Behind the Headlines — Jan. 3, 2014

Behind the Headlines — Jan. 3, 2014


[Female Announcer] This is a
production of WKNO Memphis. Production funding for
“Behind the Headlines” is made possible in part by.. A look at the future of the
Memphis Airport tonight on “Behind the Headlines.” ♪ Theme Music ♪ I’m Eric Barnes, publisher
of the “Memphis Daily News.” Thank for joining us. We’re joined tonight
by Scott Brockman, newly appointed
C-E-O and President of Memphis-Shelby County
Airport Authority. Thanks for being here. Thank you. And Bill Dries, Senior Reporter
of the “Memphis Daily News.” We’ll talk the whole
time about the airport. Ok. The past and the future. But let me just start with the
question of what.. Assess the financial health of
the airport right now after, you know, a kind of
painful de-hubbing that was, I guess, a financial
impact to the airport. Obviously very frustrating
to a lot of flying folks. What is the financial
health of the airport right now? The Airport Authority is
extremely strong financially. It’s, umm, the
model that we have is one that’s very resilient. Has worked through a number
of challenges including the bankruptcy of both Northwest
and Delta back in 2007, 2008 economic downturns. And so financially
we’re very, very strong. Balance sheet is is
extremely strong. The way airports’, at least
the way Memphis Airport’s, finances work is, umm, is what’s
called a residual agreement with our airline partners, out
airline operators and so it’s a closed system, if you will. Wherein, they guarantee that
we will always collect enough revenue to, uhh, to
pay for the operations. The challenge then
becomes what do charges, you know, how high
do the charges get in order to manage the facility? Right. And can you still, then, attract
airlines and grow airlines in an environment with raising rates? And so, even with, with Delta
having cut I don’t what the peak with Northwest was, what? 300 flights a day
or some, you know, two, high 200s. Delta’s down to, what,
forty flights a day, give or take? Something like that. About 50 or 49. About 50. Ok. Mhmm. Even then,
financially, the airport works? Oh, absolutely. Yeah. And it will continue to work. It really what ends up happening
though is the balance of what the rates and charges become
over a short term period or even over a longer term period. Yeah. So.. But from a, switch to
a passenger point of view. I mean, the frustration
of Delta cutting back. I mean, you hear that the
Airport Authority heard that, you know, was the Airport
Authority doing enough? You were, I think, the
number two at that time. Do you feel like you did
everything you could to keep as much, to keep Delta here? Mhmm. I mean, could, do you look back
and think well we should have done this or that to
keep a bigger presence of Delta flights? No. I think, you know, the process
if when you go back to Delta first started to
eliminate flights, ok? It took about three
years to get to this point. If you look at the
Pittsburg model with US Airways, umm, effectively, you know, at
11:45 in the evening on the eve of the expiration of an airline
use and lease agreement with Pittsburg Airport
the CEO called, said we’re not renewing
the lease and we’re moving. And so they shut that hub
down effectively overnight. Yeah. In our case, umm, we still
garnered the benefit of all of those flights as they
weaned down slowly. So while it was painful for the
traveling public and certainly painful for the
management team, umm, you know, as we look to try to
rebuild that service it did take a very long time to get
from the start to the finish. Yeah. And so, which gave us a chance
to work with other carriers, i.e. Southwest, Frontier, to poise them to
start service as that model worked
better for them. Yeah. So, umm, so really it was a
longer period of time than one would have expected. Yeah. Bill. Is the latest Airport Authority
figures that I saw indicated that our origin and
destination traffic, O and D, is now the bulk. Is that still the case, uhh,
for the flights coming into the airport and leaving the airport? What we’ve done.. Yeah, so they are. And currently origin and
destination traffic is running at about 75% of the
total passengers. So.. Let’s define that for
a second just for people. We’re pretty close to this. That’s flights
that originate here, basically Memphians or
people from the region getting on a plane and going
somewhere from here. Yeah. Versus when we were a hub you
had a lot of traffic that just pass through, people going from
Seattle to Tampa or something like that. Well we still transfer. Yeah, transfer passengers. Ok, so O and D,
just to define that. So back to you. Yes, and so what, prior to now,
back were had the robust hub, we were running at about 65
to 70% transfer passengers. People getting off
one plane, one another, had no business in
Memphis did not live here or have business here. That’s reversed
now and so, umm, we’re now at 75%
origin and destination, 25% still transferring
from one flight to the next. And so that model is different
