Increasingly on Their Own

The US Government’s failure to remove the cap on the country’s Passenger Facility Charge (PFC) has left US airports having to be more self-reliant. Tom Allett reports from the 84th annual AAAE Conference and Exposition, hosted by Phoenix Sky Harbor Airport.

The 84th American Association for Airport Executives Conference and Exposition, held between April 28 and May 2, attracted over 2,000 delegates to the desert heat of Phoenix, Arizona.  While the Mercury didn’t quite hit the 100°F mark, it settled in the high 90s every day.
Despite the weather, the hottest topic was the US Administration’s recent failure to provide the cash that airports say they need for future development.  Although the US Government, through the Federal Aviation Administration (FAA), was successful in passing much-delayed legislation that provided funds for airport development, in fact it amounted to a funding freeze for the year ahead.  All four of the FAA’s accounts, including Facilities and Equipment, ATC Modernisation and the Airport Improvement Program (AIP) are affected.  The AIP budget was set at US$3.35 billion, but that is estimated to be a reduction of about US$165 million compared to previous years’ allowances.
Top of the airports’ angst list was the failure to lift the cap on the nation’s Passenger Facility Charge (PFC).  The PFC is a local fee that is used by airports to build specific safety, security and capacity projects that are recognised by the FAA.  The current PFC limit – set in 2000 – is US$4.50.  Airports Council International North America (ACI-NA) calculates that, due to inflation, the PFC is now effectively worth $2.38.  Some airports had said they were prepared to forgo their slice of AIP funds in return for being able to set their own PFC level, but it wasn’t to be.
 
Disconnect
Generally speaking, there is a huge difference of opinion between the airlines and airports.  The airlines are obviously against anything that would lead to ticket cost rises; including those that would result from any rise in the PFC, so the continuing freeze is good news from their point of view.  They underline this position by stating that the taxes air passengers have to pay have already doubled over the last 20 years.
Meanwhile, the airport operators have a different opinion.  Many see the PFC as the key to financing their airports’ future development.  The majority of US airport operators feel that they should be able to set their own individual PFCs at local level.  They believe that the government doesn’t need to set fixed fees to protect the travelling public from potential overcharging for two reasons.  One, the PFC is used to fund programmes that are visible to that airport’s passengers – and therefore generally accepted because travellers can see where their money is being spent; and two, simple market forces would automatically protect passengers.  Airport managers feel that any facility that charged an excessive PFC would simply drive its passengers away, thereby ensuring that PFCs remain fair and reasonable.  Nothing is going to change in the near future though.
While stuck at $4.50, the PFC is obviously becoming less important as an independent source of funds and US airports must look elsewhere for capital.  To complicate matters further, at the same time, the US Government is proposing to revoke the tax-free status of municipal bond interest earnings and place a 28% limit on tax-exempt interest for higher-income taxpayers which, the financial experts say, would inevitably raise airports’ borrowing costs.
Though the recent funding Bill did set out guidelines to try to ensure that regional airports’ interests are protected, many industry watchers feel that the large hubs still swallow up too big a slice of this ‘cake’ and that the regional airports inevitably miss out.
The sense of frustration ran particularly high for two US regional airport managers I spoke to on the second day of the conference.  I agreed not to name them when they said that they felt that the only way that they could get the Government’s attention on the issue of funding was to close their airports on safety grounds.  One explained, “People say to me ‘what, you can’t do that’ but I reply, who says that we can’t; I’m beginning to think [that closing your airport temporarily is] the way ahead.”
Inevitably, when looking for development funds, US airports are finding themselves increasingly on their own…
 
NextGen
Though funds have been earmarked for the progress of the long-awaited NextGen air traffic control revolution, some experts think it is unlikely to become a reality without further taxpayers’ money.  In these times of record high oil prices, the efficiencies that NextGen would bring should shave millions of dollars off airlines’ fuel bills.  Insufficient funding means no NextGen – and no NextGen-generated fuel savings will surely reduce all airlines’ survival chances.
A far-less critical but nevertheless significant question for some US airports is how will the proposed merger between American Airlines and US Air affect them?  At AAAE Phoenix, Matt Kirby, President of US Airways, was one of the keynote speakers.
Referring to the possible merger he said that it had some unique features.  “It’s a merger that is built and led by the labour [union] leadership and all of the 55,000 employees that those labour unions at American represent… this merger saves them jobs and gives them better contracts.”
He continued: “The merger creates the foundation for a new paradigm of management and labour relations,” and added that the previous consolidations undertaken by both Delta and United had enabled them to outperform their respective rivals, thanks to their huge global networks and the ability that gave them to win large corporate accounts.
He added: “The merger is good for the consumer because it brings a third player onto the playing field, particularly for those corporate accounts that have global travel needs, or for those elite business customers.
“The deal is also very good for small city services; two complimentary networks put together create growth opportunities.  There are some 31 cities on the east coast that US Airways serves and American does not; some of those would get services to places like Dallas and Chicago … whereas today it doesn’t make sense for American to fly one or two flights a day from those cities.
“Similarly, there are some 56 cities in the Midwest that American serves and US Airways doesn’t.”
With more than a decade of financial strife suffered since the ‘9/11’ attacks on the US, Mr Kirby pointed to the various restructures of the last few years.  He noted that the US airline industry was on the verge of moving into an age of three major US networks that would work within three major network alliances, which he sees as a very positive step.

