"Denver's Idle Gates Draw Covetous Eyes"

Tuesday, August 5, 2003

Denver's Idle Gates Draw Covetous Eyes
By EDWARD WONG
The New York (NY) Times

 
DENVER - From the control tower of Denver International Airport, Tim
Thornton stared down more than 300 feet at the white gates that snaked like
tentacles from Concourse A.

Mr. Thornton, director of Frontier Airlines' operations here, pointed to his
company's 10 gates to the left of the tower. In a half-hour, at 4 p.m., the
airline would use six of those to funnel passengers to flights.

Then Mr. Thornton waved a hand to his right, at the eight gates used by
United Airlines to load regional jets. In a half-hour, only two planes would
be parked there. That was the way it always was, Mr. Thornton said:
Frontier's planes constantly taxiing in and out of the terminal, and
United's presence barely noticeable.

"They're not using the gates to their fullest," Mr. Thornton said. "We could
do better."

Mr. Thornton's insistence that United give up its gates is one part of a
three-way struggle among United, which is reorganizing its business in
bankruptcy court; Frontier, a growing low-cost airline that is United's main
rival here; and the city of Denver, which owns and operates this sprawling
airport that was completed in 1995 at a cost of $5 billion.

Perhaps more than any other airport, Denver International, on the plains
east of the Rocky Mountains, is at the center of trends roiling the airline
industry. It is caught between the needs of an ambitious low-fare airline
and its biggest customer, a traditional airline that is threatened by the
growth of the less-expensive rival and wants to keep a tight grip on its
gates.

Like airports in St. Louis (an American Airlines hub) and Pittsburgh (a US
Airways hub), Denver finds itself financially vulnerable as its major
customer struggles to restructure itself during the industry's worst
downturn - as vulnerable in many ways as labor unions and aircraft lessors.

Adding to the acrimony in Denver are a dash of political wrangling between
the recently departed airport director and the new mayor, and increasingly
harsh criticism from many residents here, who say that United is trying to
manhandle the city by making absurd demands.

"Now you've got an airport that's in total chaos," said Michael Boyd,
president of the Boyd Group, an airline consulting firm based in Evergreen,
Colo. "Put music to this and you have a soap opera."

Last month, United, the world's second-largest airline after American, sent
the city a list of demands that included building a $65 million regional jet
terminal with 38 gates and reimbursing the airline for up to $20 million in
costs related to a faulty baggage-handling system.

Denver International's fortunes are closely tied to United: the airline
accounted for more than half of the 3.02 million passengers who came through
here in May and 65 percent of the airport's $305 million in income last year
from airline rents, fees and charges.

United is cutting back on service, but says it wants to hold onto the eight
gates on Concourse A for future expansion - despite Frontier's claim that it
can immediately put half of those gates to more productive use. Frontier
says it may have to start a second hub somewhere if it is not given more
space soon, especially since it announced last week that it would buy 15
Airbus A319's and lease up to 14 more.

United wields a bit of leverage in all this jockeying - the bankruptcy judge
has given the airline until Dec. 15 to decide whether to reject its 30-year
airport lease. Denver's former mayor, Wellington Webb, refused to play ball:
he ripped up United's list of demands at a news conference on July 15,
shortly before leaving office. A week later, John Huggins, transition
director for the new mayor, John Hickenlooper, struck a more conciliatory
tone, saying that the city wanted a "comprehensive settlement" that "also
meets our needs to keep the airport healthy and allow competitors to grow."
After a couple of weeks of silence, airport officials met with United for
three hours yesterday morning.

On July 18, in the middle of this imbroglio, Mayor Hickenlooper accepted the
resignation of Bruce Baumgartner, the airport director. An official in the
mayor's office said that Mayor Hickenlooper was upset with Mr. Baumgartner
for announcing several days earlier that the airport would build a $300
million, 16-gate extension to Concourse A that would largely benefit
Frontier - without first telling the mayor.

Conflicts such as the one here at Denver could change the way airports deal
with carriers. Having learned a difficult lesson, airports might want to
hedge their bets by wooing several airlines instead of relying on just one
for a huge chunk of revenue, industry experts said. To smooth out the gate
issue, especially where expanding low-cost airlines compete with a big
network carrier, airports could include stricter productivity demands in
airlines' leases.

