Who Should Decide If An Airport Builds?

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.

Airport Costs vs Air Service Levels

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.


45 Responses to Who Should Decide If An Airport Builds?

  1. Pedro says:

    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?

    • CF says:

      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.

      • BarryATL says:

        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.

    • Kilroy says:

      I actually like ATL as an airport. It’s not glamorous, and delays can be bad, especially during thunderstorm season, but it WORKS and is pretty efficient, requiring relatively little travel time between gates and between gates and the ticketing area, given the size of the airport.

      I would argue, however, as Cranky does above, that that train system works well mostly for really big airports, not small hubs. CVG, for example, has a train that isn’t really necessary, and certainly wouldn’t be necessary if most flights were in the terminal closest to security instead of the one farthest out (grr..). Makes it an absolute chore to get in and out of.

      I’ll also add a mention of TPA. Its people movers are very efficient, and it is literally (I have timed) 12 minutes to get from the puff of burnt rubber on the runway (before the plane has even slowed, let alone hit the gate) to feet on the curb or in a waiting cab. Very fast for an airport of that type, and I’m a fan of that kind of design.

      MSP, on the other hand… What a chore to fly through there. Tons of walking and moving sidewalk/train trips, poor/nonexistent signage, and far out from the city center given its size. I think the last time I was there it took me 1/2 hour just to get from the gate to the rental car, absolutely absurd.

      • Jason says:

        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.

  2. 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?

    • CF says:

      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.

  3. David says:

    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?

    • CF says:

      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.

  4. Pedro says:

    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?

  5. 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?

  6. Oliver says:

    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.

    • CF says:

      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.

      • Oliver says:

        I remember Southwest leaving (not sure if it was driven by cost increases due to the international terminal), but now they are back, and there are also VX and B6, of course. I used to fly out of OAK or SJC on occasions, but haven’t in about a decade (I live much closer to SFO, making ground transportation significantly easier).

        I agree with your comments in the blog post about the new Terminal 2. I went to the open house last year (haven’t had a chance to fly on AA or VX since then), and it’s a beautiful space, but it didn’t strike me as extravagant. Just contemporary.

      • 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.

        • CF says:

          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.

  7. james says:

    When DIA (DEN) was built in 1995 it was partly on the premise of Continental and United both having giant hubs. When it opened it had fewer gates than Stapleton, just a ton more space. Fares were much higher and it took people years to get used to the drive. But now there’s healthy competition (hopefully here to stay), concourses are packed and nobody sees it as a white elephant.

    But during its construction it was considered as grandiose and overbudget as any current project now. If a project is truly built for the long term and build out I believe it’s a good thing and does benefits the next generation. But I understand the absurdity of big projects in declining regions and economies. (Mid-America/St. Louis….)

    When I’m in Colorado Springs I always see that separate (now empty) wing that was constructed solely for Western Pacific.

    • CF says:

      james – Denver loves to crow about what foresight it had, but it could have done a better job of reigning in costs and making the facility more affordable. Continental might have stayed had that been the case. You never know how things might have turned out.

      But Denver is also riding high on one of the only big air service bubbles in the US. Milwaukee’s has finally popped, but Denver continues to have 3 airlines fighting it out with more service than is need. United has a strong position and Frontier has no other choice. Southwest continues to make poor decisions by staying and growing in the market, but I think it assumes that some day it will do better.

  8. So much to say about this but, in a nutshell, it all comes down to simple cost/benefit analysis.

    First, as CF wrote, soaring rooflines and other expensive features are exactly that… expensive. However, since airport authorities are usually quasi-governmental entities with appointed members that don’t always have to account for public reaction to total expenditures. Often, these people and boards can see this new building as their legacy. Few people, if any, get to weigh in on whether certain aspects are needed or whether less expensive alternatives exist.

    Second, airlines frequently “twist the arms” of airports to get fancy new terminals (i.e., a “competitive advantage”) by threatening to reduce or not expand existing levels of service. So you end up with BWI having a fancy new Terminal A and rebuilt Terminal B all for WN when the giant terminal D remains a complete dump and is nearly empty. Couldn’t Terminal D have been renovated for WN at much less expense, with A, B and C also renovated to accommodate the other airlines? Of course, PIT is the ultimate cautionary tale about building a palatial airline hub only to see the airline abdicate the throne, leaving the PIT taxpayers holding the bag for hundreds of millions of dollars.

    Finally, in the case of ATL, I thought Terminal E was built to be the international terminal? I know it opened just before the 96 Olympics. I have taken many x-atl flights from there and thought it was a very fine facility. In addition, I have seen many DL domestic flights from Terminal E which led me to believe that ATL’s intl needs were being fulfilled and that gate space still existed in E for domestic flights. So I wonder… is the new intl terminal reflective of the need for more domestic capability (i.e., converting E to all domestic) or more intl capability? In my experience, the international capability was more than adequately fulfilled by Terminal E but ICBW and others should know more than I do.

