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How to factor reliable air service into the growth equation
Monday, March 29, 2004

Almost 14 years later, Jay Aldridge still remembers the takeoff of US Airways' first flight from Pittsburgh to Frankfurt, Germany.

In fact, Aldridge can give you the exact date ("June 15, 1990"), the time ("about 5 p.m.") and show you the original flight map, a napkin and a cocktail swizzle stick, all of which are framed and mounted in his home. Worth remembering, too, was how that inaugural flight ended a decade of inconsistent and sometimes nonexistent international service at the local airport, giving Pittsburgh a new weapon in the battle for corporate prospects here and abroad.

Aldridge, an economic development official who took part in the recruitment of 220 European firms to the Pittsburgh area over three decades, still credits the German connection as a key selling point to businesses overseas, and in semi-retirement he remains a big believer in the connection of consistent, reliable air service to the growth of businesses, since many local firms depend on planes to deliver employees, business partners, customers and freight. What's more, if US Airways were to eliminate its Pittsburgh hub, which it has threatened to do if its debt is not lowered at Pittsburgh International, it could have a devastating effect on the local economy. The Arlington, Va.-based airline, which dominates traffic at Pittsburgh International, estimates the loss of a hub could cost the region $1.8 billion a year, 17,000 jobs and 74 nonstop destinations, including several to the West Coast.

"I think if you lose it, you will suffer," Aldridge said.

"If you are going to be a first-tier city, you have to have it. You never want to put questions in people's minds about their ability to do business."

There is no doubt that consistent, reliable air service is often an important factor when companies look for new cities or new locations. Several big firms, in fact, recently made the airport a high priority in their decisions to relocate employees and offices here. Dick's Sporting Goods Inc. in 1994 moved from Binghamton, N.Y., a place where the flight options were "very limited," according to senior vice president Jeffrey Hennion, to a spot 10 minutes away from the Pittsburgh International Airport, in Findlay, where it now employs 500. Dick's is currently building a new headquarters even closer to the airport, and it opened 22 new stores last year, giving it 153 in 27 states.

"We spend significant amounts of time in the field, and that is one of the reasons we are located where we are," Hennion said. A "critical factor" in the company's decision to relocate, Hennion added, was "the ability for our vendors to get in to see us and for us to travel out to see our vendors."

Another firm that relies heavily on local airport connections is Nova Chemicals Corp., a company that moved its Canadian headquarters to Moon four years ago. It did so in part because of the many flights available at Pittsburgh International, and it now spends more than $2 million a year on air travel. Nova Chief Executive Officer Jeff Lipton felt so strongly about the level of service provided by the dominant carrier, US Airways, that he sent a letter to Gov. Ed Rendell last June urging him to "do whatever is necessary" to maintain that service as US Airways struggles to survive. While Lipton, as a rule, is against government handouts to corporations, "the vital role the airlines play in 'enabling' the rest of us to do our business is worthy of special consideration," he wrote.

US Airways' problems are already making life more difficult for executives who travel to plants, offices and stores around the country -- or around the world.

Since Sept. 11, the Arlington, Va.-based carrier has pulled back on 170 of its daily flights, leaving it with 372, and last year dropped its direct London flight altogether before reinstating it as a seasonal offering. The carrier's uncertainty is a concern not only to local executives, but also to economic development officials who recruit companies for a living. They claim Pittsburgh is already losing out on new corporate tenants, citing one large relocation prospect this year that took a manufacturing plant and headquarters to North Carolina instead. But despite the anecdotal evidence that consistent air service is an important factor in the growth of the local economy, few economists, aviation experts or real estate officials are willing to admit that a drop in service will act as a drag on new investment or corporate decision-making. After all, there are examples of large companies that have done well without the presence of a large international airport, cities that have thrived despite the loss of airline service and markets that have struggled despite the presence of a major airline hub.

The connection between air service and corporate growth is "pretty muddled," said Chris Briem, of the University of Pittsburgh's Center for Social and Urban Research.

Airports "are not economic engines," said Paul Stifflemire, who has studied the airline industry as an analyst for the Allegheny Institute for Public Policy. "Regional economic growth drives real growth in passenger traffic at an airport serving that region, not vice versa."

Stifflemire does not dispute that there is some correlation between economic growth and airports, but "the mere presence of consistent reliable air service does not provide an assurance of economic growth. After all, there are clearly major metropolitan areas and entire regions served by large airports providing consistent, reliable service that nonetheless fell on difficult economic times. One need look no further than Pittsburgh to realize that building or expanding an airport does not itself generate economic activity."

To strengthen his point, Stifflemire listed the 10 busiest airports and noted that only one -- Las Vegas -- can be found in one of the fastest-growing metropolitan areas of the last decade.

