Tuesday, December 30, 2014

Pittsburgh International Airport (KPIT) positions itself to add coveted nonstop flights

It's a moment of opportunity and high pressure for Christina Cassotis, the incoming CEO for the Allegheny County Airport Authority.

People in Pittsburgh — notably business travelers and her bosses — want more nonstop flights from Pittsburgh International Airport to more destinations. The airlines, in the midst of consolidation and cuts, want planes packed with passengers to maximize profits.

Unlike any Airport Authority manager in the past decade, Cassotis enters with blue skies visible ahead.

Finances appear to be stable. Average per-passenger costs for the airlines, although still above the national average, are decreasing.

Through October, more people flew from Pittsburgh than in 2013, meaning a decade-long nosedive might have bottomed out.

The CEO's task, critics say, will be converting financial progress — that is, decreased debt and more revenue from Marcellus shale gas drilling — into nonstop flights, a key to growth.

“They're doing the right thing. I have to recognize that,” said Satish Jindel, a transportation and logistics consultant in Franklin Park and critic of past airport spending. “The lower (per-passenger) fees may not be as far as some airlines would like to see, but it gives airlines some comfort to see (fees) are headed in the right direction.”

Jindel said the authority needs “to set a goal and say, ‘This is the target,' and give it to the airlines. They're not going to create a hub; that's not going to happen, but they need more nonstops to the West Coast.”

In December, the airport offered nonstop service on 149 average daily departures to 37 destinations — down from 600 daily flights to 110 destinations in the early 2000s.

Passenger numbers have declined since 20 million people, mostly on connections, passed through the airport in 2001. The 9/11 terror attacks hobbled air travel. US Airways ditched Pittsburgh as a hub three years later, cutting many coveted non-stop destinations.

The drop continued through 2013, when fewer than 7.9 million passengers used the airport, the lowest level since 1975.

That may be changing. Acting Executive Director Jim Gill this month announced the sixth consecutive month of increased passenger traffic, gains not recorded since 2010. Year-to-date traffic through October was up 1.6 percent from 2013.

“Our financial picture hasn't been better,” Gill said. “Passenger flights aren't where they were, but with (gas) drilling there's opportunity for more air service.”

Cecil-based Consol Energy Inc. agreed to pay the airport $46.3 million in advance payments and an estimated $450 million in royalties over 20 years for the right to drill for natural gas under the airport's nearly 9,000 acres. Drilling began in July. Analysts have said the deal might exceed expectations.

GATE FEES HIGH BUT FALLING

The airport, owned by the county and operated by the authority, opened in 1992, designed largely to accommodate US Airways' needs.

Having the airport built originally as a hub is an advantage, Gill said.

“If we built it today, would we have 75 gates? Probably not. But the fact that it's not full is a gigantic competitive advantage. As our costs go down, many other airports will be facing capital expansion projects where their costs will be going up.”

Airport revenue is generated from fees charged to airlines, rental space, and parking and concession payments.

The authority's 2015 budget projects that, on average, airlines will spend $12.90 in fees per passenger to operate, compared with the $14.66 airlines paid at the start of 2013.

The average for all U.S. airports is $8.34, and for mid-sized airports similar to Pittsburgh the average is $7.60, according to Moody's.

That number falls as more passengers choose to fly and the airport cuts rates.

The Airport Authority will spend at least $24 million of Consol's upfront money during the next five years to lower airline fees.

“They need to get it down to $10,” Jindel said.

Jindel has criticized the airport for employing about the same number of people — about 460 — as it did during its heyday as a US Airways hub, and for spending money on amenities such as restroom renovations. The airport could cut up to 10 percent in employment costs to save money, he contends.

Gill defends employment levels, saying employees assumed duties in the past decade that airlines once handled, such as maintenance and repair of the baggage system and jet bridges that carry passengers between planes and the terminal.

MARKET DICTATES GROWTH

The authority will factor Consol's upfront payment into budgets over five years. Royalty payments could start in late 2015 or 2016.

On the other side of the balance sheet, the airport's debt is dwindling.

By May 2018, a major chunk of debt incurred to build the airport will be retired, freeing up about $40 million a year.

Frank Gamrat, a senior research associate with Allegheny Institute for Public Policy in Castle Shannon, praised the Airport Authority for retiring debt and lowering costs. But he cautioned against celebrating the minor uptick in passengers in 2014.

“The thing that surprised me the most is that they've managed to bring down the debt,” said Gamrat. “It will still be a low year (for passengers).”

Although costs are a key component to attracting flights, demand is the largest factor. If an airline decides to add a route in Pittsburgh, it has to make more money than it did on the previous route the planes were flying elsewhere, airline officials said.

“We appreciate the efforts to lower costs. As the market dictates and the demand for flights grows, we'll grow,” said Southwest spokeswoman Thais Conway. “We really like what (airport) leadership has done to manage the debt and spending.

“If (Pittsburgh) wants more West Coast flights, and we see we can fill the planes, then yeah, we're there.”

American Airlines and US Airways, still Pittsburgh's busiest carrier, are scheduled to complete their merger next year.

“Airport costs are a factor in determining flights,” said American Airlines spokesman Matt Miller.

BUSINESS TRAVELERS' NEEDS

Airport officials point to new service announced in recent months — including Allegiant, which will fly to three cities in Florida, and Sun Air, which will fly to five regional destinations as part of the federally subsidized program to offer air service to small cities.

“This is good progress for the leisure traveler, but what about the business traveler?” asked Jindel, who flies often for his consulting firm. “We need more. When I have to take connections, it hurts my business.”

County Executive Rich Fitzgerald said adding flights is a priority. He supported the ouster of former CEO Brad Penrod in March and announced Cassotis' hiring this month at a salary of $295,000. She will start in mid-January.

Cassotis has not run an airport but is a longtime airport consultant. She was careful not to promise specific nonstop destinations during her introductory news conference but said she thinks Pittsburgh is underserved.

“We've got to demonstrate that there is a commitment to having the airlines that are already here continue to be successful, and those we're trying to attract that they will be successful. The airport can't promise that on its own,” she said.

That resonates with Sean McCurdy, president of Pittsburgh Business Travel Association.

“Flights — that's what we care about. Overall financial stability at the airport is good, but at the end of the day an increase in nonstop flights is helpful for the business community.”

Source: http://triblive.com

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