"War, economy clip San Francisco airport's wings"

Monday, March 31, 2003

War, economy clip airport's wings
SFO chief: 'In the long run, we feel we can survive this'
By Eric Young
The San Francisco (CA) Business Times


Airline industry turbulence coupled with America's war overseas has prompted
San Francisco International Airport executives to trim staff, cut next
year's budget and find new sources of revenue.

Even before war broke out March 20, passenger traffic through SFO, the
nation's ninth largest airport, was in steady decline due to a weak economy
and travel fears following 2001's terrorist attacks. The hostilities now
raging in Iraq likely will lead to even steeper declines, meaning less
revenue the airport can expect from landing fees and other airline charges.

Airport Director John Martin said he plans to trim $20 million from SFO's
$597 million budget in the fiscal year beginning July 1. Some of the savings
will come from job cuts: The airport will ax approximately 90 workers from
its staff of 1,400, which has already been reduced by 40 positions since
last year. Contract workers may face cuts as well, but it is not yet clear
how many. Further savings may come from delays in upgrades such as a noise
abatement project scheduled for next year, said spokesman Mike McCarron.

New revenue sources

The airport's fiscal health is a barometer for the regional economy. Some 80
percent of tourists that visit San Francisco and the region, for instance,
pass through SFO. And the airport is a money-maker for San Francisco city
government, contributing $18 million to municipal coffers last year.

Airport officials hope to bring in more advertising revenue, reversing a ban
on ads in areas like airport gates. SFO nets some $5.5 million in ad revenue
annually and potentially could bring in more with new ads in the AirTran, a
rail system opened this year that connects the airport terminals with the
rental car facility.

The airport also will hike fees for short-term parking by 25 percent to $5
per hour and for long-term parking by 8 percent to $13 per day. The
increases are expected to generate $5 million in new revenue, boosting
parking fee revenue to $47 million annually.

In a concession to airlines, SFO officials said they do not plan to raise
landing fees, which at $3.96 for every 1,000 pounds are the fourth highest
in the United States. "We don't want to make it more difficult to do
business here," McCarron said.

Despite the current fiscal gloom, airport officials said the facility will
rebound.

"In the long run, we feel we can survive this (downturn)," said Martin, who
has been at SFO's helm since 1995. Still, Martin estimated it will take five
to 10 years for airport traffic to return to the peak of 41.048 million
passengers recorded in 2000.

Steeper dive

SFO's traffic slump has been steeper than at most airports. The number of
passengers at San Francisco International fell 20 percent in fiscal 2002,
compared with a national average decline of 13 percent, according to Kevin
Carney, an analyst with Moody's Investors Service. Moody's and other rating
agencies maintain high quality ratings on SFO bonds, reflecting confidence
in the airport's management and financial arrangements. But those same
agencies say they suspect the airport's situation will get worse before it
gets better.

The airport has a long list of developments that could further roil its
finances. Chief among them is the bankruptcy of United Air Lines Inc., SFO's
biggest carrier, and the possible bankruptcy of American Airlines, SFO's
second biggest carrier, which threaten to shuffle routes to the airport.

Airport experts said that a major carrier like United liquidating would
result in short-term disruptions to SFO's operations. But other airlines
likely would want to acquire routes into SFO. "Somebody will buy those
routes" if a major carrier pulls out of San Francisco International, said
Dan Ochse, principal of airport management consultancy Leigh Fisher
Associates of San Mateo. "San Francisco is extremely well positioned
relative to other airports."

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