THUNDER BAY, ON — In a community of some 110,000 people — a number that is not increasing — the Thunder Bay International Airports Authority has managed to increase passenger numbers as well as revenues. The economy in this northern Ontario community relies heavily on forestry, which has been hard hit by the weakness of the Canadian dollar against the U.S. Dollar, tariffs on soft wood lumber, and the high cost of energy. Airport president and CEO Scott McFadden, M.B.A., says central to keeping the airport self-sustaining is continuous improvement, finding efficiencies within the airport, and utilizing the airports assets to create revenue-generating opportunities.
“Continuous improvement,” says McFadden, is the company philosophy he and his airport team have employed. He calls it simple, but says there is always a better, more efficient way of doing things. “I like to believe that if somebody is telling you there are no more opportunities for us to find cost savings or new revenues or new efficiencies, then their organization is a prime candidate to find those.”
Operation of Thunder Bay International Airport was transferred from Transport Canada in September of 1997 to the Thunder Bay International Airports Authority Inc., a not-for-profit organization. The authority is governed by a nine-member board, comprised of representatives from federal, municipal, and provincial governments; the Chamber of Commerce; organized labor; and, one appointed by the board.
McFadden, who began his career in aviation as an aircraft technician with Air Canada, also has experience as a fixed base operation owner and as a consultant.
Even prior to transfer, says McFadden, who joined the airport in December 1997, the airport staff had been working to make significant cost reductions and changes, while creating new revenue generating opportunities. “When I arrived, the team that had worked so hard for the federal government realized that my mindset was very similar to theirs, in that I was prepared to explore every idea and continue to look for ways of finding efficiencies, cost reductions, and new revenue sources.”
A major challenge facing Thunder Bay, says McFadden, is that airports of its size “are not self-sustaining as a long-term business.” The airport sees some 590,000 annual enplanements and deplanements. “Our passenger activity, in the absence of other revenue-generating opportunities, is not enough to support the airport over the long term.”
To generate revenue to meet immediate needs when the authority first took over operation of the airport, an airport improvement fee (AIF) was imposed. “In the early days we were certainly forecasting that we were going to operate at a loss for at least the first three years. The company needed to generate some revenues to take care of some immediate issues just to make sure the airport was going to be on solid financial footing going forward,” says McFadden.
Initial forecasts showed that the AIF would be in place for five years, with the ability to extend as required. However, the airport eliminated the fee after 2-1/2 years. McFadden explains it was eliminated for two reasons: “First of all, in an economy that is declining, you have to do things to stimulate. An airport has the ability to both hinder and promote the economic development locally. Certainly, low cost, high quality air service is vital for any community’s economic development. Secondly, we were successful in bringing Westjet to the airport in 1999. At the time, Westjet was Canada’s high yielding, low-cost carrier. That single success really transformed the airport and certainly made us see that by lowering the cost of travel, you can significantly increase the amount of activity at the airport.”
This led the airport to pursue a low-cost airport model. McFadden says for Thunder Bay, ‘low-cost airport’ never equated to less service or fewer amenities than other terminals. “We pride ourselves in providing very efficient, very customer friendly, clean passenger services, on par with any airport in the country,” says McFadden. “But we do it at a low cost. Our philosophy is to look for efficiency, look for technology that can provide us efficiencies and make sure we’re taking advantage of every possible revenue source at the airport.”
McFadden says the business opportunities the airport authority has pursued are “natural extensions” of airport assets and each has allowed the airport to diversify its revenue stream. In 2004, new business iniatives accounted for some 12 percent of the airport’s revenue, down from 17 percent in 2003.
In 1997, says McFadden, Air Canada accounted for some 50 percent of the airport’s total revenues. This picture is now drastically different, with the single airline only accounting for some 20 percent. “And that’s not because Air Canada is doing less business here,” he adds. “They’re actually doing more. It’s because the other portions of our business account for a higher percentage of our total revenue.”
