Making the Most of a Downturn

DeCosta predicts the recession will bottom out by the fall of 2010, but if the credit markets remain frozen, he says Hartsfield will have to cut its capital plan by $250 million, and “all of us will have trouble.”

“We build things with borrowed money,” says DeCosta. “The markets are our number one issue for this year and next; we can generate jobs.”

Fort Lauderdale/ Hollywood international
Kent George, aviation director at Fort Lauderdale, says his airport has been somewhat of an anomaly amidst many that are struggling during the down economy.

Throughout the last ten to 12 years, the airport saw phenomenal growth, from 8.5 million passengers to some 23 million. When the fiscal year ended last October, passenger numbers were up 4.5 percent, yet numbers for the 2008 calendar year were flat (down .3 percent). George predicts an 8-10 percent decline in traffic for 2009 based on the number of seats available and the average load factor on facilities. Revenues at Fort Lauderdale are up 9.3 percent due to changes in concession programs and the strength of its origin and destination market, says George.

The airport will be embarking on a five- to seven-year $1.3 billion capital program which will include a new runway at a cost of $800 million. George relates that many people are questioning the move to an aggressive capital program during the downturn asking, ‘Why don’t you wait and see what happens with the economy?’

“That’s the worst thing you can do,” says George. “We needed a new runway ten years ago; we average delays of six minutes per flight and much longer during peak times.”

George says they have money set aside and will not need to access the market for 18 months to two years. Additional airport initiatives include terminal improvement projects and a relocation of as many concessions in its older terminals to post-security locations. “We generate five times as much in retail revenue and three times as much in food revenue in post-security as we do in pre-security,” says George.

Jacksonville international
The 2007 fiscal year recorded just under 6.5 million passengers, the highest traffic in Jacksonville’s history, according to aviation authority executive director John Clark [who will leave this position in April to become executive director at Indianapolis International Airport]. In calendar year 2008, passenger traffic fell 8 percent, and like Fort Lauderdale, Clark projects an 8-10 percent decline in traffic in 2009, down to some six million passengers. “We have chosen to deal with the uncertainty in the economy by looking at it as a strategic opportunity,” says Clark.

He relates that during good economic periods, businesses tend to take more entrepreneurial risks, and during bad economic periods, businesses are forced to look inward and really start reflecting on the operation itself. “We have determined we are going to take this opportunity to clean some things up,” says Clark.

In recognizing the economic uncertainty, the authority is focusing on examining the airport’s internal structure, looking for areas in which to gain efficiency, and how to best position the airport as a business. The authority has chosen to lay off some employees in an effort to gain operational efficiency.

Clark explains three business principles employed by the authority to ensure the financial health of the airport system: (1) the authority will do what it takes to sustain eight months of unrestricted cash, (2) it will always exceed its bond cover ratio by setting a threshold and not going below 1.38 percent, (3) and it will always operate at no less than a 30 percent operating margin. These principles allow the authority to be flexible when things are not going right, says Clark. “Our organization is focused on becoming more strategic.

“Several years ago we looked at trying to position the airport authority so that it wouldn’t be reliant on airline-related revenues, including concessions.

“We spent much effort looking at non-aviation and non-aeronautical revenue sources, such as the development of land outside of the airport.”

Clark relates that the airport is in the beginning stages of a $380 million terminal program, which is projected to be completed in April.