NAC Report

Oct. 21, 2009
Airports meet to discuss a challenging economy, airline economics, and more

SAN ANTONIO — Kate Lang, the acting associate administrator for airports for the Federal Aviation Administration, told airport managers at the F. Russell Hoyt National Airports Conference here in September that the aviation/airport industry is going through a restructuring. It will be a different industry when the economy rebounds, she says. Few in the
audience could disagree. That was pretty much the underlying theme of the meeting, which featured discussions on funding and FAA reauthorization; the economy; air service development; and an update on the Transportation Security Administration.

The conference is hosted each fall by the American Association of Airport Executives.

Among the positives during the discussions were moderating oil prices and a significant shift in construction bids, which for several years had been skyrocketing. “The airport money is going a long way,” comments Ben DeCosta, general manager for the Atlanta Hartsfield-Jackson International Airport.

“Fuel relief is very big for us,” says Patty Higginbotham, VP of policy for the Air Transport Association, which represents the major airlines. “The rate of layoffs is slowing down.

Things are not good ... but we are seeing a slow turnaround.” She adds that the U.S. airline industry will have reduced capacity another 7 percent by the end of 2009.

On the topic of airline industry health, William Swelbar, research engineer for the Massachusetts Institute of Technology, says he is “deeply concerned” about a business model that has relied on high-end customers historically. “We have an industry based on first-class travel which subsidizes leisure travel,” he observes. If that continues, he expects it to alter the airline economic model. “One can say the airline industry has been an amazing Ponzi scheme,” he says.

Swelbar expects a slow recovery in domestic airline service, while international travel, which had been a bright spot, will see future reductions in capacity.

He also questions the ability of Southwest Airlines — a major target for many airports — to continue its strong growth domestically. In essense, it operates much more today like the legacy carriers. “I think the Southwest model is pretty long in the tooth,” he says. Swelbar instead points to JetBlue as the key growth carrier to watch.

Regarding the role of airports Swelbar comments, “We have an airline industry that is consolidating but an infrastructure that is not.”

He also expects the fallout from the Colgan Air crash in Buffalo earlier this year to be more stringent regulations for pilots and training, which will raise costs to regional carriers and could in turn have a negative impact on communities that rely on them for connecting to the system.

TSA; air service development
Gale Rossides, acting administrator for TSA, says the agency’s approach has been to “create a balanced system,” while reporting that high turnover rates at TSA have dramatically declined. Injury rates for screeners are also down significantly to some 4 percent, having been as high as 25 percent.

For airports, Rossides says the agency very strongly supports a biometric ID for airport workers. And, regarding the $1 billion apportioned to TSA from recent stimulus funds, Rossides says all the money was spent for technology upgrades — $700 million for screening installations and $300 million on exploring checkpoint technology.

On the subject of air service development — a high priority for many — Gary Harig, president of consulting firm GMH Consulting, LLC comments that “service is earned; it’s not an entitlement.” He recommends performing a leakage study, where appropriate, and then a strong follow-through via linking up with civic and community groups to promote the local market to carriers. “If you can do only one thing,” he says, “think like an airline.”

Damon W. Hylton, vice president with Seabury Airline Planning Group, LLC recommends airports be familiar with the airline alliances that have emerged in recent years and connect the dots between local users and global connections. In other words, create a ‘spin’ that educates a domestic carrier on how it may find value in a particular market because of the alliance.

David Edwards, Jr., executive director at the Greenville-Spartanburg International Airport, stresses the importance of having data on local demographics and to set a level of expectation with community interests regarding what air service is realistic for a particular market. Know the numbers; and know the top 20 destinations for the market.

Says Edwards, “Really, it’s a national competition for aircraft.”