"Canadian airports look to the ground for fun and profit"

Saturday, August 30, 2003

Airports look to the ground for fun and profit
To make ends meet, they're leasing to golf course developers, snowmobile
racers, concert organizers and other non-aviation concerns
By KEITH McARTHUR
Canada - The Toronto Globe and Mail


Jerry Dolcetti was among 1,500 locals who braved the cold last February to
watch the first annual "Snow and Ice Drags" snowmobile race at Sault Ste.
Marie's Runway Park.

The president of the city's money-losing airport isn't a big fan of winter
sports, but Mr. Dolcetti wanted to see for himself if the airport could
establish itself as an "in" venue for motor sports to supplement slumping
aviation revenue.

Each time a race is held on surplus airport land, it generates about $10,000
in profit for the cash-starved airport.

That's equal to the landing fees from about 50 Dash 8s -- or 10 days worth
of Air Canada Jazz flights.

"If you're not getting the landings, it's another way of augmenting your
revenue," Mr. Dolcetti said.

Airports across the country are expanding into unconventional businesses in
order to make ends meet in the perennially unstable airline industry.

Some are leasing airport land to developers for golf courses and industrial
complexes; others are generating cash through investments in overseas
airports.

Through the nineties, the federal government got out of the business of
running most airports, handing the land over to not-for-profit airport
authorities or municipal governments.

Now the people entrusted with providing airport services are facing the
stark reality that they can't cover their costs with aviation revenue alone.

For some airports, the financial situation has become dire, as a result of
the drop in passenger traffic after the Sept. 11 terrorist attacks and the
outbreak of severe acute respiratory syndrome.

Then on April 1, Air Canada filed for bankruptcy protection, leaving the
country's airports with $47-million in unpaid bills.

"For some airports, the situation is quite severe . . .," said Roland
Dorsay, president and chief executive officer of the Canadian Airports
Council. "They're looking to save pennies wherever they can."

Airports say they've been busy trying to squeeze costs out of their
operations.

The Vancouver International Airport Authority scrapped 14 of its 300 jobs in
late 2001.

The Calgary Airport Authority slashed its capital budget last year by 13 per
cent to $77-million.

And the Sault Ste. Marie Airport in Ontario is considering a massive
reduction in hours of operation to 12 hours a day from 17½.

Mr. Dolcetti's board has already cut the airport's staffing to 14 jobs from
18, and has cross-trained firefighters to operate snow-plowing equipment.

None of it has been enough. Mr. Dolcetti expects the Sault Ste. Marie
Airport to finish the year $300,000 short of its $2-million operating
budget. The airport took a $135,000 hit when Air Canada filed for bankruptcy
protection.

Unable to shrink its way to profitability, Mr. Dolcetti said the airport has
no choice but to lease out land for non-aviation purposes. He's hoping to
see income from such services grow to 40 per cent of revenue from 20 per
cent currently.

In addition to turning airport land into a park for concerts and motor
sports, the airport is trying to attract investors to build aircraft
maintenance facilities and a golf course on airport land.

"It's not ideal," he said. "We'd like to see greater use of the airport for
aviation purposes."

Small airports complain about the property taxes they are forced to pay on
undeveloped land, while larger airports say the federal government is
charging too much in airport rent.

The rents -- treated as royalties to help cover the costs of providing land
and building the airports -- are increasing every year and projected to hit
$500-million a year by 2010.

Last month, the federal government said it will allow airports to defer a
portion of the $264-million owing this year by the country's 11 largest
airports.

While airports fund a large portion of capital projects through airport
improvement fees, most of their operating budgets come from landing fees and
rent charged to airlines.

Sam Barone, principal of Ottawa-based consulting firm Transport Partners,
said airports have little choice but to look for other sources of revenue.

"Airports that run deficits for long periods of time will either revert back
to the federal government or other sources of capital have to be made
available," he said.

After a strong summer, passenger traffic is finally returning to pre-Sept.
11 volumes, which provides relief for many airports.

