"Indy airport expanding while airlines struggle"

Tuesday, October 19, 2004

Indy airport expanding while airlines struggle
Growing pains: Indianapolis officials say new terminal will be built, but
other cities have had to cancel or postpone projects.
By Theodore Kim
The Indianapolis (IN) Star


Tacked to a conference room wall in a quiet office building not far from the
bustle of Indianapolis International Airport is a striking blueprint for the
future.

The drawing details an entirely new airport to be built between the current
runways. Designs call for a passenger terminal with 40 gates, a taller and
roomier control tower, fields of parking and direct access to I-70 and a
future rapid transit line.

But the promise of the planned expansion is in stark contrast to the health
of the airlines that will use the new facility.

Two of the airport's 13 major commercial passenger airlines, United and US
Airways, are struggling to climb out of bankruptcy protection. ATA and Delta
face mounting deficits that could soon lead to bankruptcy, and American and
Northwest are hurting as well. Another airline, Air Canada, emerged from a
17-month stint in bankruptcy protection this month.

As the airlines confront an unprecedented fiscal crisis, plans for airport
growth here and elsewhere are being viewed with uncertainty.

Several airports, such as Charlotte, N.C., and Columbus, Ohio, have been
forced to shelve or postpone projects at the request of the airlines, which
pay a portion of the building costs. Others, like St. Louis, have scaled
back expansions because the need has evaporated.

For the Indianapolis area and its 1.7 million residents, as well as the rest
of the state, the stakes could not be higher. With more than 74,000 flights
and about 8 million passengers a year, the airport is seen as key to
anchoring future economic growth in Indiana.

City officials hope the $1 billion reconstruction project will propel the
airport from its status as the nation's 46th busiest into a regional nexus
for air travel and commerce.

If all goes as planned, a key element will be the $275 million midfield
terminal, the size of 22 football fields, that is slated to open in 2008 and
replace the current airport.

Glass-enclosed and bathed in natural light, the terminal will house two
concourses and a vast plaza. Wireless hubs will allow cell phone and laptop
users to access the Internet, flight and gate information and even make
online dinner reservations.

But the plans have not been immune to the airline problems plaguing other
airports. Project director John J. Kish said the overhaul already has been
delayed for one year to keep airport fees low for the airlines.

"Most airports have begun re-looking at their capital programs," said David
Z. Plavin, president of Airports Council International in Washington, D.C.,
the chief advocacy group for the nation's airports. "Runways. Terminal
modifications. They are stepping back and asking themselves the question:
Who am I building it for?"

Indianapolis' new airport is on schedule and will be built, according to
local officials. No tax dollars are at stake since the project is being
financed with bonds that will be guaranteed and repaid by airport and
airline revenue.

Demand for a revamped airport also remains strong as passengers this year
flock to low-fare carriers like Southwest. The airport is on pace to top
2000, its busiest year ever.

ATA's woes

Still, analysts warn that the expansion project might be squeezed by
industry forces beyond the airport's control.

The woes of ATA, the nation's 10th largest airline, are particularly
worrisome because ATA is based in Indianapolis and once served as the
airport's primary carrier. The airline posted a $90 million loss this year
through June, and its executives have warned that it might not survive
through the first quarter of next year. Several airlines, including
Arizona-based America West, have reportedly considered buying the ailing
company.

The four airlines that are either in bankruptcy protection or facing it --
ATA, Delta, United and US Airways -- occupy 16 of the airport's 34 gates.

In the worst-case scenario, ATA and other airlines fail, and the airport
could be left with unused gates and space, forcing officials to cover bond
payments by delaying contracts, trimming operating expenses and charging the
airlines higher landing and space rental fees.Officials also could choose to
increase the small airport fees that are tacked on to the cost of passenger
tickets.

Nationwide challenges

Other airports confront similar challenges.

St. Louis shelved a $1.3 billion plan for a new midfield terminal in favor
of much cheaper renovations after American Airlines cut its flight schedule
in half late last year. The service reductions came during a $1 billion
runway expansion.

The Port Columbus International Airport in Ohio has struggled to recover
from a 20 percent decline in passengers after America West gutted its flight
schedule from 49 to 4 flights per day last year. Airport spokeswoman Angie
Neal said the cutbacks forced the airport to delay several projects,
including a major renovation of the ticket lobby.