than what it was before. We’re now generating out flight
base on what Memphis business and Memphis leisure travelers
are looking to fly and so it’s a much more stable flight
model for the future. And so, uhh, the O and D
passengers are the ones that actually spend the most
amount of money at the airport. They park, they rent cars, they
buy more food and gifts and so on. And if that number,
compare that number, you know, of O and D passengers,
again sort of Memphians give or take in and out,
now to, I don’t know, 2007. Pre-recession, I mean, because
you gotta go apples and apples. Is it a consistent number or is
it down from where it was when we were a hub? Is the O and D number
down from what it was? Well it’s down, I think it’s
down from the pre-recession. Ok. Ok, which really
had nothing to do, per se, as much with the
hub as it does the economy. Yeah. And it’s down about 10%
but what we’ve seen is, is that as, umm, airlines, low
cost airlines.. Have brought in service,
Southwest specifically, what we’ve seen is
that O and D traffic is rising this month, this year
over this month last year. Ok. So that trend is going up to the
extent that the first month that Southwest operated
a full month was, umm, well 3/4 of
the month was August, it was up 20-something percent. Right. Yeah. Yeah. O and D traffic. Hmm. It’s been up every month
since Southwest started. So that’s a good sign. Yeah. There’s now inspiration for
local travelers with more reasonable
fares to travel. Mhmm. Is, do you think that’s
going to remain the case? In others, is O and D’s
dominance something that the Airport Authority builds on
from this point or do you think connecting traffic and the
transfers will come back to some degree as a percentage? No and the reason for
that is that the focus, Memphis’ focus, now with
Delta and everyone else is on the O and D market. Mhmm. The flights are geared
around the demand for the O and D market. And so, umm, as we go
forward our relentless
pursuit of frequent, affordable air
service will be geared around that O and D market. And so, what I would expect is,
is actually the O and D to rise as a percentage not because
there’s a tremendous change in transfer passenger availability,
it’s that we’re going to grow the market. We have currently,
the Memphis market is, umm, is a, umm, the O and D
market is a challenge because of air fares. So we don’t truly know what the
demand of the O and D market is, ok? And so it’s been
disincentivized, if you will, by high air fares. So as we interject more and
more low air fare carriers, which we will over time, then
we will continue to grow that O and D market. And more and more of Memphians
and the people in the mid-south will be able to travel and then
we will truly see what that O and D market is and
take advantage of that. Mhmm. There was, uhh, the day that US
Airways and American that the merger went through, the Justice
Department signed off on it, Delta was right out of
the gate, no pun intended, saying we want the
Reagan National slots that US Airways had. Correct. Which we have, we get some
service from US Airways between us and Reagan National. Mhmm. And they said we want that even
though the Justice Department made it clear that they
wanted those slots to go to low cost carriers. What is the outlook for that
Washington service that Memphis International has
as a result of that merger and do you think Delta should
be able to take those slots? Well, first thing is the
US Airways service to Reagan National is, right
now, they’re running four frequencies a day and
they’re doing, by their own admission, doing
fairly well on those. We started with
three and went to four. Mhmm. Demand has been good and solid. And with the
merger they have been, umm, part of the tradeoff of the
merger was they have to give up slots, if you will, or
takeoff and landing positions. And so, umm, I believe
the final number was 49. And so, the
jockeying, if you will, that occurs is everyone trying
to get into the pieces of where those slots get allocated. We think we’re in a very strong
position to maintain most if not all, uhh, three, you know,
at least three if not four. And we continue to put
our case forward for that. As for Delta, the
whole reason why, umm, the Justice Department
looks at those routes is to make sure there’s not a shifting
in that there’s not cities eliminated and part of what US
Air served with those routes was smaller communities. And so the question will be, is
Delta really going to benefit the National Aviation
System or what carrier will? And quite frankly
I would not, umm, I don’t know what the Justice
Department will determine. That’s something that occurs
outside of this conversation but I would expect that the majority
of those slots are going to go somewhere else because Delta had
those slots and they switched them with US Airways in,
umm, their La Guardia versus National, Reagan
National, uhh, trade. Right. When you talk about the cutbacks
and the shifting and this is a little bit out of Memphis but
