Welcome back for part two of my across the aisle interview with Brad Penrod, Executive Director/CEO, Allegheny County Airport Authority. On Tuesday, we talked about the rise and fall of the US Airways hub in Pittsburgh. Today, we get into the aftermath, and how Pittsburgh dealt with the change.
Cranky: So where you are today is you have low fares to some of the popular destinations but you don’t have flights to the smaller destinations.
Brad: Yeah, we go to 36 destinations which serves 75 percent of the desires of the business community. And then everything else is one stop because of the hub system. I’d like to say that we’ve led the way on how to get through this interesting and challenging time and I think we’ve done it quite well. We’ve spent a lot of time on air service with community partners and government officials actively engaged.
Cranky: You said 75 percent of the business market needs. What’s the top of your wish list?
Brad: Seattle, San Diego, then probably Richmond and Indianapolis, Kansas City, and we’d like to get Milwaukee back just because we just had it dropped by Frontier. And on the international side, we’re very fortunate to have Delta Paris service so that helps with connectivity out of Paris.
Cranky: For that Delta [Paris] service, are you still paying for that one or is it on its own now?
Brad: That’s on its own now. It was on its own for all of last year and this year. For the first two years there was a corporate subsidy. We’re actually managing some local foundation dollars for advertising but that’s not ours.
Cranky: Early on I seem to remember it did not do very well. So it’s picked up?
Brad: Yeah, and understand that it was announced in November of ’08 and launched in June ’09 and so it was a challenging time to be in the airline business let alone launching international service.
Cranky: You have solid service from traditional low cost carriers. You have legacy carrier service to the hubs and a little more than that with US Airways. Other than that, I guess it would be hard for you to serve the ultra low cost carrier market. Is that something you’re interested in? I mean, Spirit sort of serves Pittsburgh through Latrobe, but I would assume that’s a very low cost airport.
Brad: Our mortgage payment based on a hub designed for 32 million people expires in May of 2018. There is an absolute cost of doing business here. Latrobe is giving everything away for Spirit and that’s what it took to get them in. We have a use and lease agreement that doesn’t allow us to do those kind of things. We’ve talked to Spirit and we’d love to have them in the building but I know they’re happy with Latrobe too.
Brad: One of the things we are actively pursuing is what we call the Pittsburgh connector. We keep hearing from the commercial service airports across the state that they really want to be connected to Pittsburgh, because right now the only way to do that is through Philadelphia. But there are a lot of companies that do business in other parts of the Commonwealth. In essence, the connector is an independent express carrier probably with turboprop equipment to serve multiple smaller cities in Central Pennsylvania and bring them back here. We’re in partnership with 13 other commercial service airports. We’re managing that grant program for everybody and we should have a business plan in place.
Cranky: Of course the problem is people say they want it but they don’t want to pay anything for it.
Brad: Bingo. But their options are to drive, and it’s not a short drive, or fly through Philadelphia and people sometimes don’t like to fly through Philadelphia.
Cranky: It’s not going to make or break your airport, that’s for sure.
Brad: What’s interesting when they say “make or break,” we now have a better credit rating than we ever did as a US Airways hub.
Cranky: Why do you think that is?
Brad: What they told us is we’ve diversified our revenue in things like real estate development and jetway rehabilitation. As US Airways walked away from facility maintenance, we had to get into that business and start buying parts from the original manufacturer. They said, “you know you guys are doing this and you’re good at it. Would you like to be our exclusive rehab depot east of the Mississippi?” So we make a profit every time they ship us a jetway. We do land use consulting. We do public safety training.
We’ve diversified the carrier mix so we’re not pinned on any one carrier. Years ago, we had all our eggs in one basket. US Airways is 27% of traffic now. Southwest is actually our largest passenger percentage carrier. So the fact is we’ve diversified our portfolio and kept our costs under control. We had one early retirement and two reductions in force early on. We’re sized where we have to be now. No matter whether it’s a hub or an origin & destination airport, you still have to plow the snow. We make the mortgage payment. And with the exception of one small building, all the buildings US Airways used to be in are occupied by other companies. We’ve reinvented ourselves. Would I like to see more service? Absolutely. But are we a sound organization? Absolutely.
Cranky: Was there ever any talk of closing any of the runways? You have four, right?
Brad: There was. We have 3 parallels and a crosswind. In the hub environment, you need every piece of pavement all the time except at midnight so we did all maintenance at midnight. Now, in the wintertime, we don’t treat certain runways like we used to. I won’t say it’s closed but what we keep open we keep within the safety confines. But a lot of time if the crosswind runway has snow accumulation for three days, we don’t get too excited about it. We take advantage of that capacity.
Cranky: You talked about real estate development. Is this just the US Airways buildings or is this something else?
Brad: This is all non-US Airways. It’s all new. Over the last 8 years, what we do is coordinate with the county economic development office. We have a level shovel ready pad in Western Pennsylvania which is kind of hard to come by in this rolling terrain. We’ve got about 2 million square feet of new building space made up of 16 different buildings. Dick’s Sporting Goods has its headquarters on property. We have the US Airways operation control center. We’ve got a solar manufacturer. We have a tire distribution center. We have a FedEx postal facility. We’ve got a very large commercial printer on property. We’ve leveled 1 million yards of dirt, pushed a hill into a valley. We just signed an agreement with a developer on new tracts on the east side.
Cranky: What were the total gates when you opened the facility?
Brad: There were 75 jet gates and 25 express gates for US Airways. And the 25 express gates are gone and you’ve cut off A & B at the curve.
Cranky: How many are operating now?
