Airport bets a billion on future amid USAir concerns

Airport bets a billion on future amid USAir concerns

Credit: Todd Sumlin / Charlotte Observer

Airport bets a billion on future amid USAir concerns

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by ELY PORTILLO / Charlotte Observer

WCNC.com

Posted on April 9, 2012 at 7:02 AM

CHARLOTTE, N.C. -- Cranes rumbled and smoked last week at Charlotte Douglas International Airport, as workers drove pilings deep into the ground for the airport’s new, $160-million hourly parking deck.

That project, scheduled for completion in 2014, is just a small part of the $1 billion worth of construction planned or proposed for the airport over the next seven years: an eight-lane entrance road, a fifth runway, an expanded main terminal, and a freestanding international terminal where the rental car facility currently stands.

Eventually, the airport could have separate terminals connected by a tram, similar to Atlanta’s Hartsfield-Jackson International Airport.

“You either grow, or risk withering away,” said Jerry Orr, the airport’s aviation director since 1989. He said he believes Charlotte’s airport could one day be bigger than Atlanta’s.

Fueling the airport’s rapid growth in recent years has been a rise in traffic from US Airways, which has increased flights at Charlotte Douglas 22 percent since 2006.

While airport officials and business leaders expect that growth to continue, the expansion plans come amid questions about what Tempe, Ariz.-based US Airways will look like going forward: Will it merge with bankrupt American Airlines? And if it does, will Charlotte Douglas remain a major hub?

US Airways is studying a merger with American, while Delta Air Lines also has been reportedly studying a merger with US Airways. Aviation analyst Henry Harteveldt of Cambridge, Mass.-based Atmosphere Research Group, said it’s risky to invest in more capacity with the future of the airport’s No. 1 carrier up in the air.

“Charlotte’s future is so heavily tied to US Airways’ status as an independent airline, and right now there is a lot of uncertainty,” he said. “There really is a risk.”

Orr says he’s not concerned about the possibility of a US Airways merger. He said there always will be room in the Southeast for a hub besides Atlanta, and Charlotte Douglas can be that hub as long as it is well-run and stays low-cost for airlines.

US Airways CEO Doug Parker says the airline remains committed to a Charlotte hub, even in the event of a merger. “I suspect in any sort of individual scenario that involves US Airways or any other airline in the future, that Charlotte will be a hub airport,” he told the Observer last month.

Orr also has said the airport does stress tests before deciding to embark on new projects, and would be able to cover its debt even if US Airways were to significantly cut back flights.

Upcoming projects will be paid for by airport revenue bonds, the federal government or private funds. Airport bonds are issued against the airport’s credit rating, and repaid with fees the airlines pay to use the airport. Although the airport is owned by the city of Charlotte, it does not receive city tax dollars.

Late last year, Moody’s Investor Service raised the airport’s bond rating to Aa3, one of the highest available. Orr said that will allow Charlotte Douglas to borrow money cheaply to fund the upcoming projects.

But even as it raised the bond rating, Moody’s noted the airport’s primary risk is “reductions to US Airways connecting operations.” US Airways operates almost 600 of the airport’s 670 daily flights.

The airport’s growth has coincided with Charlotte’s. City officials and business leaders often praise Charlotte Douglas, which offers more than 130 direct destinations, a large number for a city of Charlotte’s size.

Chiquita CEO Fernando Aguirre has cited the large number of flights at Charlotte Douglas as one of the reasons the company decided to relocate to Charlotte from Cincinnati last year.

“The airport was very important,” he told a group of Charlotte executives last month. “As a global company, we needed global connections. The Cincinnati airport went down from 600 flights a day to about 120, and hardly any direct flights to key destinations.”

Moving the chess pieces


Directly across from Orr’s desk stands a photo of the airport, nearly as big as the wall. Orr uses a laser pointer to show how he plans to move infrastructure around like chess pieces.

“So after we build this (fourth parallel) runway, we’d close this one,” he says, pointing to the diagonal runway, “and build another one over here. Then we’d have a footprint exactly like Atlanta, same size, same footprint.

“Once you close that, you can extend that concourse all the way across there and have 50 gates on one concourse, take these two concourses out, put a people mover in between,” he says, showing how he would demolish parts of existing concourses and build two concourses parallel to the terminal.

“Then there’s room in here to build another one of those, and another one,” he said, making four parallel concourses connected by a tram.

A record 39 million passengers flew through Charlotte Douglas last year, up about 2 percent from 2010. The FAA forecasts total operations at the airport will continue to grow at an annual rate of just under 2 percent.

Charlotte Douglas is one of the most concentrated hub airports in the country, with US Airways and US Airways Express operating almost 90 percent of the airport’s daily flights.

Other airports with expansion plans have met resistance from the airlines, who end up bearing much of the cost. A proposed runway and terminal expansion project at Philadelphia International Airport carries a reported price tag estimated between $6.4 billion and $10.5 billion.

US Airways has said it might reduce its operations in Philadelphia, its second-busiest hub, due to the cost. Airlines ultimately bear much of that cost through the fees they pay to use airports.

By contrast, US Airways executives praise Charlotte Douglas freely, in part because Charlotte’s expansion plans are cheap compared with other airports’. For example, Orr’s proposal for a fourth parallel runway carries an estimated price tag of about $120 million, compared with somewhere between $1.8 billion and $3 billion for a new runway at Philadelphia.

When asked if US Airways and Charlotte would clash over the cost of Orr’s proposed expansions, Parker said no. “We’ve never had an issue with Charlotte,” the US Airways CEO told the Observer. “The airport is very efficient. It doesn’t spend money it doesn’t need to spend.”

Expanding the airport can benefit consumers by offering more choices and potentially more competition from other carriers, said Rick Seaney, CEO of airfare tracking website FareCompare.com. But he warned that consumers will ultimately pay the tab for any expansion.

“Airlines operate on thin profit margins, so when airports pass along costs to airlines, airlines turn around and pass those costs on to passengers” in the form of higher airfare or increased fees, Seaney said.

When airports lose hubs


What if a merger changes Charlotte’s status as a hub? Other hub airports have suffered as their main carriers slashed flights:

• Pittsburgh International Airport, a former US Airways hub, was stuck with a new, $1 billion terminal after US Airways cut hundreds of flights there. Airport officials have said they expect to be paying back debt for the expansion until 2018. That, in turn, has kept its operating costs high.

• Lambert-St. Louis International Airport started on a $1 billion expansion plan in 2001, the same year American Airlines bought bankrupt TWA, which had dominated the airport. Despite pledges to keep St. Louis as a hub, American cut hundreds of flights there and soon discontinued the hub, costing St. Louis direct service to many destinations.

Harteveldt sees such stories as cautionary tales for Charlotte Douglas.

“If I were the airport, I’d want to have a lot more confidence into what US Airways’ future is before I start building more terminal capacity,” he said.

Parker, the US Airways CEO, said he expects growth at Charlotte Douglas to outpace the national average in coming years.

Orr brushes aside any suggestion that a US Airways merger could jeopardize airport expansion plans or Charlotte’s air service.

Analysts have said a combined US Airways-American could use Charlotte as a hub. American lacks a strong hub on the East Coast.

“I think that there will always be two hubs in the Southeast and I think it’s Charlotte’s destiny to be one of those two hubs,” Orr said.
 

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