Gulfport-Biloxi's Revival

GULFPORT, MS — Bruce Frallic, A.A.E., executive director of the Gulfport-Biloxi International Airport, relates that when his community woke up to the devastation of Hurricane Katrina in 2005, people looked around, assessed the situation, and began picking things up. Today, much of the evidence of the destruction is gone as the community, the casinos, and the airport have orchestrated a phenomenal turnaround. It is certainly the case at the airport, which saw much of its infrastructure destroyed, including its terminal and rental car facility — most of which has been rebuilt. The focus is again on air service, which is ahead of pre-Katrina numbers and faring much better in the current economic climate than most U.S. airports, particularly those of comparable size. In fact, they set a record in 2008. As Frallic says, “This is a different market.”

Recalls Frallic, “The storm was just devastating to us here. We were in the middle of a terminal expansion; we lost about a year and a half construction time because of the shortage of labor and materials. Prices went through the ceiling.

“We sustained about $14 million in damage to the terminal — the existing building. We had another $6 million in damage to the construction that was underway. So, we took a real lick here at the terminal.”

The terminal that was destroyed encompassed some 92,000 square feet and the $50 million expansion begun in 1994 was going to grow the complex to just over 171,500 square feet, which is what the new terminal is today. It has six jet gates, with the potential to utilize two more walk-down gates, planned by 2010.

Says Frallic, “It’s not a Taj Mahal; it’s a very functional building. What we did was add quite a bit of depth to the building; that’s where we were having problems.”

The airport also completely lost its rental car facility. “A tornado wadded it up in a ball and threw it in a ditch. So, we have a new facility there, in another location and slightly off-airport, though it’s on our property,” explains Frallic.

Also lost to the hurricane was the airport’s facility for cargo, particularly international — a major focus for growth at Gulfport-Biloxi. A 40,000-square foot replacement complex was recently completed, with a 20,000-square foot area for perishables. Gulf Coast International Cargo is the primary tenant.

The other major area impacted by Katrina was general aviation. The airport lost all of its GA hangar areas; however, according to Frallic, the airport had been trying to relocate GA for some 15 years, particularly after 9/11, due to its proximity to the military on the airfield.

“We worked out a deal with FAA; instead of rebuilding the physical buildings, they would help us financially to build the ramps and taxiways we needed in the alternate area of the airport; the private sector is investing in the buildings,” explains Frallic.

“We put in about $46 million in concrete – taxiways and aprons – the private sector is in the process of investing about $30 million in hangars and facilities. We have Million Air and still have Atlantic Aviation. Million Air’s construction will start in the first quarter and hopefully be finished by August.”

Atlantic Aviation’s lease expires in January 2010, according to Frallic, and the fixed base operator has indicated it will not seek a lease renewal.

The role of the casinos
Regarding air service, Frallic relates that the airport is primarily impacted by three forces: leisure travel (golf, fishing, etc.); the military; and the local casinos, which were totally wiped out by Katrina. The impact of the casinos, he says, is huge.

“We had 13 casinos up and running before the storm; for a period of about a year, we had nothing,” he explains. “Then legislation was passed and everybody began to reconstruct during that year. By the end of the first year after Katrina we had several up and running, and they were permitted to rebuild within 800 feet of the water site, so they really had landside facilities that they moved into.

“Today we have 11 casino resorts up and running, and they’re generating more revenue than the 13 were generating; and the air traffic, we set an all-time record for 2008 for passenger numbers — 972,000.” Most of that, he says, is scheduled service, though the role of charters in the market is growing.

Indicative of that is AirTran, which in January pulled out its service to/from Atlanta, Ft. Lauderdale, and Tampa. However, it is now flying charters out of Clearwater/St. Petersburg.

Explains Frallic, “That represented right at about 25 percent of our passengers. But you have to understand the product to understand how we can recover those passengers.

“The only reason Air Tran was here was because they had a contract with the casinos. This year, the casinos were attempting to modify the contract, and I don’t know the details. But they couldn’t get together with Air Tran. At the same time, the casinos already have an alternative that’s already started to almost fully replace everything.

“Look at AirTran: 50 percent of the passengers were pure casino people. The casinos bought the ticket; they were part of a package. They were basically glorified charter passengers. All those passengers have been replaced. We’ve gone from basically five or six charters a month to 30; daily charters, the aircraft are full.

“It’s been driven by the casinos directly.”

In fact, says Frallic, the key driver in the market is first-class hotel rooms. He says that each first-class hotel room accounts for 150 new annual passengers for Gulfport-Biloxi. Before Katrina, the region had 18,000 total hotel rooms, 6,500 first class; today there are 12,000 total rooms, 6,500 of which are first class.

The remaining military, business, and leisure travelers lost with AirTran are being accommodated by additional service from other carriers, says Frallic. Delta has added 210 seats a day; US Airways is adding a third flight.

Micromanaging air service development
While much of the traffic that came with the departure of scheduled service from AirTran has been recovered, the role of the low-cost carrier in the market can’t be diminished, says Frallic. “It’s very important to have a low-fare carrier because the low-fare carrier sets the price and others follow to all the competing markets. They’re not going to give up market share.”

He says that his airport takes a very aggressive air service development approach, one that tracks prices and communicates regularly with the carriers. “What you’ve got to do is go after the fare. That’s the most important thing. It’s a driver in the market,” explains Frallic.

“Secondly, this is a recession; airlines don’t raise fares in a recession. What I’m getting at is that even though the trend in the economy is recessive, I don’t see any indication right now that the lack of a low-cost carrier in the market is going to spike fares here. And that’s everybody’s concern.

“We’re benchmarking all the fares today, watching the fares very carefully. If a carrier gets out of line, we’re going to tell them. Oftentimes, in a large company, the left hand doesn’t know what the right hand is doing. It’s not unusual in the airline industry that you would have a marketing department that’s looking to create a product and do something special in a market, or be something in that market, and then you have a pricing group that makes an independent decision to let some prices get out of line. Well, when we find them out of line, we don’t necessarily go to revenue and pricing control, we go to marketing. We’ll say, ‘You’re shooting yourselves in the foot here;’ and they’ll say they didn’t even know about it.

“That happens often. I would say, 75 percent of the time when we find fares are out of line, within 30 days we get a modification back in there. That’s aggressive marketing; it’s the kind of thing it takes.”

The airport also has an incentive program for new service. A new carrier with a new city has all landing fees and terminal use fees waived for one year. “That’s a huge savings for them,” says Frallic.

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