After the Airline Slump, Can Airports Not Follow?
Traffic is down; rates will rise. The extra costs will drive
business away, and traffic will dive still deeper. That, of course,
will trigger another rate increase. Hey -- is this any way to run
Of course, if demand
shifts [and it shifted], adjustments need to be made, and not all
the costs involved are readily-changable. Contracts need to be
honored, or trudge through lengthy renegotiations; but the future
is uncertain, and the 'winning' (at least in the short term) side
doesn't want to give up too much, too soon. On the other hand, the
'losing' side can't go on losing forever -- and, if it fails, the
'winning side' takes a monumental dump, too, its remaining
reputation forever besmirched.
If besmirching is forever, it stands to reason that everything
else is subject to change. That's what is staring Toronto,
particularly, in the face right now. In a lousy industry climate,
particularly devastated by the SARS scare, Pearson Airport is
facing a major crisis. Last year's sleepy total of just under 26
million (following an unexciting 28 million or so in 2001) PAX
would look good as a projection for this year's volume, especially
after the slowly-recovering airport got hit first by Air Canada's
bankruptcy and its ensuing disruption, and then the World Health
Organization's proclamations regarding SARS, and especially SARS in
OK -- the SARS 'epidemic' seems to have passed. Toronto,
however, is still on the 'critical' list.
Can the airport raise sufficient revenues, merely by raising
selected fees? If so, will passengers and vendors pay? For how
long? Or -- if the airport doesn't raise fees, will it be able to
maintain solvency, at all? Or -- if the airport does raise fees,
will the inevitable dropoff in traffic cause longer-term
Oh -- and if higher rates beget
higher fares, will the airlines survive to bring the customers to
Pearson, at all?
Such are the decisions being faced by airports all over the
world, though arguably Toronto -- with its main carrier in court
and its passenger pipeline squashed all but flat for three months
-- is right at the top of the list of "hurtin' airports."
Well, it's a cinch that the end of the SARS scare will help
loosen up the voluntary travelers; Air Canada's continued
viability, though still in doubt, is less a question than in the
Spring; and a general uptick in air travel, should it reach
Canada's busiest airport, will help stop the flow of red ink. The
ink, though, is still projected to be red, and no amount of
'volume' will fix a losing entity.
Where can all the airports go?
We watched the beginning of a
shakeout in the airline industry. Painful as it was, it wasn't a
wholesale shutdown of the entire, essential segment of the broader
air travel industry. Airports, though, are different:
airlines can mothball a few airliners, get their unions to
rather quickly understand the problem (or, lacking that that,
announce furloughs), and stop serving meals for free.
Airports -- they're pretty much non-fungible. They're
there, and they deteriorate all at once, and they support a lot of
infrastructure. Raise the temperature a few degrees to save air
conditioning bills, and defer some semi-optional maintenance, and
you're about done with the "big" items. Reduce security? Turn off
the monitors? Not likely. Raise rents to vendors and carriers? Not
when they're already hurting for customers.
The idea here isn't to show the plight of Toronto, good example
though it may be, but to point out that the 'ripple effect' of
years of bad airline news hasn't progressed beyond direct airline
employees and vendors. There's plenty of 'ripples' left in the
pond, from the stone of September 11...