United Airlines has filed a formal complaint against Newark Liberty International airport operator the Port Authority of New York and New Jersey (PANYNJ), alleging a significant cost mark-up that places them at a disadvantage in the New York market.
The higher fees at Newark than at either New York John F. Kennedy International or New York LaGuardia airports puts the Chicago-based carrier at a “significant competitive disadvantage in the New York metropolitan area, one of the most important air traffic markets in the world”, it says in the complaint it has filed with US Federal Aviation Administration.
The estimated average cost to land a plane at Newark is $11.77 under a unique “flight fee” formula in 2014, says United. This is $5.06 per landing more – an about 75% mark up – than at JFK and $2.49 more than at LaGuardia.
The airline claims that the fee at Newark includes a 38% mark-up under a “hidden cost-plus formula” under the flight fee structure. It says the operator’s monopoly over the New York area airports has prevented it and its predecessor Continental Airlines from renegotiating the contract, which dates to an agreement between People Express Airlines and the PANYNJ in 1985.
The operator has admitted that the fee structure costs airlines about $52 million more at Newark than at JFK annually, adds United.
People Express merged with Continental in 1987, and Continental with United in 2010.
FAA cost per enplanement data shows a slightly different picture at the New York area airports. The average cost per passenger at JFK was $26.40 in 2013, 94 cents higher than the $25.46 cost per passenger at Newark.
However, cost per enplanement is not a direct comparison to the flight fees cited by United because it includes additional operational costs, including terminal facility rents and airport debt service.
Matt Cornelius, managing director of air policy at the Airports Council International North America (ACI-NA), says that the cost of operating from the airports in the New York area is unique because terminal facilities are often operated by either an airline or third party and not the airport operator.
“The New York airports are kind of their own entity and I don’t think you can compare them in terms of costs,” he says. “They’re comparable to Heathrow and Narita, and not really anywhere else in the United States.”
United leases terminal C from the PANYNJ at Newark, while at JFK its competitor American Airlines owns terminal 8, JetBlue Airways owns terminal 5 and Delta Air Lines owns terminal 2 and leases space in terminal 4 from independent terminal owner JFK IAT.
The PANYNJ and United signed a 20-year lease extension for terminal C and facilities that the airline uses in terminals A and B at Newark in April 2013. The agreement includes a minimum $150 million investment by the carrier in the facilities.
United claims that the PANYNJ has used more than $2 billion in airport funds for non-aeronautical activities, including cost overruns to the World Trade Center redevelopment and renovations to various approach roads to the Lincoln Tunnel, in its complaint.
It charges that these use of funds is in violation with FAA grant and other federal regulations and asks the regulator to investigate the PANYNJ.
“United is paying fees to the Port Authority pursuant to a contract that the airline accepted,” says the PANYNJ. It declines to comment further.
The agency has come under increased public scrutiny for its management of projects and facilities during the past year. The Securities and Exchange Commission (SEC) launched an investigation into its use of funds for road and bridge projects in New Jersey earlier this year and lane closures on the George Washington Bridge in 2013 prompted a scandal that prompted the resignation of its chairman David Samson.
Airport development has also languished under the PANYNJ’s watch. New York State governor Andrew Cuomo announced in January that the state would assume “management responsibility” over construction projects – including terminal upgrades – at JFK and LaGuardia from the regional operator citing the slow pace of improvements.
“We’re going to do what we did with the Tappan Zee Bridge, we’re going to step in and stop talking about it and get the government to work and redevelop those airports the way they should have been redeveloped many, many years ago,” he said.
Newark is the latest in a string of hub airports where United has publicly pushed for lower costs. Its chairman, president and chief executive Jeff Smisek told Flightglobal in November 2013 that a high debt service burden at Washington Dulles International airport made it “more difficult to do business” there than at other hubs. His comments came on the eve of the first airport use and lease agreement negotiations with operator the Metropolitan Washington Airports Authority (MWAA) since 1989.
MWAA and airlines reached a new agreement in November that will see the projected average cost per enplanement decrease slightly to $25.48 in 2015, the operator says.
United made a similar push at Denver International airport in 2012. It reached an amended agreement with the city that reduced its facilities expenses by about $22 million annually in exchange for guarantees that they would maintain at least 22.78 billion available seat miles (ASMs) at the airport annually. The airline had cut capacity by about 10% during the year ending 2011.
Denver and United agreed to an additional $35 million in annual savings for the airline as part of a 10-year lease extension to 2035 that was approved in August.
Average landing fees are projected to be $4.67 at Denver and $3.86 at Washington Dulles, data cited by United in its complaint shows.
Even with the high costs, United is unlikely to downsize or move its Newark hub. “Because United has no practical alternative to EWR for its hub in the NYC metro area, it has no choice but to pay the excessive fees the Port Authority charges for access to EWR,” it says in the complaint.
High airport costs are simply a fact of United’s strategy to operate hubs in high revenue markets like Chicago, New York and San Francisco, says Cornelius.
“You’ve got to take the good with the bad,” he says.
Source: Cirium Dashboard
