Flights of fancy: Pittsburgh airport's rebound a source of inspiration

Candace McGraw is more familiar with Pittsburgh International Airport's story than most airport executives, and not just because she's a Penn Hills native.

"We've been watching everything that Pittsburgh does. It might help us," said McGraw, 48, who was appointed CEO of the struggling Cincinnati/Northern Kentucky International Airport in July. The airport, a Delta Air Lines hub, suffered the worst passenger declines among the nation's Top 100 airports each of the past two years.

Industry experts say the sagging economy and latest wave of airline mergers are challenging hub airports in mid-sized cities such as Cincinnati like never before. Pittsburgh's experience could offer a survival guide, they say.

Seven years ago, US Airways closed its Pittsburgh hub after declaring bankruptcy twice in two years. A merger with America West Airlines resulted in deeper cuts. The airport hit rock bottom in March 2010 after year-to-year traffic declined for the 33rd month.

"We had to change the way we did business at 100 mph," said Brad Penrod, the Allegheny County Airport Authority's CEO and executive director. "We never got desperate. Concerned? Yes. But we just tried to become more responsive and entrepreneurial in how we did things."

The airport that once carried 21 million annual passengers logs about 8 million today. Daily flights and nonstop destinations are down more than threefold, but traffic increased in 16 of the past 18 months, authority statistics show. Revenue from development and other non-airline sources is growing, the authority said. Fares have remained below the national average for six years, thanks to increased competition.

"They've done a great job of transforming their business," McGraw said.

The right buttons

When unemployment is high and businesses aren't making money, demand suffers and airlines are forced to reduce capacity, said Bijan Vasigh, economics professor at Embry-Riddle Aeronautical University in Daytona Beach, Fla.

"Smaller airports are always candidates to be affected," he said.

Airline mergers tend to result in flight cuts as the parties trim overlapping service and reduce the number of hubs they need, Vasigh said.

Two hub airlines at Milwaukee's General Mitchell International Airport -- last year's fastest-growing Top 100 airport -- are involved in mergers. One of them, Frontier Airlines, recently cut a third of its Milwaukee flights and will have laid off a quarter of its 1,200 workers by early next year.

Cincinnati's service nose-dived after Delta merged with Northwest Airlines in late 2008. The airlines brought seven U.S. hubs into the relationship, including ones in Cincinnati, Detroit, Minneapolis and Memphis. In addition to cuts in Cincinnati, Delta slashed flights 25 percent in Memphis this fall.

"Having that many hubs in the same vicinity negates the concept or value of a hub," Vasigh said.

Pittsburgh pushed the right buttons, for the most part, after losing its hub, said Mike Boyd, a former airline executive who founded the Colorado-based Boyd Group International consulting firm in the mid-1980s.

"Whatever pain Pittsburgh suffered, it's over. I think it has positioned itself not only to survive but to grow," Boyd said.

The airport authority and county used $60 million in grants, tax breaks, loans and tax-increment financing to prepare 2,300 acres surrounding the airport for development, including building streets and installing utility lines, county records show.

That investment prompted private companies to spend $1.2 billion to build 13 million square feet of manufacturing, industrial, office and cargo space that could provide lease payments for years to come. Officials hope Marcellus shale drilling on airport property could become an even bigger source of money.

The airport's annual development revenue went from $300,000 in 2002 to $1.4 million last year, the authority said. Officials project non-airline revenue to total $91.8 million next year, up from $73 million in 2002, a 26 percent increase. In the same span, the operating budget grew about 12 percent to $154.5 million.

Airline revenue remained steady because of increased fees on airlines. Airlines' cost per passenger in Pittsburgh is projected to be $14.28 next year, up from $6.65 in 2002, the authority said.

The state and Allegheny Conference on Community Development paid Delta at least $5 million to cover losses in the first two years it offered flights from Pittsburgh to Paris, which will resume March 24 after a winter hiatus. The state and county offered $16.3 million in grants, loans and tax credits to convince US Airways to build a $25 million, 800-employee flight operations center in Moon.

The plan is to pay off the $1 billion debt to construct the terminal in 2018. Without that burden, officials hope the authority can lower airlines' fees and entice them to add flights.

