Opportunity of a Generation

It is anticipated by many that 2007 will provide a watershed moment for the U.S. aviation industry. Everything is on the table: funding; the taxing structure; modernization of the air traffic control system. The leadership of Airports Council International-North America, at its annual fall meeting held here, positioned the current battle in Washington as the 'opportunity of a generation.' The incoming ACI-NA chair Frederick 'Rick' J. Piccolo, A.A.E. agrees. Of course, there are other on-airport issues as well. Airport Business sat with Piccolo during the ACI-NA meeting to get his insights on issues facing the industry.

Piccolo is president and CEO of the Sarasota Bradenton International Airport, which is operated by the Sarasota Manatee Airport Authority. To some, his airport is a microcosm of the market forces of the past decade — a dramatic decline in airline service, subsequently followed by a vigorous air service development campaign; and, a dramatic growth in business aviation. The air service initiative was helped by a grant from the Small Community Air Service Development (SCASD) program — Piccolo says his airport is the 'poster child' for how that program can be successful.

Following is an edited transcript of our interview ...

Airport Business: Would you relate the experience you've had at Sarasota in getting air service?

Piccolo: We were seeing a downturn in air service [after] 2000, partially related to the recession starting then, but more to the emergence of low-cost carriers. When you look at Florida as a dynamic, Southwest and AirTran really didn't enter the market in a big way until around 1995. It took about five years for that to begin affecting a lot of smaller airports in the region, as they consolidated at the bigger hubs. Tampa was bleeding a lot of traffic from us. Then 9/11 happened; that just exacerbated it.
It continued that way until we got the Small Community Air Service grant in 2004 and AirTran came in.

AB: Was that grant specifically targeted at marketing assistance?

Piccolo: No. It was a $1.5 million grant that was all a revenue guarantee for AirTran. The airport and the two counties combined to put up $1 million in advertising support. The airport put in $500,000 and each county $250,000. That really was the rebirth of the airport.

AirTran came in and was very successful. That spurred others to compete, both from a service standpoint and a pricing standpoint. Now, U.S. Airways has applied for a slot to DCA; JetBlue started service. Last year we had an 18 percent increase in passenger traffic. This year we're up 5-6 percent [though] the cutbacks that Delta has made in Florida have affected us.

AB: Of course, the SCASD program is all about attaining sustainable air service.

Piccolo: There have been ones where people have been skeptical because they say that when the grant goes away the air service goes away, which happens. I didn't feel that would happen in our case — the bleed that we had was about 1.6 million passengers to Tampa. If you capture a third of that bleed, that's a tremendous amount of traffic increase.

AB: Last spring, a level of interest meeting was held in Sarasota for airports that were looking at providing ground services, particularly as it relates to air service. Out of that meeting grew AAAE's new ground services association. Can you talk about those issues?

Piccolo: One of the issues that smaller airports face with air service is the ground handling issue. Either there's not enough business [or] you have a couple of ground handlers [but don't] have a critical mass where they can spread out the costs. You put these incentive packages together and [the airlines] say, your incentive package and your market are good, but your ground handling costs are so high that it tips that scale and I can't do the service.

There was enough interest generated that it was decided to put together a quick mini-conference to talk about it. That spurred more discussion. I don't think airports are saying we have to do it; but when you're stuck with no ground handler or its driving away traffic, we want to take a proactive role.

Airports were losing air service because they didn't have the ground handling there for the airline, or there was no level of competition that made it cost-effective. The other element of it, too, is that if the airport does it there's no profit motive, you can break even; and maybe you can make that part of your air service program. That cost factor becomes more palatable to the airlines.

AB: Did you ever look at it?

Piccolo: I've been at Sarasota eleven years. Before I was there some guys did a white paper on it for Sarasota. Nothing ever came of it. As we grow, it becomes less of a need.

AB: One issue with SCASD grants is that some have been awarded to airports so they can get into ground services. The National Air Transportation Association, in particular, has an issue with federal grants being used for what it sees as a private-sector service. Your thoughts?

Piccolo: I understand NATA's position. At the same time, you're facing these competing pressures as an airport director. One is your tenants want to be profitable and to be able to do their business. The other one is your community wants air service, and you're trying to look at every alternative to try and get it.

You can give an airline a set of pricing for your terminal, runway, landing fees, and all that. You're going to do certain fee waivers and marketing support to address the community's need for air service. Then, they say the problem is the ground handling services cost three times as much here as at airport 'X.' It's perfectly understandable for the airport to take a look at it. You also have the situation where if your ground handler leaves you're stuck.

You can't just say, well I've protected the principle of private enterprise but I don't have any business. Airports look at it primarily as trying to serve the community.

AB: What are your thoughts as we begin the serious debate on funding the system and ATC modernization?

Piccolo: Obviously, we think that with this reauthorization there's a real opportunity to set the tone for the next decade and make some changes that help everyone. PFCs [passenger facility charges] are a big part of our concern, and how do we get more flexibility? That program has been pretty successful in developing airport infrastructure. Preservation of the Airport Improvement Program is just as important.

We're doing a lot of analysis to create a model that can plug in different numbers for different taxes and proposals from ATA, airport groups, general aviation, and see what effect various proposals have on the system. If we lower one tax and increase another, what does that do to the system? And will it address the funding needs over the long term?

The question then becomes getting in a room with the other interest groups and seeing how we plug their proposals into the model. Then we can talk about the results.

There are ways to devise the funding mechanisms, at least from an airport perspective, so that all different categories can have their funding needs addressed in a fair manner. And I also think that we can find ways to address those for the users as well — the airlines and the business and general aviation aircraft.

We don't work in a vacuum. We recognize that there's a system of airports. If you take away funding from the non-commercial airports, and those airports can't function because they don't have the capital capability to stay safe, those airplanes don't go away. They just to go the commercial service airport.

AB: Any particular hot buttons for you as we look at funding?

Piccolo: I'd like to see a system of funding that affords AIP funding correctly and offers PFC flexibility and some increases. And, whether or not the air traffic system turns into some type of user fee set-up, it would not effect those. The problem now is if air traffic costs go up a lot they have to look at cuts somewhere else to make it up.

AB: You have two fixed base operators at Sarasota — Jones and Dolphin. How's that business?

Piccolo: We have a third one coming on line — Rectrix Aerodrome, which is going to be very high end. They're going to have an FBO and what they call 'hangarminiums.' It's a condominium set-up where the corporate aircraft owner owns the hangar and leases the land from Retrix, and Retrix provides the services. They're very large-span hangars, 20,000 and 30,000 square feet.

We've seen growth in the general aviation side, especially with the heavy metal aircraft. I think that's partially related to the growth in wealth in the region. Not only Retrix; Jones has leased another eight acres and Dolphin has built 12 large-span hangars in the last three years. We built 130 T-hangars.

AB: Regarding security, the liquids threat this August sent some people scrambling. Any long-term lessons here?

Piccolo: Most airport directors and FSDs get along and understand each other's issues. It's a matter of consultation and getting better discussion ahead of time [prior to new TSA rules], especially when they have specific threats. That's where it's more of a problem.

For example, the discussion about screening every employee every time. That would virtually bring the system to a standstill. It makes a nice soundbite. You can make the system 100 percent secure if you shut it down. We have to be careful that we don't take the system and destroy it.

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