"Pittsburgh Losing US Airways Hub Status"

Thursday, May 6, 2004

Airport plan on track despite US Airways' hub decision
By Christopher Davis
The Pittsburgh (PA) Business Times


Allegheny County officials will move forward with plans to reduce
Pittsburgh International Airport's debt, despite the revelation from US
Airways that it plans to de-emphasize the local hub and probably reduce
service there. 
  
Under a new business plan being pursued by US Airways and released to
union officials, the Arlington, Va., airline would remain the dominant
carrier in Pittsburgh, but with fewer flights and nonstop destinations. 

Rather than maintaining its hub status, Pittsburgh would become "an
important focus city," the company said in recording on an employee
information hotline. US Airways is currently Pittsburgh's dominant
carrier, accounting for more than 80 percent of its traffic and
employing more than 7,200 in the region. 

In a May 5 letter explaining the planned changes to Pennsylvania Gov. Ed
Rendell, new US Airways president and CEO Bruce Lakefield said the
airline is "moving toward a business plan that involves lower operating
costs and more point-to-point flying to take advantage of our strong
market positions in the East." 

"Under the revised business plan, we see US Airways still being the
major carrier in Pittsburgh, although not at the current level of
activity," Mr. Lakefield said in the letter. 

In the employee hotline update, the airline said its Philadelphia hub
will be "the focal point of our transatlantic operations with more
European destinations to be added," while its Charlotte, N.C. hub will
provide a "strategic position as an effective hub to launch more
Caribbean service (and) will allow for continued growth of both domestic
and international service." 

Alison Detar, a spokeswoman for Allegheny County Chief Executive Dan
Onorato, said the county, which is working with Mr. Rendell and others
on a plan to help reduce Pittsburgh International's roughly $640 million
in outstanding debt by more than $200 million, is undeterred by the
airline's announcement. 

She reiterated that Mr. Onorato has said all along that the debt
reduction plan was intended to bring down costs for all of the airlines
that serve Pittsburgh, not just US Airways. 

"This just confirms our strategy of focusing on debt reduction at the
airport instead of giving public money to US Airways," Ms. Detar said.
"Our goal is to do something that's going to benefit all airlines." 

The debt reduction funding would come from an increase in the current $3
fee charged to each passenger that boards a plane in Pittsburgh, as well
as revenue generated by a proposed slot machines gaming bill before the
state Legislature. The increased passenger fee, which is allowed under
new federal guidelines, could generate as much as $15 million a year --
up to $195 million, over the next 13 years. 

The slots bill, if approved, would generate up to $15 million a year
more. That legislation also would provide another $15 million annually
in unrelated funding for the city and county's cash-strapped Sports &
Exhibition Authority. 

The airport's annual debt load would be reduced to about $47 million a
year if just the increased passenger fee were implemented. It would go
down to around $32 million a year with the slots revenue thrown in. 

Pittsburgh International's current debt service amounts to about $62
million a year, of which US Airways pays about $50 million. 

However, US Airways, the nation's seventh-largest carrier, is being
squeezed by growing competition from low-fare carriers, downward pricing
pressures and a need to significantly cut costs. It's asking labor for
new wage and benefit concessions over and above the more than $1 billion
they already granted to help the airline emerge from Chapter 11
bankruptcy protection in March 2003.

The airline threatened last year to pull its local hub, as well as move
its Pittsburgh-based regional airline, MidAtlantic Airways, if the
county's Airport Authority did not cut the airport's outstanding debt by
$500 million.
  
US Airways also rejected its long-term leases at Pittsburgh
International in January and has committed to only a limited presence
through the end of September. 

Mr. Lakefield said in the letter to Mr. Rendell that US Airways would
maintain its current number of gates and employment into the fall, but
"the use of other facilities and support functions in the region will
largely depend on the outcome of our negotiations with our labor
unions." 

"Our goal as we start this process is to preserve as many jobs as
possible, with service to as many communities as makes economic sense,"
Mr. Lakefield wrote. "But there are going to be many difficult decisions
we will undoubtedly face as we work through these issues with our labor
leaders." 

Terry Trippler, an independent Minneapolis-based airline industry
analyst formerly of CheapSeats.com, said Pittsburgh could benefit from
the fact that US Airways has revealed its intentions now, rather than
waiting until the fall. 

"This way maybe somebody can start to take a look at Pittsburgh, but I
think anybody that would do it would be a low-fare carrier" rather than
a hub airline, Mr. Trippler said. "The cities that don't have a dominant
airline, where everybody battles, they end up having the lowest
airfares." 

The problem with Pittsburgh is that it is close to Cleveland, Detroit,
Philadelphia and other large cities, making it an unattractive place to
locate a new hub, he said. 

"The biggest thing probably going against it is geography," Mr. Trippler
said. "The hubs get too close together in that part of the country.
That's a shame because you've got one of the finest airports in the
country." 

He said Pittsburgh could be resigned to the same fate as St. Louis,
which formerly served as a hub for TWA. However, when American Airlines
purchased TWA, it gradually reduced operations there, he said. 

"St. Louis has really seen their air service drop back dramatically,"
Mr. Trippler said. "They've become a big spoke really, rather than a
hub."


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