REPORT BY DAVID FIELD IN WASHINGTON
Prior to 11 September, progress had been made towards a joint way forward for airports and airlines. Since the terrorist attacks, however, the coalition has been put aside and it's every man for himself
For US airports, the crisis that has followed the events of 11 September has derailed a major drive to fight gridlock, and has sidelined a solidifying coalition that brought together the airports community and the rest of the aviation industry.
Gerald Baliles, a lawyer with Hunton & Williams in Washington and chairman of a seminal 1993 airline commission appointed by president Clinton, says: "We are in too many ways right back where we were before 11 September. The infrastructure coalition that was gaining strength has been stopped." Baliles, a major figure in the debate on international aviation noise standards, fears that "one long-term outcome of recent events may be a diversion of attention away from the basic, long-range issues that were receiving so much - long-overdue - attention prior to 11 September".
For airports themselves, it is back to the cold war that existed before the summer of 2001 when the coalition to which Baliles refers united the often-feuding and always-disparate alphabet groups of the aviation industry in a bid to build its way out of gridlock. The "runways movement", as it was dubbed, was intended to take the industry back from the brink of congressional re-regulation and away from public anger. That customer dissatisfaction was shifting business travel away from the air and toward hi-tech alternatives such as video-conferencing and to low-tech modes such as the car and the train.
But since 11 September, airports and airlines have beaten their separate paths to Capitol Hill seeking aid. The general and private aviation interests too have simply left the concrete-pouring coalition - perhaps to gather dust with other forgotten Washington initiatives - until the next crisis. "Every expectation is that, in the long term, there will be a time when airport capacity that has been planned will be needed," says Kurt Forsgren of Standard & Poor's, the credit-rating agency.
Short-term needs
In the short term, though, it appears to be back to the bad old days. David Plavin, president of the Airports Council International-North America, says: "It's back to the way it always was: the airlines are bleeding red ink and they don't have any approach that says I know how to deal with this long-term. So the airlines say to themselves: 'I'll do the same thing I always do - beat the crap out of the airports and try to force prices down. One way to do it is to see if I can't get them to cut the heart out of their capital projects programmes.'
"The airlines will probably be successful in some cases," he adds. "Then what will happen when the trajectory starts going up again? They'll be coming back and saying 'why haven't you built this already? And how am I as an airport going to keep up with all these [passengers] coming through my front door?"
Plavin also believes that airports currently are planning cuts more than growth, and when they do spend, they do so on short-term needs. "If a terminal needs a new roof, if a runway needs an overlay, they're doing it, but on longer-term projects, on capital projects, they're not doing the environmental work and they're not doing the design work."
Airlines are not talking about what they think airports should do, and airports are waiting to see how long it will be before the traffic trajectory starts back up to see what federal help they receive.
The airport groups backed off from their immediate post-11 September plan to seek a bailout or aid package similar to the $15 billion in grants and loan guarantees packaged for the airlines. This was perhaps a recognition of political reality. "They wouldn't dare come up here looking for any substantial aid after the political heat we took on the airline bailout," says an aide to the chairman of a key congressional committee who helped shape the airline assistance package.
Fearing a loss of about $2.3 billion over the 12 months following the attack, the airports as recently as mid-October wanted a package of grants and credit guarantees and refinancing flexibility in a bill of their own. Now, though, they seek a few provisions in various other bills such as the overall economic stimulus package and an airport security bill. At the end of October, 26 commissioners, representing airports that handle about 167 million passengers annually, said that they want all federally mandated security requirements to be federally funded but did not make a larger request for overall aid. Meeting security mandates would cost about $1 billion. The commissioners, meeting in Kansas City as a nationally representative group want the funds to come as direct reimbursement so they do not have to "raid capital improvement construction funds", said Warren Valdry, a Los Angeles airport commissioner at the Kansas City meeting.
The airports want the rules on Passenger Facility Charges (PFCs) changed so they can use these revenues for hiring law-enforcement officers and meeting other security needs. The rules now limit the use of these funds tocapital projects and prohibit them from use in operations.
The airports also want to be able to raise the PFC of $3 a flight segment to at least $4.50 and soon. And they want federal war-risk insurance, as was undertaken for the airlines, or outright indemnification, as the Canadian Government gave its airports, says Charles Barclay, president of the American Association of Airport Executives.
The losses that airports incurred are substantial. In the short term, they include about $84 million for the days when all US airports were shut between 11-15 September, plus $101 million in losses over 16-22 September. The airports suffered about $128 million in losses from parking, rental-car fees and other concession revenue between 11-22 September. Parking was particularly hard hit because the immediate FAA move after 11 September was to ban all airport parking within 300 feet of a terminal. Such close-in parking tends to bring in the highest per hour fees.
