So far, the Aughts have been a rough decade for the airline industry. Domestically, combined losses be-tween 2001 and 2004 add up to more than $30 billion.
US Airways, which handles half the traffic to and from Charlottesville-Albemarle Airport, stepped to the brink once again last September, entering bankruptcy protection for the second time in three years. But in May the company gained a new purchase on the future through a proposed merger with the also-faltering America West Airlines. Independent equity investors, including the Charlottesville-based Peninsula Investment Partners LP, which is headed by R. Ted Weschler, lined up alongside strategic partners and suppliers interested in propping up the combined airline to offer $1.5 billion in financing.
The overcapacity in routes and passenger seats that has widely been identified as underlying the industry’s financial difficulties has also led to cutthroat price competition. But, cheap fares notwithstanding, commercial aviation’s reputation among travelers has not done much better than its economics.
But for area passengers frustrated with delays, long airport lines, clogged tarmacs and epic commutes between parking lots and terminals, the nearby convenience and relative quiescence of Charlottesville-Albemarle Airport make it increasingly the option of choice. Indeed, travel was up 13 percent at the local airport in the first three months of the year, almost double the national trend.
The latest round of airline troubles was first rooted in the dot-com bust and a drop in business travel. Then 9/11 delivered a second debilitating blow. The number of passengers boarding planes at American airports dropped about 7 percent in 2001 as compared with the year before.
Charlottesville-Albemarle Airport (CHO) was impacted too, of course. Northwest Airlines, which had introduced service to Charlottesville with flights to its hub in Detroit in August 2001 beat a hasty retreat and cancelled the routes that October. The number of passengers departing the airport overall fell significantly in 2001, though the roughly 6 percent drop was below the national trend.
But the airport quickly recovered, with US Airways and Delta Air Lines expanding service from Charlottesville in late 2001 and early 2002. Overall in 2002, passenger departures from Charlottesville-Albemarle Airport shot up more than 11 percent to more than 170,000, while nationally traffic continued to slump. Charlottesville traffic fell in 2003, drifting behind a modest national growth trend, but has since continued its upswing.
And three months ago, in April, Northwest resumed its Detroit flights from Charlottesville. Terrie Dean, marketing executive at CHO, described Northwest’s initial withdrawal as a response to the post-9/11 business environment overall. “Northwest did not pull out of this market due to disappointing numbers or lack of passenger traffic,” she says. “Getting Northwest to come back to this market, then, was not too terribly difficult, because they already had a track record of success.”
Airport executives and local travel agents point to the buoyant regional economy, convenience and improving competitiveness on rates as factors generally supporting the growth in air traffic out of Charlottesville. “I think that on the whole regional airports fared much better after September 11, 2001, than did major metropolitan airports,” says Dean. “Metropolitan airports…are still clogged with long lines, long security lines and delays.”
Indeed, delays are among air travelers’ major complaints, but CHO hasn’t significantly outperformed bigger hubs. So far this year, more than 20 percent of flights by major carriers nationally have arrived at their gates more than 15 minutes after scheduled times; more than 17 percent have left more than 15 minutes late. During the same time period, more than 21 percent of arrivals and more than 14 percent of departures were late at Charlottesville-Albemarle Airport. Delayed flights at Dulles International, Washington National and Richmond International were roughly in line with national data, also.
But the drive to Richmond or Washington is an inescapable disadvantage to travel plans involving those airports, as is the multi-stage gauntlet of parking lot and terminal shuttles at an airport the size
of Dulles. “We have a lot more clients
after September 11 who fly out of Charlottesville,” says Rochelle DeBaun, an agent with Peace Frogs Travel. “They don’t want to deal with Dulles and security….People, if they aren’t saving a couple hundred dollars, they won’t fly out of Dulles.”
On the fare side, Jane Dorrier of Globe Travel says she has seen some favorable movement. “I do know that the Charlottesville Airport Authority [has] been working very hard to get some competitive rates,” she says. “They’ve been able to negotiate some very good rates locally and people are really loving it.”
Dean says she conducts a monthly analysis comparing fares at Charlot-tesville-Albemarle Airport to those at Richmond and Dulles, largely as a means to advocate for Charlottesville travelers. “When we see something that’s out of skew with what we think…our passengers should be privileged to in this marketplace as far as fares go, we go to bat for them,” she says. “We go to the airlines. We send these reports. We lobby on behalf of our customers to say, ‘we’d like to have a lower fare here as well.’”
Dean says she has observed an improvement in Charlottesville fares relative to competing airports in the past couple years. In her most recent fare comparison in June, Dean says, “The largest disparity in fares between us and Richmond barely topped the $60 point…In many markets Charlottesville is priced under Richmond Airport. At Dulles, obviously because they have more low-cost carriers there, the competition is a little stiffer.”
Currently, according to DeBaun, “Char-lottesville to LaGuardia 21-day advance, the cheapest fare is $400. Dulles to LaGuardia, the cheapest fare is $130.” DeBaun notes, though, that “bulked airfares” for vacation packages are generally the same across a region for a particular air carrier, regardless of the airport of departure.
