Managing the Air Service Crisis

How airports across the U.S. are addressing carrier capacity cutbacks; revenue losses

Along with the uncertainty associated with fuel costs, a rapidly deteriorating economic environment has dropped the bottom out of passenger demand and has many airports re-evaluating their business models regarding air service development. AIRPORT BUSINESS recently canvassed various airports across the nation to uncover their approaches to the air service crisis facing the industry in 2009.

Small community airports have been hit hardest, many losing airline service altogether. With airlines cutting capacity to recoup record-high fuel costs during the first half of 2008, many secondary airports are experiencing double-digit declines in enplanements compared with 2007.

“It’s time to retrench, hold your breath, and do everything you can to maintain existing service,” relates Steve Martin, senior vice president for strategic and development planning at InterVISTAS Consulting Inc. “There are big forces at work here, and big challenges for small communities.”

Martin, who spent over 20 years with the Government Accountability Office (GAO) addressing issues regarding air service to small communities, says air service woes are expected to continue through the rest of 2009.

Deborah McElroy, executive vice president of policy and external affairs for Airports Council International-North America (ACI-NA), relates that many airports received notification late last summer announcing there would be service reductions through the end of last year.

“This is something that airports have been focused on for several months, taking actions that all responsible businesses do when they face potential reductions in revenue,” says McElroy.

Cutting costs
Ken Scott, executive director at Norfolk International Airport, counts his blessings in respect to many things, least of which is that his passenger numbers were down only 4.4 percent last year, a modest decrease compared with many airports. Scott has been at Norfolk International for 38 years, and admits that this is the worst passenger decline he has ever seen.

“It’s going to take almost double-digit growth in passengers before demand dictates that we do something new,” says Scott. “We are focused now on tightening our belt so that we can keep our costs to the airlines reasonable.”

Scott says Norfolk has kept the cost to its airlines per enplaned passenger at about $3.50, which is currently unheard of at most airports. Norfolk has accomplished this by economizing expenses, initiating a hiring freeze on some new employees, and cutting travel for its staff.

Says Martin: “The problem with the smallest airports is that they have very little that they can actually cut, because they may already be operating with a fairly lean budget. What happens then is that the fixed costs become spread over fewer operations, and it becomes a vicious cycle.”

While small communities are feeling the brunt of the problem, larger hubs are not exempt from the cost-cutting philosophy exercised during the current economic recession.

Chuck Cannon, spokesman for Denver International Airport (DIA), says enplanements are down nearly five percent. DIA is aggressively trying to maintain its existing air service, yet on the same token, says Cannon: “We want our airlines to be healthy; if they need to cut costs to stay healthy by reducing flights, it’s probably better in the long run for both of us if the airport tries to absorb that.

“The airline industry is very cyclical, and depends on many things which are beyond our control. When airlines are hurting, they ask us not to pile on any more unneeded debt, and we are listening to them.”

DIA had plans in the works for a ten-gate expansion to concourse C, but is now reconsidering the initiative and is looking at it on a month-by-month basis. “We watch very closely how and when we spend our money,” says Cannon.

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