State of the Industry Report

Almost overnight, the business of airports changed; yet, many past issues linger.

There is a void being created and how that void is filled is a question that remains to be answered. One possible answer is with the very light jets now entering the marketplace. The concept of a network of VLJ air taxi companies, led by DayJet in the Southeast and Linear Air in the Northeast, remains a possibility. However, the tight investment market caused by the collapse of the dollar is stifling this prospect, evidenced by recent cutbacks at DayJet.

Another possible answer for small communities is an expansion of the Essential Air Service program. While not yet part of the aviation discussion in Congress, it’s on the table. Comments NATA’s Coyne, “I am sure there will be proposals to expand it, though I would expect Bush would oppose it. I would predict that next year either McCain or Obama would be under a lot of pressure to support a Congressional expansion of EAS.

“It’s hard to get hard answers from the candidates about that. But I think there’s a strong interest, and the rural communities really need something like that.”

Globally, the aviation and airport industry remains hot in the high-growth areas of Asia. There, developers are taking an ‘airport city’ approach of comprehensive development in which the airport is at the core. It’s a concept being emulated by several major U.S. airports. (See story, below)

For business aviation, a mixed report
For fixed base operators and business aviation, high fuel prices are having an impact, but nothing like what’s happening with the airlines.

Comments Dan Hubbard, VP of communications for the National Business Aviation Association, “There’s no question that fuel costs are adversely impacting general aviation. We’re hearing from reliable fuel providers and charter companies that, because of the cost of fuel, purchase of jet-A is down anywhere from 10 to 20 percent, and purchase of avgas is down 30 to 40 percent.”

That is causing operators to shop price, putting pressure on FBO margins. Says NATA’s Coyne, “They’re really having a hard time maintaining margins. And, of course, their costs are going up as well. Most members are spending more on energy themselves. To heat a hangar this winter is going to cost twice as much as last winter. To fuel all the ramp vehicles is going to cost twice as much.

“You would think with a doubling of fuel prices the margins would double, but they haven’t. It’s much tougher to make money in the FBO business in 2008 than it was a two or three years ago.”

Allocating Capacity — the Debate Continues

DENVER — Despite the upheaval in the U.S. airline industry in 2008 that is seeing reduced capacity in the system, there remain pockets of activity that have the U.S. DOT and industry debating how to manage congestion. Much of this discussion is centered on the three commercial airports around New York City, although airports in Chicago, San Francisco, and Los Angeles could in time be affected.

The issue of “congestion pricing” and slot allocations was a focus of the discussion of this year’s annual Airport Economics & Finance Conference held this spring in the Mile High City and hosted by Airports Council International-North America.

Comments Dr. Steve Van Beek, president/CEO of the think tank Eno Transportation Foundation, “We have a fundamental mismatch” between the needs of the system and capacity allocation. Van Beek says his concern is that the discussion is centering more on who has the power versus finding real transportation solutions, ones that take into account other modes like regional rail.

Nancy LoBue, deputy assistant administrator for Aviation Policy, Planning, and Environment at FAA, says, “Our policy has always been to increase capacity first.

“Everybody has a piece of the blame and all have a role in the solution.”

David Berg, counsel for the Air Transport Association, which represents the major U.S. air carriers, says that his members strongly oppose congestion pricing. ATA thinks the discussion should be focused on accelerating development of the NextGen air traffic control system.

Says Berg, “We don’t think this is a time to experiment, particularly with the auction of slots.” He also questions the authority of DOT to implement its new policy.

Debbie McElroy of ACI-NA calls the concept of congestion pricing “appropriate” but says the association disagrees with slot allocations proposed by DOT. She relates that airlines use a form of congestion pricing in their daily operations. “They use it every day in their own yield management system,” she says.

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