Sunday, July 1, 2018

Dayton International (KDAY) lower rating raises questions about future: Airport officials counting on business travelers to grow traffic



The recent downgrade of the Dayton International Airport’s bond rating by Fitch Ratings might not directly impact air travelers, but it raises questions about its ability to compete for customers and adapt to an industry that is consolidating in larger hubs.

The downgrade comes one year after Southwest Airlines pulled out of the Dayton market in June. Since January, passenger traffic from the airport is down 8.5 for the year compared to last year and May traffic was down 12 percent compared May 2017.

“Continued decline in the enplanement and traveler base has resulted in diminished financial flexibility for the airport,” said Mark Lazarus, Fitch’s Global Infrastructure lead analyst on Dayton.

But airport officials are banking on what they hope will be increased demand for business trips, because unlike leisure passengers, business travelers are less willing to drive significant distances to catch a flight.

The airport has redoubled efforts to attract new air service and continues to work closely with the business community to identify markets to target, like Boston and Miami, said Terry Slaybaugh, Dayton’s director of aviation.

“I feel good about air service and that we’ll continue to see gains in the market,” Slaybaugh said.

And the airport remains an extremely important driver of economic development, officials said, as recent industrial projects around the facility have already created hundreds of new jobs and other development will bring many more in the future.

Rating downgrade

Fitch Ratings, one of the nation’s top bond rating agencies, downgraded the Dayton International Airport’s revenue bonds rating in June to BBB from BBB+. It is the first downgrade in at least a decade, possibly longer.

BBB is still an investment-grade rating, and the downgrade was the most minor rating action available, said Seth Lehman, Fitch analyst.

Fitch Ratings rates about 65 U.S. airports, and facilities of this size usually fall in the BBB to low A category, he said.

The change means that the airport may have to pay higher interest rates to borrow money moving forward.

The downgrade reflects analysts’ concerns about the airport’s ability to manage costs, meaningfully grow its customers base and compete with larger airports in nearby places like Cincinnati and Columbus.

Fitch, on a positive note, also changed its rating outlook for the airport to stable. The outlook had been negative since late 2016.

Fitch’s opinion is that the credit is stable at this lower rating level, and the airport has locked in rates on its existing debt and isn’t expected to be an active borrower in the market, said Lazarus, the lead Dayton analyst.

Fitch’s decision was driven by “continued weakness in the airport’s operating performance” as the number of passengers has decreased for multiple years, the company said.

Passenger traffic drops

Enplanements (the number of passengers) dropped by more than 8 percent in 2017, falling to about 950,620, according to the airport.

Passenger traffic last year was down 24 percent from 2009, and analysts said traffic volumes have continued to drop, despite the economic recovery.

“Basically, they are under performing, and other small airports are at least stable and not experiencing the degree of losses that Dayton has,” Lehman said.

Passenger traffic has declined for multiple years, but volumes dropped sharply after Southwest Airlines first scaled back its service and then pulled out of the Dayton airport completely in June 2017.

Southwest’s gradual withdrawal from the airport led to the loss of about 1,100 daily passenger seats. After acquiring AirTran, Southwest eliminated local service to multiple markets, before the airline fully pulled out of Dayton.

The carrier’s departure was part of a growing trend in the airline industry of carriers concentrating services in larger hub markets, aviation officials said.

Hub competition

The Dayton airport is a small hub, “origination and destination” facility that does not have connecting flights.

Leisure air service has surged at the Cincinnati/Northern Kentucky International Airport and the John Glenn Columbus International Airport, said Slaybaugh. Leisure travelers are willing to take longer car rides to fly on low-cost carriers.

But business travelers are a different story. They want convenience, Slaybaugh said, and they are far less willing to drive about 66 miles to the the Cincinnati airport or about 78 miles to Columbus’ facility.

Since Southwest departed, United Airlines and at least one other carrier increased passenger capacity locally, Slaybaugh said.

The airport has added nonstop air service to Houston, Texas, which began in June. The service has been a hit.

“In the first 15 days, Houston was so successful with United that they’ve already the upgraded the airplane,” Slaybaugh said.

The Dayton airport flies nonstop to many of the country’s major business markets, Slaybaugh said. This includes New York City, Philadelphia, Washington, D.C., Dallas, Denver, Chicago, Atlanta and Charlotte.

And Slaybaugh said the airport wants to add more markets, like Boston or Miami. Right now, about 90 people each day in this area purchase tickets to Boston, but only about 30 fly out of Dayton. The rest are driving to other airports.

The airport also is working with existing carriers to increase flights and bring larger aircraft, with first class, business and economy service, he said.

At the airport’s urging, air service to Minneapolis this year upgraded to start offering first-class business seats as well as economy seats.

The airport is an important economic development tool and an asset to the region because it connects businesses to their customers without the hassle of driving to Cincinnati or Columbus, said Phil Parker, president and CEO of the Dayton Area Chamber of Commerce.

Airport aggressive

The airport is being aggressive about going after new markets and enhancing its existing air service, he said.

“They have been able to keep a pretty stable budget out there for the services they provide,” he said.

Dayton offers quick, easy and comfortable air service for travelers coming into or leaving the market, officials said.

But the airport doesn’t just help local businesses. It also is a significant job creator and economic engine.

The airport has more than 60 leases from which it derives revenue, and its budget also benefits from the proceeds from the sale of land around the facility, Slaybaugh said.

Increased commerce around the airport is good for air service, because those companies’ workers and corporate team members will fly in and out of the facility, Slaybaugh said.

Spectrum Brands opened a new distribution center on land owned by the airport, and the firm that developed that massive facility is in the process of building three others.

Proximity to an airport was an important consideration in Spectrum Brands’ site selection, along with the desire for convenient access to major interstates, a skilled and available workforce and a solid educational pipeline, said David Prichard Spectrum’s vice president of investor relations and corporate communications.

“The Dayton region is situated relatively close to a large part of the nation’s population and industrial base so airport proximity is obviously helpful,” he said.

A community like Dayton will always have demand for flights to major markets, like New York City, Chicago, Atlanta and Dallas, said Paul Lewis, vice president of policy and finance at Eno Center for Transportation

But he said industry consolidation has led to fewer airlines, which reduces the need for so many airline hubs, especially in smaller markets.

Airline carriers have access to massive amounts of data about travelers and passenger patterns, and they will add service if they can make money, he said.

“I don’t know if there’s anything Dayton can do per se, except keep its costs low and keep its airport efficient and looking nice, but really it is a market decision,” he said, adding that there don’t appear to be any other major airline and route consolidations on the horizon.

Original article ➤ https://www.daytondailynews.com

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