Across the Aisle from Pittsburgh Airport’s Executive Director on Pittsburgh’s Rise and Fall as a Hub (Part 1)

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.

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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 Across the Aisle from Pittsburgh International AirportEmbry 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.

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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.

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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.

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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 Rise and Fall of the Pittsburgh Huband 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.]

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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.

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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.

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And that’s it for Part 1. Come back on Thursday and we’ll talk about how PIT rose again.

36 Responses to Across the Aisle from Pittsburgh Airport’s Executive Director on Pittsburgh’s Rise and Fall as a Hub (Part 1)

  1. PIT is a good example of the phase ‘don’t put all your eggs in one basket’. An airport with one giant carrier may be riding high with that carrier, but one little thing happens in the airline industry and they can loose their ‘eggs’. An airport with about equal service between a few carriers or one airport like ORD with a large operation by AA and UA, can fair better if something happens to one carrier.

    • LAFlyer says:

      While that would certainly be the ideal, I think that to a large extend, it’s outside of an airport’s control. You only see that kind of diversification at large mid-continent cities (ORD because Chicago’s a premium destination, and DEN, well that was kind of a fluke), and premium coastal markets (NYC, BOS, DCA, and LAX being the poster-child of diversification). Otherwise, a lot of the big-but-not-huge city airports are fortress dominated by one airline: DFW, IAH, HOU, MSP, DTW, ATL, MIA, CLT, PHL, BWI, IAD, with a bunch of others STL, CVG, MEM, PIT transitioning from having been fortress hubs to their new reality of being spokes.

    • J Gorham says:

      We’ll see how the “all eggs in one basket” fors for whatever comes out of AA and MIA.

      But, with few exceptions, hub or no, it seems that airports end up with one dominant carrier (United at IAD, for instance, USAirways at RIC) and the airports either go up or down with the fortunes of that carrier. If the airport is big enough, or is located in the right geographical area, it’s ok. Otherwise, you get what’s happening at Pittsburgh to some other once-thriving hubs (St. Louis? Memphis?)

      • Todd says:

        MIA is not a true domestic hub; it’s a hub for North American connections to Latin America. Because of its physical location (and cultural ties to the region), it’s always going to be a major player in the US to Latin America (and the Caribbean) market. Whatever happens to AA, MIA will still have lots of service to Latin America.

  2. Michael says:

    I remember as a teen going from MKE-PIT-SRQ and TPA on different occasions It was a great airport to connect to other USAirways flights. It is spacious and was very easy to get through the concourses. Then it had an awesome mall to kill time between flights. I miss making my connections there!

    • I remember it being a great airport.. I always enjoyed connecting via PIT.

      I remember one time in 1993, we had flown from DAY to PIT as a major snowstorm in the northeast was starting up. We were late on that flight and dashed to our gate to find that our PIT to SAN plane wasn’t there.. Because it hadn’t arrived. We waited four hours or so for it to arrive, then got on it, and we got out. One of the bumpiest takeoffs and climbs I remember.. I enjoyed the new 757-200 on that flight. US Air’s 757’s had a newfangled IFE at the time.. It had games and a controller/telephone unit that was below the armrest… As I recall it was $3 for a game for the flight, on a little black and white screen.. We spent all of that major snowstorm in SAN engaging in schadenfreude while watching the weather reports of those back east..

      • I’m also pretty sure that wasn’t the US Air flight where the flight attendant brought me up into the cockpit midflight.. She was summarily scolded by the pilots and that visit didn’t last long..

  3. CRB says:

    PIT was a great hub to connect in back in the 1990s. It was a quick hop for me from DCA/BWI and then I was able to connect to pretty much anywhere I wanted to go. The last time I went through PIT in the heyday was 2001 and then not again until 2007. It was shocking to experience the ghost town feel after the hustle of the hub operation six years earlier.

  4. It is a chicken and egg argument to some extant. I am of the camp that you will rarely, if ever, see a LARGE market airport suffer the fate of PIT, STL, MEM, etc. The void would just naturally be picked up by another carrier since those markets are so lucrative. It is not a matter of “putting all of your eggs” in one basket, but rather being a basket worthy of having eggs being put into it.

    • But the stated reason that US Airways moved more of their operations from PIT to PHL was because PHL is a better O&D market to sustain a hub. PIT has O&D, but not as much as PHL.

      PHL on the other hand.. ugh, nowhere near as nice a terminal.. At least the last time I was there 13 years ago.. (I think..)

