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Airports brace for fewer flights, passengers

August 11, 2008

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Passengers exit Terminal D at the Dallas-Fort Worth International Airport on Sunday in Grapevine, Texas. Airlines are cutting flights under the pressure of rising fuel costs, and that means fewer passengers and less money from parking and food concessions at DFW. For the first time in its 34-year history, the airport is freezing its budget and rethinking future expansion plans.

Passengers exit Terminal D at the Dallas-Fort Worth International Airport on Sunday in Grapevine, Texas. Airlines are cutting flights under the pressure of rising fuel costs, and that means fewer passengers and less money from parking and food concessions at DFW. For the first time in its 34-year history, the airport is freezing its budget and rethinking future expansion plans.

— From his office overlooking the runways of one of the nation's busiest airports, Dallas-Fort Worth International Airport Chief Executive Jeffrey Fegan sees the slowdown coming this fall.

Airlines are cutting flights under the pressure of rising fuel costs, and that means fewer passengers and less money from parking and food concessions at DFW.

For the first time in its 34-year history, the airport is freezing its budget and rethinking future expansion plans.

"We couldn't do that even after 9/11," Fegan says.

With the airline industry in a nosedive, airports are hitting turbulence: After years of growth, they are delaying capital projects, freezing hiring, and considering increases in everything from landing fees to parking. Concessionaires are hurting, and many expect to close.

The problems are greatest at secondary airports that are losing a bigger share of their flights and lack international service to shore up weak domestic traffic.

Airlines pulling out

Airports in Cincinnati, Cleveland, Houston, Honolulu, Las Vegas, Oakland, Calif., Columbus, Ohio, and elsewhere are expected to lose more than 10 percent of their scheduled service later this year as airlines eliminate flights.

Oakland, which is losing service from American and Continental Airlines Inc., is canceling a terminal project. So is Columbus, hit hard when hometown carrier Skybus Airlines shut down in April after finding it could not keep offering $10 flights when jet fuel was $3 a gallon.

In San Luis Obispo, Calif., Delta Air Lines Inc. is pulling out after just one year, ending service to Salt Lake City. And American Eagle will depart, dropping its five daily flights to Los Angeles and closing a maintenance base that has been around longer than Eagle.

"American was an absolute shock," said airport director Klaasje Nairne. "They were always the hometown airline. They were in the downtown parades. They invested in the community."

The airport planned to spend $60 million on a new terminal and parking garage. Now both are in limbo, Nairne said, although she expects county supervisors will approve a scaled-down terminal.

"We have a number of businesses that depend on good air service," said David Garth, president of the San Luis Obispo chamber of commerce. "It's going to be much harder for us to convince a high-tech company that they should come here. It hurts."

Most U.S. airlines are cutting flights after the heavy summer travel season to reduce costs and drive up fares. They suffered big losses in the first six months of this year, largely because of a huge increase in jet fuel prices.

Leaders of dozens of airports, many of them smaller ones, were worried enough that they called an emergency strategy meeting last month in Washington.

They heard politicians blame the airline industry's problems on inadequate U.S. oil production and oil-price speculators.

Losing revenue

Relatively speaking, Dallas-Fort Worth is sitting pretty thanks to a stroke of only-in-Texas good luck - an energy company has already paid the airport more than $160 million to drill for natural gas, and royalties could boost the tab for years to come.

Even so, American and American Eagle will cut flights here beginning next month. Airport officials predict the number of passengers will decline more than 7 percent, to about 54 million in the fiscal year that starts Oct. 1, the smallest number in five years.

That will mean about $15 million less in revenue from parking, rental cars and concessions, said CEO Fegan. Besides freezing the budget, landing fees will rise "slightly," he said, and airport officials have tossed around the idea of closing part or all of one of the terminals to save money.

In Cleveland, Continental Airlines Inc. spoke just last year about increasing capacity by 40 percent in two years. Instead, it will cut available seats 13 percent and end nonstop service to 24 cities.

There will be about 160,000 fewer passengers a week passing through Los Angeles International Airport, where capacity will fall nearly 11 percent, according to airline industry database Innovata. American, Delta Air Lines Inc., and UAL Corp.'s United Airlines are making big cuts; low-fare Southwest Airlines Co. is standing pat.

'Uncertain times'

Airlines and airports often have tense relationships - partners in the travel business, but adversaries when it comes to haggling over landing fees.

Southwest is the only major U.S. airline not shrinking and so it stands to pay a larger share of landing fees. Last month, CEO Gary Kelly complained that unlike airlines, airports do not control their spending during economic downturns, which runs up the tab on the airlines.

"We have a few airports out there that I think are spending more than they should, quite frankly, and so there are some real total airport cost increases that we are very vocal about," Kelly said.

"The more you raise fees, the more you drive airlines and customers away," said Howard Putnam, a former Southwest Airlines CEO and now an aviation consultant.

Airport executives say they get the message and are keeping landing fees as low as possible.

Deborah McElroy, executive vice president of the Airports Council International, a trade group for airports, said Kelly's comments reflected the short-term view of airlines that must report to shareholders every quarter.

"It's rhetoric I've heard for 41 years, but I understand," McElroy said. "These folks aren't sure if they're going to be in business in six months."

Airports plan for growth years into the future, she said, and they're starting to ask carriers to stand behind long-term projects.

Although airports depend on airlines, they are seen as much better investments because they have more sources of revenue, including federal grants.

Airline stocks have rallied the last three weeks because of a drop in oil prices, but they are still far below their early-2007 peaks. Airline debt, except Southwest's, is in junk territory while airport bonds are solidly investment-grade.

"On the other hand, airports are very dependent on the airlines bringing passengers," said Kurt Forsgren, an analyst with Standard and Poor's. "Airports are headed into uncertain times."

Comments

jmadison 6 years, 4 months ago

Good idea, but the same incompetent types who run the airlines would run the railroad. Mussolini was the only one who could get the railroads to run on time.

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