Pittsburgh has worked for several years to establish a permanent cargo route to and from China. Last year, freight forwarders sent 25 Asian cargo charter flights to Pittsburgh to get time-sensitive shipments to various points more quickly, but stopped after time no longer was a factor, airport spokeswoman JoAnn Jenny said.

"The management in Pittsburgh didn't run off and try to become something they're not," Boyd said. "They recognized what the situation is, and they're making the most of it."

Adjusting to 'L.A.H.'

Dick Fleming, president and CEO of St. Louis Regional Chamber & Growth Association, said the region is adjusting to what he calls "L.A.H." -- life after hub.

"In many ways, we were spoiled by all the service the hub provided, but clearly it was not a sustainable situation," Fleming said.

Lambert-St. Louis International Airport became one of the nation's busiest airports as a hub for former Trans World Airlines, handling more than 30 million passengers. Growth was so rampant in the 1990s that it embarked on a $1.1 billion project to build a 9,000-foot runway to ease congestion.

But after TWA declared three bankruptcies, American Airlines bought it in mid-2001. Then 9/11 happened. By 2004, traffic at Lambert dropped to less than half of its traffic four years earlier. The runway opened in 2007, but accommodates just 6 percent of traffic today because congestion eased on runways closer to airport gates.

"The downsizing has been a big hit to our city, in many different ways," said Annie Menees, 28, of St. Louis as she waited to fly from Lambert to Detroit. "Everyone knew someone who worked for TWA, and it used to be unbelievably easy to get anywhere. Now, it's more complicated."

Lambert's importance diminished, in part, because of its proximity to American's hub at Chicago O'Hare. Lambert's hub closed in late 2009. Traffic bottomed out the next year at 12.3 million passengers, but is bouncing back, increasing in seven of this year's first nine months -- even in April, when a tornado hit the airport and caused $40 million in damage.

Southwest fueled the growth and is the airport's dominant carrier, with 45 percent of the market.

Some pin their hope on an ambitious plan to transform Lambert into the major Midwest hub for cargo shipments to and from China. But a proposal stalled in the Missouri legislature last month that would have provided $60 million in tax breaks to freight forwarders for sending cargo Lambert's way and $300 million in credits for construction of cargo facilities.

Michael Webber, president of consulting firm Webber Air Cargo Inc. in Overland Park, Kan., thinks the scope of the idea is "audacious" for the 39th-busiest cargo airport.

"Proponents hope freight forwarders will ignore the superior flight frequencies, international destinations and mix of operators at Chicago O'Hare," which dominates Midwest air cargo, he said.

Said airport director Rhonda Hamm-Niebruegge: "Do we think this is ambitious? Sure. But is it doable? Yes."

Remodeling project

When Cincinnati's airport bustled, said Richard Hollingsworth, 19, a shoeshine man like he could expect to polish 17 or 18 pairs of shoes in a shift. Today, he's lucky to get six.

"It's like they took half of the airport away," Hollingsworth said.

Actually, it's worse. Cincinnati peaked at 23 million passengers in 2005, but has fewer than 8 million today. One of three terminals is open. A $250 million runway that opened in 2005 carries just 2 percent of flights.

McGraw is fighting to keep Cincinnati as a Delta hub, but is courting airlines to fill service gaps and bring down average fares that are fourth-highest in the country. Next summer, Cincinnati plans to reopen a concourse that closed because of flight cuts. A $31 million remodeling project includes eight gates for expansion.

"Cincinnati is in total denial. They are wildly overserved now as it is. Delta isn't done drawing down service, and low-cost carriers like Southwest just aren't expanding into new markets," Boyd said.

But Boyd called cargo carrier DHL's $40 million expansion in Cincinnati "a huge economic impact." Cincinnati was the 11th-busiest cargo airport in the country last year.

"It's a ghost town compared to what it used to be three years ago," Paul Verst, 54, president and CEO of Walton, Ky.-based Verst Group Logistics, said of passenger service.

"I remember when they used to fly to cities you never even heard of. There might only be eight people on a 50-seater. That's the good thing about a hub, the convenience of knowing you can get anywhere you need to go, when you need to get there."

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By Tom Fontaine, PITTSBURGH TRIBUNE-REVIEW
Sunday, November 27, 2011