Lower airline fees at Pittsburgh International Airport may not mean more flights
June 21, 2014 11:27 PM
Darrell Sapp/Post-Gazette file
A jet makes its final approach at Pittsburgh International Airport.
By Mark Belko / Pittsburgh Post-Gazette
For airlines, flying out of Pittsburgh International Airport might seem like a bargain come 2018.
That's when most of the debt spawned by the midfield terminal construction more than two decades ago will be gone. With it, the cost to the airlines to board a traveler at the airport, now at $13.92, could drop by several dollars, perhaps much more.
With lower costs, can more flights -- maybe even another hub -- be far behind? Don't bet on it. In fact, some industry experts don't think it will make much of a difference at all.
"I don't know that it's going to be the great panacea," said William Swelbar, a Massachusetts Institute of Technology airline researcher and executive vice president of Intervistas Consulting, an aviation consulting firm. "I don't know that it's going to suddenly remake Pittsburgh into a hub. It's not going to do that. But you may get some marginally new flying."
As airlines are merging and concentrating their hubs in the biggest cities, the ability to fill planes is what gets an airline's attention, not necessarily lower rates, Mr. Swelbar said.
Consider John F. Kennedy International Airport in New York. At $26.06, its cost to board a traveler is more than $12 higher than in Pittsburgh.
Based on cost alone, "Nobody would be flying to Kennedy airport," one of the busiest in the country, said Michael Boyd, a Colorado-based aviation consultant.
Blaming a lack of flights on the boarding cost doesn't make sense, he said.
"In terms of attracting a whole lot more service, that's not going to make any difference," he said of less expensive rates in Pittsburgh. "It's not a big enough deal. It's not keeping airlines out of Pittsburgh."
Two of Pittsburgh's largest carriers, American and Southwest, while grateful for the anticipated reduction in fees, noted that the airport's cost is only one factor in determining whether to add flights.
"We really look closely at whether the demand is there," said Thais Conway, a Southwest spokeswoman.
Nonetheless, others see the airport's fortunes taking a turn for the better.
William Lauer, an Allegheny Capital Inc. principal who has followed the airline industry for years, estimated that carriers could add 25 to 30 flights and maybe more in a budget-friendly environment. That might not be on par with a hub airport, but it would be a good consolation prize for a service-starved region.
Pittsburgh International's charge to board a passenger -- an industry benchmark known as the cost per enplanement -- has long been a sore point, not only to airlines but to advocates for more and better service.
Before US Airways shut down its Pittsburgh hub in 2004, the airline, now part of the new American, pressed Allegheny County to slash airport costs. Some believe the airline still would be operating hundreds of flights a day here -- instead of the current 42 -- had the county done so.
At $13.92, the airport's cost per enplanement is higher than those of airports in Philadelphia, Los Angeles, Chicago (O'Hare) and Charlotte. It's also $6.16 more than the 2012 national median, according to Moody's Investors Service.
But the cost per enplanement is largely a product of passenger traffic -- the more an airport has, the lower the charge typically will be.
In 2000, when US Airways operated its hub in Pittsburgh and the airport boarded nearly 10 million passengers, the cost per enplanement was $6.27. Today, if the same number of travelers boarded instead of the 4.1 million anticipated this year by the airport, the cost would be even lower -- $5.86, according to airport calculations.
US Airways' hub cut hit hard
Everything changed after 2001 when US Airways systemically cut hundreds of flights from Pittsburgh and dismantled its hub.
The cutbacks sent the cost per enplanement soaring to a high of $14.97 in 2011 and forced other airlines to shoulder a greater share of the midfield debt, much of which US Airways had pledged to cover to pay for a terminal built to its specifications.
Mr. Lauer is among those who believe the airport's high cost has deterred airlines from adding flights. That can be particularly true, he said, in situations where an airline is weighing starting service in Pittsburgh against another market.
"It goes into the cost calculus," he said.
The airport has taken steps to ease the burden on the airlines.
It is using $36.4 million a year in state gambling money, passenger facility charges and Marcellus Shale revenue to offset the annual $67.1 million debt service payment paid by the airlines and mostly related to the midfield terminal construction.
As a result, the airlines, in essence, are paying $13.92 per boarding on a $30.7 million debt payment. Had the airport done nothing, the boarding cost probably would be $9 higher, said James Gill, the airport's acting executive director.
In 2018, the airlines will get a big break even without the subsidies. The annual debt payment will drop to $22.7 million. Even without offsets, the cost per enplanement should drop a "couple of dollars" to the $10 or $11 range, Mr. Gill said.
Throw in potential Marcellus Shale royalties and passenger facility charges, and the boarding cost could plummet another $4.50 or so to $5 or $6, he said.
Even then, Mr. Gill isn't sure what impact it will have on flights, noting that the "dynamics of the industry make it difficult to project."
At the minimum, he hopes to attract service to some markets the airport has been targeting in recent years -- places like San Diego, Seattle, New Orleans, San Antonio and Kansas City, Mo.
"We see it as less of a hurdle for us to make some of those opportunities more realistic or more feasible because the costs at the airport become more competitive," he said.
Mr. Gill conceded that cost alone won't drive business. The demand has to be there. "If an airport's cost is zero and there's no demand for a flight, it's not going to operate," he said.
He won't get an argument from county Executive Rich Fitzgerald, who called the airport cost a "piece of the puzzle" but said that "less than 50 percent" of an airline's decision on starting or adding service is made on that basis.
Bigger factors include industry changes and market conditions. Mr. Fitzgerald said regional growth and population gains are far more important tools in attracting service. These days, airlines are looking for markets where they can generate the most traffic, he said.
"We have been told that by airline after airline after airline," he said. "It's pretty much a common theme. It's what they all say."
It's all about the yield
Earl Heffintrayer, Moody's airport analyst, added that much of airline routing "seems to be focused on the greatest yield and that is achieved on routes into larger markets with strong demand."
To make his point, he noted that Southwest and JetBlue bid aggressively for slots at LaGuardia and Ronald Reagan Washington National airports, both of which have a cost per enplanement equal to or higher than Pittsburgh.
"Based on what the airline industry looks like in 2014, we do not expect to see significant service increase solely due to the lower [cost per enplanement]" in Pittsburgh, he said in a statement.
Still, Mr. Lauer sees the potential to chalk up some gains. In a pocketbook-friendly environment, the airport may be able to coax American to move some connecting traffic from Reagan National or heavily congested Philadelphia.
"I think they would be happy to do that if Pittsburgh could be accommodating," he said.
American wouldn't say whether the coming reduction in the airport's costs would lead to more flights.
"We're continually evaluating our network. We look at it all the time, and we will continue to do that in Pittsburgh and elsewhere," spokesman Matt Miller said.
Both airport costs and market demand are factors in determining whether American will start or expand service in a city, he said.
As much as he likes the Pittsburgh airport, Mr. Swelbar isn't counting on American or any other airline to add much -- maybe a route or two, certainly nothing approaching a hub.
"It's just not going to turn the economics upside down and when the fees go down, the airlines are going to be lining up to come to Pittsburgh. It's hard to see that scenario," he said.
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