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Jonathon NieldCasey DennyAirport ManagementNovember 5, 2009An Airport’s Perspective on Attracting, Managing, and Retaining AirlinesRecent years have seen a roller coaster of events affecting industries around the world. Energy markets have seen skyrocketing prices followed by wild free falls. Manufacturing has been more consistent in a steady decline while the financial industry has been greeted by each New Year with new pressing challenges. The transportation industry has also been a mix of success and disappointment. Trucking first started suffering in light of fuel prices breaking $4.00 per gallon, and when prices fell back to manageable levels, the recession took effect and stifled demand for transporting cargo. Cargo rail transport also started out strong when companies realized the potential energy savings of transporting by rail, but soon the lack of demand for transporting goods fell to an unsustainable level for cargo rail transportation to remain profitable. Although cargo transportation has been struggling financially, one segment of the transportation industry has seen mixed results in passenger transportation. Rail transportation via Amtrak has enjoyed increased ridership at 28.7 million in 2008, an 11% increase over the previous year. Public transportation provided 10.7 billion trips to Americans in 2008, a 38% increase since 1995. Air carriers however, have experienced a much different situation and environment in the past five years. From August 2008 to July 2009, US air carriers have seen 711,977,000 revenue passenger enplanements across 8,000+ air carrier’s aircraft. Of the 73 million aircraft hours available (estimated from 1995 aircraft # statistics), 17 million hours were actually revenue generating leaving 55 million hours of idle time across the airline system. The majority of the idle time of these aircraft is spent on the ground at one of the country’s 500+ airports that lease to the air carriers. In light of this statistic, the great majority of the success of the airline industry lies not when aircraft are in the air, but rather from the time they arrive at the gate to when they depart. AUGUST 2008-JULY 2009 US AIR CARRIER TRAFFIC DATATotalRevenue Passenger Enplanements (000)711,977Revenue Passenger Miles (000)782,937,316Available Seat Miles (000)991,411,826Passenger Load Factor (%)78.97Revenue Freight Ton Miles (000)5,642,267Total Revenue Ton Miles (000)84,720,262Available Ton Miles (000)142,643,998Ton Mile Load Factor (%)59.39Revenue Departures Performed9,823,338Revenue Aircraft Miles Flown (000)7,041,519Revenue Aircraft Hours (Airborne)16,883,443*Bureau of Transportation StatisticsThe relationships of the air carriers and airports have three major considerations that have far reaching effects on the passenger experience and overall success of each party: public relations, operations, and economics. The changing international economic environment, evolving consumer tastes, and increasing external pressures have forced air carriers to reinvent themselves in how they attract and capture revenue. Airports have faced increased budgetary pressures from decreasing tax revenues and lower income from air carriers. Operating within a deregulated airline industry has allowed the air carriers the flexibility to enter and exit markets at will into the airports that best fit their needs and requirements. In light of these circumstances, airports now find themselves with a need to attract, manage, and retain air carriers in a means sustainable for all stakeholders in the air transportation industry. Air carriers pour millions of marketing dollars into maintaining their image as customer-centric organizations, a concept that the public perception of the industry has been struggling with for years. One of the greatest challenges facing the airline-airport relationship is actually not the direct responsibility of either party. The ignorance of the public regarding where the jurisdiction of the airports begin in relation to the jurisdiction of the air carriers causes divisions not only between customers and air carriers/airports, but also between the air carriers and airports themselves. The former can be illustrated in the case of a passenger flying into Little Rock National on a Southwest Airlines flight. The passenger, who had requested wheelchair assistance after deplaning, was told that she would need to wait until every passenger had deplaned before she could be taken to baggage. Feeling like she was being treated as a second class citizen, this passenger became outraged and filed multiple complaints against the airports. Despite the fact that airport employees often provide the wheelchair assistance, it is an airline policy, not airport, that every passenger be deplaned before being assisted to her destination at the airport. The divisions between airports and air carriers occur when rather than the two working to complement each other; one organization becomes detrimental to the public image of the other or both. Phoenix Sky Harbor in Arizona is one of the ten busiest airports in the US and in a single day handles over 1,200 aircraft carrying more than 100,000 passengers. Ensuring that every day runs smoothly requires seamless integration of the airport and airline operation management teams. When these two teams cannot operate in a functional manner together, the airport-airline relationship becomes strained. On September 11, 2001, the air transportation industry became faced with a disaster that would alter the operations of air carriers and airports for the unforeseeable future. The creation of the Department of Homeland Security and the Transportation and Security Administration brought new challenges the airport-airline relationship had never faced before. This factor became more challenging as it brought in a third party, the TSA that had to be integrated into airport operations. Airport security has become one of the most detrimental aspects to the public image of the airline industry and has seen an impact on revenues. The days of a frequent flyer arriving at the airport 20 minutes before departure to “hop” onto a flight are over. Many passengers now see driving as a faster mode of transportation than dealing with the time consuming activities at the airports of parking, checking in, and most of