Airplane passenger: Do you want cheaper tickets or a better flying experience?
The long-term trend, starting with airline deregulation, has tended toward cheaper tickets. People who 30 or 40 years ago might have taken a cross-country bus now travel by plane.
A municipal airport poses a similar question to the air traveler: Do you want lower fees or do you want a bigger, better airport?
The newly named Bill & Hillary Clinton National Airport, led by its commission and its executive director, has come down on the side of a more efficient, more modern airport. The groundbreaking for that renovation-expansion project was held in November 2010. Its first phase is scheduled to be complete by February 2013.
But reimagining the Little Rock airport meant much more than a larger passenger terminal, a new baggage-handling system and additional gates. It meant a new business model for the airport, one that – somewhat by design – hasn’t received much attention.
Shane Carter, airport director of public affairs and governmental operations, says that in 2008, the commission "decided to reinvent the organization, which led to a dramatic financial shift that served as the catalyst to begin construction."
Here’s how the thinking progressed:
- The Little Rock airport helps drive economic development in the area.
- An improved and expanded airport could further enhance economic development.
- Building a better airport requires more money.
- Finding more money means a new airport business model.
(Click here for a timetable.)
Ron Mathieu, the airport’s executive director, and Jim Dailey, airport commission chairman, concede there’s a tension between the bottom line for the individual airport patron (the cost of flying) and the community at large (the airport’s economic impact, boosted by the $67 million phase one renovation). But they think the airport is doing the best it can to balance those competing interests.
And Mathieu, who almost 18 months ago became the subject of press criticism over how he spent airport money, acknowledges that the airport didn’t do a good job of explaining to the public how the facility was changing its business model to gain more independence from the airlines and to increase revenue for its ambitious improvement plans.
Profits Soar
At the end of 2008, what was then Little Rock National Airport changed its business agreement with the airlines that fly in and out. The airport, Mathieu says, allowed its lease agreements with the airlines to expire.
Here’s how it was described by trade journal Airport Improvement:
"The calculated risk – a strategy sanctioned by the Little Rock Municipal Airport Commission – didn’t result in any loss of service. It also allowed the airport to revamp its revenue sharing agreements and renegotiate airline rates and charges.
"’We wouldn’t be talking about expansion now if we hadn’t done what we did then,’ [Mathieu] says matter-of-factly.
"Some speculate that the lack of alternative airports in the area helped diminish active ‘pushback’ from the airlines."
This change from a "residual system" to a hybrid system caused the airport’s operational profit to soar because, beginning in 2009, the airport was no longer sharing operational profits with the carriers. The airport’s operational profit jumped from $1.6 million in 2008 to almost $8 million in 2009. By the end of last year, that figure was $11.2 million.
A $4.50 customer facility charge, or CFC, the maximum authorized by federal law, was implemented in December 2010. It brought in $2.5 million in 2011.
Dailey says that when he joined the commission four and a half years ago, "the commission was talking about what steps we wanted to take and how aggressive we wanted to be [in expanding and remodeling the airport].
"There were some who felt like we ought to try to bite the whole bullet at one time and figure out some way to do a $180 million or $200 million project," he said. However, in 2008, with the economy in freefall and air carriers experiencing economic instability, "We felt the more prudent approach, even though we all were supportive with moving forward, was to try to do it incrementally," Dailey says.
That’s when, in late 2008, the Airport Commission "challenged" the airport staff to be as creative as possible "to move the entire project forward as fast as we can and as seamlessly as we can," Dailey says.
And that’s when, "we fundamentally changed our agreement with the airlines," Mathieu says.
‘Keep It Going’
The Airport Com-mission originally conceived of the airport improvements being carried out in two phases. But that line of thought has evolved.
"It’s the desire of the commission – and I agree with that – to kind of keep it going, so part of what we’re looking at now is how to break the phase two, which was a huge project, into smaller projects and then do those sooner," Mathieu says.
"Ron and his staff, to their credit, they’ve been very efficient in the use of the dollars and the revenue stream that we have," Dailey says. "So when we keep challenging him to try to do more, we also challenge him to find the money to be able to do it as fast as we can."
Dailey concedes that the airport patron could be feeling squeezed by fees added not only by airlines but by the airport. "We’re doing what we can to try to keep [expenses] down," he said. "At the same time, there is a need if we’re going to do what’s necessary to provide the kind of airport that the business community, the flying public demands."
The Issue of Enplanements
Despite the concern ex-pressed about improving the airport for the public, enplanements at the Little Rock airport have stagnated during the last 10 years. In 2002, the figure was 1,095,973 for the year. By the end of 2011, that number was 1,103,010.
However, the airport notes that the number of enplanements has more than doubled during the past 40 years.
And if one believes, as Mathieu and Dailey do, that a modern, attractive, efficient airport helps drive economic development, then the lack of major growth in the last decade might not be quite so important.
"I’ve always said that the airport model is really – from a municipal standpoint and from a public funding standpoint – as close to a perfect model as I’ve seen because there’s no line item within the city, the county or the state general fund to fund the airport," Mathieu says. "We have to make our own money, but that money never leaves the airport because by law we spend it all right back here on the airport."
"It all stays right here, and we make a fairly substantial $1.2 billion economic impact on this community on an annual basis," the airport chief says. "So it benefits the community for us to really be a little bit more independent and let our commissioners and our governing body – who are anchors and pillars of this community – to see what is the best way to spend these resources here and make an economic impact."
Mathieu says that in 2008 when the airport renegotiated its agreements with the air carriers, "we did not make a real big fuss about it and make a lot of news because we were concerned about the question that people would ask: ‘Well, why didn’t you do this 10 years ago?’ And the answer is you couldn’t because we had a deal with the airlines. We had to honor our agreement. We had to wait until that agreement concluded. And then we said, ‘OK, here’s how we’re going to go forward.’"
If, he says, the airport had not changed its financial terms with the airlines, it never would have been able to implement what will total an estimated $242 million in improvements.
"We would never be able to live up to our primary goal, which is to make an economic impact in this community," Mathieu says.