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The more than welcome news that a $4 billion investment will rebuild New York’s LaGuardia airport from the ground up raises questions of what it would take to improve the nation’s airport infrastructure.
The answer to that question is $4.
Airports need that $4 authorised by Congress, but airlines argue that $4 tacked on to each leg of a flight would be an onerous financial burden to passengers. Without those $4, though, airports say they can’t raise the $75.7 billion investment required to meet demand and compete with modern, better airports abroad that fully embrace competition.
Everything Old is Old Again
According to ACI-NA (Airports Council International, North America) President and CEO, Kevin M. Burke, you can take your pick of which U.S. airports are long overdue for a major structural improvement projects. Most U.S. airports are aging, he tells us, and because of budgetary restrictions, they’re not aging well.
“The average airport in the United States is about 40 years old. The youngest airport in the U.S. just had its 20th birthday last month: Denver International Airport,” Burke tells us. “That’s our youngest large hub airport in the United States.”
At a time when airports around the world, in Europe, the Middle East, and Asia—even Mexico City International Airport—are investing millions in new modern terminals which are integrated to larger transport infrastructure making it easier for passengers to get to the terminals and making those terminals more attractive to passengers, the majority of U.S. airports struggle to pull together the financing for the basics.
“I would venture all airports to some degree need some level of repair,” says Burke, though he emphasizes that the first investments are always on safety improvements and that safety is never sacrificed for budgets. Other improvements which affect the passenger experience often lag behind.
What Makes LaGuardia Special
“When I see stories that LaGuardia is going to be rebuilt, it makes me very happy,” Burke says. “That airport has been used in the U.S. as a poster child of what’s gone wrong at U.S. airports. That’s not say that all airports are like LaGuardia. There are lots of very good airports in the United States, but the harsh reality is that airports that are used so often haven’t been maintained. Financing is probably the most important thing an airport director has at his or her fingertips to be able to fix it, but right now financing isn’t where it should be.”
The reason financing is lacking is that most U.S. airports rely on funds accumulated by a Passenger Facility Charge (PFC) added to each ticket, which backs the bonds Wall Street issues to finance airport programs.
This PFC was set at $4.50 per flight ($9.00 roundtrip) in 2000, and Congress has not authorized an increase since. Adjusted for inflation, Burke tells us that those $4.50 now have a net purchasing power of $2.30. That diluted valuation has forced many airports to hold back on major improvements on the scale of the announced LaGuardia project. Instead, many airports carryout smaller improvements which are easier to finance.
“There are only so many band-aids you can put on a something before you begin to bleed out,” Burke says. “In the case of airports, there’s not a single airport that’s literally going to fall down, but think about from the perspective of a passenger flying into LaGuardia the first time they visit the United States. It’s not the most pleasant looking airport that you can fly into.” And airport appearance matters when promoting destinations. “It is a reflection of a city or the county or the municipality,” Burke says.
Getting There is Half the Battle
Erik Hansen, Senior Director of domestic policy at U.S. Travel Association, agrees. He also points out the importance of a connected infrastructure which would let passengers reach the airport more easily, a modern travel experience which many foreign passengers already have at home.
“We don’t have modern transportation options to our airports. Only about 60% of them are connected by passenger rail,” he tells us. “It’s important to have seamless transportation options to the airport itself. Business travelers will often think about where they want to make a trip based on the total time.”
Burke is also concerned over the transport infrastructure that leads passengers to airports, and the damage lack of such infrastructure might do to some U.S. airports.
“[Travelers] need to be able to get in their car, or get on a train, or commuter bus to get to the airport,” he says. “We’ll have airports that will have a hard time justifying their remaining open, because it’s just too expensive to travel to go to those airports. Passengers will find other ways to get from point A to point B.”
Rail connections, Hansen points out, have made traveling by air easier in other cities around the world. “If you land in Singapore you can get downtown via high-speed rail,” he says.
But, he adds: “Where we set our standard is so munch lower from where they do it around the world. Companies look at the U.S. for meetings and conventions see the condition of the airports and they know they’ll be waiting at customs to get through. Then they’ll have to put them in a rental car. That’s not always a good idea.”
While it’s true that newer airports around the world have more efficient connections, Burke explains, U.S. airports were built long before air travel was commonplace.
“When we built a lot of the airports [40 years ago] there wasn’t a lot of thought of giving access to cars or by rail, because the number of people flying wasn’t anywhere near what it is today. Now we’re looking at making these airports larger when, in fact, we’ve run out of space.”
Some U.S. Airports Manage
“Seattle comes to mind. Salt Lake City, too. Phoenix has a sky train,” Hansen says. “But if you think about Salt Lake City, one of the major reasons they built a train to the city is they were going to host the Olympics. In order to do that you have to bring it your airport up to global standards.”
