AAAE Follow-Up
Capacity An Issue For Airlines, Too
While airport managers worry about future capacity needs, airlines seek to reduce seats
By John F. Infanger
August 2004
LAS VEGAS — The biggest buzz at this year’s annual Conference & Expositionof the American Association of Airport Executives in June centeredaround the highly anticipated opt-out guidelines from the TransportationSecurity Administration (see page 30), which proved a disappointing work in progress. The other top concern among many airports is long-term capacity at their facilities and in the nationwide system; yet, the heads of two airlines told directors that the carriers are more concerned about an overabundance of available seats flying, which is making the prospect of profitability a challenge.
At a couple of the other more interesting sessions at this year’s show, airports were also advised on how to survive in an era of airline bankruptcies and the TSA and cargo security reps addressed what is being done to ensure freight is secured prior to being put on board aircraft — airliners and dedicated freighters (see page 33).
During separate luncheon addresses, America West Airlines’ CEO Doug Parker and Frontier Airlines’ CEO Jeff Potter told attendees that the two greatest challenges for carriers today is the rising and volatile price of jet fuel and an over-capacity in the system, despite the number of airliners that have been taken out of service since 2001.
According to Parker, the rise in jet fuel prices will cost his airline an additional $100 million more in 2004 than in 2003. And both he and Potter express frustration that the carriers have been unsuccessful in passing along those jet fuel price increases to passengers because of the highly competitive nature of an industry with too many seats.
Frontier’s Potter explains that his airline was paying 20 cents more per gallon of jet-A in June versus March, equating to an increase in costs of some $30 million.
In the next three to five years, predicts Parker, the legacy carriers will shrink rather than any particular majors disappearing entirely. He also projects that during that period the low-fare carriers will grow to represent almost 50 percent of U.S. airline capacity.
Meanwhile, Parker had some very direct advice for airport directors, including a call for airports to go through serious cost-cutting initiatives similar to what air carriers have had to face in recent years. “Airports that will be the most successful will be those that are the most efficient,” he says.
ARINC—of Annapolis, MD, makes several announcements:
- It forms a partnership with GCR & Associates, Inc., of New Orleans and Real Time Engineering, Ltd. of Scotland, who will provide financial and management functions for ARINC’s AirVue Airport Enterprise Suite.
- ARINC, with The Vaisala Group, introduces an enhanced IP-capable version of its ForeWarn lightning warning system.
- It introduces the ARINC Wireless Interoperable Network Solution — AWINS — to assist emergency communications via a high-speed nationwide network; www.arinc.com.
FKI LOGISTEX—of St. Louis introduces three new products:
- CrisBag, a ultra-high-speed, high volume singulated baggage transport and sortation system;
- Durapush, an inverter-powered pusher designed for reliable, high-speed baggage sortation;
- UniSort Linera Belt Baggage sorter.
FKI also wins contracts at Jackson-ville Int’l (an RFID system) and Las Vegas McCarran Int’l (screening, sortation); www.fkilogistex.com.
G&T CONVEYOR—of Tavares, FL is awarded a contract by Sea-Tac Int’l for a 100 percent in-line baggage screening system.
INTRALOX—introduces the Series 400 Angled Roller Beltfor baggage handling systems; visit www.intralox.com.
OPTI-FI NETWORKS, LTD.—of Annapolis, MD is selected by Melbourne Int’l to provide wireless Internet access for five years; www.opti-fi.com.
Parker adds, “We shouldn’t be spending our money on mahogany floors” — a direct criticism of some airports that make terminal investments that attempt to present the airport as a community showcase.
Parker says he is concerned about open access to all airports for America West and other airlines. “We say that aviation is deregulated but it’s not,” he says. He applauds Las Vegas McCarran International for its installation of common use systems in its terminals, facilitating access.
Meanwhile, on the topic of commuities providing incentives to air carriers to attract service, Parker says he welcomes the practice as long as the incentives are extended to all carriers interested in that particular market. Provide incentives to other carriers in a market already served by America West, he says, and “we’ll pull out.”
