YVR's Transformation

YVR's Transformation Vancouver Int'l is serving as a model for the new Canadian airport, one with experience it can export BY John F. Infanger, editorial director Januray / February 1999 VANCOUVER, B.C. — In 1992, ownership of the...

According to data compiled in 1997, some 6,384 new direct jobs were created at the airport from 1994-1997, for a total of 22,874 — more than two traditional staples, mining and fishing, combined. That employment total alone accounts for $1.3 billion (Canadian dollars) in GDP value added to the regional economy and $815 million in employment income.

While evolution, even revolution, may be an appropriate term to describe the transfer process here, locals have another word for it. Says YVR Authority president and CEO Larry Berg, "The devolution of airports ... has allowed the communities to guide the development and expansion of the airport in each community in keeping with local economic objectives

"We're profitable, but not-for-profit, which means the profits are reinvested within the airport business." In 1997, net earnings were recorded as $44 million (CAN), up from $41.3 million in 1996.

Berg, like a number of other newcomers to the Authority in 1992, came from another industry — mining. He was originally hired as senior vice president of operations; others came from real estate, banking, and other business sectors. Under the transfer terms, employees could move to other positions within the federal government or stay at YVR for a guaranteed two years.

Explains Berg, "There was some trepidation after the original two-year period, a feeling that the other shoe will drop. It came and passed and those concerns were soon behind us.

"In hindsight, the transition went quite smoothly. The capacity for people to accept change is generally underestimated. It could be that we should have torn the bandaid off more quickly."

At the same time, Berg says productivity gains have led to an increase in staff size by 20 percent in six years while capacity and facilities have doubled in size. He points to subcontracting of services and productivity gains as reasons for slower direct airport employment growth. Meanwhile, he says, employees have seen wages increase above the Vancouver norm. In fact, the 1997 study puts airport wages at an average $40,540 (CAN) per annum, 26 percent higher than the provincial average.

YVR was profitable when the Authority assumed control, but Berg says the rapid development could not have occurred under the Transport Canada template that would have seen national bureaucratic processes butting heads with local potential and priorities.

"The immediate challenge was to focus on the capital development program — build a new terminal, a new runway, a new control tower," he says. " The transfer had to be organized around business processes rather than around the functional environments. It took us a while to work through that."

A $300 million bond issue was attained, to be paid back through a graduated $5-10-15 Airport Improvement Fee — similar to Passenger Facility Charges in the U.S.

In 1998, the AIF was projected to bring in $50 million (CAN). In 1993, airline fees were increased five percent, with an agreement to hold fees for five years after that. "It allowed our business partners to project their costs," says Berg, "and put the heat on airport management to manage."

After that, growth was focused on building retail and concessions, first in the new international facility and then in the domestic terminal, which is currently underway.

"We went to the European model on retail," explains Berg. "What we're doing is trying to build airline traffic. To do that, you've got to be cost-competitive and hold your charges down. To do that, you've got to cater to retail, and how you do that is with street pricing." Subsequently, YVR developed an "intermix" of lease arrangements: a head lease with Host Marriott; smaller lease agreements with other concessionaires to "ensure competition;" and, leases with regional shops to ensure a British Columbia flavor.

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