Fight or flight

The fragile economics of commercial aviation has created faceoffs between airlines and airports in a desperate struggle for cash.

Since January, one of the biggest airline hangars at Tampa International Airport, which had been a US Airways maintenance hub, has been used exactly once: To host the picnic lunch for Take Your Child to Work Day.

The airport built the $27-million, 150,000-square-foot service area for US Airways in 1993. Then out of the blue, the airline cited its precarious financial situation near the end of 2002 and walked away from its lease. Airport officials could do nothing to stop the move because the airline was in bankruptcy court, and that provides broad leeway to cancel agreements.

"It did not make me happy because we had been assured two months earlier that the hangar was safe," said Louis Miller, executive director of the Hillsborough County Aviation Authority.

The local economy absorbed the loss of 300 jobs, each with a salary of roughly $50,000.

Now, Pittsburgh International Airport knows what it's like to be left hanging. And the stakes are much higher there.

US Airways has threatened to pull out of an airport that is one of the carrier's East Coast hubs unless airport officials drastically cut rents and fees the airline pays. If US Airways leaves, the airport would lose two-thirds of its 600 daily flights and more than two-thirds of its nonstop destinations. Impact on the regional economy could total nearly $2-billion a year. Negotiations are still under way.

Although they are miles apart in scope as well as location, the hangar in Tampa and the showdown in Pittsburgh are symptoms of the same problem: The fragile economics of commercial aviation has created faceoffs between airlines and airports in a desperate struggle for cash.

The airline industry has never recovered from the loss of travelers that followed the Sept. 11 terrorist attacks, which also burdened the airlines with new security costs. Although the federal government has provided $8-billion in subsidies, air carriers remain troubled. Most industry analysts predict new mergers and some outright failures.

"They can't keep doing what they're doing now, offering very low fares to draw people back to flying," Miller said. "They can't survive that way."

For example, from the first quarter of 2000 to the first quarter of 2002, the average one-way fare from Tampa International Airport fell from $149 to $133, a decline of nearly 11 percent, as airlines tried to lure back fliers who fled after Sept. 11. That can be the margin between profitability and bankruptcy.

The issue at Pittsburgh is US Airways' obligation to help pay off $500-million in airport debt, incurred in large measure when airport officials built facilities US Airways requested. Airline officials say if they were free of that obligation, the cost per passenger of operating at Pittsburgh would drop from $9 to $2.

David Plavin, president of Airports Council International, the trade association for airports in the United States and Canada, described the tension between airlines and airports in colorful terms.

"The airlines are operating on economic models that are quite obviously broken," Plavin said. "They're telling us that they're going into the toilet and we should be going down with them."

Airport charges are generally about 5 percent of an airline's total operating cost. Airport officials argue that even if they cut their charges to airlines by 20 percent, it would make only a 1 percent difference in airline operations.

"SeaTac just cut 10 percent of our staff to try to cut costs for the airlines, and we were happy to do what we could," said Mark Reis, deputy director of the Seattle-Tacoma International Airport. "But when the airlines say it's not enough and try to tell us what our business model should be, that's a pretty fundamental problem."

Officials at Pittsburgh International, who still hope for reconciliation with US Airways, say that if their No. 1 airline leaves they have enough cash to cover for two years the fees and leases US Airways had been paying.

"But beyond the two years, the costs to other airlines will go up," said Joann Jenny, spokeswoman for the airport.

There is no public movement by either side.

"Several weeks ago, we presented our plan to the state (of Pennsylvania), which was to reduce the debt at the airport, but we haven't had a response," US Airways spokesman David Castleveter said. "When we hear, we'll have to see if their proposal makes sense for us."

Eventually, there could be a compromise that will satisfy neither side. The struggle in Pittsburgh will color airline-airport relations for years, according to Robert J. Buckley, managing director of corporate real estate for Delta Air Lines.

"That's going to hang over the industry for quite some time as a matter of trust," Buckley said. "If the other carriers there have to assume any of the financial burden, they are going to be significantly hurt."

