As airport officials prepare for the 77th Annual American Association of Airport Executives Conference and Exhibition to be held May 1-4 in Seattle, several issues dominate their thoughts. While issues vary for large and small airports and different regions, there are commonalities. Among them: security, the health of the airlines that service their communities, attracting and retaining air service, and possible federal funding cuts. AIRPORT BUSINESS recently spoke with airport directors across the country to discuss issues facing the industry.
While Steve Wareham, airport director, Metropolitan Airports Commission (St. Paul/Minneapolis International Airport), says he hasn't "heard weeping and wailing" over the possible funding cuts, there is concern in the industry.
"The industry is very aggressive and looking toward airports to keep our costs as contained as possible," says Wareham. "We at MSP have had a good history of low costs to carriers, but it's never good enough - never was and never will be."
Minneapolis/St. Paul has also been successful in keeping costs down to carriers while also growing and improving facilities, he says. In fact, the airport is nearing the end of a $3.1 billion expansion program encouraged by its major carrier, Northwest Airlines.
"Cautious recovery" is the way Wareham describes the overall mood of the industry. He explains passenger traffic has come back a bit ahead of projections; and while the recovery has been better for the airports than the airlines, the airlines directly benefit from the success of the airports.
Regarding general aviation, the Minneapolis/St. Paul region saw some 800,000 GA movements in 2004, according to Wareham. "Recreational traffic is down," he says, "but business traffic is up."
One issue which Wareham says airports need to watch in the coming years is the aging population. "At a recent peer review, someone said there are about 12 million people above the age of 65 that are classified as active air travelers," he explains. "As the baby boom generation grows and ages, they're oriented to travel. And when they retire, more people will be traveling in conditions where airlines and airports have to provide extra accommodations." Wareham says these extras could include more wayfinding assistance and special health considerations, including oxygen.
Like Minneapolis/St. Paul, Akron-Canton International Airport has been on a growth pattern, according to director Fred Krum, C.M. "We're incredibly busy here," he relates. "We've received a lot of new airline service in the last year and we're handling the growth from the facilities side." Most recently, the airport announced service from Frontier Airlines.
Even though Akron-Canton is growing, Krum says the airport is mindful of the existing structure and the dollars being spent on new facilities. "We're not building cathedrals," he says. "We're building usable, long-lasting space. And, we're still using space that was built here 43 years ago; we're making use of the existing terminal as we expand. It's not pie in the sky type stuff; it's very usable, but nice. We're not building any monuments here and we don't want to. We're more into 15-foot high ceilings than 50-foot high ceilings."
Krum attributes much of the growth Akron-Canton has experienced to the entrance of AirTran. "They have been at the forefront of most of our growth," he says. "We're lucky to have an LCC (low-cost carrier) that we could grow with." He points out that the majority of airports experiencing growth are doing so because airlines like AirTran, JetBlue, Southwest, and Frontier have entered the market.
With the announcement of service from Frontier, Krum says the airport will not be recruiting any other carriers anytime soon. "We don't have the need for another airline here, period," he says. "We have six carriers and we believe we've got all the bases covered."
Krum adds that the airport is "always talking to incumbents" regarding new routes, and he is hopeful that in the fall some will be announced. "We've had a lot of new routes added here," he says. "There are a few more we could get in the future, but that rate is going to slow down."
Krum forecasts "tremendous change" in the next few years with the airline landscape. "There's going to be winners and losers," he says. "I don't know who each will be. The good news is 650 million people want to fly somewhere and there are going to be airlines and airports to serve them. We just have to keep doing all the things necessary to make sure that we fill up the planes here so they're flying out of this airport."
The wild card of the industry, says Krum, is fuel. "That's a real storm that there doesn't seem to be a solution for." He adds that the airline industry has been amazingly flexible and creative in dealing with the rising cost of fuel on top of the recession and 9/11. "All the carriers should be commended for working incredibly hard to keep their heads above water."
And, while low fares have been good for Akron-Canton, Krum admits they have not necessarily been good for the airlines. "Hopefully some pricing power comes back to the airlines. It seems like we [could] a little more for ticket price because of [rising] fuel prices."
Krum says the airport has done what it can to assist the airlines through these turbulent times, including keeping the cost per passenger low at $2.50, purchasing bridges for airline use, and serving as the marketing arm of the airlines that serve the airport.
In spite of the success his airport has seen in recent years, Krum says he "takes nothing for granted" in this dynamic industry.
Says Mark Reis, managing director for the Seattle-Tacoma International Airport, "Certainly congestion is back and is a major issue for airports to deal with. However, it's not that important here because we're not seeing huge increases in operations - enplanements are up though."
In 2004, Seattle-Tacoma's enplanements were up 1.5 percent from 2000; and 7.5 percent higher than 2003. However, operations were down 19.5 percent over 2000. "Here we're seeing an upgauging of aircraft and higher load factors," Reis explains.
Reis says a major challenge for his airport has been in finding the "right balance" between the airport's responsibility for capacity and customer service, and the financial concerns of the airlines. "We were in as difficult a position as any airport in terms of where our capital program was with 9/11 and the recession. We had major parts of a development program that needed to proceed. As a result, we were anticipating an increase in the cost per enplaned passenger."
To find the right balance, Reis's team has had to cut future projections, limit operating growth costs, and cut back on more discretionary elements of the capital program. "Airport managers have to evaluate what are the absolute necessities in terms of capital programs and security, that are key to that airport providing their community with the services and capacity necessary to meet the community's needs," he adds. "Be open to thinking outside the box for how one does that."