    • Bill, I am the David that commented on BWI on the Hobby post. You are looking at the BWI situation with the benefit of hindsight. At the time of the A/B expansion/renovation, C and D were both being actively used – SWA needed the space. The merger activity over the past few years (and SWA’s BWI success) really took its toll on those terminals. Having said that, BWI does not compare to Pittsburgh in that the ‘surviving’ airline at BWI is very healthy and growing. Most airports would love to have BWI’s growth trajectory. At the time, they made the right decision, IMHO.

      • You are correct on all counts, I probably should have used another example for airline-specific expansion but went back to the BWI well. I can’t recall how much of the airport was in use when the plans were being created but I think it has worked out well for BWI now and over the long haul as they also did a lot of other infrastructure work that upgraded the whole airport when they built the new Terminal A. Px levels at BWI are at new highs and they can always shutter a terminal and rebuild it when future expansion makes that necessary. Sorry to pick on BWI, I actually like flying from there when I can’t do DCA!

        • Shane says:

          I was living in Baltimore at here time of expansion. Not only was Southwest using all of B and almost all of C and growing exponentially, but US Air filled all of D including all of the commuter gates. When US started to pull back AirTran filled about a third of the void.

          Now with AirTran moving in with Southwest, BWI has an active project to connect B and C, which it did temporarily during construction of A-B.

          Finally and to the point, even with all of the record growth through the expansion, BWI made some large cuts to the construction projects. There was originally going to be a tram between long term parking, the terminal and rental car facility. That was cut for costs. Even with a tram you still need shuttle busses in the Parkin lots so the trams always seem like a waste as long as you have dedicated bus access lanes to the terminal.

          • 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!

    • CF says:

      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.

      • Jason says:

        There’s also the issue of as flights are removed and carriers drop out of an airport, costs typically increase for those who are left.

        As an example, look at Sarasota (or any airport where all charges are basically common use, or allocated based on usage). Also, most airports have joint or shared use rent that is allocated to cover the cost of all areas not part of a specific tenant leasehold (think corridors, public spaces, etc). For many of these, just because one airline leaves doesn’t mean the pie is going to get any smaller… it’s just divided into fewer pieces. In SRQ, AA pulled out and costs went up. CO pulled out, costs went up. Now AirTran with roughly a third of all traffic is pulling out. Some have questioned now the viability of jetBlue continuing service as costs will climb.

      • Sanjeev M says:

        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.

        • Sean S. says:

          The difference lies in customers; simply put American views of airports are more akin to bus stations, a place where you go for the sole purpose of being transported elsewhere. The only time you spend money is if there is something you forgot, something missing, or, like food, something you have to have.

          The reality is, in many countries, the airport itself is an attraction due to its size, architecture, and the fact that many people in a given country may not routinely fly or it may be reserved for individuals within the more rarified upper classes. Compare and contrast that to the the bucket rate leisure traveler in America whose interest is in his destination, and not the experience of travel in and of itself.

    • BarryATL says:

      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).

    • mowogo says:

      The problem with Concourse E at ATL is that passengers terminating in ATL have to clear customs, re-check their bags, and re-enter the sterile area to get back to the terminal to leave the airport. This creates a very bad experience for international visitors to the city, however the city avoided fixing this until there was enough justification to complete the direct line of terminals so they did not hamper growth.

      The airport has been operating near capacity during peak times, with both DL and WN having plans to grow the operation long term. Fortunately, because of market dominance, DL was able to pressure ATL to keep the costs down on the new terminal in order to prevent it from becoming an Albatross to the community, and the increase in PFC is going to be quite mild because of it.

  9. I can’t believe you left SJC’s new terminal off your list. Talk about expensive…

  10. Exiled Antipodean says:

    Isn’t the right solution here some sort of privatization or commercialization? Perhaps strangely that is more common in Europe and Australasia.

    • David says:

      Privatisation of an airport also has its downside. Is an airport a public utility, or is it intended to make money for the airport owner ?
      If it’s a public utility, you get public officials over spending on infrastructure with those fancy soaring glass ceilings. Those public officials are however very keen that the city should be well connected to the rest of the world as it helps the local economy and keeps the mayor and voters happy.
      If it’s a private business and the airport is dominant in the local area (very few cities have 2 competing airports with good service from a variety of airlines), then the airport operator is likely to keep on raising fees to make a profit while letting the infrastructure fester – an airport operator doesn’t care about the number people travelling to / from the airport, they care only about revenue. Of course, private companies do tend to be run more efficiently than those owned by Govt.

      Which is better ?

    • CF says:

      So far, privatization efforts in the US haven’t really worked. Midway tried but failed because there really wasn’t room for growth. The operators have no interest in facilities that can’t grow because how will they make a good return on their money?

      The problem with airport privatization for consumers is that they are almost always in monopoly situations. Sure, in Chicago, O’Hare is there to keep Midway in check. But in most places, the airports are the only game in town. They can jack up rates and become more profitable even if it means less service. They don’t care about service levels, so there is a disconnect.

  11. Sean S. says:

    Infrastructure projects are always a risky bet, since they run off certain presumptions about growth that may be completely way-layed by changes in the economy, changes in how people travel, as well as changes in airplane technology. For instance, with the possibility for long, “thin” routes with the 787, this opens up certain O&D routes that may see the return of service to medium sized airports.