Many airports are able to turn to concessions activity for additional revenue, but McFadden says Thunder Bay’s lower passenger numbers don’t lend themselves too much in the way of retail. The airport has a gift shop, food concession, and a bar, all operated by Aramark. “They’re all operated by the same operator because trying to run them independently is just not a viable proposition.”
However, McFadden looks at concessions and Thunder Bay’s business opportunities in a similar light. “With concessions and retail opportunities at an airport, you’re basically taking advantage of the fact that you have a number of people coming to your facility; you have an asset, which is the terminal building. It has space, or you build that space out to house retail opportunities. So you’re leveraging what you have at the airport.
“In some cases airports have invested a lot of money to create this space and make it such that people will hopefully shop at the retail and concessions as the airport. That’s not an opportunity that we have. But if you use the same basic theory: what assets do we have? What knowledge do we have available?”
McFadden and his staff use their experience and knowledge, particularly that which was gained from being among the first smaller airports to be transferred from the federal government, to develop solutions that work at Thunder Bay and that have applications at other airports.
I.T. Solutions for Thunder Bay, Beyond
In 1998, the airport, under its technology subsidiary, along with a local IT company, Aviation Intertech, created what McFadden bills as the world’s first fully Internet-based flight information display system (FIDS) solution, known as iFIDS. He explains the product grew out of the airport’s own needs for a reliable, cost-efficient way of providing flight information. “When we went out to tender for someone to provide a FIDS system for the airport, we were just flabbergasted at the price. And not only the price, but the amount of airport involvement that was going to have to be supporting the system: entering the data and dealing with the airlines.”
The FIDS solution works through a completely Internet-based data transfer. An airline installs the iFIDS software on their reservation or dispatch system, which then sends data to iFIDS where it is disseminated to the proper airport customers.
Also under its technology subsidiary the airport offers Aileron, an airport billing and lease management solution. Again, says McFadden, the solution grew out of a challenge Thunder Bay was experiencing. The airport hired a company to develop a custom accounting solution. Only two years after it was developed, the company that developed the database for the system announced it would no longer support the software. “So we were left with a system where we had to support our own database software,” says McFadden. “We wanted an off-the-shelf solution that we could simply adapt to our environment. We determined that it simply didn’t exist; so we built our own over the course of two years.”
The key to the software, says McFadden, is the integration of the accounting and billing capabilities. “We wanted to have a system that did database management, but combined the information with our accounting system and the accounting system then generates the invoices. Our reporting is now much more accurate, and more real-time. The software also features automated email functions which, for example, can automatically notify the appropriate person of a lease that is up for renewal.
“The system not only reduces the amount of administrative burden in the office,” says McFadden, “but it also captures revenues that potentially are getting by the airport operator.” McFadden estimates that the labor savings is around 50 percent over what the airport was paying before the system was deployed.
Sharing Management Expertise
A consulting company established by the airport, Thunder Bay Airport Services, manages Red Lake Airport, some 355 miles northwest of Thunder Bay. According to McFadden, “There is an opportunity for us to offer not only our expertise, but some of our resources to come up with a management methodology for [Red Lake Airport].”
According to McFadden, Red Lake’s economy relies heavily on mining and the forest sector, and is suffering from the “same things we are in that the bulk of our economy is not necessarily growing.”
Red Lake Airport sees some 8,000 enplaned passengers annually. “The airport was a liability for the community in terms of its financial situation,” he says. “Since we took over management of the airport, it has operated at a surplus.”
McFadden says there have been fee increases at Red Lake, but not major ones. “You have to [increase fees],” he says. “We can’t get away from that when costs are increasing. But generally we just make sure that we’re collecting all of the parking revenues and other user fees are properly collected.”
Thunder Bay is in the fifth year of a five-year contract with Red Lake, and McFadden expects the contract will be extended for another five-year term. The agreement has allowed Thunder Bay Airport Services “to develop a methodology for managing a very small size airport... We hope to extend that and offer that to other small airports in Canada and wherever else.”