Some of them might even leave Pittsburgh, deepening the airport's problems.

Laura Einspanier, vice president of corporate real estate with American Airlines, agreed that the problems stem from the twin issues of trust and control. In many places, the airports and airlines no longer trust one another, with each side wrestling to control who will pay for what and how much.

"It's not that we're control freaks, though most of us are," Einspanier said. "We do try to tell airports how to run their businesses, even though we don't do such a great job of running our own. When the economy's booming and the planes are full and business travelers are fighting for seats in first class, then we can agree on everything. Not now."

For the flying public, there's a lot at stake.

Michael Boyd, an aviation industry analyst in Denver, said that if US Airways leaves Pittsburgh, other carriers likely would pick up some of the routes. But in an era of shrinking service, no one would make Pittsburgh a hub.

Last week, a group led by Edward Beauvais, who founded America West Airlines, said it plans to start a new low-fare airline aimed at competing for passengers in Pittsburgh as US Airways reduces its operations there.

Analyst Boyd doesn't buy the argument that airports are blameless in the current situation.

"Too many airports have what I call the Gateway-to-the-Community mentality," he said. "They're Taj Mahals that airlines can't afford anymore. Airports should be facilities to get people into and out of a community, not opulent showplaces. When it comes to airport decoration, most airlines want nothing more than a second coat of latex."

The mentality is obvious in Denver, he said, "where they built a boondoggle airport that started out costing $1.2-billion and wound up costing $5-billion. The airlines can't pay to support that. If they can't get concessions, fare increases are something to consider.

"Denver is in deep financial trouble because of a series of bad judgments," Boyd said. "Pittsburgh, on the other hand, built the absolutely perfect airport, and the world shifted under them."

TIA is in a much better situation, though not without problems. It is not a hub airport, which has several benefits in the current economy. It is not dependent on a single airline, and it has an abundance of low-fare carriers because there is no 800-pound gorilla carrier telling airport officials to keep the cheap-seat competition out.

The airlines are happier with their leases at TIA than at many other airports because when they were renegotiated in 1999, the airport asked the carriers only to pay for what they use. If an airline decides to drop a gate, TIA would take the gate back and pay for it until a new tenant is found, adjusting the airline's lease accordingly.

Finding new tenants has not been a problem for the airport so far, with the exception of the hangar. TIA officials have made formal presentations to Delta Air Lines, which has outgrown its hanger at the airport, and Southwest Airlines, but neither will make a commitment.

US Airways is unlikely to return to the facility.

"That decision was based purely on economics," airline spokesman Castleveter said, who noted the airline also closed reservation centers across the country and trimmed its jet fleet at the same time.

The pullout is costing TIA $154,000 a month in lost land rent.

"In the scheme of things, with our $135-million annual budget, that's not a lot," Miller said. "The people who have really been hung out are those who are owed $27-million in special purpose facilities bonds on the hangar. US Air isn't paying them, either."

Two other airlines recently tried to wrest financial concessions from TIA.

First, Frontier offered to fly nonstops between Tampa and Denver in return for financial concessions. Then AirTran offered nonstop jet service to Tallahassee in return for economic subsidies.

In both cases, they got an emphatic no from Miller, and in both cases the airlines took on the new routes anyway.

"If an airline wants to fly a new route," Miller said, "the airline ought to assume the risk, not the airport, not the community."

- Information from Bloomberg News was used in this report.

Here are airlines' average costs per passenger for major airports as of 2000. The figures are determined by totaling the fees and rents an airport charges its airlines and dividing by the number of passengers. The costs per passenger have gone up slightly since the terror attacks of 2001 because fewer people are flying, but fees and rents have remained the same.

Miami - $17.33

Washington National - $12.01

Palm Beach - $7.90

Pittsburgh - $6.03

Portland, Ore. - $5.68

San Diego - 4.86

Jacksonville - $4.76

Orlando - $4.71

Fort Myers - $4.59

Baltimore-Washington - $4.43

Tampa - $4.09

Fort Lauderdale - $3.84

- Source: Tampa International Airport