Plans to revive the old People Express evidently include flights into and out of Pittsburgh International. Great. We have always supported the idea of competition as a way to hold down fares and improve service. And, to the extent the new carrier will offer service to cities not currently being served, that is even better for Pittsburgh area travelers.
But wait. There is a big fly in this ointment. To get the as-yet-to-get-off the ground carrier to commit to Pittsburgh, the Airport Authority is offering the airline free landing and gate fees. Not a good thing. If the carrier is planning to be competitive, and possibly take business away from existing airlines by offering very low fares via the free landing and gate fees, then this is a bad move by the airport. Indeed, the move could be counterproductive if the new carrier, with its enormous costs advantage, forces existing carriers to reduce the level of service and thereby reduce landing and gate fee revenues.
Three cheers for competition. Raspberries for subsidized competition that harms the unsubsidized competitors.
The plan was simple enough: find out what the 13k parking spaces at Pittsburgh International Airport could net in a lease deal and, if the numbers were attractive enough (in the neighborhood of $400 million) sign an agreement and take the up front cash to settle the airport’s outstanding debt of $500 million, all of which is related to the construction of the facility in the 1990s.
By paying off the debt it was hoped that the airport’s fees (cost per enplanement) would fall from one of the highest, $15.80, to less than $1. The fees drop and airlines would then be enticed to add new or expand existing service at the airport (though in a May 2009 newspaper article industry observers and airline officials were tepid on the pull lower fees would have, characterizing cuts as "no airline saying we’ll fly there if it’s really cheap", "It’s going to help, but it’s not a panacea", and "There are too many other factors at play that we look at in making those types of decisions").
That’s why news over the weekend that the privatization deal is dead because it would have not brought in the desired amount, would have led to rate increases to customers and employees, and the airport would have given up the revenue stream it enjoys from parking means that the hopes for a debt free airport and drastically lower fees is not going to come quickly or easily. The Authority did not like what they heard-that a potential deal could have gone as high as $400 million according to their consultant-so the plan is off of the table. As the Authority’s executive director noted in December "we will not give it away…But if it’s a very attractive number that does the intent as far as reducing the cost per passenger, then we’ve done our job."
Now the Airport Authority will continue to pay about $62 million in annual debt service through 2018 when the debt is expected to be retired. The Authority is also entitled to $107 million from gaming money for debt reduction (it was $150 million but the County grabbed $42 million for debt it claimed it was owed on the airport’s construction).
It is curious as to why the Authority would not have combined the gaming money with what they could have fetched in a lease deal to at least take a big bite out of the outstanding debt. Presumably that would have shortened the time period to retirement by a few years.