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Right, but that's the nature of the post-deregulation airline industry. Things are constantly evolving, sometimes in a dramatic fashion, which means if you sink an enormous amount of capital into an airport project that assumes certain business trends or practices will continue for an extended period of time, there is a very good chance you will end up wasting a large chunk of that investment. And that is particularly true if the business you are talking about is based on non-local demand which could just as easily be served somewhere else.
And then it stopped working, and USAir got out of their lease in bankruptcy, but we are still paying off the massive construction debt, which is causing us to have these high landing fees that everyone is complaining about.
Again, it is not that hard of a lesson to learn--don't sink enormous amounts of public capital into trying to capture airport business that is based on non-local demand, because that is a hyper-competitive industry and thus there is a good chance that the industry will evolve in such a way that the business you were counting on will be done somewhere else, or not at all.
It lasted about 10 years. It might have been coincidence but after 9/11 Pittsburgh International's situation went bad. I'm not saying 9/11 caused it but maybe it would have lasted a bit longer otherwise. Any sort of upheaval in an industry can precipitate immediate change.
It might have been coincidence but after 9/11 Pittsburgh International's situation went bad.
It wasn't a coincidence. USAir was hit particularly hard by 9/11, in part because they had a large presence at National.
But that is the sort of exogenous event that can happen in the airline industry, and that is part why it is not usually a great idea to overinvest public funds in that industry--it is too risky, for reasons beyond your locality's control.
I would think the viability of a large international cargo facility at PIT would depend on the cargo type and the frequency - a lot more than 1 or 2 flights/week. Cargo which is primarily perishables (fruit, vegetables, etc.) would seem to compete directly (and likely unfavorably) with the huge shipping facilities in Baltimore, Philly and NYC. Cargo such as computer related equipment (pcs, phones, etc..) and TVs are sea shipped via west coast ports from Asia and trucked/railed to major cities with no critical time constraints. So what other large international cargo is required to be air shipped on say a daily frequency and be cost competetive with the above air ports, including distribution to the mid-west and east coast?
It doesn't need to be daily flights to get something started. Cargolux (Europe's largest all cargo airline) started service to Indianapolis a few years ago with one flight a week using 747s. They will soon be up to 3 times weekly service.
The east coast cities are the large cargo gateways (for sea and air), but like you said much of that is trucked elsewhere. If its going to end up on a truck, does it matter if it lands in PIT or JFK? Of course the New York market is much larger, and goods destined there would be best served with flights to New York. The goal would not be to go after cargo destined to these large east coast markets, but to go after the cargo trucked elsewhere. There's a lot of it, and if we can only get a small slice of the action it would be huge.
Columbus has been doing this for years as well, using the old Rickenbacker Air National Guard base. They have a couple flights a day now inbound from Asia.
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Originally Posted by acenturi
Another possibility already being explored I believe, is the PHL expansion/makeover fallout from UPS. PHL is the 2nd largest UPS hub in the U.S. and if the expansion goes forward as approved by the FAA, UPS will be required to relocate to a less desireable (from their perspective) airport location. If PIT is serious about enticing UPS to relocate, they should do a lot more than send a letter of interest. IMO, they should invest in and develop a detailed Plan, which credibly shows the advantages of moving here, including logistical designs, distribution analysis and some potential commitment for financial support of the required move and facility development. That's more than 40 UPS flights/day and of course a huge number of trucking facilities. Can UPS be convinced to move 300 miles away from the East Coast megalopolis and still make the same or more profits? I don't know, but if Pittsburgh wants them, they need to figure it out.
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Originally Posted by pman
I agree, PIT should watch the PHL situation closely...it would be an interesting turn of events. they might have to work with the state to improve rail connections as ups is a major freight rail customers and I believe there is freight rail access at their current site.
UPS would have no interest in a large facility at PIT. When UPS built their regional hub in PHL, they had a large central hub in Louisville with a handful of other regional hubs across the US, such as Dallas/Ft. Worth, Columbia, SC, Des Moines. Since then, they have greatly expanded and modernized their Louisville hub, and closed many of these regional hubs. The activity at PHL has been cut in half. All the volume that used to go though these regional hubs now goes to SDF using larger airplanes. Its a bit of a different business model now than 20 years ago.
PHL remains a large operation for UPS because Amazon.com has a huge facility up the road in Allentown. PIT would not be of use to serve that Amazon.com facility, plus its too close to SDF.
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Originally Posted by acenturi
Would a new AA provide a 757 non-stop to LHR as a BA code share? One could only hope.
