The Airport Race

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With three major airports within roughly 70 miles, are competing cities choking the future of air travel in the Rio Grande Valley? This is a glimpse into the race for business, and the competitive world within the Valley’s top airports.

 

By Joey Gomez

 

An interesting conundrum about airports in general is that it comprises a business model that often doesn’t make sense, according to some leaders of the Rio Grande Valley’s major airports.

At McAllen International Airport, production is growing, but costs are doubling. Revenues are dipping, but enplanements, the number of people physically boarding, are forecasted to be the highest they have been in years.

airportrace_webThe city-run airport continues to see service like it has never seen, according to McAllen’s newly minted aviation director, Elizabeth Suarez. She credits McAllen’s business community and a need for constant connectivity as a driving force for the airport, but the “delicate balance” needed in the business requires that enplanements be sustained in order to pay off debt. McAllen’s airport garnered nearly $13 million in total revenue in FY 2011, according to a passenger facility charge schedule of revenues and expenditures released by the city. If the airport’s service threshold changes, and if those enplanement patterns start to decline, that means less money, Suarez said.

“At the end of the day, high enplanements means higher aeronautical revenue, it should. In an administrative airport, it should mean higher aeronautical revenue and non-aeronautical revenue. So, that enplanement threshold is just a very intricate balance,” Suarez said.

McAllen International currently has about $30 million worth of construction projects taking place. The airport has its terminal expansion, a runway safety area project, a lighting project in the parking lot that is just about finished, as well as landscape project currently in its final stages.

The airport is currently undergoing a CBP extension on its general aviation said of the house. That section is expanding as the agency increases its protection on the border, Suarez said.

McAllen International houses American Airlines, United Airlines, Allegiant Air, and Aeromar.

“Coming in, we are supposed to make an important impact in our economy and if we are not doing that, we are not doing a good job,” she said. “It’s a crazy business. I know, because I come from transit, I know transit well and I know the federal agencies well, but I have never had sleepless nights like when I got here because it’s an intricate balance.”

It’s a constant struggle. As the airport she runs starts looking at aeronautical revenues and begins to approach the major airlines, administrators are very conscious to show them that the airport is looking for ways to reduce its overhead and its costs.

The last thing airports want is to give the impression that they are passing costs to them, Suarez said. Her biggest concern is making sure that the airport’s financial snapshot changes so that the trends are changing when they sit down and talk to airlines.

The airport has to show upward growth on the non-aeronautical side, and at the same has to show a decline in expenditures, as well as an increase in enplanements, she said.AirportRacesinfographic_web

“We have to keep the airlines happy. We have to keep them here. We have to keep costs competitive to sustain us and to grow, “she said. “I think if it’s important for that community willing to make the investment, we have nothing negative to say about that. At the end of the day, I think we do need to work together as a region. I know that our leaders in McAllen have really pushed that notion forward.”

McAllen International is only one of three Part 139 commercial service airports within close proximity to each other. If you count airports in Reynosa and Matamoros in Mexico, there are five major airports within striking distance to each other in the Rio Grande Valley region including those in Harlingen and Brownsville. Valley International Airport’s new director of aviation Marv Esterly doesn’t agree with a regional approach when it comes to air service. Esterly, a former Marine Corps Air-Traffic controller whose career spans nearly three decades in aviation management said he doesn’t buy into that philosophy because no one benefits from the competition.

Valley International Airport garnered $2.4 million in aeronautical revenue in 2008, and nearly $5 million in non-aeronautical revenue, according to online source city-data.com.

“I don’t want to say they’re wrong. Obviously, there is a market share if you want three non-hub airports. That’s common sense,” Esterly said. “If you want to have one small hub or medium hub airport like Austin and San Antonio, you are going to have one facility that everybody will utilize. That definitely helps for that facility to be profitable.” Careful to say that he is not advocating shutting down any airports in the region by any means, Esterly says he is merely supporting a common sense question with a common sense answer.

