Engaging Economics

As the main tenant for many airports, the financial challenges airlines have experienced in recent years have caused airports to reevaluate their business models.

A session covering the state of the industry, airline economics, and airport growth opens this two-day event. David Treitel, chairman and CEO of consulting firm SH&E, Inc., James May, president and CEO, Air Transport Association, along with ACI-NA president David Plavin address the struggles both airlines and airports have faced in recent years.

As the main tenant for many airports, the financial challenges airlines have experienced in recent years have caused airports to reevaluate their business models. And while airlines seek to reduce personnel costs and oil costs continue to climb, Treitel says even with restructuring, "legacy carriers have done virtually nothing to close the cost gap" between them and low-cost carriers. "Restructuring is not effective. Labor costs, even after bankruptcy, are still out of line."

He adds that low-cost carriers are growing, a fact that only highlights the cost differential. "Low-cost carrier penetration will continue because low-cost carriers can buy aircraft, legacies cannot." Treitel expects that "within a few years" low-cost carriers will represent half of the airline industry.

Looking at the finances of some of the major carriers, Treitel says the cost of fuel cannot be blamed entirely for the tough economic times. "It didn't matter at Delta or United and it didn't have an impact on the industry as a whole. [Pension elimination and wage cuts] simply were not enough to create a vibrant industry."

However, James May, president and CEO, Air Transport Association, does not discount the impact of oil prices on the airlines and expects another "one or two bankruptcies in the next year if oil remains high."

What will help the airlines, says Treitel, is deploying their "$50 million assets [planes and pilots] more intensively."

Treitel speculates that upstart Independence Air "is probably not going to make it to the end of the year."

Broken Economic, Security Models

David Plavin, president, ACI-NA, says, "We talk about how the airlines have problems. The truth of the matter is the whole [aviation] system is broken."

Plavin says there is a good deal of talk about partnerships in the industry between security and airports. "I would suggest," he says, "that there hasn't been much partnership, except they'll [TSA] call us before they make a public announcement about something."

He adds that airports are not going to see the federal government "step up to the plate with what they need to do" regarding security.

"The federal government is a bad partner," says Plavin. "They start out by telling you they're in charge, they take over the system, and they don't fund it adequately."

Says Plavin, "The system is remarkable in that it works at all... There's got to be a better way."

Security's Impact on Concessions

Bill Anton, chairman and founder of Anton Airfood, Inc., says the discrepancies in security procedures from airport to airport have been challenging for his business. For example, he says, some airports allow restaurants to supply patrons with knives, others allow knives on chains, and yet others don't allow knives at all.

Varying delivery procedures and inconsistency in badging employees for SIDA (security identification display area) access are also causing hassles for airport retailers. Anton says the time it takes for new employees to receive badges "ranges from right away at some airports to ten to 12 days at others."

The question of whether travelers can leave their bags unattended while serving themselves at restaurant buffets is under review by TSA, he adds.

"It's not all gloom and doom," says Anton. "The TSA workers take a lot of breaks" and frequent his properties.

At Fort Lauderdale-Hollywood International Airport, Bryan Malinowski, airport properties manager of the Broward County Aviation Department, and Brian Bowdish, CA One Services, say even a menial task like taking out the trash is a hassle; airside deliveries can be delayed up to 45 minutes at times. "It all leads to a financial impact on the retail provider," says Bowdish.

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