It would be nice, but it would cannibalize Delta's CDG route. This route is just now starting to support itself, we're lucky to have it, and hopefully it will be year round service within a couple years. I don't think Pittsburgh is ready for two 757s to Europe, but if the job growth and energy sector continue to explode then perhaps in about 5-7 years.
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Originally Posted by h_curtis
PITairport, thanks for your response to this thread. It is obvious you are in the know and it was educational and interesting for me as a reader. It is a shame PIT isn't competitive and the airport is a ghost town. Wish there was something that could be done, but seems gas wells aren't going to happen, lower fees aren't going to happen and PIT will just plod along with no growth and no advantages for residents in our region that need to fly. Interesting that leaders in our region don't understand how to grow things very well. Increasing costs all the time gets you nowhere. Especially in a business like air travel. Airlines can just plant a hub in a city that wants the business.
Thanks! I think the biggest problem going forward is Allegheny County's interference with the ACAA operating PIT. Not to beat a dead horse, but the ACAA wanted to drill on airport land a few years ago already, but Dan Onorato put an immediate end to that, because he wanted that revenue to go to the County (against FAA policy). Now Rich Fitzgerald has the same idea and he thinks he has what it takes to magically change decades old federal policy. Its this kind of political nonsense which is holding the airport back.
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Originally Posted by BrianTH
It sometimes works for some places for a while, but blowing that much money on the hope of permanently out-competing other cities for business in a constantly evolving industry where you have no natural advantage is a poor use of public funds.
Incidentally, we're not alone in making this sort of mistake:
Again, it is not that hard of a lesson to learn--don't sink enormous amounts of public capital into trying to capture airport business
Airports are self funding entities - there is no local public capital used to fund their operations or expansion. There is the occasional FAA grant for smaller airports, but then consider the FAA is funded in part by aviation fuel taxes, etc. (which are paid by the user).
Having said that, as we've seen having high user fees has the same impact as having high taxes, so you are right in that there needs to be fiscal discipline when dealing with projects.
Last edited by PITairport; 01-27-2012 at 03:08 AM..
Airports are self funding entities - there is no local public capital used to fund their operations or expansion.
What a strange claim--PIT is owned by Allegheny County and operated by a county agency, the Allegheny County Airport Authority. Its construction bonds were issued by that authority.
Now it is true those bonds are mostly being paid back with airport revenues, and in that sense the airport is "self funding" its construction to that extent. But since the airport is owned by a local public entity and its construction was funded by a local public agency, it is not at all true that "no local public capital" was used to funds its construction.
Meanwhile, you have been advocating here that the County use any gas revenues it may have as a resulting of owning the airport land to subsidize lower landing fees at the airport. That may or may not be a good idea, but I think it shows that your notion of "self funding" is extremely broad, and it would be another example of public capital being used to fund operations at the airport.
And in fact the airport debt service is now being subsidized with state gambling revenues as well. I'm really not sure how those count as self-funding at all:
Having said that, as we've seen having high user fees has the same impact as having high taxes, so you are right in that there needs to be fiscal discipline when dealing with projects.
Exactly. The original notion was basically that this public agency would "tax" (meaning generate revenues from in various ways) airport business that was mostly generated by non-local flyers. It was counting on those revenues to finance overbuilding the airport.
That expected revenue stream has disappeared as a result of USAir breaking its lease and dehubbing PIT. Now instead of "taxing" mostly non-local flyers, we have to get the same revenues by "taxing" mostly local flyers, all to pay for an overbuilt airport with huge chunks we are not using.
Oops. And again, I think the lessons from that episode should be clear: you can't count on business based on non-local demand to keep using your airport indefinitely, since that business will usually have alternatives.
What a strange claim--PIT is owned by Allegheny County and operated by a county agency, the Allegheny County Airport Authority. Its construction bonds were issued by that authority.
What's strange about that claim? Yes, Allegheny County owns PIT. It is operated by the ACAA. The ACAA took out the bonds which financed the terminal construction. These bonds are being paid back by the ACAA, which generates its income via fees to the airlines and from Passenger Facility Charges (PFCs) to the passengers, not from the taxpayers.
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Originally Posted by BrianTH
Now it is true those bonds are mostly being paid back with airport revenues, and in that sense the airport is "self funding" its construction to that extent. But since the airport is owned by a local public entity and its construction was funded by a local public agency, it is not at all true that "no local public capital" was used to funds its construction.
