3/27/2015
When The Hub Airport
Is Unplugged
Bradley D. Penrod, A.A.E.
Director, Airports
The 2015 Airports Conference
Hershey, PA | March 3, 2015
GAI Transportation: Smart solutions, big ideas,
and trusted partnerships…it’s all in our people
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Objectives
When The Hub Airport Is Unplugged
Identify opportunities where the airport
can take control
Identify airport rebranding opportunities
Improve lines of communication with staff
and community
Better understand airline decision-making logic
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3/27/2015
“
Whenever competition is feasible, it
is, for all its imperfections, superior
to regulation as a means of serving
the public interest.”
Alfred Kahn,
Chairman of the Civil
Aeronautics Board and
Father of Airline Deregulation
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Impacts of Airline Dehubbing
When The Hub Airport Is Unplugged
Not just airports formerly known as large hubs
Small community access is going away
No commercial service airport bankruptcy
Funding impacts on grants and passenger facility
charge (PFC) levels
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3/27/2015
Flights and Seat % Change 2007-2013
When The Hub Airport Is Unplugged
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Large Hubs Have Generally Escaped the Cuts
Small and mid-sized airports have been disproportionately harmed by capacity reductions
105
Index of departing seats (2000=100)
100
95
90
85
80
75
70
Large hubs
Medium hubs
Medium hubs (excl closed hubs)
Small hubs
65
60
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: OAG Schedules iNet database, accessed January 2014. Closed hubs include PIT, STL, CVG, and MEM.
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3/27/2015
The Final Four
When The Hub Airport Is Unplugged
Bankruptcies and mergers over the last 12 years
have taken 10 major U.S. airlines down to four mega
carriers that dominate the market
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Source: CNN Money
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3/27/2015
Don’t Forget
When The Hub Airport Is Unplugged
Alaska
Allegiant
JetBlue
Spirit
Frontier
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It’s Game Time!
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3/27/2015
Airport Ground Rules
When The Hub Airport Is Unplugged
Long-term residual airline agreement in place
Several years before debt is paid off
Current hub carrier has several hundred daily
departures to over 100 destinations that will drop to
under 50 daily departures to 9 destinations
Airport is currently served by all domestic legacy
carriers, 2 LCCs, and 1 ULCC
Remember, FAA grant assurances and incentive
rules apply
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Airline Management
When The Hub Airport Is Unplugged
You have determined that hub operations at
Anytown International Airport no longer fit your
business model due to the industry regulatory and
economics environment and the regional population
surrounding Anytown, USA.
How will you explain this to the impacted
community?
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3/27/2015
Airport Management
When The Hub Airport Is Unplugged
ABC Airways has determined that its hub operations
at Anytown International Airport no longer fit its
business model due to industry regulatory issues,
economics, and the regional population surrounding
Anytown, USA.
What will you do to regain air service?
How are you going to communicate/strategize with
community partners, including elected officials,
business leaders, and the media?
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Elected Officials
When The Hub Airport Is Unplugged
ABC Airways has determined that its hub operations
at Anytown International Airport no longer fit its
business model due to industry regulatory issues,
economics, and the regional population surrounding
Anytown, USA.
What will you do to regain air service?
How are you going to communicate to community
partners, including other elected officials, business
leaders, and the media?
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3/27/2015
Corporate Business Leaders
When The Hub Airport Is Unplugged
ABC Airways has determined that its hub operations
at Anytown International Airport no longer fit its
business model due to industry regulatory issues,
economics, and the regional population surrounding
Anytown, USA.
What will you do to regain air service?
How are you going to communicate to community
partners, including elected officials, fellow business
leaders, and the media?
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Thank You for Flying
the Competitive
(and Profitable) Skies
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3/27/2015
Airport Cost Containment
When The Hub Airport Is Unplugged
Cost of doing business
Everything should be on the table
 Think outside the airport box
 “No” is not always the best answer
Capital and operating budgets
 CIP needs vs. available funding
All parts of the organization must understand
reasoning and be active participants
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Revenue Adjustments
When The Hub Airport Is Unplugged
Drop in PFCs and maybe customer facility charges
(CFCs)
Reduction in entitlement grants
Increase or a decrease in parking?
