Texas Airports Chasing Cargo Industry for Extra Revenue From Landing Fees

D/FW AIRPORT -- Hauling almost anything imaginable, from monkeys and movie reels to cash and corpses, the passenger airline industry has found a way to pump profits through the belly of the plane.

It's an example of how competitive the $30 billion air cargo industry has become. Freight is going beyond boats, trucks, trains and all-cargo planes.

Airlines such as Fort Worth-based American and Dallas-based Southwest are aggressively selling the unused crevices next to passengers' luggage in the cargo hold below their feet.

And as a result of the heightened cargo competition, airports across the country, including Dallas/Fort Worth Airport and Fort Worth's Alliance Airport, are battling for the extra revenue that comes from larger landing fees because of heavier planes and expanded warehouses.

D/FW Airport saw its latest coup in the cargo industry enter the market Saturday night when Cathay Pacific Airways, one of the world's largest air-cargo carriers, landed its first flight at the nation's ninth-busiest airport for cargo.

The cargo industry that airports are chasing has quietly emerged as a more prominent business over the past few years, according to industry analysts.

"I think airports are taking a whole new perspective on air cargo," said Tom Phillips, a Seattle-based consultant who helps airports recruit cargo carriers. "Up until about five years ago, they didn't really focus on it much."

Worldwide air cargo has averaged 7 percent annual growth for the past 30 years, said Robert Dahl, project director for Air Cargo Management Group, an industry consultant.

In 2004, though, it saw 13 percent growth. This year is on pace for a less-impressive increase of 3 percent, Dahl said.

Regardless, passenger airlines are chasing the growth.

"It's a very exciting but unheralded, unglamorous side of the business," said Dave Brooks, president of American Airlines Cargo, a division of AMR Corp. that saw its revenue grow 12 percent to $625 million from 2003 to 2004.

"Over the next 10 to 15 years, air cargo will grow faster than passenger demand," Brooks said. "If you're a carrier like American, you need to make sure there's a place in your portfolio because it's a growing segment of your business."

It may be growing, but right now it's still a small slice overall for passenger airlines.

Air cargo represented 3 percent of total revenue for U.S. passenger airlines in 2004. Southwest pulled the biggest cargo gain last year, going to $117 million from $94 million, a 24 percent jump, according to Cargo Facts, an industry trade journal. But it's only 2 percent of Southwest's total business. AMR's total 2004 revenue was $18.6 billion.

"It's a small percentage of our total passenger revenues, but it's a very profitable slice of the pie," said Dave Hinderland, senior manager of cargo sales for Southwest.

Every little bit helps, airline executives said. With high fuel costs and fierce competition for lower fares, airlines are looking for revenue anywhere they can get it. And airlines can spread their costs out by flying both passengers and cargo. Years ago, the airlines flew fleets of all-cargo planes, but they quit in the 1980s when costs rose.

Challenges remain

But for all the growth that air cargo has seen lately, it still presents challenges.

The Transportation Security Administration is looking at ways to effectively screen cargo, especially for passenger airlines.

In 2004, an estimated 23 billion pounds of air cargo flew within the United States, and about a quarter of that rode on passenger airlines, according to an report from the Government Accountability Office.

The challenge is twofold: screening cargo fast enough without slowing down the loading process and deciding what boxes should be inspected, Brooks said.

"We would go broke and the world's economy would collapse if we had to open every shipment and inspect it," he said.

Another challenge for air cargo is its declining domestic market.

Shippers are finding it cheaper and more efficient to use trucks, experts said. The biggest area of growth for airlines and airports is on the international side, where shipments of electronic equipment to and from Asia are increasing rapidly.

D/FW is grabbing some of the international growth.

"Before, international cargo went to only the gateway cities," said Phillips, who is executive director of Keiser Phillips Association in Seattle. "Now they're bypassing gateway cities and going to places like D/FW."

That's because those gateway cities -- Los Angeles, San Francisco, New York, Chicago and Miami -- are becoming overcrowded, said Liying Gu, senior manager of economic affairs and research for Airports Council International-North America.

Through the end of August, the most recent data available, D/FW's cargo shipments are up 1.3 percent from the same period last year. International cargo accounts for 1 of every 3 boxes shipped at D/FW.

For all of 2004, total cargo increased 11 percent in a year, thanks to a 28 percent boost in international cargo.