See above. The "funding" from the ACAA is paid for by the airlines. It is not local capital, it is certainly not local tax dollars. That's not how airports in this country operate.
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Originally Posted by BrianTH
Meanwhile, you have been advocating here that the County use any gas revenues it may have as a resulting of owning the airport land to subsidize lower landing fees at the airport. That may or may not be a good idea, but I think it shows that your notion of "self funding" is extremely broad, and it would be another example of public capital being used to fund operations at the airport.
And in fact the airport debt service is now being subsidized with state gambling revenues as well. I'm really not sure how those count as self-funding at all:
Allegheny County owns PIT and its land. In the 1960's Allegheny County used federal FAA grants to purchase a boatload of land so the airport can be expanded with more runways, etc. The purchase was not done with Allegheny Co tax money. Today, PIT remains one of the nations largest airports in terms of land mass. It is this land which would be drilled. It is the airlines who in large part fund the FAA via fuel taxes, etc., who in turn funded the land grab. So the airlines indirectly paid for Allegheny County expand the footprint of the airport. Therefore - any revenue generated by that land is not "public capital" - as the public never bought that land.
If Rich Fitzgerald gets his way with this gas drilling, the complete opposite will be true. The airlines, who indirectly paid for that land, will be subsidizing Allegheny County taxpayers. This is why Federal Law prohibits the use of airport revenue for non airport use.
On the topic of casino revenue - PA gave Rivers Casino a license to do business here, in return for some of the revenue to go to special projects such as the new Arena. I wouldn't call this revenue from the casino to whatever interest (the arena or whatever) "Public capital", because the casino is not owned by the gov't.
But its not relevant for this conversation, because gambling revenues never made it to the airport. The article you linked is from 2009. Dan Onorato used that money to instead balance the county budget every time.
"In a practice that has become routine, Mr. Onorato is relying on a one-time revenue source to balance the budget -- the impending receipt of $30 million from the state in reimbursements for capital improvement projects.
Last year, the county enacted drink and car rental taxes to pay its $30 million subsidy to Port Authority. In 2008, it used nearly $20 million in reimbursements for construction at Pittsburgh International Airport and in 2007 sold off property tax liens for $14 million.
The state reimbursement for capital improvements, which is normally injected into ongoing projects, Mr. Onorato said, will be used to balance the budget instead, possibly for the last time."
What's strange about that claim? Yes, Allegheny County owns PIT. It is operated by the ACAA. The ACAA took out the bonds which financed the terminal construction. These bonds are being paid back by the ACAA, which generates its income via fees to the airlines and from Passenger Facility Charges (PFCs) to the passengers, not from the taxpayers.
What's strange is claiming that "there [was] no local public capital used to fund their operations or expansion" when the ACAA is in fact a local public agency.
Maybe the confusion is that "public capital" doesn't just include revenues from general taxation. It also includes net revenues from publicly owned and operated assets, which PIT is (a publicly-owned asset).
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So the airlines indirectly paid for Allegheny County expand the footprint of the airport. Therefore - any revenue generated by that land is not "public capital" - as the public never bought that land.
Again, this is just bizarre. Allegheny County certainly did buy the land, and it is a public entity.
All you are doing is pointing out that revenues from the airlines helped Allegheny County fund those purchases. But by that logic, there is no such thing as publicly-owned land, since every public entity that acquires land had to have gotten the necessary funding from somewhere. Trust me, though, our entire legal system is going to treat those public entities as owning the land they bought, not whatever entities originally provided them with the necessary funding.
Speaking of which, I think it is more than dubious to claim the airlines have a MORAL entitlement to non-airport revenues from that land merely because they helped fund its purchase, particularly since we have been discussing above how the bankruptcy process allowed USAir to lawfully break its lease, which was an actual contract for payment.
I'm fine with saying that is how the world works, but so in general is it true that public entities get the benefits of the land they own, not whatever entities helped them fund the acquisition of that land.
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This is why Federal Law prohibits the use of airport revenue for non airport use.
Federal law dictates that airport revenues should support airport capital projects and operations because Congress thought that would be good for the nation's transportation system, not out of some moral obligation it felt to airlines.
Incidentally, it is an open legal question whether revenues from mineral rights count as "airport revenue" under federal law. The FAA flip-flopped on that issue, and it may well be headed to court at some point.
In any event, none of that implies the ACAA is anything other than a public agency, even if it is subject to FAA rules about how it can spend its revenues.