AAAE 2012 took place inside the huge Phoenix Convention Centre. (KEY-Tom Allett)

With regard to the thorny issue of PFCs, Mr Kirby predicted that airlines will grow through introducing larger aircraft – thereby offering more seats rather than departures – as he thought that, in many cases, infrastructure upgrades wouldn’t be as critical as FAA forecasts predict.  “We are reluctant to commit to large long-term capital projects until we have a high degree of confidence that they are needed,” he added.
He continued by saying that airlines across the industry would continue with the current process of introducing larger aircraft types on existing routes rather than increasing frequencies.  On regional routes he said this means replacing 50-seat aircraft with 70- to 90-seat aircraft, stating: “The labour arbitrage between regional jets and mainline flying is not as large, and as the legacy carriers’ pay scales have come down through bankruptcy closer to what regional carriers pay, it has become less competitive to fly a 50-seat regional jet against a mainline aircraft.  And, as fuel price goes up, the price per seat goes up at a faster rate for smaller aircraft.”  Talking about fuel prices led him to the importance of NextGen, describing it as the most critical of issues as, he said: “We are still running a system designed in the 1920s to fly bonfire to bonfire, and we are still following those same routes in the sky today; it’s incredibly inefficient.”
 
Had to smile…
For me, an ironic footnote to the event was that, by pure coincidence, at the closing gala dinner, I sat next to the recently-retired Operations Director of Detroit Airport.  I joked with him, saying that I was sorry to hear he had just retired as I was flying back to London via Detroit in the morning and only had a one-hour 20-minute connection time.  Would my bag make it?  Perhaps his associates could ‘go that extra mile’ to ensure that my bag made the connection!  He laughed and assured me that the Phoenix-Detroit-London transfer route was long-established and wouldn’t present any problems.
In the end though, I had tempted fate just a little too much and inevitably my suitcase stayed in Detroit 24 hours longer than I did, but at least it caught up with me eventually!
 
Awards
The AAAE is well known for recognising the efforts of its members and associates and this year three individuals and one company received awards for their contribution to the aviation industry.
One of AAAE’s highest levels of recognition for airport professionals is the Distinguished Service Award (DSA).  The association describes it as, “a reflection of outstanding accomplishments in their professional and personal lives,” the winners of which, “exemplify the best in airport management by continually bringing credit to the profession and the aviation community.”  Bob Bogan, Deputy Executive Director of Morristown Municipal Airport, New Jersey, and Jim Rice, Director of Michigan’s Bishop International received the 2012 and 2013 DSAs respectively.
The Chair’s Award was presented to Jim Elwood, Director of Colorado’s Aspen/Pitkin County Airport.  First established in 1954, this award is given at the discretion of the AAAE Chair to an individual for his or her outstanding contribution to the airport management profession and to AAAE.  Outgoing AAAE Chair, Kelly L Johnson, recognised Mr Elwood for his contributions to the industry, including serving as AAAE Chair and as President of both the Northwest Chapter of AAAE and the Colorado Airport Operators Association.
On the corporate front, Michael Baker, Jr, Inc was awarded the prestigious AAAE Corporate Cup of Excellence for 2012.  The Corporate Cup has been presented annually since 1986 to the company that the association feels has made the most significant contributions and improvements to the airport industry and to AAAE.  A committee of airport executives serving on the AAAE Board of Directors selects the recipients.
The 85th Annual AAAE Conference & Exposition will take place between May 19 and 22, 2013, at Reno-Tahoe International Airport in Nevada.
 