all, security. These airport operations are all affecting airline revenues and the success or failure of these operations can make or break an airline relationship. This past October, Stephanie, a passenger on a Southwest Airlines flight from Phoenix Sky Harbor International to Denver International, arrived at Sky Harbor after a 1.5 hour drive, three hours before her departure to ensure ample time to get through security and check baggage on the busy travel day. After making her way through the check-in lines and security, she got to the airport to find out that her flight had been delayed nearly two hours, soon to be three. The flight then began boarding for the two hour flight before landing in Denver where she then picked up her bags and began her two hour drive to Greeley, Colorado. The factors that played a part in Stephanie’s 12.5 hour airport-airline experience stem from multiple causes within multiple parties. However, the most important factor is the perception that Stephanie took away from this experience. Through surveys given to multiple groups of people of various demographics, many passengers would take away from this experience two things. First that Southwest Airlines is at fault for the excessive amount of time if took to reach their destination and second, that it may actually be faster to drive to the destination than fly. Both of these conclusions deal a devastating blow to the airline industry and in turn, airports if this train of thought becomes too prevalent. As mentioned previously, the public perception of the airline industry has been suffering in light of the economic turmoil, customer service problems, security lines, as well as high profile aircraft accidents. This is a problem stemming from two areas. First are the operations management teams of the airports and air carriers in how they handle passengers. The second is the ignorance of passengers regarding policy and procedure in regards to who enforces them and how they are enforced. The success of the airport-airline relationship is partially dependent on the positive experience of passengers from the moment they arrive to the airport property in their departing city, to the time they leave airport property at their destination city. For future reference of this concept, it will be referred to as “time in system.” Airports offer a multitude of services to air carriers to help minimize costs of the air carriers while still providing other sources of revenue for airports. These services sometimes include snow and ice removal, FBO’s, customer services, communications, and more depending on the airport. Although this paper will not go into depth on the dynamics of these operations, each part of the airport operations management team needs to integrate with the airline operations. Otherwise, each conflict between the two brings delayed flights, disgruntled employees, and overall damaging effects on the airport-airline relationship. The airline industry is no different than any other when it comes to financial goals. Air carriers and airports have two major goals: increase revenues and minimize costs. Although this may seem like a simple concept, a wide array of factors often exist that prevent air carriers and airports from achieving this simple goal. The fact that the sustainability of each of these organizations relies on the success of the other makes the case for good relationships between air carriers and airports a necessity. The industry has seen this need for enhanced relationships become even more vital in recent years as passenger loads have declined, credit markets have come to a screeching halt, and tax revenues have plummeted. With some exceptions, airports generate revenues via taxes, passenger facility charges (PFCs), and concessionaire agreements. Many of the large primary hub commercial airports are self-sustaining and require no additional income from taxes such as Phoenix Sky Harbor International. In fact there are many international airports known as Public Private Partnerships such as Cochin International Airport in India that have seen great profitability in recent years despite the economic woes facing air carriers. The economic factors that affect the airport-airline relationship are the most volatile compared to the operational and public relations factors. The passenger facility charges, a federally controlled fee that is paid by enplaning passengers, is currently capped at $4.50 per segment flown with a maximum round-trip charge to the passenger of $18.00. These fees are only expendable on projects that will:Improve or enhance upon safety,Reduce noise,Enhance competition among or between air carriers.Currently, more than $1.5 billion in PFCs are being collected by the Federal Aviation Administration every year with the authorization to collect $25 billion more in the future. Although these fees are earmarked to be used for one of the aforementioned purposes, only 19% have actually been used for such purposes.A trending issue in the air transportation ecosystem is gate control. Traditionally, air carriers leased gates from airports and had full autonomy in scheduling the use of those gates for their own airplanes. An (in)famous example of this was the situation at Hartfield-Jackson Atlanta International Airport with Delta Airlines. For the past 30 years, Delta and Atlanta International Airport have been locked in a contract that gave Delta a majority control over the gates which prevented other air carriers from entering the Atlanta market. In 2009, the contract expired and was renegotiated giving much of the control of the gate use back to Atlanta International Airport’s management. It also ended the era of long term gate use contracts in Atlanta with only a seven year agreement as well as an annual contribution to the airport of $150 million, up from $130 million. This is following the trends of other airports like Las Vegas’ McCarran International which practices the concept of common use gates. In the traditional model like the Atlanta-Delta relationship, the airlines have full control over their gates. In the common use model such as McCarran, airports can use a single gate for multiple airlines, therefore optimizing the scheduling of the gates, while increasing competition between airlines, and vastly improving revenues due to higher PFC income. The question of whether common use gates