part of what Delta was flying through Memphis were a
lot of flights from, uhh, I mentioned
Seattle/Tampa but say, that’s not a good example but
cities the size of Jackson, Mississippi. Smaller airports
around the country, we talked a little bit
about this before the show, have really taken it hard. Mhmm. I mean, people look at what
happened to Memphis and the loss of flights and it’s
been really difficult. Right. It’s nothing compared to what
has happened across the country in these smaller sized
cities, big communities, right? I mean, that’s where
huge cuts have taken place. The Lubbock, Texas
and the Lexington, Kentucky. Knoxville,
Tennessee-sized, yeah, places. And Knoxville, yes. The small hub
airports that are running, you know, umm, less than
three-quarters of a million enplanements a year, which is
a person getting on a plane. Those airports have taken the
biggest reduction in service mainly because their
feed was to Memphis. Right. Yeah. That’s how they
got, umm, there. Right. So they’ve lost
flight availability, they’ve lost, umm, flight
frequencies and so it’s been very challenging. And, correct me if I’m wrong,
that’s part of why Pinnacle, I mean, there are a lot of
reasons why Pinnacle went under and those regional carriers but
that’s part of the problem with the Pinnacle model, right? I mean, that was a major
disappointment to Memphis in a number of ways. They moved downtown, they
were going to be a big employer downtown, a lot of fanfare
associated with Pinnacle but then they went bankrupt
and basically moved up to Minneapolis or
wherever they moved. Yeah. Is that, was that part of
it, the cuts in mid-city, you know, mid-size city service? Well, it’s actually, it becomes
more fundamental than that. Ok. The reason why those cuts were
made were those flights were based upon, umm, a aircraft that
doesn’t work in today’s model. Ok. And that is a 50-seat R-J
that is fairly expensive from a standpoint of fuel
consumption and operations. Right. And so, when fuel, when those
aircraft came into the market fuel was about 30
to $35 a barrel, ok? And now fuel is
at $100 a barrel. Yeah. So it has gone up three times. During the peak of the
downsizing decisions fuel got as high as $145 a barrel. Part of the other challenges
is, is that what the cost the gasoline for you and I is about
25% more for an airline because that gasoline you and I
buy has to be refined further into jet fuel. Ok. It’s called the crack spread. So airlines are paying 25% more
per gallon than you and I are. So the R-J aircraft is being
eliminated from a lot of fleets. Right. And so that is what eliminated a
lot of small markets cause they don’t have enough people. And so, but even in that
context of everything, the challenges
you’re talking about, you’ve mentioned
other small carriers. Yeah. Didn’t Frontier, Frontier is
coming into Memphis if I’m not mistaken? Frontier starts
in March of 2014. March of this year. Mhmm. And then there’s some other ones
that you all are talking to. Why did those
work when, you know, Delta didn’t work, when Pinnacle
and the regional carriers, what’s the
difference between, you know, that makes those small
especially discount airlines viable in Memphis? Well in the case of Southwest,
they’re running all 737 aircraft so it’s a difference of if it’s
a 737-700 which is nominally 140-passengers versus
a 50-passenger plane. Yeah. That new generation 737
uses exponentially almost, you know, the same
amount of fuel as an R-J, ok, from the stand
point of fuel burning. With three times the people. With three times the passengers
so you can spread the cost. I mean, it’s a
little bit more fuel but, umm, and so with Frontier
who runs also a similar sized, you know, a larger aircraft
737 is going to carry passengers from Memphis to
Denver and to their hum. Mhmm. So they can then transfer in
Denver and reach to the west coast on Denver’s hub. Ok. Other carriers that we are
courting run similar type operations. The, umm, you know,
a Spirit Airline, ok. Mhmm. Spirit runs larger aircraft and
runs to Fort Lauderdale and to other destinations. So we’re talking to them. Jet Blue is a little bit of a
different story because they run larger R-J aircraft. They run, umm, you
know, the 100-seat, 120-seat aircraft
but they’re the new, they’re the next
generation aircraft. So they’re the new ones. The fuel burn is
totally different. So for, you know, a flyer be
it business traveler or leisure traveler it is a big change. I mean, when one, when I
first moved to Memphis 15, 20 years go, you know, you just
go to the Northwest site nwa.com or call them up and
you could get anywhere. Mhmm. You flew direct. Right. And you really, there
wasn’t another choice because, yeah there were some other
airlines here but there were never necessarily cheaper and
they usually didn’t have the, you could fly any time of day. The service was amazing. It part of it just the cold
reality of connecting flights, of having to shop around
on multiple different, you know, websites, of
having to be a more, I don’t know, it’s a more
