During the Phoenix Aviation Symposium last month, I sent out a tweet quoting US Airways CEO Doug Parker as saying that he didn’t see any domestic air service growth potential beyond growth tied to the Gross Domestic Product (GDP) of the country. In other words, we have all the service we need domestically now and the only growth will come from further economic growth. That set off a good back and forth between me and Greg Principato, the President of Airports Council International – North American (ACI-NA). I thought it would be worth revisiting the discussion here.
ACI-NA is the big trade group representing airports, so you can imagine that our discussion quickly turned toward airports in relation to growth. Did Doug’s statement mean that there wasn’t a reason for airports to build and grow? Greg sees Doug’s underlying point as being that there’s “no need for new investment.” But when it comes to airports, Greg certainly thinks there is a need. So, is there?
Readers of this blog may think that I’m against any airport investment, but if you think that, you’re misreading me. I’m against stupid investment, and there is a lot of that around the country. I’m all for smart investment when it makes sense. My favorite example is, of course, JetBlue’s Terminal 5 at JFK. JetBlue needed a new operating space and they built one that’s excellent and not overly-expensive. I’m also a fan of San Francisco’s redo of Terminal 2 for Virgin America and American. I’m even a fan of the recent refurb of LAX’s Terminal 6.
But there are far more examples around of wasted expense. Think about Sacramento’s new monster, the new terminal building in Indianapolis, or the new Bradley Terminal expansion at LAX. Don’t even get me started on Miami.
Those are projects that cost a lot and inevitably hurt the air service in the community. Now, Greg was quick to remind me that “‘cost-effective’ and ‘cheap’ are not synonyms.” That is very true. But these projects were simply overbuilt. Does LAX need a soaring roof to look like the waves and the mountains? Does Sacramento need a train to get people to the new concourse? No. In both those situations, there was a need for something new. LAX has a Bradley Terminal with small holdrooms and almost no concessions behind security. It’s a mess. And Sacramento had an old terminal that was falling apart. But these facilities could have been built for function instead of form, and the benefits to the public would have been greater.
The way airports are funded in the US means that airports need to be smart about this. They can’t just go and build a massive, gleaming new operation like in Beijing because travelers will have to pay for it. In the US, they either pay directly via the Passenger Facility Charge (which tops out at $4.50 after Congress refused to allow an increase to $7.50) or they pay indirectly via higher fares because it costs the airlines more to operate.
So if an airport builds too much at too high of a cost, then it stands to lose service. Greg points out that it should be the community’s decision, and he’s right. As he says, “There is that risk that communities must, and are willing to, accept. Should not be up to feds or airlines.” But the problem is that the community doesn’t have much of a say.
If someone says to you, “hey, you want a fancy new airport?,” you’re going to say yes. But what if they say you can only have it if it means fewer flights? Then it’s a different story. But it really doesn’t matter what you say because the airports aren’t often run by elected officials. You can’t vote out an airport executive if she does something against your interests. You don’t get to vote on how airports spend their money. So the community doesn’t really get to decide.
Instead, airports that build smart and keep costs low benefit from greater levels of service. Those airports that build too much and get too expensive risk losing out. Think about LAX. Will it lose a lot of Asia flights if costs go up by $10 a person? Maybe not. But the airport is set on spreading those costs around to all airlines. So will Southwest be hurt on its flights to Phoenix if costs go up by $10 a head? You bet. Those flights may not be as glamorous, but they’re very important to a lot of people, and they will see cutbacks.
So, airports should be able to spend money as they see fit, but when they mess up, they risk losing service and doing a great deal of damage to the community. Responsible spending by an airport is great, there just needs to be more of that.
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45 Comments on "Who Should Decide If An Airport Builds?"
Thanks for the good word Cranky….all this time I had not been immpressed with the utilitarian look of ATL….I think they went for ‘cost-effective’ when built in the 80’s. But its efficient. They have a new international terminal opening up that looks a little more modern and nice inside…..what do you think of that one?
I haven’t actually studied a lot about the new international terminal project. I’ll have to look into that in greater detail one of these days.
I am participating in a “trial run” of the new ATL International Concourse on 5/3. There will be about 1500 volunteers who will all bring luggage and check in and go through the motions.
And ATL actually has relatively low lease rates especially in the 7 year lease extension (of the original 30 year lease) with the signatory carriers. Space in T through D has a very low square footage cost. And ATL is smart about how they bill tenant improvements. They are kept separate from the rest of rent, and allocated to the tenants who actually use it. So if they build a stone mural in the center of B concourse, Delta is the one who is going to pay for it over time.
I’d be curious if you (or your readers) have an answer on how to make airport authorities more responsive to the general public. Here in Columbus our nine-person board is appointed: four by the city, four by the county and one jointly between both. They do a fair job now but this is after the “lessons learned” after the Skybus build-out. Is there a better way to run things? Should these be run by the county or state DOTs? Anybody have a local board which is particularly effective? How is it appointed?
I don’t know that there is an answer. I think it just means that there’s greater burden on the airport management to do what’s right since the accountability is so loose. Of course, it’s easy for management to go crazy and do what they want precisely for that reason. There’s no perfect solution here – maybe having an elected official would help but that would be the extent of the involvement I think would be right.
