Anchorage: Air Crossroads of the World

Historically, Anchorage has been plagued by misconceptions and stereotypes of a cold, dark terrain consisting of igloos and dog sleds. Homer once dubbed it “the end of the road.” Increased tourism has halted those perceptions and Anchorage is now known as the “City of Lights and Flowers”, a bustling city with a formidable backdrop of glaciers and mountains. Because of its strategic geographical location, the Ted Stevens Anchorage International Airport, serving 46 airlines, 10 charters and 25 international all-cargo operators, is home to the second largest US cargo airport (behind Memphis) and is an ideal gateway to major international.

In March of this year, according to Transportation Department spokesman Bill Mosley, in an agreement to increase airlifts to China each year through 2010, the US Department of Transportation (USDOT) upped the number of cargo flights to China, 60 of which will pass through Anchorage.

The Players

Of the 25 international all-cargo operators the airport supports, the largest are Federal Express and United Parcel Service. FedEx and UPS operate major hubs at Anchorage International for cargo heading to and from the Far East, accounting for more than 16 percent of the cargo handled. FedEx’s hub serves as its portal to Asia with 302,065 sq. ft. in warehouse space, an 80,000 ft. hangar, handling as many as 13,400 packages per hour, employing more than 1,200 people and providing a full customs clearance system. UPS’s hub handles about 5,000 parcels per hour. Both companies forecast a large growth in traffic over the next several years as trade with China and other Far East countries increases, and both plan to expand their Anchorage facilities comparatively. In fact, FedEx, UPS and Northwest have begun flying dozens more flights per week to China as a result of the aviation agreement, and Polar Air Cargo significantly increased its cargo sort at Anchorage as a result of its new frequencies to Japan and next year expects to have 12 scheduled flights to China.

The United States Postal Service also operates a large hub in Anchorage for mail and parcels headed to Alaskan destinations. United Airlines selected Anchorage as its primary pacific hub for its Asia/North America international freighter service. Alaska Airlines constructed an $8 million freight facility. Some of the other major players for ground and cargo handling at the airport include Swissport USA, Inc., Delta Global Services, Evergreen International Airlines and Pegasus Aircraft, an aircraft service company that handles much of the line maintenance and de-icing services for the cargo operators.

The Master Plan

Landings by cargo aircraft rose to an all time high during fiscal year 1996 and it was a November 1996 ruling by the USDOT in response to an application from the State of Alaska that granted expanded cargo transfer authorities for foreign carriers transiting the state. The airport continues to lobby USDOT on appropriate issues on an ongoing basis to the benefit of all its international carriers.

According to Morton V. Plumb, Jr., airport director, “the airport’s master plan is based on the growth patterns they see as well as using the FAA forecast … and they have had ‘several master plans in the last couple of years.’

“In 1998 we did a terminal master plan as we got ready to build a new terminal and then we did a cargo master plan which was expanded and published in 2003 … and we are currently in the midst of finalizing the general aviation plan,” Plumb says. Presently, the airport is in the process of selecting a consultant for doing a full airport master plan which will amount to approximately $2 million over the next two years and will be updated at the end of three years. It will call for the North Air Park to be all cargo. The west side of the airport is yet to be developed as well and Plumb states “is clearly a prime location and choice land.”

The investment from third party developers such as UPS and FedEx is nearly $121 million of the ongoing operations. FedEx is planning on a $30 million contribution of that in anticipation of the A380; $27 million of that will go for aprons and $3 million to additional investments. FedEx has informed the airport that Anchorage and Memphis will be the first two airports in the United States that the A380 operates.

“We are putting in three spots, two of those will be A380 and that cost is going to be around $13 million,” Plumb says. “Just yesterday, after talking to UPS, it looks like they’re going to put in an additional $25 to $30 million. So again we have apron works going on but there’s a great deal of private investment going on here.” The largest investment for the airport is going into a location labeled the “postmark development area.” Alaska Global Logistics and Development (AGLAD) is going to put in nine spots estimated at $55 million.

Unlike any other large airport in the United States, Ted Stevens International Airport’s competition is global and the important factor is the payload versus range equation. “For example,” Plumb says, “if you are flying from Oakland to Shanghai, that’s approximately 6,103 miles carrying 65,000 kilos. If you stop in Anchorage, its 6,157 which is 144 miles difference but you can carry 110,000 kilos; the difference being 45,000 kilos. At $2 a kilo, that’s $90,000 kilos four times a day with four aircraft departures. Multiply that times five times a week, 50 times a year and there is quite a savings.”

According to Plumb, the airport uses an econometric model and believes fuel prices will be stabilized and become competitively neutral. Of course the model does not factor in another horrific event such as 9/11. “Any of those things can happen, but this is a cyclical business,” Plumb says. “However, over the next five years we feel comfortable that 3 to 4 percent is a fair forecast of the increase in activity per year at this airport.”

The Future Bodes Well

China continues to grow. We are watching Japan come back now. So between both countries, Plumb believes business at the airport will continue to be very productive. And though it’s just a personal observation, he comments, “If things in China start to mature and prices go up, I think you’ll watch the labor market move south to Vietnam … [the market] is very strong and I think that’s been reflected when [the airport] went to the markets to sell our bonds and we got an upgrade from all three rating agencies. So that is not only our position; it appears the markets and the rating agencies have reflected this too.”

The airport has and will continue to make investments to capitalize on the globalization of aviation. “It’s our intent to remain competitive, let the airlines know about the efficiencies here and let them also capitalize on that,” Plumb says. “As a result of that, [the airlines] have committed to make investments here and they’re comfortable that we are fairly stable, and they’re going to be able to get a good return on investment and advertise their assets in the future.”

In a recent visit to the “state-of-the-art” cargo operations at Shanghai Pudong International Airport Cargo Terminal Co., Ltd (PACTL), Plumb observes, “[It] is a very unique way of doing it. I think the only ones that correspond to that mode of operation that I have seen personally in the U.S. is the integrators like FedEx and UPS.”

To speed up export cargo processing, PACTL is the first handling terminal to introduce dedicated warehouse space within its facilities to forwarding agents for palletizing, which is equipped and supervised by PACTL, providing the same security, safety and handling equipment for cargo acceptance and build up. “[PACTL] literally handles all the customs brokerage, storage, quarantine, hazmat … they do it all,” Plumb says. “It’s a huge operation—as a matter of fact, at the conference I attended, which was the Payload Asia Conference, Ron Mathison, director and general manager of Cargo Cathay Pacific, indicated that the combined airports at Shanghai would in fact surpass Hong Kong in total tonnage in about 10 years.”

In the future, Plumb feels the more economies of scale are understood and the more we continue to see consolidation in the freight forwarding business, the more we will see a consolidation and an efficiency of vertical integration.

Bottom line—Ted Steven’s Anchorage International Airport prides itself on being tenant-friendly and having opportunities to compete fairly at very reasonable rates, not only for those already doing business there but for new entrants who should observe the new traffic and determine whether or not they want to “get into the market.”