"US landing fees set to soar"

Thursday, February 27, 2003

US landing fees set to soar 
Jane's Transport


We are hearing anecdotally that due to lower aircraft traffic volumes, some
airports are actually considering increasing their landing fees and terminal
rentals by as much as 30% to 40%," says Tom Browne, managing director, for
the aviation infrastructure department at the Air Transport Association
(ATA). 

While only anecdotal evidence that is probably only applicable to a limited
number of the hundreds of airports in the US, the fact that traffic is down
and fee rises are under consideration still does not bode well for the
industry. 

With less aircraft in the air, airports still have to cover their fixed
operating expenses incurred when running the terminal buildings, runways and
related infrastructure. Added to this is the additional expense of improved
security measures that the Transportation Security Administration (TSA) is
responsible for in 450 of the nation's airports. 

The problem with introducing the new TSA measures is that there is little,
if any, funding available to pay for these new security systems and staff -
despite its being a function of the federal government. Thankfully this may
change. 

But one problem that it may raise is what collateral can be used to borrow
against for those airports that are already close to reaching their maximum
debt level. Most of the improved security measures will be hi-tech equipment
and employees as opposed to large brick and mortar infrastructure assets. 

Agreeing the fee
Once airports have determined what to charge the airlines for landing fees
over the course of the next six to 12 month period, the real negotiations
begin. But the negotiating leverage of the airline will depend upon the
airport that it uses. 

An airline representing a significant portion of the flights using one
airport terminal, with another hub nearby that is underused, will tend to
have much more bargaining power than an airline that is one of many, using
an airport with no nearby alternatives. And with time being of the essence,
there is a mutual benefit for the two sides to ensure that all paths,
however creative, are explored quickly. 

There is still substantial excess capacity among the airlines with a
significant proportion of the airline industry already in the midst of
Chapter 11 proceedings. And with the looming threat of war with Iraq in the
Middle East, another external shock is on the way that will further reduce
air traffic levels. 

It looks like any increase will just be passed onto the airlines that are
likely to just add the landing fee increase to passengers' tickets. 

Perhaps a more worrying issue for passengers is the proportion of a ticket
that federal taxes and other fees already represent. According to ATA
statistics, in 1972 it represented 7% of the ticket's total price. In 1992
more than double, at 15%. In 2002, a full 26% of the price. This is a
significant portion of the ticket's cost. 

It will be interesting to see what the airlines can get away with in this
skittish period of air travel.


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