  5. Vinay says:

    I think that the real “elephant in the room” was sidestepped to a degree; you didn’t ask him point blank about why they refused to lower fees when US Air threatened to de-hub

    • CF says:

      And how exactly do you propose to do that, Vinay? The way a residual lease and use agreement works is that all the costs are added up and then all the non-signatory airline revenue is added up. The difference is covered by the signatory airlines. So it’s not like Pittsburgh could just decide to lower rates for US Airways. If it did, the other signatory airlines would have to pay an insanely high amount to make up for that shortfall. And if that can’t happen, then the airport is out of money.

      On top of that, the CPE was $6. That is cheap. A couple extra bucks less was not going to keep US Airways there. It simply isn’t a city that can support a hub.

      • Jim says:

        Yes, that’s the answer I would have expected, but it would have been interesting if you had asked that question and told us what he said.

    • CF says:

      Well Vinay and Jim – The good news is that I can always go back and ask. As I suspected, this wasn’t an option. The airport operating agreement requires the airport to be fair to all airlines.

      • Mitch says:

        If there is a budget shortfall, I believe all airlines would make up the difference, not just signatory airlines. Signatory rates are always lower than non-signatory by a certain percentage. That’s the point of signing a signatory lease.

        Furthermore, the CFE was more like $8, which was was NOT cheap at the time for a market like Pittsburgh.

        I don’t think anyone ever suggesting lowering the fees for only US and not the others. The question still stands – I would also like to hear from Mr. Penrod as to why the fees were not lowered for ALL the carriers when US Airways was threatening to pull the hub.

        Instead of facing the disadvantage US had with high fees at PIT, local officials instead insisted PIT’s O&D was too high for them to leave (it wasn’t high then and its not high now), and concentrated on pie-in-the-sky projects such as a $600 million maintenance facility.

        During the 1990s the ACAA seemed very arrogant in their stance that US Airways would never pull out from PIT, all while passenger traffic was stagnant the entire decade as rival US hubs in PHL and CLT boomed.

        Furthermore, Allegheny County had a grand opportunity to lower fees for all the airlines at PIT a few years ago though the leasing of natural gas wells on airport property. But local politics interfered as the County Executive insisted that this revenue be directed toward the County’s general fund – against FAA policy. This went on for years, and has just been resolved so that the airport gets 50% of the revenue and the other 50% goes into escrow with the hope the County can change the long standing FAA policy for its own use (good luck with that). But guess what? Now natural gas prices are too low and gas companies aren’t interested. Another screw up, and I’d like to hear Mr. Penrod’s opinion on how the County turned this potential lifeline into a debacle. But of course since they sign his paycheck I doubt we’d get an honest answer.

        This notion that PIT has “risen again” is pure nonsense. For a city its size, air service remains well below other similar non hub cities such as Kansas City and Portland. Both Southwest and JetBlue have publicly stated the cost of doing business at PIT has prevented them from expanding more. Southwest has just announced a new PBI-PIT flight for next year, but what the ACAA won’t announce is that during the same time they are reducing a flight at Ft. Myers, Ft. Lauderdale, and Las Vegas. One step forward and two steps backward. Spirit Airlines chose Latrobe over returning to PIT because PIT is too expensive compared to LBE.

        Pittsburgh’s economy has been booming the past few years, but traffic growth is stagnant and well below the national average. In fact, it is lower now than a couple years ago when it supposedly bottomed out. O&D is now much lower than its peak in 2007, and only slightly higher than during the peak of the US hub.

        Is this all the ACAA’s fault? of course not. But no one wants to focus on their hand in this either.

  6. Ian says:

    Hey Cranky, great interview so far! Would you please give your readers some perspective in reference to CPE (Cost Per Enplanements). By that I mean Brad says their average CPE is $13.80 but what is that number compared to other airports? For instance, how does Pittsburgh compare with Miami (which historically has a very high CPE) or another airport which might have a low CPE. Thanks!

    Ian

    • CF says:

      Ian – Good question. On the high end in the US, we have that debacle down in Miami where CPE is pushing $30. That’s just insanely high and it’s a big reason why low cost carriers have shunned the place. But Miami is an important gateway for Latin America and it’s not going to disappear because of it.

      Other big airports are bound to have higher CPE as well. I would say that the mid-teens is probably not out of the ordinary by any stretch when we’re talking about big gateway cities. Of course, some get above that quickly.

      Anything below a big gateway shouldn’t be over $10 as a very rough guide, at least, that’s how I’d look at it. Look at a place like Memphis. It has seen service shrink so its CPE has been climbing. It was around $6.50 but it’ll be over $8 now. That’s a normal place to be, but another thing about Memphis is that it doesn’t have a Passenger Facility Charge. So more of the total fare paid goes to the airline.

