New International Centre is the first step in an aggressive plan to expand import/export services
BY John Boyce, contributing editor
DFW AIRPORT, TX — What at first glance appeared to be a culmination was in fact a beginning for Dallas-Fort Worth International Airport. The 25-year old facility that sits on 18,000 acres of prairie land midway between Fort Worth and Dallas recently opened the brand-new 205,000-square foot International Air Cargo Centre with major tenants already in place.
During the ceremonial opening and reception to celebrate Lufthansa Air Cargo's occupancy of 50,000 square feet of the Centre, D/FW officials explained that the new facility is only the first step in an aggressive plan to become the air cargo airport of choice in the U.S.
Ground has already been broken on a new 223,000 square foot air cargo terminal just across the street from the new Centre and the airport has dedicated some 2,000 acres to expanding air cargo facilities in the next decade or so. All current cargo facilities sit on approximately 500 acres and measure more than 2.3 million square feet in capacity. To give these numbers some perspective as did Emir Pineda, D/FW's manager of cargo and trade development, Miami International Airport's entire property is 3,200 acres.
"We do just short of 900,000 tons of cargo and just over 60 million passengers a year," says D/FW's executive director Jeffrey Fegan. "D/FW will always be a major air passenger hub facility, but we are seeing a dramatic change in our air cargo position. In fact, while 900,000 tons is a tremendous amount of cargo, we're actually forecasting in the next 15 years for that number to double.
"We think we have a lot to offer in terms of runway and apron or raw land capacity to build facilities. We do not have any constraints and, from a geography standpoint, we're in a great position. We're on major trade routes between Asia and Central and South America, Europe and Central and South America, and between Mexico and Canada. There's a lot of opportunity. We feel very strongly about the future of cargo at D/FW airport." Fegan explains further that D/FW probably has 50 years worth of cargo growth. "We probably have enough land with taxiway access to quadruple our cargo facilities," he says.
Plans for the expansion of air cargo at the world's third busiest passenger airport began to take shape about four years ago when Fegan and his management team, plus some airport developers such as Trammel Crow Company, identified a growing need for additional cargo facilities. The numbers in the past few years bear out the need. In 1997, air cargo at DFW grew a dramatic 20 percent over the previous year. That was followed by an eight percent increase in 1998. This year to date, according to D/FW's first deputy executive director Kevin Cox, "In all cargo service we're up an astounding 56 percent. The fact of the matter is that cargo really is taking off at D/FW airport, if you'll excuse the pun."
INVESTING TO GROW
Some two years ago D/FW let the contract for the new air cargo terminal. A team of Trammel Crow and AMB Property Corporation were selected to build the Centre.
"They put together a plan to build this facility," Fegan says, "as well as a plan to continue to expand the facility to the south. It looked real good to us even though they didn't have a tenant at the time. We went ahead and invested a million and a half dollars or so of our money to build the roads and utilities and to extend the infrastructure. They (Trammel Crow) basically built the rest and paid for it."
Trammel Crow had previously built cargo and freight-related facilities but "this is the first ramp-served, with in-ramp hydrant fueling, cargo facility we have built," says Steven Bradford, vice president. The airport leased the ground to Trammel Crow for 40 years. The developer then built the building and leases it. In effect, Trammel Crow owns the building for 40 years but after that lease expires, D/FW takes ownership of the facility.
It didn't take long for Trammel Crow to find a tenant for the new building. Before the building foundation was poured, Challenge Air, an air freight carrier which specialized in importing flowers from Central and South America through Miami, signed a lease on the entire building. Challenge Air asked for modifications to the building to include 40,000 square feet of refrigerated space for its flowers and a nearby fumigation facility.
Before that deal was closed, Fegan had already considered the import of perishable goods from Latin America, particularly flowers, as a natural for D/FW. "Miami has a tremendous presence (in perishable cargo)," Fegan says, "but we are in the central part of the U.S. and trucking travel time from here to virtually the entire country, but particularly the Western U.S., is 48 hours. We save two days (travel from Miami) on a flower, which is probably 20 percent of the shelf life of the product and I think Challenge thought the same."
However, a short time after its flower business became operational at D/FW, Challenge got an offer it would not refuse from United Parcel Service. "I'm not sure how these things happen," Fegan says, "but UPS, I think, was really coveting the routes that Challenge had so they bought the whole thing. By buying the routes they're basically trying to buy access to South America."