are a benefit or detriment brought responses that kept true with the interest of the organization interviewed. In an informal interview with Casey Denny, Deputy Director and Phoenix-Mesa Gateway Airport, stated that “A seat is a commodity” and that for air carriers, “It’s about branding.” With this in mind, Denny stated having common use gates is a benefit to the air transportation industry and in some cases is a necessary means of generating revenue. Ryan Jameson, President of a large military and aviation services company, stated that he believes common use gates are a benefit to the air transportation industry and a necessary benefit to “control” the power of airlines. However, upon further questioning, he did say that the relationship between airlines and airports that institute common use gate practices would have long term negative effects on the entire aviation ecosystem. Some airports would see long term benefits from airports that use common use gates. Those airports that would benefit are the smaller, reliever airports that do not practice common use gates and would attract the airlines to their organizations. For example, if Phoenix Sky Harbor were to institute common use gate practices and start controlling the scheduling of airline gate use, airlines such as JetBlue and even Southwest Airlines may look at ways to reduce their presence at Sky Harbor and look at local alternatives such as Phoenix Mesa Gateway Airport in Mesa, Arizona. Not only would Phoenix Mesa Gateway Airport offer single use gates to an airline, but it also provides a better customer experience to the passengers via shorter security lines, lower fees, and management that is more easily able to respond to customer needs. This is opening up a whole new arena of competition between not just airlines, but now between airports. The trends in the air transportation industry are starting to look favorably on smaller reliever airports but the catch of this trend is risk assessment. In the economic times that the airlines are facing between increased fuel costs and decreased passenger revenues, airlines have a lot to lose in starting service at new airports. The amount of investment required to begin new service is substantial and requires the air carrier to weigh the risks in cost-benefit analysis. If an airline is not confident that it can recoup its costs at a new airport, there is no justification for the new service. This places a great burden on the airports to conduct the market research necessary to justify airlines opening new service especially when in the same metropolitan area as a major airport like Phoenix Sky Harbor or Chicago O’Hare. Despite the risk assessment, up and coming airports have the advantages mentioned above that are in line with what air carrier’s passengers are looking for in their airport experience. “Analysis of the 1992-1996 period shows that every player in the air transport chain is far more profitable than the airlines, who collect and pass through fees and revenues to them from ticket sales. While airlines as a whole earned 6% return on capital employed (2-3.5% less than the cost of capital), airports earned 10%, catering companies 10-13%, handling companies 11-14%, aircraft lessors 15%, aircraft manufacturers 16%, and global distribution companies more than 30%.” These statistics show the volatility and potential discontent of the air carriers in the air transportation ecosystem. The concept of a group or system only being as strong as the weakest link is apparent in the statistics mentioned before in regards to economic security and sustainability. The concept of sustainability is a new buzz word that is becoming more prevalent across all industries but the air transportation industry may be the most demanding of this new concept. The statistics above are showing how intertwined and dependent the various stakeholders in the industry are on the success of each. For example, the arguable bellwether of the ecosystem is the air carriers. When the air carriers start losing money, the airports lose their revenues from passengers and potentially the funding from taxes. This also ripples across to the airplane manufacturers who see a lower demand in new orders since the airlines already face too much capacity. The ancillary services supporting the airlines and airports are also burdened by these financial problems which trickle down to the passengers. This then causes an interesting and dangerous cycle for the industry. When airlines suffer financially, they cut back services and flights which affect the passenger experience, therefore discouraging passengers from flying that service which restarts the same cycle. When this cycle starts, the airports begin losing revenues and also begin cutting back services which also damages the passenger experience and further discouraging passengers from flying and hurting the revenues of that airlines even more. That then again starts the vicious cycle over again. It is for this reason that sustainability of the airlines, airports, manufactures, and third party services are tied into each other’s successes which prompts the necessity for healthy, effective, and efficient relationships between the airports and airlines. Works CitedBureau of Transportation Statistics. Table 1-11: Number of U.S. Aircraft, Vehicles, Vessels, and Other Conveyances. 30 Jun. 2009. Research and Innovative Technology Administration. 1 Nov. 2009 . Delta Lease at Hartsfield Jackson Hits Turbulence. 01 Nov. 2009. AJC. 4 Nov. 2009 . Airports. 2009. AV Jobs. 2 Nov. 2009 @Wharton. Delta Are Private Airports in India Ready to Take Off?. 03 Apr. 2008. Wharton. 1 Nov. 2009 Phoenix Sky Harbor International Airport. 2009. City of Phoenix. 27 Oct. 2009 of Homeland Security. TSA’s Management of Aviation Security Activities at the Jackson Evers International Airport. 29 Aug. 2007. DHS. 3 Nov. 2009 News World Report. Public Transportation Ridership Sets Record in 2008. 10 Mar. 2009. US News World Report. 3 Nov. 2009 . Reports and Documents. 21 Oct. 2009. Amtrak. 4 Nov. 2009 , Casey. Personal interview. 29 Oct. 2009.Charles, Richard. Personal Interview. 29 Oct. 2009.Barry, John T. Personal Interview. 16 Oct. 2009Nakashima-Smith, Alisa. Personal Interview. 3 Oct. 2009Eason, Stephanie. Personal Interview. 9 Oct. 2009 ................
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