      If you want to see some outliers, look for places that have overbuilt or have strange ownership arrangements. Ontario, for example, sits at a high $12. That wouldn’t be bad if it were a more important destination but it’s very high for something that’s just a reliever airport. Indianapolis and its palace of a terminal is over $10, but it’s been coming down a little from a peak of over $11. San Jose is around $12. At last check, Sacramento was going to be north of $17!

      Of course, there are airports that are low as well. Burbank was around $2 last I checked. Of course, that terminal has been there forever so they just don’t spend money there (except for this new big transportation center)

  7. PIT is (was?) probably the best designed and most convenient connecting hub airport in the country. Shame it is no longer utilized that way but that became inevitable due to industry consolidation, the amazing lenience of bankruptcy protection (multiple times in the case of the former US) and the comparatively small O&D market of PIT. Same story, different chapter at STL and is now ongoing at MEM and CVG.

    • CF says:

      Bill from DC – I wouldn’t blame lenient bankruptcy laws for this one. Without that, US Airways would have just gone out of business. Nobody would have come to backfill a hub in Pittsburgh either way. (Don’t get me wrong. I’m not a fan of our bankruptcy system, but I just don’t think it matters here.)

  8. tharanga says:

    I have to emphasize what some others are saying – when PIT’s new terminal opened, it was absolutely revolutionary, and a joy to connect in – very efficient, and pleasant. PIT redefined what an airport could look like inside – people may forget how miserable the food and shopping options used to be in US domestic terminals.

    I protest at this being ‘across the aisle’. it should be ‘yakking on the phone’

  9. Jeff S says:

    SMF is $25+ CPE (today) with that new $1b terminal and $800k red rabbit, plus a nice monorail that travels a few hundred feet to baggage claim. Ha. Airlines wont be adding any service than what is in place now and even that is at risk for capacity reductions above what is being cut around the country. Too costly and not needed.

    Of course, PIT has to bear the cost of the infrastructure they have with no airlines to cover it… not their fault, but it is what it is. I think they’ve managed quite well getting down to $13 CPE. I think it was $18 a year or so ago. It’s great to see some airlines paying $8, of course that would be their largest carrier… but some might be paying $18 still once all costs are factored in. I call an overall CPE, an uncooked number. It’s higher and lower for some carriers. A carrier with one flight a day is going to pay that $18 or so at PIT when when office, holdroom, ticket, landing, apron, parking, etc is added up.

    Airports can’t lower CPE for one carrier, it would be illegal according to FAA and revenue diversion. Airlines can organically lower CPE by increasing the number of enplanements they do. Airports need to scrutinize their budgets and choose construction projects (among others) wisely… no $1B terminals with 200 gates when current use is 20 gates. Cost is one of a number of factors that affect service, along with population, fortune 500s, O&D, geographic location, attractions (Disney World for example) fares, etc etc etc an of course the way the airport chooses to market what they have to work with. Good people in PIT, I wish them to best! They’re doing a great job promoting themselves. I look forward to going there one day for a conference.

  10. Steve says:

    I really, really miss the PIT hub. It was US’s best hub, because of the people. PIT is one of the country’s friendliest cities, and it was reflected in the people of US at PIT. The airport was awesome to connect through, with plenty to do, nice clubs, good food options, and plenty of flights to everywhere. Those were the days.

  11. yo says:

    Anything about the sham airline Ed Beauvais tried to start out of PIT? Northern Airlines IIRC?

    • CF says:

      yo – I had totally forgotten about that one. It didn’t come up, mostly because it’s ancient history and probably not on anyone’s radar!

      • I was always under the impression that Ed Beauvais Northern Airlines was to be based in and operate out of SYR. This is the first I have heard anything about PIT….

        And why does “yo” refer to it as a sham airline? If I recall correctly, several years went into planning Northern. It wasn’t a fly-by-night operation. It was an airline that was several years in the planning?

        That may be off topic to the conversation…. but, again, I don’t recall the proposed Northern Airlines ever having a PIT base.

  12. Brett, you wrote: “Brad has been with PIT since the early 1980s.” Does that make him a movie star like Brad Pit(t)? Sorry about that groaner.

  13. Pingback: Across the Aisle from Pittsburgh Airport’s Executive Director on Pittsburgh’s Recovery After the Death of the Hub (Part 2) - >> The Cranky Flier

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