Carrier right-sizing and a challenging economy among top issues for airports

SAN DIEGO — As airlines continue to adjust assets with demand in a struggling economic environment, airports meet to discuss the effects of an ever-evolving aviation industry at the F. Russell Hoyt National Airports Conference (NAC) held here in September. Hot-button issues include
airline economics, privatization, airport funding, and security. On the issue of FAA reauthorization, attendees and speakers alike hold little hope for bill passage before year’s end, meaning everything on that front may have to start over with a new Congress.

Hosted each fall by the American Association of Airport Executives (AAAE), the NAC is an executive-level compact networking venue for exchanging ideas and sharing information. With no shortage of challenges facing the aviation industry, one positive expressed was the apparent, yet sluggish recovery of the global airline business.

Comments Air Transport Association VP of policy Patty Higginbotham on the state of the airline industry, “ ... It’s still not good, but news is better this year.”

She relates that the industry has laid-off some 160,000 employees and has drastically cut capacity, and while carriers will make money this year, the industry is still very much feeling the effects of the recession. The future also depends a lot on where jet fuel prices go, she adds, stating that oil has gone up some 39 percent since this time last year.

“We are hopeful,” she says, yet with 10 percent unemployment in the States and many travelers having less disposable income, “ ... It’s an uphill battle,” she adds.

Cleveland director of airports Ricky Smith says airlines are beginning to find the ‘sweet spot’ in matching capacity with demand, and it’s starting to pay off in Cleveland. “Airlines are thinking more progressively,” says Smith, by better aligning assets with demand.

Fresh off negotiations with a merging Continental, Smith says the airport has been preparing for consolidation; a strong working relationship with the carrier has helped to solidify its commitment to the region (UnitedContinental has agreed to sustain its Cleveland hub for at least another five years).

“The health of the U.S. airline industry is obviously getting better,” relates AAAE chair Jim Bennett, former director of the Metropolitan Washington Airports Authority and now president of the Abu Dhabi Airports Company.

FAA’s Catherine M. ‘Kate’ Lang agrees, stating, “We think the carriers have seen the light.” The consequences of airline right-sizing is beginning to correct the market, she adds, “Yet the slope for growth is pretty sluggish.”

A new normal

Remarks Eno Transportation Foundation president Stephen D. Van Beek, “Aviation is a low-margin and highly cyclical industry, which if anything has become more dynamic in the last decade.

“Given the strong correlation between Gross National Product growth and demand for transportation services, the slower recovery has resulted in lower than expected traffic levels and lower trust fund revenues to support U.S. Department of Transportation infrastructure programs.”

Van Beek says 2009 was a tough year for all airports, even for large hubs. In addition he comments, “Passenger growth is outpacing capacity, returning a degree of pricing power to air carriers.”

With 2010 showing marginal improvements in traffic and capacity, Van Beek says things have definitely gotten better this year, when considering all airports as a whole.

After a disastrous ‘08 and ‘09 for airlines, 2010 is shaping up to be a better year, explains Van Beek. “Should economic growth come anywhere near historic trends, many airlines are poised for sustained profitability.

“With the reduction of airlines’ fixed costs and improved operations, new revenues are more likely to be translated into profits.”

With flights, passenger traffic, and yields down over the past decade, the uncommitted balance in the Airport and Airway Trust Fund is at a very low level, providing few resources for long-term FAA priorities, explains Van Beek.

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