"Denver's Folly is Looking Smart"

Thursday, December 27, 2000

DENVER'S FOLLY IS LOOKING SMART
COST OVERRUNS, SNAFUS ASIDE, `PILOT'S AIRPORT' HAS ROOM TO GROW
By Judith Graham
Chicago (IL) Tribune Staff Writer


DENVER -- What appeared to be Denver's folly five years ago now looks a lot
like foresight.

When this city opened the nation's newest major airfield in February 1995,
more than 18 months behind schedule and $2 billion over budget, it was the
subject of ridicule and controversy.

Critics scoffed at the vaunted $232 million automated baggage system that
chewed up luggage. The 24-mile distance from Denver International Airport to
downtown annoyed many, as did $40-plus one-way cab fares.

Travelers from out of town couldn't get over the fact that the airport was
in the middle of the wide-open plains, with nary a hotel or restaurant in
sight. Skeptics loudly complained that the new $5 billion airport wasn't
necessary, as it premiered with fewer passengers and gates than its
predecessor, Stapleton International.

But while other landlocked airports across the country contemplate
troublesome and enormously expensive expansions, DIA has an advantage that
airport officials at O'Hare and across the U.S. envy: plenty of room to
expand for the foreseeable future.

True, the airport is expensive, and has not achieved anywhere near the
passenger volume that early boosters predicted. Last year, 38 million people
passed through DIA, the nation's sixth-busiest airport, well below the 50
million passengers by 2000 that planners projected in the late 1980s.

And yes, DIA has hardly made Denver an international travel center, as city
and Chamber of Commerce officials had hoped. At one time, there was excited
talk of numerous direct flights from Denver to Southeast Asia, Europe and
Central America. But currently, there are no trips to Asia from DIA, and
direct flights to Frankfurt, Germany, will get under way--in a few years.

Still, while experts in Chicago, Los Angeles, St. Louis, San Francisco,
Boston, New York, and elsewhere scratch their heads, trying to figure out
how to upgrade aging plants and accommodate ever-growing numbers of
passengers, DIA has state-of-the-art facilities on 53 square miles of
land--enough to hold both O'Hare and Dallas/Ft. Worth airports.

Where to grow isn't an issue for Denver. Instead, how to grow appears to be
DIA's challenge.

A model airport?

In many ways, Denver is considered a model "hub" airport, drawing in
passengers from more than 130 locations and speeding them to other
destinations with relatively few glitches. "It is the most efficient airport
in our system," said Kurt Ebenhoch, spokesman for United Airlines, which
handles nearly two out of every three passengers going through DIA, the
airline's second-largest hub after O'Hare.

The airport's five 12,000-foot runways don't cross each other, and are far
enough apart to allow three simultaneous landings in bad weather. There is
enough space between concourses to allow planes opposite each other to push
off from gates simultaneously without colliding. "It's a pilot's airport;
the best in the U.S. to fly out of, light years ahead of the old Stapleton
airfield," said Young Cage, a United pilot.

Denver had 2.5 delays per 1,000 flights in 1999, the lowest delay record of
the nation's 15 busiest airports for the third year running.

Another measure of operations, runway delays, gives a sense of how different
airports function. Denver had no runway delays in 1999, compared with 1,077
for Atlanta and 545 in Chicago. As for weather delays, Denver had 1,140 last
year, compared with 36,325 for Chicago.

This year, on-time performance at DIA was strong until the summer, when
United Airlines' labor troubles sent the airport's statistics into the tank.

There have been problems. An underground train system connecting the
airport's terminal and three concourses occasionally breaks down, leaving
passengers stranded. Originally, the trains didn't run often enough and
lacked enough space to handle demand. There are preliminary plans to build a
pedestrian walkway between Concourse A and B, so people can walk when the
trains don't work. Estimated cost: about $60 million.

Then, there's the infamous automated baggage system, owned by United. It
only works between the terminal and Concourse B, the center of United's
operations at DIA, and even then has to be supplemented by a traditional
tug-and-cart system. Write-offs associated with the automated system may run
as high as $150 million, according to the airport's most recent bond
prospectus.

The airport's three de-icing pads get congested; a fourth is needed,
planners say. Noise levels have been higher than agreed upon, resulting
recently in a $5.3 million judgment against the airport by neighboring Adams
County. Parking lots are full to overflowing; new ones are in the works.
Passengers are eager to see a hotel built at the terminal; they have to
travel at least 5 miles to stay overnight. Denver has an agreement with
Westin to operate a new 500-room facility, to be built at a cost of nearly
$90 million.

International flights have been problematic. At Denver's mile-high altitude,
especially when the weather gets hot and the air thins near the ground, it
is difficult for fully-loaded international flights to get the lift they
need to take off, admitted Chuck Cannon, DIA's spokesman. The solution:
Either cut passengers and baggage (thereby losing revenue) or build up speed
on a longer runway.

