Is the Passenger Count at the Pittsburgh Airport Taking Off?

Recently Pittsburgh International Airport (PIT) shared news with the media regarding passenger counts and flights.  The headline was that for the fifth consecutive month in 2014 (May through September), passenger counts were better than they were for the same month in 2013.  It was also announced that two new carriers were launching service at PIT.  Is this a sign that, after years of declining passenger traffic, things are improving at PIT?

 

Perhaps it is a bit premature to suggest that the increased origination and destination (O&D) passengers at PIT over the past five months is the start of turnaround.  Keep in mind that in 2013 a total of 7.88 million passengers either emplaned or deplaned at PIT.  This was the lowest total in at least a decade.  Airport data for 2002 place passenger traffic at over 18 million. The count then declined to under 10 million by 2006. After further drops it settled into a range of 8 million to 8.3 million from 2009 through 2012.  2009 passenger traffic represented the previous low for the last ten years when just over 8 million O&D travelers used PIT.

 

Thus, an uptick in 2014 compared to the weak numbers 2013 can be misleading. Note that the first quarter of 2014 showed a year over year drop in passengers from 2013.  Based on the first three quarters, the projected annual O&D passengers for 2014 should surpass that of 2013, but still could be one of the worst yearly totals since 2002.

 

As has been well documented in previous Policy Briefs, PIT suffered a huge blow with the sharp reduction in flights by USAirways.  It happened quickly as the airline declared bankruptcy (twice), moved its headquarters out of the region, and reduced its presence by first abandoning PIT as a hub, and then as a focus city. Even though USAirways is still the largest provider of flights at PIT, it does so at a fraction of the activity of 15 years ago. By merging with American Airlines last year, its name will soon be a memory for air travelers.  Nonetheless, it will leave behind a legacy in the form of the airport facility constructed to its specifications more than two decades ago, for which PIT is still making payments.

 

While we pointed out in earlier Policy Briefs the massive debt load carried by PIT as a result of this construction, considerable headway has been made in reducing this long term debt.   According to the Allegheny County Airport Authority’s most recent Comprehensive Annual Financial Report (CAFR), at the end of 2012 the total revenue bond debt (associated with terminal construction) stood at $375.4 million before falling to $327.9 million by the close of 2013.  Ten years ago in 2004, total outstanding debt facing the Authority was $614.3 million. Thus, in a decade the outstanding debt has been cut by almost half.

 

But a lot of credit for this progress, at least over the last few years, can be given to two external sources of funds—over and above revenues from operations at PIT.  These are the legislatively mandated gaming money and money from a lease allowing drilling in the Marcellus Shale formation beneath PIT.  The airport was slated to receive $150 million from state taxes on slot machine revenue over a period of years. The first $42.5 million of the gaming money was intercepted by the County Executive at the time and used for the County’s budget.  The remainder will be used to pay off the bonds ($39.4 million has been used already, with $68.1 million remaining).

 

From a gas drilling lease agreement the Authority received an up-front bonus of $46.3 million that will be used over the next five years—except for $3.5 million being held in escrow “until certain property deed mineral rights issues are resolved”.  Once production commences the Authority will receive monthly royalty payments. While the gas money has not been specifically pledged to bond payments, it has to be used at PIT, per Federal Aviation Administration rules.  As such it provides room to shift other funds to debt service.

 

The additional sources of funding have helped PIT reduce the fees charged to airlines using the facility.  Landing rates for signatory airlines (those who have an agreement with the airport) rose to $3.5147 per 1,000 lbs. in 2011 before gradually falling to $2.81 in January 2014—a reduction of 20 percent.  A similar situation has occurred with the signatory ramp rates as they have fallen from $282 (per lineal foot) to $218.38—a reduction of 23 percent.  But as we pointed out in a previous Brief (Volume 14, Number 9), these fees are still higher than at comparable airports.  Being able to reduce these fees, and they still need to keep falling, will help induce more airlines to offer flights that should lift O&D totals.

 

Two new airlines did commit to PIT in the last couple of months.  The first airline is Sun Air Express which will offer flights via small craft to regional airports at Altoona, Bradford, Lancaster, and Franklin along with Jamestown, NY.  They will do so under a federally subsidized program called Essential Air Service.  Reports estimate that flights to these cities will increase O&D traffic by 1,000 per week for the duration of the program, which is expected to last two years.  Sun’s CEO claimed that without the subsidy, reported to be $800 per flight, the flights would not make economic sense.  In short, it is not certain if the reduced airline fees played much of a role in their decision to bring these routes to PIT, as it is clearly relying on the Federal program.  Once that program ends, the service may terminate as well.

 

On a separate note, we question whether using Federal funds to subsidize uneconomical flights is a good use of money.  When the program ends will the airline have developed enough demand to keep providing the service to these smaller cities when the ticket prices will inevitably rise sharply?

 

The other airline to begin service is Las Vegas based Allegiant Air.  Allegiant Air focuses on leisure travel and will offer flights to three Florida cities, including Jacksonville—a city not currently served from PIT.  This commitment is perhaps a better sign that the reduction in fees is paying off.

 

Of course smaller carriers have come and gone at PIT over the last decade or so, but none have been able to push PIT’s passenger counts back to the previous peak levels enjoyed during USAirway’s heyday.  Once the carrier removed its hub at PIT, passenger levels plummeted.  The hub system has been replaced by point-to-point service and it is unlikely a new major hub will be coming to PIT. Instead, PIT will have to rely on local demand and O&D traffic as opposed to connecting passengers.