    Do facility charges and the like matter? To a certain extent. But nowhere near as much as whatever it is that bring people to that city, be it tourism, or local industry, or what have you. Viewing service within the lense of airports I think is putting the cart before the horse.

  12. JayB says:

    I’m amazed that any airport gets built/improved given the nightmare of dynamic elements that affect the operation, the efficiency, the economy of such an entity.

    Exhibit A here in the DC area: Metropolitan Washington Airport Authority

    –a 13-member board of directors (5 appointed by the Governor of Virginia; 2, by the Governor of Maryland; 3, by the Mayor of the District of Columbia; and 3, but the President of the US.),
    –two airports: IAD and DCA,
    –an access highway from the Virginia Beltway to IAD,
    –a toll road alongside the access highway,
    –an extension of the Metro system from West Falls Church, through Tyson’s Corner, to IAD, and maybe, as sort of aggreed to, beyond IAD,
    –various airlines of all sorts (some domestic, some domestic using regionals, some international, some with a hub, some in bankruptcy at one time or another, some no longer in operation at all, and others that may or may not still be in operation tomorrow),
    –a local travelling public of several different counties and States,
    –a non-local inbound and transiting travelling public,
    –a local constituency that doesn’t travel but will be asked to pay for some type of infrastructure, regardless,
    –etc.

    No problems, of course. As to the future, Good Luck!

    • Kilroy says:

      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…

    • Demo says:

      I think you’re both being overly cynical about the governance structures for these airports. I’d be the first to tell you that MWAA has it’s dysfunctions but tell me what authority body doesn’t? They have done an admirable job growing IAD and managing DCA.

      Kilroy to your point, would you rather there not be regulations to govern pollution, noise and protect our natural environment? or is it just the general “there is too much regulation”? you know regulations aren’t put into effect to create problems they’re there to fix them and make sure they don’t occur in the first place. I for one think it’s great, even if it’s sometimes frustrating NIMBYism…, when citizens fight for things which are important to them even if it’s flight curfews which force me to fly into IAD or BWI late at night, or environmental groups which lobby resulting in efficient aircraft, or EPA regulations which required the replacement of re-fueling storage tanks which seeped thousands of gallons into the ground? community pressure is an exercise of our democracy and without it our airports would be less safe, less efficient, louder, less effective and more environmentally destructive.

      Come up with a better system and I’ll gladly listen.

  13. Joel says:

    Cranky, Any thoughts on the Terminals at PDX? I like the C concourse which was rebuilt about 10 years ago. It has a nice spacious feel, lots of natural light, use of carpeting and wood paneling, has an actual bookstore besides the newsstands and many choices of food concessions (with the same pricing as off airport restaurants) on the secure side of the TSA checkpoint. I keep hoping they will redo the A gates waiting area as this often feels cramped and humid from all the bodies packed into this relatively small space. On the north side, The International D gates area seems way too cramped, I can’t imagine it would be a pleasant experience for a widebody planeload of pax waiting to board a flight there.

    I read somewhere that the controllers working in the tower at LAX are not too happy with the roof height of the TBIT west gates expansion as it leaves them a significant blind spot on a major cross-field taxiway that will have also have aircraft pushing back onto it.

  14. Jim says:

    I completely agree with Parker’s basic premise. There is far too much airport infrastructure in the US. Too many terminals, too many control towers, too many runways. Every large city wants flights all over the world, every medium city wants to be a regional hub, and every small town wants regular scheduled service. It obviously cannot work that way. The market cannot support all of this, so incentives become necessary. We have reached a point where it is routine for taxpayers to subsidize airlines to fly planes, and this true for airports of all sizes. As long as there are too many airports chasing too few flights, these incentives will be necessary.

  15. Joanie says:

    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

  16. Don Murray says:

    I just returned from China. Their airports are so much larger than ATL, ORD or any other US ones. The domestic (not international) airport in Shanghai was had so few gates (only about 100 or so) that they had to bus us to the plane (about a 10 minute ride passing uncounted planes). And this was their domestic hub. Their international hub was also huge. It took about a 3/4 mile march from the landing gate to baggage claim.

    In Beijing, we saw terminals when we were still about 2000 feet in elevations. As we landed, well down the runway, we still went about 20 minutes before coming to a gate. Beijing is a HUGE airport. It also has gates for A380s which take up a huge amount of terminal space for departing passengers.

    The other Chinese airports we visited weren’t quite as large, but pretty large compared to a US midwest airport (not including ORD).

  17. One of the challenges for airlines regarding airports is that, as has been noted, the airport governing boards generally have political appointees. The people who sit on those boards may have no knowledge of the airline industry, other than their own experiences as a traveler. That is inexcusable. And while in theory an airport authority should factor its airlines’ points of view as it considers expansion, I don’t believe they do so as well, or as consistently, as they should. It seems to me as though airport leaders focus more on construction than the need for, and execution of, any construction/development. A wavy roofline is fine. The architect and design teams should, however, be directed by the airport leadership to design that in the most practical, cost-effective manner possible.

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