up the stock price. Needless to say, while I am firmly in favor of the market determining the ownership structure of the corporation, the government would likely build in anti-takeover provisions.

Revenues: I propose that the TSA earns a revenue stream based on a number of factors, including a fee for each passenger it processes (Alas, it seems to me that, in the absence of competition, the only way to determine the fee per passenger would be a number mandated by the government and added to the ticket price, adjusted annually based on passenger yields (i.e., price per occupied seat, not available seat, for a reason that I will explain later), customer satisfaction scores (generated by both everyday passengers as well as independently hired "shoppers,") and efficiency (the average time to process a passenger). The TSA will earn revenue bonuses for high satisfaction scores/efficiency and be penalized for low numbers. Since volume matters, I am adjusting the revenues based on yields so as not to penalize the company twice in case of a recession (i.e., fewer passengers also means lower revenue per available seat mile, which falls faster than yields). Needless to say, the company will also receive bonuses for completing its true mission (ensuring the safety of our planes) and be heavily penalized for each failure (letting a terrorist on the plane).

Costs: Like any other public company, the TSA will have to generate a workable cost structure. When times are tough, it will have to become more efficient. Currently, when demand is slack, the TSA simply shifts its employees to the gates to do spot boarding checks, since it has no real incentive to keep its costs down. Now, however, the organization will be forced to schedule its employees efficiently and effectively to maintain a lean cost structure.

The difference, minus taxes, of course, is the profit. Like any other company, the stock price will be based on supply and demand, with EPS growth generally leading to a higher share price. Win-Win all around.


1. What are the advantages of taking the TSA public?

I see the advantages as mainly ones of fundraising and accountability. Currently, revenues generated from the extra charge on tickets go into the government's black box. Now, not only will the government be relieved of a giant payroll headache but it will also generate a lump sum of cash from an IPO. In terms of accountability, the TSA will be forced to file regular SEC documents and meet with investors like any other public company. I have far more faith in the shareholders to keep the TSA honest than I do the government.

2. If the TSA is forced to cut costs, won't that make lines longer at the WTMDs?

No. In fact, it will make them shorter. Don't forget, the TSA will generate revenue payments based on efficiency and customer service scores as well as volume. I believe that, not only will the TSA work harder to move customers through more quickly but they might determine that some of the items that are currently prohibited (bottle of water, anyone) will turn out not to be so dangerous after all, speeding up the lines. It will also be more careful with its capital spending and research, given that it is not allowed to carry debt. Normally, capital costs for equipment would be run through a cash flow statement, but I see no problem in using a portion of the IPO proceeds to fund initial equipment and set aside a fund for future capital improvements equivalent to depreciation charges, which are based on a standard schedule.

3. But won't that make us less safe?

No. The TSA will be heavily penalized if a terrorist makes it onto a plane.

4. Where do we get the revenues for the efficiency and customer service bonuses?

All revenues generated from the ticket tax (that 9/11 tax we currently pay) will be segregated. The TSA will be given its base portion of the revenue, plus/minus its bonuses. If the TSA underperforms and there is money left over, it will be segregated in an account administered by a custodian, refundable to the organization if scores improve by an amount TBD in the future. The segregated amount has a shelf-life of 36 months, after which it will be put into a fund for airport improvement.

5. How do we determine the initial base payments and ticket tax?

An independent auditor will issue a fairness statement. It is my belief that the ticket tax will be slightly higher than what we pay now for the 9/11 tax, but not significantly so.

6. How do we set the base efficiency times and what constitutes improvement?

The base efficiency times can easily be determined by assessing the current time to process a passenger. Any YOY improvement will result in a bonus based on processing time. A small (i.e. under 3%) decline in average efficiency would not necessarily result in penalties, but the penalties would grow exponentially larger above the threshhold.

7. Suppose some airports show better results than others?

Although the total revenue will be aggregated across the company, individual airports will earn bonuses based on their individual statistics. To prevent the individual airports from hiring unnecessary employees to improve their metric (benefit individually on the revenue line) while generating excessive costs (hurting the organization as a whole), each airport will receive cost hurdles determined by the management team, independent board and auditors as a whole.

8. Will the stock pay dividends?

I will leave that decision to the board of directors.

9. How can we be sure that the customer service scores are fair?

As a former customer service employee who was scored based on interactions with only 1-2 customers per quarter, I understand the standard deviation inherent in a small sample size. Thus, not only will the BoD hire an independent firm to do "shopping" with set standards but it will also hire employees to interview at least 25 passengers per day at each airport. Passengers will be chosen randomly, fill out a short questionnaire and be given a token gift (i.e., Starbucks card) of appreciation. The system is not perfect, but an element of randomness should ensure that we get a good cross-section of passengers.

10. Is that it?

For now, yes. Feel free to reply with further questions, comments and observations. It is worth noting that the author of this missive will be on and off the computer for the holiday weekend and may not have time to reply immediately.

mikeef is offline  
Old May 27, 11, 4:34 pm
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But it seems that this essentially calls for a return to pre-TSA, pre-9/11 days, when security services at airports were provided by private contractors. Any such move back to private screening will undoubtedly lead to chants of "9/11! 9/11!", removing any possibility of reasoned discourse on the subject.
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Old May 27, 11, 5:33 pm
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Instead, we had Federalize to Professionalize, and once that ball gets rolling, it is hard to turn it back.
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Old May 27, 11, 6:37 pm
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Originally Posted by jkhuggins View Post

But it seems that this essentially calls for a return to pre-TSA, pre-9/11 days, when security services at airports were provided by private contractors. Any such move back to private screening will undoubtedly lead to chants of "9/11! 9/11!", removing any possibility of reasoned discourse on the subject.
Yes, but those firms were privately owned. My suggestion leads to both accountability and, if anything, better safety, since the TSA would be incentivized for both.

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Old Aug 19, 11, 4:37 pm
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I'm not sure that the public/private company thing is the issue. The federal government should just put out contracts for each airport for passenger and baggage screening. There would be performance requirements (like most federal contracts). They could be audited (you know, government employees trying to sneak contraband through) with penalties for failure (including loss of contract) and their could be bonuses for efficiency/performance. None of this has to be less secure than the way it is now if the incentives are set up correctly (the contractors may even be more diligent).

The TSA probably would still exist to administer the contracts and run things like the SecureFlight program (though the actual operation of that could be contracted out too). They would also have more resources to look at the "big picture" of transportation security.
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Old Aug 19, 11, 5:42 pm
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[sarcasm] 9/11! 9/11! 9/11! [/sarcasm]
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