difficult experience to figure out what airline
you’re going to be on. And on any given trip you
might fly a different airline. It’s very different than
the way it was ten years ago. Tremendously. And that’s not going to change. Tremendously different. Yeah. And, you know, the
benefit of the hub was 90, roughly 90,
nonstop destinations. So you got on a plane in Memphis
and you could go pretty much anywhere in the world and
even the globe with Amsterdam. Right. With the new, uhh, O and D
we’re going to have 30 to 35 destinations and so the new
reality is you will connect. Yeah. Yeah. The benefit is, is you
will get lower fares. Cause they’re all
competing against each other. Yeah. Less convenience
but lower fares. And so, so it will open up the
travel opportunities to more people in the community. Right. Quick that you
mentioned international. We lost the Delta
flight, Delta KLM flight. Mhmm. Is there any
prospect of getting, you know, European
flight in the near future? I believe that we
have opportunities that, umm, we can have
charters to start with. What we have to do is
rebuild that service, ok. The reason why the KLM service
and then Northwest service to Amsterdam worked was you had a
hub on the European side and a hub on the Memphis side. Right, right. So you had 25% of the people
that got on that plane were origin and destination. The other 75% came
from everywhere else. Right. Whether they were
European connection or domestic connections in the United
States it was the hub benefit. With an O an D model now we have
to build a different process. So now what we’re looking at
is scheduled charter service, ok? Because of people in Europe
that want to get to Memphis, people in Memphis that
want to get to Europe, and you then have to marry
those routes up in a preplanned charter. Right. Because the airlines
we’re talking about, in terms of
Frontier, Southwest, Spirit, those are not international,
they don’t have international flights, at least
European long haul flights. No. And that domestic. Sure. One other thing that, the game
has changed tremendously because the legacy
carriers, American, Delta, umm, those carriers have
websites and have bookings though travel agents and others. The new carriers, the
Southwest of the world, you can only book
though their website. You can’t go on
Expedia, Travelocity. That’s part of what I was
getting at and thank you for making that more clear. You have to go to
multiple different sources, multiple different
browser windows and so on. You need to know
how to get there. Yeah. Part of what my goal is,
and it’s a good bridge here, is we’re going to focus on what
I call a positively memorable travel experience. Memorable is M-E-M
which is our moniker. And part of what I want to offer
to the traveling public is a link on our website to a
flight guide that gets you to every available flight, ok? You pick the destination,
it tells you all the airlines and the flight times. Yeah. So now you can find, you
know, and we’ll get there. We’re not there yet. We have to build the model. But we will get there and
it will be on our website. Yeah. And when we get there you then
will find the flight you want to take then research
backwards to the airline. Yeah. You’re not beholden to try
to know all of these things. We’re going to try to help
you provide that information. I’m sorry. Bill. Is that a model that other
airports have or is that something unique? I guess part of the evolution
of where air travel is going? Well no, there are other
airports that have had to reinvent themselves,
ok, who have done this. Mhmm. And so, we’re not the first to
do this and we’re building these things. The problem, part of that is
we’ve been in the process of doing an information technology
master plan and trying to rebuild all of the
infrastructure all at the same time and so it
take a little bit of, uhh, it’s been
delayed a little bit. But we’ll get there quickly. Right. And, umm, before the de-hubbing
the Airport Authority approved an incentive plan. I think it was a pool
of about $1 million. I think I’ve got that. It’s been a while since
I’ve looked at the number. How has that pool of funding
worked in terms of luring the kind of air
carriers that you want? Obviously we’ve got Southwest
and Frontier is coming on. Mhmm. Are those
incentives still out there? How popular are they proving? Have you had to
tweak them in any way? The original
program, you’re right, the $1 million was the original,
the entire program funding. The maximum any airline could
get based upon the number of flight was a half a
million dollars per year. And so, umm, and the program
has been very successful. You know, we have the
Southwest operations, Frontier. What it does is that
incentive is not going to, in and of itself,
start air service. It gives and airline
a chance to offset some of that
startup cost. It is very expensive to
come into a new market. And so, so what we do is help
them with some of those startup cost especially with marketing,
with advertising in a co-op. And so, I would look