“I understand that every city is entitled to an airport. It just so happens that these cities are so close together,” Esterly said. “You can look up north, in a lot of cities up there you will see there are cities that are a lot larger than all three of these cities(McAllen, Harlingen and Brownsville) put together that have very small airports. Often, you will drive to a major metroplexarea in order to get to the larger or medium hub airports or service that you want. “

Esterly acknowledged that airlines have significantly contracted over the years, pulling a lot of capacity out of the market, and have a more business-oriented mindset which is driving their profits.

Because of this mindset, airlines have pulled capacity back out of markets. These days, if airlines have 150 total people waiting for a flight, but have a plane that seats 100, gone are they days when they would employ a second plane to seat the other 50 andhave it half full, Esterly said.

“In other words, they would rather go with one plane and fill it to capacity. It helps their bottom-line revenue numbers and helps them be more profitable,” Esterly said. “They are running tighter ships and so airports of this size and even larger airports have suffered because of the cutbacks. Air service is definitely a big challenge, and something where I intend to take the bull by the horns and be more aggressive in seeking new air service and retention of our current air service.”

The airport in Harlingen is currently looking at the potential for mixed-use development on the airport’s east side that would incorporate air-type businesses and also other types of businesses, including support for the upcoming Space-X launch facility in Brownsville or support for United Launch Alliance.

The key is supporting businesses that can attract jobs to the community and to the area. The formula according to Esterlyincludes diversifying the economy of the airport, diversify the revenue stream and also assist in the diversification in the economics of the region and the city.

Since an airport is a business, putting it in the hands of city government is also problematic, Esterly said. Because all decisions for Valley International are considered by a board of directors, there is no need to tap into city tax dollars.

The airport is self-sustaining as required by the FAA, and there are federal dollars that are paid on ticket taxes. The airport, he said, is a self-sustained airport that utilizes all the revenue that comes in to pay its expenses. Because of that, the city doesn’t have to worry about it. It doesn’t have to subsidize the airport. That should be a big thing for taxpayers. It’s a benefit to having one regionalized airport if it ever happens, Esterly said.

“I think it’s more common for an airport to be run by a city. It’s becoming more and more the thing to do. I couldn’t tell you if the exact figures are 50/50, but an airport this size are typically run through a city government,” Esterly said. “An airport under the city will tend to compete with other departments in order to get the management to look at things. It takes longer to make decisions, and airports will tend to miss windows of opportunity because of the delays.

“With it run under an airport commission, an airport board or authority, those decisions can be made within 30 days,” he said.

Larry A. Brown, currently the director of Aviation at the Brownsville South Padre Island International Airport since 2002 believes that airports in the Valley are necessary to support the dynamic growth happening in the region.

Brown, who has been employed with the City of Brownsville for 42 years, and has served in various capacities, said he was called upon by the city to provide leadership to the airport.  “What’s the population of the region? Define the region,” Brown said. “Inother words, you have Matamoros, Reynosa, McAllen and Brownsville. Those are the major population sectors that exist.That’s where the growth is occurring. That’s also where the key airports are. That’s the reason. Those airports will continue to grow along with the population we have in the Valley,Brownsville, Matamoros, McAllen and Reynosa.”

The Brownsville airport brings in close to $4 million in combined aeronautical and non-aeronautical revenue. The airport carries American Airlines and United Airlines.

American increased it number of daily flights from three to four in February, Brown said. More are possibly slated for March.

The airport also currently has more than $9 million worth of taxiway construction taking place, as well as new ramp construction. The airport is also about to start construction on a 20,000 square foot hangar. It has just completed one, and is leasing the hangars as it builds them.

