Annapolis Institute Overview


Airline to cities: Don’t ignore us Second in a series

by Phil Burgess, Unabridged from the Rocky Mountain News, October 27, 1991

Tourism (including travel), now the world’s largest industry, is dominated by transportation.

Transportation accounts for about half the $652 billion spent in the tourism industry in the U.S. last year. From ski boots to souvenirs, travel-related purchases account for 21%. Food (14%), lodging (10%) and entertainment (5%) complete the picture.

Though most people travel by automobile — and some by buses, boats and rail — it’s the growth of airline travel, especially international travel, that is the most impressive.

Domestic air travel, growing at 3% this year, is dominated by eight carriers who carry 90% of the nation’s air traffic. The healthiest of these carriers — American, United and Delta — account for nearly 60% of U.S. domestic traffic and one-fourth of word traffic.

U.S. carriers also play an important role in international travel, which is growing twice as fast as domestic travel. Measured by passengers — what the airlines call revenue passenger miles, or RPMs — U.S. carriers produced nearly 40% of the world’s RPMs last year. European airlines accounted for about 34%, and Asia-Pacific carriers produced another 17%,

Airline travel should double during this decade, according to the International Air Transport Association. This is one reason why Boeing has more than $90 billion in back orders for commercial aircraft. This is also the reason why major new airports are being built in Osaka, Hong Kong and Munich.

However, airlines around the world are in trouble financially. While airline revenues are up, operating costs are up even more, in part because of higher fuel prices. In the U.S. alone, airlines lost more than $4 billion between Aug. 2, 1990, when Iraq invaded Kuwait, and March 31, 1991, as the war wound down.

Unlike many of their state-owned and subsidized foreign competitors, U.S. carriers are privately owned. In addition, as American Airlines chief Robert Crandall reminded us last week in an interview in Time magazine, in the U.S. it is the revenue stream produced by the private airline that supports the bonds that pay for airports built by public authorities.

Crandall’s remarks are clearly a shot across the bow of U.S. politicians and civic boosters: If you want to expand or build a new airport in your city, don’t forget who your customer is. No matter how promising the industry fundamentals, a new or expanded airport must be developed in cooperation with the airlines, the primary user. A quaint idea.

Nevertheless, many U.S. cities are planning airport expansions. It’s what Crandall calls a “Field of Dreams” strategy: Build it and they will come. But Crandall is saying: Slow down. It must be a negotiated process. An airline will certainly come to serve the local traffic, but remember, costs matter. And an airline has lots of choices for where and how it hubs.

Just as the 1976 summer games in Montreal became the symbol for how not to do an Olympics, airline executives may be looking for an opportunity to create a symbol on how not to plan and build an airport. This may be the strategy of United Airlines with Denver. First, deny Denver the $1 billion maintenance facility by taking it to Indianapolis. Second, let city officials, civic leaders and bondholders swing in the wind by letting the Nov. 30, 1991, deadline pass without signing an agreement to take 45 gates — and then, later, take less than 45, just to make the point.

Between the words of American’s Robert Crandall and the deeds of United’s Stephen Wolf, other cities may get the message: remember the customer.

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