Wednesday, September 13, 2017

Air Anchorage: Cargo a huge boon for Anchorage economy

ANCHORAGE — When you see those big cargo jets rumbling low over Anchorage, heading into Ted Stevens International Airport, think of them as big tubes stuffed with money.

They carry all kinds of things, of course – express packages, your orders from Amazon, clothing, even animals. But those planes translate to big bucks arriving in Anchorage, in jobs, hotel rooms, spending in local restaurants.

“The airport is a big source of job growth, and it helps stabilize other parts of the economy,” says Bill Popp, president of the Anchorage Economic Development Corp.

When it was last measured, in 2011, economists estimated that airport operations, much of it cargo, puts a billion dollars a year into the local economy.

There’s no recent estimate, but it has grown a lot since 2011, Popp said.

It’s set to grow more this year, too, thanks to strong trade relationships between the U.S. and Asia, which translates into more things being shipped, including in planes.

“We’ve got a good situation with the national economy. Several companies are very bullish, telling us they will be increasing their stops,” Popp said. Federal Express and United Parcel Service, which operate big freight-sorting hubs at the airport, are planning for sharp growth this year along with companies like Atlas Air and Polar Air Cargo, which operate international cargo flights and stop in Anchorage to refuel. Both carriers base crews in Anchorage, as do Federal Express and UPS.

How big is this?

At certain times of the day you can look out of a window at Ted Stevens’ South Terminal (one of two for passengers) and see cargo jets lined up wingtip-to-wingtip. It’s almost like a United Nations for aviation, with airlines from countries we rarely hear about.

What you don’t see from the passenger terminal is what’s at the far north end of the airport, which is where United Parcel Service and Federal Express operate cargo sorting hubs. There are just as many planes lined up, but they have Fed Ex and UPS logos painted across their fuselages and tails.

Air cargo is one pillar of Anchorage’s economy that’s as sturdy as an oak, and growing. Cargo makes up a big share of the $1 billion a year the airport puts into Anchorage’s economy.

Many of these flights are stop-and-gas transit flights. Planes land, refuel, and typically switch out crew because flights from Asia or continental U.S. cargo destinations can take seven to nine hours.

Operators of these international flights, like Atlas and Polar, maintain staff based in Alaska and do a big business with local hotels. Atlas alone contracts for 1,500 to 2,000 hotel rooms per month in the Anchorage, company officials told an Aug. 16 air cargo meeting in Anchorage. That’s year-round and it helps the city’s hotels get through the winters between summer tourist seasons.

FedEx and UPS have more impact on the local economy because their package sorting hubs see freight unloaded from incoming planes from several Lower 48 cities. Packages are sorted and then reloaded on planes bound for cities across Asia.

The sorting hubs require year-around staff working all year, day and night. A good many UPS and FedEx pilots live in Anchorage also, as well as the maintenance and support staff for the aircraft. Both carriers operate flight training simulators in Anchorage, too, and those sophisticated facilities, which allow someone to virtually fly a big jet, require operating and support technicians.

People working for cargo operators make good money, too. Depending on seniority, pilots earn between $150,000 to $300,000 per year. Even a ground-based parcel delivery driver with experience and seniority can pull down $100,000 a year.

The Alaska advantage

Alaska’s advantage for cargo is that it still pays for air carriers to bulk up with payload, carry less fuel, and stop in Anchorage to gas up.

Here’s how this works: A cargo operator could easily fly nonstop from Portland to Tokyo but it takes fuel to do that, and to carry the fuel the plane can’t be loaded with as much paying freight.

A stop in Anchorage, part-way to Tokyo, allows the plane to carry less fuel and load up with freight. It’s a simple economic calculation to compare the two cases, with more freight and less fuel vs. more fuel and less freight. Usually the flight with more freight wins, with higher revenues, less costs and more profits.