“Denver is a great example,” Hansen says. “It’s our newest airport. They have enough capacity where they have a competitive mix of flights. They’re building a rail option, and they have the ability to expand capacity.”
Burke points out that, because U.S. airports were built so long ago, some just don’t have the space to add these additional services. “[Denver] had to move 30 miles outside the city, buy a piece of land to build an airport,” he says. “You see that at a lot of the large airports and some of the medium airports.”
Everybody Else is Doing It, Why Don’t We?
“The Chinese,” Hansen says, “have figured out how to connect airports to high-speed rail.”
Burke points out that there’s no comparison in the financing of projects at U.S. airports and many foreign airports. “[With] our friends in China, which seem to be growing airports anywhere they can find them, their financing structure is very different from ours. We’ve been restricted to some degree by the amount of funds available to airports through the PFC.”
“If our airports had the resources they needed,” Hansen says, “we wouldn’t be having this conversation.”
“It’s a question of funding and priorities,” Hansen adds. “The federal airport grant program has remained flat over the last 15 years. We have a situation where congress limits what airports can earn from passengers.”
The $4 Divide Between Airlines and Airports
While airlines argue that they fund airport improvements, and Delta’s financing of the new LaGuardia project added to other major investments including at its hub at Hartsfield-Jackson, prove that, Burke tells us airlines are selective with these projects and somewhat self-serving.
“There’s a very clear reason why [Delta is] participating,” he says. “One is that it benefits the airline, and two, to some degree, they’re paying to put their imprint on that airport. But very few airports in the country have an airline say: ‘We’re going to build a terminal.’ I believe there are only ten or eleven airports in the country that actually have structures that have been built directly by the airlines.”
The PFC benefits airports which don’t have airlines backing them. They also help airports compete for air service.
“The biggest issue for airport operators is air service,” Burke says. “50% of our members say that the biggest challenge they have this year, and will have five years from now, will be attracting air service to their community, to justify their airport.”
“Passenger facilities charges [PFCs] would bring in new competitors,” Hansen says. “They’re fighting against competition. Modern international airports allow more airline options, more competitors, and more options for consumers.”
“The PFC was put in to law 15 years ago specifically to create competition amongst the airlines,” Burke says. “Back then there were a lot more U.S. carriers flying than there are today.”
While airlines favor their hubs with infrastructure support, Burke insists it’s not enough to cover the needs of today’s U.S. air travel demand, much less tomorrow’s.
“The majority of airports in the US are not hub airports,” he says. “The vast majority of the medium to small commercial airports are the ones that could really benefit from an increase in the PFC. They’re not getting that advance from the airlines.”
“It’s about capacity as well,” Hansen points out. “Within the next decade 16 major airports will be capacity constrained. There’s also the terminal space and terminal amenities. Within the next six years the top 30 airports will experience one day a week the equivalent of the Wednesday before Thanksgiving.”
That airlines object to a $4 increase in the PFC charge, arguing that they worry that higher fees will discourage passengers, Burke says, is inconsistent.
He points out that airlines like the PFC charge at their hub airports because it helps back the bonds Wall Street will issue to finance their projects. They only object to PFCs at airports where they don’t have a dominant presence, he tells us, because improvements also benefit competitors.
Burke also reveals that airlines keep 11 cents of each PFC charge issued (22 cents for every roundtrip ticket sold), to cover administrative costs for PFC fees. With fewer airlines to sell tickets, those pennies add up in the airlines’ favor.
As to airlines arguing that PFC charges are unfair to passengers, and will drive passengers away, Burke points out that airlines can charge $200-$300 in ancillary fees to their customers for carriage of baggage, ticket changes, and other services. “Airlines never say that by adding those costs to the costs of the ticket [they’re driving passengers away].”
No Progress in Congress
With bills to finance infrastructure stuck in Congress and FAA funding, which includes the allocation of PFCs, still undetermined it is difficult to say what might give airports the support they need to expand and the extra $4 which could add up to cover the $75.7 billion airports say would bring infrastructure up to modern standards.
“It will take a changing of the guard in Washington,” Hansen says. “In smaller cities through the U.S. now younger people are demanding more public transit options that don’t require cars. As these people become leaders we’ll see a change in D.C.”
A Pickle and a Lobby Sandwich
Right now, Congress, the USDOT, the FAA, airline lobbies, airport lobbies, and other transport lobbies, are embroiled in a battle of semantics and nuances over the $4 hike that could determine our passenger experience in the U.S. for the next 15 years, and beyond.
“It’s all about control. It’s not about the money,” Burke says. “We’re talking about $4. Really, what this boils down to is airlines wanting to control not only the skies they’re flying in but the airports in which they’re landing.”