"Before, at a hub dominated by a carrier, a community could make a decision
that working for the interest of the carrier was working for the interest of
the community," said Steve Van Beek, a senior vice president of Airports
Council International-North America, the industry's main trade group in this
country. "You're willing to say, `I see why the interests of US Air or the
interests of United are congruent with my interests.' But when you get into
bankruptcy, you create a new dynamic and a new skepticism in those
communities."

United declined to make any executives at its headquarters in Chicago or in
Denver available for interviews. Jeff Green, a United spokesman, said the
airline's demands are intended to force Denver to meet obligations in the
current lease agreement.

Chuck Cannon, a spokesman for Denver International, said United was meeting
the minimum requirement for gate use stipulated in its lease - three jet
turnovers per day averaged across all of the airline's gates. United uses
its gates on Concourse B, its main terminal, much more often than the eight
in dispute on Concourse A.

United's share of passengers in Denver has dwindled over the last three
years, but the airport has given it more gates. In December 1999, United's
main jet service had 65.6 percent of the market and its regional jet
services had 8.8 percent, according to airport statistics. The company used
43 gates. Last December, United's main jet operations had shrunk to 53.1
percent of the market while its regional jet service had risen to 9.2
percent. As its total market share dropped, the number of gates allotted to
the airline rose more than 18 percent, to 51.

Over the same three years, Frontier's market share more than doubled, to
13.3 percent from 5.6 percent, while the number of gates assigned to it rose
at about half that rate, to 10 from 6.

Frontier said that was not enough. Jeff S. Potter, Frontier's chief
executive, said the airline needed more gates to operate more efficiently.
He said the airline was unable to time its flights as well as it would like
because of the lack of gate space.

"We think we should be a little bit more aggressive in making sure those
gates are fully utilized," he said of Concourse A.

Frontier welcomed the decision by Mr. Baumgartner, the former airport
director, to add 16 gates to Concourse A. But the gates would take two years
or so to build. Frontier said it needed at least four gates immediately.

Furthermore, Mr. Baumgartner said in an interview that the airport did not
have all the money for the expansion, and it would be hard to sell bonds to
raise cash while United is in bankruptcy.

In any case, the question of financing could be moot. Vicki Braunagel, one
of the two new airport managers, said the expansion was no longer a sure
thing and was being reviewed.

"We recognize that Frontier has some capacity issues, and we want to get
them the gates they need to operate, but in the most cost-effective way,"
she said. "We want to get United what they need to operate, but also in the
most cost-effective way. That's a balancing act."

Mr. Boyd, the industry consultant, said that United's demands of the airport
made sense from the company's perspective - it should use whatever leverage
it gets under bankruptcy protection to cut its costs. At the same time, he
pointed out, United might not have as much negotiating power as it would
like because there was little chance that the airline would abandon Denver,
its second-largest hub.

"United's demands are outrageous, yes," Mr. Boyd said. "But they're in
bankruptcy, so they've got to do it."

The city's negotiating position is not helped by the fact that it has to pay
off enormous debt related to the airport's construction. The airport has to
set its fees high enough to pay its debts and maintain its operations, but
not so high that it alienates United, its most lucrative customer.

Other cities that operate hub airports are finding themselves in similar
jams. US Airways, which emerged from bankruptcy court in March and is still
struggling financially, said it could shut down its Pittsburgh hub. Gov.
Edward G. Rendell of Pennsylvania and other state officials have offered an
incentive package worth $263.9 million to upgrade facilities and reduce
operating costs, among other things.

On July 16, American Airlines said it would considerably shrink its hub in
St. Louis. That means cutting many flights, laying off 1,650 workers at the
airport and closing a reservations office in the city that employs 540
people. American acquired the hub in 2001 when it bought Trans World
Airlines, but the company has had a tough time making its operations there
profitable.

Here in Denver, government officials and business leaders do not want to
look as if they are being abused by United, but they also do not want to
alienate the airline.

"You don't like unhappy customers, and United is a customer of ours," said
Tom Clark, executive vice president of the Denver Metro Chamber of Commerce.
"Our hope is that the efforts between the airport and United will be
successful. Our goal is more on the success of the airport than a carrier,
however."

Attached Photo:

Frontier Airlines says its 10 gates in Concourse A at Denver International
Airport are not enough. But United Airlines will not give up its gates,
which it uses less often.

05GATE.xl.jpg