Buttressing Stifflemire's theory are the experiences of site selection executives -- the people paid to find sites for expanding companies. Dennis Donovan, who performs that work for The Wadley-Donovan Group in Edison, N.J., said air service "is rarely a deal breaker for a majority of corporate relocation projects." He said the "vast majority" of office and manufacturing operators do not have "extensive air service needs" and as long as there is some type of airport within one hour, "that will be satisfactory." Fischer & Co. Senior Vice President David Koch, who also is hired to find space for corporate clients, agreed, saying air service is rarely "a deal maker or a deal breaker."

But what about the cities that have to suffer through major losses in air service? Can they bounce back economically? The answer: It depends on the underlying strength of the local economy. In the mid-1990s, for example, American Airlines phased out its hubs at the Nashville International Airport and the Raleigh-Durham International Airport, and traffic took a big hit in both places, with the North Carolina airport losing 3 million passengers in one year and the Tennessee airport losing 2 million.

But the strength of businesses in both cities prompted other carriers to fill American's place. Southwest Airlines turned Nashville into a quasi-hub, pulling the airport's passenger count up to 8 million a year. In Raleigh-Durham, the high concentration of technology and venture capital in that area's "Research Triangle" was enough to attract low-cost carriers to that airport, pushing its passenger count back up to 8.5 million -- almost as high as when American yanked its hub in 1994.

Another city to watch is St. Louis, which recently lost its "hub" status as the result of American's decision last November to cut 200 of its 417 daily flights at Lambert International Airport, where American accounted for three-fourths of all flights. Since November, city and aviation officials have been trying to recruit other airlines to fill American's place, and Frontier Airlines, Delta Airlines and Northwest have already taken more than 40 of American's direct flights. But St. Louis has 16 Fortune 1000 companies in its metropolitan area; those that rely on international connections to do business will find it more difficult now that American has yanked its direct flights to London and Paris.

Richard Fleming, head of St. Louis' Regional Chamber and Growth Association, tried to downplay any economic fallout from American's decision, saying he does not know of any companies that are reconsidering St. Louis due to American's pullback.

"Let's face it," he said. "There are a number of international companies that chose to locate in markets that do not necessarily have direct service to London or Paris. The Research Triangle (in Raleigh, N.C.) did not close up shop because (American) closed their hub, nor did it stop companies from choosing to locate there if there was another compelling reason to be in a market."

Even Aldridge, the Pittsburgh economic development official who was aboard US Airways' first Frankfurt flight, admits that many of the 220 European firms he helped recruit to the area were signed before US Airways installed its Frankfurt connection, in 1990. One was the U.S. headquarters of German drug maker Bayer Corp. Another was German car manufacturer Volkswagen, which in 1976 started making cars in an old Westmoreland County Chrysler plant. To tour the empty auto plant, Volkswagen executives had to fly to New York first and from there take a Pan Am flight to Pittsburgh. Air travel, in the end, was less important than available real estate.

"They needed a plant and we had one," Aldridge said.

But Aldridge still worries about the ones he missed, mentioning a 600-person German headquarters that wanted more direct airport connections to Germany and thus went to Atlanta instead. Aldridge also said he had a tough time recruiting in an industrial area of northern Italy because Pittsburgh lacked direct service to Milan. "We beat our brains out," Aldridge said, but "could not get to first base with any of those people."

Pittsburgh Regional Alliance President Ronnie Bryant, who now has Aldridge's old job as corporate recruiter for southwestern Pennsylvania, said air service "is right up there" when companies decide to move or invest somewhere else. He currently is in pursuit of 100 potential deals, both large and small. Take away competitive, consistent air service and "you can wipe off 45 percent of that list," he said. "We wouldn't be in the hunt."

"It is that important."

In fact, Bryant said the region lost a huge deal last year due to the uncertainty surrounding US Airways when Maine-based defense contractor General Dynamics Armament & Technical Products Inc. considered Pittsburgh but then chose Charlotte for its new headquarters and a manufacturing plant. The company told Bryant "that one of negatives we had was definitely the uncertainty of the level of service US Airways would be able to provide in the future."

But it's not that simple, according to General Dynamics spokesman John Suttle, who argued that US Airways' problems did not cost Pittsburgh the deal. In fact, the hub placed Pittsburgh on General Dynamics' short list in the first place. "It makes good business sense to locate your headquarters in a place where air service gives you the greatest number of direct flights to your operating facilities," he said. General Dynamics has buildings in 10 sites around the U.S. and it became increasingly difficult to reach all of them from Maine.

Pittsburgh, in the end, lost out not because of its airport, but because of measurements like job growth, tax burden and cost of living. Also, Charlotte had more engineering and science graduates that chose to stick around after college. The uncertainty of US Airways " did not factor into the decision-making process," Suttle said.

First published on March 29, 2004 at 12:00 am
Dan Fitzpatrick can be reached at dfitzpatrick@post-gazette.com or 412-263-1752.