"D/FW Airport hopes its fortunes will soar with new terminal"

Sunday, August 15, 2004

D/FW Airport hopes its fortunes will soar with new terminal
By Mitchell Schnurman
The Fort Worth (TX) Star-Telegram


It will be almost a year before Dallas/Fort Worth Airport opens its new
international terminal, but the hype machine is already cranking.

Last week, airport officials took the news media on a tour of the
biggest construction project in Texas and proclaimed that D/FW "is
poised to become the premier international gateway for the United
States."

Please.

New York's Kennedy Airport handles almost four times more international
passengers than D/FW. Airports in Miami, Los Angeles, Chicago, Newark,
San Francisco, Atlanta and Houston also do more international business
-- a lot more.

Fortunately, D/FW doesn't have to vault into the top tier to cover the
note for the terminal and a new people-mover called SkyLink, which
together cost more than $2 billion. The growth of the Metroplex and the
resurgence of American Airlines will keep the fee revenue flowing.

Throw in a big increase from landing fees, and that ought to cover the
debt the airport has taken on.

The real question is whether D/FW will be stuck with too much space for
too long. Will it eventually be bogged down by big bond payments and
haunted by half-empty concourses?

The terminal expansion started in the late 1990s, when the economy was
booming and airports were jammed. By 9-11, the project was too far along
to be abandoned.

D/FW has no choice but to make the best of the situation, even if the
addition looks a lot more risky today. The airport's two biggest
partners, American and Delta Air Lines, have been squeezed badly, and if
they have to retrench, D/FW will feel it.

Passenger traffic has rebounded at D/FW this year, but some of its 139
gates are still underutilized. Unlike airports in Chicago, Boston or Los
Angeles, airlines can get all the space they want at D/FW -- and next
year, Terminal D will add 29 gates and 2 million square feet to the mix.

"We have the most capacity in America," says Kevin Cox, the airport's
chief operating officer.

He won't say how much of D/FW's space sits largely unused today. But he
sees that as a big business advantage, not an albatross. When airlines
are ready to expand, D/FW will be ready and willing.

But now that we're building it, will they come?

Cox and his colleagues are putting the hard sell on a number of
airlines, trying to convince them that it's better to connect at D/FW
than Los Angeles or Miami.

D/FW has flights to 31 international destinations, but American accounts
for most of them. Korean Air goes to Seoul three times a week; Lufthansa
and British Airways go to Europe once a day.

Obviously, there's room to boost the business, especially with more
long-range planes now able to reach beyond the East and West coasts.

But other airports are going after those flights, too, including those
in Atlanta, Houston and Toronto.

D/FW's pitch is that it offers less congestion, reasonable costs and a
giant new terminal. Flights to Hong Kong, Taiwan and Australia are some
of D/FW's targets.

It's also working on its favorite son, American Airlines. American has
been trying to get a nonstop slot to Shanghai, China, and Cox is trying
to persuade the Fort Worth company to fly from D/FW rather than Chicago
O'Hare.

Chicago has more than twice the international passengers and probably
twice the industrial base, so it's good to know that D/FW has a fallback
plan: to use the international terminal for domestic traffic as well.

Gates at the building can be easily switched to serve domestic
passengers, who don't have to be diverted to customs and other
immigration services.

American will put that flexibility to the test. It has leased two-thirds
of the gates in Terminal D in a novel deal that nets the airline a $30
million discount on landing fees in exchange for a commitment to boost
traffic at D/FW.

American has pledged to increase the number of seats it flies out of
D/FW by almost 17 percent by next year, and D/FW will use a third of the
$4.50 passenger fee it collects to reduce the airlines' costs.

That deal is already paying off, as American has shifted most of its St.
Louis hub to D/FW, rather than O'Hare.

D/FW's passenger traffic fell in 2001 and 2002, and it was nearly flat
last year. In the first four months of 2004, it was up 16 percent, twice
the growth rate of Atlanta, which had been steadily increasing its lead
over D/FW as the world's busiest airport.

Another big bump in D/FW business is under way. AirTran Airways' foray
into Los Angeles in July prompted American to match the discounter's
rates into all the major airports in Southern California.

Cox says that D/FW-to-Los Angeles traffic is up 50 percent, thanks to
the lower fares.

That's a great development for the airport and Metroplex consumers. The
cloud on the horizon is Delta, which is trying to cut costs to avoid
bankruptcy.

Delta may choose to trim traffic at D/FW, where it has an 18 percent
market share.

Cox has been talking to Delta, and even if the company shrinks here, he
said he isn't worried.

"It won't be any different than Braniff," he says, referring to the
carrier that went bankrupt more than 20 years ago. "We may feel some
short-term pain, but there will be backfill. Others will come into the
market."

D/FW can probably manage the debt load as long as American doesn't scale
back in a big way. Management deserves credit for locking in low
interest rates on the big bond package last year and enticing American
to boost business.

Analysts who rate the bonds also respect the leadership team for
diversifying the airport's revenues. The latest example: The new
terminal will have a $75 million Grand Hyatt hotel owned by D/FW.

Cox says the airport board believed that more money could be made by
owning the hotel rather than selling it to a developer.

The approach has worked well for airports in Orlando, Fla., and Boston,
says Kevin Carney of Moody's Investors Service.

But publicly owned hotels have struggled in Myrtle Beach, S.C., and St.
Louis. Those facilities were tied to convention centers, not airports,
but government is notorious for misreading the market.

Cox says D/FW has everything just about right -- enough space to meet
the future growth in airline demand and a debt load it can handle.

"As crazy as it sounds, we are not that far from adding Terminal F," he
says.

Maybe that's visionary thinking. Or maybe it's a delusion of grandeur.


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