AAAE Headliner: Reauthorization

July 13, 2007
Besides funding, airports focus on security, technology, airline issues at annual event

WASHINGTON, D.C. - For the first time, the American Association of Airport Executives’ annual Conference and Exposition was held here in the nation’s capital, a prescient planning move considering that the U.S. aviation industry is in the midst of what’s considered one of the most important reauthorization battles in the industry’s history. On hand were key D.C. players, including DOT Secretary Mary Peters, albeit briefly, and U.S. Rep. James Oberstar (D-MN), chair of the House Transportation & Infrastructure Committee — the latter expressing confidence that an adequate funding bill would be passed by Congress by the September 30 deadline. Other topics on the airports’ agenda: airline/airport agreements; Registered Traveler; security and technology; and the latest start-up carrier, Skybus.

Oberstar, who opened the annual conference, says he supports an increase in the cap on passenger facility charges (PFCs), a top priority for airports. However, he indicated a more realistic cap may be $6, a $1.50 increase. Airport groups are lobbying for a cap of $7.50, indexed for inflation. The committee chair does not support any further easing of restrictions on PFC eligibility, supported by both FAA and airports.

DOT Secretary Peters, who breezed through for a luncheon address between meetings on the Hill, stressed the importance of having a reauthorization bill in place prior to the new fiscal year that begins October 1. “Extensions mean more delays” and higher costs, she says. Peters also reinforced the need for funding of the next generation air traffic control system.

Skybus airlines: wedded to the internet
Bill Diffenderfer, CEO of the latest start-up carrier, Columbus, OH-based Skybus Airlines, describes the Skybus model as “Ryanair plus Southwest plus technology.” Diffenderfer calls Skybus a 100 percent Internet-based airline and says that passengers who book tickets electronically are looking for price and schedule — everything else is secondary.

Diffenderfer comments that the success of the Skybus website (www.skybus.com), which was in the top one percent for website traffic on the Internet when tickets went on sale, all comes down to promoting $10 fares. When the airline announced that it would guarantee a limited number of seats on each flight at $10, a publicity storm followed and the airline sold 30,000 seats in one day. “You don’t need to be a marketing guru if you have $10 fares,” says Diffenderfer.

Central to the upstart airline’s model, says Diffenderfer, is using airports that can guarantee 25-minute turn times, including taxiing. He stands firm that Skybus “won’t fly with any airport that can’t do 25-minute turns.”

Diffenderfer says there are opportunities for airports to attract start-ups like Skybus, but costs are a key factor. He explains that when one-way airfares get below $100, demand increases dramatically. To be able to offer fares at that level requires low costs at airports, he says.

He credits Elaine Roberts, president and CEO of the Columbus Regional Airport Authority, as a catalyst for Skybus. He relates that her experience with the hubbing and subsequent de-hubbing by America West demonstrated that there was a need in the Central U.S. market, which has a population base of some 6.7 million within a 100-mile radius.

“It was done by a leader of an airport,” he says. “She helped drive us forward.” And, he adds, there are similar opportunities for other airports. “There is a country full of markets that do work,” he says.

As one example, he points to San Augustine, FL, located midway between Jacksonville and Daytona. Load factors on that route are currently at 87 percent, he says.

Skybus currently is operating four Airbus A-319s, with another 80 on order. The intent, says Diffenderfer, is to take the airline public within two years.

The business of airlines
Once again, the airline/airport business model was a central theme at this year’s event. “Increasingly, airports are on their own” when it comes to financing capital developments, according to Angela Gittens, vice president with HNTB Corporation and a former airport executive at Atlanta and Miami.

She says that airline lease agreements are typically for five years in today’s market, and more airports are moving to month-to-month agreements.

On the subject of compensatory versus residual lease agreements, Tracy Thompson, a director with Jacobs Consultancy, says the trend is more toward hybrids, combining elements of the two. She points out that in 1983 some 58 percent of medium and large airports in the U.S. had residual agreements with carriers; that number decreased to 38 percent by 2003.

Airlines offered their perspective at a session featuring airline properties reps. Robert Montgomery, VP of properties for Southwest Airlines, calls airport costs a “headwind” that continues to increase. He says that airport costs for Southwest are up $89 million for this year, a 19 percent increase overall.

Laura Einspanier, VP of corporate real estate for American Airlines, comments that “airport costs are much more than the four percent you hear. It’s approaching eight percent” of overall airline costs, she says. While she recognizes the need for capital developments at airports, she says that airlines should have a say in how the money is spent. “Just because we record a profit doesn’t mean we can afford these costs,” she says.

Southwest’s Montgomery says that based on infrastructure projects currently being planned at airports the carrier serves, the airline’s airport-related costs could double over the next ten years. “It causes us a lot of concern,” he says.

Montgomery calls on airports and their sponsors to become more efficient when building. “It’s something you can do something about” he comments, maintaining that cities on average spend up to 25 percent more to complete a project than the private sector. When considering infrastructure projects that are in the billions, the associated “waste” is in the millions, he says. Procurement rules, in particularly, can be made more efficient, he says.

Regarding the trend with airports to put more cash in reserve for future projects — a hedge against a volatile and changing airline business — the airline reps remain skeptical. Montgomery says that a review of the 64 airports that Southwest serves shows some $31 billion in retained earnings in the system.
On the cargo side, UPS airport properties manager Joseph E. Richardson tells airports, “You’ve got to reach out to us.” He points out that UPS turns over key management personnel every few years and thus airports need to stay in touch. He points to the UPS hub at Louisville International as an example where the relationship is working. “We do things there where we’re almost part of the [airport] staff,” he says.