But not all are so fortunate. Those with a strong complement of discount
carriers -- including Calgary, Hamilton and Halifax -- have done well. But
many of the smaller regional airports are hurting.

WestJet Airlines Ltd. recently announced it will pull out of Sault Ste.
Marie in September because passenger volumes were lower than expected,
dealing another blow to the airport's dwindling passenger base.

When Mr. Dolcetti's team took over the airport in 1998, it carried 170,000
passengers a year, and his officials predicted volumes of 200,000 in 2003.
Now it looks like they'll be lucky to get more than 120,000 passengers this
year.

The history of Canada's airports is littered with ambitious passenger
projections that never materialized after major expansions.

When the Greater Toronto Airport Authority launched its $4.4-billion
expansion in 1997, the airport handled 26 million passengers. There were
predictions the airport would need to deal with 50 million passengers in
2010.

Pearson is now expecting just 27 million passengers for 2003. And the most
ambitious growth forecasts provide for 35 million to 40 million passengers
at the airport in 2010.

When the federal government built Montreal's Mirabel in 1975, it predicted
the city's twin airports would handle 40 million passengers in 2000. The
latest projection is for nine million -- almost all of them across town at
Dorval.

Aéroports du Montréal, the local airport authority, recently proclaimed that
the last of Mirabel's scheduled flights will be relocated to Dorval at the
end of 2004.

The airport authority president, James Cherry, said the decision was made in
early 2002 to cope with the drop in aviation revenue following the Sept. 11,
2001, terrorist attacks.

Mirabel will now be limited to cargo flights and private jets, but that
doesn't mean it won't generate revenue to help pay for the costs of
providing aviation services at Dorval.

The federal government initially purchased 36,000 hectares to build Mirabel,
of which only 2,100 were used. Much of the surplus land has been sold back
to local farmers, but some of it is available for lease from the airport
authority.

"We've got a vast amount of territory in and around Mirabel airport -- as
much as 200 million square feet [1,860 hectares] of land -- that is already
zoned or could be developed for commercial purposes," Mr. Cherry said.

Current tenants include transportation giant Bombardier Inc., which has two
plants on airport land.

Mr. Cherry said land leasing accounts for about 5 per cent of the airport
authority's revenue. He'd like to see that number grow, but said it will
take time.

Other efforts to boost revenue have been less successful.

In 1994, the airport authority created Aéroports de Montréal Capital Inc. to
invest in and run other airports. Its initial investment was as part of a
consortium with Toronto-based Airport Development Corp. to build a new
terminal at Budapest's Ferihegy airport and to operate and manage the
terminal for 12 years.

The project ended in failure in late 2001 when Hungary's parliament voted to
renationalize the operation of the airport.

The Canadian investors are still looking to get compensation, but Aéroports
du Montréal has already decided to focus on its own operations instead of
managing airports around the world, Mr. Cherry said.

Vancouver International Airport Authority is involved in 16 airports in
countries including the Dominican Republic, Egypt and New Zealand.

One of Vancouver's most promising investments is its 57-per-cent stake in
the John C. Munroe Hamilton International Airport.

Since WestJet chose Hamilton for its eastern hub in 2000, Hamilton has grown
from a fringe cargo operation to one of the country's 10 largest airports.

The Hamilton airport is expected to handle 1.1 million passengers this year
with projections of five million passengers by 2008. The airport is in the
final stages of raising revenue for a major airport expansion to cope with
the projected demand.

"In five years, we expect to be bigger than Ottawa [airport], and depending
on Edmonton's growth, bigger than Edmonton . . ." said Ken Mitchell, a
spokesman for the airport.

"If it's four years or seven years, that does not concern us much. We're
confident that growth will come."

So far, the cash flow from Vancouver Airport Services' interests is being
invested in new opportunities.

The federal government's proposed airport legislation would put limits on
the ability of authorities to invest in other airports.

Not all authorities agree that investing in or operating other airports is
the right way to go.

"The idea of going to run airports in other parts of the world -- we have
enough on our hands running our own airport," said Paul Benoit, president
and chief executive officer of the Ottawa Airport Authority.

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