New Leaders
As usual, during the Phoenix event, AAAE elected its leaders for the year ahead.  On May 2, Bruce Carter, Director of Aviation at Quad City International Airport in Moline, Illinois, began his term as the association’s Chair for 2012-2013.  Mr Carter was one of six Executive Committee Members, and five new Board members were elected by the AAAE membership during the event.
“AAAE’s success representing airports over its eight-plus decades is a tribute to the continuing contributions made by the association’s exceptional volunteer leaders,” AAAE President Chip Barclay said.  “The outstanding collection of leaders chosen by their peers to lead the association for the next year will continue this rich tradition.  Our Board is a cross-section of the industry, both geographically and in terms of airport size, putting AAAE in an ideal position to effectively represent the airport industry in the year ahead and well into the future.”
Joining Mr Carter on the Executive Committee are Mark Brewer, Airport Director, Manchester-Boston Regional Airport, elected First Vice Chair; Randall Berg, Director of Airport Operations, Salt Lake City Department of Airports, elected Second Vice Chair; and Jeffrey Mulder, Airport Director, Tulsa Airport Authority, elected Secretary/Treasurer.  Kelly L Johnson, Airport Director of the Northwest Arkansas Regional Airport, is AAAE’s First Past Chair, and James Bennett, CEO, Abu Dhabi Airports Company, rounds out the Executive Committee as Second Past Chair.
Newly elected AAAE Board Members are Luis Elguezabal, Airport Director, San Angelo Regional Airport; Michael Landguth, Airport Director, Raleigh-Durham Airport Authority; Gina Marie Lindsey, Executive Director, Los Angeles World Airports; Alfred Pollard, Director, Martin State Airport; and Marshall Stevens, Deputy Executive Director, Harrisburg International Airport.
Board Members continuing their service are Scott Brockman, Executive Vice President & COO, Memphis-Shelby County Airport Authority; Ann Crook, Airport Manager, Elmira Corning Regional Airport; Rod Dinger, Airport Manager, Redding Municipal Airport; Timothy Doll, Airport Director, Eugene Airport; Mark Gale, CEO, Philadelphia International Airport; Claudia Holliway, National Aviation Business Developer, THE LPA GROUP, a unit of Michael Baker Corporation; Stacy Hollowell, Senior Marketing Manager, Siemens; Kim W Hopper, Airport Manager, Portsmouth International Airport; Phillip Johnson, Deputy Executive Director, Kent County Department of Aeronautics; Todd McNamee, Director of Airports, Ventura County Department of Airports; Carl Newman, Assistant Aviation Director, Phoenix Sky Harbor International Airport; Torrance Richardson, VP Government Affairs & Strategy, Columbus Regional Airport Authority; Walter Strong, Administrator, Max Westheimer Airport, University of Oklahoma; Alvin Stuart, Superintendent of Operations, Salt Lake City International Airport; and Paul Wiedefeld, Executive Director, Maryland Aviation Administration.
Added to the AAAE Policy Review Committee (PRC) was Jim Elwood, Airport Director, Aspen/Pitkin County Airport.  Continuing their service as PRC members are: Bonnie Allin, President/CEO, Tucson Airport Authority; Rosemarie Andolino, Commissioner, Chicago Department of Aviation; William Barkhauer, Executive Director, Morristown Municipal Airport; Krys Bart, President & CEO, Reno-Tahoe Airport Authority; Thella Bowens, President & CEO, San Diego County Regional Airport Authority; Larry Cox, President & CEO, Memphis-Shelby County Airport Authority; Alfonso Denson, President & CEO, Birmingham Airport Authority; Mario Diaz, Airport Director, Houston Airport System; Kevin Dillon, President & CEO, Rhode Island Airport Corporation; Thomas Greer, General Manager, Monterey Peninsula Airport District; Gary Johnson, Airport Director, Stillwater Regional Airport; Lynn Kusy, Executive Director, Phoenix-Mesa Gateway Airport; Ronald Mathieu, Executive Director, Bill and Hillary Clinton National Airport; Erin O’Donnell, Managing Deputy Commissioner, Chicago Midway International Airport; Bradley Penrod, Executive Director/CEO, Allegheny County Airport Authority; Elaine Roberts, President & CEO, Columbus Regional Airport Authority; Ricky Smith, Director of Airports, Cleveland Airport System; Susan Stevens, Director of Airports, Charleston County Aviation Authority; and Mark VanLoh, Director of Aviation, Kansas City Aviation Department.

2 Comments

  1. Hello
    I am interested to know where i can find information on single till or dual till pricing and related regulation for US Airports.
    Thanks
    Amlesh

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