That put Challenge out of the flower import business, but the company shifted its focus and maintained its lease on the Centre and does the ground handling inside the warehouse for the tenants.. It is now managing the facility and is the lessor to Lufthansa, Cargo Lux from Luxembourg. The U.S. Postal Service is also a tenant with the likely addition of Mexicana Airlines and China Airlines at some time in the near future.
CREATING A DEVELOPMENT DEPARTMENT
While building cargo facilities is the outward manifestation of D/FW's expansion plans, Fegan and his board of directors saw the need for a department devoted to the development of the airport as a whole with an emphasis on developing cargo operations. To that end, Fegan hired Joseph Lopano, a former airline executive, as managing director of Air Service Development and Pineda, an air cargo specialist who spent 10 years involved in the development of Miami International's air cargo operations.
"That department," Fegan says, "is really designed to understand the market, understand our customers. We talk about being the airport of choice, so we want to understand why airlines choose this airport, what we need to do as an organization to facilitate that. Emir, Joe, Kevin and myself travel all over the world talking to different airlines to tell the D/FW story. Of course, with our existing tenants, we're always looking for ways to help them grow."
Airport development is nothing if it doesn't have a large marketing component. D/FW's marketing strategy is three-pronged after the team identifies target markets through a strategic planning process in which markets are identified that "we think D/FW can sustain service from from a cargo and international and domestic standpoint," Lopano says.
"Once we develop our targets, our marketing plan is essentially in three parts. Number one is trade advertising where we create awareness of D/FW as a great economic opportunity; second is direct mail, where we have various vehicles that we use to reach from the chairman of the board ... at airlines down to the manager level. The final most targeted method is personal selling or presentations to senior executives of these airlines.
"Having created the awareness through advertising and talking to them through direct mail, we then go to visit them personally and we present them with a pro forma P&L statement as to what we believe we think an airline can make based on what we know their fleet is, what aircraft they operate. We estimate their costs and revenues. By the time we do that over a period of a couple of years we develop a very good and credible relationship with them. We tend to go back and forth with information until we make a decision as to what makes sense for the airline."
Cox points out that this marketing plan is different to what D/FW used to do in marketing the airport. "What we used to do and what a lot of airports do was to bring in bright, shiny faces and say, ’Come to D/FW, we have a nice place and a big city.' It's a much more sophisticated business now. Joe, from the airline industry, and Emir bring a whole new level of sophistication that we haven't had. We clearly build a good working relationship (with airlines) and a dialogue and continue to crunch those numbers. Everything else is driven by if somebody is going to make money. That's what we try to build, a financial awareness."
FLOWERS, PASSENGERS, CARGO
One of the areas this marketing approach is in full force concerns regaining the cut flower business that was lost when UPS bought Challenge's routes. Challenge, as the Centre's lessor, in conjunction with Pineda, is aggressively pursuing a non-scheduled, as-needed service to bring in perishable cargo.
"We're working with them and other carriers to reinaugurate that service," Pineda says. "Challenge proved that D/FW is a great alternative to Miami for perishables. The fastest growing region for flowers is Texas and the Western U.S. It's the market of the future, a market of some $7 billion (annually). A huge market, a huge opportunity for those flower exporters and the airlines. Within the next few months, I think, we will see the reintroduction of that service to Latin America because the demand is there. It's an under-served market."
While air cargo business appears ready to explode at D/FW, over the past couple of years D/FW has shown a flatness or even a slight decline in its passenger numbers. Fegan explains it as a lack of gate facilities. "We have a full house here," he says.
As soon as some legal hurdles are overcome, Fegan says, the airport will begin a six-year, $2.5 billion capital improvement program that will include a 25-gate international terminal and an eighth runway. Fegan and other members of his staff are quick to point out, however, that the emergence of air cargo as an increasingly important part of D/FW's business is in no way related to the flatness in passenger numbers.
"I don't think cargo will ever be emphasized over passengers," Pineda says. "I think cargo will always be a complementary service or industry to passengers. Let's face it, the passenger will always be number one in the eyes of the airlines. The revenue you get from passenger services surpasses cargo.
"But as we continue to globalize our economy, cargo will continually grow in importance in the minds of businesspeople, in the minds of airports, and in the minds of industry worldwide. Let's face it, we need the business people to travel to make the deals and we need the freighters to carry the cargo. We (D/FW) just happen to be in the right place at the right time, with the right land, the right capacity and, I think, the right marketing approach to attract carriers. I think we can become the airport of the new century."