Why US Airports Are So Bad




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Singapore's Changi Airport is considered by many travelers to be the best in the world. Have a long layover? Stop by the butterfly garden or catch a Disney film at the airports movie theater. In Qatar's Hamad Airport for a few hours? For about 50 bucks, travelers can swim laps in a 25 meter indoor swimming pool or workout in a fully equipped gym. Traveling during Christmas? Each year Munich's airport puts a pop-up holiday market, complete with an ice skating rink, a microbrewery and 450 real Christmas trees. And then, there's LaGuardia Airport in New York City. The 1950's and 60's have often been described as the Golden Age of flying. Traveling by air meant three piece suits for men, high heels for women, lavish meals and lots of leg room. Today, at U.S. airports, passengers are forced to wait in long security lanes and then line up for fast food, before boarding overcrowded airplanes with no free meals. So why are U.S. airports so cash strapped compared to their international counterparts? Airports in the U.S. started to take shape in the early 1920's. At the time, passenger service was virtually nonexistent and airlines were flying mostly mail. While a few airfields were built before World War I, airport construction really began in the United States when the post office began to experiment with carrying the mail by air, they needed places to land. During the Great Depression with big improvements in technology, passenger service suddenly took off. In 1930, America's airlines carried about 6,000 travelers. By 1938, that number soared to 1.2 million. Flying was loud, cold and only business travelers or the wealthy could afford it. Most of the passengers during the 1930's were business people and they understood that time is money. As aviation grew, as new airplanes came in, they understood that this could move them faster, but also could move financial instruments faster. By 1940, modern airports started to evolve. Planes got bigger, grass gave way to pavement and terminal buildings grew, from simple structures that were small and dingy, to art deco buildings designed by architects. With massive amounts of public financing, America was well into the jet age. By 2019, thanks in large part to government cash, the U.S. has more than 19,000 airports. For the most part, airports in the U.S. are publicly owned and operated by either a city, a county, a state or in some cases a public authority. There are thousands of airports, big and small, but about 500 are consider public use commercial airports. In its latest ranking of the most profitable airports in the U.S., the American City Business Journal's said, the top five airports by revenue were JFK, Newark, San Francisco, Los Angeles and Miami. Every airport has its own model for how it brings in cash. Revenue is also dependent on a whole lot of factors outside of an airport's control, including airline routes, passenger flows, plus local and international regulations. But generally speaking, airport income in the U.S. can be boiled down to three categories: aeronautical operating revenue, non-aeronautical operating revenue and non-operating revenue. That first category pulls in the most cash. Airports in the U.S. make most of their money from the airlines. And that revenue is everything from landing fees to terminal rents to fuel sales. In 2016, the most recent year, the FAA made this data publicly available, U.S. airports collected revenue of $11.3 billion dollars from the airlines, including landing fees of $3.7 billion dollars, terminal rents of $5 billion dollars and cargo and hangar rentals of $661 million dollars. Because they are government owned and receive taxpayer subsidies, airports try to keep costs low. Airport revenue streams are really based historically on minimizing costs for the airlines. And that kind of harkens back to the pre-1978 days when the airlines were regulated by government. As a result, the airports are run in this kind of cost recovery framework where they collect revenues from various sources. Non-aeronautical revenue brought in 35 percent of all income for airports across the U.S. For many airports, the biggest non-airline revenue is from parking. In 2016, U.S. airports collected $5.8 billion dollars from parking and rental cars. Parking is a big way that airports can earn money. And so you can see why some airports might be a little reluctant to have, say, mass transit, because if people are coming out there on mass transit, they aren't parking their cars. We're in an unsettled period in terms of how people are going to choose to access the airport. Ride sharing has been growing very fast. There is a debate about autonomous vehicles. Food and beverage operations is another big source of income pulling in $1.5 billion dollars across all airports in 2016. And then there's non-operating revenue, which includes grants from the government and interest earned on surplus cash when airports invest in things like bonds. The biggest source of income within this category is the passenger facility charge, that goes to the upkeep and maintenance of the airport. It accounted for 48 percent of all non-operating revenue. U.S. airports, particularly smaller ones, also rely heavily on funding from the government. In 2018, the Airport Improvement Program gave out over $3 billion to more than 1,600 airports. The Airport Improvement Program supports the runways, taxiways and overall quality and health of airfields. Despite America's capitalist driven economy, it's actually Europe that has taken the lead on privatizing its airports. In the 1980's and 90's, deregulation and an increase in demand for air travel, along with a scarcity of public funds, forced many airports worldwide to seek out some form of privatization. Starting with the UK airports in the mid-1980's, privatization is now widespread across Europe. In 2018, more than 50 percent of European airports had some form of private ownership. Many of the European airports are run by private entities that are looking to maximize shareholder return and gain a profit. In the United States there is no profit motive. The European