Brad: We have 50 gates today. Of all the gates that are open today, in later afternoon and early mornings we’re actually out of gates. In fact, we had one carrier ask us to open up the A concourse this summer. We’re chewing on that because they know that the current rates and charges do not include that opening. If that’s what they want, we try to listen.
Cranky: I imagine that’s no small task.
Brad: We could turn on all those gates within a total of four days. Most of it is just putting flight information display system (FIDS) monitors in, giving it a good cleaning, and tearing down the partition. I’ll say that and the maintenace guys will probably throw something at me.
Cranky: You said 2018 is when the mortage is paid off and then all of a sudden your rates can go down.
Brad: Well we’ll take $62 million out of the equation each year.
Cranky: What’s the relationship like with US Airways these days.
Brad: Honestly, very good. We understand that they had to make some pretty tough business decisions. Did the region take it on the chin? Absolutely. There’s no hiding that. But at the same time, by law and it’s the right thing to do, we treat all airline operators equal. Would we like them to be back to something near where they used to be? Absolutely. I would guess US Airways would be the first one to say that Pittsburgh has done a very good job of living within its means.
Cranky: But you would want that back? If you get it back, it probably means you lose low cost carrier service.
Brad: I think there’s a happy medium in there. We know they’ve got good service to the cities they serve and they know we have good service by other carriers to cities they serve. I think the market can take more US Airways back and we can take more low cost carriers and be ok.
Brad: As the region grows, air service grows. And air service growth helps the region so it’s that constant feed… One of the things we tell people all the time is that we’re a community asset and we have 440 people that can travel so the region has to support those flights absolutely. As the region grows, the largest natural gas play allegedly in the world and we’re sitting right in the middle of it, that drives a lot of business and it’s going to open up a lot of business opportunities and air service demand.
Cranky: Thanks, Brad.
Read the first part of the interview on the rise and fall of the US Airways hub in Pittsburgh.
“””””Years ago, we had all our eggs in one basket.”””””
I laughed when I read that since after part 1 I said ‘don’t put all your eggs in one basket’.
It’s good to hear the airport has done something to go beyond only making money off air travel itself.
Fascinating read, particularly as one not at all well-versed in airline/airport operations. Hope you continue to do more of these series down the road.
Great interview, Cranky.
It might be interesting to talk to someone in a similar position at MKE — lord knows that airport has been host to an amazing amount of airline tumult over the last 20 years. What they did to manage the transition from being a stable, one-airline town to Midwest being in trouble, the battle between Midwest and AirTran, the arrival of Frontier, the arrival of Southwest, the merger of Southwest and AirTran… Makes what PIT went through seem like a cake walk. :)
Michael – True, Milwaukee would be of interest, but Milwaukee is sort of on the fall right now. I should ask them about how they plan to rise again. Maybe I’ll reach out.
A great read and good interview. Perhaps you need a series of these talking to airport directors across the country. I’d love to hear an interview about DEN, especially since you still stand behind your thoughts that DEN can’t stay a 3-hub airport in the long term.
Interesting read. I wonder if they’ve talked to Alaska about Seattle. It’d fit right in with AS’s strategy and work nicely with a hub on one end, and it’d give SEA another possibility to connect to Europe.
Nick – I’m sure they’ve talked to Seattle. Airports are never shy about reaching out to every airline on earth to ask for service. Alaska might actually be interesting. I don’t know if it’s the next best opportunity for the airline but it could be up there. And if there really is a big natural gas connection – I wonder if there’s going to be any traffic increasing to the state of Alaska itself. (Not sure how much business would be in that flow.)
It is tough when an airport loses its hub status, ask STL. I remember COS talking about expansion back when Western Pacific was making all kinds of promises. Gotta wonder if there are any cities that are planning to replace their airports, in this economy… I remember AUS and DEN doing it. Thank God someone slapped down McCain, he wanted to close PHX Sky Harbor and build a completely inconvenient mega airport 50 miles south in Casa Grande (it would be 50 miles north of TUS). That would have been a disaster for everyone…except the people who owned the land and made the political contributions…..:)
I found the comment about the airport being out of space and a request to open up more of Concourse A to be interesting.
I wonder, first, who that carrier would be and how many gates they would like to see re-opened.
If I recall correctly, Southwest currently uses the first few odd-numbered gates on Concourse A and are the only tenants on that concourse.
The even numbered gates across from Southwest are still easily available. I am not sure why adding FID screens, doing a deep-clean and tearing down the partition that closes off the higher-numbered gates would be necessary?
After all, the even numbered gates across from Southwest are all, as far as I can tell, vacant and ready for immediate use?
Fascinating interview Brett. And it would seem a model on how to survive when your major client downsizes.
The selling off / leasing off land adjacent to the airport has become a gold mine for airports around the world – most airports here in Australia are the same – large co-located business parks and/or retail centres.
It’s nice to hear from a CEO about what’s going on in the airport. I admit I’m impressed with the changes that have happen and the direction they seem to be going in.
Great read must. Hearing from Brad directly and getting to know what he feels and his thouhgts is a wonderful experience. Nice stuff Cranky.
Nice interview. ACAA (like all public authorities) has some inefficiencies and political problems but this CEO seems knowledgeable.
I’m curious to see which airline wants to open up the A concourse.
So if I’m reading this right, after 2018 PIT costs should be next to nothing?
Sanjeev – I don’t know about “next to nothing” but they will go down quite significantly from the very high place they are today.
I’d love for you to have this same chat with STL’s director. It’d be interesting to hear what she has to say about AA’s de-hubbing and how/if they’re trying to bring in new carriers.