At some airports, concession revenues have just kept pace with the recovery in traffic. At Dallas-Fort Worth International, the airport board granted some temporary rent relief to its retail concessions, although by the one-month mark after the attacks, DFW traffic was off less than 15% both domestically and internationally. At Washington Dulles, concession revenues had grown slightly because passengers were arriving at the airport so much earlier and spending more "dwell" time there, said Scott Sampson of Westfields Concessions.
At New York Kennedy's recently opened Terminal 4, business is down about 30%, reflecting the steep international drop. But here, a little creative marketing is helping, says David Sigman, the terminal's development general manager. Passengers are spending more time in queues waiting to clear security and other checkpoints, so retailers have begun using trolleys to sell food, drinks and other goods to people in line.
Lost landing fees
Airports also suffered losses in landing fees and terminal rentals. The Airports Council estimates this at more than $57 million for 11-22 September, of which $48 million is in lost landing fees. Major airlines actually withheld payments at few airports, though. Northwest briefly withheld some fees it owed to the Metropolitan Airport Commission, which operates Minneapolis-St Paul International, but soon caught up.
Elsewhere, smaller and more cash strapped carriers have been slow on both landing fee payments and in forwarding the Passenger Facility Charges they have collected. For instance, at Missouri's Kansas City airport, struggling Vanguard Airlines was three months behind on fees and owed the city about $390,000 at the end of October.
But because Vanguard is the city's home airline, has had backing from local investors and is the airport's second largest tenant, the city's aviation department negotiated an arrears package with the airline. Vanguard, which received $4.5 million in federal aid through the bailout package, planned to start payments at the beginning of November to the airport, where September traffic fell by about 28% - its steepest drop since 1989, when Braniff International Airlines collapsed.
Big hubs suffered the most. At Detroit for instance, 1.8 million passengers passed through Metro Airport in September, more than a million fewer than in September 2000. The airport's new Northwest Airlines terminal project also lost some key retail concessiontenants, as prospective businesses were deterred by new security rules that will limit foot traffic.
But not all the news is bad. At Detroit, Wayne County issued $900 million in new bonds to add 25 gates to the new terminal, which is still set to open early next year, as well as to renovate the airport's two ageing terminals. The county called the move a bold statement of defiance against the terrorists.
A few other airports have also pushed ahead on projects, with DFW breaking ground in October on a $2.6 billion expansion, while in Florida, Orlando continues work on a $232 million fourth runway and taxiway that should be completed in 2003. However, the Orlando project's centrepiece - a new south terminal - has been sent back to the drawing board to be redesigned in light of new security needs.
At most airports, the word of the day is "halt", with Phoenix, Charlotte and San Francisco all putting expansion projects on hold. The road ahead looks particularly difficult for San Francisco, which is facing about $3.7 billion in debt as part of last year's massive expansion and whose main carrier - United Airlines - has cut service back dramatically.
If there is an upside, then the resolution to the Los Angeles situation is illustrative. Instead of going ahead with a $12 billion expansion that had been planned by his predecessor, the city's new mayor instead wants to spend the cash on improved security and safety for the present 41-year-old Los Angeles International (LAX) and to emphasize regional airports. Under his plan, gone is the 42-gate addition and a new perimeter ring road around the new terminals. Instead, Mayor James Hahn would build a dedicated facility for passenger and baggage check-in, separated from the actual main terminal but linked by a high-speed people mover. The Hahn plan would also move runways farther apart to reduce possible aircraft incursions at LAX.
Growth constraint
That may sit well with the security-conscious and with airport neighbours opposed to the ring road, but the plan, by capping LAX at a maximum of 78 million annual passengers instead of the 89 million envisioned, assumes that other airports in Southern California such as Ontario and Orange County will be able to absorb growth. But these regional airports all face angry activist neighbors. LAX, which handled 67 million passengers last year, had relatively little debt - about $232 million outstanding - because debate about its possible expansion had delayed any commitment to spend.
The analyst community is debating whether the current crisis will cause airlines and airports to change their fundamental relationship. S&P credit analyst Forsgren says it will make airlines and airports closer because they will be forced to co-operate on security spending needs.
But Plavin and others are hunkering down for a return to the conflicts that mark business as usual, even as they hope for long-term changes. Maybe this will be the time, he muses, for airlines to change their thinking about each having its own infrastructure, its own staff and its own gates at an airport. But for the airlines - for whom setting an agenda for next week has become the major form of long-term planning - this is too far ahead. In that sense the airports have the advantage of breathing room - until the next capacity crunch.
Source: Airline Business