airports have found better ways to extract higher dollar amounts from their passengers. In 1996, Congress created the Airport Privatization Pilot Program, allowing for experimentation with public-private partnerships at a limited number of airports. But it wasn't until the mid-2010's that privatization really started to gain momentum in the U.S. In the face of decaying infrastructure, a handful of U.S. airports have started to abandon the public model and turned to private money to fund billion dollar projects. Just take LaGuardia. In numerous customer surveys, LaGuardia Airport has consistently ranked the worst in the U.S. In 2018, 28 percent of LaGuardia flights were delayed, placing its second to last in the ranking of America's largest airports, according to the Department of Transportation. Laguardia Airport was very crowded, it had low ceilings, the furniture was very tired. After 9-11 where you had to put in all these security lines, you would have lines everywhere. In 2016, New York State and the Port Authority partnered with Delta Airlines and LaGuardia Gateway Partners to completely rebuild the airport. The airport is now getting an $8 billion overhaul. The public-private partnership model has become more of a trend at airports around the world, according to the World Bank. Public-private partnerships are a very, very important part of the planning, I would say at most airports. The government has limited funds. LaGuardia Gateway Partners, the group that will finance, construct and operate Terminal B, said the redevelopment, expected to be finished by 2022, will provide a host of new services to passengers, including restaurants like Shake Shack, La Chula and stores like FAO Schwartz. We've introduced the shops, the amenities, larger hold rooms, higher ceilings, lots of natural light. Behind me is a park area with trees. There are many things that private enterprise does much better than public agencies. And one of them, we believe, is actually operate both the commercial and the operational side of an airport. And more airports across the U.S. are also on the way to getting massive multi-billion dollar makeovers thanks to cash from private companies. New York's JFK Airport is planning to spend $13 billion, including $12 billion in private funding for improvements including two new international terminals. Los Angeles Airport is spending $14 billion on a giant expansion. LAX Integrated Express Solutions was selected to design, build and operate the terminals passenger train. The Automated People Mover is LAX's first public-private partnership project. Since 2000, U.S. airports have had to withstand a number of critical events that have had a major impact on their bottom line. Following the September 11th attacks, for the first time since World War II, the number of airline passengers declined for two consecutive years. Additional security at U.S. airports has placed an even greater burden on airport operations. This puts a lot of capital requirements onto the airports. So they had to take on a lot of debt, in order to reconfigure their terminals. The financial crisis that started in 2007 was another blow to airports. In 2008, air passenger traffic dropped again at airports around the country. What I think was a larger impact was the slow recovery following the Great Recession. In historical recessions there's been a pretty quick bump back in terms of passenger traffic increasing once the recession was over. Here, we saw a multi-year period of a malaise with low growth in the 1 to 2 percent or less than 1 percent and that really started to challenge airport finances. Another factor, dragging down profit margins for some of the country's medium to smaller size airports. There are fewer airlines flying today than there were in 2009. In the 10 years to 2018, the airline industry has experienced multiple mergers and acquisitions. In 2008, Northwest Airlines merged with Delta Airlines. In 2010, Continental Airlines merged with United Airlines. And in 2013, U.S. Airways and American Airlines parent AMR merged. That was good news for a few larger hub airports, but many smaller airports were forced to deal with the economic fallout. A hub airport has a large number of connecting flights from one dominating airline. The mergers that have been happening and the shrinkage from 10 or 12 major airlines in this country down to what, three, four? That's been a huge challenge. Airports can really grow, look at Atlanta, Chicago, Dallas. Those that have maintained hubs, they're dealing with growth. Airports that had been hubs, they've had to deal with decline. According to Airports Council International, industry consolidation had a big impact on several regional airports, including Pittsburgh, St. Lewis, Cincinnati, Memphis and Cleveland. If part of a business is severed and you have a lack of cash flow, that money is not flowing into an airport, you're going to suffer. That means restaurants closed down. That means employees get laid off. That means revenue is not coming into that airport. While flying is generally cheaper and safer than it's ever been. An increase in travelers will put massive pressure on existing airport infrastructure. U.S. airlines and foreign airlines serving the U.S. carried about a billion passengers in 2018, up 5 percent from the previous year, according to the Bureau of Transportation. Millions of people go through LaGuardia, just for everyday maintenance and wear and tear, to keep the floors clean, to keep the lights on, that takes a lot of money. And U.S. airports are getting older, according to the Airports Council International. They say airports will need over $100 billion in infrastructure spending over the next five years. A useful time period for an airport to exist is between 25 and 30 years before it becomes non-competitive. Right now, the average age of a terminal in the United States is a little over 40 years, so we're way beyond the international number. While airports in the U.S. have shown signs of improvement in recent years, additional passengers, tightening budgets and growing competition will force cash strapped airports to seek out new sources of financing to compete on the world stage.