Airport planners have proposed a sixth, $150 million, 16,000-foot runway
that would remedy this, and would provide needed extra capacity for
departures when the weather gets bad. The runway was part of DIA's original
plans, but was scrapped because of cost overruns.

Expanding service to the European continent and Pacific Rim countries is a
priority, according to DIA's strategic business plan. Planners expect the
airport to increase the number of passengers and flights by 25 percent over
the next five years, bumping against the current capacity limit of 50
million.

Costs

By far, the most controversial issues at DIA are costs and competition.

As the newest airfield in the country, DIA is expensive. Predictably,
airport officials say the amenities at DIA--everything from its striking
state-of-the-art facilities to lots of bathrooms and restaurants for
customers to an underground fuel system at the gates for planes--are worth
the high charges. According to a just-released "Competition Report" from
DIA, the airport is No. 2 in the U.S. in terms of cost per passenger for
basic facilities, behind John F. Kennedy airport in New York.

Critics charge that DIA was unnecessary: The city could have expanded the
old Stapleton airport into the adjacent Rocky Mountain Arsenal (a former
Defense Department weapons site) with far less expense, claims Gene Amole, a
columnist for the Rocky Mountain News who has written more than 200 articles
about DIA. While the project made lots of money for real estate speculators,
builders, investment bankers and lawyers, he said, consumers have suffered
from reduced competition and higher prices.

According to American Express, the lowest available economy fares for
business travelers in Denver (with no more than three days advance purchase)
averaged $676 in December 1999, 39 percent higher than the national average
of $487. In June, Denver's $741 average fare topped the national average by
37.4 percent.

Although the October 2000 issue of Consumer Reports called consumer fares at
DIA "competitive," the impression among local travel agents is "Denver is on
the high side," said Linda Rawlings, president of the Rocky Mountain chapter
of the American Society of Travel Agents. "We hear complaints from customers
all the time."

Several airlines have cited costs at DIA as a key reason why they do not do
business there. Southwest Airlines spokesman Linda Rutherford said the
carrier had decided not to set up shop in Denver, in part because of DIA's
expense. When Continental dismantled its Denver hub upon DIA's 1995 opening,
severely cutting back the number of daily flights to 12 from 286, its
executives also cited the airport's high costs.

"Denver is so expensive that it has . . . hurt competition and stifled
consumer choice," said Michael Boyd, an airline consultant and longtime
critic of DIA.

DIA officials like to point to Denver-based Frontier Airlines, the No. 2
airline at DIA, as a low-cost operator that has built a successful base
there. Frontier officials said the company plans to expand at DIA. By 2005,
they expect to have 14 gates at the airport, up from 9 now.

Denver is one of the few markets in the country where a low-cost carrier's
hub is competing successfully with a dominant airline's hub, noted Elise
Eberwein, Frontier's spokeswoman. "Are we tapped out in Denver? Not by a
long shot," she said.

But Frontier watches every penny, because of DIA's costs. "Our offices at
DIA would be laughed at in most hubs by carriers of our size, our space
there is so minimal," said Roger Sorensen, director of Frontier's Denver
station.

Competition

As for competition, United's problems this summer turned up the heat on this
issue. As a "fortress hub" for United, Denver is among the markets that
likely will be targeted by states' attorney generals responding to
complaints about customer service, and growing concern about the service
implications of airline consolidation.

Together with its regional airline partners, United Airlines had a 72.6
percent market share at the airport in 1999, more than 10 times its closest
competitor, Frontier, with 6.1 percent.

United officials say the company's dominance in Denver is no greater than
other carriers' at their major hubs, such as American's power in Dallas/Ft.
Worth or Continental's position in Houston. Even so, United has greater
market strength in Denver than it does at any other single airport in the
U.S.

That fact led Rep. Scott McInnis (R-Colo.) to accuse Denver officials of
pandering to United and doing little to foster competition at the airport.

McInnis' district encompasses mostly rural areas west of the Rocky
Mountains, which feel ill-served by DIA, both in terms of flights and
service. In an Aug. 9 letter, McInnis chided Denver Mayor Wellington Webb
for letting United become the 800-pound gorilla at DIA.

"The problem is obvious to everyone," McInnis wrote. "Colorado is too
dependent on United Airlines for needed air service. It is time to confront
United Airlines. It is time to take the bull by the horns."

Airport spokesman Cannon thinks McInnis is being unrealistic. All major
airlines already operate out of DIA; if they have decided not to risk a
major market share battle with United, there is nothing the city can do
about that, he said.

Still, the ripple effects of United's problems had more impact on the West
than on any other region. That concerns Rep. Diane DeGette (D-Colo.), who
thinks Congress ought to hold hearings on this summer's air traffic
problems, and the factors that contributed.

"With record numbers of air travelers, an air traffic control system that is
desperately out of date, and airports not built to handle the loads they
face," she said, "any problem can throw the system into chaos."

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