Bill Frainey, who oversees cargo operations at D/FW, is focused on growing the international side. He's proud of a Department of Commerce statistic that shows international air cargo growing nearly 12 percent at D/FW since 1996.

He estimates that two or three airlines are seriously looking at starting cargo service at D/FW. But the decision won't be made overnight.

Frainey spent four years wooing Cathay Pacific. The Hong Kong-based carrier is now flying into D/FW three times a week and plans to double that by 2007, said Frainey, an assistant vice president at the airport.

American is glad to have Cathay Pacific.

"Anytime you have that kind of capacity coming in, it will tend to attract business into your region," Brooks said. "For a carrier such as ours with a network like we have, it's also a great opportunity for us to feed them traffic."

Cathay Pacific will bring a lot of high-tech electronics, clothing and other consumer goods. It's similar to what American and other passenger carriers haul in the belly of their planes.

Carrying aphrodisiacs

Travelers likely never think about some of the unusual cargo riding in the belly of planes just below their feet, experts said.

Southwest Airlines says it moves a lot of crabs out of Houston and New Orleans and Dell computers out of Austin.

Consider American's most unusual items:

Sea urchins from South America, through D/FW Airport, to Japan, where they're treated as aphrodisiacs.

Blood, human organs and bodies -- "people don't always die where they want to be buried," Brooks said.

Monkeys and leopards transferred from one zoo to another.

Cash moved from the Federal Reserve Banks.

Rock band equipment for the Eagles and U2 shipped for concerts.

The actual film for new movie releases from Hollywood.

The largest source of cargo for American and other passenger airlines is mail.

"We're heading into a busier season as we get into the holidays," Brooks said. "Everyone's mailing their Christmas cards."

The airline also sees more mail shipments at the end of each quarter as financial reports are sent to stockholders.

American lost the ability to deliver mail for about a month in early 2005, partly because of its poor on-time record.

But American tweaked a couple things and got the business back, Brooks said.

"It's not glamorous, just basic blocking and tackling," like the unheralded grunt work done on the football field, he said. "You can't put it on a bumper sticker what we did."

American looked at the loss of its mail service and said, "This is good business for us," Brooks said. "If we can't meet the Postal Service's expectations, it will go away. So let's try to figure out a way to deliver their products smarter and better."

D/FW's friendly competitor

Alliance Airport has also seen growth over the past few years.

Cargo has grown 30 percent during the first 10 months of 2005 over the same period last year. The 15-year-old airport is headed for its second-best cargo year, sending and receiving 211,000 metric tons in 2005.

The largest share of cargo comes through FedEx, which opened a hub at Alliance in 1997.

Alliance is poised to attract more cargo carriers, after opening a 99,000-square-foot storage facility right on the apron. The warehouse was built in hopes of attracting new cargo service to Alliance. So far none has signed on since the building opened in April.

But Hillwood, which built the warehouse and develops the land around the airport, has talked with two carriers who are "seriously interested" in coming to Alliance, said Tom Harris, senior vice president of Hillwood.

Alliance usually competes with D/FW for cargo carriers, but Harris said it's a healthy competition that he doesn't mind facing.

"I'd be fibbing to you if I sat here and told you it was easy," he said. "But we compete in the same manner with a lot of other very, very well-run industrial parks."

Although its 12,000-square-foot local cargo facility at Dallas Love Field is one of its 10 busiest, Southwest Airlines has no plans to expand there.

Love Field also has two all-cargo carriers, DHL Worldwide Express and Airborne Express. But cargo is such a low priority, officials don't even track how much comes and goes, said Terry Mitchell, assistant director of aviation for the city of Dallas.

"Cargo occurs here, but we don't make a big deal out of it," Mitchell said. "From the airport's standpoint, it's just leased space we give the cargo operators and that's about it."

Air cargo has intentionally flown under the radar screen of airports for many years, said Steven Bradford, principal in charge of Trammell Crow Co.'s 35-acre air cargo project at D/FW Airport.

"Air cargo is boxes," he said. "It's not high-profile celebrities arriving with cameras at the international terminal. It doesn't have the high-dollar concessions associated with the terminal."

The Trammell Crow project, which began in 1997 and includes seven buildings, serves as a model for other international air cargo parks across the country.

In developing the warehouses, Bradford said, he's noticed airports are finally recognizing that cargo and passenger services are complimentary rather than competing services.

"The two in combination can work really well together," he said. "It can have a profound impact on the profitability of the airport."

Fort Worth Star Telegram

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