This still must be balanced, however, with the added costs of landing in Anchorage, which includes the time to do the stop, and the airport landing fees and other expenses, which are higher in Anchorage than on the Lower 48. So far the calculus is still working to Anchorage’s favor, because the planes are still landing. When it no longer works many of the cargo planes will be overflying like the international passenger flights that fly nonstop and which dropped the Anchorage refueling stop decades ago.

At one time Alaskans could board flights in Anchorage and fly directly to Tokyo, Seoul or Hong Kong in Asia or London, Paris, Rome, Stockholm, and Frankfurt in Europe. Now there are seasonal nonstop charters, for summer tourists, but a passenger boarding a scheduled flight to Asia from Anchorage must first fly to Seattle, wait for the connecting flight, and then board again and fly right back over Alaska or near it (geography dictates that) en route to Tokyo or Seoul.

The calculation works differently for passenger flights. People want to get to where they are going as quickly as possible and they will avoid, if they can, flights that have to make an interim refueling stop.

Cargo shippers usually don’t mind two or three added hours in transit if it cuts costs, but people aren’t as patient as freight. There are cases now, however, where flies nonstop across the Pacific, but these are typically situations involving special cargoes, typically perishable items.

Business will pick up

Cargo flights will be picking up, and soon, mainly because of the strength of the U.S. economy and the continuing trade with Asia, according to the cargo operators’ presentations at the cargo conference Aug. 16. That means more refueling stops in Anchorage and more activity at the sorting hubs.

Atlas, for example, plans to increase its flights through Anchorage (combined inbound and outbound) from 5,919 in 2016 to over 7,000 in 2017, its officials said at the conference. Federal Express didn’t give an estimate of its new flights but said it is expanding the FedEx sorting center at the airport to handle 11,000 packages per hour, up from a capacity for 7,000 hourly in 2016. That means  more flights, of course. UPS is also expecting an increase, although numbers were not provided.

Meanwhile, the airport is a huge economic engine for Anchorage, Bill Popp says. FedEx says it employs 1,152 and UPS said its jobs total 1,200 to 1,300.

In a 2012 study for Anchorage Economic Development Corp., McDowell Group, the consulting firm, found that in 2011 the airport overall employed 9,000 directly and an additional 6,500 indirect and induced jobs, for a total of 15,600. The combined payroll impact was $1 billion in 2011. That was six years ago, and airport operations have grown substantially since then.

There are problems out there

This is all good news for Anchorage but there are problems looming out there.  Continued improvement in jet engines’ fuel efficiency and the ability of planes to fly farther without refueling, and to use less fuel, could undercut the “Alaska advantage.” It’s all about money, and if air cargo carriers get to the point where they spend less by flying direct, while carrying the same cargo, they’ll drop the Anchorage stop.

Federal Express and UPS have fixed assets here – the big sorting hubs – so the decisions for them are more complicated. But if flying direct gets cheaper it will, in the long run, undercut the economics of the sorting hubs.

Alaskans could also do things themselves to hurt these industries, Popp said, for example by raising taxes on jet fuel. A bill introduced by Gov. Bill Walker two years ago would raise taxes on all fuels sold in the state including motor, marine, aviation and jet fuel.

The bill didn’t pass, but the issue is on the table as the state grappled with its financial crisis. Fuel sold for international flights, a flight from Anchorage to Tokyo, is exempt from state fuel taxes, but flights from Anchorage to Lower 48 destinations would pay the tax.

Higher taxes on jet fuel used on domestic U.S. flights would raise operating costs for companies like UPS and Federal Express, which have invested heavily in Anchorage, in the long term eroding the advantage of using Alaska as a transit stop, Popp said. “Let’s hope the Legislature understands this, and doesn’t raise taxes on jet fuel,” Popp said.

Meanwhile, will soon be more planes circling over Anchorage for landing, or taking off. It will add noise. On the other hand, think of those greenbacks.

Original article can be found here ➤

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