 

While O&D passengers will in a large part depend on the local economy, continuing to reduce airline fees at PIT should certainly help make the airport more attractive to airlines and could help boost flight offerings and lower ticket prices—a good way to increase the number of air travelers.

Pittsburgh International Still Struggling With Low Passenger Count

In early 2011 the Allegheny Institute wrote two Policy Briefs (Volume 11, Numbers 8 and 16) outlining some of the problems facing Pittsburgh International Airport (PIT). The first Brief detailed the decline in passengers at PIT and how nearly twenty years after the new terminal opened it was grossly underutilized-due in large part to the loss of the US Airways’ hub.  In the second Brief, it was noted that, owing to the hefty debt incurred to build the facility, PIT was forced to keep airline fees high compared to other airports. The question was posed whether these high costs might be hindering growth.  It has been more than a year and a half since we raised these issues. Have there been any improvements?

 

The Federal Aviation Administration (FAA) keeps data on enplanements at the nation’s airports.  In 2008 the FAA noted that PIT had 4.3 million enplanements.  That number had fallen to just under 4 million for both 2009 and 2010 before rising to 4.1 million in 2011.  Thus from 2008 to 2011 the number of enplanements at PIT fell five percent.  The most recent data available on PIT’s website shows that through August 2012 the number of enplaned passengers, year-to-date, was lagging the 2011 figures by 3.6 percent.   

 

Looking around the country at airports serving similarly sized metros such as Austin, Denver, Indianapolis, Kansas City and Nashville shows some airports with declines in enplaned passengers during this time as well.  PIT’s five percent decrease fared better than Indianapolis (-10 percent) and Kansas City (-7 percent) but not Austin (plus 4 percent), Denver (plus 5.7 percent), or Nashville (plus 0.5 percent).  Keep in mind that from late 2008 through early 2010 the nation went through a severe recession and a prolonged period of economic weakness that almost certainly affected air travel negatively.

 

Do carrier fees explain some of the changes in air travel?   In 2010, PIT’s landing fee for signatory airlines stood at $3.485 per thousand pounds.  They were boosted less than one percent in 2011 to $3.5147 before being lowered for 2012 to $3.4148.  However, as mentioned above, the numbers of enplaned passengers increased from 2010 to 2011 and are trending lower in 2012.  Certainly, in the short run, the small change in fees would predictably not affect travel significantly. More likely, other factors such as the state of the economy or the availability of affordable flights had much more influence on passenger counts. Indeed, both Indianapolis and Kansas City, had lower much landing fees than PIT at $1.95 and $1.96 respectively in 2011.  Denver had higher fees ($3.532) than PIT, yet had substantially greater passenger growth.  Austin and Nashville had passenger growth with landing fees ($3.21 and $1.26 respectively) less than those at PIT.  Obviously, while landing fees are important they do not necessarily translate into short run changes in enplanements, i.e., demand for travel.  

 

Another airline cost is the terminal fee.  Much like the landing fee, PIT increased the signatory terminal fee from 2010 ($128.28/sq. ft.) to 2011 ($133.73) and then reduced it for 2012 ($129.06).  This is much higher than any of the airports mentioned above.  Indianapolis’ 2011 signatory terminal rate is next highest ($95) with Kansas City having the lowest ($31.75).  For 2012 the other airports in this small study all lowered their signatory terminal rates, with the exception of Austin, thus PIT hasn’t gained much ground in this area.  While higher than average, fees are not the only factor in determining ticket prices and sales, there can be no doubt that over longer periods they could affect sales, especially for price sensitive travelers. 

 

One reason for the high fees is the debt load carried by PIT.  As is well documented, the debt incurred to build the new terminal in the early 1990s was staggering.  It has taken nearly two decades to make significant headway in debt reduction.  According to the Allegheny County Airport Authority’s audited financial statements, total long-term debt in 2008 stood at $452 million.  It has been falling steadily, hitting $337.4 million at the end of 2011-a reduction of 25 percent.  A big help in bringing this debt down was the arrival of gaming revenues.  As we had written about before, PIT was to receive $150 million in gaming money as directed by the 2004 gaming law.  However, the County Executive at the time grabbed the first $42 million rather than sharing with PIT, delaying the use of gaming dollars to supplement airport revenues that would fund the subsequent reduction in carrier fees.  The gaming money finally arrived in 2010 when PIT received $14.6 million and another $12.4 in 2011. 

 

More reasonable explanations for the lack of passenger growth are the cost of tickets, the availability of seats to desirable destinations and the paucity of international flights.  With the loss of hub status in 2004, PIT now has to rely on local origination and destination traffic to drive demand for flights.  Paradoxically, the economy’s performance appears not to have been a factor in the weak enplanement numbers in the recent year. The Pittsburgh region fared better than many other areas around the country during the recession, thanks in large part to the Marcellus Shale development, growing the average annual number of total private jobs 2.6 percent from 2010-2011.  This growth lags only Austin (4 percent) and Nashville (3 percent) in this small sample. 

 

For whatever reason, the economy’s strength did not produce rising passenger growth. Maybe the job growth was not in sectors that are heavy commercial users of air travel or incomes did not rise commensurately with the jobs gains. However, going forward it will be important for enplanement growth that the Pittsburgh metro area continues to show solid economic gains and faster population growth along with affordable and available flights to desired destinations.