Low Cost, High Appeal: Designing an airport with low-cost carriers in mind

June 8, 2004

Special Report

Low Cost, High Appeal

Designing an airport with low-cost carriers in mind

By Jodi Richards

June 2004

The South Suburban Airport Commission, a community group led by Rep.Jesse Jackson Jr. (D-IL), contends that the Chicago region is in needof a third airport. Its solution is to have a public/private partnership,under which a private corporation will build, finance, and manage anairport near University Park, IL. If all goes as the group expects, Abraham Lincoln National Airport, as SSAC is calling it, will be the first airport designed and built specifically with low-cost carriers in mind.

The proposed third Chicago airport, Abraham Lincoln National Airport, is designed specifically with low cost carriers in mind and will feature common use facilities.

Recently, SSAC chose the joint venture between LCOR and SNC-Lavalin as the company to build, finance, and manage the new airport, if the group’s plan is chosen to develop the airport. SSAC is made up of 32 Illinois communities.

Under its plan, SSAC plans to purchase the land from the state. The agreement between the communities and LCOR/SNC-Lavalin will be a public/private partnership.

LCOR Holdings, LLC, with other partners, is the developer, financier, operator, lessee, and retail manager of the 1.5 million-sq.ft JFK International Air Terminal 4. Valued at $1.4 billion, this is one of the largest privately financed airport projects in history.

SNC-Lavalin has program management and investments at Vancouver International Airport, Malta International Airport, and Vatry International Airport.

SSAC envisions an airport designed and built specifically to meet the needs of low cost carriers, in both facilities, and cost structure.

“When we say low cost, we talk in two levels” says Karl Ray, executive project coordinator of Pacific Liaicon & Associates Inc., a member of the SNC-Lavalin Group. The first level is low costs for the airlines operating out of the airport, and the second is low costs for the customers using the airport. “You have to build an airport that can cater to these smaller operators who are going to be attracting dollar conscious travelers.”

Ray says the company does that by controlling capital program costs so that recovery for the investment of LCOR/SNC-Lavalin is reasonable. “This will keep the costs down for the airlines,” he adds.

According to Ray, the Chicago market requires a third airport to meet the growing needs of the region. “It’s a very fast growing area from a population point of view,” he says. “And certainly, the air service in that region is forecast to increase both in transiting through and O&D passengers.”

Flexibility in the design and construction of the facility is key, says Ray, which means this airport will utilize common use technology.

“If you use a common use approach,” explains Ray, “counters and facilities are shared by the carriers. In doing that, you save the carriers the purchase of a lot of extra equipment, and you build about 30 percent less check-in area than you would if you assigned dedicated counters.”

In the case of the proposed third Chicago airport, the market will probably be served with regional jets, 737s, and perhaps 757s, says Ray. These smaller aircraft have different requirements from larger aircraft in terms of gates. “You tie your gates and your gate configuration to the aircraft you expect to come,” he says. “And again, you have to put a lot of flexibility into your facilities.”

Using boarding bridges as an example, Ray says many airports still have fixed link boarding bridges that have limitations on servicing smaller aircraft such as regional jets. “Or, if they can physically attach the bridge to the sill height of the regional jet, the angle which it is in is inconvenient to many passengers.

“It’s a lower level of customer service and we want to create the mix and formula that puts in a very convenient level of customer service. Flexibility in the gates is very key.”

Central to operating an airport under this model is keeping costs at a reasonable level, says Ray. And, similar to any other business, this involves surveying the market to see what it is willing to bear.

However, in this green field environment, there is no established market. “So pricing decisions have to be made with great care. In a green field situation you go in and set a very high service standard for yourself and try to set your pricing relevant to what the market is willing to pay for fundamental services.”

As far as how the airport operator plans to charge future airline tenants, Ray says the current idea is modeled on a more traditional landing fee and cost per enplaned passenger basis. “How we come to work out the final billing system will be what the acceptable practice is in consultation with the carriers who service out of the airport.”

While official discussions with airlines regarding servicing the proposed airport have not been conducted and will not be until final decisions from the state and the FAA have been made, Ray says carriers are supportive of the idea. “A lot of carriers have big investments in the Chicago region and there is constant FAA pressure to decrease flights because of congestion. So options and flexibility are welcomed by carriers.”

Building a terminal for low-cost carriers is not something that would only work in a green field environment, says Ray, but there are some advantages over an existing facility, including existing airlines and costs associated with replacing or installing infrastructure. “It’s not to say any airport can’t do a low-cost model. They probably can. How successful they’ll be will be based on their experience.”

According to Ray, if this same airport were built without the common use considerations planned, building and design costs could be as much as twice as what LCOR/SNC-Lavalin is currently estimating. However, because of a confidentiality agreement, Ray could not say what the company is estimating costs will be. Reports have put the tab for the facility (not including the cost of the land) at some $200 million.

Access to the airport for travelers is another piece of the low-cost model, says Ray. Ensuring travelers have access to proper roadways as well as mass transit will be part of the discussion between the developer and the surrounding communities. “The low-cost model has to flow into the transportation systems to and from the airport. We’re very concerned about balancing the whole bill to the customer.”

Cargo will play an important role at the proposed airport as well, says Ray. “Many airports are congested and can’t provide appropriate air cargo and courier service and delivery. This airport, in the low-cost model, we keep it low-cost for cargo as well.”

This is done in basically the same fashion, adds Ray, by keeping capital costs down and allowing cargo operators flexibility of some services that are purpose-planned into the development areas. “And if we’re doing the job on the passenger side and we’re meeting our financial model, we certainly are sharing the overall lower rents, lower landing fees for everybody — cargo or passenger carrier.”