Cargo Security developments
On hand at the cargo security update to address industry concerns was Douglas Dobie, San Francisco International Airport campaign manager with Lawrence Livermore National Laboratory, working in collaboration with the Department of Homeland Security’s (DHS) explosives division, science and technology directorate, who gave an update on the state of the air cargo explosives detection pilot program at SFO.

As part of the cargo screening system design, parcels are loaded off of a skid/pallet with a vacuum lift assist system, and run through explosives detection systems, explosives trace detectors, standard X-ray machines, canine teams, and manual inspections. The SFO operation is currently operating in a 7,500-square foot space, Dobie says, and has cost $10 million, not including the cost of the facility. According to Dobie, the pilot program has already uncovered that standard X-ray machines are not capable of being explosives detection devices.

Before a pallet is unloaded, the cargo’s weight is recorded and photographs are taken of each side of the pallet to make sure the cargo is accurately reloaded.

According to Dobie, the main objective of the pilot program is to determine an accurate per parcel cost, which has yet to be determined. Dobie says that the pilot program’s capacity is increasing the amount of packages screened, every seven days. Yet, he projects that it will be another five to ten years before the industry will have a system available for screening cargo in bulk.

Gerald Buckwalter, director of homeland security with Northrop Grumman IT, says that the industry needs a risk-based, applicable approach to air cargo security. Whether or not an airport can execute that risk-based approach within a timeline laid out by the DHS Appropriations Act remains to be seen, he says.

Victor Parker, acting branch chief of air cargo security policy with the Transportation Security Administration (TSA), provided an overview of some of TSA’s plans regarding air cargo security. According to Parker, TSA is looking at a “layered approach to air cargo screening that denies terrorists an opportunity to exploit the system, by using an optimal combination of information and technology.” Parker stresses that it’s important to work with air cargo carriers and technology partners to create a secure air cargo environment.

Parker says that one of TSA’s biggest concerns is stowaways in the cargo hold taking over the plane to use it as a weapon.

TSA is currently conducting random and risk-based targeting, through standard operating procedures, to identify high-risk cargo that requires secondary screening, Parker says. One particular red flag he references is cash payment for cargo services.

Screening Checkpoints
When it comes to TSA’s game plan for identifying and deploying new technologies, Mike Golden, assistant administrator for operational process and technology, chief information officer and chief technology officer with TSA says that one of the biggest existing technologies is the new liquid bottle detector, termed FIDO. Golden states that as a result of nimble, flexible technologies, passenger screening “is no longer the box in the corner.” The 2.5-pound, handheld liquid detection system has been a part of a pilot testing program at six major airports — the most recent test was conducted at Logan International Airport.

According to TSA deputy assistant administrator of operational process and technology Adam Tsao, the idea for the liquid explosives detector came from the war effort in Iraq and has been retrofitted for industry’s needs. The detection system has low false alarm rates, is user friendly, and has no installation cost.

Screening checkpoint technologies, a hot topic at AAAE this year, was addressed at length by Tsao. According to Tsao, TSA has been adopting common practices since 2001, based on the department’s knowledge of legacy systems. Some of those common practices, however, began in the ‘60s and are no longer relevant, he says.

TSA is reevaluating checkpoints to come up with an entirely new model rather than suffer from “gadget envy” — implementing new technologies as they come out versus having a long-term agenda, he says. According to Tsao, TSA is looking for systems that are cost-effective, have a stable hardware platform as well as an open platform for future development, and drive down costs while driving up throughput.

Patricia Krall, vice president of business development with L-3 Communications Security and Detection Systems, presented a millimeter wave threat detection system that scans a passenger in three seconds and shows the operator where objects are/may be located.

Another checkpoint screening alternative came from Steve Pelham, director of U.S. sales for Reveal Imaging Technologies. According to Pelham, Reveal’s Fusion 4D is a combination of high-resolution 2D and 3D volumetric imaging capable of inspecting over 400 bags per hour. By this fall, Pelham expects the system will be up to 200-plus BPH. He says the Fusion 4D eliminates subjectivity at the checkpoint by removing the operator from the equation — the machine’s automated detection system alerts the operator who can then analyze the bag contents for weapons, explosives, or prohibited items. The helical scan system provides six different views of an item on the belt, making sure the belt is always moving forward and that laptops don’t have to be removed from bags.

Meanwhile, Tsao reports that early results from the backscatter pilot at Phoenix Sky Harbor International Airport have indicated that TSA “is seeing a tremendous amount of public acceptance.” When offered the option between the pat down and the backscatter scan, 75 percent of passengers have chosen the backscatter.

Tsao says TSA is also looking to take over document checking which will provide TSA another chance to look for hostile intent, Tsao says. As a part of the Screening Passengers by Observation Technique (SPOT) program, document checking will present a new point of contact for interacting with passengers, he says. The SPOT program consists of screeners, trained in the program, who stand among airport passengers and scan the crowd, looking for telltale signs of hostile behavior, Tsao says.

Adds Amy Kudwa of TSA’s public affairs department, “Part of the (SPOT) process is to engage somebody in a casual conversation and see if they’re stressed because they’re going to their father’s funeral or because they’ve got something strapped to their body.”