Even so, industry observers point out that a few airports hit hard by steep
flight reductions have displayed some resiliency, with low-cost carriers and
other airlines rushing in to fill the voids in service.

American has begun restoring some of the flights it eliminated in St. Louis.
Officials in Columbus say the number of flights there has rebounded
somewhat.

Before America West scaled back its schedule, Columbus registered 188
flights a day, airport spokeswoman Neal said. Since then, the number of
daily flights has recovered to 178.

"The darkest days are behind us," Neal said.

Dallas-Fort Worth International Airport -- which will soon lose more than
230 Delta flights as the airline dismantles its hub there -- is nearing
completion of a massive $2.8 billion expansion that includes a new
international terminal, airport transit system and Grand Hyatt hotel, said
David Magana, the airport's manager of public affairs.

The airport is wooing airlines to replace the lost service, Magana said, and
has cut back on operating costs to help meet its construction debt.

"The fact is that Delta, for many reasons, was not able to win competitively
here," he said. "But we're pretty confident we have the ability to fill in
most, if not all, of that space with other carriers."

Banking on diversity

Airport officials here say that Indianapolis is fairly well positioned to
weather the airline recession because of rising airport revenues, keen local
demand for air travel and the airport's diverse stable of airlines.

For one, the airport depends on a fairly steady blend of revenue from
concessions, parking charges and landing and space rental fees paid by the
airlines. The arrangement, experts say, effectively shields major airports
from many of the financial problems that have plagued the airlines: generous
labor contracts, excessive debt and skyrocketing jet fuel prices.

In addition, low-cost carriers such as Southwest and Independence Air, while
wreaking havoc on traditional airline profits, have driven a surge in
airport traffic and consumer spending.

Through August, food and beverage revenues in Indianapolis were up 11
percent from last year to $3.2 million, said airport finance director Marsha
Stone. Income from parking fees over the same period has increased 8 percent
to $15.5 million.

"We have a lot of strengths going for us," Stone said.

Indianapolis also has no dominant carrier, diluting the impact should any
one airline go out of business. Stone said about 70 percent of the passenger
traffic is spread among seven airlines.

"An airport will do fine as long as it hasn't hitched its star to a major
hub airline," said Plavin of Airports Council International.

In fact, the airport's fortunes may hinge more on the business of moving
cargo, not people. Nearly half of the airport's landing fees are collected
from freight giant FedEx, which houses its second-largest air hub in
Indianapolis.

In the long run, Indianapolis airport officials are hopeful, pinning their
optimism on the constant business of travelers like 39-year-old Carmel
resident John Roberts.

As senior vice president of corporate services for Lauth Property Group of
Indianapolis, Roberts sometimes takes three business trips a week. He
reckons he's flown on every airline to every U.S. city with the exception of
Anchorage, Alaska.

Whenever he can, Roberts skips traditional airlines like Delta and United in
favor of the low fares offered by Southwest.

But regardless of the airline he chooses, he will continue to fly out of
Indianapolis. Again and again.

"It's never going to change," he said.

Flying on thin finances

The majority of the Indianapolis airportÕs commercial passenger airlines saw
thin profits or incurred net losses in 2003, according to figures compiled
by Airline Business Magazine. After making $20.4 million in 2003, ATA has
reported $90 million in losses through the first half of 2004. Carrier
(gates) 2003 net income/loss 

Air Canada Ð$1.3 billion 
American Ð$1.2 billion 
America West $57 million 
ATA $20.4 million 
Continental $38 million 
Delta Ð$773 million 
Frontier $12.6 million 
Independence Air *n/a 
Midwest Connect Ð$13.3 million 
Northwest $248 million 
Southwest $442 million 
United Ð$2.8 billion 
US Airways Ð$666 million 

* began service this year

Sources: Indianapolis International Airport, Airline Business Magazine  

Attached Photo:

Passenger traffic at Indianapolis International Airport has rebounded as
travelers flock to low-cost airlines such as Southwest. The airport is on
pace to top 2000, its busiest year ever.

image-187597-1478.jpg