for us to continue that. We will need to address that
matter with our board in the future but I believe we will
continue that program because it’s the right thing to
do for the community, to continue to
grow that frequent, affordable air service. Just about four minutes left. Other projects that
have been started, the Ground
Transportation Center, the big parking garage that
has the rental cars in it now, there was some criticism as
the de-hubbign started that oh, well, now we’re going to be
stuck with this giant garage and this rental car facility that
we don’t need because we have so many fewer flights. Financially, the Ground
Transportation Center is working? The Ground Transportation Center
is just wildly successful from a standpoint of its model. It was, one, it was funded in a
very creative way which meant that there was very
little debt surface to cover. We have to park 54 cars a
day in that seven story, 4,500 space
structure to break even. That’s 54 spaces
above what we had before. We’re now up to, every month
has been above that number. We’re not up to
some twelve, 1,300 more spaces in that facility. Ok. It’s been wildly successful. It is a tremendously
efficient facility. Spaces are wide, it’s easy
to get in and out of and the traveling public, so
far for the most part, has loved it. Right. Any new facility has glitches. But some of the
off-site parking have closed, I guess, in response to that. Maybe they weren’t as
competitive or they didn’t offer the convenience. Right. So a couple of
off-site places, umm, didn’t the Airport Authority
buy one of the locations? Am I right about that? We did. We bought “Park it Here,” which
is on the corner of Airways and Winchester. Ok. Are there plans or that? Yes and well, actually, the
reason why we bought it was because it fits very well for
us to put our rental car storage and maintenance. Oh, ok. Rental cars were
all on Democrat. Yeah. Their combined
facilities where storage, maintenance and
customer service. The rental cars are now in the
Ground Transportation Center, the first two floors. So they have their
primary operations on-site. They need an efficient
place to do oil changes, simple maintenance, storage. Right. Ok. That site is a perfect
site and much closer. Ok. Which then allows Democrat for
a higher and better use which might be our super-partners
in Federal Express. Right. And, on it, we’re just a
couple minutes left now. I do want to get to
FedEx but the other thing, the tarmac’s being
rebuilt around what? The B Concourse? The B Concourse now, yes. That project still makes
sense even though Delta’s not in there? It is an absolutely critical
project because that is 50 year old pavement. Ok. Ok. It becomes a safety issue
with what we call foreign object debris. Ok. So maintenance goes on even
though there are these changes because they’re long-term. Correct. And I’m cutting you off a little just because we’re
short on time. Has there been any talk, I don’t
know if I made this up or I read this somewhere, about
consolidating some of the gates? Because there aren’t as many
flights going thought there. Mhmm. So that, you know, and
everything is a little bit sprawling and a
little bit empty feeling. Yeah. Is there efficiencies or
even psychological reasons to consolidate a little bit
because there just aren’t as many flights going through? And you don’t just have to walk
all the way out the B-45 when all those gates in
between aren’t being used. Yeah. All the above. We are doing the terminal
utilization study to look at our total gates that we need
to have today is about 30 Ok. Ok. We have about 75,
79, in the terminal. So clearly we can, we can focus. The apron project has caused
a disruption in that study. Because that’s
closer and so you’re, if you don’t realize it when
you’re walking way out to B-45 you’re walking by all
the, this construction, right? It’s all dirt right now so
you can’t park a plane there. But clearly what we’re
studying is the efficiency, cost saving of putting
everyone in one area, benefit for our concessionaires
and then looking at how do we make that all work for the
benefit of the long-term. Yeah. Ok. And there’ll be great
things on the horizon, trust me. We can talk about
FedEx for twenty minutes. We have 45 seconds. FedEx is, you know, they’ve gone
through a lot of consolidations, a lot of changes in
their business model. How is FedEx’s presence? I assume it is still as
important as ever at the airport? Even more so because as
the passenger airlines have downsized, their footprint of
what they’re paying for has gone down, FedEx pays for more. Cargo is up, ok. Year-to-date,
fiscal year-to-date, calendar year-to-date, cargo
remains strong and we’ll do anything and everything we can
do to support their business model because they are critical
to the economy of this region. All right. Well we will leave it there. Thank you for joining us. Ok. Thank you, Bill. And thank you for joining us. Join us again next week. Goodnight. ♪♪♪

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