Indianapolis airport is run by a board of officials who are appointer by the mayor of Indianapolis. Granted these are not directly elected officials by the public, but they are still held accountable by a directly elected official. If the airport board screw up, presumably the mayor can fire them. Seems to me like a fairly good check (in theory at least) to ensure an airport board doesn’t get too excited about playing with big fancy new toys. The question however, is why Indianapolis airport’s board managed to get away with spending all the money….
The only thing about someone appointing members to any board is that those members can be loyal to the person who appointed them and not work for the over all good of the area. I have to vote for school board members and I don’t have kids in school, so it makes sense that the people should vote for airport board members since an airport can effect the whole surrounding area in many ways.
This of course turns into a problem of how far down you’d like to push representative democracy. Should they hold a vote of passengers based on the number of flights (or maybe revenue dollars) spent at a given airport in the past year?
David – That’s exactly how it works in LA. The problem is that the mayor wants a monument to memorialize himself after he leaves office, so he doesn’t care to act in the best interest of the people either. But for a mayoral election, the airport is a pretty minor point that people don’t care about unless they’re directly impacted. So there really isn’t great oversight.
Thanks Cranky….I had always felt like ATL was boring (cost effective, when built back in the 80’s, but efficient). So now that I realize thats cool….what do you think of the new international terminal there that is about to open? It looks a bit more modern….in your view did they do a good job on that one?
So the new LAX Bradley terminal will look fantastic when it’s done, but it will still be surrounded by the other crappy looking terminals. People will still drive to/from the airport along old crappy roads with dumpy businesses. So why spend a lot of money to make the outside look good when it will still be surrounded by ugly?
Cranky, what do you think about the “new” international terminal at SFO? The old one was quite a dump, and I think the new one both beautiful (as far as airport buildings go) when you approach SFO from 101 and functional. Not sure about the cost or impact on service.
I love the new international terminal, but it was a huge waste of money at the time. The airport has spent the last decade scrapping and clawing to bring airline costs down so it can attract new tenants. It’s done a very good job and has reduced costs substantially, but the new terminal was a big issue when it was first built.
Brett, I’m going to disagree with your assertion that the SFO international terminal “was a huge waste of money at the time.” The former international terminal was woefully inadequate in every way. The design of the new terminal was, for an airport, relatively constrained. What I remember in its construction were delays and cost increases due in part to airline requests. For example, UA was originally going to locate the international F lounge within the Red Carpet Club, and then decided it wanted a separate facility. That added to the costs, but it wasn’t SFO’s fault.
Fair enough, Henry. And you definitely were paying closer attention than I was at that time. But my recollection was that the building itself was far more expensive than it needed to be. In particular, the design of the ticketing hall was an issue. I’ll agree that the placement was out of necessity and that was going to require additional expense, but SFO really suffered after it built that terminal and it took years for it to recover traffic.
Good to know all of that, thanks Shane. Looks like BWI handled things smartly (reducing scope and all) and still ended up with a very nice facility. I flew UA a lot out of the former “stub” of gates that made up concourse A (before they built the actual concourse) and US when concourse D was jam-packed. Maybe I just get a little too bummed out when I visit concourse D now but clearly the airport is on the right track!
Bill – Today, most airlines in the US freak out at the idea of a new expensive facility. That may be a far cry from some of the previous managements in past years, but airlines have gotten much smarter. So you won’t see an airline supporting an absurd expansion these days. In fact, you saw quite vocal opposition to San Jose and Sacramento builds. The current fight is in Philly, where there is a massive objection to a billion dollar plus runway.
Why can’t airports finance nice projects by turning the airport into a destination. Duty Free Sales, attractions, paid lounges, plenty of freebies like observation decks. Singapore Changi generates 18 million transit pax annually AND gets them to spend $30 each on average, yet still has plenty of freebies. US domestic hubs clearly have the volume, so I don’t see why more effort is invested in the airport experience.
ATL’s concourse E does have some domestic flights that use the gates for a couple of reasons. The first is a domestic flight whose plane will continue on as an international flight. The second is space. There are simply not enough domestic gates during hub times. Fortunately, most of the international hub times are different than the domestic ones. The new concourse F that will open in three weeks will have seven international gates and a new international terminal. I will see the new terminal and concourse on 5/3.
Awesome, hope you can report back some of the interesting details. I wonder if E will continue as a “mixed use” terminal for both international and domestic flights or if ATL will convert it to all common-use gates. I am guessing F will be the designated international arrivals terminal (but I am surprised it’s only 7 gates) and E will handle many of the international departures (especially those that started as domestic arrivals).
I can’t believe you left SJC’s new terminal off your list. Talk about expensive…
Isn’t the right solution here some sort of privatization or commercialization? Perhaps strangely that is more common in Europe and Australasia.
Don’t forget the environmental impact studies for all of the above. Heaven forbid if a small, rare amphibian (or worse, something with fur, something more photogenic) is impacted by any of the above. Not to mention the NIMBYism, the possibility of local opposition over additional pollution (air, noise, etc), and so on and so forth…
This was a great, informative, well written article in which I learned a lot…especially because the way business is doesn’t make much sense…it’s totally counter-intuitive…just like much of life I guess…good job Brett…joanie