Serving a small market and dependent on the hub-and-spoke networks of the major carriers, CHO is vulnerable to the precarious financial condition of most of the nation’s large airlines. In the summer of 2000, the airport solicited local businesses to contact federal antitrust authorities and Congress to seek assurances that service and fares would be maintained if United Airlines and US Airways merged, as was being proposed at the time. Together those airlines accounted for 85 percent of traffic at the airport. That deal was ultimately scuppered by antitrust issues.
The new proposed merger between US Airways and America West Airlines, a hub-and-spoke carrier that’s been running since 1983 but has since transformed itself into a hybrid discount operator, is raising no such alarm at Charlottesville-Albemarle Airport. For one thing, there’s little overlap between the two companies, with America West’s hubs in Phoenix and Las Vegas and US Airways’ in Charlotte and Philadelphia. Executives term the deal “Project Barbell” because of the concentration of each airline’s networks on the East and West coasts. Moreover, the deal, which the companies expect to create the fifth-largest carrier in the country, would preserve higher service levels than another possible alternative for US Airways: liquidation.
“At this point…it’s really too early to tell the exact outcome of that merger,” says Bryan Elliott, the executive director of Charlottesville-Albemarle Airport. “But it does hold the promise for providing low-cost service, low-cost carrier service in our marketplace.”
Though he would not comment to
C-VILLE, saying, “I don’t discuss my investments,” local investor Ted Weschler has praised America West’s management, telling the Pittsburgh Post-Gazette in a June 2 article, “I like to back management teams that really do what they say.”
Peace Frog’s DeBaun is optimistic about new route options that the US Airways-America West merger might mean for Charlottesville-Albemarle Airport, which currently handles about 60 flights a day to and from hubs in Atlanta, Cincinnati, Charlotte, Detroit, New York, Philadelphia, and Washington that are maintained by Delta, Northwest, United and US Airways. “It would certainly open up more gateways to the Southwest, which aren’t the easiest places to get to from Charlottesville,” she says. “Getting to Alaska, getting to Mexico, the Pacific coast of Mexico, that’s all going to improve because US Airways isn’t prominent at all in the West.”
Economically, the deal is predicated on trimming the combined airlines’ main fleet by about 15 percent and pushing back scheduled acquisitions of additional aircraft, while capturing additional revenue by carrying passengers to an enlarged roster of destinations. Carriers have sought to reduce the amount of time airplanes idle on the ground, where hub-and-spoke networks are vulnerable as airplanes wait to collect passengers from connecting flights. A typical equation involves longer times for travelers between connections. But low-cost carriers, which have relied on point-to-point routes, have increasingly moved toward the hub-and-spoke model as they have matured and sought to increase revenue.
The companies hope to complete the deal and begin operational integration in the fall, and late last month received antitrust clearance from the Department of Justice. But a number of hurdles remain, including approval by the Air Transportation Stabilization Board—a federal body created after 9/11 that has extended loan guarantees to both companies—discussions with employee unions, and approval by U.S. Bankruptcy Court.
But the airlines, seeking to amass $2 billion in cash to weather the industry’s ups and downs, have lined up strong financial backing in the deal. Under original agreements, equity investors, including entities related to Air Canada and Air Wisconsin Airlines, which will enter into cooperative maintenance and regional airline service agreements with the new company, offered to put up $350 million for a 41 percent stake. Peninsula Investment Partners, the Charlottesville-based fund run by Weschler, has made a $50 million commitment. And another investment company, Wellington Management, has also subsequently come forward to pledge an additional $150 million equity investment. Signing bonuses, loans and advances from vendors, suppliers and credit card providers also tally in the hundreds of millions.
Despite the uncertainty in the industry, Elliott is confident about the significance of the Charlottesville market. “In terms of where Charlottesville fits, there are right now about 100 cities in the US Airways Express system,” he says. “We’re the 11th largest city in that mix in terms of overall revenue. Thirteenth overall in terms of passengers…There are about 85 Delta Connection markets, and we are 38th overall in terms of revenue generation and 40th in terms of overall passengers. Clearly we’re important markets for both those carriers.”
According to Elliott, the airport is anticipating about 2 percent growth a year over the next 20 years under its master plan. According to a September 2004 FAA planning report used to steer federal infrastructure funds, Charlottesville- Albemarle Airport is projected to handle about 212,000 departing passengers in 2009.
The airport’s master plan was updated late last year, and the update calls for the construction of additional parking and hangers, and a deicing facility. There will also be a 1,000-foot extension to the current 6,000-foot runway. Dean describes the extension to the runway, which she says can currently accommodate 737s and does so for charter flights, as a measure to meet FAA safety standards. She says it’s not really about enlarging the operating surface of the tarmac. The extension required a modest northward enlargement of Albemarle County’s “Airport Impact Area,” a large keyhole-shaped district that currently includes much of Charlottesville and the surrounding areas and restricts the height of structures within its boundaries for the sake of air traffic safety. The Albemarle Board of Supervisors approved the change on June 8.
“This industry continues to be one of the most volatile industries out there,” says Elliott. “We in our region are very fortunate that we have a great place where people want to live, and we have strong socioeconomic indicators that show strong demand for air service. Some airline would continue to try to find a way to meet those needs.”