I recently had a fantastic opportunity to talk by phone with Brad Penrod, Executive Director/CEO, Allegheny County Airport Authority. Yep, that’s the authority that oversees Pittsburgh International Airport (PIT) one of the first mid-size cities to lose its hub when US Airways walked away nearly a decade ago. Brad has been with PIT since the early 1980s. That means he’s seen seen it all throughout his career, and he was there the day Pittsburgh opened its massive new 100 gate terminal in 1992. It was the first in the US to really try the mall-in-an-airport concept, and it worked well. But the hub only lasted for another decade. Now it is operating with half the number of gates it opened with.
In part 1, we’ll dive into the rise and fall of the hub. Then on Thursday, you’ll learn about how the airport fought to improve air service options after the fall. For those who live in cities like Cincinnati and Memphis, this could be your future, if your local airport authority handles things well.
Cranky: If you could just start with giving me a little bit of your background that would be great.
Brad: I actually started here as a college intern while I was going to Embry Riddle. Went back to school and at the time the ops section here was reorganizing. They asked if I wanted a job and I said, “Ok.” And I’ve been here ever since then. That was 1982.
Cranky: So you’ve seen everything.
Brad: We’ve been through some neat and interesting times. I think the [current midfield terminal] building as we approach 20 years in October has aged a lot better than I have.
Cranky: When you came on, Pittsburgh was up and coming. British Airways started in ’85 or ’86 with Transatlantic service and USAir kept growing. When was the decision made to say “we need to build this big new terminal”?
Brad: We started that discussion in the early ’80s. As deregulation happened, USAir starts to get bigger and they acquired several airlines. At the time, USAir is probably one of the fastest growing, most profitable in the business. Our old 1952 terminal building was running out of room. They needed substantially more. Because of airfield and highway constraints and the obvious taxi times and fuel cost savings with a midfield complex, USAir and the county said “here’s what we’re gonna do.” I think June 1987 was when the lease was signed and ground was broken for an opening in October 1, 1992.
Cranky: You’re sitting here with USAir and they’re involved in the whole thing of course. I’m sure there were disagreements but this isn’t the airport saying “we need this” and the airline saying “No we don’t.”
Brad: I wasn’t involved in those discussions but understand too that the agreement to build the building would not have happened without USAir signing the agreement. Whether it was financing or finishes, a construction billing was not issued to contractors without a USAir signature on it.
Cranky: In 1992 it opens, and everything is great. USAir is still growing, so when are the first ripples of problems coming up from USAir?
Brad: I think it was really post 9/11 like a lot of other peers. Bankruptcy allows companies to do different things. And then bankruptcy #2 came and they did things they were allowed to do under bankruptcy law for the betterment of the company, and so we got through that and got beyond it. It was really post 9/11 in bankruptcy.
Cranky: So there wasn’t really any sort of rumbling before that at all? It was just “we’re still here, we’re still happy, and everything is good.” It was only when they had the bankruptcy option in front of them that they said ok, we’re going to make changes.
Brad: Right. Literally the Friday afternoon before bankruptcy #1, I was on a call with their facilities folks about adding additional building space. That Sunday evening filing was a little bit of a surprise.
Cranky: What happens in bankruptcy #1?
Brad: They were gonna reject leases. At the time they were operating off of, call it 54 gates, because they had all of the A and B concourses and a couple gates on C. And 25 express doors. Uncertainty was the big thing. We worked with them through that process. They approved some of the maintenance hangars and … they assumed 10 gates of the 54. They operated for a couple different years and couple different ways on a couple additional non-signatory gates. They worked that way until bankruptcy #2. But they held true to the 10 signatory gates they have to this day. [Ed Note: Signatory carriers are responsible for the financial success of the airport and have sway on what does and doesn’t get done at the airport.]
Cranky: The express gates are gone, right?
Brad: Most of that building is still here. We actually turned it into an alternate checkpoint. As the hub went away and low cost carriers came in, the local origin & destination traffic has obviously increasd. With that said, we had to build additional checkpoints to meet that demand from the low cost carriers.
Cranky: When did the express gates go away?
Brad: I think it was November 2004. That’s the benchmark date as far as the hub officially being de-hubbed.
Cranky: And then bankruptcy #2 comes out it’s not US Airways. It’s America West with a new name. When that happens, what is the approach when Doug Parker and company come to you. How are you dealing with that?
Brad: They make business decisions they make. We’re used to a hub environment with 104 cities nonstop. There’s some adjustment from what we do as a hub vs what we do as a strong origin & destination market. Everybody understands what it takes to run a hub. In a non-hub environment we had to change gears at 100 mph. From an airfield perspective we were fortunate and blessed with an outstanding airport infrastructure. It’s the same quality but you just don’t need the same quantity. In bankruptcy, US Airways had rejected the maintenance functions for loading bridges and bag belts and flight information display screens (FIDS). So we stood up a section of our organization to take over maintenance not only for US Airways but for everybody else. We kind of set the standard and learned a lot of how airline functions take place.
Cranky: At the time this is happening, you’re losing a crazy amount of service, meaning you’re losing a lot of revenue. You have to assume a lot of these formerly-airline provided functions which means your costs are going up as well as the debt that needs to be serviced. How are you working with that and saying to other airlines, “Hey we need low cost service but our costs aren’t that low”?
Brad: When US Airways said “we’re gonna dehub Pittsburgh,” it was a $6 cost per enplanement (CPE). The other airlines saw what was taking place. There was a significant effort to recruit low cost carriers. The first was AirTran, then Southwest, then JetBlue. They all came to town understanding the detail of the residual use and lease agreement [Ed Note: This means that the airlines collectively pay the costs of operating after all other airport revenues have been used to offset the total costs]. They saw a business opportunity and a very strong local and regional economy.
Cranky: Where did your costs go on a CPE basis? How did they go from $6 over the years?
Brad: Today we are at $13.80. That’s an average. There are carriers in the building today that have a CPE of about $8.
Cranky: And that’s not an introductory incentive?
Brad: No. We do have incentive programs for new routes and overnight parking, etc. But no, even with US Airways downsizing and our CPE going up, we’ve had the big three low cost carriers enter the market and I think they’re performing well. At least, I have not been told otherwise.
And that’s it for Part 1. Come back on Thursday and we’ll talk about how PIT rose again.