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.