“The passenger service we offer out of this airport is very important in terms of the growth and development of not just Brownsville, but the region as well,” Brown said. “Take American Airlines for example. You can fly from here and be off the plane at Ellis in an hour and twenty minutes. That allows people to have a connection that comes to and from the Valley, not just Brownsville, quickly from Dallas. Or from Dallas to any point on the planet. It’s the same thing in terms of United. United can get you any place you need to go and back again. We provide those things. That’s aviation. But this airport also has two industrial parks. We have an industrial park coming into the airport, and a foreign trade zone over there. When you start looking at what we provide, with proximity to the site for Space-X, we are 18 miles from the launch site. We provide a key location that helps support Space-X in its launch activities.”

The airport in Brownsville is one of the most historic of the region, and was the first airport to be established in the Valley. Inaugurated by Charles Lindbergh and Amelia Earhart, who were present for the ribbon-cutting ceremony in March of 1929, the airport thrived when people in the community saw an opportunity to develop air service to various communities.

At that time, it was very important because there was propeller-driven aircraft and so forth that had fuel links and fuel stops before flying into Mexico and clearing Customs coming out of Mexico, according to Brown. More than 80 years later, the airport still provides Customs 24 hours a day, seven days a week.

“Before you fly a plane in from overseas, you have to clear customs. This is the only airport in the Valley that you can into and land at any point in time, walk over to customs, clear customs, and then go on to your destination,” Brown said. “If you are going to do that at any other airport, you have to pay for it. Here, you don’t do that. The other airports don’t have it 24/7. You can’t do that. That’s one key feature about this airport.”

“In order to operate an airport, you need a whole range of state, federal, local and private sector. You need private sector to invest in the facilities that you have to help create the jobs, to put fuel in the planes, etc. The airports don’t do that,” Brown said.

The airport also brandishes a Foreign Trade Zone on one side with 200 acres, and another 200 acres in the front, where it is looking to provide space and amenities that will help support Space-X in its efforts.

“You need have those partners if you will to grow the airport. At the same time, you need to have the funding that is necessary to put in the infrastructure to support that private sector investment. The runway, the taxiways…the communities do that. The airport does that. The private sector doesn’t do that. You have to have the access to the capital to be able to do that. It’s just part of the job to be able to go out and get grant funds from the feds to find a way to make those work so your airport can grow.

“It’s sort of like a garden. You have to fertilize it every once in awhile in order to get it to grow,” Brown said.

‘Not a chance’

When asked about the possibility of a merger of the airports in the Valley, Brown said there is no chance of that happening.

While administrators at Harlingen may look at that situation more favorably, and directors in McAllen taking a middle of the road approach to the question, Brown says airports are meant to serve the populations where they are located.

“What is the possibility of getting everyone to merge the population centers? What is the possibility of the populations of McAllen and Brownsville just abandoning their cities and moving together? It’s not going to happen,” Brown said. “The airports serve a certain population called an encatchment area. It’s the market area. They provide services for people who are coming into that area and who are potentially going to invest, as well people who are leaving that area to go and do business with another company, wherever it is. That is what drives the location of where the airports are. The idea of putting in one big airport? Maybe 100 years from now? That is something that could be considered when the populations all grow together in one big population. But you are a long ways away from that. In the meantime, you have provide airservice where people are living to get them where they need to go.”

‘We are incredibly optimistic’

Acknowledging that there is an inability among Valley communities to work together for a common goal, Valley International Airport board chairman Tito Resendez says he rather favors the idea of the region’s major airports collaborating. Resendez said the first step could possibly include the leaders from Valley airports forming some kind of coalition, or at the very least begin a dialogue to see what challenges each has.

“Before we start talking mergers, we have to play nice in the sandbox. Be happy for each other’s success because that is the south Texas way, the Rio Grande Valley way,” Resendez said. “Unfortunately, sometimes personal egos have become more important than what makes sense and what would benefit the citizens of the Valley. So absolutely yeah, I think that could be an obstacle,” Resendez said “However, I am optimistic considering some of the mergers that have been occurring the past couple of years. More friendly playing if you will amongst the cities; alliances that hopefully continue to be fostered. The winner would be the flying public and the tax-paying public.”