The Impact of Airline Bankruptcies
On the issue of how air carrier bankruptcies affect airports and how
airports can adjust, attendees heard from Gerald P. Fitzgerald, A.A.E.,
the former aviation head for the Port Authority of New York & New
Jersey who recently formed his own consulting firm, Aviation Perspectives
LLC, and Col. (retired) Leonard Griggs, the director of St. Louis Lambert
International Airport and the former head of airports for FAA.
Impacts of the airline bankruptcies, says Fitzgerald, include:
- It negates the benefits of long-term agreements;
- In the case of United Airlines, the air carrier walked away from special facilities bonds it had committed to, leading the airports to find new ways to finance such facilities;
- Airlines are rethinking their agreements with airports and today seek the ability to walk away, if necessary; as a result, three-year agreements may be considered long in today’s marketplace.
At the same time, says Fitzgerald, a new set of market forces are occurring that mean the airline-airport relationships “have to change.” These forces include more point to point routes by carriers; a changing role for hub airports; the influence of regionals; pricing strategies by airlines; and, the increasing impact of costs due to security and fuel.
Fitzgerald says that while no one can precisely predict the new model relationship between airports and the carriers, there is pressure from the airlines for airports to rethink their financial models. Everything else is changing, say the carriers, so airports need to change as well, according to Fitzgerald. “That’s why compensatory and residual just don’t make it anymore,” he says.
“The insistence by airlines for short-term agreements changes the dialog entirely.”
This new evolving model will demand the broad implementation of common use gates and check-in areas, he says. In turn, that is forcing terminal design criteria to change as well. Some of the other changes that are coming include:
- A changed approach to financing terminal expansion — decide to build and fund the expansion because the demand is there, even though there is not a dedicated carrier committed to the move.
- Engage the local developer community for new capital for expansions.
- Airports will manage receivables every 15 days, not being paid by check but via wire transfer.
- A new era of risk management for airports in which a risk plan is strategized and the performance monitored.
- And, a new approach to passenger charges. Fitzgerald says some airports today are looking at possibly eliminating all charges to airlines and reformulating those charges into a passenger fee.
Meanwhile, Col. Griggs, representing what could be the poster child for airports dealing with carrier bankruptcies, talked about what St. Louis Lambert is doing after American Airlines drastically reduced its presence there. St. Louis endured three bankruptcies by TWA before American merged with the carrier; however, in November 2003, American dropped its traffic there by 51 percent.
Griggs recalls that the third time TWA filed for Chapter 11 bankruptcy protection, the airport joined the creditors’ committee. “This is something I’d recommend if you’re facing this issue,” he says.
After the two carriers merged, he says, American did pay “every dime” the airport was owed by TWA and continues to pay all charges related to all gates under its lease agreement, which expires in 2005.
Griggs says the hardest reality he and his staff had to face after American’s recent pullback was cutting the staff by 25 percent, at a time when St. Louis Lambert is undergoing a major redevelopment.
One significant development, he says, was that his airport became the first ever to have a letter of intent amended, with the airport receiving an additional $85 million from FAA. That sends a message, he says, that if the federal government supports an airport’s project it “won’t cut and run.”
Following unsuccessful efforts by airports at Naples, FL andBurbank, CA, to use FAR Part 161 studies to control noise, Morristown (NJ) Airport is funding an initiative to seek relief from Congress for restricting the activity of Stage 1 and 2 aircraft under 75,000 pounds.
Officially titled “Sound Initiative - A Coalition for Quieter Skies,” the campaign received its seed money from the Morristown Airport, according to “campaign coordinator” John Lindemann. The Morristown Airport director is Bill Barkhauer, who was named the new AAAE chair in Las Vegas.
According to the coalition’s initial press release, “Evidence shows that an inordinate percentage of noise complaints at airports across the country are caused by aircraft Congress exempted from the Airport Noise and Capacity Act of 1990. While the business aircraft fleet was comprised of a much larger portion of Stage 1 and 2 aircraft and the exemption was warranted more than a decade ago, their numbers have dwindled as advanced technology has created more efficient, quieter aircraft. Today, although Stage 1 and 2 aircraft under 75,000 pounds account for only a minor percentage of the business-use fleet, some estimates indicate about 8 percent, they account for 50 to 75 percent of the noise complaints at several airports.”
Sound Initiative representatives held their first official organizational meeting at this year’s AAAE convention. For more information, visit www.soundinitiative.org or email [email protected].
