Moving Past Air Service

Moving Past Air Service

Relying on air carrier revenues is no longer the option at Reno-Tahoe

John F. Infanger, Editorial Director

May 2000

RENO — One day, the newspaper tells of FedEx upgrading one of its three daily 727 flights with an A-310. A few days later, it talks of American Airlines pulling out 17 daily flights. Welcome to Reno-Tahoe International, where in a few days the daily paper can tell the story of how well the airport is faring. And in Reno, little at the airport misses the daily news.

Reno is Vegas in a bowl, with mountains visible on all sides. But it is more down home — more historic Nevada; and, it is getting quite high tech. A short distribution hop from the Silicon Valley to the west, Reno is catching the eye of those in the high-tech world of e-commerce.

Looking out over the bowl, it is easy to see how those who live in Reno make Reno their focal point, for one can almost touch the horizon in any direction. In the middle of this vista stands Reno-Tahoe International Airport. It cannot help but be news.

Krys T. Bart, A.A.E., executive director for the Airport Authority of Washoe County, sets this stage during an interview to share what she came to when she arrived from San Jose in 1999, just as American was buying out Reno Air. It was an airport market that had traditionally viewed air carrier service as the end-all. That, Bart recognized, needed to change, and as she looked around she saw opportunities.

Growing Emphasis on Cargo
The greatest opportunity, says Bart, lies with cargo, which already was making a significant economic impact with service by most major haulers. "Cargo was the one area that really was not focused on before I got here," she explains. "Traffic has been historically gambling people and tourist markets related to the gaming. A diversification of the economy has occurred, but there really wasn't a preparation or a recognition for the other kind of aviation support that was needed. This became real apparent when the concern arose over the American-Reno Air issue, because as they were taking flights down and we were losing significant revenue, there was a need to find ways to make up for it."

Bart and her staff have been moving aggressively to change that, and are redeveloping the cargo infrastructure at the airport to accommodate the movement of freight on both airside and landside.

Explains Patricia Ryan, manager of business development and property administration for the airport, "We're working to identify who is coming into the marketplace and how the market is changing. It's moving from the emphasis on gaming to more industrial distribution."

According to Bart, one of the dynamics taking place is what she terms the "Silicon Valley phenomenon" — the movement of high-tech companies from the San Francisco-San Jose Bay Area to Reno. Logistically, she says, Reno offers highway access via Interstate 80, rail, airport facilities (runway capability, weather, etc.), and a state tax structure that encourages new business. It also offers a quality of life she calls better than the West Coast, with ten-minute commutes, a lower cost of living, international ski resorts, golfing, and Lake Tahoe just to the west.

"Cargo is a natural for Reno for several reasons," says Bart. "Logistically speaking, Reno has easy access to the West Coast and the East.

"Nevada is one of the least expensive states in the country to operate warehouses and distribution centers. So, we have become a mecca of warehousing and distribution, particularly for e-commerce. Amazon.com's distribution headquarters is here; Barnes & Noble is under construction right now; Microsoft's licensing division is here; we have Cisco Systems and a number of smaller companies.

"We also have big pharmeceutical distribution facilities here. But the big push now is on e-commerce."

Cargo continues its upward trend at Reno-Tahoe, with a 13 percent increase recorded in February. On an annual basis, Bart projects the increase to be around 10 percent. A top initiative spearheaded by Bart during the past year has been to attract a U.S. Postal Service sorting hub here. However, neighbors who would be most impacted by the flight activity have orchestrated significant opposition, and as of this writing USPS had not made a final decision on whether to locate at Reno-Tahoe.

Says Bart, "Two characteristics we have in Reno are it's a 24-hour city and we have no curfews. I counted on those characteristics when I went to the Post Office. This is the right thing to do for this community and this airport. Having the Post Office hub here puts our distribution and warehousing on the same competitive edge as the East Coast operator because they gain three additional hours to get just-in-time packages delivered. It gives companies full advantage to compete using USPS. When you consider the competitive nature of e-commerce, it's a big advantage for the community.

"The benefit of cargo overall to to the passenger is really tremendous, and this has never really been explained to the community. When you look at cargo planes, they're using the same airfield, the same landing strip, but then don't use security, don't use the terminals. They don't use any of the distinctive infrastructure items that the passengers use and need."

Controlling Costs; Redeveloping Retail
Cargo utilization also impacts the fees Reno-Tahoe charges the passenger carriers, says Bart, which remains an ongoing consideration. And, of course, so does the success of the retail/concessions area of the terminal, which is in the early stages of redevelopment.

"Of the top 50 airports in this country," explains Bart, "Reno is the 49th lowest yielding; Las Vegas is 50th. Because of the type of passenger we get here, because of our low yields, it's absolutely critical that we do everything we can to keep costs down. Everything we can control we've got to control."

Since this is Nevada, there are slot machines in the terminal, which Bart says generate some $6 million annually, which is split with the carriers. "Our agreement with the airlines is, all the revenues from the slots, from concessions, from parking, are used to offset the terminal cost to the airlines. Any surplus is actually divided in half — 50 percent goes back to the airlines in the following years, credited against their landing fees.

"The other 50 percent goes into a special airport fund. That's how we finance the operation at Stead Airport (see sidebar)."

Redeveloping the terminal concessions area is a major task of Ryan, who is in negotiations with The Paradies Shops for redesign and expansion of its space. Host Marriott (now HMSHost) is the other major concessionaire; its contract expires in 2001 and is being readied for rebidding.

Says Ryan, "We're taking a look at the whole concessions program, level of service, and revenues generated. Right now, we're making $4.30 per enplaned passenger; our consultants tell us it should be more like $5.60. A major issue is to make sure the revenue is enhanced."

The Reno Stead Challenge 5,000 acres, very little water
Each year, Stead Airport just north of downtown Reno attracts thousands to the National Championship Air Races. An annual hot air balloon event is also held here. Yet, Reno Stead dips into the annual budget of the Airport Authority of Washoe County to the tune of $1.2 million. Officials have begun a development effort to turn Stead around financially and to make it a vibrant general aviation reliever.

The airport has some 5,000 acres available for development. A former military base, it has crosswind runways of 8,080x150-ft. and 7,600x150-ft. What is doesn't have is much water.

"This is the desert, and every drop of water is claimed by somebody (via water rights)," explains Skip Polak, recently reassigned here from Reno-Tahoe International to lead the turnaround at Stead. "Even if we had the water rights, we'd have to pay to get the infrastructure out here." One possibility, says one official, could be a teaming effort with a major water user, such as a power company.

Stead was recently considered for a "super proposal" project, and officials see other opportunities out there that could be a fit. Comments Patricia Ryan, manager of business development for Stead, "It would be an ideal place for an aircraft manufacturer and for aircraft specialty shops. We're in the embryonic stages of fully developing Stead."

Krys Bart, Reno-Tahoe airport director

Patricia Ryan heads up the development efforts for the Airport Authority of Washoe County. Her current focus is on redeveloping the retail/concessions area at Reno-Tahoe, and developing Stead Airport.

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