For SEA, thinking outside the box was "finding a different way to structure finances so we could reduce requirements of airline securities," says Reis.
According to Reis, the airport has been working closely with TSA and its airlines to also find the right balance between security and customer service. "Due to reconstructed security checkpoints, we've been able to reduce the lines that we used to have here at passenger checkpoints." SEA was one of only a handful of airports to receive a Letter of Intent from TSA to build an in-line baggage screening system. "As that has come on line," says Reis, "that has assisted in reducing hassles."
Reis says he and the industry are concerned about the long-term sustainability of the federal funding structure, particularly in light of the President's proposed $600 million decrease in AIP. "FAA needs to make investments in their facilities and equipment," says Reis. "And whether there is enough money in federal budgets in the next years is a big question ... this is exactly the time when airports are trying to avoid pushing too many costs onto airlines because of their financial difficulties. A lot of airports have deferred improvements to avoid affecting the airlines too much, but as traffic comes back, they're going to have to make improvements."
Concerns in Columbus
Elaine Roberts, A.A.E., head of the Columbus Regional Airport Authority, agrees that the administration's budget proposal will be among the most discussed topics at AAAE in Seattle. "AIP takes the fifth largest cut in the President's budget," she says. "There's going to be discussion about the need to recover some of those cuts, and the future of the trust fund. Taxes are not going into the trust fund at the same level and we'll be completely without reserve in a short couple of years if something doesn't change."
She says that the budget proposal is "pretty dampening" on the mood of the industry. "It sets a sobering tone. We've had great success in recent years with legislative efforts ... We were getting too comfortable and now we're getting challenged. With regard to AIP in particular, that could be a big impact to airports smaller than Columbus - those that rely on AIP will be impacted the most."
Roberts also says that the economics of the airlines are a concern to airports. "Fuel costs are not going down," she says. "We're seeing rising fuel costs and carriers are struggling to survive. There's a lot of discussion about mergers or consolidation in the industry ... discussion of reducing the number of traditional hubs; some hubs de-peaking. What that means for hub airports and for some of the smaller airports trying to retain good air service will be a continuing concern."
Port of Columbus is still recovering from America West's downsizing of its mini-hub, says Roberts. "We are pleased to say that in 2004 we were back to even passenger numbers," she says. The airport lost some 25 percent of its scheduled departures following America West's decision. Carriers like Delta Air Lines and Southwest have gradually added flights since then to bring the airport back to where it had been. "That put us behind the normal recovery other airports have been in post-9/11," says Roberts. "We're still playing catch up, but we're in better shape than a number of other airports because of our diverse carrier mix. Our largest carrier has only 22 percent of the market."
Following the America West announcement, Columbus implemented an immediate hiring freeze, only filling critical positions, and also put capital improvements on hold. "We're partners with the airlines, we've got to tighten the belt as well."
Roberts says the airport has an incentive plan to attract carriers and encourage new routes. The plan includes a waiver of landing fees and gate fees for new carriers and underserved routes. She adds that the industry is seeing a lot more aggressive and creative incentive plans to attract carriers, including "cities and communities stepping up and saying they'll guarantee the market or the route from that city. I'm not sure that's always the smartest thing ... but even if the market isn't strong enough to hold the service, at least they gave it a shot. It's definitely a tough challenge and smaller communities are going to be pressed to try those kinds of things."
Columbus has a good relationship with its federal security director and TSA employees, says Roberts, and the level of service is "generally pretty good. Our concern, like other airports, is there doesn't seem to be an appetite by TSA or even Congress to put money into having airports go to in-line systems. They've taken care of a few large airports with LOIs and now they're on to other things." Roberts adds that some members of Congress believe too much focus has been put on air transportation and it's time to shift some of that toward other modes of transportation, with the attitude that "airports can fund themselves."
"Some airports went ahead, for various reasons, with their own systems," says Roberts. "Unfortunately, I think Congress is going to use those examples against us."
Roberts says the federal government should absolutely pay for security enhancements at airports. "This is a national security concern, not just an airport concern." She adds that increasing the security tax on passengers is not the solution because "it's just going to exasperate the airline situation."
Overall, Roberts says, "these are challenging times. There will be major changes on the airlines' side that will affect airports. We need to be very flexible and look for partnerships, ways to work with airlines, and in our case, other modes of transportation to help achieve our goals."
Non-aviation revenue aids El Paso
Pat Abeln, A.A.E., El Paso International Airport's director of aviation, agrees that in terms of the airlines, the economics of the industry are "terrible. All of us are just waiting for a shoe to fall - which airline goes into bankruptcy and disappears."
Abeln also shares Krum's sentiments that airlines need to have more pricing power in order to absorb the rising cost of fuel. "... Airlines are flying around on today's fuel [prices] and flying you on tickets sold weeks or months ago."
The toughest part of the economic hardship, says Abeln, is the human aspect. "There's no one who is not afraid they won't be laid off or have to lay off people. Seeing employees that you work with every day who are concerned about pensions, their jobs; what it does to them emotionally to lay off their workforce. That's a tough environment."
El Paso is in a better position than most airports because it benefits from strong non-aviation revenue, says Abeln. An eighth on-airport hotel will open soon; some 12 percent of all hotel rooms in El Paso are on-airport, accounting for some $2 million annually for the airport.
There's no question for Abeln that the President's proposed AIP reduction will affect El Paso. "We haven't even begun to forecast what will happen," he says. "We have a CIP (Capital Improvement Program) that's conceptual through 2014. When we do our financial projections, we assume AIP levels commensurate to what we've received over the last few years. We need to revisit the CIP. It's a huge concern for us."