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Pittsburgh International Airport cutting fees to attract more flights
Sunday, May 31, 2009

For Pittsburgh International Airport, it's a variation of build it and they will come. In this case, it's cut the fees and they will crank up the flying.

Allegheny County Executive Dan Onorato, the state of Pennsylvania and the airport authority are gambling that slicing rates charged to airlines will prompt many carriers to return the favor by adding or expanding service in Pittsburgh.

The state will invest more than $107 million in gambling revenues in the airport over the next decade to subsidize debt service payments that now total $62.5 million a year.

And Mr. Onorato, upping the ante significantly last week, wants to sell off the airport's parking facilities and use the proceeds to drive down airline fees, now among the highest in the country, to next to nothing in hopes of attracting more flights.

But how much of a difference would it really make?

Some industry analysts aren't so sure it would change the equation.

Asked how much of an impact dirt-cheap airport fees would be in attracting more flights, Michael Boyd, a Colorado-based aviation consultant, quickly replied, "Almost none."

"There's no airline saying we'll fly there if it's really cheap. They'll only fly to Pittsburgh if there's traffic they can get," he said.

Yet Mr. Boyd described Mr. Onorato's proposal, which is still in the early stages, as "brilliant," saying it would make current carriers happier and put the airport on sound financial footing to weather troubled times.

"Talk about fiscal responsibility. That's incredible. That's the kind of visionary thinking we're going to need going forward," he said. "If you have an airport that has no debt, you're much better able to handle any downturn."

There's no doubt Pittsburgh's fees are high. The cost per enplanement to the airlines operating out of the airport, an industry benchmark, is $15.80, on average. While that will drop to $13.40 in June, it's still higher than the median of $6.24, based on 116 airports rated by Moody's Investors Service.

Even at $13.40, Pittsburgh's cost per enplanement rivals that in some larger markets, including San Francisco, New York's LaGuardia, and Boston's Logan, based on 2007 numbers.

It is higher than Denver, Chicago O'Hare, Los Angeles, Philadelphia, Minneapolis-St. Paul, Detroit, Phoenix, Atlanta and Charlotte-Douglas, which, at under $2, is one of the lowest in the country.

The costs are so high because of the decline in traffic resulting from US Airways cutbacks and the airport's $499 million in debt, nearly all of it stemming from construction of the $1 billion midfield terminal opened in 1992.

With the US Airways cuts, including the end to its Pittsburgh hub, passenger traffic has fallen from a high of 20.7 million in 1997 to 8.7 million last year. The cost per enplanement is directly related to volume -- the more people the airlines put through an airport, the lower the cost.

For example, in 2000, when Pittsburgh was still one of US Airways' largest connecting hubs, the cost per enplanement was $5.98.

The second factor is the debt. A big chunk of the airlines' fees each year goes to pay it down. The annual debt service payment, for which the airlines are responsible, currently is $62.5 million.

If the airport could eliminate that burden, the cost per enplanement conceivably could drop from $15.80 to less than $1, said Jim Gill, the airport authority's chief financial officer.

Mr. Onorato believes fees that low would be so attractive that airlines would want to add or expand service in Pittsburgh, where the number of nonstop destinations has dropped from more than 110 to 38 in the last eight years.

He said he would personally visit the CEOS from each of the airlines to make a pitch for more service if the parking privatization plan works.

"This will be the least expensive operation for any airline that comes here," he said. "Nobody is going to beat us. We'll make it the lowest. That will be our goal, and we'll sell it to every airline."

But while lower rates certainly are welcomed by airlines, particularly in a troubled economy when fewer people are flying, they are only one factor in the equation, and not a very big one at that, experts said.

For example, airport landing fees -- one of the charges that make up the cost per enplanement -- account for only 1.8 percent of an airline's operating expenses. Fuel and labor weigh in at 29.4 percent and 21.4 percent, respectively, according to the Air Transport Association, which represents airlines.

