September 19, 2005

Good Interview

With rising fuel costs, heightened security and bankrupt airlines, it’s a volatile time for the nation’s airports.

As a result, facilities across the country have to diversify their mix of airlines and maximize revenue from other sources, said Kevin Kern, director of the Center for Airport Management in Boston. The center helps about 30 client airports around the country make business decisions and, in the end, make money. Mr. Kern talked with BusinessWeekly about the state of the airport industry and issues that affect a new terminal like the one at Wilkes-Barre/Scranton International Airport.

Q: What obstacles are the nation’s airports facing.
A: They are afraid the airlines are going to go out of business, they are concerned with the costs of running the airport.

Q: How are the spiking prices of oil and jet fuel affecting airports?
A: It obviously indirectly affects the airport: Delta and Northwest just declared bankruptcy. One of the things that may have tipped the scale in both their cases was rising jet fuel prices.

Q: How else is an airport affected when its airlines files for bankruptcy protection?
A: They are concerned about not getting paid rent, because in many cases the airlines are defaulting. Usually the highest revenue to an airport is what they get from the airlines. Then parking and rental cars and concessions, all those other kinds of things filter in as well to provide sources of income.

Q: How does our smaller airport compete effectively for those airlines when Philadelphia is two hours away, and Allentown is one hour?
A: It may be difficult for an airport like Philadelphia to bring in a new carrier. The gates are all taken up, and there may be existing leases that prevent a new carrier from coming in. A smaller airport may be able to offer space to a new carrier looking to come into a market. And the landing fees are cheaper and the amenities might be better.

Q: Most analysts say that discount carrier Southwest Airlines has gotten too big to enter our market. Are there other options for us?
A: JetBlue, Independence Air, Spirit, there are a lot of discount carriers that are out there looking for space.

Q: Airports also draw much of their revenue from non-aviation sources. How does an airport with a new terminal get the most out of its concessions?
A: The vendors usually pay the airport a minimum annual rent or a percentage of sales, whichever is greater.Do you want a Starbucks or a Caribou Coffee? Starbucks is going to pay you less rent, but Starbucks is going to make more money.

Q: Is there any advantage to choosing a local vendor without the brand name?
A: Yes, the advantage is a local flavor. People who fly in might want a particularly local flavor rather than something they see everywhere.Also, a lot of times the airports are owned or run by counties, and you want to give opportunity to your local retailers as well. And there is sometimes more accountability.

Q: How much benefit does the visual appeal and design of a new terminal help the airport?
A: The facilities are very important. People are nervous about flying, and part of the job of the architects is to figure out how to mitigate that nervousness and how to design buildings that encourage good traffic flow.

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