Surface Maintenance Solutions
The most recent business endeavor the airport authority has engaged in is an exclusive marketing and support agreement with Boschung, a Switzerland-based manufacturer of surface maintenance systems, including the JetBroom.
Looking at the snow removal and sweeper equipment Thunder Bay had on site, McFadden says the newest item was manufactured in 1982, with the oldest dating back to 1956. “While you can continue to re-life this equipment, the fact is you’re left with the same basic technology, which is you’re towing a sweeper with a dump truck or a plow truck to some degree. And, you’re doing it at a fairly slow speed and your maneuverability is very limited.”
The airport purchased a JetBroom from Boschung and, says McFadden, had very close technical discussions with Boschung. “We were able to demonstrate to them some changes and modifications to their equipment to make it better,” he says. Since then, the airport has purchased a second unit and established a leasing and equipment sales subsidiary company, Sleeping Giant Enterprises.
The subsidiary is 100 percent owned by the airport authority. Work done by airport employees for SGE in terms of technical support, training, administrative services, etc. is billed out to the subsidiary.
Again, says McFadden, this is another instance of the airport “selling our expertise. And as the subsidiary’s balance sheet improves, so does the airport’s.”
For each business opportunity, McFadden says the airport initially uses the talent already on staff at the airport. “Initially we rely 100 percent on airport resources and airport knowledge to create the opportunity. But as the company grows, it becomes impossible to do it with our in-house people.”
Passenger Growth, Population Stagnation
“Even though the population has been either level or declining,” says McFadden, “we have seen growth in passenger traffic, obviously corrected for September 2001.” He suggests that to see an increase in passenger traffic when the economy and the population are declining shows that the airport has been successful in stimulating the market. “We also recognize that unless this economy grows, our core airport business won’t grow.” The airport authority works closely with community organizations to promote economic development. The airport has also invested $3.5 million (CAN) in an 81-acre aerospace/commercial subdivision on the north side of the airport.
In 2004, the airport’s total revenue was $5.8 million (CAN), with expenses totalling $4.85 million (CAN). For 2005, the airport is forecasting the surplus will be about half of what it was in 2004.
“We’re in one of those situations where several things could happen that would dramatically change this region,” says McFadden. One of those is the possibility of a company building its proposed power-generating plant which would “significantly reduce the cost of power in this region,” and aid the forestry sector. “The availability of low-priced power is one of the factors in the decline of the forestry industry,” he explains.
Another possibility that would improve the local economy and in turn the airport is the development of natural resources. “We have significant precious metal deposits and there’s a probability of diamond mines in the region,” says McFadden. “Whether a mine is viable or not very much depends on the availability of low-cost power.”
This past spring, JetsGo, a Canadian low-cost carrier, went out of business. “And in so doing,” says McFadden, “removed a significant amount of capacity from the Canadian market.” In addition to the absence of JetsGo, Westjet has “very much changed its strategy and moved away from the pure low-cost strategy to some degree and, at the same time, moved into the transborder market.” He explains that this makes markets like Thunder Bay no longer as attractive, comparatively speaking, to the Westjets of the world. “So what we’ve seen recently is a dramatic increase in average air fares, which, there’s no question, have had an affect on market stimulation.”
McFadden says the airport does have an air service development and retention program that has been successful in the past. “We will continue to pursue new opportunities. But because of where we find ourselves and the economy we find ourselves in, we’re definitely looking toward our new business ventures as a source of future growth for the airport.
“Those businesses are not bound, necessarily, by the health of the local economy. They are, for all intents and purposes, exports. So we can take advantage of the growth that other airports in the country are experiencing and solve some of their growth problems with our technology and our products.”
The Thunder Bay International Airport terminal is 9,500 square meters and, with the introduction of common use technology, could handle double the capacity it currently handles, assuming the peak planning hours would spread out some, according to McFadden.