The Airport Option

In January 2008, the Fort Wayne-Allen County Airport Authority took over the FBO operation at Smith Field in Indiana, a general aviation airport, offering all the necessary ground handling and fueling operations for its flight operations.

The action came after the current provider decided business was no longer viable. “They were seeing the downturn in the economy, and it was a situation where we worked with them through a transition period that said at such and such a date we’ll take it over,” says Torrance Richardson, executive director of airports, Fort Wayne-Allen County Airport Authority.

Richardson says the takeover was ultimately seamless, and now the operation employs six staff members for the handling of the flights at the general aviation airport.

But now, Richardson says, a business plan is being formulated for the consideration of providing ground handling services at nearby Fort Wayne International Airport. He says an initial recommendation will likely be made to the Board by the end of the year. “We’re putting together what we think would be an appropriate business plan and it’s probably out of that business plan going to be the decision whether we would go forward and do this or not.”

He adds, “One of the benefits that we’ll be trying to highlight in our business plan is the ability to retain some of the existing relationships and customers, as well bring in new ones, because we can then control the pricing.

“The questions at the end of the day are going to be ‘Can we do this better than somebody else? Can we be successful at it? Can we provide the customer service at the price points that it’s going to take to make this a viable operational entity going forward for us?’”

The Larger Picture
And those are some of the questions more and more of the smaller airports are asking, according to Bruce Carter, director of Quad Cities International Airport in Moline, Ill., and chairman of the AAAE Aviation Ground Service Association.

The AGSA was formed three years ago with an eight-member board of directors. The association has since grown to about 50 members.

And Quad Cities International Airport has undergone its own service transformation. The airport established a separate LLC, QCIA Airport Services, for fueling in 2003. It has since expanded, and most recently has taken on the ground handling for AirTran for three daily flights to Atlanta and four weekly flights to Orlando.

The operation for the national carrier has not been profitable. In fact, Carter says, the airport has taken a small loss on the operation. But, he says, the increase in revenue from parking, rental cars and concessions has outweighed the cost of providing the ground handling services.

And that’s what some smaller airports must consider in the current economic environment: If the major investments in such areas as equipment, employees, insurance and training will eventually balance with the benefit of air service retention.

“I think the only option they have is to bite the bullet and try to save the airlines money by getting into the ground handling,” Carter says.

Abraham Lincoln Capital Airport in Springfield, Ill., has also taken the initiative to provide airline services – and like QCIA, it has taken a loss on the operation.

“Our initial intent when we got into this business was not necessarily as a business venture or to make money or exploit an opportunity, but to provide us a way to survive in a very competitive Central Illinois market,” says Mark Hanna, executive director of Abraham Lincoln Capital Airport. “Potentially, if we did not have this, it could have put some of our regular daily scheduled service in jeopardy.”

It began providing ground handling services for what was then American Connection in 2005. It transitioned over to American Eagle and now primarily services its twice-daily flights to Chicago.

It also services large charters that come into the airport and Direct Air.

The airport has developed a customer service department that is fully dedicated to the ground handling needs of its carriers. The airport has gone one step further in its passenger services offerings, including terminal services such as a luxury passenger lounge and travel-booking services. The department has employed four full-time staff members and nine part-time employees, cross-utilizing the employees’ skill set to for services across the board.

With the initial investment in place, Hanna says there is potential to bring on more airline customers.

A History of Service
For some airports, the concept of offering ground handling services is not new. Bangor International Airport has operated the FBO since the 1970s, serving private charters and military flights.

It recently expanded its services for Allegiant Air in November 2007. The carrier had traditionally scheduled two flights per week out of the airport, but now during its busy season, the carrier has increased its frequency to up to 10 flights per week, according to Rebecca Hupp, director of Bangor International Airport.

“We already had the resources, because we do the ground handling in other areas,” she says. “It was easier and more cost-effective for us to do it than for them to do it.”

Springfield/Branson National Airport in Springfield, Mo., has also been offering services for many years. It has offered fueling since 1946. It expanded its ground support services in 2002 for charters, replacing the service provider that at the time decided to discontinue business at the airport.

It went on to handle Delta Comair flights for about three years. It has since attracted Allegiant Air, which it currently services for 17 flights per week.

It has also managed to generate revenue from its services, at a margin of about 20 percent.

But Gary Cyr, director of aviation at Springfield/Branson, points out that the success of such an operation is often dependent upon the specifics of a location. “The method we do here may not be applicable to other airports,” he says. “Because we do well with what we do here, doesn’t mean it applies well to other airports.”

Assessing the Impact
And just how far-reaching an airport model will become is a central question.

John DeCoster, senior vice president at Trillion Aviation, an aviation consulting firm specializing in business strategies and programs, believes it is a trend that will continue, as an airport option offers airlines the opportunity to operate in or enter into new markets with little overhead or risk.

“I think as airlines look at all of their cost structures and really with the yield crisis in the industry right now, they’ve got to find some way to deliver the quality they are looking for at the lowest possible cost,” he says. “I think as long as the airports are offering competitive quality service at a competitive price, this will be a continuing trend.”

An airport option has heightened the level of competition at some locations.

Such is the case at Abraham Lincoln Capital Airport. “We have had some soft interest from an FBO on the field to possibly get into the business, but nothing significant has transpired since most of the demand is covered already by contract with a third-party airline ground handler and the airport, and in our case by virtue of being the lowest cost — not that we were wanting to compete, but we wanted to at least be able to offer the service at a time when no one else would or could,” Hanna says.

And if Fort Wayne International Airport decides to get into the business, it could be in a position to compete with its existing FBO.

“We have a good relationship with our FBO now and we have had in the past,” Richardson says. “It’s one of those things where we’re going to continue in the dialogue and the discussion and keep them a part of it.

He continues, “We would anticipate some fierce competition by them, but what we would hope to do in the long run is be able to work with them through this. If we aren’t the ones to provide it, because we haven’t made this decision, then work with them to convey to them what our priorities are in terms of customer service and fuel pricing and see if we can work with them on those aspects.”

A Different View
The airport option has brewed some controversy, initially arising a few years ago when the National Air Transportation Association opposed the use of certain DOT funding by airports to compete with private service companies.

Eric Byer, vice president for government and industry affairs at NATA, says the association is not opposed to the increased competition — as long as it’s fair. “Our airline service companies have the most interest in making sure it’s a fair, competitive process where organizations have the opportunity to respond to RFPs.”

He adds, “What we’re concerned about most is that, because of these dire economic times, airport operators are seeking financial growth at their airport by competing with, or simply taking over, ground handling services. In some instances, airline service companies that have been at an airport for a number of years, making a sizeable investment in ground support equipment, are summarily cast aside because the airport needs a new revenue stream. These airline service companies have outstanding safety records and have provided quality customer service, yet are not even given the opportunity to renew their contracts because the airport elects to provide the service alone. No competitive bidding process, just a sole source contract to themselves using local and state tax dollars that the airline service companies never had the opportunity to utilize as a private company.

“There must be, at the very least, a fair, competitive process in place when selecting a ground handling entity,” he says.