Airport Economics

Big city airports need federal regulations to help weather airline instability.
by | April 2010

Back in the late 1990s, St. Louis and Pittsburgh had two of the hottest airports in the country. Jammed with flights, Lambert-St. Louis International Airport embarked on a billion dollar expansion program, while Pittsburgh International Airport pioneered the concept of an airport as a shopping mall, with plenty of selection and fair prices.

But all of that has changed. To visit either airport today is to find closed-off gates and half-empty corridors. The reason is clear: St. Louis is no longer a hub for the now-defunct Trans World Airlines (TWA), and Pittsburgh is no longer a US Airways hub. Usually a city or county owns the airport either directly or through an authority, and in these two cases, both cities now struggle to reinvent and adapt these economic and community assets.

Both airports also illustrate the damned-if-you-do, damned-if-you-don't dilemma many cities face these days. With huge tracts of land and expensive facilities, airports are a region's economic linchpin--they are essential to businesses that need easy access to the world. Yet airports are at the mercy of airlines--private companies focused on profit--making and that are caught up in one of the planet's most competitive and unpredictable business environments. This scenario can be likened to states building highways, and then having General Motors, Ford and other auto companies suddenly telling their drivers to use different roads.

Historically airports can be risky bets by governments. After its opening in 1962, Washington Dulles International Airport outside Washington, D.C., was for many years a white elephant--until traffic caught up in the 1970s. The huge and beautiful Denver International Airport, which began under Mayor Federico Pena's leadership, was extremely controversial upon its opening in 1995: It experienced cost overruns and mechanical failures, and sat 25 miles away from the city. But now it's about to expand because in 2008, a record 51.2 million passengers used the airport--and it was only built to handle 50 million.

Then there's the grand failure that is Canada's Montréal-Mirabel International Airport: It opened in 1975 some 25 miles outside Montréal, and hosted all inbound and outbound international flights until 1997, when its distant location and lack of transport links became problem enough to stop passenger flight operation. It has since been used only for cargo and as a setting for motion pictures.

St. Louis and Pittsburgh are their own cautionary tales.

A decade ago, Pittsburgh International Airport had 20 million passengers and 615 daily flights to 114 destinations, and its "AirMall" bustled with people visiting more than 100 stores. US Airways handled almost 90 percent of the traffic. Direct flights were available to several European cities. Then the 9/11 terrorists attacks hit the airline industry hard-in 2004, US Airways closed Pittsburgh International as a hub. Total traffic to the airport was down to 7.9 million in 2009, almost one-third of what it once was. Many of the 75 gates in the four terminals are boarded up. US Airways' severe shift away from the steel town is particularly poignant, given the company's start there as Allegheny Airways, named after Pittsburgh's Allegheny County. In 2005, US Airways went through bankruptcy and merged with America West.

In the late 1990s, Lambert-St. Louis International Airport was one of the top 10 busiest airports in the country. The city began an expansion program to add an additional runway, which cost $1 billion because it required demolishing hundreds of surrounding homes. The city envisioned steadily rising traffic, as many economic development forecasters were predicting. But in 2001, midway through the expansion, American Airlines bought TWA and ended St. Louis' status as a hub. Today the expensive second runway is hardly used. In 2009, traffic to Lambert-St. Louis was 12.5 million passengers, down from 30 million a decade ago.

Both Pittsburgh and St. Louis are trying to adapt. The Allegheny County Airport Authority has plans to expand cargo operations to China and South America. And St. Louis is affected by the Barack Obama administration's announcement of $8 billion for high-speed rail projects across the country, which could bring service between St. Louis and Chicago, relieving some pressure from Lambert-St. Louis. To attract more carriers, the city is also also sprucing up Lambert-St. Louis terminals for roughly $100 million.

There is, however, a bright side to these non-hub airports: With one carrier leaving most gates open, low-cost carriers such as Southwest, JetBlue and AirTran have moved in. The downside to hubs is that the dominant carrier typically uses its semi-monopoly position to charge monopoly level prices. So although flight numbers are now far less in both cities, ticket prices are much lower--down 26 percent since 2000, according to a Pittsburgh International spokesperson.

The St. Louis and Pittsburgh situations also should be placed in context: With the recession, there's been an overall decline in air travel the last two years--6.2 percent from December 2007 to December 2009, according to the Bureau of Transportation Statistics.

So what policy prescriptions do I have? Not all risk can be removed from airports, or any infrastructure building for that matter. States and cities, however, should lobby the federal government to be more active in managing air traffic, ensuring that most cities have reasonable air access at reasonable prices. One carrier shouldn't be allowed to dominate any city or region. Low-cost carriers are constantly expanding and changing this dynamic, but for at least 25 years, so-called "legacy carriers" such as United, Northwest/Delta and US Airways still handle the bulk of passengers. One cannot wait forever.

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