Changing Airport Economics

ACI-NA president on the stimulus, AMT, financial reserves, and a changing model.

I was talking with a director at one small airport and he was telling me that when he first came in, his airport didn’t have any reserves at all. He built a $1 million reserve — it’s small; that million is part of that number that the airlines throw out there.

But this airport director was telling me that his predecessor didn’t have a reserve; there was pressure from the airline not to have one. If you run a real business, having a reserve, some cash, is often the result of a well-run business. So, the small airport has a million dollars, and the airline complains about it.

I always remind people that an airline can take a main asset and fly away from a community at 500 miles an hour. The airport’s there. Having cash on hand is a good thing. It helps hold down cost of capital when you’re in the capital market. It’s important for smaller airports when they start losing service and have to try and keep things going. No matter how many takeoffs and landings you have, you still have to secure the perimeter; you still have to maintain the airfield. You can’t just say, I’m only going to secure half the perimeter.

AB: What about the concept of a changing airport economic model? Airlines say it’s needed; ACI’s Angela Gittens says it’s coming.

Principato: I would agree with the basic premise to take a look at the model and change it. I’ve told some airline guys, we can fight every four or eight years about a PFC [passenger facility charge] increase or about AIP or anything else, but that’s not really the best way to go long term. We ought to come up with something else.

Around the world there are a whole variety of different things that are tried. Even in the U.S., while we have a public ownership model, we have a variety of different things that are done.
Probably more evolutionary than revolutionary, but it’s definitely something that we have in mind here. See where we can make some changes in the model, because I don’t think anybody thinks it’s totally satisfactory.

AB: Is one potential answer for airports to get into providing airline ground and terminal services?

Principato: A number of other airports are looking at it. It’s a way to hold down costs for the airlines. I think those kind of things are happening and are going to continue to happen.

It all comes down to service — are you going to have air service in your community? Whether it’s holding down the direct costs to the airlines or whether you provide that service in order to entice more air service to your community, it all comes down to the same thing: airports trying to ensure that their communities have service and have choice of service, and competitive service.

AB: How confident are you that the industry will see a PFC increase in the FAA reauthorization legislation, should Congress ever pass a bill?

Principato: We are very hopeful; there’s a lot of need out there. You know, the PFC has no federal budget impact; it’s a local user fee. Actually, the airlines make $87 million a year collecting it; they get eleven cents from each one. I don’t think any other [fee] works that way.

The thing that’s great about it, besides not having any federal budget impact, is it’s project-based — it goes right to the project. We think the arguments are compelling. The House Transportation Committee agrees; we hope the full House will agree. We’re continuing to make the case that $7 is not sufficient. Construction costs, inflation, have driven that number well over $8. We’re asking for at least $7.50. We think it ought to be indexed [for inflation].

AB: One thing that seems to be occurring in the marketplace is the cost of commodities is going down, after several years of dramatic price hikes. Is this having a significant impact on bids for construction projects?

Principato: There’s no question that some of that is happening; those costs are coming back more to earth. But even if you assume a fairly significant adjustment in those costs, the PFC is still way behind on inflation-adjusted basis. There’s no question that that trend has turned some; but when the economy gets going, I don’t think those prices will stay where they are now; they’re going to go back up. For now, things have come back to earth a little bit more.

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