Drop in landing fees
Drop in concessions
Importance of non-aviation revenue sources
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3/27/2015
Organizational/Cultural Changes
When The Hub Airport Is Unplugged
Safety and security must remain
top priority
Hub vs. O&D characteristics
New staffing and skill requirements
Frequent and open
communications
Continuation of high quality and
less quantity of services
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Management Through Dehubbing
When The Hub Airport Is Unplugged
Educate political leaders and
community partners
Parking and security issues
Be creative with excess airline
space





Movies
Parking
Concession
Security screening
Demolition
Lower average fares, maybe?
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3/27/2015
Management Through Dehubbing (cont’d)
When The Hub Airport Is Unplugged
Expanded responsibilities with reduced staffing and
reduced budgets
Terms and conditions of airline use and lease
agreement
Financial stability, maybe even an improved rating
Cost containment
Reevaluate rates and charges
Cultural changes
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Management Through Dehubbing (cont’d)
When The Hub Airport Is Unplugged
Technology’s effect: less space
needed by airlines
 Common use systems and
facilities
 Baggage self check-in
 Smartphones
 Trusted travelers
 More space available for reuse
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3/27/2015
New Airport Responsibilities
When The Hub Airport Is Unplugged
Service, systems, staffing
Less operating and capital budgets
Examples
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Ground handling
Baggage system O & M
Passenger loading bridges
FIDS
Advertising
Self-serve kiosk equipment
Deicing
Fueling
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Rebranding the Airport
When The Hub Airport Is Unplugged
Tourism community
Regional branding coordination
Higher level of customer service
Maximize social media
Be aware of the competition
 Other airports
 Other modes of transportation
 Technology
Non-airline revenue critical
P-3 investment opportunities
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3/27/2015
Community Partners and Passenger
Adjustments
When The Hub Airport Is Unplugged
Deregulation is a wonderful thing…
Learn to understand airline economics
 The “use it or lose it” rule applies
Hub to O&D environment
 Fewer nonstop destinations
Parking and security line issues
Customer service and loyalty programs
International aviation law is extremely complex
 Open skies issue
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Community Partners and Passenger
Adjustments (cont’d)
When The Hub Airport Is Unplugged
Local, state, and federal
elected officials
Community corporate and
chamber partners
Identify and educate about
airline and air service trends,
economics, and aviation laws
(both domestic and
international)
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3/27/2015
Airline Economics and Air Service
When The Hub Airport Is Unplugged
Airlines have realized they are for
profit, publicly traded corporations
 Fuel price impact
Instead of market dominance,
focus is on capacity discipline
Alliance impacts, domestic and
international
Profitable flights survive, others
have fleet rerouted
Aircraft by design are mobile
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Airline Economics and Air Service (cont’d)
When The Hub Airport Is Unplugged
Aircraft fleet size and public expectations
Regulatory issues
 Crew retirement rules
 Crew training requirements
 Crew rest time requirements
Ancillary fees vs. PFCs
More hubs to fall?
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3/27/2015
Case Studies
When The Hub Airport Is Unplugged
Pittsburgh International (PIT)
 Close, upgrade, demo, repurpose,
improve security flow and concessions
Lambert-St. Louis International (STL)
 Close, upgrade, repurpose
Memphis International (MEM)
 Close, upgrade, demo, improve
aircraft flow
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Case Studies (cont’d)
When The Hub Airport Is Unplugged
Cincinnati/Northern Kentucky International (CVG)
 Close, upgrade, possible demo
Cleveland Hopkins International (CLE)
 Close, upgrade
General Mitchell International (MKE)
 TBD, upgrade
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3/27/2015
Questions
When The Hub Airport Is Unplugged
Supporting
graphics
can be
placed in
this column
?
©2015 GAI CONSULTANTS, INC.
Bradley D. Penrod, A.A.E.
Director, Airports
412.427.0500 | [email protected]
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