Mr. Boyd and Darryl Jenkins, an aviation consultant, said what's most important to airlines is how much money they can make on a route versus the cost of operating it. While fees are a factor, they are not "a determining factor," Mr. Boyd said.

"It's going to help, but it's not a panacea," he said of any fee reduction. "[Airlines] come mostly for the revenue they gain. The landing fees usually are an issue but they're not a deal breaker."

Mr. Jenkins said the airport "might get some movement" if it cuts fees. But he doesn't see airlines flocking to lease gate space to fly from Pittsburgh.

"You'll get ones and twos. I don't think you'll get more than that," he said. "You're going to get some nibbles, but it's not going to significantly change [the number of flights]. The problem is the economics of the area, economics period right now."

As telling has been the response from some of the airlines.

Southwest, the airport's second largest carrier, said it was far too early to say whether lower rates would translate into more service. AirTran Airways, the fourth largest carrier, said it probably would not add a lot of flights even if rates plunged. Both welcomed potential cuts, though.

Susan Elliott, a spokeswoman for Delta Air Lines, Pittsburgh's third largest carrier, said enplanement costs are only one of a host of factors the carrier looks at in deciding on a market. Another is demand, which she said is "key."

While noting that Delta is supportive of efforts to lower costs, like the others, she wouldn't say whether the airline would add service even if rates were next to nothing.

"There are too many other factors at play that we look at in making those types of decisions," she said.

However, one regional airline considering service in Pittsburgh has said the airport's high fees are a deterrent. David Hackett, president of Florida-based Gulfstream International Airlines, said the carrier has been looking at opportunities here but "the airport's costs are so high we don't think the numbers can work."

Others see little downside in lowering rates, even if it doesn't significant boost traffic.

Kenneth J. Zapinski, senior vice president of the transportation and infrastructure program at the Allegheny Conference on Community Development, said reducing fees could be particularly beneficial to the low-cost carriers like Southwest, AirTran and JetBlue Airways, which have entered the market in recent years and driven down fares.

Between 2000 and 2008, fares here dropped from an average of $430.42 to $327.34, or nearly 24 percent, one of the biggest declines in the country. They are now below the national average.

Mr. Zapinski said low-cost airlines have business models that rely on operating as efficiently as possible, so cutting fees could help in attracting more service from them.

The conference, he added, is "conceptually supportive" of Mr. Onorato's proposal, as it awaits more details about the plan, including the impact on parking rates.

"In general, lower fees are better because it makes more markets more attractive. We encourage the airport to look at creative ways to address debt and operating expenses," he said.

Mr. Gill said lower fees also could make a difference in situations where an airline is on the bubble about whether to add service to a certain city. A lower airport rate means that carrier might not need as many passengers to make the flight profitable, he said.

"For us, what we're trying to do is make that calculation for those carriers swing more in our favor," he said.

Even an added flight here or there adds up, he noted, as it brings more people into the terminal to spend money on food and beverages and maybe shopping, all of which goes to reduce costs.

"It's a snowball effect. It's certainly not a magic potion to solve all the issues we have but it's a step in the right direction," he said.

Mr. Onorato said he's not surprised that airlines won't tip their hand on potential service adjustments at this early point. He added that as East Coast airports become more congested, driving down airport charges also could put Pittsburgh in a good position to steal away some of that traffic.

"It just makes our airport more and more competitive," spokesman Kevin Evanto said.

Mr. Onorato said the "worst case scenario" if the parking lot privatization proves successful is that the county and airport authority eliminate the debt on a public facility.

And Mr. Boyd said that is good news in itself because "any time you can eliminate debt, that's a home run." But it doesn't mean Pittsburgh will reemerge as a hub.

"An Elvis sighting would be more likely," he said.

Mark Belko can be reached at mbelko@post-gazette.com or 412-263-1262.
First published on May 31, 2009 at 12:00 am