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On the topic of casino revenue - PA gave Rivers Casino a license to do business here, in return for some of the revenue to go to special projects such as the new Arena. I wouldn't call this revenue from the casino to whatever interest (the arena or whatever) "Public capital", because the casino is not owned by the gov't.
I thought it didn't matter in your view whether a public agency actually owned the revenue-generating asset.
But in any event, the licenses to operate casinos in the state of Pennsylvania were public property, and were granted to the various operators in exchange for fees and revenue payments. Once more, net revenues gained from public assets, including casino licenses, are certainly public capital.
Also, no matter how you slice it, that can't plausibly be called the airport funding itself.
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But its not relevant for this conversation, because gambling revenues never made it to the airport. The article you linked is from 2009. Dan Onorato used that money to instead balance the county budget every time.
Or would you prefer Moodys from November 29, 2011:
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Airport receives non-airline revenues from state gaming ($12.4 million per year)
I didn't see anywhere in the article you linked a contradiction of what the ACAA and Moody's are saying.
I suspect you are referring to an early period in which there was a shortfall of revenue payments from Rivers, and the County claimed its part first from those payments. But the County has in fact dedicated $108 million to paying down airport debt.
Thanks! I think the biggest problem going forward is Allegheny County's interference with the ACAA operating PIT. Not to beat a dead horse, but the ACAA wanted to drill on airport land a few years ago already, but Dan Onorato put an immediate end to that, because he wanted that revenue to go to the County (against FAA policy). Now Rich Fitzgerald has the same idea and he thinks he has what it takes to magically change decades old federal policy. Its this kind of political nonsense which is holding the airport back.
Wish Allegheny County could see the fact that growing the Pittsburgh Airport could create jobs and could also be good for our region, instead of trying to tap funds from the gas wells to subsidize their failing projects that seem to line their friends pockets with money. There is so much waste in Allegheny County is truly is sickening. It is killing growth on all fronts, but the corruption and typical ways of this area, is why we never see growth or a move forward. I mean the city lost 1/2 of its population and one would think there would be a bounce back at some point, but the taxing and costs of doing business to line all the power people and all their friends pockets cost us all so dearly. What a mess. Oh well, the whole PIT thing will just be in gridlock and plod along aimlessly for my lifetime. Such a beautiful airport going to waste. It is a nice airport, but it is getting very dirty and not looking very well kept anymore. Sort of a ghost town that looks like it is starving for money. Nice bones though and it still could be nice with some elbow grease.
It wasn't a coincidence. USAir was hit particularly hard by 9/11, in part because they had a large presence at National.
But that is the sort of exogenous event that can happen in the airline industry, and that is part why it is not usually a great idea to overinvest public funds in that industry--it is too risky, for reasons beyond your locality's control.
My point was that at the start it did appear to be the correct action to take and would likely have continued beyond 9/11. The airport at its peak achieved about 2/3 utilization. It was built predicting further growth in air travel. I don't fault those concerned with not taking an event like 9/11 into account. Certainly the airline industry itself didn't as the terrorists were able to easily exploit security holes.
My point was that at the start it did appear to be the correct action to take and would likely have continued beyond 9/11.
9/11 was definitely bad for USAir, but I actually agree with my interlocutor above that USAir was going to de-hub Pittsburgh anyway. The real fundamental problem was not 9/11, but the inefficiencies of their overall structure which meant they couldn't compete effectively with low-cost airlines. And so I strongly suspect they would have entered bankruptcy anyway in the 2000s and still broken their PIT lease--at most, 9/11 might have accelerated that process by a couple years.
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I don't fault those concerned with not taking an event like 9/11 into account.
9/11 is just one example of the many possible exogenous events that could trigger airline restructuring over a term as long as 30 years.
Again, the fundamental problem is that particularly after deregulation, you really can't predict the course of this industry and the role of any given airline in it 30 years out into the future. So while it is true you can't blame someone for not being able to do that, you CAN blame them for betting hundreds of millions in public capital on the assumption that they COULD predict the future of the industry and a particular airline for 30 years.
Which is what Allegheny County did--overbuild the airport at an excess cost of hundreds of millions of dollars on the assumption that they knew with some precision what the future held for USAir. And the particular way in which they were proven wrong doesn't make that hubris any less of a mistake, nor should we fail to learn that lesson with the benefit of hindsight.
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It is a nice airport, but it is getting very dirty and not looking very well kept anymore. Sort of a ghost town that looks like it is starving for money. Nice bones though and it still could be nice with some elbow grease.
